IMI PLC

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Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to today's IMI Interim Management Statement Conference Call. [Operator Instructions] I must advise that this conference is being recorded today, Thursday, 7th of May 2020. And I would now like to hand the conference over to your speaker today, Roy Twite. Thank you. Please go ahead.

[Roy M. Twite, CEO & Director]

Well, thank you, Bernard. Good morning, everybody. I hope you're all staying well and safe. I'm joined as usual by Dan Shook and John Dean. Hopefully, you have had a chance to have a look at our IMS. I'll take a moment to summarize some important points. And then obviously, we'll take your questions. To begin with, I'd obviously like to thank and congratulate actually our employees for their dedication, their courage, their ingenuity that they've shown over the last challenging weeks. I am incredibly proud and grateful for everything that they are doing. And I have no doubt that we will emerge a stronger business at the end of all of this. I think the most important news is that of the 26 confirmed coronavirus cases across IMI, 12 of our employees have now fully recovered, and 14 are on the road to recovery. Our desired effect and those measures will remain in place for as long as they are needed. It is encouraging to note that we are currently well over 90% plant availability. In fact, yesterday, we had over 95% plant availability globally with really India, the only territory where plants remain closed because of the government lockdown. Also, any minor supply chain disruption that we've encountered so far has been fully contained by our supply chain teams. As far as demand is concerned, trading has broadly followed the path that we described in March, with the first quarter characterized by weaker sales in Precision and flat revenues in both Critical and Hydronic. However, across the divisions, profits, margins and cash flow were all higher than last year. Our value pricing, rationalization and cost containment initiatives are having the desired impact. As you know, we've recently announced a number of cash saving initiatives, including suspending the 2019 final dividend payment, voluntary salary reductions for the Board and the leadership team as well as a number of other measures aimed at minimizing discretionary costs and maximizing operational flexibility. These and other steps are taken to protect our business and our people for the future and to ensure that we emerge from this crisis stronger than we entered it. Although it is not yet the right time to reinstate guidance, you can see that we have offered a little more color than we normally would in an IMS, and we hope that, that is useful. Organic sales in April were 9% lower than last year, reflecting the slowing activity in specific segments, but also sales growth in other segments. Within Precision, the industry outlook for Class A truck production in 2020 has deteriorated further. However, order intake for Precision has so far been higher than 2019 as a result of our Life Sciences vertical. Order intake in Critical is providing more forward revenue cover than we had at this point last year. And for Hydronic, the temporary closure of building sites has started to impact sales and will have a marked impact on the second quarter revenues. Okay. With that, I'd like to hand the call back to our moderator, Bernard, who will manage the Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Alexander Virgo.

[Alexander Stuart Virgo, Director]

I trust everybody is well. I guess, two really. One, you called out aftermarket headwinds or aftermarket orders, I should say, is starting to see an impact. And then you -- I'm guessing you guys like many of your peers are seeing issues with respect to access to customer sites and restrictions on travel. I just wondered if you could talk a little bit about contraction there and the impact that, that will have when we think about margins in the first half. And then secondly, and counter to that, of course, very positive to see you making some really good momentum on the cost side of things. Good progress in Critical and increasing the structural savings you've targeted. I wonder if you could talk a little bit about how that plays into the rest of the year in terms of how we think about your profit bridge and next year as well? I know you talked about cyclical savings, if I could call it that, which are a bit more temporary in nature. So maybe a quick comment on that would be helpful as well.

[Roy M. Twite, CEO & Director]

Yes. Thanks, Alex. Yes, so in terms of aftermarket, yes, Critical aftermarket orders were 17% down in the first quarter. That was heavily constrained, particularly in the field service segment, Alex, where we had real problems in late March in Asia, but also in Europe, actually, getting into customer sites. So -- and that's continued through April as well. So field service is being constrained. You'll probably remember that, obviously, aftermarket is about half of Critical revenues. If you take that half, 60% of that is parts, 20% roughly is field service and just over 20% is upgrades. So that gives you the split. And field service is obviously the lowest margin area by far in there. Our field service margins are typically around the 35% at the gross margin level, whereas I think you all know the parts are much closer to 70% margins. So yes, field service is down, we expect field service to be down again in the second quarter. It's also prevented us getting quite as much upgrade by our business. This is where we go in and either swap out an old one of our valves in the installed base or a competitors' valve, and that has slowed as well at the moment. So it is down. The good news is that overall critical order book is very positive. And as you can see, it's now considerably up on last year. And the margins within new construction are also considerably better than last year, and that's really because of mix -- because obviously, we won GBP 30 million of LNG orders in the first quarter. And they're obviously affect the margins, I think most of you know, particularly the water orders that we had in the order book at this point last year. So all in all, the overall order book is pretty similar in terms of its margins as it was at this point last year. And obviously, it's stronger in terms of volume. Having been said, the aftermarket is clearly down in the first quarter. I think your other point was on costs. Yes, I've got to say, this is partly I'm so pleased with the teams really because we really got ahead of the game and accelerated the site consolidations that we needed to get done. And that GBP 28 million of cost that we're going to save this year, so that's obviously up GBP 3 million from when we talked to you. I think it was in March. That's critical, taking more costs, particularly out of oil and gas, as you would expect. But the good news is that we're going to get more of that in the first half. It's going to be closer to 40%, 45% of the benefits of the GBP 28 million we're going to see in the first half now. So it's a good acceleration of those projects. We have put up the rationalization charge. So last time we talked to it was GBP 45 million. Now you can see, we're up to GBP 50 million. That is the extra GBP 5 million we're spending in Critical. And the one thing I'd point out is that within that charge is a large European plant. I'm obviously not going to go into too much detail because we haven't announced this. But if we don't announce that European plant because coronavirus is just too disruptive, we're going to announce in sort of October time, then that charge would reduce this year by something like GBP 22 million. So that charge could vary later on this year. And of course, we'll update you on that at the half year in terms of our ability to get that next plant done. That will not affect the savings for this year. So we will still get the GBP 28 million because the GBP 28 million is all projects that are either completed or there's one that will be completed within the next few weeks now. Does that answer your question, Alex?

[Alexander Stuart Virgo, Director]

Yes. Lovely, Roy.

[Operator]

We'll now take our next question. Please go ahead.

[William Turner, Research Analyst]

It's Will Turner from Goldman. I have a couple of questions. The first one is on the order intake outlook for Critical. Could you disclose what the order book is at the current point in time? And then how are you thinking about the order outlook going forward for the next couple of months and in first year, especially given that some restrictions should hopefully be easing on the aftermarket, but also in context of obviously the oil price decline recently?

[Roy M. Twite, CEO & Director]

Yes. Thank you. I mean -- obviously, oil price decline will put some pressure on the capital budget -- is putting pressure on the capital budget. So some of our customers know that about it. The order book is actually at GBP 570 million now. So you will see that's a considerable increase. So I think things will get tougher. I think undeniably, they're going to get tougher in Oil & Gas. But at least we're coming into this, I think, in a pretty strong situation. And as you can see, GBP 570 million means that the book to ship for the rest of this year is actually pretty low now. Obviously, most of the book to ship is obviously aftermarket at this point. But it's a lot lower than it was. I think it's GBP 40 million the book to ship requirement lower than it was at this point last year. So yes, it's a good order book, and I think things will get tougher. I think you're absolutely right. I'm very pleased with our LNG orders because our win rate has been incredibly high in the first quarter. And we won some projects that actually I thought probably will go to the competition. So all of that hard work around lean and Value Engineering certainly paid off.

[William Turner, Research Analyst]

Great. And then just a follow-up question. So looking at your kind of the cash flow development for the rest of the year. And given the fact that last year was quite strong, leverage is obviously -- is not a big issue for you. But how are you expecting things like net working capital to put out? And what are your plans for CapEx in 2020?

[Roy M. Twite, CEO & Director]

Yes. Will, it's really interesting because our orders, as I've said, they're actually up. So we are up. At the end of April, I think our orders year-to-date with the whole of IMI were up 3%. So I certainly wasn't expecting that to happen, when I talked to you in March. Why is that? Obviously, LNG has helped. And we had a surge of orders for the Precision valves that go into ventilator. So one of the most complex valve we make is a proportional valve that has a tolerance of 1 micron, and it has 100,000 settings in the width of a piece of paper and we make it out of Switzerland. And obviously, we're ramping up production quickly in terms of that product. But we've had -- at the end of April, we've had -- well, I think it was just over GBP 80 million of orders of ventilator valves globally, of which about 2/3 were that valve in Switzerland. So orders are actually up. So in terms of managing cash flow, obviously, I've concentrated the whole leadership group, 120 people on making sure that we're absolutely minimizing all discretionary spend. We cut wages. We've done all that good stuff. But actually, our biggest issue right now is obviously keeping our people safe, but quickly followed by ramping up production of Precision ventilator valves. And that's what we're doing. And just to give you a rough idea, to build valves of that accuracy, the first production line took over a year to get it to the right yield levels, and we're in the process of doing that within 8 weeks. And we've already traveled production. So we're ramping up. So in terms of cash flow, it's a bit more complicated. I'm sorry it's a long answer than you might think. At the moment, we feel good about cash. Cash year-to-date is ahead of last year. All these cost-cutting measures are taking bedding down and happening, particularly in areas like trucks where we've definitely been hit hard. But at the moment, what we are doing is setting up production lines, scaling up production across many of our Precision factories to be able to make this huge influx of orders that we've had. And just in terms of capital, we're budgeting to spend about GBP 10 million less in terms of capital than we did last year. And in terms of total cash, you've probably already done the sums. But if you add the sort of GBP 60 million of profit improvement initiatives, which is GBP 28 million of structural profit improvements from the rationalization, plus another GBP 30 million of what I call belt-tightening for these tougher times. So that gives you the GBP 58 million of profit improvement. Then obviously, in terms of cash versus last year, we'll save about GBP 10 million on CapEx. We think we'll get about another $20 million out of working capital roughly because of working capital comes off the balance sheet, as you've seen in 2009 in IMI. And of course, we suspended the first dividend, which was GBP 70 million. So it's about GBP 160 million there worth of cash preservation that we've lined up for this year, to give you a rough ballpark number.

[William Turner, Research Analyst]

Great. And then just one last question. So can you confirm with the dividend that this is suspended and not necessarily canceled and so that may be revisited later in the year?

[Roy M. Twite, CEO & Director]

Yes, absolutely. Yes. We're going to revisit this as things -- as sort of dust settles really. It's so hard. As I said, I really didn't think our orders would be up at this point. You probably know that I managed Precision through 2009. And Precision, Industrial Automation follows the PMIs. And when you saw PMIs go where they went, we were setting up really lots of scenarios around some pretty severe sales reductions and making sure we were pulling all the levers. So we just want to see how the dust settles. I have, in the statement, purposely called it a temporary surge in ventilator demand because once the world's got enough ventilators, that will obviously slow down. I don't think it will slow down to previous levels, actually. I think there's going to be more -- a bigger installed base of ventilators, and that's going to require servicing in itself. But we will revisit it. Once we can see clearer patterns and reinstate the dividend, that's obviously our intention.

[Operator]

Your next question come from the line of Andrew Douglas.

[Andrew Douglas, Equity Analyst]

It's Andrew from Jefferies. Three questions and just one point of clarification, if I may. On the aftermarket commentary you gave, did you say that the 60% of aftermarket, which is part, isn't seeing any impact from site access issues? Just want to make sure that's clear. And then on the three quick questions, which are a bit more of a big picture. You've clearly talked about LNG orders benefiting from Value Engineering. Has that continued to be the case in the last kind of couple of months as we go into kind of COVID slowdown? And are your customers kind of wanting more of that? Or do they just not care because they're focusing on other stuff? So I'm just wondering kind of how that's playing out. With regards to kind of the M&A in Critical, we've previously talked about the opportunity to move the business more towards kind of more defensive areas as you've done with recent acquisitions. Do you think that the recent market turmoil is throwing up more opportunities? Or are you guys just not focused on that at all? And then last but by no means least, just any updates on the 20% to 30% of Critical that we've kind of flagged before. Just kind of any thoughts on that possibly inappropriate at the moment, but just wondering where you are?

[Roy M. Twite, CEO & Director]

Right. That will keep you going for a moment, won't it? Aftermarket -- thanks, Andy. Good questions, right? Parts have been much less affected than the rest. I think parts are sort of 7% or 8% down in the first quarter. I think some of that will be caught up, Andy. I don't think parts are going to be hit too hard, actually. As you say, that's 60%, and that's a bit where the margin is. So we'll see how things pan out. But it's much less effect in parts at the moment. LNG, so there are still projects. I think realistically, 1/3 of the projects we were tracking, Andy. So we used to talk about GBP 500 million worth of projects we were tracking that would come over the next sort of 5 years. I think 1/3 of those are going to be heavily postponed, probably not canceled is the word we're getting. The LNG is still going to be one of the stronger areas, but it will be phased out over a longer time. Clearly, some projects -- some significant projects are still going ahead in the Middle East, in Russia, the ones that tend to be being pushed out more are the ones in the U.S. So yes, I mean, LNG is not going to continue at that rate. Are there more LNG orders we expect to get this year? Oh, yes. Definitely. We absolutely do. So I think I've been saying over the last couple of updates, we would expect LNG orders this year to be 50% higher than last year. Unless something really changes, I still expect that to happen. And just so everybody knows, I'm sure you've all got these numbers, but I think LNG orders last year were about GBP 37 million. Yes. Dan is nodding at me. So I think I've got that okay. M&A, I mean, not quite yet, Andy, is the answer. We're doing an awful lot of work on which sectors we think are going to come sustainably stronger through this. So obviously, we can all see what's happening today. But we've been doing a lot of work using a lot of outside data to say, okay, what do we think is going to happen to Industrial Automation? And obviously, we think it's going to be stronger. We think that a lot of our customers are looking to, one, shorten their supply chains. So move back to Germany, the U.S., the U.K. And if you're going to do that and not push up your labor costs to be uncompetitive, you need to use more automation. They're also looking to take humans out of the supply chain because of obviously human frailty. He's been exposed with this terrible pandemic. So areas like that, Andy, and I could go through each of them, but I think this is just an IMS. So we are definitely going to be looking for acquisitions. We hope there will be a few sort of once-in-a-lifetime opportunities. Bolt-ons that we could add, as you say, to take us into more attractive areas of the market like industrial automation, life sciences, obviously, pharma, food, the places that we've talked about consistently. The 20% to 30% Critical is obviously on hold. It is improving. So despite everything that's going on, despite the fact that a couple of those factories are in Italy, and they've had a terrible time. But they really got back to work on the day that they were allowed to and actually orders into those businesses have improved, partly because they've been helped by LNG and they are working hard to improve margins. So that's the good news. But obviously, at the moment, we're certainly not going to start a process in this environment. They are cash positive. So it's not a burning platform. And we're certainly not going to fire sell them. So I would think that whole process has probably been pushed back, Andy, at least 6 months, I would say. Does that answer all your questions, Andy?

[Andrew Douglas, Equity Analyst]

Yes. Just going back to the Value Engineering question. Do you think customers will be putting more focus on that at the moment? Or are they just kind of focus on getting through this downturn and making sure everyone's safe? I mean do you think that's an opportunity for market share gains?

[Roy M. Twite, CEO & Director]

Yes. Do you know what -- I mean, I think we are -- we're winning more orders than we expect, so our hit rates are going up, Andy. So I think probably a bit. Obviously, everybody's #1 concern -- #1 is the safety of their people and all of that. And then straight after that, it's about supply chain robustness now. They want to know that you can deliver. And I think, which, as you know, we've got a lot of factories across the world, and that is definitely helping us at the moment. And I think that's part of the reason why our supply chain has been robust. It's because we've been able to switch some manufacturing between plants. As I said, we're doing that now in the ventilator valves. We're making different parts of ventilators in Mexico, Denver, actually in the U.K., in China, in the Czech Republic. So -- and that gives customers a lot of confidence that if suddenly the coronavirus spikes in one of these countries and get back to enforced shutdowns that actually we'll be able to continue to supply. So I think that is probably slightly higher on their agenda than price right now. But I think we've said this many times. There's 2 places in IMI where you have to be price competitive. One is in new construction on Critical. And the other one is in commercial vehicles in Precision. And if you're not, you're not really in the game. So Value Engineering, I think, will always be important, particularly in those 2 areas.

[Operator]

Your next question comes from the line of Jonathan Hurn.

[Jonathan Hurn, Research Analyst]

It's Jonathan Hurn from Barclays. I just have three questions, please. Firstly, can you just sort of talk a little bit again about your Critical order book? Have you seen any deferrals coming through in Q1 in the order book? That was the first one. Second one was just in terms of Hydronic consistent expectations for Q2. Obviously, April was down minus 17%. Is that the kind of run rate we should expect for Hydronic in Q2? And then the third and final one was just in terms of Precision. Obviously, you do have the cost savings coming through in that business this year. What was the level of kind of drop-through that was coming through in that business in the first quarter, please?

[Roy M. Twite, CEO & Director]

Yes. All good points. So Critical order book, no deferrals in Q1. No cancellations, importantly, Jonathan. You know that even in 2008, 2009, we didn't have any project cancellations. Probably, I think I've been involved with Critical since 2012. There's been a handful in all of that time. Ultimately, a lot of these projects backed with government money. They are obviously often billions' worth of investment, even if they're private money. And we tend to be not the first items order, as you could imagine, with the Critical valves that typically get installed well into the project. So no sign of any of that. What we may get at the half year is a better customer behavior where we can't quite ship everything we want to ship. And I think you all know that June is always a big month for us. I think we're planning to ship something like GBP 70 million, GBP 80 million in June, a big month. And sometimes the customer inspectors don't turn up, particularly if they're worried about safety at the moment, but also particularly if they're projects not -- there's no pressure on getting the project completed, then they don't always turn up on time. So that's the slight risk to the sort of June numbers. But at the moment, no deferrals, no cancellations. In terms of Hydronic, 17% down. I think -- I don't know, you saw Gerber at the other day, they were saying, expecting Q2 to be 30% down. I think most of the people were talking about European construction and access to sites. I think that there's going to be something like a 20% to 30% hit in Q2. And somewhere in there, Jonathan, is probably about right. Certainly, the nature of Hydronic, the installers, about half of that business is refurbishment. They need access to homes, to premises. And clearly, in April, they haven't been getting that. Nobody really knows. We've got lots of data on this, Jonathan, but again, it's a series of outcomes that are possible rather than what I would normally give you, which is our sort of base forecast. So 17% run rate, plus or minus, I would say, 5% is probably okay for Q2, something like that. In terms of Precision, on the cost side, yes, as I said, we've accelerated some of those projects. So you'll remember, some of this is Bimba integration, site closures, site consolidations. And actually, Precision margins were up in the first quarter. So we are really containing the drop through. Now obviously, the first quarter is hard work, but it's a lot worse in April. So first quarter versus April -- April was at 14% down in terms of sales for Precision, right? So and that could well be indicative of what we're now faced with. I think trucks was the big reduction even versus the 23% in the first quarter. Trucks obviously fell from that position. And we think that trucks has got further score. You probably saw U.S. heavy trucks were down. I think it was 70% in April. So trucks is hard work. Industrial automation is up as well. So far, so good. Margins are actually up. What we've said is that in the worst case, in 2009, when I was managing Critical, we -- when I was managing Precision, I should say, we had a 30% fall in sales that you'll remember, and we held the drop-through to 30%. And that is absolutely, if it gets that bad, that's what we're aiming to do, Jonathan. And that's what we're setting our stall out to achieve in terms of pulling all the cost levers. And so far, as I said, first quarter actually good result.

[Operator]

Your next question from the line of Robert Davies.

[Robert John Davies, Equity Analyst]

Just my first question was just around what you're seeing on the Petrochem and sort of downstream Oil & Gas segment. They obviously had quite a lot of headline CapEx reductions over the Oil & Gas majors. But just wondering, particularly within that subsegment, what you're seeing on the ground?

[Roy M. Twite, CEO & Director]

Yes, Robert, actually downstream orders were actually up in the first quarter, which is a bit strange. I think that probably won't be maintained, Robert, to be honest with you. Because I hear exactly the same thing. Downstream is going to be under pressure in the second quarter for sure. And we'll have to see how that shakes out. I think it's interesting because China does seem to be coming back pretty quickly. And quite a large number of our projects for things like Catofin, which is dehydrogenation, ethylene, quite a lot of those projects were obviously in China over the last couple of years. And what we're hearing is the Chinese government is looking to inject more capital into the economy. So we'll have to see how it all shakes out, but I do expect Q2 to suffer a bit, as you say.

[Robert John Davies, Equity Analyst]

Great. And then maybe just on coming back to the Hydronics segment. How should we think about margin pressure? Obviously, we've seen once or twice the organic growth in that business has been pretty steady for 10 years. Once or twice, we've seen a bigger hit, but nothing within the sort of range you're talking about. How should we think about the drop-through in that business as we head into 2Q?

[Roy M. Twite, CEO & Director]

Yes, good question. So you're absolutely right. I mean, 30-odd years in IMI, 2009 was the worst year for Hydronics, and the sales were down 4%. So we really haven't experienced this sort of sharp downturn. First quarter -- well, the first quarter of last year, we're up 8%. So it's a difficult comparator. We were flat with that. We would think -- and that was with a little bit of disruption at the end of March. So things were going pretty well. But obviously, with the lack of access to sites, sales have come up a long way. I would say that within Hydronic, we should hold the drop-through to something like 40%, something like that. It's a bit harder to contain in Hydronic, particularly with quite such a short, sharp drop, I think a lot of people think that building sites are going to be getting back to work as one of the first things because, obviously, they're a bit safer than a lot of other forms of work. And obviously, governments tend to incentivize construction because it's a lot of local jobs, and it's pretty labor-intensive as well. So that's certainly what we saw in the last recession. So we'll have to see how it pans out. But yes, the Hydronic, at the moment, we're pulling lots of levers, but it will be slightly harder to contain it.

[Robert John Davies, Equity Analyst]

Great. And then just my final one was just on, I guess, field services, how possible is it to do some of your field services work remotely or sort of via video link, I guess, given the typical severity of what your sort of installing? Are there sort of specific requirements of actually having your guys on-site to do those installations? Or can you sort of do that virtually in any case?

[Roy M. Twite, CEO & Director]

It's very hard to do it. We are, obviously, pushing into new areas and trying to support customers with video, with Google Cloud, all of this stuff. We're trying to help people. But it is demanding stuff. We actually have one customer who actually flew a private plane from our plants to their sites in order to get the work done. And what we feel, Robert, is that although outages are being extended, they will have to get done. Because, as you know, it's an LNG plant. It's a power plant. It's pretty serious stuff, and they've got some flexibility, but they will start to see a fall in reliability, even if you're not careful in safety and all of those sort of key things. So we think there will be a temporary extension. But as things get better, then we think that old patterns will come back.

[Operator]

Your next question comes from the line of Max Yates.

[Max Yates, Research Analyst]

My first question was around sort of understanding the Critical business a little bit better. And on the spare parts side, are these -- when you sell a spare part, is it primarily on order from the customer? Or do you -- do the customers themselves actually hold an inventory of spare parts? And then I guess the extension of that is, when you look at some of the data of sort of coal usage, gas power plant usage in Europe, does it concern you that these kind of orders could get sort of quite a bit worse, given the magnitude of declines of sort of gas and coal power generation relative to renewables? So that's my first question. But just I guess, firstly, really within that, is it spare parts to order or the customers actually hold an inventory of these spare parts?

[Roy M. Twite, CEO & Director]

Yes, Max, they have small inventories, normally, whether -- often they don't have the right parts. And obviously, we try and help them have the right inventories in place, but they're typically pretty small. So normally, they would have enough inventory to -- well, hopefully cover an outage, but often, as you know, when you open up a severe service valve, I'm sure everybody knows on the call, but severe service valve can easily be the size of a room. It can be anything from 1 tonne to 100 tonnes. I think this is big pieces of kit. And when you open it, the amounts of different things that generally you need to service mean that you're pretty fortunate if you've actually got the spares there, but they do have small inventories. I think in terms of power utilization across the plants, yes, I mean, that -- obviously, if a plant gets totally decommissioned, that's right. But what tends to happen is plants still run, outage intervals stay about the same. And what is sort of more important in many ways, Max, is cycling. So if a plant is cycled, that obviously puts a lot of wear on our parts, wet steam, which is the start-up condition, in particular, really has a high impact. And so what we found is one that gas plants, obviously, tend to cycle more, although some are used for baseload increasing, it's interesting, but then you'll get more spare parts. And at the moment, if they're cycling in and out, particularly renewables, it's also cycling in and out, then actually outage times stay the same, and we tend to get at least as many spare parts. So yes, obviously, it's going to be a long-term concern, if there's decommissioning. Until recently, what we've seen is as many new construction plants, so is the way we service. Because remember, in power, we tend to really only be in the supercritical power plants, not the sort of 300-megawatt power plants, which are the dirtier ones, the less efficient ones, the ones that have been decommissioned in China, whereas our power plants are obviously still running across Asia. And we found that there has been as many new power plants as they've been decommissioned in the U.S. and Germany. I don't think that will stay that way for the long term in coal. Gas is more interesting, obviously.Just one other point on that. Our actual power new construction orders were up markedly in the first quarter. And it's because we won a GBP 10 million order of a new -- very new technology where this is concentrated solar power. Where effectively, huge mirrors are used in areas like the Middle East to melt salts and salt becomes the energy storage medium and then the steam and the turbine is -- runs from there. And we won an order for GBP 10 million in that area. We're hoping that, obviously, that we have a few more projects like that as a way of storing the energy only in places like the Middle East. It's not going to become any sort of global rollout. But so yes, you're absolutely right. There's a move towards renewables. There's less energy utilization right now. But I think that the outage periods, although they're being delayed at the moment, as I said, I think they'll go back to their regular patterns when we're through this period. Does that answer your question, Max?

[Max Yates, Research Analyst]

Yes, it does. Just one very quick follow-up. Just on the Life Sciences division, you did kind of within Critical about GBP 81 million of revenue last year. How much of that is directly related to ventilators? And so some of the sort of healthcare equipment companies I look out, they're talking about increasing ventilator capacity by sort of 4x by the end of the year. Is that sort of a similar trajectory of the business and planning for your business that you're also factoring in? Just to understand the size of the exposure and actually kind of could this increase be sort of 3, fourfold for that part of the business?

[Roy M. Twite, CEO & Director]

Yes, I think it could ease, at the moment. We're actually -- as I said, we've already traveled production. And we've got to go x10 for a period. So our orders associated with ventilators, respirators and all of that breathing kits are over GBP 80 million now at the end of April, and that compares to GBP 10 million at this point last year. So that will give you a rough idea in the first 4 months, what's happening. And really, we're one of only 2 people that can scale up anything like this because, as I said, it's a very, very precise proportional control valve we make in Switzerland. And it goes into -- there's only really one kind of ventilator that can actually save your life through the 15 days that you need if you need a ventilator and you've got coronavirus. All the other ventilators, like the ambulance ventilators, can keep you alive for a couple of days. But obviously, that's not long enough, if you've actually got to go through the worst symptoms of this disease. So because of that, we have already ramped production 3x of this. And this -- of the GBP 80 million orders, to give you a rough idea, 2/3 of it is this technology. So we've gone x3. And what we're going to do is for a couple of months, we're going to go x10, and that's why we're assembling an absolutely precise production line in another one in Switzerland in record time to produce these very, very tight tolerances to be able to produce these valves at scale for a few months. Obviously, that -- I'll call it temporary because it will calm down. But for this year, yes, it's going to be a huge boost in orders. And that's why, Max, overall, IMI orders that and the LNG orders, that's why at the end of April, we're up year-to-date in terms of orders despite areas like trucks being down.

[Max Yates, Research Analyst]

Okay. Just to understand that better. I mean, you said it was GBP 10 million of orders this time last year. So that's a Q1 number. So should we think sort of annual revenues for this ventilator business is something like GBP 40 million, and that could be going up sort of markedly, if we look at the end of '20 versus the end of '19? Just trying to understand sort of what the revenue contribution could be this year from that.

[Roy M. Twite, CEO & Director]

Yes, yes. Okay. So no -- sorry, the order book for this item was 10 -- a bit less than GBP 10 million at this point last year, and now it's over GBP 80 million at the end of April. That's the order book, right? So, yes. So what would the contribute? Well, it's very hard to tell because since you can imagine, governments want these immediately. And then all of a sudden, they don't want any more because it all depends on the size of the wave and all of this sort of modeling that they're doing. But yes, what I'll say at the moment is, as I said, we've got over GBP 80 million right now. And of course, nearly all of that is deliverable this year, Max, obviously. I mean, people want this as fast as they can get it. And that's why we're scaling up.

[Operator]

Your next question comes from the line of Mark Davies Jones.

[Mark Davies Jones, Associate]

Two questions, please. I was interested by the concentrated solar win. Presumably, those are pretty rare. That's not going to be a material chunk. Is there anything else you can do on the renewable side to increase your involvement now to offset what is clearly going to be a structural decline longer-term in the fossil business? And then shorter-term question. As you've mixed yourself, Industrial Automation has held up perhaps rather better than you would have expected given the plunge in PMIs, particularly across Europe. Is that a delayed effect? Should we expect the worsening in April to continue to get first through May, June? Or do you think there's a reason why it's proving a little bit more resilient this time around?

[Roy M. Twite, CEO & Director]

Really this is a question I've been asking myself. Let me just start with the first question. No, these will be isolated projects in areas like the Middle East. I think what was pleasing to me, Mark, was that we got so much on it. We've got GBP 10 million worth of content onto this project, which is great. It's with the Chinese EPC. And obviously, they're marketing it hard in the sunny areas in the world. So I'm hoping there will be a few more projects, but it will not be a massive needle mover. Now, in terms of renewables, there are not huge opportunities for fluid control applications. The big ones are obviously photovoltaic and wind, and there's not much fluid control that we can really win in those spaces. We've obviously looked through the supply chains as well. We do get some precision ball valves on the manufacture of photovoltaic material. But again, it's not really going to move the needle. The areas that will move the needle for Critical are obviously going to be the marine areas that we talked about, where orders were up to, I think, GBP 60-odd-million last year. If you -- and then this year, I think we're going to do another GBP 50 million. So that area has sort of grown from GBP 20 million a year to GBP 50 million, GBP 60 million a year. And I still see further opportunity for further growth in that area. Plus, of course, the areas that we are moving into via the acquisition of PBM, like pharma, food processing. And we'd also like to get into specialty chemicals, particularly things like fertilizer production, those sort of nice long-term growth areas. But in terms of renewables, not too much outside of what I described. Industrial Automation is interesting, Mark, because you're absolutely right. We were certainly planning for a tougher outcome than we're currently seeing. And we certainly got levers in place in case that happens. But order of income rates at the moment are okay on these sort of levels that we've seen in April. I certainly wouldn't say to you that it's not going to get worse because it is a very, very fast reacting business, as you know. And in Precision, typically, we've got only 3 or 4 weeks order visibility, and it moves quickly, and we have to be ready. But at the moment, as you say, it's holding up much better than 2009. I'm not picking up any real reasons why that's happening because when I read all the public statements, a lot of people seem to be reducing capital and normally when capital spend comes down, that comes down. The only thing I can think is that we -- as I said, we are starting to see customers think about bring supply chains to higher cost areas. And I certainly hope that, that will provide some resilience to that whole market sector as we go forward over the next couple of years.

[Operator]

Your next question is from the line of Andrew Wilson.

[Andrew J. Wilson, Analyst]

It's Andy, JPMorgan. A couple of questions, actually. Just first one follows on from Mark. Similarly on Industrial Automation, but I guess sort of Precision more generally, a couple of things. Have you sort of seen or I guess, identified any sort of stocking cycle impacts in terms of people managing their inventories, either kind of prior to shutdowns or trying to adapt around that? And I guess, secondly as well, and a little bit, I guess, further digging on the sort of Industrial Automation side any of the kind of regional trends, which have surprised you relative to the PMIs that we obviously kind of use as a bit of a proxy. Interested if you've seen big changes? I suspect China getting better, U.S. getting worse, et cetera, but just interested in sort of, I guess, some of the moving parts here where you can help us a bit.

[Roy M. Twite, CEO & Director]

Thanks, Andy. Yes. Precision, you probably know that sort of 15%, 20% of the Precision business goes through distribution. And obviously commercial vehicle customers barely stock anything. I'm sure you all know that, whereas Industrial Automation customers, again, they just stock a little bit. It's not huge. But in those sort of distribution channels, I think there probably has been a bit of stock enough, Andy, if we're honest with ourselves because customers are doing what we're doing, right? And you have to protect your supply chains. So I'd be surprised if there wasn't some in there so far. And we'll see how that unwinds as the various lockdowns unwind. So yes, I think there probably isn't -- there's a bit of stock in hand, Andy. In terms of regional trends, we see pretty much what everybody sees, Asia recovery. You know that of our Asia business in Precision, half of it is China. China is definitely coming back. And actually, the Chinese team are pretty excited about the rest of the year. So I think it's pretty much what you see. Europe, tough, and the U.S. has got tougher. And we're seeing the trends that everybody sees. So I'd say no real surprises to that. Probably the only surprise is the one that Mark referred to, which is that, overall, it's not a bit worse with PMIs where they currently are. It's interesting, isn't it, because I think PMIs -- obviously, the service PMIs have been really good because the service sector people can't get access to sites and so on. But obviously, the PMIs -- manufacturing PMIs have been heavily influenced by automotive. And automotive, obviously, is having a super, super tough time as we can see in trucks, but I think passenger car is even harder. So no real surprise, I would say, Andy.

[Andrew J. Wilson, Analyst]

Perfect. And maybe just a quick follow-up on Hydronic. And it feels like it might be a silly question. But given that the primary issue seems to have been the customer sites are being closed or that you haven't been able to access customer sites, is it reasonable to think that this work doesn't necessarily go away that it kind of gets kicked down the line in terms, obviously, the need for people to get on-site to do work, which presumably you need to being in the first place. Just trying to think about not really sort of looking at a prediction of what the construction market looks like as much as just conceptually that presumably is going to be some outstanding work, which the teams of Hydronic can get onto as and when things do ease.

[Roy M. Twite, CEO & Director]

Yes. I mean I think -- look, the bull case, right, is that this is -- since construction gets back, the construction work is -- I mean, remember there are a lot of these installers, particularly in Germany, like private individuals, right? They don't own any money. Now obviously, there are schemes in Germany to help them same as they are in the U.K. but fundamentally, they'll want to get back to work. And they will want to catch up. They'll want to work 7 days a week and then catch all the projects up. I think, as I said, I hope governments will actually incentivize this whole sector, particularly in Europe, I think, green building and building infrastructure is going to be, I would think, pretty high on the government's agenda to help incentivize that. So the bull case is, yes, there's a bit of a catch-up. And actually, the year doesn't end up too bad for Hydronics. But the bear case is actually people will obviously have less money, right? So there's a lot of unemployed people. And there'll be less sort of home improvement and those sort of things going on. I don't know. It's very hard to say, Andy, which is obviously why we're trying not to give guidance. I can see both sides. My team in Hydronics tend to sort of move more to the positive side, whereas I'm probably a little bit more skeptical as to how quickly it will come back.

[Operator]

No further questions. Please continue.

[Roy M. Twite, CEO & Director]

Great. Well, thanks a lot. I really appreciate all those questions. I hope that we've been helpful to you guys. I mean, I think just to sum up very quickly. I'm very pleased that the response of our people. I'm pleased that, obviously, everybody that we -- all of our employees are safe. All of them are either recovered or recovering. And just how hard they're working to maintain excellent customer service, and the sheer energy that's going into ventilator valve production is -- I'm actually glowing with pride really. So thanks for your questions today. I really hope all of you safe, stay safe, and look forward to seeing you all in person when we can do that again. Thank you very much.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.