Halma plc ($HLMA)

Good morning, and welcome to our full year '26 results presentation. I'm delighted to be here to present a very strong set of results for the year, results which once again demonstrate the quality of our businesses and the strength of our sustainable growth model, a model built on decades of disciplined choices around the markets we operate in, the companies we acquire and the leaders we trust to run them. And I'd like to start today by thanking everyone at Halma for their individual contributions to our record performance, a performance we should all be incredibly proud of. Together, we continue to make a meaningful difference by pursuing our purpose of growing a safer, cleaner, healthier future for everyone every day. Carole will provide more insight into our financial performance shortly. But first, let me start with the highlights. It's fantastic to report our 23rd consecutive year of profit growth. And I'm really pleased to see these results underpinned by strong broad-based organic growth delivered across all 3 sectors. Our results include a premium growth contribution from the continued scaling of our Photonics business, more here from Carol shortly. We've delivered strong margins, high returns and good cash conversion. And this performance enabled us to reinvest at a record level well over GBP 600 million in the significant opportunities we see for future growth, including a record year for both R&D spend and M&A. These results reflect the cumulative benefit of decades of disciplined choices and a model that enables a virtuous cycle of growth where strong performance funds further investment in innovation, talent and acquisitions. You'll recognize the core elements of our sustainable growth model on this slide. At our half year results in November, I shared how our model underpins my confidence in the long-term prospects for Halma. The strength of our model lies in the way its elements are interlinked and work together, allowing our businesses to respond with agility to new opportunities while remaining aligned to our group strategy of delivering sustainable compounding growth and returns. Critical to this is the exceptional talent across Halma, which acts as a key enabler and a multiplier of performance. ensuring that as we invest, adapt and grow, we continue to compound value over the long term. In the second part of my presentation, I'll share the core elements of our continued investment. But first, let me hand over to Carole for more details on our financial performance in the year.

Thank you, Mark. Good morning, everyone. A very warm welcome, and thank you for joining us this morning. I'll be taking you through the detail behind this excellent set of results. First, let's take a look at our performance against our financial targets. It's been another year of strong financial performance, driven by broad-based growth, strong returns and healthy levels of cash generation. Throughout the presentation, I'll focus on the numbers, excluding the small one-off from the Newbonik transaction that we completed in the first half of the year. First, we have delivered very strong revenue and profit growth, well ahead of our targets. Organic revenue up 16%, well above our 5% target, even excluding the premium Photonics growth, with EBIT growing an impressive 19%, resulting in an exceptionally strong EBIT margin of 22.7%, up 110 basis points towards the upper end of our target range. This means we've delivered EPS growth of 21%, far exceeding our KPI target of 10% -- our strong growth and returns enabled us to continue to invest for the long term with our companies investing GBP 123 million in R&D, representing 4.7% of group revenue. Fantastic to see our M&A momentum driving acquisition profit growth of 8.3%, above our KPI target of 5%. We also achieved 93% cash conversion ahead of our KPI target of 90%. This reflects good cash management and working capital control across the group. And finally, given the strength of profit growth, ROTEC was 16.2%, up 120 basis points. Now let's look at our revenue growth in more detail. This slide bridges the year-on-year reported revenue growth of 14.4%. Organic revenue growth was very strong at 16.2%. This was broadly spread across all 3 sectors, with most of the growth volume driven with price increases a typical 1% to 2%. Additionally, organic revenue benefited from the premium from our Photonics business, which accounted for around half of this growth. Acquisitions, including Lamadeinouri, Brown Line, EQS and Safeetech contributed 2.5% to growth. There was a currency headwind of 2.8%, primarily due to the depreciation of the U.S. dollar against 20.3% and a particularly strong 19% on an organic basis. This is ahead of revenue growth, reflecting the strength of the top line, focused operational delivery, targeted product and portfolio management and good overhead control, all combined with continued investment across our companies. Acquisitions contributed 3.9% of profit, again ahead of revenue contribution, reflecting the quality of businesses we have acquired. Disposals were also modestly accretive to margins. The currency headwind was similar to that of revenue at 2.8%. Moving on to the sector commentary. Starting with the safety sector, where it's great to see further positive momentum following 2 years of double-digit profit growth. This broad-based performance was underpinned by growth in each of safety's 4 subsectors. Revenue grew by 6.5% on an organic constant currency basis. Healthy levels of customer demand underpinned strong momentum in public safety and good levels of growth in fire and worker safety. Growth was further supported by the continued rollout of new products across the sector. Adjusted profit grew 16%, 13% on an organic basis, making our third year running of double-digit organic profit growth. Profit margin increased by 260 basis points to 26.8%. This is a historic high for the sector, driven by the sector's continued strong revenue growth, companies optimizing their products and portfolio mix, good cost control and the benefits of active portfolio management. It's great to see our safety companies continuing to make substantial investments, investing ahead of revenue growth. R&D spend increased by 12% to GBP 56 million, which equates to 6% of sector revenue, reflecting the significant opportunities they've identified to deliver future growth. Safety has also had an active year for M&A, acquiring 2 great companies in the year. These were E2S, our largest acquisition to date for GBP 226 million and Safetech for GBP 64 million. Together, they broaden our fire safety portfolio and strengthen our position in industrial markets. Now turning to Environmental & Analysis. On this slide, we have shown ENA's performance, excluding the Newbonik one-off. There's a slide in the appendix that shows the numbers, including this benefit. E&A sector delivered very strong organic revenue growth of 34.4%. It's good to see double-digit growth across all 3 subsectors with Photonics within optical solutions being particularly strong, which I'll return to shortly. In Environmental Monitoring & Measurement, growth was driven by demand in the U.S. and Asia for gas detection and management solutions. In Water Analysis & Treatment, growth benefited from strong demand for water infrastructure products and solutions in the U.S. and U.K. Profit grew by 30% to GBP 241 million and by a similar amount on an organic basis. This reflected a profit margin, which was 40 basis points lower at 23.5%, which was mix driven. Like the safety sector, it's great to see the substantial growth opportunities ahead reflected in a healthy increase in R&D investment, which grew by 23% to GBP 35 million. As I noted at the half year, this is a lower spend as a percentage of sector revenue compared to the other sectors at 3.4%, reflecting the premium growth in Photonics, where R&D is part of the revenue we earn. It's also pleasing to see a strong 4.3% profit contribution from acquisitions, including Brown Line and Mini cans bolt-on Heathorne. I'd now like to spend a moment on the Photonics premium growth, providing some additional color on what we do for this customer. As a reminder, we acquired Avo Photonics in 2011, a business that displays many characteristics that are typical of a high-quality Halma company. The company's exceptional ability to identify and capture growth opportunities has developed into a relationship of more than a decade with a large hyperscaler technology customer. While the relationship remains commercially confidential, we can share a little more about the nature. It's characterized by a close technical collaboration, applying our customers' IP alongside our own expertise in the co-design and manufacture of optical switches. And we've been working with the customer on multiple generations of the technology for over a decade. In FY '26, the premium growth accounted for approximately 8 percentage points of the group's organic revenue growth, resulting in a Photonics growth rate of 52% -- this means the customer now accounts for 20% of group revenue. This is an incredible success story and a testament to the strength of the local management team in delivering at scale, enabled by the support of the Halma model. Looking ahead, trends in this market are clearly dynamic, and there will always be technology choices in fast-growing markets and the pace of development and rates of growth shaped by various supply side constraints across the data center market. With a combination of strong customer demand and our continued scaling, we currently expect premium growth of approximately 5 percentage points of group in FY '27, implying a growth rate of a further 30%. This builds on the exceptional growth already achieved with revenue having more than doubled over the past 2 years as the local management team has successfully and rapidly scaled the business. Now let's move on to our final sector, health care. Pleasing to see the continued recovery in health care with revenue up 6.3% on an organic basis and profit up 10%, with good levels of growth across all 3 subsectors. This reflected good execution against the background of broad-based recovery in health care end markets, supported by improving customer confidence and demand for products and solutions to help facilitate patient diagnosis and treatment and greater efficiency for health care providers. You will notice that in this set of results, our health care sector companies have been recategorized into 3 new subsectors, better reflecting the patient's journey. Discovery, Prevention and Diagnostics performed strongly, driven by good demand in vital signs monitoring and eye health diagnostics. There was broad-based organic revenue growth in Therapeutic Solutions with strong demand for our respiratory device and surgical instrument products. Performance in Healthcare Enablement was driven by demand for solutions which improve health care delivery efficiency. Sector profit was 10% higher, delivering a margin, which was 100 basis points higher at 23.9% as a result of stronger revenue growth, continued discipline on pricing and product mix and good control of overheads. As with the other 2 sectors, our health care companies are well invested with R&D at 5.2% of revenue, reflecting their confidence in the growth opportunities in their end markets. There was also good profit contribution from acquisitions of 2.3%, reflecting the quality of businesses we have acquired. I'll now talk about our cash flows and balance sheet and how we are investing for future growth. The cash-generative nature of our companies means we are in a position to invest well over GBP 600 million in the year to support future growth while maintaining a strong financial position. The group maintained good cash management and working capital control with working capital at 18% of revenue, in line with our normal range. Our first capital allocation priority is organic investment to support our long-term growth, represented here by investments through R&D and CapEx of GBP 179 million. Together with good underlying working capital management, this delivered cash conversion of 93%. Our second capital allocation priority is continued value-enhancing acquisitions. This year, we invested a record GBP 475 million on acquisitions. And our third is a progressive return to shareholders through the dividend with GBP 90 million returned, representing our 47th consecutive year of dividend growth of 5% or more. And finally, our leverage is just over 1x net debt to EBITDA, reflecting the level of acquisitions made in the year and well within our operating range of up to 2x. Moving on to my last slide, which is our guidance for this year. We've made a positive start to the 2027 financial year. And whilst the economic and geopolitical environment remains uncertain and our companies continue to experience varied conditions in their end markets, we expect to deliver low double-digit percentage organic constant currency revenue growth. This includes an expected premium growth of approximately 5 percentage points from our Photonics business. Adjusted EBIT margin is expected to be in line with FY '26, excluding the one-off from Newvonik. I will now hand you back to Marc.

Thanks, Carol. Fantastic to see the excellent performance delivering on all of our financial targets. In this section, as I mentioned earlier, I want to provide insight into how we think about continuous sustainable investment and why it's so important to our long-term growth. Our sustainable growth model enables us to invest for future growth while maintaining our organizational agility and entrepreneurial culture. This means we can keep scaling our model while retaining the core elements of our DNA. As I've shared previously, we're also using this period of premium growth from our Photonics business in the same way to further invest in the opportunities we see ahead, ensuring we keep growing sustainably for decades to come. Before I take you through these areas of investment, let me put them in the context of our long-term track record. Looking at our track record on the slide, we've compounded revenue and profit at a double-digit growth rate over the last 20 years, revenue at 11% annually and profit at 12%. This reflects the quality and consistency of execution across our companies, each focused on the delivery of their own strategies in attractive niches and underpinned by long-term growth drivers. In recent years, our Photonics business has provided a tailwind to that growth. That said, even if we were to exclude its contribution entirely, we would have still compounded at a double-digit growth rate over this period. Our decentralized model allows us to maximize the opportunity with our hyperscaler customer while remaining focused on our group strategy of sustainable compounding growth and returns over the long term. Importantly, our model ensures that this premium growth delivered through local execution doesn't distract our other portfolio companies and management teams. They remain fully focused on their own growth strategies, including continued sustainable investment for future growth. And the broad-based growth we've shared in our results today being a great example of this in action. Looking ahead, as we focus on maximizing the Photonics opportunity in front of us, we do so with an understanding that its growth profile differs from that of the wider group in pace, scale and longevity and may result in growth at the group level being more front-end loaded -- but for clarity, our growth ambition long term. As I said, we're using this period of premium growth to do exactly that, reinvesting the premium cash flows to further strengthen the wider group, as I'll now take you through. You heard from Carol how we've continued to invest significantly in the year. Let me break this down into 3 core areas. First, our companies continuously invest to grow. Second, we invest in talent, our network and new capabilities to help our companies grow faster. And third, we acquire purpose-aligned companies for the long term and actively manage our portfolio. Let me now provide a little more detail on these key areas of investment. Firstly, and as you heard from Carol, our #1 capital allocation priority, investing in organic growth. Our companies are already great businesses when they join the group. Our role is to support their growth and continued ability to scale over the long term. A key driver of this being our company's ongoing investment in R&D and innovation. We invested GBP 123 million in R&D in this year, ensuring our businesses remain differentiated, relevant and well positioned in their niches and attractive long-term rather than being centrally mandated. Ultimately, these investments reflect the confidence our leaders have in the opportunities they see in their markets and our commitment to supporting their long-term growth. Let me bring this to life with new market access, Suntech is a leader in clinical-grade motion-tolerant blood pressure monitoring. It's applied its expertise to animal care, extending its core capabilities into an adjacent faster-growing market. A great example of exceptional agility in capturing a growth opportunity for a period of time whilst remaining focused on the long-term delivery in core markets. For new product development, BEA applied its automatic door sensor expertise to develop its EO loop product for automatic car barriers. It replaces the induction loops to improve efficiency and reduce installation time, supplementing organic growth in its core markets. In incremental R&D, Chroon has enhanced its gas detection IQ range by evolving an established product platform, extending capability and customer value within its existing markets. The range simplifies gas detection with modular technology, fast servicing and smart connected insights, all without compromising safety or protection. So just 3 examples of how our companies are continuously investing for long-term growth. Moving to the second area of investment, talent. Talent is important in any business, but in a decentralized group like ours, it's vital. Our decentralized structure relies upon where their own. We take a purposeful long-term approach to developing leaders, combining internal development with external hires to build diverse, resilient and high-performing teams over the long term. We're also making deliberate investments in building a pipeline of leaders through the group, which gives us agility and resilience. During the year, 20 leaders were promoted on to company boards. Nearly 300 leaders participated in our development programs. All of our most recent sector and divisional Chief Executive appointments were internal promotions. We're doubling our Catalyst graduate program and expanding our rotational placements to focus on AI in our tech team, a great example of strengthening our capabilities while developing the next generation of AI business leaders. We're also investing ahead of need in talent platforms and tools that help our companies develop their own people and reinforcing accountability for talent and culture at a local level to maintain our agility. We further invested in our network. We held our annual Accelerate Senior Leadership Conference in April, and we've facilitated a number of in-person conferences for many of our functional networks, including finance, talent, supply chain and digital. These events enable leaders to connect to share experience and access expertise across Halma, helping them solve problems faster, spot opportunities earlier and scale proven ideas more effectively. And as the group grows, the value of our network increases. there from our leaders talking about the network talking about Marcus talking about experts sharing their own market analysis work and Joe talking about the strength of connections and all of us as leaders learning something new. Just a few great examples of the importance of collaboration and talent at every level of our business, always such a fantastic and energizing event. We've also further invested in our M&A capabilities through the addition of a small number of individuals to our sector M&A teams, our central functions supporting acquisitions and disposals and through the appointment of 2 new divisional Chief Executive roles. These investments increase our capacity and resources to engage and build relationships with potential acquisitions and support the managing our portfolio. As Carol highlighted, an excellent year for M&A with record investment in acquisitions. Great to see a well-balanced mix of both acquisition sizes and types, including stand-alone and bolt-on transactions across all 3 sectors. Also positive to see the momentum continue since the year-end with 2 further bolt-ons completed for GBP 75 million. Alongside this, we continue to actively manage our portfolio. Our intent is to buy a business to own for decades. And when reviewing our portfolio, our approach starts with a simple question, would I buy this business today? As a result, we completed 3 disposals in the last 12 months. AI in Safety, LabSphere in E&A and Cardios in health care. Having found great new homes for these companies, it allows us to redeploy capital into the opportunities where we see the strongest long-term potential. Our approach to acquisitions starts by mapping markets that we have an interest in, identifying niches supported by long-term growth drivers, including taking a view on emerging and accelerating megatrends. We typically acquire companies that are adjacent to or in markets that we already know well. And we remain disciplined throughout, never feeling under pressure to do a deal, including walking away where appropriate. Let me highlight a few. E2S, Brownine and MSTs, bolt-ons, Altomed and Surgistar, all great examples of the quality of businesses our approach delivers. E2S, broadening our fire safety portfolio and strengthening our position in industrial end markets, driven by the need for critical infrastructure resilience and increasing regulation. Brownline, underpinned by long-term growth drivers, urbanization, the requirement for resilient infrastructure, including water, electrification and the rollout of fiber networks in addition to the increasing use and benefits of trenchless technology. Ulted and Surgiistar, 2 bolt-ons for MST. Together, they broaden our surgical ophthalmology portfolio, strengthen our geographical reach and add manufacturing capability, all in a market underpinned by aging populations and growing demand for cataract and eye surgery. Great to be able to welcome them to the group. The quality and pace of our M&A activity reflect the investments we've made in strengthening our teams. Our divisional Chief Executives lead acquisitions end-to-end, supported by our M&A teams. In addition, our company management teams are actively sourcing and delivering bolt-on opportunities in their markets. This reflecting the increased scale and capability within the portfolio, and it's an important way of compounding growth while retaining that local accountability. Looking forward, we have a healthy pipeline across all 3 sectors, including both bolt-on and stand-alone targets, giving us confidence in our ability to continue to find and acquire high-quality businesses that meet our criteria. To wrap up, I want to voices -- some really powerful reflections tying together those themes of investment, the benefits of the network and why great companies choose to join Halma. You heard from Arie at Centrack on the ability to remain independent while drawing on the wider strength of the group. from Andy at Ramtech and Brett at E2S, sharing how that support gives them the confidence and capability to grow faster, expand internationally and develop over the long term. While these companies have all joined Halma at different point with clear accountability for growth and they've gained the support capabilities and a long-term home that helps them go further faster. So bringing it all together, you've heard today how we think about continuous sustainable investment across 3 areas. Firstly, how our companies invest to grow to ensure they remain differentiated and well positioned in attractive long-term markets. Secondly, how we invest in our talent, network and capabilities to help our companies grow faster and to ensure we can scale while maintaining our culture and agility. And finally, how we acquire purpose-aligned companies for the long term and actively manage our portfolio. These are all key areas of investment to ensure we continue to deliver long-term compounding growth. Carole described the strength of our performance in 2026, another record year delivered in varied market conditions. This performance reflects the strength of our sustainable growth model and our continued investment in the areas that matter most. empowered to act with agility to capture near-term opportunities. A model that enables a virtuous cycle of growth where strong performance funds continuous sustainable investment in innovation, talent and capabilities and purpose-aligned acquisitions. And while we remain mindful of the broader macroeconomic and geopolitical environment, the strength of our model underpins my confidence in our ability to continue delivering compounding growth and returns for decades to come. Okay. That's the end of the presentation. And now we have time for some questions. As ever, there's 2 ways you can ask questions.

[Operator Instructions] Carole and I will read out and then answer. So Max, let's come to you for our first question.

So look, the first question I'd like to ask is just around the margin performance. So obviously, excellent step-up this year in Safety and Healthcare margins. Maybe could you walk us through kind of what you think the kind of key successes have been around pushing those margins higher. Safety has continued to rise and rise. And I guess when we think about the margins going forward in those 2 divisions, do you really see them kind of at this point, firing on all cylinders? Or when you look at the sort of sub businesses within them, which of the divisions and maybe where would you see sort of room for further margin improvement within those 2 divisions?

Sure, Carole here. Thanks for your question. Yes, I mean, really pleased with the margins overall. The teams, once again, all of the companies, all the sectors have done a brilliant job. So shout out to all the hard work. I mean on the specifics, safety, as you know, has -- this is now the third year of double-digit profit growth. So very impressive. And as you cited, margins at record highs. I mean I think the best way to think about it is that what the team have done in a very sort of methodical and targeted way over the last few years is look for opportunities right through the P&L. So whether it's targeted efforts around pricing, new product development that you've heard Marc talk about in the presentation and some nice acquisitions, including bolt-ons. And then working through the P&L and identifying opportunities. So I think the best way to think of safety margins now is that we've got them a good place, a lot of hard work. So don't assume that they'll push on from here. As you know, obviously, the intent is to drive long-term sustainable growth. That requires investment, which you've clearly heard about this morning. So I'd encourage you to use margins around the levels that they're at with the usual caveat of a plus or minus allowing for mix. Health care, as you know, has been on a recovery given where the health care end markets we're at with the overstocking. So Steve and the team have done a great job over the last year in particular. And there's probably a little bit more in those margins from where we landed in FY -- but again, obviously, focused on the reinvestment angle, too. And then E&A in a good place, slightly down year-on-year, which is mix. So I would encourage you to use a similar level year-on-year. So in the round, hence, the guidance of similar margins for FY '27 to FY '26, we think we're in a good place with lots of hard work having gone into delivering it.

Okay. And maybe if I could have a quick follow-up on the Photonics business. So you've guided to 30% growth for this year. It's a bit below kind of what you generated last year at 50%. And I appreciate it's difficult to comment in too much detail. But I guess, look, some of the questions we've got this morning have centered around is this being driven by any design changes at the customer? Like it does -- but it does feel like you talk a lot about kind of co-designing with customers. Is this really your own factory constraints? Is there supply chain issues? Or can you just not produce anymore and therefore, you're running up against limitations? Or is there an element of conservatism here? We obviously sort of started the year last year with 20% growth, and we finished at 50%. So just really trying to get a feel of, I think -- is there an element of conservatism in this guidance? And then to what extent are your own constraints, whether factory or supply chain driving that deceleration?

Yes. Thanks, Max. And just as you say, it's worth just a reminder to everyone before we sort of get into Q&A on Photonics that that business does remain subject to a customer confidentiality agreement. So great to have been able to share more detail today, which hopefully is helpful and covers some of the areas that we have been raised before, but there does remain limits to what we can disclose. I do recognize that this may be a little bit frustrating and slightly odds with our usual openness, but it's clearly commercially important and in the interest of all parties that we respect those boundaries. So just worth reminding everyone on that point. And to your specific question, I guess our approach rightly so is that we're guiding based on what we can see in near-term visibility over the next 6 to 12 months rather than drawing any direct read across from hyperscaler CapEx or other companies in the ecosystem. So very much based on what we can see. Our outlook reflects customer demand. It reflects the wider market's ability to deploy around those big areas that you can all read about around land, power, water, in addition to our own ability to scale, but make that point that isn't capacity per se, probably more on the resource front in terms of as we continue to scale. And then in addition to that, including our supply chain, you're asking for an entire ecosystem here to continue to scale in a fast-growing market. I mean it is worth putting that into context. We doubled in the last 2 years. The guidance we're giving today is for a further 30% growth on that. So a further GBP 160 million of revenue over the next 12 months to over GBP 500 million. So that equates to a 3-year compound average growth rate of around 40%. So in my mind, that is absolutely the definition of scaling at pace. This is a highly complex and sophisticated precision manufacturing with the need of a high level of quality. So as I say, very much based on what we've got in front of us, it would be remiss of us to be coming out with guidance that didn't reflect our best view at this moment in time. Thanks, Max. Just looking at the hand up. So Andre, I'll come to you.

I just wanted to ask on growth a bit more broadly. Clearly, you're delivering across the whole portfolio. And I just wondered what is your assessment right now when you run through the divisions and the companies within that in terms of where are we still kind of lagging, where the cycle is still maybe a headwind or returning to growth and where are we firing on all the cylinders and hence, should not be expecting any improvement? And where do you see the balance kind of off that for the next couple of years?

Yes. Thanks, Andre. As you say, I mean, absolutely fantastic to have seen that broad-based growth across the wider portfolio over the last 12 months. And we're executing against the strategy that we laid out 2 years ago in terms of that delivery of the premium photonics growth, but at the same time, not being distracted and delivering the broad-based growth. So really pleased to see that. Of course, we're reinvesting back in the opportunities that we see, and there are plenty across the entire portfolio. In terms of outlook, clearly, we are operating in a volatile environment, a phrase that we've used many times before is that we're not immune. We're just more resilient. There's always going to be challenges in a portfolio. Whilst it's a small exposure at the group level on the Middle East, some of our companies will be more exposed than others. We'll have pockets of automotive. We'll have pockets of maybe secondary impacts coming through from the wider issues in the Middle East. And of course, then there's always project-based businesses around infrastructure, all of those things, none of them being material. I think fundamentally, you have to come back to our choice of markets and the markets that we operate in. we're deliberately choosing those markets where we're focused on long-term drivers, where we're often small but critical components sold on value where the cost of not doing is so high, whether that be regulation or human life. So being in those markets is a good start point. Then we overlay that with the agility in our companies where they're close to their customers, close to their markets and therefore, have that autonomy to make decisions and react quickly for what's required for that moment in time in their market in addition to access to wider group resources. So you put all of that together and fundamentally, I'd never sit here and say we haven't got pockets of challenge or pockets of opportunity. But across the portfolio, we've got a high degree of confidence in terms of being able to deliver in line with our KPIs over the medium term.

Great. And if I can invariably a question on Photonics. Thank you for extra details and also for the comment on how you guide for this business. I just wanted to kind of scroll back to a year ago when you started the year with indicating an expectation of, I think, about 20% growth for this business. And then Q1 was, I think, immediately a bit better. And then obviously, you printed 60% in first half, and that's been kind of the run rate. I just wondered how much visibility do you have on this business? And is this year looking different to how you had it last year in terms of that kind of visibility, customer indications, et cetera? Is it kind of a fuller guidance for this year than what proved to be a year ago, if that's possible, obviously, I appreciate you're subject to NDA, et cetera.

Yes. I don't think past experience can ever be a perfect example of what's going to happen in the future. Fundamentally come back to the point we made earlier. Here's a business that continues to scale. The team are doing a phenomenal job in terms of scaling up this business at the pace that they are at the level of sophistication and quality that's required for our customers. So really good to see that. What was different 12 months ago to now I guess we had a little less visibility in terms of our own ability to scale. We've proven that over the last 12 months. So that gives us a level of confidence to be a little further ahead than maybe 12 months ago. But at the same time, I'll come back to all of those wider things that are happening across a market that is scaling at all levels. If one of your supply chain cannot keep up with the pace, and that's going to impact your ability to do so. So as I say, I'll come back to the point, I'm giving you an outlook that reflects our best estimate at this moment in time based on what we have in front of us. Andre. Let's go to Jonathan.

I just had 3 questions actually. Just following on the photonics theme, if I may. The first one was just in terms of your obviously disclosure of the product. Obviously, you talk about optical switches. I just wonder if you could just sort of delve a little bit deeper if possible on that in terms of what type of optical switches? Is it an optical circuit switch? Or is it a packet switch or so forth? Just some more color on the product there would be super helpful. In terms of the second question, I'll just go through all 3 questions at the same time. The second question was just on the margin of Avo. Obviously, you talk about mix. Can you just talk about where we're seeing the margin of AVO right now? I think previously, you've guided it to be pretty much in line with the ENA average. Is that still the case? Or have we seen a little bit of a fall away or pullback in terms of profitability of that business? And then the third question, again, sorry, on Photonics, was just in terms of that customer relationship. I mean, is there any risk out there that the customer may dual source? Is there any sort of information, anything you can say on possibly that playing out through '27, please?

Yes. Thanks, Jonathan. Let me sort of pick up numbers 1 and 3, and then maybe Carol will just pick up on the margin point. Unfortunately, your first question is going to be one of those where I'm going to frustrate in that I cannot expand any further than what we've disclosed. Clearly, we've disclosed more than we have done previously in terms of multiple generations of an optical switch, but that is as far as I can go in terms of that level of disclosure. On the third point in terms of customer relationship. And go back to the point that we've been working with this customer now for over 10 years. We've codeveloped and manufactured the optical switches using their IP over that time over multiple generations. So within that, you can read and as we've shared before, there's many different things that we're doing with the customer around stock management, also around the manufacturing and also around that co-development and R&D. So there's a very close relationship there. And I would point towards the fact that we have been able to disclose more again is a little bit of a reflection of just how strong that relationship is with the customer.

Sure. Jonathan. Yes, I mean, the margin, what we see is that it's in line with the group margin. We have previously spoken about E&A, but then it becomes a bit circular given the percentage is of E&A. So easier just to reference it to group. So similar to so neither accretive or dilutive. And then nothing to call out other than, I think, something that we probably referenced before that the way that we earn revenues, there's different buckets of revenue that we earn. So there's the R&D piece clearly that Marc's referenced. And we also manage the inventory as well for the broader supply chain and then clearly, the manufacturing, too. So any given year, depending on that mix, you might have a slightly different margin, but nothing to note.

Jonathan, I'll just pick up, Stefan, I see that you've written a couple of questions in. I think the first question we've covered, which is how conservative is your Photonics guidance. I think I covered that earlier. In terms then just going on the Arvo last one, I promise, please talk us through the capacities that you have at Arvo Photonics, particularly since it seems you've moved into a new larger facility. Again, I think I covered that with the comment that capacity isn't one of our challenges at this moment in time in the near future. And then your third question is, please explain the rationale for divesting LabSphere and Cardios. You cleaned up your portfolio quite a bit in the past 2 years, AI divestment in FY '26. are there more divestments that we should expect? Or have you finalized your portfolio pruning? I guess just picking up on that one, we're always reviewing the portfolio. As I said in the presentation, every business that we buy is with the intent to keep for decades. But at the same time, it's absolutely appropriate to continue to review the portfolio. And we start with that simple question of would I buy this business today? And I guess picking up specifically on LabSphere and Cardios, -- both of those have been a valued part of Halma over the years and been positive contributors to the group. But as part of that review, it's highlighted that the future growth opportunities for them, both are in markets that are not a focus for Halma, whether that be geographically, whether that be the type of spend or the type of market. So it was all about finding a better home for them where they can deliver against their own growth strategy. So nothing more than that. And I guess in terms of how many are we doing, how many would you expect? I think the reality is, over the years, there used to be an opportunity cost to looking at divestments in that we had less resource. We had less divisional chief execs. And therefore, if you were putting the effort into a divestment of often growing businesses just so happens not aligned necessarily to our growth strategy, then you were distracting yourself from doing M&A. I think as we've scaled over the last 5 years, we've now got the the luxury of a single resource in the center that allows us just to either resource harder on integrations or in fact, if there's divestments to have that additional support. So I don't think there's going to be an uptick in divestments. We'll continue reviewing as we have done. But where we see that it's appropriate to do so, then as we've shown over the last couple of years, we'll find great homes for those businesses and look to redeploy the capital in Hala-like businesses moving forward. Hopefully, Stefan, that answers your written questions. Do kind of write another question if I haven't answered. Going back then to the hands up to Chip, if we come to you next.

I have 2, please, but I'll take them one by one. My first question is simply a clarification on the organic revenue guide for next year. When you say low double digit, what sort of range are you expecting? And then perhaps the key drivers of the lower and the higher end of the range?

Yes. So we've obviously been explicit about the Photonics premium within that. And I think the best way to to think about the rest is, as you know, that we have our organic constant currency target of 5% and an ambition to be growing at 7.5%. And so an expectation somewhere in that range would be a sensible place to get to. And just worth adding that we would consider that to apply across the 3 sectors.

Okay. And then just on the margin guidance as well on next year. Guidance is obviously off a strong performance for this year, but I just wanted to understand why you're not expecting some expansion given the low double-digit organic growth guide.

Yes, sure. I'll take that, too. I mean it comes back to one of the questions earlier, so -- and also the theme of the whole presentation around reinvestment. And so that balance of making sure that we're investing for the long-term growth that we aim to deliver. And the margins, as you've already said, are already very strong. So we're not wanting to push them further, but rather to continue that reinvestment so that we can sustain at that level. And at any point in time, in any given year, there will be a bit of mix effect as well. So that's the basis of the guidance.

Let's now go to Christian.

I appreciate the commercial sensitivities obviously limit what can be discussed on the technology specifics in photonics. I'm not going to press on that. But you're forecasting a 30% growth. I understand your earlier comments to Max's question that your guidance is based on order visibility and maybe factoring in some potential supply chain challenges. But you pointed out, Marc, yourself, that 30% growth might seem low compared to the hyperscaler CapEx plans over the next 12 months, which on our math range from 49% to 77%. So I've got really just 2 questions here. Is there a phasing dynamic to consider here in terms of the lag between CapEx spend on greenfield data center deployments and when you might see sales into the rack? And then maybe secondly, and again, no need to comment on tech specifics. Would you agree photonics applications represent a penetration growth opportunity in the data center more broadly?

Yes. Thanks, Christian. I guess in terms of kind of the phasing, I think we're a small but critical component here. I think it's pretty dangerous to start trying to take headline CapEx figures and trying to correlate them back. far better for us to be looking and speaking with our individual company that's close to the customer and having those conversations, hence, that being the baseline of our guidance. As I say, the customer demand remains strong. And as I say, the right way to think about it is that the outlook reflects the demand, our ability to scale and then the pace at which that broader system can deploy and absorb new technology and wider technology. So I don't think it's appropriate for me to try and comment on the dynamic between our spend and what's being communicated is wider CapEx spend. On Photonics as a technology, absolutely. I think when you think about optics, when you think about the demands and needs, that need for speed, latency and efficiency, there's no doubt that optics can play a role in that, and that's pretty well documented out there. I guess guarding against that the other way is this is a pretty dynamic market. There's a lot of changes in technology. There's a lot of investment. There's a lot of customer choices to be made. So on the one hand, I absolutely see it as an opportunity from an optical perspective. But on the other hand, you've got to be appreciative of how dynamic the market is at this moment in time.

Maybe I can fit in a follow-on, and it's not on Photonics. But if we look at E&A ex Photonics and also ex the Nuvonik contribution, you grew 34% organically. That's 260 million of incremental revenue. You said Photonics growth was a bit over 50%, so 175 million of that EUR 267 million. That gives 92 million of incremental sales. And so I get to 21% organic for the rest of E&A, again, ex Photonics and Nuvoni. I know you've got good demand in gas detection and water analysis. But could you add some color on what's really driving that demand? Because clearly, it's well above the high single digit that you'd be usually looking for?

Yes, sure. Thanks, Christian, Carol here. And David, I think this addresses your question that we can see on the screen, too. So thank you for asking. So yes, I mean, the double digit, absolute your conclusion, Christian, that it's double-digit organic growth is right and well done to Consluence and the team for doing such a great job. I mean I think as we said at the half year point when it was strong too, there is a little bit more sort of project focus or emphasis within the E&A sector just by the nature of what the companies do. That said, it was very well spread across all of the companies. A little bit of recovery for some of the companies in there that had weaker comps. So I suppose bear that in mind. But yes, well spread across across the patch, including actually for some of our more recent acquisitions as well in the last few years. I mean, going forward, coming back to one of the earlier questions, we wouldn't be guiding at those levels on a forward-looking basis. We would be more in the sort of 5% to 7.5% range that I referenced earlier, but not to take anything away from the phenomenal job that those companies have done within the sector last year.

Thank you, Christian. Rory, we'll come to you next.

It's Rory from Oxcap. I think there is still one on Photonics here. You talked about the different pieces of Avo Photonics revenue generation being sort of contract R&D, inventory management services and then the actual manufacturing of the optical switches themselves. If I just look at the revenue recognition note, in E&A, that's now more than 50% of that revenue is recognized over time versus a point in time, that's up from 41% last year. And if I think back a few years, it was maybe more in line with the group average, maybe slightly higher than the other sectors, but not quite to that level, right, to that point that there's a lot of project-based revenues going on here and certainly a lot of the growth has been in that bucket, right, in terms of revenue recognized over time? And then just trying to square that with your comments, Marc, that capacity is not your issue in the near future. I guess how should we maybe think -- is there anything you can tell us this morning about how those 3 pieces within Avo Photonics may move over time? Because if we look at the kind of the long-term or the medium-term demand outlook for these products or what we think these products are doing and where they're going in the data center, then it may be a question of your medium-term capacity as sort of the R&D and the inventory management piece sort of go down relatively, but the manufacturing of components piece comes through in the next kind of 1, 2, maybe 3 years. Can you just -- am I talking sort of nonsense here? Or is there anything that you can help us with on that point?

I'll take the first bit in terms of the technicalities, Rory, thanks for your question. Yes, I mean it's -- unfortunately, without spending like too much of a technical geek, it's the vagaries of IFRS 15 that we're grappling with here. So the -- I mean, you're right to reference the increase. And obviously, as AO has grown over the years, those revenues earned over time have too. It is very much the way that the contract is constructed, Rory, and so it actually applies to each of the aspects of the revenue buckets that we earn. So whilst I've referenced a bit of mix effect, I wouldn't think that -- don't think of that as materially different over years. And then the other piece actually just to note is that our most recent E&A acquisition, Brown by its nature of providing a service rather than selling products. Again, the accounting standards mean that those revenues fall into that bucket. So I suppose as far as how much R&D, how much inventory management and how much manufacturing in any given year, the inventory would tend to move in fair lockstep with the manufacturing with maybe a little bit of plus or minus depending on inventory being bought ahead. And then the R&D again might move a bit, but it's not a material difference in the mix year-on-year. So I don't know if there's anything sort of broader than the sort of technicalities on that, that you want to dig into, Rory, but that hopefully gives you a bit more color.

That's really helpful. I guess also for the market, today looking at this thinking, well, if it's -- if you've been involved in previous generations, there's a high chance it will be involved in future generations and part of that brings R&D spending, the R&D investment with it and then the manufacturing at some point as well. Obviously, the new AVO site might be -- might come in handy at some point in the near future, but that's great.

I guess, the only thing just to add because you mentioned immediate future and time lines is you and I might have different definitions. Remember, at Halma, we tend to think in decades. And then my immediate short term is probably the next 12, 18, 24, 36 months, whereas I think in your world, that might be the next quarter. I mean long term is 12 to 24 months. So we just need to be a little bit careful of us thinking in decades and maybe you guys thinking in quarterly in terms of how you define time lines moving forward. Okay. Fantastic. Thank you, Rory. So it looks like we don't have any written questions. Yes, we've got one hand gone up. Is that Bwin.

Just one on data centers, but just trying to focus on the other areas ex Photonics, just to kind of ask whether you have been able to get any products into the data center market outside of the photonics, especially when we look at your safety business, I think you have a good commercial exposure over there. So can you please give clarity on that part?

Of course, yes. Great question. As you say, it comes back to the fundamentals of the model in our businesses. They've got deep application knowledge of their technology in their core markets. And as I was talking in the presentation, they're always looking for opportunities in other markets to go and apply their expertise in terms of solving customer problems. So that would be exactly the same for data centers, whether that was in gas analysis, whether that was in safety in terms of access, whether that was all a multitude of areas, fire suppression, all of those types of areas, it's the way that our companies think. So they're thinking, okay, I'm in a core market that's going to give me 3%, 4%, maybe 5% growth. How do I consistently find another 1% or 2% growth over the medium term. And the way I'm going to do that is to expand my addressable market. And if there's trends that are growing, if there's markets that are growing, then they're always looking for those opportunities. And that R&D spend that we've seen, I'm sure parts of that will be many of our businesses looking to get the benefits of growth and spend in those areas. So it's certainly not a material part of the group, but rightly so, it's an area that every one of our businesses will be looking commercially and thinking, is there something we can do with our deep expertise that applies to this level of spend and build-out over the next x years. Excellent. So I don't see any further hands up. I think we've covered off David's written question. So I guess thank you from me. From our perspective, fantastic to have announced record results, that broad-based growth across all 3 sectors. record levels of investment, including R&D and M&A and having a model that's proven its agility and resilience over decades gives us all great confidence in what we can deliver going forward. So thank you very much for your time, and no doubt we'll all speak soon.