Spirax-Sarco Engineering Stock

Hello, and thank you for joining this presentation of Spirax Group's half year results. I'm Nimesh Patel, Group CEO, and I'm joined by Louisa Burdett, Group CFO.

Let me begin with summarizing our performance in the first half. We have again delivered a resilient set of results for the first half, and we remain on track to deliver our full year guidance. Across the group, our Together for Growth strategy is strengthening our differentiated business model.

We are benefiting from our diversified end market exposure, and, importantly, driving growth ahead of our markets in spite of external conditions is becoming increasingly embedded in how we operate.

As a result, we delivered 5% organic sales growth, well ahead of IP of 1.5%. Our organic profit growth was 6% and the operating margin progressing to 19.8%, with EPS up 9%. We achieved this while continuing to invest in future growth.

The group adjusted operating margin increased 10 basis points organically with planned investments weighted to the first half. We invested in sales headcount, customer digital connectivity, and digital tools for sales effectiveness.

Now looking briefly at the businesses. In STS, sales grew 1%, although demand growth was more than double IP. Sales were below orders as customers specified a small number of deliveries for the second half.

So we are carrying both a strong order book and demand momentum into the second half. As expected, the decline in large project demand in China has continued to moderate, partly offset by further growth in MRO and solutions sales. This resulted in China being down 1% compared to the 6% decline we saw in the first half of last year.

ETS performed very well, with sales growing 11%, supported by strong demand growth across all 3 divisions and continued operational improvements that are increasing throughput and supporting strong margin progression.

And in Watson-Marlow, sales grew 7% with Biopharm new order intake ahead of sales. And in Q2, orders reached the highest quarterly level since the COVID-related peak. In Process Industries, we continue to outperform IP.

The lower STS margin of 22% reflects the phasing of shipments, but also investments in future growth that were more weighted to the first half. We expect higher margin in the second half and for the full year to be broadly in line with last year.

Margins improved in ETS by 220 basis points to 17.2% through operating leverage, the mix of higher-margin sales from Semicon and Heat Trace and delivery of operational efficiencies. Watson-Marlow margin also improved on operating leverage by 80 basis points to 27.5%.

Our cash conversion, which is typically lower in the first half compared to the full year, reflects planned inventory builds to offset potential supply chain disruptions caused by the Middle East conflict. And our return on capital employed has improved by 180 basis points to over 35%.

Overall, our Together for Growth strategy is delivering. We continue to grow well ahead of IP. We are carrying strong order books and order momentum into the second half, and we remain confident in delivering on our reiterated guidance for the full year.

Let me turn to the broader demand environment. Once again, the macroeconomic backdrop remained weak during the first half. You can see from the chart on the left that IP forecasts continue to be revised downwards for both the first and second half, but this is broadly consistent with the more cautious assumptions we have adopted in our planning.

The table on the top right shows that the expected recovery in IP has been pushed out to the second half, and the bottom right illustrates that industrial production has remained weak across key markets, making up around half of group sales. Germany continues to contract, while growth in the USA, France, Italy, and the U.K. remains modest at around 1%. To deliver on the IP forecast for the second half, growth rates would have to improve significantly in key markets.

Our approach remains unchanged. We plan prudently and focus on delivering what we can control. IP can be a headwind or it can be supportive, particularly when over a 2% tipping point, above which we start to see a real step-up in customer activity. But what our performance is reinforcing is our ability to self-generate demand to drive organic growth.

And what I'm most pleased with is that driving growth against challenging external conditions is becoming embedded in how we operate because of our strategy, because of our execution, and because of our investments. And this highlights an important point. Our growth is linked to IP, but it is not reliant on IP.

The resilience of our growth is underpinned by the breadth of markets and customers we serve, which is a key strength of our group. Our growth potential is underpinned by our position in attractive sectors exposed to supportive long-term growth trends, and by our ability to take market share through our focus on solution selling.

The long-term growth trends I'm referring to are evident in all 3 businesses: Process optimization, what we do every day across multiple sectors to help our customers with their process reliability, energy costs, higher throughput, lower scrap, safety, essentially their efficiency and effectiveness as they meet increasing consumer demand.

Health, where we serve the biotech and pharmaceutical markets as well as medical devices and hospitals, all benefiting from an aging population and innovative advances in health care.

Technology, where we're finding new applications in Semicon, data centers, nuclear and aerospace and defense through new product development, benefiting from how technology is changing the way we live and work. And in ETS and STS, we benefit from the trend towards electrification, which is how our customers in all sectors will deliver on their sustainability targets.

Around 40% of group sales are in sectors where these trends are driving high growth and around 60% are in sectors with good growth where we are also increasingly taking market share. Importantly, across our 3 businesses and across all our end markets, we leverage the same differentiated business model to deliver on the opportunities we see.

Direct sales engineers build deep customer insight through sector focus and local presence. They're experts in customers' mission-critical processes and applied engineering expertise enables us to solve customers' problems and deliver measurable value with 85% of our sales funded by customers' operating budgets. This combination allows us to consistently generate demand growth ahead of IP, and it's why we remain confident in our ability to deliver our medium-term targets and above these in the long term.

And speaking of the medium term, let me explain why we remain confident in achieving the organic sales growth targets we set out in 2024. As you know, we have 3 strong engines of growth, starting with STS.

Progress in execution of our commercial excellence initiatives is enhancing demand growth relative to IP. I will speak later about how we're investing in direct sales, reshaping partnerships with distributors and driving growth through digital connections.

China has been a headwind for growth over the past 2 years, but we are repositioning our business in China. And as expected, we continue to see a moderation in the decline of large projects as well as strong growth in MRO. As a result, we are on track to improve growth within our low to mid-single-digit range.

In ETS, sustained strong demand across all our divisions and our focus on operational improvements to deliver into that demand underpins our target of above mid-single-digit growth. We are delivering above that level.

And in Watson-Marlow, the underlying market growth in Biopharm, coupled with our success at taking market share in target sectors within process industries supports high single-digit growth. Taken together, these drivers support sustaining and enhancing our mid-single-digit organic sales growth at a group level while continuing to build on our long track record of growth ahead of industrial production.

Now I'll hand over to Louisa for a deeper dive into our first half financial performance.

Thanks, Nimesh, and hello, everyone. As usual, the numbers I'm presenting are on an adjusted basis, excluding amortization of acquired intangibles. And the prior year numbers also exclude the costs related to the restructuring program we undertook last year.

There were no P&L charges for restructuring in the first half, although you will note GBP 5 million of cash outlay in the cash flow statement, which reflects timing of settlements. And as a reminder, our definition of organic growth excludes both the effect of currency movements on sales and profit and the impact of any M&A, of which there was none in this or the prior year.

Group performance in the first half was in line with our expectations and sets us up well to deliver our full year guidance. We delivered mid-single-digit revenue growth, increasing 5% organically, well ahead of IP and with growth in all 3 businesses.

Adjusted operating profit increased by 6% organically with adjusted operating margin improving 10 basis points to 19.8%. Margin progression was driven by strong performances in ETS and Watson-Marlow, partly offset by a reduction in STS margin, which I'll come on to shortly.

Adjusted earnings per share increased by 9% to 150p per share, reflecting the growth in adjusted operating profit together with stable financing costs and a stable tax rate.

The Board has declared an interim dividend of 50.4p per share, representing an increase of 3%. With dividend cover returning to the Board's target range, future dividend growth will more closely reflect underlying earnings growth while maintaining our commitment to sustainable shareholder returns and our capital allocation framework.

I'll now take you through the drivers of sales and profit performance, starting with the sales bridge. First half organic sales growth was 5%, well ahead of IP, and there was a negligible impact of GBP 1 million from FX. All 3 businesses delivered organic growth.

In STS, mid-single-digit demand growth translated into organic sales growth of 1%, with some shipments specified by customers for delivery in the second half. And as Nimesh has already explained, China is performing as expected.

ETS delivered another strong performance against a strong comparative with organic sales growth of 11%. We are driving the demand, which is reflected in strong order books across all 3 divisions, including double-digit growth in Semicon. And our continued operational progress in process heating also had a positive impact on throughput.

In Watson-Marlow, sales grew 7% organically. As expected, new orders in Biopharm have remained above sales, benefiting from strong consumables demand, while new capacity demand is still recovering. And Process Industries has continued to significantly outperform IP as we grow our market share in our target sectors.

Moving to the operating profit bridge, where group profit increased 6% organically with FX driving a 2% tailwind or GBP 3 million. Looking first at STS, adjusted operating profit declined 6% organically, and the margin was 170 bps lower at 22%. This is largely a function of timing, reflecting the phasing of shipments. And in addition, we also made considered investments in sales headcount and digital capabilities, which were weighted to the first half.

In ETS, adjusted operating profit increased by 27% organically, significantly ahead of its strong sales growth. Margin improved by 220 bps to 17.2%. What we are doing here is working with the margin progression in the first half anchored in each of our ongoing operational actions.

As a reminder, these are strong volume growth, improved operational efficiencies, the absence of lower-margin legacy orders and a favorable mix from higher-margin Semicon and Heat Trace sales.

These drivers were partially offset by ramp-up costs associated with our new medium-voltage facility and, consistent with the other 2 divisions, continued investment in sales headcount and capabilities. Encouragingly, ETS delivered a 20% margin in the month with the highest shipments, demonstrating the strong profit characteristics of this business.

And finally, looking at Watson-Marlow, adjusted operating profit increased 11% organically with margin improving 80 bps to 27.5%. The margin improvement was driven by operating leverage on higher volumes as well as ongoing implementation of manufacturing and supply chain efficiencies, offset by some focused investment in sales capabilities, digital solutions and new product development.

I'll now turn to cash flow, where adjusted cash from operations was GBP 92 million, resulting in a cash conversion of 54%. A lower level of cash flow in the first half does reflect the normal seasonality of our business, and we continue to expect full year cash conversion of around 90%.

However, our absolute cash from operations and conversion were lower than the first half of 2025, and this reflects actions we took to build inventory to mitigate supply chain disruption that we anticipated in response to the conflict in the Middle East.

Our capital expenditure was around 3% of sales, reflecting continued discipline in allocation as we prioritize investments in projects that support future growth whilst maximizing the use of our existing manufacturing capacity. We now expect full year CapEx to be at the lower end of our guidance range of 4% to 5% of sales.

We ended the half with net debt of GBP 618 million and a net debt-to-EBITDA ratio of 1.6x. Whilst this is temporarily outside our target range of 1 to 1.5x, it is not unusual for the normal cycle through the year, particularly with the recent payment of the interim dividend, and we fully expect to be back within this range by the end of the year as we continue our focus on deleveraging.

So let me now turn to the outlook for the second half and the full year. As we have outlined, we ended the first half with strong demand momentum and healthy order books across all 3 businesses, providing good visibility and confidence in our second half delivery. Our initiatives being sponsored through our operational excellence growth driver continue to underpin sales conversion.

In STS, we expect higher sales growth in the second half, driven by shipments from the strong order book at the end of the first half, which is unwinding as anticipated as well as further progress in driving self-generated demand. We anticipate second half margin to be higher than the first half, consistent with our typical 45%, 55% weighting of adjusted operating profit.

And this margin reflects operating leverage from second half -- from higher second half sales shipments, driving a full year margin broadly in line with that of 2025.

In ETS, we expect high single-digit sales growth in the second half, even against the strong double-digit comparator from last year. This is supported by the strong demand environment and large order books in all 3 divisions. Margin will be slightly ahead of the first half.

And finally, in Watson-Marlow, as we have said, Biopharm orders remain ahead of sales, and Process Industries entered the second half with a strong and growing order book. So overall, for Watson-Marlow, we expect high single-digit sales growth in the second half with margin broadly similar to the first half.

A word on FX. If FX rates were to remain at today's levels, we would expect a negligible impact on both revenue and profit for the full year. To give a little bit more color, in the first half, there was a negligible impact on revenue and a tailwind of 2% on profit. Therefore, we're expecting the second half revenue impact to be again negligible, but profits to be impacted by a 2% headwind, which gets you to the full year guidance.

To summarize then, we anticipate higher sales volumes in the second half, driving improved operating leverage across the group. Combined with the continued benefits from operational efficiency initiatives, this gives us confidence in margin progression through the remainder of the year. We are on track to deliver our full year guidance.

And I want to finish by reminding you why we remain confident in the medium-term margin targets that we set out at our Capital Markets Day in 2024. Nimesh has already taken you through this slide and the sales drivers that underpin our medium-term targets. So let me now take you through the margin drivers.

The actions we have taken over the last 2 years are increasingly gaining traction as we continue to hold and meet the expectations that we set, supporting our confidence in delivering a group margin of 22% to 23% over the medium term. The remainder of the journey to that 22% to 23% will be largely driven by ETS and Watson-Marlow.

So if I start with ETS, we remain on track to deliver our 20% margin target. The backlog of lower-margin legacy orders has cleared, demand remains strong. Operational improvements continue to increase our efficiency, and our mix is benefiting from the growth in higher-margin Semicon and Heat Trace sales.

And as our lead times continue to improve, we also see opportunity for further value-based pricing, although we expect this to be more of a factor through 2027 and beyond.

In Watson-Marlow, it is simple. As we have said before, this business is well invested and the path to over 30% margin is clear. It will come from operating leverage from a sustained level of higher sales.

And finally, in STS, we remain confident in delivering margins of 23.5% over the medium term as we have proven consistently we are capable of. Higher sales volumes, continued operational improvements and the benefits of organizational initiatives will support that progress.

So taken together, the strong progress we have evidenced in ETS, the operating leverage in Watson-Marlow, and the proven history of STS underpin our confidence in delivering our group medium-term margin target of 22% to 23% while continuing to drive attractive returns on capital. Nimesh, I'm handing back to you.

Thanks, Louisa. Let's turn now to some of the key drivers of our performance in the first half.

First, a brief reminder of our Together for Growth strategy. At the foundation is our differentiated business model. Building on that foundation, we are executing against 3 operational priorities: commercial excellence, operational excellence, and organizational fitness. These priorities are strengthening our sales effectiveness, improving manufacturing efficiency, and helping us leverage the scale of our group.

We're also creating the capacity to invest in attractive future growth opportunities, particularly through digital and services and decarbonization, where we see significant long-term potential. Together, these support delivery of our financial ambition.

Moving to how we're delivering on our operational priorities. Last year, our restructuring program simplified our organization's focus on customers to accelerate growth, supported by reinvestment into key initiatives. We are seeing the benefits of the changes we made last year.

Establishing Heat Trace as a standalone division within ETS, benefiting from dedicated sales engineers, is contributing to strong growth in this high-margin part of ETS. Similarly, in Watson-Marlow, our sectorized sales teams continue to build on the double-digit demand growth we saw at the end of last year in focus sectors such as mining and wastewater.

In STS, the reorganization enabled us to reinvest in sales and technical capabilities, increasing headcount by around 3%, helping drive demand growth of more than 2x IP in the first half. We are also seeing the benefits of our focus on other commercial excellence initiatives.

Our cogeneration approach with STS U.S. distributors continues to gain momentum with demand from the 22 partners onboarded in 2025 increasing by around 6%. Finally, data centers are a good example of how we're continuing to expand our addressable market across all 3 businesses.

In ETS, we see considerable opportunity in liquid cooled load bank solutions with a growing development pipeline. We're also seeing demand in Heat Trace for freeze protection, in STS for air eliminators and in Watson-Marlow for specialist hoses. Together, our initiatives are helping us generate demand, win share, and drive growth.

Turning next to operational excellence. First, we're optimizing our manufacturing and supply capabilities. In STS, we continue to localize production by transferring casting and forging activity from EMEA to China and India, while also rationalizing and repricing some of our lower demand products, all of which improves manufacturing efficiency.

In Watson-Marlow, we've continued to ramp up production at our Devens facility in the U.S. to support strong demand, improve operating leverage and reduce tariff exposure while also localizing selected production and assembly activities in APAC to shorten lead times and better serve our customers.

And in ETS, operational improvements continue to translate directly into growth and margin progression through higher throughput and shorter lead times, shipments of large medium-voltage heaters more than doubled in the first half. We also successfully responded to Semicon demand with a further double-digit increase in shipments.

Our operational priorities create the capacity to invest in the opportunities that will support our future growth. In Digital and Services, we continue to strengthen our customer relationships by becoming even more connected with customers' processes, and I'll delve deeper into this on the next slide.

But first, turning to decarbonizing thermal energy, we continue to make progress across our 4 go-to-market strategies. In STS, our sustainability center of excellence, established as part of our restructuring, successfully won orders to deliver steam system audits across 80 sites for a number of multinational food and beverage customers to identify energy optimization opportunities. And in ETS, we secured 10 Powering Zero orders during the first half at a total value of around GBP 12 million.

We are also further leveraging the combined expertise of STS and ETS through our thermal energy assessment capability. During the first half, we delivered 16 assessments across the USA, Europe and China, helping customers identify meaningful energy savings while creating significant potential pull-through revenue opportunities at an average of over 5x the initial assessment revenues.

These investments are strengthening our customer partnerships, expanding our addressable market and supporting sustained long-term organic growth.

I want to spend a moment to explain the opportunity we see in digital. Over the last few years, we have invested in developing our connected products and service capabilities to create a differentiated digital offering, supported by small bolt-on acquisitions such as Cotopaxi Energy Management Solutions and Pulse Sensing Technology.

Now our capability is helping us become even more integrated in our customers' critical processes, moving us from periodic walk the plant reviews to providing constant insights, data and actionable recommendations. Today, we physically survey around 1 million traps every year, and that isn't even our entire installed base.

Our experience and expertise tell us that we need to connect around 1 in 10 steam traps in a steam loop to allow us to build a system-wide view. Of course, our sales engineers' knowledge of our customers' individual systems and their mission-critical processes as well as how they operate in practice every day is key to knowing which steam traps need to be connected.

In STS, we now have 19,000 connected steam traps across 2,350 customer sites, all since 2023. Our ambition is to grow beyond the 19,000 traps, firstly, to 100,000, but then also recognizing that this number is only part of our growing installed base and a fraction of the industry's installed base. Through our investments, we are on track to do just that.

Beyond the connected product and digital subscription revenue, our connections create significant additional value. By identifying optimization, maintenance, and replacement opportunities, we are generating pull-through revenue while helping our customers improve their reliability, efficiency, and sustainability.

One example is a dairy customer operating with highly variable throughput and limited maintenance windows. They moved from physical annual steam trap surveys, which identify failed traps at a point in time to continuous wireless monitoring across their steam and condensate loop.

Our solution now identifies failures as they occur, reducing energy losses and saving approximately GBP 100,000 a year for that customer, while also improving maintenance planning and delivering a short payback for them. We're excited about our digital potential and continue to evolve and adapt to ensure we maximize the opportunity.

So to summarize before moving to Q&A, we have again delivered on the expectations that we set out. Despite the challenging macroeconomic backdrop, we delivered resilient mid-single-digit organic growth in both sales and profit, well ahead of industrial production.

We are confident in our ability to deliver on the second half. Strong order books and continued momentum across our end markets provide good visibility into growth and margin progress.

Lastly, a reminder that our relentless focus on execution and controlling the controllables is working, and we are embedding the mindset of driving growth ahead of our markets in how we work. As a result, we remain on track to deliver our medium-term targets and above these in the long term.

Thank you. We're now happy to take your questions.

Good morning, everyone. This is Mal. Thank you for submitting your questions online. Just to remind you, you can keep on doing that until the call comes to an end. I will read your questions out verbatim as I see them on the screen.

So first question is from Stephan on STS. Can you please explain your comment on larger orders coming back? Will that lead to an acceleration of sales going forward as the demand for these has been absent for a while now?

Thank you, Stephan. Good question. So we talked about this in our last trading update, and we've mentioned it again in our half year results. And you are right, we are seeing what I would describe as a small uptick in large orders across our steam business. Now remember, that's against a weak comparator, but it's a positive sign of our customers' activity and a supporting pillar of the longer-term increase in growth of STS.

Perhaps I just take a moment here to talk about the longer-term STS growth potential. And what I want to do is start by reminding you of the recent backdrop. So we've been delivering around 3% to 4% growth, excluding China, which has been a headwind.

And we've delivered that against a low IP in the order of around 1.5%. So there are a number of things that we have been focused on. The first is repositioning our business in China, and that's progressing really well as we're updating you on in these results.

In the first half, China was down 1% as a result of the moderating decline in large orders, but also the continued strong growth in MRO and solutions. China is likely to return to growth. We've talked about hitting an inflection point in either late this year or the early part of next year.

And I can see a path to China growing at least in line with the rest of the global STS business and maybe better. So when that happens, steam is back to a sort of 3% to 4% growth rate.

Now on top of that, we've got the investments that are helping us enhance the growth of steam, both digital and decarbonization. And that's why I wanted to spend a little bit of time talking about the digital opportunity today. And I can see that adding 1% between that digital and decarbonization to the steam growth. So that's getting us to 4% to 5%.

And the other thing to note here is that all of this is before any improvement in IP. And remember, we grow at 2x IP. So you can see how that could enhance growth further.

And finally, just remember the long track record we have in steam, supported by our ability to self-generate growth. And now we have a business that is also well invested in both our sales capability, but also our supply capacity. So thank you for the question.

And Stephan has a follow-up on ETS, which is, can you comment on the 20% margin target? Are we right to assume that this is a full year target? Or is it an exit rate? And to get there, are we right to assume you need the support of pricing initiatives, which you haven't done so far in the past years?

Let me kick that off and then Louisa, I'll hand to you. So we are confident in our ability to hit the 20% target for ETS. And Louisa gave you a really interesting point of evidence on the quality of this business from a margin perspective in the sense that we hit 20% in a month in the first half of the year, and it happened to be the month where we shipped the highest value of product.

And that's not a surprise because we've talked about the drivers of getting to 20% and volume and continued demand growth is one of them. But Louisa, do you want to take that question?

Yes. I think I would reiterate what Nimesh just said. The margin progression we have seen in the first half of 220 bps is really pleasing. And it is anchored, as I said, in demand growth, efficiencies, mix and a lack of those legacy orders. We always price for value across each of our business units, and ETS is no exception.

So Stephan, we do have elements of that already in our business model. We believe there is more pricing opportunity once we are fully through some of our lead time and efficiency improvements. So we do see more of that after the 2027 period, but it's not like we are waiting because we have a particularly strong competitive position in this market. So it's a continuum.

And in terms of the delivery, as Nimesh said, we are confident in delivering that 20% margin, and we hope that we have given you some good proof points today.

Good. Next, we have 3 questions from [ Chip ] at JPMorgan. One, could you provide a bit more color on the greater than 2x IP order momentum you're seeing in STS? And do you now see a likelihood of China being neutral in H2 rather than early 2027?

Second question, this is the first time we're hearing you talk about end market exposures. Does that mean you might move away from IP as a significant driver of the business? And if so, how should we think about the longer-term growth algorithm?

And finally, on ETS, Semis grew double-digit percentage. How sustainable is that? And what visibility do you have?

You might have to remind me of some questions when we get there. But let me start with the first one, which is about demand growth in STS. So we saw greater than 2x IP demand growth in the first half. IP was 1.5%.

So that's greater than 3%. By the way, bear in mind that we saw a small impact on demand in the Middle East as a result of the ongoing conflict. Middle East is 1% of group sales, but much more heavily weighted towards steam than the rest of our businesses.

And so if you were to strip out the Middle East impact, that demand growth coming from the rest of the world was even better than what we are talking about here. So I am really quite pleased with the demand growth in the first half in steam.

The second thing I would say is -- so what you take away from that is orders obviously well ahead of sales. But as we go into the second half, we have not only a healthy order book. And remember, we're not a business that has significant coverage from our order book when you look several months out. But the order book underpins our confidence going into the second half. But more importantly, the order momentum underpins our confidence going into the second half.

And of course, sitting here today, we have the benefit of seeing what's happened in July, and we have the indications through our flash of what's happening in August. And as we've said in our release, we are already seeing the anticipated unwind of those order books driving sales growth and the continuation of that order demand. So it gives us confidence in the second half performance of steam exactly as we've described it.

We talked earlier in response to Stephan's question about the large orders coming back, which very early stage against a weak comp, but still a positive sign. And remember, the sales performance in the first half, which in turn has some impact on the margin together with the investments, we're talking about small numbers. 1% of steam in the first half is about GBP 4 million. That is literally the equivalent of a few days' worth of shipments. So it helps probably put a little bit of that into context.

The second question was about sector exposure. My memory's not failed...

Sector exposure. Does that mean that you are likely to move away from IP as a driver? And what does this mean for the longer-term growth algorithm?

Yes. So we are a business that operates in multiple sectors in multiple regions of the world. All of our technologies are used by almost all sectors in some way, shape or form.

So inevitably, our business growth is going to be driven by industrial production activity. The more activity, the more consumables we will sell, the more maintenance will be required, the more the growth in demand, the greater the core on our solutions to help with effectiveness of processes, eliminating waste, driving higher throughput. These are all things that are pegged in some way to IP.

However, I've also said that while we cannot be completely divorced from IP, what we can do is continue to improve the outperformance against IP. And again, in the first half, we've delivered at a group level, organic sales growth of 5% in a world where IP is 1.5%.

And we've got genuine volume growth in the first half of this year. And that is because of the changes that we have made through our Together for Growth strategy through our restructuring, we are getting after the opportunities we see.

And what I wanted to remind everyone of with the slide on sector exposures was, one, we are diversified. We are present across a number of sectors. Two, a very significant proportion of our sales are in sectors that are very exciting, high-growth sectors; and three, that we are driving good growth and taking market share on top of that in other sectors as a result of our ability to self-generate demand and deliver solutions to our customers. So hopefully, that came across.

Maybe I can pick up Chip's other 2 questions, which I think was about China progression being neutral?

No, Semicon.

Semicon, yes, as a high-growth industry. I mean just picking up Nimesh's comments about us, customer solutions, we are seeing double-digit growth in that industry. We have close connections with our customers and very good visibility on what that pipeline looks like.

So it is a good high-growth sector for us and one where we're highly connected with our customers and responsive to that.

I'm sorry, Chip's second question, the second part was on China. Do you now expect it to be neutral in the second half?

Our confidence around China hitting that neutral point has definitely gone up given the performance in the first half and what we can see going into the second half. So we've always given the range of second half of this year or early the following year. I think it's fair to say that, that could well come towards the earlier end of that range rather than the latter. But there's more water to flow under that bridge.

Okay. We have a question from Besik at Lombardi Capital. Could you quantify the headwind to STS' first half organic growth from the client-driven shipment phasings into the second half?

Look, very broadly, we're looking at a headwind that's in the low single-digit millions of pounds. So it comes back to my point of the law of small numbers here. Yes, 1% of growth in the first half for steam is about GBP 4 million.

So we can see those orders. We can see them in our order book. We can see that customers have specified shipment in the second half. We can see when they're going to ship in the second half. As I said, in the first couple of months of the second half, we've already seen the unwind of that order book. So frankly, things are progressing exactly as we have laid out in our results.

Okay. Some questions from Rory at [ Oxcap ]. Firstly, can you quantify strong growth in STS MRO activity in China? And can you just remind us of the margin difference between STS MRO and project activity in China?

MRO growth has continued in double digits as it has for the last couple of periods, and obviously is a key driver of the return of China overall in STS to minus 1% versus minus 6% in the prior period. Obviously, that's also been helped by mitigation in the decline in large orders.

We have directionally always indicated that MRO margins are slightly higher than large order margins in China, but we haven't provided a specific quantification. But look, basically, the growth of MRO, the continued focus on large orders makes our China business even better.

And as we've always said, it represents one of our best opcos reading the market and pivoting and having that balance across MRO and large orders makes it a stronger business overall.

Second question from Rory. What are the supply chain impacts you're seeing coming out of the Middle East? Is this where customers have been delaying shipments into the second half? Or is that a different dynamic?

So in terms of the delays of shipments into the second half, and again, let me remind you, we're talking about relatively small numbers. But we have seen that from customers in the Middle East. I mean, sort of clearly, it is challenging and potentially not safe to access customer sites in parts of the Middle East, and we put the safety of our colleagues above all else.

However, there is an opportunity here that when it does become safe, working with our customers to access their sites, there is opportunity for us to support repairs, maintenance, ramp-up and various other activities in our customer sites. So that represents an upside potentially in the second half of the year.

In terms of other deferrals, there are customers in other parts of the world who have been watching events in the Middle East, but also more broadly across the globe, and making decisions about how to phase their investment in the year. So some projects that they may have set out to execute in the first half have moved into the second half. We've received the orders. We know when we need to ship the projects. So we have confidence in that demand coming through.

And in terms of the first part of your question, which was the disruption to supply chains, we took prudent action early to make sure that we could continue to support our customers with their needs. We see, I think, going forward, limited disruptions to the supply chain and where we expect them to continue.

We've already got plans in place. And therefore, we would expect to pull down on our higher-than-normal inventory levels during the second half of the year, and that's what you'll see in our improving cash conversion in the second half.

And finally, from Rory on ETS. It feels like ETS is finally turning a corner. But on headwinds, were the medium-voltage ramp-up costs at Ogden incremental based on the strong demand you're seeing? Or were you always expecting to incur these costs in this period? And as a follow-up, are there any opportunities for you as data center architecture shifts to medium voltage?

So ETS has been performing strongly for the last couple of years. As always, the improvement program can't be delivered overnight as much as I, more so than anyone else, wish it could. I have to say, I think the team there are doing a phenomenal job of getting after the opportunities. And I think that's twofold. One, around growth. So you can see the strong demand growth that we are generating in ETS year in, year out.

And secondly, in the ability to deliver against that growth operationally, whether that is addressing some of the historic operational issues that existed around large projects, in particular, coming out of our North American factories. And as a reminder, in the 5 years to our Capital Markets Day in 2024, output from those factories in North America was down around 10% in volume. Since then, it's up over 40% in the last, what now, 2.5 years. So I'm really pleased with that performance.

And in turn, as Louisa described earlier, that continued demand growth, that ability to deliver to customers, and the efficiency improvements that we are making are driving margin improvement. And we're not done yet, obviously, because we're going to get the margin to 20%. I have absolute confidence that this business can be a 20% margin business. So really pleased with progress there. Sorry, what was the second part of that question?

Yes. The second part was in data centers. We will come to that in a minute because there is another question on the ETS margin. This is from Andy at Jefferies. Is the 20% margin target for ETS now too low if you've already hit it in the first half, and that's without pricing?

Yes. And Andy, it is without pricing, you're right. So pricing represents an upside. So if I answer a slightly different question to the one you've asked, and then you can hold me to account if you don't love my answer.

This business is capable of achieving greater than 20% margins. I'm clear on that. The question for us as a management team is how do we balance higher margin against greater investment in sustaining and enhancing the longer-term growth of this business.

And our judgment is that, look, let's get to 20%. But when we get to 20%, there are some really interesting incremental opportunities even above what we're doing today to invest in the longer-term growth of those business. That's not holding us back today. But as I look out 5 years, 10 years and longer, I think these are investments that will really help us continue to, as I say, sustain, but also enhance high levels of growth from ETS.

So we'll make those judgments once we get to 20%, and we'll decide, do we think that margin could be a little bit higher, another 100 basis points or so? Or do we think we put that money back into investing in longer-term growth? And I'm pretty clear that investing in longer-term growth and the compounding nature of the returns that, that delivers is attractive for our investors.

Two questions from Max at Morgan Stanley. Firstly, on steam, could you please elaborate on the second half margin performance that you expect? And what are the key levers in going from a first half decline to a recovery in the second half?

And then second question on Watson-Marlow. Orders and end market momentum suggest another strong year of growth in Watson-Marlow into 2027. Is there any reason we shouldn't be able to continue at the circa 50% incremental margins into 2027? Are there any areas of investment that are needed in the business that could dampen operational leverage into 2027?

Do you want to take that, Louisa? I mean, just as a reminder, our margin in the first half is up organically 10 basis points. I think that first question is specifically about STS. So Louisa, do you want to take?

Yes, Max, the strong order book that we've talked about in steam 2x IP in the first half is one of the drivers of our second half sales growth, and we've been clear that we're seeing the characteristics of our July performance reflecting that unwind. And as Nimesh has said, second half sales growth will also be underpinned by the team's ability to continue to generate demand.

Obviously, that higher sales growth gives us more operating leverage than the first half, which has a margin benefit. And we have talked about the fact that we have put more investment into the first half around our commercial excellence initiatives, which is clearly generating a return in the order book, but we expect that level of investment to taper off in the second half, and that will be another add to the margin in the second half for STS.

I think on Watson-Marlow, we've always talked about Watson-Marlow being well invested. We've talked about investment on the East Coast of America in our Boston facility as well as the Falmouth facility in Cornwall and all of the operational excellence initiatives that we're working on in Watson-Marlow in common with the rest of the business.

Look, we will continue to make investments in new product development. We've had huge success with initiatives like Watson-Marlow Architect. So as Nimesh has said for ETS, the same applies in Watson-Marlow. We need to balance the investment to continue that compounding growth in this important division.

But in terms of big facility investments, we don't see a huge need for that at the moment. So at the margins, we will continue to invest, but the basic growth algorithm and the drop-through remains intact.

Can I just add to your answer in terms of the investments we've made in the first half in steam, which you're seeing the impact of in margin, but we'll see the improvement in margin in the second half? So just to give you a bit of a sense of what these are.

As we said last year, as a result of the restructuring, we wanted to reinvest the savings in building and rebuilding to a degree. I talked in 2024 at the Capital Markets Day about the need to increase investment in steam to drive longer-term growth. So rebuilding our sales capability in particular. And we've added in the order of 100 sales and technical colleagues into the steam business.

Now obviously, the timing from realizing the benefits from the restructuring to then finding the people, bringing them on board and having them on payroll, there's a bit of a lag in reinvesting. So that's why you're seeing the sort of the run rate cost of those people coming through in the first half of this year rather than in last year.

We've also put more money into cyber and IT, but also our digital connections, which I described earlier in my presentation. So those are the areas where the investment has gone.

The positive is we've rebuilt that. And yes, it will take some time for some of those folks to be delivering the full return on the investment because typically, it takes 2 to 3 years for a sales engineer to get to sort of full run rate delivery. But having said that, our investment is now complete. We're largely done. And so I'm not seeing any sort of significant or material new investment in the second half of this year.

So when you see the order book we've got, the order momentum we've got going into the second half, as I said, we're already starting to see the benefits of that in July and August, together with the investments we've already made with no new investments coming through, the second half drop-through for steam is high, and that's why we have confidence in the margin guidance that we've shared today.

Okay. A few questions from Jonathan Hurn at Barclays. One, how much was the cost under absorption from the ramp-up of the new capacity at Ogden in the first half? Will this fall in the second half? And will it be eliminated in 2027? Do that and then we'll move on.

Jonathan, it is a minor offset against the other positive drivers in ETS, largely because we've got a new facility that is not yet at capacity. So the fixed costs are being absorbed over smaller units, but as the smaller number of units, I beg your pardon.

But as Nimesh has said, we've given you some metrics about how the productivity of the whole of the Process Industries production environment is increasing.

So we did anticipate some level of under-absorption of fixed overheads, and we'll probably see a little bit going through the second half and maybe into 2027. It really depends on the mix that we get in ETS.

But look, we've delivered sequentially 10% sales growth, 12% sales growth, 11% sales growth, and this machine is starting to get a lot more productive. And as that capacity ramps, we will get to normality on the unit cost coverage. But I can't give you a specific date when it goes away.

So then as a follow-up on ETS, again from Jonathan. In the first half, how much higher were Heat Trace and Semicon margins versus the ETS average?

So just, Jonathan, very simply, Heat Trace and Semicon margins are over 20%. I would say, slightly over 20%. And as Louisa has just described, we're on a path to improving our margins in the process heating part of our business, which is about 60% of the total of ETS.

Two final -- 2 other questions from Jonathan. Was the 1% down sales in China also impacted by project shipments?

Yes, because we're seeing the moderation of the decline in large orders, not yet growth in large orders. So that will be part of the impact on the 1% and of course, offset by the growth in the MRO and solutions sales.

Okay. And then we've had a number of questions on Watson-Marlow, which you guys will forgive me if I just group them because you've all asked the same question. What were the growth rates of Process Industries and Biopharm in Watson-Marlow? And can you talk us through the margin differential between Process Industries sales and Biopharm sales?

Okay. So take the latter one first -- question first because it's easier. There is no substantial difference between the margin in Process Industries and Biopharm. Essentially, we're supplying peristaltic pumps, specialist hoses, even single-use consumables into various different sectors.

So food and beverage will be a consumer of single-use just like Biopharm will. So there's no material difference in margin between Process Industries and Biopharm.

In terms of the growth rates, we haven't quantified the individual growth rates. But what I think you can read into the results is we've got 7% organic growth in Watson-Marlow in sales.

We have told you that orders are above sales. And just to give you a little bit more color to be helpful around Biopharm. What we're seeing -- and forgive me if this sounds boring, although that's probably reassuring or it should be, the end user demand that I've been talking about continues to perform well.

And in particular, we're seeing the pull-through of consumables as those end users are essentially using their existing capacity and maximizing the use of their existing capacity. Where we're still seeing a gradual recovery, and remember, I talked way back in 2024 about this being a U-shaped gradual recovery is in the new expansion activity. We're still seeing that coming back slowly. And so people are building new capacity, but not at the rates that they used to.

However, we can see the pipeline of projects coming through. So we can see that, that is recovering. And note, this is really around larger customers building that capacity. And in fact, a number of these customers are shifting their investment. So a particular trend is investment coming out of the U.K. and out of Germany and going into the U.S. and going into China as well.

Now we're really well positioned to pick up that demand wherever it is. If it's in EMEA, if it's in APAC, if it's in Americas, we will pick it up. But when they shift their projects from one geography to another, it does cause delays.

So feeling pretty good about Biopharm demand. And just as another reminder, in the second quarter of this year, we saw the highest quarter of any since COVID in terms of Biopharm orders. It was a peak for us. So again, just further evidence of the ongoing recovery in that space.

Okay. Question on STS from Emmanuel at Kepler. Could you give more color on how much of the second half revenue and margin recovery is already secured by the existing order book? And given your cautious view on the IP recovery, would you still expect to deliver full year guidance if IP remains around the first half levels rather than improving?

So on the IP question first, essentially, yes, because we have taken a more conservative view of what IP will do in the second half. Now there is more nuance to that answer because obviously, it depends on where IP is up and where IP is down. But fundamentally, we're not relying on a material recovery in IP to deliver our numbers.

Second point is -- to answer the first part of your question, sorry, is our order books -- because we book and ship typically about 40% in the month and around 80% to 85% within 3 months, the order books don't necessarily give you high degrees -- a high degree of visibility going into the second half.

But what it does give us is confidence that there is immediately -- given the higher level of the order book at the end of first half, there is immediately a body of shipments that we can see that have been carried into the second half. So that's a positive.

And as I said earlier, the second thing that we continue to see is the order momentum being carried from the first half into the second half. And that is why we have confidence in the delivery of the second half growth in steam.

And as I also said earlier, with the investments we've made really at the end of last year and then at the beginning of this year, where you're seeing the kind of the run rate impact of that in the first half, given those investments, they won't be increasing from here, we can also see the high level of drop-through in the second half for STS, which in turn gives us the confidence on the margin.

And just to remind you, and this is very typical of Spirax of old. The H1, H2 sales split we're looking at is 48%, 52% first half, second half. And the profit split we're looking at is 45%, 55%. That is not unusual in terms of seasonality for our business.

Okay. A question from Martin Wilkie at Citi. In semiconductors for ETS, if China advances in homegrown lithography equipment, is that end market open for ETS to supply? And could you remind us of the latest split of semiconductor exposure within ETS?

Yes. So equipment heating and ETS is about 25% of sales, and half of that is Semicon. So you're looking at sort of 12.5% of sales. Those are 2025 numbers. And then we've seen high growth since then. So they will shift a little bit for this year going up in Semicon.

In terms of the question around APAC, we are working with our customers to establish an even stronger footprint in the APAC region to serve them. Now here, we're talking broadly around international customers, U.S. and European. We are also building our presence in China to be able to serve the domestic market.

Now the advantage we have is that in the spaces in which we play, and as a reminder, that's atomic layer deposition, that is lithography, and that is etching, all parts of the wafer fabrication equipment process, sort of different types of wafer fabrication equipment across the process. Those areas in which we play have very specialized and highly technical requirements around electrical thermal energy in those processes.

That requires a high degree of expertise and R&D where we are very, very well positioned to be able to solve our customers' problems. It is not clear to me that, that expertise exists in other parts of the world or within other companies. It's a relatively small set of players in this space. And I think that, in turn, gives us the ability to be able to win that business and compete in China.

But I don't want to be complacent about that. There's work we have to do, investment we have to make, capability we need to build within China to get after that demand. And of course, at the end of the day, there may also be some regulatory restrictions that we will have to be cognizant of. But there is no structural reason why we couldn't compete.

So I think we have time for 2 final questions, which happen to be about capital allocation. Firstly, from Emmanuel at Kepler. Do you see M&A as a meaningful contributor to growth over the medium to long term? And then from [ Varun ] at Xantium, what conditions do you need to see a share buyback given the expected strong free cash flow and current market value of your equity, when would you consider a buyback?

Do you want me to do the first one, Louisa, and you do the second one?

Sure thing, yes.

So on the first one, yes, bolt-on acquisitions are part of our approach to capital allocation. I think we are at a point now where having demonstrated that we are delivering, not yet fully delivered, but delivering the value from the ETS acquisitions, demonstrating the success we've had with a number of small bolt-on acquisitions like Cotopaxi, like Pulse, like some of the smaller distributors that we bought in steam, albeit a couple of years ago, we are confident in our ability to identify the right targets, bring them in at the right valuations, drive high returns from these acquisitions and accelerate our organic growth and also bring the margins up on these businesses that we buy.

So where it comes to small bolt-ons, I think these are very much on the agenda for us, and we are putting time and effort into identifying those targets. We will remain highly disciplined.

So whilst we have looked at a number of opportunities where the multiples are high and therefore, the returns are low, we will step back from them. And we always benchmark those opportunities against alternative uses of capital, one of which is our ability to put more money into new product development and hence, accelerate our growth through that way. And another is obviously buybacks. And Louisa, I'll hand over to you on that note.

Yes, we were -- we clarified our capital allocation framework at the end of 2025. And to Nimesh's point, we continue to believe that reinvesting in organic opportunities as well as the inorganic opportunities that Nimesh has just talked about is the best source of compounding growth for this business.

But we have also been very clear that if we get to the bottom end of our leverage range, which we stated publicly at 1 to 1.5x, and there are no good opportunities that generate those sorts of returns that we're seeking, then we will obviously be considering a buyback at that point.

Good. Thanks, guys. That is it in terms of questions.

Thanks very much, everyone, for joining us. Look forward to seeing you soon. Thank you.

Hello, and thank you for joining us for this presentation of Spirax Group's results. I'm Nimesh Patel, Group CEO, and I'm joined by Louisa Burdett, our Group CFO.

I'm going to start by summarizing our 2025 performance. Today's results demonstrate our ability to deliver good organic growth at high margins by focusing on the operational priorities that are within our control, and despite the weak macroeconomic environment that endured through the year. Looking to our organic measures, we outperformed IP with group sales growth of 5%. Adjusted operating profit grew 6%, and all 3 businesses delivered growth and improved margins.

Group margin was 20%, up 30 basis points as we maintained pricing and cost discipline and manage the headwinds from FX and tariff impacts while also investing in future growth. So a good set of results, slightly ahead of expectations.

I would like to thank my colleagues around the world for their commitment to achieving these results through advancing the execution of our strategy.

In STS, the market trends we've been highlighting since the first half of 2024 played out as expected, with geopolitical tension and tariff volatility driving lower IP and weak demand for large projects. This particularly impacted China and Korea, but in both markets, we began to see headwinds moderate in the second half as we'd anticipated. Importantly, we continued to offset these headwinds through our focus on MRO and solutions sales, delivering 1% growth in STS and 3%, excluding large projects in China and Korea, with a margin of 23.5%.

Our operational focus is translating into real performance in ETS, where the North American factory output has risen by over 20% in the last 2 years. During 2025, strong demand across all 3 ETS divisions combined with these operational gains has driven 11% sales growth and further margin improvement. In Watson-Marlow, we have consistently said that the biopharm recovery would be U-shaped, and it has been. In 2025, demand growth of over 10% supported accelerating sales growth in the second half. And in Process Industries, where we reorganized our sales teams to better serve target sectors, we drove demand growth well ahead of IP.

As a result, Watson-Marlow sales grew 6% and margins were up 160 basis points to 26.2%. Returning to a group-wide view. In January last year, we undertook a significant restructuring. This is now complete with annualized savings significantly ahead of where we had planned at GBP 40 million. These savings are funding our investment in future growth that I'll speak more about later.

Turning to cash conversion. This improved to 89%, with leverage reducing to 1.5x, reflecting our cash discipline. Our return on capital employed improved to 36%, while return on invested capital improved to 13%, both despite strong FX headwinds.

Looking ahead, we anticipate mid-single-digit organic growth for 2026 with operating leverage driving adjusted operating profit growth ahead of this.

So to sum up, relative to the targets we set out at our Capital Markets event, we are very much on track. We are returning to the simplicity of delivering good growth at high margins and improving returns on capital. And through our focus on controlling the controllables, we are strengthening our resilience to economic conditions.

Now let me give you some context on the broader demand environment. The macroeconomic backdrop remained weak and volatile in 2025. We successfully navigated geopolitical shifts, trade tariffs and regional conflicts to deliver growth ahead of IP, and we will do so again in 2026. The chart on the left illustrates how IP forecasts evolved through 2025. As a reminder, we focus on IP, excluding China, due to ongoing concerns about the quality and reliability of China-specific data. And what you can clearly see is that expectations for global IP weakened through the year, remaining below historic averages of closer to 3%. Importantly, you can see the impact of the U.S. tariffs announced in April.

The pattern is similar to prior year forecasts, optimism early in the year, followed by actual IP falling short of expectations.

Turning to the tables on the right-hand side, IP remained weak in our key markets and global IP, excluding China, was 1.7%.

Now looking to 2026. Global IP, excluding China, is forecast at around 2%, although dependent on a significant step-up in growth from the first half 1.6% to the second half 2.5%, not dissimilar to the pattern forecast for 2025. Given the level of volatility we have experienced over the last 2 years, we have again taken a more conservative view in our internal planning assumptions.

Let me touch briefly on the Middle East, accounting for around 1% of group sales. It's too early to fully assess the impacts on 2026, but we are preparing the potential supply chain disruption which we currently anticipate will be felt largely in the first half. And on changing tariffs, again, the most significant effect is likely to be on demand. From a manufacturing standpoint, our presence in the U.S.A. means we meet a significant proportion of domestic demand locally. In short, as we demonstrated in 2025, we have the flexibility, the regional footprint and the pricing discipline to respond effectively.

What the IP outlook, changing tariffs and geopolitical risk all reinforce is the importance of our ability to self-generate demand. This is a point worth emphasizing. By leveraging our direct sales model through focusing on increased customer-facing time, sector specialization and disciplined pricing, we are continuing to generate high-quality demand from our large installed base. As we move into 2026, we have planned with caution, but remain confident in our ability to continue to outperform IP just as we have done consistently for decades.

I'll now hand over to Louisa to talk you through the year's financial performance before I update you on our strategic progress.

Hello, everyone. I'll start with my usual quick reminders about my presentation. The numbers I'm presenting are on an adjusted basis excluding amortization of acquired intangibles, but more specifically, excluding the GBP 40 million cost of our restructuring project, which was undertaken this year. The reconciliation between statutory and adjusted operating profit is in the appendix of your pack. And as usual, our definition of organic growth excludes the effect of currency movements on sales and profit and the impact of any M&A [Technical Difficulty] the effect of currency in the year was a negative 3% on sales and a negative 4% on operating profit.

So Nimesh has covered some of the group numbers in his introduction, so I'll be brief on this slide. Sales were 5% ahead -- sorry, I beg your pardon. Sales were 5% higher organically, ahead of IP and driven by growth in each of the 3 businesses, but particularly by ETS and Watson-Marlow. Operating profit grew 6% [Technical Difficulty] and operating margin of 20% was 30 bps higher organically. Our net financing costs of GBP 38 million were lower than the prior year due to lower average net debt, lower rates on the floating element of our debt book and the positive impact of our cash centralization initiatives.

As expected, the effective tax rate increased to 27.3%, reflecting profit mix and some one-off benefits in the prior year. Adjusted EPS of 296.3p per share was 3% higher and the full year dividend of 170p per share reflects a 3% increase in the final dividend which underpins our continuing confidence in the return to higher levels of growth and margin.

Turning to the sales bridge. Organic sales growth for the group was ahead of IP, up 5% with currency movements having a negative impact of GBP 37 million or 3%. In Steam, our full year organic sales growth was 1%. Having held broadly level in the first half, the business grew 2% in the second half, driven by MRO and Solution sales with moderating weakness in large projects in China and Korea. As you've already heard from Nimesh, if we adjust for these large projects in China and Korea, the rest of Steam grew 3%.

In ETS, full year organic sales growth was 11% with a second half performance of 12% against a strong comp, and that reflects operational improvements and new business wins in processed heating as well as continued strength in Semicon. Watson-Marlow grew 6% organically. As expected, our Biopharm sales growth accelerated to high single digits in the second half, and Process Industries continued to perform strongly. In Process Industries second half growth reflected the timing of a specific second half medical order, which we noted at our half year results. But even if we adjust for this, growth in Process Industries was well above IP.

Turning to the operating bridge, where all 3 businesses delivered higher margins. Currency movements had a negative impact of GBP 14 million or 4%. Operating profit in Steam grew 3% organically higher than the growth in sales which was driven by manufacturing efficiencies alongside a small amount of net savings from the restructuring program. And as a result, the operating margin in Steam at 23.5% was 40 bps higher organically.

In ETS, operating profit grew 12% organically, driven by higher volume and continued efficiencies in process heating and the operating margin was up 20 bps organically to 16.2%. We were pleased to see that margin progression year-on-year in ETS, but as we highlighted at our interim results, the size of that margin progression relative to the strong sales growth was moderated by the fulfillment of the legacy orders at Ogden, which have not been repriced for inflation as well as some initial costs relating to the start-up of the new medium voltage facility. However, the ETS margin increased progressively during the year with a stronger second half margin.

Watson-Marlow delivered organic profit growth of 13% and a 160 bps increase in the margin to 26.2%. And in addition to volume, our trading margin improvement was driven by manufacturing efficiencies. Our corporate expenses remain about 2% of group sales with the year-on-year increase representing investments in support of key strategic initiatives in digital and decarbonization.

Turning to cash flow. Our operating profit to cash conversion rose to 89%, driven by the increase in operating profit, with disciplined capital expenditure at 4% of sales offsetting a working capital outflow. The working capital outflow largely reflects an increase in receivables given the strong sales performance at the end of the year. Our working capital to sales ratio was marginally better than the prior year by 10 bps, helped by some new supplier terms, which were negotiated in 2025. You can see that we ended the year with net debt of GBP 564.7 million, which equates to about 1.5x EBITDA, and we comfortably meet all of the covenants of our external debt facilities.

Nimesh and I have already mentioned the GBP 40 million cost of our restructuring project, which has been charged to the statutory P&L. GBP 7 million of this was in noncash charges, and of the remaining GBP 33 million, we spent GBP 22 million of cash in 2025 with the balance of GBP 11 million to be mostly spent in 2026. This restructuring program will deliver annualized sales -- savings of GBP 40 million. Approximately half of these savings were realized in 2025, and Nimesh is going to share some examples later about how we have reinvested these savings across sales capability and headcount, digital capability, new product development, system development and our decarbonization opportunities.

So having run through the highlights of our 2025 results, I'd now like to turn to guidance for the group for 2026 on the left-hand side of this chart, and then relate this to our medium-term financial targets, which we set out at the Capital Markets Day in October '24, which are on the right-hand side of the chart. So if I start on the left-hand side with 2026 guidance. We expect Steam to continue to grow ahead of IP outside China and to see ongoing improvement in the trend rate of large orders in China, and we are, therefore, guiding to low single-digit organic sales growth with a slight organic improvement in the Steam margin.

In ETS, we anticipate that the strong order book in Process heating, together with momentum in Semicon will support high single-digit organic sales growth. The shipping of the legacy orders at Ogden removes a key headwind that affected margin progress in 2025, and we now anticipate strong margin progress in 2026, supported by operating leverage and a positive effect from the greater proportion of Semicon sales.

In Watson-Marlow, we anticipate high single-digit organic sales growth driven by continuing growth in Biopharm demand with Process Industries again outperforming IP. Operating leverage in Watson-Marlow is expected to support another good year of organic margin progress with a bps improvement broadly similar to that delivered in 2025.

Corporate costs will be slightly higher than 2025, reflecting investment in future growth such as digital services and decarb, but excluding such investments, the remaining corporate costs to support our plc remain tightly controlled. For the group as a whole, in 2026, this means mid-single-digit organic sales growth and a further increase in group adjusted operating profit margin with adjusted operating profit growing ahead of the growth in sales.

There's some extra group guidance factors in the appendix of your pack.

And then finally, finishing up for me, I'd like to switch gears on the same slide to the right -- the middle and right-hand side of the chart around the medium-term targets. During 2025, we have laid the foundations that underpin our confidence that organic group margin progression will accelerate over the next few years from the baseline of 20% that we have delivered in 2025. I'll touch on four of these items.

Firstly, operating leverage. In Watson-Marlow, we have been able to respond to second half Biopharm sales momentum from a well-invested business. Volume leverage through the Biopharm growth cycle will be a critical component of our further margin progression back to the historic levels of 30% plus over the medium term that we have seen in this business. Second, ETS operating improvement. We have addressed the legacy orders in process heating, and we continue to resolve other internal operating barriers that have hitherto constrained throughput and margin, for example, our design engineer lead times. Our teams are responding really well to underlying demand in resistance heating and the semicon demand recovery, and all of this is starting to be reflected in the second half '25 exit margin, which together with pricing opportunities, helps us to see the path to a 20% margin for ETS.

Third, growth investment. As we've highlighted, we are delivering GBP 40 million of annualized savings from our restructuring program. We will invest most of this back into the business, and whilst this is not immediately accretive to margin in the year, these investments will underpin future growth and returns, particularly on the commercial and digital side.

And finally, continuous improvement. It's becoming business as usual at Spirax to seek out procurement savings and other continuous improvement opportunities to help us to offset inevitable negative margin factors that we can't control.

So overall, in summary, we are on track to deliver our medium-term margin target for the group of between 22% and 23%, which will drive an improvement in return on invested capital to over 15%. We look forward to continuing to update you on our medium-term progress in future, but for now, Nimesh, I'm handing back to you.

Thanks, Louisa. So let's turn now to some of the key drivers of our performance in 2025 and how we're executing our Together for Growth strategy. Earlier, I described the macroeconomic backdrop that we faced in 2025. On this slide, I want to focus on the specific end market dynamics and how they shaped our performance.

Firstly, looking at STS and large project demand in China. China accounted for around 15% of STS sales and has been affected by the slowdown in customer capital investment in manufacturing capacity expansion. Historically, China has been more exposed to large projects than other regions. However, as expected, this decline in large project demand moderated through 2025, with sequential improvement from the first half to the second half.

What I'd really like to highlight is the continued success of our focus on MRO and solutions selling in China. Our deep process knowledge is critical here, helping us deliver double-digit growth across a significant installed base. With the trend in large projects moderating and MRO growth, China sales in 2025 were down 3% compared to a decline of 13% in 2024. Looking ahead, we expect demand for capital projects in China to stabilize and then increase so that alongside our continued progress in MRO, we see a path to China returning to growth at some point late this year or in 2027.

Moving to ETS and Semicon, which as a reminder, although only 3% of group sales is high margin for us, given the highly bespoke applications of our products. Through the year, we saw an encouraging improvement in Semicon demand. It is not a return to 2022 peaks, but it is a meaningful recovery with double-digit growth.

And finally, Biopharm, which makes up 50% of Watson-Marlow, saw orders increase by over 10%. In the first half and for the first time since peak COVID demand in 2021, orders exceeded sales. This supported stronger second half sales and our first year of Biopharm sales growth since 2022. Underlying Biopharm drivers remain robust. Demand from end users continues to grow strongly, and we also saw a recovery in OEMs, which had previously been more volatile.

Against the economic backdrop I described earlier and the shifting market dynamics, we are adapting, and our teams have demonstrated the power of focusing on the controllables. When I refer to controlling the controllables, what do I mean? We're finding opportunities to both drive organic growth and deliver higher margins regardless of economic conditions.

For example, in January 2025, we initiated a series of changes to improve organizational fitness. These changes have helped us to be more agile, scalable and customer focused. Additionally, through our work on operational excellence, we identified opportunities to optimize our manufacturing footprint and increase throughput without additional capital, reducing our overdue backlog and keeping pace with the growth in demand. These changes have also helped us sharpen our focus on commercial excellence, driving above-market growth. And we have combined this with adapting how we work with channel partners, how we target new sectors and how we develop new solutions to solve customers' challenges.

I'll give you some examples on the next few slides. Both organizational fitness and operational excellence gave rise to our restructuring program, as described by Louisa with annualized savings of GBP 40 million, and I'll share examples of how we reinvested those savings. To demonstrate how organizational fitness is supporting growth above IP and establishing a stronger platform for the next phase of sustainable growth, I'll start with STS EMEA.

During 2025, we reduced the number of operating companies in EMEA by almost half, while continuing to serve the same 23 countries and protecting our direct local sales force. We removed management layers, increased the number of customer-facing sales engineers and consolidated technical sales and service capability to be better leveraged across our operating companies. We are already seeing the benefits in stronger customer engagement and solution selling, with organic sales growth accelerating to 3% in the second half, well ahead of IP at 1%.

A driver of ETS growth in 2025 was establishing Heat Trace as a division with a separate and focused team of sales engineers targeting new sectors, regions and customers. By identifying untapped opportunities, we are transforming Heat Trace into a meaningful growth engine delivering double-digit demand and sales growth in this attractive margin part of ETS.

And finally, turning to Watson-Marlow. We reorganized our direct sales teams in EMEA around target sectors, allowing us to more effectively deploy our deep expertise directly into customers' processes and build even deeper relationships. This is delivering exactly as intended. We achieved double-digit demand growth in the region with especially strong second half performance and Process Industries growing well above IP.

In fact, Process Industries across all regions through our sectorized focus, continues to perform well ahead of IP with double-digit demand growth in target sectors.

Turning to operational excellence. This is an area where we have continued to make meaningful progress in improving efficiency across the group, driving improved margins while navigating trade tariffs and meeting growing demand. In STS, we closed our facility in Mexico, transferring production to the U.S.A. and following our decision to pause the planned expansion of our Gestra facility in Germany, we reached agreement with the Works Council on how to drive meaningful efficiency and performance improvements.

In Watson-Marlow, we closed our higher-cost Alitea pump facility in Sweden and consolidated production in the U.K. We also continue to transfer manufacturing to our U.S.A. facility to support compliance with the Build America Buy America Act, increasing volumes by more than 20%.

And in ETS, we consolidated production in the U.S.A. closing one site. But the key highlight was the operational improvement in process heating in North America, where, as I said, we have increased output from our factories by over 20% in the past 2 years and significantly reduced customer lead times.

Our dedicated medium voltage facility expansion in Ogden has also now been completed on time and on budget, and we have begun to ramp up production. In both ETS and Watson-Marlow, our rapid response to demand growth has allowed us to meet customer needs, thereby strengthening long-term relationships.

And finally, looking at our group-wide focus and continuous improvement, we delivered a high single-digit million savings in procurement, protecting our margin.

Let's now look at some examples of how we have sharpened our focus on commercial excellence, starting with STS in the U.S.A. We reframed our approach to working with distributors in the U.S.A. that represent around 70% of local sales by thinking differently. We are working in partnership to cogenerate demand from end users to accelerate growth through defining combined go-to-market strategies in jointly targeted sectors and customers. During 2025, we embedded this approach with 22 distribution partners driving high single-digit increase in demand from those onboarded earlier in the year.

This is an example of how we can adapt to local market structures while leveraging the strength of our direct sales approach to identify solutions to customer problems and self-generate higher growth. Today, around 50% of USA sales are either direct or co-generated.

Moving to ETS, we have made good progress in expanding into new end markets. For example, we captured strong growth by targeting the data center sector with temperature-controlled solutions across both process heating and Heat Trace. This is a clear demonstration of our business model at work in ETS, identifying a customer need, using our applied and design engineering expertise to propose a solution in a new market and delivering consistently. The focus delivered a material contract win supporting ETS growth in 2025.

We invested further in Watson-Marlow Architect, our proprietary single-use assembly solution for connecting disparate OEM systems across the bioprocessing fluid pathway. Additional sales headcount and expansion into new regions drove demand growth of over 30% and increased our opportunity pipeline materially, particularly in the U.S.A. Across the group, we have improved clarity, accountability and the speed of execution of our strategy. This is helping to align talent and investment with the biggest growth opportunities and is already delivering measurable commercial impact.

Our operational priorities generate capacity to invest in future growth, such as through developing our digital and services capability. As you know, we are building customer partnerships by being more connected with them. We walk the data as well as walk the plant, helping us anticipate their needs, better solve their problems faster and sharing in the value we identify through our pricing. This approach is driving growth in MRO and Solution sales.

In STS, we more than doubled the number of paid for customer connections to over 2,000 sites. Our targeted digital value propositions, particularly wireless steam trap monitoring, delivered high double-digit growth in digital product and service revenues and additional strong product pull-through from optimization and replacement opportunities. We have also made progress in developing our secure and scalable Connect platform, giving customers access to real-time data, operational insights, predictive analytics and sustainability metrics. This digital innovation is benefiting Watson-Marlow and ETS as well.

With our Connect enabled Pump Insights pilot in Watson-Marlow, we have shifted a mining sector customer from reactive fixes and costly unplanned downtime to proactive pump management in abrasive high-density slurry applications. Finally, we continue to scale MiM, our large language model, now rolled out to over 1,000 sales colleagues around 1/3 of the total with the earliest users freeing up around 4 hours per person per week, time that is being redirected into additional customer-facing activities.

The right-hand side of this slide sets out where we've been investing in decarbonizing thermal energy. We have 4 defined go-to-market strategies as set out on the slide. And across STS and ETS, we are combining our unique expertise in steam, heat transfer and electric resistance heating to deliver integrated solutions that are creating multiyear growth opportunities, particularly as customers seek to modernize and decarbonize aging thermal infrastructure.

A few examples from last year. First, we designed and supplied medium-voltage heaters for renewables, energy storage and low-voltage heaters to replace highly carbon-intensive gas heaters and tissue production. And second, we delivered a multisite thermal energy assessment for a major food and beverage customer. While our cross-functional team identified annual energy savings of around 10%, with an associated pull-through revenue opportunity for us of over GBP 1 million.

We are proving our unique customer value proposition and delivery model. Taken together, through our progress in digital customer connections, MiM and our decarbonization solutions, we are enhancing the long-term growth potential of our group. So that was 2025.

Let me now put some context around how we are building on our strengths to deliver over the medium term and beyond. Some of this will be familiar to you. Starting on the left, we have a unique and powerful business model that underpins 3 strong growth engines and their durable competitive advantage. This is what has enabled delivery of consistent organic growth ahead of IP over many years and through multiple economic cycles.

In the center of this slide, you see we have significant runway to keep delivering high-margin, high-return organic growth in a very large addressable market. We are well positioned to capture this through our Together for Growth strategy. One, by focusing on the operational priorities I've been explaining. We will deliver on our medium-term targets and generate the funding to invest in growth. And two, through targeted investments that enable us to capture the significant opportunities we see ahead, we will accelerate the rate of organic growth in the long term and generate attractive returns.

So then on the right-hand side, you can see how our strategy translates into financial ambition. You're familiar with our sales, margin and cash targets. Delivery on these targets will drive an improvement in ROIC to over 15%, as many of you have already anticipated, and as Louisa described earlier. And today, we are confirming a target leverage range of between 1x and 1.5x. Having started with our business model and explained how our strategy built on that to deliver on our financial targets, the next critical component is how we approach capital allocation, to drive long duration and resilient compounding earnings growth and, therefore, attractive returns for shareholders.

You will be familiar with different versions of this model. So what I want to highlight is how it applies specifically to Spirax. Firstly, we are a high margin, low capital intensity business with a track record of delivering high returns on capital employed currently at 36% and increasing. So we will continue to invest in our own business to strengthen our competitive position in target markets to enhance our profitable organic growth and high ROCE. I've shared with you today examples of where we have invested.

Secondly, we are a high cash conversion business at 89%, which has supported a 58-year track record of dividend progress, which we will continue with cover improving to between 2 and 2.5x. Third, we will maintain a resilient balance sheet, and I've shared with you our leverage target. Once these priorities are achieved, we will apply a risk and opportunity-adjusted approach to the use of surplus capital to further enhance earnings growth and return on invested capital. These include bolt-on acquisitions and returns of capital to shareholders.

On M&A, I want to be clear on how we think about future acquisitions. These would be bolt-ons, not building a fourth leg, that bring growth on margin enhancement opportunity in our core markets, where we clearly see how we can deliver better performance through our direct sales business model and/or through enhancing the solutions we deliver to customers and capturing that value through pricing. For the right acquisition, we are comfortable with temporarily elevated leverage, but with a commitment to bringing this back to our targeted range within a reasonable period.

And we know what matters is shareholder return. And for any acquisition, we will always assess both the impact on ROIC and the impact on earnings growth, and we will benchmark this against a return of capital to shareholders. This is how we structure our approach to delivering compounding growth and, therefore, attractive returns to shareholders.

To summarize before we move to Q&A, we delivered on the expectations we set out at the beginning of the year against the backdrop of a volatile external environment, which is continuing. We remained focused on executing against our operational priorities, successfully delivering our restructuring, which has strengthened our efficiency and effectiveness and is helping to fund investment in growth. And we are on track to deliver the medium-term targets we set out at our Capital Markets event, supporting the long-term compounding growth that our business model and strategy will deliver.

Thank you. We're happy to take your questions and Andy, I'll come to you first.

Three questions, please. ETS, please, can you help us understand the base margin for this division now? So can you maybe give us the margin, excluding the legacy contracts? Or tell us what the legacy contract margins were? I'm just trying to figure out where our base is. And how long do we have the other tailwinds to margins that you talked to, Louisa, in your presentation?

China and STS, it looks to me like you're still on track for the declining OE slowing down and the aftermarket MRO kind of catching up to get back into neutral territory back end of this year? Is that still fair? And then last one is on the additional GBP 40 million of investment in growth. If we were to look forward, and you can pick the time period, let's call it, 5 years, how much additional growth do you think that will have delivered relative to a base case of investing nothing? And how are you guys actually tracking it? Because it looks like a lot of those central costs are going into -- sorry, a lot of the investments going to central costs rather than in the divisions or maybe you're splitting it. So just trying to figure out how you track that growth?

Thanks very much. Do you want to take the first one on ETS margins, Louisa?

Sure. So look, as I said, we're really pleased that the team have managed to push through the legacy margin -- the legacy contracts. And I've said that we're confident about that journey to 20%. It's not going to be linear over the next 2 years. We'll still do more in '27 than we will in '26, but we're pleased today to talk about that strong margin progression for '26. Look, I think you probably know, having followed this for a number of years, so there's still quite a lot going on in ETS. And there are a number of things that we believe and you have to believe to get us to 20%.

We've got volume demand, which is positive. We've got legacy project orders, which we have driven through. We still got some operational improvements that we're working through. Semicon demand is coming back and pricing, which is sort of in the tail end of this. So not all of those things, Andy, are at a rate of 20% yet. And look, the recovery of the legacy margin piece is all in that mix. So we're not going to disclose that particular number, but those are the 5 things you need to believe.

And of the 2 that we're still working on operational improvements and the pricing comes later in the cycle because you have to be good to get the price.

Andy, on your second question around China. So as I mentioned earlier, we are seeing a moderation of the headwinds that we were facing in large projects. It's a very difficult thing to forecast. But if you combine that with our continued strong growth in MRO, where we have high confidence because it's within our control, I expect that we'll hit that neutral -- that sort of neutral territory in China as a whole, either in the second half of 2026 or during 2027.

Of course, more recent events, whether that be changing tariffs or conflict in the Middle East will impact business confidence and might impact that in some way. And then on your final point around how our investments in future growth are going to bear fruit for us, well, I'll let Louisa comment in a second on the investments that we're holding in corporate costs and why we're doing that and how we intend to see that going forward. But essentially, what we said in our medium-term guidance is we expected the group to be at mid-single-digit growth. And last year, we were at 4%. This year, we're at 5% organic growth. So we're in that area.

But we also said that longer term, we believe this group is capable of doing better than that. It's these investments that will drive that growth at a higher rate. And therefore, at a higher multiple of global IP growth. Do you want to comment, Louisa, on the corporate cost?

Sure, and the tracking point, I'll just pick up very briefly. All of our businesses have sort of value propositions behind these investments. So Nimesh has talked about the drive on the distribution strategy in the U.S. So we plan on that basis so we can actually see where they're planning to put investment in headcount and what we're expecting to get out of that. And that's just formed part of our reviews. On central costs, we do -- we've used this word incubate, that particularly for some of the digital infrastructure that we're building will carry a little bit more centrally. And then as the commercial stuff comes through, particularly in Watson-Marlow and Steam, we will be recharging those costs as we go.

Jonathan?

It's Jonathan from Barclays. I also have three questions, please. Firstly, just coming back to ETS and actually on the volume growth, obviously, 11% organic in '25, I think I'm correct in saying. Can you sort of break out how much of that was essentially down to that better execution in those North American facilities? And also what sort of level of contribution to growth can we expect from that in '26? That was the first one.

The second one was just on Steam. Obviously, you're guiding to low single-digit organic growth. Is any of that volume? Or is that price? Can you just give us a split of how you think those dynamics work for that business in '26? And then the third and final one is just on Watson-Marlow. You're saying the business is well capitalized. Obviously, you're putting head count, I think into that business in '25. Is that now finished? So the question is essentially, do we go back to those really strong levels of operational gearing for Watson-Marlow in '26?

Okay. Louisa, do you want to take the ETS question? I'll take the STS question and then you take the Watson-Marlow, one?

Sure.

Okay.

So in terms of the 11% organic sales growth in ETS and the execution element of that, we have tried to give you a little bit of a sense of the importance of that contribution in the throughput metrics that we gave you for the North American footprint, which is up 20% on the prior year. So very positive progress there, and we expect to see more in '26, but that may be a proxy, Jonathan, for some triangulation.

In terms of well cap Watson-Marlow -- well-capitalized, Watson-Marlow, look, we are absolutely delighted that we've delivered 160 bps this year. We're signaling a similar bps next year. It's well on track to be getting back to 30% plus in the medium term. So that's not an unsignificant performance. So we will -- as I said in my presentation, if we continue to get that high single double-digit growth in Watson-Marlow, that drop-through comes through.

But just a reminder, we have got some footprint in the -- in North America in Devons, which we're sort of thinking about moving volume from our U.K. facilities, which has served us really well through some volatile tariff territory. But getting that volume through both of those factories is a critical part of '26. But yes, we're on track to get to that 30% in the medium term.

I was just going to add to the answer on the ETS growth. I suspect what you're sort of trying to get to there is how strong is the underlying demand growth. And across all 3 divisions in ETS, we had very strong underlying demand growth. Now in equipment heating, we've talked about the contribution from Semicon, which had double-digit growth. In Heat Trace again, we had very strong growth. I talked a bit about that through the focus that we've brought to creating this as a new division with a dedicated sales force. And of course, neither of those 2 areas were suffering from the legacy contract issue.

So that's a process heating issue. And in process heating, again, we had very strong demand growth, partly down to the fact that we have this large data center contract. But even if you take out the large data center contract, we still had growth that was above mid-single digit, okay?

So I am not -- we are not here worrying about the demand growth in ETS. And so our challenge was to make sure operationally, we can get the output up to be able to meet our customers' needs.

And then the third question you asked was around Steam, the split between volume and price. As you know, we don't give the split between volume and price. But what I can share with you is that typically, and it would be a safe assumption. Our pricing tends to be in line with or just slightly ahead. I'm talking about 10 or 20 basis points of inflation. So if you make your own assumption on inflation, you can see how much is coming through price.

But there's another point I want to leave with you, which I think is the more important one, which is, in our business, looking at volume versus price can sometimes be a bit misleading. Why? Because of our solution selling and our pricing for value. So if I have customer A who has 5 failed steam traps, I might invoice those steam traps at GBP 300 each, GBP 1,500, okay, should be an average invoice size for us, give or take in MRO. But if I go to another customer, customer B, and they have a problem with the delivery of steam to a critical process, and they can't quite work out what it is, and it's costing them a lot of money in failed batches or lower throughput.

And our engineers solve those problems for them and the value of what we've sold for them is GBP 10,000, we might charge them GBP 5,000. But you know what, it might still just be 5 steam traps. The value of that is reflected in price, not volume. Okay. So just -- we've got to bear that in mind when we think about that split.

Yes. Okay, I'll come to you first, Lush, and then pass the microphone over.

I've got 2 questions, please, both on ETS. The first, just to follow up on that data center contract. It sounds like sort of follow-on progress has been really good. I mean how do we think about that as we go into this year? Is that sort of an incremental tailwind to your growth? Or sort of is that contract create a bit of a headwind? And then the second question is just going back to margins and sort of versus the 20% midterm target, it creates quite a back-end weighted pickup, I guess. You'd think the sort of semi recovery this year and the sort of the legacy contracts rolling off would be quite big margin tailwind.

So when we think about pricing and operational excellence, I guess the 2 key things that come in, in 2027, I mean, can you put some numbers around it? I mean how underpricing are you, I guess, versus competitors, give us a size of what the opportunity could be? And also operational excellence. I think you talked about 20% increase in output. Where are we on that journey? Where do you want that business to get? So just trying to get an idea of how we get to that sort of big jump in 2027?

Okay. Well, let's start with the question about ETS growth in data centers. So we've made really good progress in that sector for everyone to understand what our products do. Essentially, they are designed to help test cooling systems in data centers. So rather probably at odds with what you would normally associate with data centers, which is cooling, we're heating them up, and we're heating them so that the cooling systems are tested rigorously and don't fail at a critical point, resulting in disruption to service.

We won a large contract, as you rightly say, Lush, in 2025. But at the same time, we have also been developing our relationships with a whole series of additional data center players. Now because our products, and I gave the example of this, it's not just about applied engineering, it's also about design engineering. A lot of these products are bespoke for the specific OEM that is providing either the cooling systems or the testing of the cooling systems. We work with them through an R&D phase. So it takes a little bit of time just to make sure that we get those products embedded, tested before we get them scaled up.

So coming to the specific question about what does all of this mean for 2026? Actually, we continue to see good data center demand in 2026. So I don't think it will be a headwind for 2026. Equally, it's not going to be as accretive to growth as it was in 2025 because we already won that big order. And I see a real opportunity beyond '26 to continue to build our servicing of the data center sector. So I think that's where we are there.

On your question on margins. I think your question was really -- it started at group margin, which I think is a good place to start. And there are 3 things that I think about when I think about achieving our group margin target. The first is the impact of FX. So one of the most frustrating things over the last 2 years has been the headwind that we faced from FX. So we should keep that in mind. But it's -- if we could forecast FX accurately, we'd all probably be much richer doing other jobs.

But there are 2 other things that we need to achieve in order to hit our medium-term group margin target, and you highlighted both. One is ETS at 20%. And the other is Watson-Marlow at 30%. I think on Watson-Marlow, Louisa answered the question earlier, but I think we all here have confidence that, that is a business that can achieve the 30% margin. And it's a question of how quickly we can get back to that margin, and that's going to rely on our ability to continue to drive growth. That's what will really impact our ability to get back to 30% in Watson-Marlow.

In the ETS and Louisa has touched on this briefly earlier, there were sort of 5 things that were going to help us get from where we were in 2024 to where we want to be at 20%. The first was we needed to clear the legacy low-margin orders, tick. We've done that. The second was, we needed to get the Ogden expansion completed and start to ramp that up. At the moment, it's fixed cost but we will get more and more volume going through that plant. So that will come. The third was we needed to see growth in the higher-margin parts of ETS, particularly Semicon and of course, as I've described, we've identified Heat Trace as another opportunity within ETS, which is higher margin.

So we're seeing that Semicon recovery, not back to the 2022 peak, as I said earlier, but we're seeing the recovery start to come through, and we're seeing strong growth in Heat Trace as well. And then the last 2 things are really, we've got some additional investment that we're making in ETS. So for example, the ongoing cyber investment, IT investment, safety investment. So we still have a bit of that going. And we didn't have as much restructuring benefit in ETS. Most of the restructuring benefits sat in STS and Watson-Marlow because ETS didn't have that significant cost base.

So those are the different moving parts of the margin. Is there anything you want to add to that, Louisa?

No, just picking -- I think it might be a repeat of what I said, but you referenced some of the remaining tailwinds. And I'd just reemphasize that just the change in operating procedures and the way people do things is probably the long -- the one with the longest lead time just to sort of embed behaviors, both in the existing footprint and the new footprint. So it's not that we're not delighted with progress. It just means that repeatable performance, Lush, is the last thing that will come through.

A follow-up. So that 20% increase you've seen in throughput in Ogden, where should I get to in your opinion, to be where you want it to be?

Yes. So it's not just Ogden. It's North America because Ogden has stepped up very significantly, and we talked about that, I think, at our Capital Markets Day in 2024. But it's -- but actually, operational excellence is about performing better everywhere, both across our group, and particularly in ETS. So in North America, we've seen that 20% step up. My sense is we're getting now really close to a normal level of throughput without actually having fully ramped up the Ogden expansion. So there's a bit more space to come from that.

And the point that Louisa is making quite rightly is that in the way that we think about efficiency, step one, get the output up, step two, think about how you do that as efficiently as possible, right? It's get a step-up in performance, stabilize the process and then think about how you make it more efficient. We're into that second part now, making it as efficient as we can. That will improve the drop-throughs that we start to see in ETS more broadly.

Two, please. On the first one, there's clearly an element of uncertainty in the broader macro backdrop at the moment and it might be too early to have a concrete view on any of this. But can you talk in general terms about how you may or have in the past seen customers to respond to periods of extreme energy price volatility, thinking obviously about energy efficiency solutions, electrification and the like. Just in broad terms, how long that takes? Whether you're seeing anything at the moment?

And on the second one, on capital allocation. You've given an indication at the top end of the range that you're comfortable going over 1.5x for the right opportunity. Can I ask about the lower end of that range? And how comfortable you are that the balance sheet could be optimally structured below the lower end of that range? In other words, how proactive you might choose to be on buybacks and the like?

Thanks. So it's a really interesting question about customer response to higher energy prices. And you're right, we have seen it before, not least after the conflict in Ukraine commenced. What we typically tend to see, and this is a strength of our business is because we can help our customers to be more energy efficient. We do tend to see a step-up in that demand for our solutions. And that's why, in particular, our direct sales force and their deep process understanding and their local relationships and their ability to walk the plant is so important.

And of course, then combine that with our digital solutions, in particular, steam trap monitoring, which is where you can have significant energy loss either through venting of heat in the form of steam or not recycling latent energy in waste condensate. We have solutions to deal with all of these things. So we absolutely anticipate that as energy prices spike, everybody starts to look at, okay, how can I be a little bit more efficient. And because our model is about, we'll find you the solution, we'll quantify the benefits and then we'll price on payback. In essence, it becomes a no-brainer for the customer to say, okay, that's something I want to do.

And the earlier in the year you are, the more likely you're going to get your payback within the year. So that's definitely an opportunity for us. Of course, there is a flip side which is when the energy prices are high, businesses start to focus a little bit more on conserving capital, the larger project element of the business shrinks a bit. But remember, 85% of our business comes from customers' OpEx budgets, right, either from the MRO or the solution sales that I've been talking about. So that's definitely an important positive for us.

And actually, maybe I'll just take this moment to talk a little bit about the broader state of affairs in the Middle East and how that may or may not impact our business. But as I said earlier, about 1% of our sales are direct from the Middle East. The biggest impact is likely to be on that overall global IP picture and the level of demand that we see. We've taken a conservative view relative to current IP forecasts. Whether that is sufficient or not, time will tell. I think one of the operational implications of what's happening in the Middle East is around supply chain and disruption to supply chain.

We've already kicked into action to make sure that we are mitigating as much as possible, how that could impact our business, either through securing raw materials or critical components or through making sure we've got sufficient stocks at our local sales companies to be able to meet the demands of our customers. And remember, our regional manufacturing strategy really helps us there. And in terms of the cost inflation impacts of the conflict, I think you all know that we are very good at passing cost inflation back through to customers and protecting our margin. We've got a long track record of having done all of these things.

So that's -- just to tackle that point, whilst we were on the global picture. And then on your question about the lower end of the leverage range. Louisa, I'll come to you in a second, but I just want to say, for me, I think the important thing is, historically, we haven't had that lower end of the range and actually quite -- in the past before, particularly the transactions in around 2022, our leverage was well below 1x. And I think the way to think about this is 1x is a trigger point for us to start making some of those decisions that you described exactly those decisions. Is there anything you want to add to that, Louisa?

No, just I think reiterating what Nimesh has said that, of course, at the lower end of the range, we would be thinking about it if there wasn't an alternative use of the capital. But we put the range in today at a range. We don't think we're constrained on the balance sheet. And obviously, we've given you the indication that we'd go above for the right type of acquisition.

Martin from Citi. Just coming back to acquisitions. When we think about the divisions that might sort of get the capital, I mean, obviously, the ETS division is relatively new, but it's had some challenges with expansion and projects and so forth. Is that division where we should think you'll be adding bolt-ons? And is it sort of ready to do that given some of the challenges you've had over the last couple of years?

So today, I don't think it's ready because we've got a lot to do in the ETS business, and we've been doing a lot for the last 2 years to get it to where it needs to be. So yes, I think it would be a distraction for management. And actually, the challenge, of course, is with potential bolt-on deals, we need to get the return. Right now we're working on getting the return from acquisitions that have been made in the past. But we make new acquisitions. We have to get the return. You can't get the return, if you can't get the management focus to really drive the integration and then the acceleration of those businesses we buy. We will want -- we will be picking up businesses where we want to accelerate the growth through utilizing our direct sales business model, we want to be enhancing solutions. We want to be enhancing margins.

That's how we'll get the growth. But I can see further down the line that there will be opportunities actually in all 3 of our businesses. What we will both do together with our colleagues in the business is be disciplined about how we think about those opportunities to make sure that we're finding the most attractive opportunities for each -- either for each or within each of our businesses, again, to make sure that we drive those attractive returns.

And regionally, I mean, I guess, people now think that China compared to a few years ago is less fast growing, but the U.S. is probably structurally faster growing. Is that the way we should think about your geographic focus? Or is it too early to say which regions are most attractive for you?

Well, we've got big businesses in both. But standing here today, given the relative dynamics in the short term, by which I'm talking 1 to 2 years, I do see the U.S. as an attractive growth market. But longer term, I still continue to see China as a very attractive market for us. And we've got this established 35-year history in China, delivering high growth at attractive margins with a very strong market position, and that economy will continue to do well.

So I don't think it's either or, but in terms of where we're allocating capital as it were in the short term. Actually, we're hiring sales engineers into the U.S. to expand our reach to support that cogeneration model with our distributors to drive that growth that we can drive by identifying the opportunities that we see in our target sectors. And of course, we're not adding that same level of head count in China. In fact, in China, we are retraining in order to be able to focus on MRO and reducing a bit the headcount that we have currently focused on large projects.

So you can see how we're sort of allocating resources in the right way to make sure we benefit from those short-term trends.

We should come to Bruno.

Bruno Gjani from UBS. I was wondering if you could talk a little bit about Watson-Marlow Biopharm orders and how they trended through the course of 2025 and what you saw in terms of drivers of that demand. And as we think about the high single-digit growth guidance for 2026, I guess the question here being, what is the implicit assumption on order development in 2026 in order to reach that or deliver on the high single-digit organic revenue growth aspiration? Do you need orders to pick up meaningfully from, say, Q4 or H2? Or how do you sort of think about that?

Sorry, that was in which business, the second one?

Watson-Marlow.

Watson-Marlow, okay. Sorry, I am with you. Well, I will have a go and Louisa, you can add to it. But Biopharm demand trends, so casting your mind back to 2024, what we started to see in the second half of 2024 is the recovery in the end user demand, which typically comes first. And remember, we've got over 4,000 end users, quite a diverse space. And what you can read into that level of demand is that the existing capacity is being used -- is being utilized at a higher rate. So you're seeing the pull-through on the consumables, the replacement of pumps, et cetera.

What we hadn't seen at that point was the recovery in the OEM demand. There have been some good months and some bad months, incredibly volatile. This year, we've continued to see actually accelerating growth with end users, but we've also seen the OEM demand come back as well. And that gives us a sense of not only we're getting the consumable pull-through, but actually, there's probably a bit of capacity expansion out there in bioprocessing as well. So that's what's adding to our confidence in that ongoing recovery. And our view hasn't changed on the underlying growth in the Biopharm market.

And then in terms of what do you have to believe for the high single digit? Well, essentially, remember, Watson-Marlow 50-50 Biopharm, Process Industries. We've always talked about underlying biopharm growth being around about the 10% level. And then we've talked about Process Industries growing ahead of IP, right, at least 2x IP. So you can kind of do your own math and probably quite quickly get to a high single-digit number based on those trends.

And just following up on the data center contract and market. So good progress with your existing liquid cooling OEM. But how does the selection process work with other liquid cooling OEMs? Do you need to disrupt an existing relationship with somebody else providing a similar solution? How close do you feel that you are to doing that today? Maybe some color here.

Actually, what we're finding is -- so we're going proactively to a lot of these OEMs and say, like, how are you thinking about the testing of these systems? And quite often, what we're finding is they're still thinking through the different technologies that are available to them and that everybody is looking for cheaper, faster, quicker ways to do this, right, more agile ways to do this. And so in the same way as we did with the large contract we won in 2025 with others, we're right in there from essentially what I would call an R&D phase.

Now it's not long-duration R&D of the like that we see, for example, in the Semicon sector, in our equipment heating business, it's really, I would say, understand solution selling, understanding the needs of the customer, the problem they're trying to solve looking at the electric resistance heating products that we've got, thinking about how we can bespoke them sometimes in -- it's not that complicated to be able to do that with our design engineering capability, thinking about how we can scale up the manufacturing for that large contract order we won in '25. We put in a dedicated line in our Nuevo Laredo factory in Mexico.

So thinking about how do we do that and then making sure that we really deliver to their needs. So it's -- that's the process we're going through with new names at the moment.

And is there anything to call out from a mix perspective in terms of executing on the data center contracts? Is it margin neutral accretive to ETS? Or...

Well, on the basis that all of this business that we're winning is going to be higher than that 20% target we've got. It's accretive, but I would also say, it's good margin business.

I'm not sure if this is how to phrase this, but when your lead times have come down so rapidly from 60 weeks to 6 weeks, I would have thought implicitly, there would have been some sort of mechanical pressure on your order intake just because customers don't need to order something a year and ahead, so they will sit on it. But you didn't see that pressure this year. So did that -- I guess, did the underlying -- could you speak to some of the underlying strength in orders, demand, whether that surprised you? And just a little bit of what's going on?

It's a great -- actually, it's a really good question. What we saw is design engineering lead times go from 60 weeks to 6 weeks. Overall, lead times are still greater than 6 weeks because there's the other steps you have to go through in the process. In process heating, large heaters in particular, which is what we're talking about there, the things that come out of North America, it's not unusual to have a 1-year lead time, 40- to 50-week lead time, that's sort of -- and the reason for that is because our products are critical in our customers' processes, or their facilities, they typically want to get ahead of making sure that they've been designed, they've signed up for the design. There's multiple steps all the way through and that they're in the queue to get it manufactured.

And then they want certainty that they'll get it when they -- when we say they're going to get it. And so that's why you haven't seen kind of a more pressure on the demand. And at the same time, just the underlying demand for electric resistance heating, electrification products. We talked about data centers. All of that is just growing as well, which is helping us. So we're in good shape from a demand perspective as well.

Thanks, Bruno. I'm going to check, Mal, was there anything on the phone? Nothing on the phone? Any other questions in the room?

Excellent. Well, look, thank you very much for joining us, all of you in the room and for those people on the call. I appreciate your support and look forward to seeing you in 6 months' time. Thank you.

Thank you.