Half Year 2026 Spirax Group PLC Earnings Call

August 11, 2026

Speaker #1: 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.

Nimesh Patel: Hello, and thank you for joining this presentation of Spirax Group's H1 results. I am Nimesh Patel, Group CEO, and I am 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.

Nimesh Patel: Hello, and thank you for joining this presentation of Spirax Group's half year results. I am Nimesh Patel, Group CEO, and I am 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.

Speaker #1: Let me begin by 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.

Speaker #1: 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.

Speaker #1: As a result, we delivered 5% organic sales growth, well ahead of IP at 1.5%. Our organic profit growth was 6%, and the operating margin progressed to 19.8%.

Speaker #1: 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.

Nimesh Patel: 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. Looking briefly at the businesses. In Steam Thermal Solutions, 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 solution sales. This resulted in China being down 1% compared to the 6% decline we saw in the first half of last year.

Speaker #1: 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 I.P.

Speaker #1: 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.

Speaker #1: As expected, the decline in large project demand in China has continued to moderate, partly offset by further growth in MRO and solution sales. This resulted in China being down 1%, compared to the 6% decline we saw in the first half of last year.

Speaker #1: ETS performed very well, with sales growing 11%, supported by strong demand growth across all three divisions and continued operational improvements that are increasing throughput and supporting strong margin progression.

Nimesh Patel: Electric Thermal Solutions performed very well, with sales growing 11%, supported by strong demand growth across all three divisions and continued operational improvements that are increasing throughput and supporting strong margin progression. In Watson-Marlow, sales grew 7% with Biopharm new order intake ahead of sales. In Q2, orders reached the highest quarterly level since the COVID-related peak. In Process Industries, we continue to outperform IP. The lower Steam Thermal Solutions 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 Electric Thermal Solutions 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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%.

Nimesh Patel: 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. 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.

Speaker #1: 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.

Speaker #1: 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.

Nimesh Patel: 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 H2, 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 UK remains modest at around 1%. To deliver on the IP forecast for the H2, 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.

Speaker #1: 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.

Speaker #1: Germany continues to contract, while growth in the USA, France, Italy, and the UK 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.

Speaker #1: 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.

Speaker #1: 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.

Nimesh Patel: What our performance is reinforcing is our ability to self-generate demand to drive organic growth. 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. 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 three businesses.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: The long-term growth trends I'm referring to are evident in all three businesses. Process optimization is 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.

Nimesh Patel: 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 Biopharm and pharmaceutical markets, as well as medical devices and hospitals, all benefiting from an aging population and innovative advances in healthcare. 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. 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.

Speaker #1: 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 healthcare.

Speaker #1: Technology: 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.

Speaker #1: 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.

Speaker #1: 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.

Nimesh Patel: 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 three 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.

Speaker #1: Importantly, across our three businesses and across all our end markets, we leverage the same differentiated business model to deliver on the opportunities we see.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: And, speaking of the medium term, let me explain why we remain confident in achieving the organic sales growth targets we set out for 2024.

Nimesh Patel: 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 three strong engines of growth, starting with Steam Thermal Solutions. Progress in execution of our commercial excellence initiatives is enhancing demand growth relative to IP. I will speak later about how we are investing in direct sales, reshaping partnerships with distributors, and driving growth through digital connections. China has been a headwind for growth over the past two years, but we are repositioning our business in China. 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.

Speaker #1: As you know, we have three strong engines of growth, starting with STS. Progress in execution of our commercial excellence initiatives is enhancing demand growth relative to IP.

Speaker #1: 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 two years.

Speaker #1: 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.

Speaker #1: 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.

Nimesh Patel: In Electric Thermal Solutions, 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. 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 will hand over to Louisa for a deeper dive into our H1 financial performance.

Speaker #1: We are delivering above that level. And in Watson-Marlow, the underlying market growth in bio-pharm, coupled with our success at taking market share in target sectors within process industries, supports high single-digit growth.

Speaker #1: 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.

Speaker #1: Now, I'll hand over to Louisa for a deeper dive into our first-half financial performance.

Speaker #2: Thanks, Nimesh, and hello everyone. As usual, the numbers I'm presenting are on an adjusted basis, excluding amortization of acquired intangibles. The prior year numbers also exclude the costs related to the restructuring program we undertook last year.

Louisa Burdett: Thanks, Nimesh, and hello, everyone. As usual, the numbers I am presenting are on an adjusted basis, excluding amortization of acquired intangibles. The prior numbers also exclude the cost that related to the restructuring program we undertook last year. There were no P&L charges for restructuring in H1, although you will note GBP 5 million of cash outlay in the cash flow statement, which reflects timing of settlements. 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 H1 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 three businesses.

Speaker #2: There were no P&L charges for restructuring in the first half, although you will note $5 million of cash outlay in the cash flow statement, which reflects timing of settlements.

Speaker #2: 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.

Speaker #2: 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, with growth in all three businesses.

Speaker #2: 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.

Louisa Burdett: Adjusted operating profit increased by 6% organically, with adjusted operating margin improving 10 bps to 19.8%. Margin progression was driven by strong performances in Electric Thermal Solutions and Watson-Marlow, partly offset by a reduction in Steam Thermal Solutions margin, which I will come on to shortly. Adjusted EPS increased by 9% to 150 pence per share, reflecting the growth in adjusting operating profit together with stable financing costs and a stable tax rate. The board has declared an interim dividend of 50.4 pence 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 will now take you through the drivers of sales and profit performance, starting with the sales bridge.

Speaker #2: Adjusted earnings per share increased by 9% to $1.50 per share, reflecting the growth in adjusted operating profit together with stable financing costs and a stable tax rate.

Speaker #2: The board has declared an interim dividend of $50.40 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.

Speaker #2: 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 $1 million from FX.

Louisa Burdett: First H1 organic sales growth was 5%, well ahead of IP, there was a negligible impact of GBP 1 million from FX. All three 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 H2. As Nimesh Patel 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 three divisions, including double-digit growth in semicon. 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.

Speaker #2: All three 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.

Speaker #2: 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%.

Speaker #2: We are driving the demand, which is reflected in strong order books across all three divisions, including double-digit growth in semicon. Our continued operational progress in process heating also had a positive impact on throughput.

Speaker #2: 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.

Speaker #2: And process industries have continued to significantly outperform IP, as we grow our market share in our target sectors. Moving to the operating profit bridge, group profit increased 6% organically, with FX driving a 2% tailwind, or $3 million.

Louisa Burdett: 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, the margin was 170 bps lower at 22%. This is largely a function of timing, reflecting the phasing of shipments, in addition, we also made considered investments in sales headcount and digital capabilities, which were weighted to the H1. 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 H1 anchored in each of our ongoing operational actions.

Speaker #2: Looking first at STS, adjusted operating profit declined 6% organically, and the margin was 170 basis points lower at 22%. This is largely a function of timing, reflecting the phasing of shipments. In addition, we also made considered investments in sales headcount and digital capabilities, which were weighted to the first half.

Speaker #2: 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.

Speaker #2: 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.

Louisa Burdett: 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 two 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. 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.

Speaker #2: These drivers were partially offset by ramp-up costs associated with our new medium voltage facility and, consistent with the other two divisions, continued investment in sales headcount and capabilities.

Speaker #2: 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%.

Speaker #2: 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.

Speaker #2: I'll now turn to cash flow, where adjusted cash from operations was $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%.

Louisa Burdett: I will 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 H1 does reflect the normal seasonality of our business, we continue to expect full-year cash conversion of around 90%. However, our absolute cash from operations and conversion were lower than the H1 of 2025, 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.

Speaker #2: 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.

Speaker #2: Our capital expenditure was around 3% of sales, reflecting continued discipline in allocation, as we prioritize investments in projects that support future growth, while maximizing the use of our existing manufacturing capacity.

Speaker #2: 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 $618 million and a net debt to EBITDA ratio of 1.6 times. Whilst this is temporarily outside our target range of 1 to 1.5 times, it is not unusual for the normal cycle through the year, particularly with the recent payment of the interim dividend. We fully expect to be back within this range by the end of the year, as we continue our focus on deleveraging.

Louisa Burdett: We ended the H1 with net debt of GBP 618 million and a net debt to EBITDA ratio of 1.6x. While this is temporarily outside our target range of 1x to 1.5x, it is not unusual for the normal cycle through the year, particularly with the recent payment of the interim dividend. We fully expect to be back within this range by the end of the year as we continue our focus on deleveraging. Let me now turn to the outlook for the H2 and the full year. As we have outlined, we ended the H1 with strong demand momentum and healthy order books across all three businesses, providing good visibility and confidence in our H2 delivery. Our initiatives being sponsored through our operational excellence growth driver continue to underpin sales conversion.

Speaker #2: 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 three businesses, providing good visibility and confidence in our second half delivery.

Speaker #2: 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.

Louisa Burdett: In Steam Thermal Solutions, we expect higher sales growth in the H2, driven by shipments from the strong order book at the end of the H1, which is unwinding as anticipated, as well as further progress in driving self-generated demand. We anticipate H2 margin to be higher than the H1, consistent with our typical 45%, 55% weighting of adjusted operating profit. This margin reflects operating leverage from higher H2 sales shipments, driving a full-year margin broadly in line with that of 2025. In Electric Thermal Solutions, we expect high single-digit sales growth in the H2, even against the strong double-digit comparator from last year. This is supported by the strong demand environment and large order books in all three divisions. Margin will be slightly ahead of the H1.

Speaker #2: We anticipate second half margin to be higher than the first half, consistent with our typical 45/55 percent weighting of adjusted operating profit. And this margin reflects operating leverage in the second half from higher second half sales shipments, driving a full-year margin broadly in line with that of 2025.

Speaker #2: 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 three divisions.

Speaker #2: 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.

Louisa Burdett: Finally, in Watson-Marlow, as we have said, Biopharm orders remain ahead of sales and Process Industries entered the H2 with a strong and growing order book. Overall, for Watson-Marlow, we expect high single-digit sales growth in the H2, with margin broadly similar to the H1. 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 H1, there was a negligible impact on revenue and a tailwind of 2% on profit. Therefore, we are expecting the H2 revenue impact to be again negligible, but profit 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 H2, driving improved operating leverage across the group.

Speaker #2: 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.

Speaker #2: 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 profit to be impacted by a 2% headwind, which gets you to the full-year guidance.

Speaker #2: 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.

Louisa Burdett: 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. 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 Patel 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 two 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 Electric Thermal Solutions and Watson-Marlow.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: The actions we have taken over the last two 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 percent over the medium term.

Speaker #2: 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.

Louisa Burdett: 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. 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. 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 percent, while continuing to drive attractive returns on capital.

Louisa Burdett: 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 am handing back to you.

Speaker #2: Nimesh, I'm handing back to you.

Speaker #1: 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.

Nimesh Patel: Thanks, Louisa. Let us turn now to some of the key drivers of our performance in the H1. 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 three 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 are 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 are 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.

Speaker #1: At the foundation is our differentiated business model. Building on that foundation, we are executing against three operational priorities: commercial excellence, operational excellence, and organizational fitness.

Speaker #1: 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.

Speaker #1: Together, these support delivery of our financial ambition. Moving to how we're delivering on our operational priorities, last year our restructuring programs simplified our organization's focus on customers to accelerate growth, supported by reinvestment into key initiatives.

Speaker #1: We are seeing the benefits of the changes we've 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.

Nimesh Patel: 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 two times IP in the H1. We are also seeing the benefits of our focus on other commercial excellence initiatives. Our cogeneration approach with STS US 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 are continuing to expand our addressable market across all three businesses.

Speaker #1: 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.

Speaker #1: 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 two times IP in the first half.

Speaker #1: We are also seeing the benefits of our focus on other commercial excellence initiatives. Our co-generation approach with STS US distributors continues to gain momentum, with demand from the 22 partners onboarded in 2025 increasing by around 6%.

Speaker #1: Finally, data centers are a good example of how we're continuing to expand our addressable market across all three businesses. In ETS, we see considerable opportunity in liquid-cooled load bank solutions, with a growing development pipeline.

Nimesh Patel: In ETS, we see considerable opportunity in liquid-cooled load bank solutions with a growing development pipeline. We are 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 are 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 have continued to ramp up production at our Devens facility in the US 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: In Watson-Marlow, we've continued to ramp up production at our Devens facility in the US to support strong demand, improve operating leverage, and reduce tariff exposure.

Speaker #1: 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.

Nimesh Patel: 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 H1. 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 will delve deeper into this in the next slide. First, turning to decarbonizing thermal energy, we continue to make progress across our four 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: But first, turning to decarbonizing thermal energy, we continue to make progress across our four 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.

Speaker #1: And in ETS, we secured 10 Powering Zero orders during the first half, at a total value of around $12 million. We are also further leveraging the combined expertise of STS and ETS through our thermal energy assessment capability.

Nimesh Patel: In ETS, we secured 10 Powering Zero orders during H1 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 H1, 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 five times 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.

Speaker #1: 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 five times the initial assessment revenues.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Now, our capability is helping us become even more integrated into our customers' critical processes, moving us from periodic walk-the-plant reviews to providing constant insights, data, and actionable recommendations.

Nimesh Patel: 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 is not even our entire installed base. Our experience and expertise tell us that we need to connect around one 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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 we also recognize that this number is only part of our growing installed base and a fraction of the industry's installed base.

Nimesh Patel: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Our solution now identifies failures as they occur, reducing energy losses and saving approximately £100,000 a year for that customer, while also improving maintenance planning and delivering a short payback for them.

Nimesh Patel: 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 are excited about our digital potential and continue to evolve and adapt to ensure we maximize the opportunity. 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 H2. Strong order books and continued momentum across our end markets provide good visibility into growth and margin progress.

Speaker #1: We're excited about our digital potential, and we continue to evolve and adapt to ensure we maximize the opportunity. So, to summarize before moving to Q&A, we have once again delivered on the expectations we set out.

Speaker #1: 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 in the second half. Strong order books and continued momentum across our end markets provide good visibility into growth and margin progress.

Speaker #1: 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.

Nimesh Patel: 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 are now happy to take your questions.

Speaker #1: As a result, we remain on track to deliver our medium-term targets and exceed these in the long term. Thank you. We're now happy to take your questions.

Speaker #2: Good morning, everyone. This is Mal. Thank you for submitting your questions online. Just to remind you, you can continue to do so until the call comes to an end.

Mal Patel: Morning, everyone. This is Mal. Thank you for submitting your questions online. Just to remind 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. The first question is from Stefan 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?

Speaker #2: I will read your questions out verbatim as I see them on the screen. So, first question is from Stefan: "On STS, can you please explain your comment on larger orders coming back?"

Speaker #2: Will that lead to an acceleration of sales going forward, as the demand for these has been absent for a while now?

Speaker #1: Thank you, Stefan. 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.

Nimesh Patel: Thank you, Stefan. Good question. We talked about this in our last trading update, and we have mentioned it again in our H1 results. You are right, we are seeing what I would describe as a small uptick in large orders across our Steam Thermal Solutions business. Remember, that is against a weak comparator, but it is a positive sign of our customers' activity and a supporting pillar of the longer-term increase in growth of Steam Thermal Solutions. Perhaps I just take a moment here to talk about the longer-term Steam Thermal Solutions growth potential. What I want us to do is start by reminding you of the recent backdrop. We have been delivering around 3% to 4% growth, excluding China, which has been a headwind, and we have delivered that against a low IP in the order of around 1.5%. There are a number of things that we have been focused on.

Speaker #1: 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.

Speaker #1: But it's a positive sign of our customers' activity and a supporting pillar for the longer-term increase in growth of STS. Perhaps I'll just take a moment here to talk about the longer-term STS growth potential.

Nimesh Patel: Perhaps I just take a moment here to talk about the longer-term Steam Thermal Solutions growth potential. What I want us to do is start by reminding you of the recent backdrop. We have been delivering around 3% to 4% growth, excluding China, which has been a headwind, and we have delivered that against a low IP in the order of around 1.5%. There are a number of things that we have been focused on.

Speaker #1: And what I want to do is start by reminding you of the recent backdrop. So, we've been delivering around 3–4% growth, excluding China, which has been a headwind.

Speaker #1: 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.

Speaker #1: 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.

Nimesh Patel: The first is repositioning our business in China, and that is progressing really well as we are updating you on in these results. In H1, 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 have 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 Steam Thermal Solutions business and maybe better. When that happens, Steam Thermal Solutions is back to a sort of 3% to 4% growth rate. On top of that, we have got the investments that are helping us enhance the growth of Steam Thermal Solutions, both digital and decarbonization.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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 today.

Nimesh Patel: That is why I wanted to spend a little bit of time talking about the digital opportunity today. I can see that adding 1% between that digital and decarbonization to the Steam Thermal Solutions growth. So that is getting us to 4% to 5%. The other thing to note here is that all of this is before any improvement in IP. Remember, we grow at 2x IP, so you can see how that could enhance growth further. Finally, just remember the long track record we have in Steam Thermal Solutions, supported by our ability to self-generate growth. Now we have a business that is also well invested in both our sales capability, but also our supply capacity. Thank you for the question. Stefan has a follow-up on Electric Thermal Solutions, which is, can you comment on the 20% margin target?

Speaker #1: And I can see that adding 1% between that digital and decarbonization to the steam growth. So that's getting us to 4-5%.

Speaker #1: And the other thing to note here is that all of this is before any improvement in IP. And remember, we grow at two times IP.

Speaker #1: 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.

Speaker #1: And now we have a business that is also well invested in both our sales capability and our supply capacity. So, thank you for the question.

Speaker #2: And Stefan 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?

Nimesh Patel: Are we right to assume that this is a full year target or is it an exit rate? To get there, are we right to assume you need the support of pricing initiatives, which you have not done so far in the past years? Let me kick that off and then Louisa, I will hand to you. We are confident in our ability to hit the 20% target for Electric Thermal Solutions. 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 H1 of the year, and it happened to be the month where we shipped the highest value of product. That is not a surprise because we have talked about the drivers of getting to 20%, and volume and continued demand growth is one of them.

Speaker #2: 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?

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: But Louisa, do you want to take that? Do you want to take that question?

Nimesh Patel: Louisa, do you want to take that question?

Speaker #3: Yeah, I think I would reiterate what Nimesh has said. The margin progression we have seen in the first half of 220 basis points is really pleasing.

Louisa Burdett: Yeah, I think I would reiterate what Nimesh has said. The margin progression we have seen in H1 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 Stefan, 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 is not like we are waiting because we have a particularly strong competitive position in this market. So it is a continuum.

Speaker #3: 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.

Speaker #3: And ETS is no exception. So, Stefan, 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.

Speaker #3: 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.

Speaker #3: 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.

Louisa Burdett: 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.

Speaker #2: Good. Next, we have three questions from Chit at JPMorgan. One, could you provide a bit more color on the greater-than-two-times IP order momentum you're seeing in STS?

Nimesh Patel: Good. Next, we have three questions from Chet at JP Morgan. One, could you provide a bit more color on the greater than 2x IP order momentum you are seeing in STS? Do you now see a likelihood of China being neutral in H2 rather than early 2027? Second question, this is the first time we are hearing you talk about end market exposures. Does that mean you might move away from IP as a significant driver of the business? If so, how should we think about the longer-term growth algorithm? 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 of the questions when we get there. Let me start with the first one, which was about demand growth in STS.

Mal Patel: Good. Next, we have three questions from Chet at JP Morgan. One, could you provide a bit more color on the greater than 2x IP order momentum you are seeing in STS? Do you now see a likelihood of China being neutral in H2 rather than early 2027? Second question, this is the first time we are hearing you talk about end market exposures. Does that mean you might move away from IP as a significant driver of the business? If so, how should we think about the longer-term growth algorithm? Finally, on ETS, semis grew double-digit percentage. How sustainable is that and what visibility do you have?

Speaker #2: 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.

Speaker #2: 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?

Speaker #2: And finally, on ETS, semis grew double-digit percentage. How sustainable is that? And what visibility do you have?

Speaker #1: You might have to remind me of some of those questions before we get there. But let me start with the first one, which is about demand growth in STS.

Nimesh Patel: You might have to remind me of some of the questions when we get there. Let me start with the first one, which was about demand growth in STS.

Speaker #1: So, we saw greater than two times IP demand growth in the first half. IP was one and a half percent, so that's greater than three percent.

Nimesh Patel: We saw greater than 2x IP demand growth in the H1. IP was 1.5%, so that is greater than 3%. Bear in mind that we saw a small impact on demand in the Middle East as a result of the ongoing conflict. The Middle East is 1% of group sales, but much more heavily weighted towards Steam Thermal Solutions than the rest of our businesses. 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. I am really quite pleased with the demand growth in the H1 in Steam Thermal Solutions. The second thing I would say is, what you take away from that is orders obviously well ahead of sales.

Speaker #1: 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.

Speaker #1: The 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.

Speaker #1: So, I am really quite pleased with the demand growth in the first half in Steam. The second thing I would say is, what you take away from that is orders are obviously well ahead of sales.

Speaker #1: 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.

Nimesh Patel: As we go into the H2, we have not only a healthy order book, and remember, we are 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 H2. More importantly, the order momentum underpins our confidence going into the H2. Of course, sitting here today, we have the benefit of seeing what has happened in July, and we have the indications through our flash of what is happening in August. As we have 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. It gives us confidence in the H2 performance of Steam Thermal Solutions, exactly as we have described it.

Speaker #1: But the order book underpins our confidence going into the second half. More importantly, the order momentum underpins our confidence going into the second half.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: So it gives us confidence in the second half performance of Steam, exactly as we've described it. We talked earlier, in response to Stefan's question, about the large orders coming back, which are at a very early stage, against a weak comp, but still a positive sign.

Nimesh Patel: We talked earlier in response to Stefan's question about the large orders coming back, which very early stage against a weak comp, but still a positive sign. Remember, the sales performance in the H1, which in turn has some impact on the margin together with the investments, we are talking about small numbers. 1% of Steam Thermal Solutions in the H1 is about GBP 4 million. That is literally the equivalent of a few days' worth of shipments. It helps probably put a little bit of that into context. The second question was about sector exposure. My memory has not failed here yet.

Speaker #1: 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.

Speaker #1: One percent of steam in the first half is about four million pounds. That is literally the equivalent of a few days' worth of shipments.

Speaker #1: So it helps, probably, to put a little bit of that into context. The second question was about sector exposure. My memory's not failed me yet.

Mal Patel: Sector exposure, does that mean that you are likely to move away from IP as a driver? What does this mean for the longer-term growth algorithm?

Speaker #2: 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?

Speaker #1: Yes, we are a business that operates in multiple sectors across multiple regions of the world. All of our technologies are used by almost all sectors in some way, shape, or form.

Nimesh Patel: Yeah. 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. 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 call 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 have also said that while we cannot be completely divorced from IP, what we can do is continue to improve the outperformance against IP. Again, in H1, we have delivered, at a group level, organic sales growth of 5% in a world where IP is 1.5%.

Speaker #1: 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.

Speaker #1: The more the growth in demand, the greater the call on our solutions to help with the effectiveness of processes, eliminating waste, and driving higher throughput. These are all things that are pegged in some way to IP.

Speaker #1: However, I've also said that while we cannot be completely divorced from IP, what we can do is continue to improve our outperformance against IP.

Speaker #1: And again, in the first half, we've delivered at a group level organic sales growth of five percent in a world where IP is one and a half percent.

Speaker #1: And we've got genuine volume growth in the first half of this year. That is because of the changes we have made through our Together for Growth strategy and our restructuring.

Nimesh Patel: We have got genuine volume growth in H1 of this year. 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. 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. 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. Hopefully that came across.

Speaker #1: We are going after the opportunities we see. And what I wanted to remind everyone of with the slide on sector exposures was, one, we are diversified.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: And deliver solutions to our customers, so hopefully that came across.

Speaker #3: Maybe I can pick up Chit's other two questions, which I think were about China progression being neutral. Semicon, yeah, 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.

Louisa Burdett: Maybe I can pick up Chip's other two questions, which I think was about China progression being neutral.

Mal Patel: No, it was semicon.

Louisa Burdett: Semicon, yeah. As a high growth industry, 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. It is a good high growth sector for us and one where we are highly connected with our customers and responsive to that.

Speaker #3: 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.

Speaker #2: And sorry, Chit, second question—the second part was on China. Do you now expect it to be neutral in the second half?

Mal Patel: I am sorry. Chip's second question, the second part was on China. Do you now expect it to be neutral in the H2?

Nimesh Patel: Our confidence around China hitting that neutral point has definitely gone up given the performance in the H1 and what we can see going into the H2. We have always given the range as H2 of this year or early the following year. I think it is fair to say that that could well come towards the earlier end of that range rather than the latter, but there is more waters to flow under that bridge.

Speaker #1: 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.

Speaker #1: So, we've always given the range as the 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.

Speaker #1: But there's more water to flow under that bridge.

Speaker #2: Okay. And we have a question from Besik at Lombardy Capital. Could you quantify the headwind to STS's first-half organic growth from the client-driven shipment phasings into the second half?

Mal Patel: Okay. We have a question from Besik at Lombardi Capital. Could you quantify the headwind to STS' H1 organic growth from the client-driven shipment phasings into the H2?

Speaker #1: 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.

Nimesh Patel: Look, very broadly, we are looking at a headwind that is in the low single-digit millions of GBP. It comes back to my point of the law of small numbers here. 1% of growth in the H1 of Steam is about GBP 4 million. We can see those orders. We can see them in our order book. We can see that customers have specified shipment in the H2. We can see when they are going to ship in the H2. As I said, in the first couple of months of this H2, we have already seen the unwind of that order book. Frankly, things are progressing exactly as we have laid out in our results.

Speaker #1: Yeah, one percent of growth in the first half for Steam is about £4 million. So we can see those orders—we can see them in our order book.

Speaker #1: 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 this second half, we've already seen the unwind of that order book.

Speaker #1: So, frankly, things are progressing exactly as we have laid out in our results.

Speaker #2: Okay, some questions from Rory at Oxcap. Firstly, can you quantify strong growth in STS and MRO activity in China? And can you just remind us of the margin difference between STS, MRO, and project activity in China?

Mal Patel: 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?

Speaker #3: Rory, hi. 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.

Louisa Burdett: Rory, hi. 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 -1% versus -6% in the prior period. Obviously, that has 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 have not provided a specific quantification. Look, basically, the growth of MRO, the continued focus on large orders, makes our China business even better. As we have 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.

Speaker #3: Obviously, that's also been helped by a 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.

Speaker #3: But look, basically, the growth of MRO and 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.

Speaker #3: Reading the market and pivoting, and having that balance across MRO and large orders, makes it a stronger business overall.

Speaker #2: 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?

Mal Patel: Second question from Rory. What are the supply chain impacts you are seeing coming out of the Middle East? Is this where customers have been delaying shipments into the H2, or is that a different dynamic?

Speaker #1: So, in terms of the delays of shipments into the second half, again, let me remind you, we're talking about relatively small numbers. But we have seen that from customers in the Middle East.

Nimesh Patel: So, in terms of the delays of shipments into the H2, again, let me remind you, we are talking about relatively small numbers. But we have seen that from customers in the Middle East. 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 site. So that represents an upside, potentially in the H2 of the year.

Speaker #1: I mean, clearly it is challenging and potentially not safe to access customers' sites in parts of the Middle East, and we put the safety of our colleagues above all else.

Speaker #1: However, there is an opportunity here that when it does become safe, working with our customers to access their sites, there is an opportunity for us to support repairs, maintenance, ramp-up, and various other activities in our customer sites.

Speaker #1: 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.

Nimesh Patel: 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 H1 have moved into the H2. We have received the orders. We know when we need to ship the projects, so we have confidence in that demand coming through. 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. Where we expect them to continue, we have already got plans in place.

Speaker #1: 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.

Speaker #1: We know when we need to ship the projects, so we have confidence in that demand coming through. 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.

Speaker #1: 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.

Speaker #1: And therefore, we would expect to draw 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.

Nimesh Patel: Therefore, we would expect to pull down on our higher-than-normal inventory levels during the H2 of the year, and that is what you will see in our improving cash conversion in the H2.

Speaker #2: 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?

Mal Patel: 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 are seeing, or were you always expecting to incur these costs in this period? As a follow-up, are there any opportunities for you as data center architecture shifts to medium voltage?

Speaker #2: And as a follow-up, are there any opportunities for you as data center architecture shifts to medium voltage?

Speaker #1: 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.

Nimesh Patel: 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. You can see the strong demand growth that we are generating in ETS year in, year out. 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. As a reminder, in the five years to our Capital Markets Day in 2024, output from those factories in North America was down around 10% in volume.

Speaker #1: 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.

Speaker #1: 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 five years to our Capital Markets Day in 2024, output from those factories in North America was down around 10% in volume.

Speaker #1: Since then, it's up over 40% in the last, what, now, two and a half 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.

Nimesh Patel: Since then, it's up over 40% in the last, what now? Two and a half years. I'm really pleased with that performance. In turn, as Louisa Burdett described earlier, that continued demand growth, that ability to deliver it to customers, and the efficiency improvements that we are making are driving margin improvement. 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. I'm really pleased with progress there. Sorry, what was the second part of the question?

Speaker #1: 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.

Speaker #1: So, really pleased with the progress. Sorry, what was the second part of the question?

Speaker #2: Yeah. The second part was the data centers. We will come to that in a minute because there is another question on the ETS margin.

Mal Patel: Yeah. The second part was on data centers. We will come to that in a minute.

Nimesh Patel: Okay.

Mal Patel: 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 H1, and that's without pricing?

Speaker #2: 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.

Speaker #1: Yeah, 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, then you can hold me to account if you don't like my answer.

Nimesh Patel: Yeah. Andy, it is without pricing, you are right. Pricing represents an upside. If I answer a slightly different question to the one you have asked, then you can hold me to account if you do not like my answer. This business is capable of achieving greater than 20% margins. I am 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? Our judgment is that, look, let us get to 20%, but when we get to 20%, there are some really interesting incremental opportunities, even above what we are doing today, to invest in the longer-term of growth of those business.

Speaker #1: 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?

Speaker #1: 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 businesses.

Speaker #1: That's not holding us back today. But as I look out five years, ten 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.

Nimesh Patel: That is 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 will make those judgments once we get to 20%, and we will decide, do we think that margin could be a little bit higher, another 100 bps or so? Or do we think we put that money back into investing in longer-term growth? I am pretty clear that investing in longer-term growth and the compounding nature of the returns that that delivers is attractive for our investors.

Speaker #1: 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?

Speaker #2: 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.

Speaker #3: Two questions from Max at Mount 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?

Mal Patel: Two questions from Max at Morgan Stanley. Firstly, on Steam Thermal Solutions, could you please elaborate on the H2 margin performance that you expect, and what are the key levers in going from a H1 decline to a recovery in the H2? 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 should not 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?

Speaker #3: And then second question, on Watson-Marlow, orders and end market momentum suggest another strong year of growth in Watson-Marlow into 2027.

Speaker #3: 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?

Speaker #2: 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.

Nimesh Patel: Do you want to take that, Louisa? Just as a reminder, our margin in the H1 is up organically 10 bps. I think that first question is specifically about STS as-

Speaker #2: I think that first question is specifically about STS as well. So, Louisa, do you want to take that?

Mal Patel: Yeah

Nimesh Patel: So Louisa, do you want to take that?

Louisa Burdett: Well, Max, the strong order book that we have talked about in Steam Thermal Solutions, 2x IP in the H1, is one of the drivers of our H2 sales growth, and we have been clear that we are seeing the characteristics of our July performance reflecting that unwind. As Nimesh Patel has said, H2 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 H1, which has a margin benefit. We have talked about the fact that we have put more investment into the H1 around our commercial excellence initiatives, which is clearly generating a return in the order book. We expect that level in investment to taper off in the H2, and that will be another add to the margin in the H2 for Steam Thermal Solutions.

Speaker #3: Yeah. Max, the strong order book that we've talked about in the Steam two times IP in the first half is one of the drivers of our second half sales growth.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: I think on what's in Marlowe, we've always talked about what's in Marlowe 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.

Louisa Burdett: I think on Watson-Marlow, we have always talked about Watson-Marlow being well invested. We have 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 are 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 have had huge success with initiatives like WMArchitect. So as Nimesh Patel has said, for Electric Thermal Solutions, the same applies in Watson-Marlow. We need to balance the investment to continue that compounding growth in this important division. In terms of big facility investments, we do not 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.

Speaker #3: And all of the operational excellence initiatives that we're working on and what's in Marlowe are in common with the rest of the business. Look, we will continue to make investments in new product development.

Speaker #3: We've had huge success with initiatives like what's in Marlowe Architect. So, as Nimesh has said, for ETS, the same applies in what's in Marlowe.

Speaker #3: 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.

Speaker #3: So, at the margins, we will continue to invest. But the basic growth algorithm and the drop-through remain intact.

Speaker #2: 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?

Nimesh Patel: Can I just add to your answer in terms-

Louisa Burdett: Of course.

Nimesh Patel: of the investments we've made in H1 in Steam.

Nimesh Patel: which you're seeing the impact of in margin, but we'll see the improvement in margin in H2. 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. 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: So that's why you're seeing the sort of run-rate cost of those people coming through in the first half of this year, rather than in last year.

Nimesh Patel: That's why you're seeing the sort of the run rate cost of those people coming through in H1 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. Those are the areas where the investment has gone. The positive is we've rebuilt that. Yes, it'll take some time for some of those folks just 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. Having said that, our investment is now complete. We're largely done. I'm not seeing any sort of significant or material new investment in H2 of this year.

Speaker #2: 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.

Speaker #2: 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 two to three years for a sales engineer to get to sort of full run-rate delivery.

Speaker #2: 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.

Speaker #2: 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.

Nimesh Patel: When you see the order book we have, the order momentum we have going into H2, as I said, we are already starting to see the benefits of that in July and August. Together with the investments we have already made with no new investments coming through, the H2 drop-through for Steam Thermal Solutions is high, and that is why we have confidence in the margin guidance that we have shared today.

Speaker #2: 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.

Speaker #1: Okay, a few questions from Jonathan Hearn at Barclays. First, how much was the cost under-absorption from the ramp-up of the new capacity at Ofden in the first half?

Mal Patel: Okay. A few questions from Jonathan Hern at Barclays. One, how much was the cost under absorption from the ramp-up of the new capacity at Ogden in H1? Will this fall in H2, and will it be eliminated in 2027? Do that and then we will move on.

Speaker #1: Will this fall in the second half, and will it be eliminated in 2027? Do you want to do that, and then we'll move on?

Speaker #3: 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.

Louisa Burdett: Jonathan, it is a minor offset against the other positive drivers in Electric Thermal Solutions, largely because we have 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 have given you some metrics about how the productivity of the whole of the Process Industries production environment is increasing. We did anticipate some level of under absorption of fixed overheads, and we will probably see a little bit going through H2 and maybe into 2027. It really depends on the mix that we get in Electric Thermal Solutions. Look, we have delivered sequentially 10% sales growth, 12% sales growth, 11% sales growth.

Speaker #3: 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 industry's production environment is increasing.

Speaker #3: 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.

Speaker #3: It really depends on the mix that we get in ETS. But look, we've delivered sequentially 10% sales growth, 12% sales growth, and 11% sales growth.

Speaker #3: And this machine is starting to get a lot more productive. And as that capacity ramps up, we will get to normality on the unit cost coverage.

Louisa Burdett: 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. I cannot give you a specific date when it goes away.

Speaker #3: But I can't give you a specific date when it goes away.

Speaker #1: So then there's 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?

Mal Patel: So then there is a follow-up on ETS, again from Jonathan. In the H1, how much higher were Heat Trace and semicon margins versus the ETS average?

Speaker #2: 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.

Nimesh Patel: So Jonathan, very simply, Heat Trace and semicon margins are over 20%. I would say slightly over 20%. As Louisa Burdett has just described, we are on a path to improving our margins in the process heating part of our business, which is about 60% of the total of ETS.

Mal Patel: Two other questions from Jonathan. Was the 1% down sales in China also impacted by project shipments?

Speaker #1: Two final questions from Jonathan. Was the 1% sales decline in China also impacted by project shipments?

Speaker #2: 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.

Nimesh Patel: Yes, because we are seeing the moderation of the decline in large orders, not yet growth in large orders. That will be part of the impact on the 1%, and of course, offset by the growth in the MRO and solution sales.

Speaker #2: On the 1%, and of course, offset by the growth in the MRO and solution sales.

Speaker #1: Okay. And then we've had a number of questions on what's in Marlowe, which you guys will forgive me if I just group them, because you've all asked the same question.

Mal Patel: Okay. We have had a number of questions on Watson-Marlow, which you guys will forgive me if I just group them because you have all asked the same question. What were the growth rates of Process Industries and Biopharm in Watson-Marlow? Can you talk us through their margin differential between Process Industries sales and Biopharm sales?

Speaker #1: What were the growth rates of process industries and BioPharm in what's in Marlowe? And can you talk us through their margin differential between process industries sales and BioPharm sales?

Speaker #2: Okay, so I'll take the latter question first because it's easier. There is no substantial difference between the margin in process industries and biopharm. Essentially, we're supplying parasitic pumps, specialist hoses, even single-use consumables into various different sectors.

Nimesh Patel: Okay. Take the latter question first, because it is easier. There is no substantial difference between the margin in Process Industries and Biopharm. Essentially, we are supplying peristaltic pumps, specialist hoses, even single-use consumables into various different sectors. Food and beverage will be a consumer of single use just like Biopharm will. There is no material difference in margin between Process Industries and Biopharm. In terms of the growth rates, we have not quantified the individual growth rates. What I think you can read into the results is we have got 7% organic growth in Watson-Marlow in sales. We have told you that orders are above sales.

Speaker #2: 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.

Speaker #2: 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 what's in Marlowe in sales.

Speaker #2: We have told you that orders are above sales. And just to give you a little bit more color, to be helpful around biofarm, what we're seeing—and forgive me if this sounds boring, although that's probably reassuring, or it should be.

Nimesh Patel: Just to give you a little bit more color, to be helpful around Biopharm, what we are seeing and forgive me if this sounds boring, although that is probably reassuring or it should be, the end user demand that I have been talking about continues to perform well. In particular, we are 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 are 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 are still seeing that coming back slowly. 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.

Speaker #2: 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 that capacity.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: So we can see that is recovering. And note, this is really around larger customers building that capacity. In fact, a number of these customers are shifting their investment.

Nimesh Patel: Note, this is really around larger customers building that capacity. In fact, a number of these customers are shifting their investment. A particular trend is investment coming out of the UK and out of Germany and going into the US and going into China as well. We are really well positioned to pick up that demand wherever it is. If it is in EMEA, if it is in APAC, if it is 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. 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. Again, just further evidence of the ongoing recovery in that space.

Speaker #2: So, a particular trend is investment coming out of the UK and out of Germany, and going into the US and going into China as well.

Speaker #2: 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 the Americas—we will pick it up.

Speaker #2: But when they shift their projects from one geography to another, it does cause delays. So, feeling pretty good about biofarm 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 biofarm orders.

Speaker #2: It was a peak for us. So again, just further evidence of the ongoing recovery in that space.

Speaker #1: Okay. Question on SDS 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?

Mal Patel: Okay. Question on STS from Emmanuel at Kepler. Could you give more color on how much of the H2 revenue and margin recovery is already secured by the existing order book? Given your cautious view on the IP recovery, would you still expect to deliver full year guidance if IP remains around the H1 levels rather than improving?

Speaker #1: 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?

Speaker #2: 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.

Nimesh Patel: So on the IP question first, essentially, yes, because we have taken a more conservative view of what IP will do in H2. There is more nuance to that answer because obviously it depends on where IP is up and where IP is down. But fundamentally, we are 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 do not necessarily give you a high degree of visibility going into H2.

Speaker #2: 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.

Speaker #2: The second point, to answer the first part of your question—sorry—is our order books, because we book and ship typically about 40% in the month.

Speaker #2: And around 80 to 85% within three months. The order books don't necessarily give you a high degree of visibility going into the second half, but what it does give us is confidence that, given the higher level of the order book at the end of the first half, there is immediately a body of shipments that we can see have been carried into the second half.

Nimesh Patel: What it does give us is confidence that there is immediately, given the higher level of the order book at the end of H1, there is immediately a body of shipments that we can see that have been carried into H2. So that is a positive. As I said earlier, the second thing that we continue to see is the order momentum being carried from H1 into H2. That is why we have confidence in the delivery of the H2 growth in Steam Thermal Solutions. As I also said earlier, with the investments we have made really at the end of last year and then at the beginning of this year, where you are seeing the kind of the run rate impact of that in H1. Given those investments, they will not be increasing from here.

Speaker #2: 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.

Speaker #2: 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, you're seeing kind of the run rate impact of that in the first half. Given those investments, they won't be increasing from here.

Speaker #2: We can also see the high level of drop-through in the second half for SDS, which in turn gives us confidence in the margin.

Nimesh Patel: We can also see the high level of drop through in H2 for STS, which in turn gives us the confidence on the margin. Just to remind you, this is very typical of Spirax of old, the H1, H2 sales split we are looking at is 48%/52%, H1, H2, and the profit split we are looking at is 45%/55%. That is not unusual in terms of seasonality for our business.

Speaker #2: 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.

Speaker #2: And the profit split we're looking at is 45% and 55%. That is not unusual in terms of seasonality for our business.

Speaker #1: Okay, 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?

Mal Patel: Okay. 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? Could you remind us of the latest split of semiconductor exposure within ETS?

Speaker #1: And could you remind us of the latest split of semiconductor exposure within ETS?

Speaker #2: Yes. So equipment heating in ETS is about 25% of sales, and half of that is semi-con. So you're looking at, sort of, 12.5% of sales.

Nimesh Patel: Yes. Equipment heating in ETS is about 25% of sales, and half of that is semicon. So you are looking at 12.5% of sales. Those are 2025 numbers, and then we have 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. Here we are talking broadly around international customers, US and European. We are also building our presence in China to be able to serve the domestic market.

Speaker #2: 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.

Speaker #2: Regarding the question about APAC, we are working with our customers to establish an even stronger footprint in the APAC region to serve them.

Speaker #2: Now, here we're talking broadly about international customers—US and European. We are also building our presence in China to be able to serve the domestic market.

Speaker #2: 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.

Nimesh Patel: The advantage we have is that in the spaces in which we play, and as a reminder, that is atomic layer deposition, that is lithography, and that is etching, all parts of the wafer fabrication equipment process or 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 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 is a relatively small set of players in this space. I think that in turn gives us the ability to be able to win that business and compete in China.

Speaker #2: There are all sorts 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 and thermal energy in those processes.

Speaker #2: 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.

Speaker #2: It's a relatively small set of players in this space, and I think that, in turn, gives us the ability to win that business and compete in China.

Speaker #2: But I don't want to be complacent about that. There's work we have to do, investment we have to make, and capability we need to build within China to get after that demand.

Nimesh Patel: I do not want to be complacent about that. There is work we have to do, investment we have to make, capability we need to build within China to get after that demand. Of course, at the end of the day, there may also be some regulatory restrictions that we will have to be cognizant of. There is no structural reason why we could not compete.

Speaker #2: 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.

Speaker #1: So, I think we have time for two 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?

Mal Patel: So I think we have time for two 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? Then from Varun at Redburn Atlantic, 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?

Speaker #1: And then from Varun at Xantium, what conditions do you need to see for a share buyback, given the expected strong free cash flow and current market value of your equity?

Speaker #1: When would you consider a buyback?

Speaker #2: Do you want me to do the first one, Louisa, and you do the second one?

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

Speaker #3: Sure thing. Yeah.

Mal Patel: Sure thing, yeah.

Louisa Burdett: Sure thing, yeah.

Speaker #2: 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, and 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've bought in Steam, or be it 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.

Nimesh Patel: 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 Sensing Technology, like some of the smaller distributors that we've bought in Steam Thermal Solutions, 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.

Speaker #2: So, when 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.

Speaker #2: 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.

Nimesh Patel: We will remain highly disciplined. 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. Another is obviously buybacks, and Louisa, I will hand over to you on that bit.

Speaker #2: 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.

Speaker #2: And another is obviously buybacks. And Louisa, I'll hand over to you on that.

Speaker #3: Yeah. 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.

Louisa Burdett: Yeah, we clarified our capital allocation framework at the end of 2025. 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 1.5 times, and there are no good opportunities that generate those sorts of returns that we are seeking, then we will obviously be considering a buyback at that point.

Speaker #3: But we have also been very clear that if we get to the bottom end of our leverage range, which we stated publicly at one to one and a half times 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.

Speaker #1: Good. Thanks, guys. That is it in terms of questions.

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

Nimesh Patel: Thanks very much everyone for joining us. Look forward to seeing you soon. Thank you.

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Half Year 2026 Spirax Group PLC Earnings Call

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