Spirax Group plc (SPX) Earnings Call Transcript & Summary

Good morning, and thank you for standing by. Welcome to the Spirax-Sarco Engineering PLC 2022 Half Year Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nicholas Anderson, Group Chief Executive. Please go ahead, sir.

Good morning, everyone, and welcome to our 2022 Half Year Results Announcement Call. I'm Nicholas Anderson, Group Chief Executive, and I'm joined here by our CFO, Nimesh Patel. Regarding today's presentation, I will start by sharing the highlights of the first half, and then Nimesh will take you through our financial performance. Later, I will return to cover the operations and outlook for the full year 2022. To finalize, we'll be happy to take questions from the analysts on the call. Moving to Slide 3. I'd like to start by acknowledging and thanking all my colleagues around the Group for their outstanding efforts to meet exceptional customer demands in what has been a challenging first half year. Across the Group, we have seen continued strong demand growth, despite challenging environment and softening IP. All 3 businesses entered 2022 with record order books and all 3 have expanded their order books during the first half. We saw particularly strong demand for larger project orders as customers accelerate capital investments. In addition to delivering increased volumes, as we ramped up our shipments from our manufacturing facilities, we have continued to actively implement price increases to offset inflation and protect margins, in-line with our well-established practices. In Steam Specialties and ETS, we saw sales growth well ahead of IP and demand growth well ahead above sales, with both businesses continuing to expand their order books beyond their record opening positions. In Watson-Marlow, sales were significantly up. Demand from customers in the biopharma sector has normalized in line with our expectations and reflecting lower COVID-19 related demand, while growth in the Process Industries was significantly above IP. Watson-Marlow's order book at the half year remains above their opening position at the beginning of this year. As expected, CapEx has risen to record levels during the first half, driven by increased investments in our manufacturing capacity to support growth, particularly in Watson-Marlow. And Nimesh will provide further performance details in the financial section. So now moving on to Slide 4. The global supply chain challenges that kicked off in the latter part of 2021 were still present in the first half of 2022, impacting the availability of key manufacturing components such as Nylon, printed circuit boards and semiconductors. We continue to engage with our supply chain partners to deploy our mitigation strategies, successfully maintaining deliveries that met customers' requirements. In March, we announced our decision to suspend all Group trading with or within Russia. And on the 6th of July, we concluded the disposal of our Spirax-Sarco Watson-Marlow operations to the local management for a nominal consideration. During the first half of 2022, we continued our revenue investments to support growth across all 3 of our businesses, including accelerating our digital initiatives. We also continued investments to further expand manufacturing capacity through factory modernization and debottlenecking initiatives. These include new equipment, revised processes, additional people and new manufacturing plants in Watson-Marlow. We have continued to make further progress on our ESG agenda, and I will provide more detail on this in a moment. Our business development teams in ETS and Steam Specialties continued collaborating to address the substantial sales opportunities arising from decarbonization, and which I will expand upon when we get to the ETS section. Also in ETS, we made good progress to address the financial underperformance of the Chromalox facility at Soissons in France, and this process should be completed by year-end. Lastly, on the 25th of July, we signed a binding agreement to acquire Vulcanic for a consideration of EUR 262 million. So now on to Slide 5. The acquisition of Vulcanic represents a significant milestone to strengthen our ETS business. Vulcanic is a European industrial electric heating group and is the largest supplier in Europe of bespoke industrial electric heating solutions. It operates a direct sales model, has 10 manufacturing facilities worldwide and employs over 700 people, of whom almost 90% are based in the EMEA region. Vulcanic has a clear strategic fit with our ETS business, and it expands our platform to deploy the Group's business model, driving further improvements in sales growth and margin over time. Vulcanic has a strong complementarity with Chromalox through its existing customers', products, and operational footprints, including a strong focus on decarbonization. It also balances our geographic footprint by strengthening ETS's presence in the EMEA region where we expect to see the strongest demand for decarbonization solutions in the near term. Together with the actions we're taking at Chromalox in Soissons, Vulcanic establishes a larger profitable footprint in EMEA. Now Vulcanic's pro forma performance in 2021, following its acquisition of EML in the U.S.A. in December of 2021, includes revenues of EUR 89.4 million, adjusted EBITDA of EUR 17.6 million, and adjusted operating profit of EUR 16 million. This transaction is expected to close late in this third quarter. Turning now to Slide 6 and the ESG. As I mentioned, we have continued progressing our Group's ESG agenda. Our Ten Inclusion Commitments, which form part of our inclusion plan called Everyone Is Included, are being cascaded globally through a series of inclusion master classes, webinars and workshops to embed this commitment into local policy and practice across the Group. We also formally signed the UN Women's Empowerment Principles in UN LGBTI standards and joined the Women's Engineering Society to help advance our gender equity journey. I was particularly proud that our colleagues raised GBP 92,000 towards our total donation of GBP 284,000 to the Ukraine Red Cross Appeal. And we were very pleased to make the first awards of our newly established Group Education Fund, which totaled more than GBP 230,000 across numerous projects globally. We have also made further investments in health and safety, including a new Global Health and Safety Management System and Behavioral Based Safety training programs on a global scale. From an environmental perspective, we have now secured green contracts for close to 40% of our Group's electricity supply and launched over 50 biodiversity projects globally. We achieved a significant reduction in absolute Scope 1 and Scope 2 market-based emissions as measured against the first half of 2021 and initiated implementation of Project Clear Sky to fully decarbonize our Steam Specialties U.K. manufacturing facility in Cheltenham. Every manufacturing facility has also developed their initial net zero road maps, which are being refined and incorporated into their operating plans. These are just some of the many internal ESG initiatives of the first half. In addition to our continued work to support our customers to improve their sustainability performance, which include bringing to market our suite of TargetZero solutions for decarbonizing steam generation. And I'll come back to that in a moment. And with that, I'll now pass you on to Nimesh.

Thanks Nick, and good morning everyone. Nick and I are pleased to be presenting another strong set of results, delivered against the backdrop of macroeconomic uncertainty and challenges in the industrial operating environment, some of which we expect to persist in the second half and beyond. I'll explain the drivers of our financial performance, which underpin our improved outlook for the full year. Moving to Slide 8. As always, the numbers we will be discussing are the adjusted results. Adjusting items include over GBP 15 million of costs relating to the restructuring of Soissons, our ETS manufacturing facility in France, and almost another GBP 7 million of costs related to our acquisitions of [ Cotopaxi ] and Vulcanic in addition to our exit from Russia. Further details are included in the appendix. Sales was 17% higher, reflecting an organic increase of 15%, and operating profit was 10% higher or 9% on an organic basis. The difference between our reported and organic growth rates reflects the positive effect of currency movements on sales and profit and the adverse impact of our exit from Russia, partially offset by our acquisition of Cotopaxi. These impacts are reflected in our reported numbers and excluded from our organic growth rates. Our operating profit margin decreased by 150 basis points on both a reported and organic basis to 23.8%. In line with previous guidance, this margin reduction was driven by the full year impact of revenue investments made during 2021 and continued investments in 2022. Net finance expense remained the same as the first half of 2021. We estimate an increase of GBP 2 million in the second half related to the acquisition of Vulcanic. Our effective tax rate in the first half, which is based on the expected full year tax rate was 26%, again, in line with guidance. EPS at 175.1p was 11% higher, broadly in line with the increase in operating profit. In respect of the first half, we're proposing an interim dividend of 42.5p reflecting our strong first half performance and our confidence in the full year outlook. This is an increase of 10%, following an increase of 15% in the total dividend for 2021. Our dividend cover will remain at the top end of our stated range of 2x to 2.5x. Moving to the sales bridge on Slide 9. Currency movements had a positive impact of over GBP 11 million on sales or 2%, driven by a weakening of sterling, particularly against the U.S. dollar. If July month end rates were maintained for the rest of the year, we would expect to see a slightly higher positive effect of around 3% for the full year. Acquisitions and disposals includes the net contribution from Cotopaxi acquired in January and the impacts of our decision to suspend trading with and within Russia from March onwards. The effect on sales was less than 1% in the first half and is expected to be similar for the full year. The Group's organic growth in sales was 15%. All 3 businesses delivered strong organic sales growth, driven by higher volumes, as well as price increases. We increased output from our manufacturing facilities supported by prior and current investments, although our order books still expanded from their already record levels as demand continued to exceed sales. Organic growth in Steam Specialty sales was 10% with demand growing significantly above IP. This was despite growth in Asia Pacific being impacted by a COVID-19 related lockdown in China during the second quarter. ETS organic sales growth was 13%, driven primarily by Chromalox and despite lower sales in EMEA due to a significant reduction in output from our plant in Soissons, France. In Thermocoax, organic growth was lower than the average for ETS, reflecting the longer lead times on shipments of new orders to the nuclear and semiconductor markets. Watson-Marlow once again performed very strongly with organic growth of 26%. Process Industries demand growth was significantly above IP. And while biopharm demand has normalized on lower COVID-19 vaccine-related demand, overall demand still exceeded sales. We expect Group revenues in 2022 to reflect the typical split of around 48% and 52% between the first half and second half of the year prior to reflecting the impact of Vulcanic. The next bridge on Slide 10 highlights the movement in adjusted operating profit for the half year. Currency movements increased profit by GBP 3.5 million or 2%, as a result of both translational and transactional impacts. If July's month end rates were maintained for the rest of the year, we would expect to see a slightly higher positive effect of around 3.5% for the full year. The net effect of acquisitions and disposals reduced profit by GBP 1.8 million or just over 1% and is expected to be similar for the full year. The total organic increase in Group operating profit was 9%. Steam Specialties profit grew 2% organically. As anticipated, this was below our organic growth in sales due to the full year impact of our 2021 revenue investments and our continuing investments in 2022, which offset the benefit of operational gearing from higher sales. ETS profit increased 9% organically with profit growth higher in Chromalox than in Thermocoax, reflecting the strong growth in Chromalox sales. Watson-Marlow's organic profit growth of 21% reflected the very strong sales growth in the first half, and like Steam Specialties, was below organic growth in sales due to the full year impact of our 2021 revenue investments and the ramp-up of our new BioPure manufacturing facility in the U.K. The increase in central expenses reflects increased investment to deliver on our strategic initiatives such as sustainability and strengthening our governance in addition to higher charitable donations. Turning to Slide 11. Our adjusted operating profit margin decreased to 23.8%, in line with our guidance and which is above pre-pandemic levels and the second highest first half margin in our Group's history after 2021's record 25.3%. This 150 basis point reduction in margin reflects the full year impact of our 2021 revenue investments, which support the future growth of our business. When presenting our 2021 results, we estimated the full year impact of these investments would have reduced the Group's 2021 margin by less than 200 basis points. During the first half of 2022, we have continued with our revenue investments and the ramp-up of our new manufacturing sites, including Watson-Marlow's new BioPure facility at Dunsbury Park in the U.K. and Thermocoax's new facility in Normandy, France. And in the second half, Watson-Marlow will also ramp up its new U.S. facility at Devens. Across the Group, we have also continued to successfully deploy our active approach to price management during the first half of 2022 to offset inflationary pressures and protect our adjusted operating profit margin. We anticipate the full year adjusted operating profit margin in 2022 will be similar to the first half as we continue to invest for growth, which will offset the benefits of operational gearing from higher sales in the second half. Nick will talk about the margin performance in each business shortly. Turning now to cash flow on Slide 12. Operating profit to operating cash conversion was 44% due to investment in working capital and increased capital expenditure. Our ratio of working capital to sales increased to 24%, up over 200 basis points from the end of 2021. This reflects a planned rebuilding of stock to meet increasing demand and mitigate supply chain-related shortages of raw materials, as well as an increase in receivables. Going forward, we anticipate a reduction in this ratio of working capital to sales to a similar level as reported in 2021 as shipments increased in the second half of the year. The most significant driver of the increase in capital investment relates to our previously announced expansions of Watson-Marlow's manufacturing capacity, particularly in the U.S. The construction of this U.S. facility is the largest project in our Group's history with an expected cost of $106 million, the bulk of which will be incurred in 2022. We anticipate capital expenditure for the full year will be approximately 7% of sales. And as a result, we anticipate that cash conversion for the full year will be higher than in the first half, but lower than our historical levels of around 90%. We ended the first half with net debt of GBP 203 million, up from GBP 131 million at the end of last year, and net debt equated to 0.5x EBITDA. Net debt will increase in the second half following the completion of our acquisition of Vulcanic. Thank you. And I will now hand you back to Nick to run through our view of industrial production and our business performance.

Thank you, Nimesh. On Slide 14, we have once again shared the sequential evolution of -- by quarter, of Global Industrial Production output. As you all know, Global Industrial Production growth or IP for short, is the best predictor of our markets. The blue line represents Oxford Economics IP forecast for 2022, 1 year ago in July 2021. The green line represents their forecast on the 23rd of February, the day before Russia invaded Ukraine, which we shared with you at our full year results announcement in March. The red line is Oxford Economics' latest forecast published on the 15th of July. Now the first point to note is the stronger-than-expected global IP output in the first quarter of this year, followed by the 1.5% global output contraction that followed in the second quarter of 2022. This contraction was mostly a result of the heightened uncertainties caused by the war in Ukraine, COVID-19 lockdowns in China, rising Google inflation and corresponding monetary policy actions, all of which compounded the continued global supply chain disruptions. Consequently, over the past 6 months, global IP growth forecast for 2022 was systematically downgraded from 4.4% to 3.5%. Given the still uncertain macroeconomic environment, it is plausible that this forecast could still suffer further downward revisions. In fact, last night, after this presentation was finalized, we received a new update from Oxford Economics, lowering the 2022 global IP forecast to 3.3% for this year. Nevertheless, our robust business model and disciplined execution of our strategies have underpinned the resilience of our performance throughout economic cycles. So we remain confident in our ability to successfully navigate the continued uncertainties ahead. Now on Slide 15, we start the half year review of our operations with the Steam Specialties business. Steam Specialty sales were up 11% to GBP 400.6 million or 10% up organically. Adjusted operating profit was up 3% to GBP 92.1 million or 2% up on an organic basis. The adjusted operating profit margin of 23.0% was down 180 basis points on both a reported and organic basis. As we continued our revenue investments in support of growth, including in our digital strategy. Demand for Steam Specialties products and solutions grew significantly above global IP in the first half of 2022 and well above sales as the business expanded its order book further from its record opening position. Demand remained strong across all regions and most market sectors. Contributions from Cotopaxi acquired in January 2022 to accelerate our digital enablement journey were more than offset by the disposal of our Russian operations. We anticipate sales growth for the full year 2022 will continue to significantly outperform current full year forecast of IP. As anticipated, the first half adjusted operating profit margin was 180 basis points lower due to the full year impact of our 2021 and 2022 revenue investments, which offset the benefits of our operational gearing from higher sales, as Nimesh explained just recently. We expect on a similar impact on the full year 2022 adjusted operating profit margin compared to the full year 2021. Moving to Slide 16. ETS sales of GBP 104.7 million were up 13% organically or 18% on a reported basis, benefiting from a 5% currency tailwind as sterling depreciated against the U.S. dollar. The adjusted operating profit of GBP 12.8 million was up 9% organically and resulted in an adjusted operating profit margin of 12.2%, 60 basis points down organically due mostly to the revenue investments for growth. Within ETS, Chromalox increased its adjusted operating profit margin organically, driven by continued strong performance in the Americas, where margins are above 20%. The profitability of the Soissons facility in France has been addressed through a consultation process. And adjusting for losses incurred in Soissons during the first half of 2022, the ETS adjusted operating profit margin would have been higher than in the first half of last year. And as I mentioned already, following the completion of successful field trials, the first decarbonization solutions developed through the Thermal Solutions Synergy project, in collaboration between Steam Specialties and ETS are now available. Collectively known as TargetZero, these new and innovative solutions are designed to help our customers decarbonize their critical industrial processes, including the raising of steam. For the full year 2022, we anticipate ETS sales growth will be significantly ahead of global IP and similar to the first half, growing above Steam Specialties. As a result of the operational gearing from increased sales, we anticipate adjusted operating profit growth ahead of sales growth in 2022, with an increase in the adjusted operating profit margin for the full year. The Vulcanic transaction is expected to close in the third quarter of 2022 following the receipt of regulatory approvals. Vulcanic's organic sales growth in 2021 and during the first half of 2022 was similar to ETS and we expect the full year 2022 sales growth for Vulcanic to be similar to ETS's. Now on Slide 17, Watson-Marlow sales of GBP 244.8 million were up 26% organically, while the adjusted operating profit for the first half was up 21% organically to GBP 87 million, driven by strong sales growth. The adjusted operating profit margin of 35.5% was down 170 basis points organically, reflecting our continued revenue investments and the recruitment of additional colleagues for our new manufacturing facilities. Supported by increasing demand for gene and cell therapy treatments, underlying demand for Watson-Marlow's products remained strong. Demand from customers in the pharmaceutical and biotechnology sector normalized in line with our expectations and reflecting lower COVID-19-related demand. While in the process industries, demand growth was significantly above IP. Watson-Marlow's overall order book at the half year remains above the 2021 year-end position. Sales to the pharmaceutical and biotechnology sectors grew by close to 30%, reflecting increased deliveries from the significantly large order book, while sales to the process industries grew significantly above IP. Watson-Marlow continued making significant progress in expanding its manufacturing capacity during the first half of 2022. Our newly installed capacity at BioPure in Portsmouth, Watson-Marlow Pumps and Tubes in Falmouth and Aflex Hoses in Huddersfield, enabled almost 40% increased production output across those 4 key plants compared to the same period of 2021. In 2022, we continue to anticipate around 20% organic sales growth to the pharmaceutical and biotechnology sector. After the process industry sectors, we anticipate similar organic sales growth to that of the first half, remaining significantly ahead of Global IP. While we expect strong sales growth in the second half of 2022, the organic sales growth rate will be lower than that achieved in the first half, reflecting the strong second half comparator of 2021. We anticipate that for the full year 2022 the adjusted organic operating profit margin will be below 2021, reflecting the full year impact of our 2021 and 2022 revenue investments, as well as the ramp-up of our new manufacturing capacity. However, the margin will remain comfortably above 2020. Moving on to Slide 18. We have again added 3 new customer case studies that help illustrate how our 3 businesses improve the performance of our customers and help them achieve their sustainability targets by reducing energy expenditure and waste, while contributing to a more efficient, safer and sustainable world. These case studies are in Appendix 1 to 3 of this presentation, and I'd encourage you to read more about them at a later moment. Now that concludes today's presentations. So we will now be pleased to take questions from the analysts on the call. And with that, I'll hand back to Nadia.

[Operator Instructions] And the first question comes from the line of George Featherstone from Bank of America.

My first one would be on the order book. I wonder if you could help us understand a bit more about the increase year-on-year here. What contribution do you think there's been from price and how much from volume in that increase? And also, how much visibility do you have now compared to typical levels?

George, thanks for your question. Look, the -- yes, the order book is up, and it's up by those 2 reasons, the price and the volume. The visibility is the same as we've always had, right? So you know that we have typically long -- short lead times, and therefore we have limited visibility, although high predictability, and we always remind people of that. So that visibility remains the same. We've historically operated on 7 or 8 weeks, 7 to 8 weeks of order book and those are usually the longer cycle orders that sit for a bit longer in the order book. And we do have across the board, the Group, as you know, yes, close to 40% of our business that actually is booked and shipped within the same month. And therefore, that limits the visibility. Now, if we've said clearly that the order intake of this year and the sales of this year have been impacted favorably by both volume growth and sales growth, you would expect that same mix to be reflected in the order book at the moment because of the short lead times that we've mentioned.

Okay. Very clear. Maybe then turning to the payback period that you typically offer for customers, which is already -- or historically has been very short anyway. But I wondered how much of that has changed maybe in the prevailing energy cost environment for Steam and ETS? And also how much of the demand growth across those 2 businesses would you attribute to growing need to reduce energy costs for your customers as we look forward?

So the -- look, the -- are you particularly interested in, if the payback of decarbonization solutions is longer than the payback of the other projects that we've usually been doing. Is that what you're trying to understand?

Well, I'm just trying to understand, if the payback period has changed because when customers are looking at maybe upgrading those systems, it might be against now higher energy costs that they can offset through some of the improvements that you can give. So I just wondered if there's been a change versus history in terms of the payback period that you'd normally be able to offer?

Yes. So okay. First, as a reminder, Energy savings is just one of the many ways in which we help our customers improve their performance, right? So it's a more visible one, easier to visualize, but it's not the only reason why customers -- not the only way in which we help our customers improve their performance and reduce their costs. So inevitably, the part that is related to energy savings will benefit from a slightly shorter payback if the energy costs go up or will lengthen a little bit when the energy costs go down. But it doesn't materially change the overall situation that we have been seeing with our customers, because it's not -- energy cost is not the only reason why customers are reflecting that. When it comes to decarbonization solutions, and that's why I was inquiring if that's where you were, right. It does extend a little bit. So when the customer is looking to, for example, decarbonize one of his operations, the driver there is reduction of carbon footprint, not the energy costs. And actually, the cost of electricity are higher than gas, and therefore, that does change a bit of the equation. But really, the driver there tends to be a reduction of carbon footprint as opposed to energy costs.

Okay. And final one for me would be on the large project demand that you've seen an increase in. Just wondered if you could maybe run us through particular customer segments that you've seen this in? And is it more in the Asia Pacific region where you've seen this, because that has historically been, I think, the area where large projects should be mostly found?

Okay. Yes. Thanks, George. Good question. Yes, look, yes, APAC is where we see a lot of -- or a higher proportion, if you want, of CapEx-driven sales, customer CapEx in sales, new builds, design of new facilities or expansion -- brownfield expansion of new facilities. And so yes, that is reflected this year as it has been historically. The nature of that is mostly across all sectors. I wouldn't call out any individual sector as having seen more CapEx investments by customers than in other sectors. And really, what this is, is the expected return to normality after the slowdown during 2020 because of COVID. So as you remember, 2019, global IP was already coming down. In fact, it was close to 1% in that year. So many companies were already reviewing their capacity expansions, because when we talk about CapEx, customer CapEx projects, it's essentially customers expanding their capacity. -- either through greenfield or brownfield expansion. So when the demand of the customers' products, the expansion because when we talk about CapEx, customer CapEx projects is it's essentially customers expanding their capacity, either through greenfield or brownfield expansion. So when the demand of the customers products start softening as it was in 2019, the need to expand that capacity eases a bit, and we're already seeing that slowdown in 2019, then come 2020 with the pandemic, everything stopped because it wasn't clear. And then once the situation started becoming clearer in 2021, customers started pulling those projects out and reviewing those projects and you started seeing those orders coming in at the end of last year and the beginning of this year. So it is really a return in that sense and somewhat of a catch-up from the slowdown that goes back to 2019, really.

Now we are going to take our next question. And the question comes from the line of Aurelio Calderon Tejedor from Morgan Stanley.

Nicholas and Nimesh, it's Aurelio Calderon from Morgan Stanley. The first one is around the process part of Watson-Marlow and I think the implied guidance or the implied performance in the first half is quite encouraging, close to 20% growth. So what's driving that growth? Is it again market share gains? Is it that your pumps are displacing other type of pumps? Or what is the driver behind that strong growth and kind of the forward-looking demand comment, which also looks quite encouraging.

Okay. Aurelio, thanks for your question. Look, the process industries, as you will recall, is a collection of multiple sectors. The main ones are food and beverage, water and wastewater, and water treatment processes, a little bit of precious metals, mining, et cetera. So there is a variety of sectors. In all of those sectors, as is not typically across all of the businesses of our Group, we do tend to gain market share through the sale of solutions for customers, which is what we call the uncovering the need -- unrealized needs of the customers. So it is the same, we've shared in the past, where our sales engineers walk to plants of the customers, identify ways in which they can improve the customers' performance through the use of our products. And then we'll look for those opportunities to either share products or services that improve the customers' performance. So when we do that, inevitably, there is some market share gain because sometimes you might be displacing, in the case of Watson-Marlow, other types of pumps, for example, where the adoption of our pump solutions improves their performance, but to the detriment of a different type of pump that they might have been wearing -- using previously. And therefore, that is a form of market share gain inevitably. But it's no different to the operating model that we've shared with you in the past. And for that reason, we continue to see that trend positively progressing. And it is that those characteristics that I've just described that explain why the Process Industries and Watson-Marlow grow at an even faster outpaced than IP compared to other parts, because it's that stronger displacement of other types of pumping technologies by the Watson-Marlow products.

Okay. That's helpful. And the second question is around pricing. And I know you haven't really called out the price increases in the first half. But if we think about these prices kind of sticking, do you see any differences by division, by business by geography? Or maybe you can kind of hold on to those price increases as kind of inflation moderates a little bit into 2023?

Okay. Thank you, Aurelio. Good question. Look, let me start by reminding yourself and all the other listeners on the call that we have very well-established processes across all 3 of our businesses, deeply embedded now, what we call the price management processes, right? And therefore, for years now, the organization has been trained and has successfully managed to pass on inflationary increases to protect our margins. And therefore, what happens when inflation ramps up is that we have to ramp up our corresponding price increases to customers. Inevitably, in a year where there's an acceleration as we've seen at the beginning of this year, that would lead -- and it did lead, in fact, for example, to further price increases in the first half than we had originally planned for. When we did our plans for 2022 at the back end of last year, we were anticipating a level of inflation, which clearly at the end of the first quarter was noticeably higher than what we had planned for. So we went back and we did a little reinforcement of the price increases that we put through as inflation was coming through and larger. And to be honest, customers we have like taking a price increase, but they understand it. They understand it because we're very transparent, and we demonstrate to the customers. And of course, the customers are experiencing the same thing in their own businesses. So whilst it's never easy, and it shouldn't be taken for granted, I think we have well embedded processes, and we've seen that come through. And actually, in the second quarter, we were worried if that reinforcement of price increases would be strongly push back or not. And the pushbacks were in line with what we expected and has, therefore, come to -- and that gives us the confidence that our margins are protected. And in the second half, we think now that the worst of that is behind us. And so at this point, we're not anticipating the need for further price increases through the balance of this year. And that does not change by division or by geography or by market sector. Some channels are easier than others, but the principles are the same across all parts of the Group.

That's helpful. And maybe if I can just squeeze one last question. On the ETS benefit from electrification and decarbonization, are we seeing that in the numbers already? Because obviously, your growth in ETS was ahead of Steam in the first half after kind of years of underperformance in Steam and your forward-looking comments is also a bit more positive on ETS. And I also remember from the ETS Investor Day, you were talking more positively about this business going forward than for Steam probably. So is that benefit [ holding] in the numbers right now? Or are we still kind of in that wait-and-see mode to see when this decarbonization and electrification benefits kick in?

Yes. We are already beginning to see some benefits in the order book, in fact, since the end of last year already. So -- but as we said at -- for those of you that were able to follow the ETS Capital Markets Day at the end of June, this is a new and additional incremental trend to all the other trends that we see in our business. The global move to decarbonize Industrial Processes is a process that has started, is a trend that is on its way. And -- but it's really just getting started, okay? Also it's very difficult to predict the rate at which this trend will further improve our ability to outperform IP growth going forward. But we know what's happening, and it's already beginning to contribute, obviously, on a smaller scale because it's the beginning of the process. But yes, we've really received multiple orders since the end of last year or even before. And so we see this trend is already a reality, but it's the beginning of the curve. So it's not the most significant driver yet, but it will build over the years to come as a more substantial contributor to our growth.

Now we are going to take our next question. And the next question comes from the line of Jonathan Hurn from Barclays.

I just have 3 questions, please, if I may. Just in terms of the first one, can you just talk a little bit more about Vulcanic, please? Potentially about what synergies you can get from that deal by putting it together with Chromalox? Also essentially what investment is needed or what investment you think might be needed in Vulcanic going forward? And also, how do we think about the margins for Vulcanic? Is your aspiration to get that margin of that business pretty much up to the Group average? That was the first question.