Spirax Group plc (SPX) Earnings Call Transcript & Summary

Good afternoon, and welcome to our investor seminar and thanks for taking the time to join us today. So as Hazel said, I'm Nimesh Patel, I'm the Chief Financial Officer of the group. And we're delighted to be able to host you here in the Chartered Accountants' Hall in London and to be broadcasting live to investors and analysts who are unable to join us in person. Today's session is focused on the largest of our 3 businesses, Steam Specialties and follows a similar format to previous seminars, focused on electric thermal solutions and Watson-Marlow. As you will have seen in yesterday's RNS, announcing this seminar, we will not be giving an update on trading today. We will be reporting our first half results on the 10th of August. Before handing over to my colleagues, I'll take a few minutes to give you some context about our group and the fundamentals that underpin our resilience and support our value proposition. But first, let me run you through this afternoon's agenda and introduce the team who are with me here today. Our Group Chief Executive, Nick Anderson, is well known to all of you. Nick will talk about the important role that Steam Specialties plays in our group. Before handing over to our Managing Director of Steam Specialties, Maurizio Preziosa, who will provide an overview of the business and share more information on our business model and strategy. We'll then have a short 20-minute coffee break. And when we return, Andrew Guthrie, Finance Director for Steam Specialties will take us through how we drive sustainable growth in Steam Specialties and how we think about margins. Now as we have both a virtual and a physical audience, we're asking that you hold your questions until we finished all of our sessions. We've allowed an hour for what we hope will be a lively Q&A session with all our speakers. And I'm pleased to say that we have also been joined by 2 of our Steam Specialties executive team, Sean Clay and Jennifer Onofray. Thank you, Sean and Jennifer, and they're going to help also address your questions. And we also have here today, Jim Devine, who's our Group HR Director. So feel free to ask him any questions too. Mal Patel over there is our Head of Investor Relations, and he'll be monitoring questions coming in from the webcast participants and asking those on their behalf. If you are online, feel free to type your questions into the Q&A panel as we go. With that, let's begin. You are all familiar with this slide, but let me just reiterate where we are today, 3 world-leading niche engineering businesses with combined revenues of over GBP 1.7 billion, focused on thermal energy management and fluid path technologies with Steam Specialties, our original business today, representing half of group revenues. But what this snapshot doesn't show is how we got here and the scale of the opportunity that lies ahead of us. We are often asked about our market share, and you'll be familiar with our response that this isn't something that we focus on because what is actually important to us is growing our addressable market. As you can see, over the past 10 years, our addressable market has grown from under GBP 5 billion to nearly GBP 13 billion, and our revenues over this period have grown from under GBP 700 million to over GBP 1.7 billion. What is noteworthy is how we have changed the shape of the group to create a long runway for sustained growth. For example, Watson-Marlow was a niche pump manufacturer when we acquired it. And 10 years ago, it had an 18% share of a sub GBP 1 billion market. Today, it still enjoys significant share, but of the much larger pumps and fluid path market, which includes specialist tubes and housing used in multiple industries. Ten years ago, we did not have an Electric Thermal Solutions or ETS business. Through our acquisitions of Chromalox, Thermocoax and more recently, Vulcanic and Durex Industries, we now have exposure to a global market of just under GBP 4 billion, and Steam Specialties is still our largest individual market of over GBP 5 billion. These addressable market sizes are before including the opportunity to decarbonize the generation of steam in which we have a key role to play. How we address our various markets around the world has also changed over the past 10 years. You can see here how the group serves over 110,000 customers in 165 countries through our sales and manufacturing footprint. Our number of operating units, which represent our local sales and supply companies has increased from 64 in 2013 to 146. We have a direct sales presence in 67 countries and have increased the size of our direct sales force, which is engineer led, sector-focused and highly trained from 1,300 in 2013 to more than 2,100 people today, making it very difficult to replicate. We are continuing to expand our geographic footprint through increasing our coverage in countries where we are already present and where we see attractive market opportunity. So as you can see, our scale and global coverage is unique in our markets and allows us to share expertise and experience across our teams, increasing the agility with which we can anticipate and respond to our customers' needs. And our global coverage means we operate as a highly local business, building close relationships with our customers at a plant level. Let me touch on another important driver of our competitive advantage. This slide explains our resilience through economic cycles. Over 60% of our revenues are derived from defensive, less cyclical end markets such as pharmaceutical and biotechnology, food and beverage and power generation, with over 85% of our revenues generated from our customers' OpEx budgets and a small average invoice size of approximately GBP 3,000. Now usually, these purchase decisions are made at the local plant level. And we do not particularly feature in our customers' top 10 or top 20 suppliers in terms of spend. But the most important thing and the most interesting thing is that 40% of our revenues are from self-generated solutions, essentially small project sales, also usually funded from customer OpEx budgets. Let me explain what we mean by that. Our self-generated solution sales are driven by our direct sales engineers who walk our customers' plants, understand the critical processes in those plants and are able to find ways to improve their productivity, their reliability and their sustainability. This is what we mean by customer closeness and meeting and exceeding their needs both leveraging our applied engineering expertise and being supported by the broadest range of products and solutions. This highly local sales approach is supported by our manufacturing sites, which are also located close to our customers, ensuring short delivery times. As demonstrated by our strategic framework, we seek to leverage our direct sales business model and enhance customer bonding to focus on the customers' economics. We don't compete based on price or product features or lowering cost. Instead, we focus on improving our customers' performance and improving their economic or sustainability outcomes. Our high-value low-ticket products focus on critical components in our customers' critical processes. Together with our focus on customer economics, this allows us to pass through inflationary pressures in price, protecting our margins. Pulling all of this together across one, our focus on niche markets; two, global coverage; three, diverse and defensive end markets; and four, engineering-led solution selling, what we have built as a group is a deep and wide competitive moat. What I've been describing was the focus of our customer-first strategy introduced in 2014. This strategy drove the evolution of our Steam Specialties business moving from a best product focus in 2014 to fully embracing customer solutions by 2020. So now let's look at what this strategy and our business model has delivered. I hope this slide will help you better understand the basis of our confidence in our long-term growth prospects. The arrows show both how total and organic growth have stepped up since we introduced the customer-first strategy. and also began building our third leg, ETS. Sales growth was 9.5% from 2003 to 2011, slowing to 0.6% between 2011 and 2015, as a result of strong FX headwinds. From 2015 onwards, sales growth has been enhanced through M&A, increasing to over 13%. And over the entire period, we have delivered a very consistent organic compound average growth of over 6%. Comparing our organic growth in the period, pre and post implementation of our Customer First strategy, the outperformance of this organic growth against industrial production growth or IP for short, increased from 2.2x to 3.1x. What this chart really demonstrates is that we have a track record through economic cycles of delivering organic growth in the mid-single digits. And now, we have 3 engines of growth rather than 2 and a significantly larger addressable market with an additional tailwind in the form of our customers' sustainability targets. So that then takes me on to how the group has performed versus IP. So the only point I want to make here is not just that the business has outperformed IP by over 2x, which it has done very consistently over the last 20 years, but that the rate of outperformance has stepped up. So that's all I'm going to say about sales growth. Now let's have a look at profit and margin. The dark blue bars on this slide show our reported adjusted operating profit. While the bars include -- including the light blue segments show the underlying margin stripping out the impact of the 2 acquisitions we made in 2017, Gestra and Chromalox, both of which have mid-teen margins. Our group margin, excluding these acquisitions, has remained consistently above 25% since 2018. This is higher than the average of above 17% between 2003 and 2011. And the average of above 23% over the past 10 years. And we remain on track to achieve greater than 20% margins in both acquisitions. In fact, in 2022, Gestra achieved the highest margin in its 120-year history, exceeding the 20% threshold, which it had achieved in 2021. The key message here is that our margins have improved consistently, while we have also continued to fund revenue investments, such as increasing our direct sales head count, new product development, developing our digital capability and delivering on our sustainability commitments, all of which will support our future growth. Andrew will later share some examples of our revenue investments in Steam Specialties when he presents. What all this adds up to is the following: a large and expanding addressable market, driven by population growth, the growth of emerging economies and increased demands for energy efficiency and decarbonization solutions. Our business model delivers consistent, greater than 2x IP organic growth at attractive margins with strong cash generation. And we have the capacity to reinvest the benefits from incremental operating leverage into future growth thereby fueling a compounding growth model that helps us sustain our 55-year track record of dividend growth at an average annual rate of 11%. I will now hand you over to Nick to explain the role Steam Specialties plays within our group.

Thank you, Nimesh. Good afternoon, everyone. Good to see you here. Thanks for coming and joining us today. Nimesh has explained the evolution of our group and shared our historical performance, especially in relation to industrial production growth or IP as we like to call it for short, which demonstrates why we believe we are well placed for the future. Now before I hand over later to Maurizio to talk to you in detail about the Steam Specialties business, I'd like to spend a few minutes explaining the important role that Steam Specialties has and will continue to play within the context of the wider group. Steam Specialties comprises 5 divisions, 3 Spirax-Sarco sales divisions in EMEA, Americas and Asia Pacific, a global Gestra sales division and a global supply chain division. Now if it wasn't clear to you before today, I hope that one of the key messages you'll be taking away from today's session is that Steam Specialties remains a powerful engine of growth as illustrated by this IP performance chart. Earlier, Nimesh showed you how we performed as a group relative to IP over the last 2 decades. Achieving organic constant currency growth over the last 10 years of more than 2x IP. Now this slide shows Steam Specialties performance against IP over those past 20 years, evidencing how this business contributes to underpin the group's organic growth. Just like the group as a whole, Steam Specialties outperforms IP at all stages of the economic cycle, growing by close to 2x IP during the industrial expansionary periods and declining by close to 1x IP during industrial recessions. It is also important to note that over the last 5 years, through the disciplined implementation of our growth strategies, we have successfully improved our ability to outperform IP and you can clearly see that as those 2 lines are continuing to expand in the latter part of the graph. So let's look at what drives this success on the next slide. Steam Specialties serves a resilient and growing market. As Maurizio will explain further in his section, Steam Specialty systems are always on. They're running 24 hours a day, 365 days a year. They are, however, subject to wear and tear from constant operations, which means that customers often need replacement at short notice of the products that were entailed to break to keep their critical industrial processes working effectively. Customers also look to the system providers to help them increase overall asset performance and drive manufacturing process improvements. Steam Specialties has a direct sales presence in 66 countries through more than 1,300 direct sales and service engineers. These are highly skilled in the understanding of both our products and our customers' manufacturing processes. Therefore, our direct sales engineers play a critical role in self-generating sales by identifying our customers and recognized needs and solving their difficult process challenges. An important part of our business model is to maintain regional manufacturing operations, quickly replenishing products that meet the applicable regional design codes. Across the group, we have 40 manufacturing facilities with 11 of those dedicated to the production of Steam Specialties products in Europe, North America, Latin America and Asia Pacific. From these facilities, we produce an unmatched range of products as well as a one-stop shop approach, which simplifies our customers' [indiscernible] processes. It is these drivers, our geographic coverage, proximity to customers, the quality and range of our products and the highest number of direct sales engineers that have allowed Steam Specialties to have the largest penetration of the global installed base of Steam systems through the supply of high-value, low-ticket products that are highly critical to our customers' manufacturing processes. In addition to self-generating growth funded from customers' operating budgets. We also work with our customers to support their capital investment projects, which is actually a smaller part of our sales, as you know that. But we do this by enabling our customers in the expansion of the global installed base of Steam systems as our customers build new greenfield operations or expand brownfield expansions of existing facilities. Now let's look forward. It's these factors that support our confidence in multiple decades of future growth for our Steam Specialties business. We have strategies in place for sustainable and through cycle growth, greater or equal to 2x IP. First, there is the natural expansion of the market, which is driven by IP, and we've already demonstrated how we're capable of outperforming IP. Then, there is our ability to self-generate sales and generate growth through our direct sales force, which is what actually drives outperformance of IP through the cycles. We're also investing to digitally enhance that business model and our capability to accelerate the outperformance of IP. And finally, there's another strong driver of additional growth called decarbonization. To which, we are responding with new products and solutions for the decarbonization of critical industrial processes. Nimesh talked earlier about the importance of geographic expansion for the group. I don't mention it on this slide, but I do want to highlight that within the Steam Specialties business, the Spirax-Sarco global footprint is accelerating the geographic growth of its sister company Gestra that we acquired in 2017. I'm sure that by now you're familiar with this graph with this diagram that we used to explain what makes Spirax-Sarco Engineering, one group. I presented it at the AGM in May, and the slides are available on our website, if you wish to further expand upon it. But what this diagram shows is how our shared purpose, values, business model and strategic framework, which incidentally originated in the Steam Specialties business, enable our group to be greater than the sum of the parts and create sustainable value for all our stakeholders. Now on this slide, the 4 boxes on the right highlight some of the areas which demonstrate how Steam Specialties is central to our one group approach. Let me take you through those 4 boxes. First, by sharing -- by Steam Specialties sharing its established strategic and operating model. As I mentioned, our approach to direct sales, including the development of the academies and the sales excellence training came originally from Steam Specialties. It was also the first business to develop clear customer value propositions. Maurizio will expand a bit on that later, which are now widely adopted across the other 2 businesses of the group. And our approach to self-generated growth through direct sales, sectorization and go-to-market strategies, we're well developed and honed within the Steam Specialties business. Second, Steam Specialties has been an enabler of growth for the advancement of group. By leading the way in applying digital to enhance our business model, and through its established geographic footprint, we have been helping accelerate the global expansion of Watson-Marlow and ETS. But also through the strong leadership role that Steam Specialties has in deploying the group's sustainability initiatives. Thirdly, Steam Specialty supports the rest of the group by also sharing talent and experience. Another way in which Steam Specialty has done this with other products is by mobilizing some of the talent from Steam into ETS and Watson-Marlow. One of the many but more recent examples of this includes the Managing Director of Thermocoax, who worked in Steam Specialties for 2 decades before transferring his skills and knowledge, first to Chromalox and now more recently to Thermocoax, helping to establish some of those strategic and operational initiatives I've just been mentioning, in those 2 divisions of ETS. And last but not least, Steam Specialty also adds value through to the rest of the group through collaborative product developments. And of course, our favorite example of that is the way that Steam Specialties has led the way in collaboratively developing products such as the TargetZero solutions together with ETS to decarbonize critical industrial processes, including the rising of Steam -- the raising of Steam. So Steam Specialties has also led the way in thinking about the impact that our business has on all 6 of our stakeholder groups. Now this is just a snapshot of some of the ways in which Steam Specialties business is living our purpose and our values. But hopefully, you'll get the idea of -- also of the impact it is having on our group at large. And therefore, this now brings me to the end of my section. And before I hand over to Maurizio who will get into more detail on some of these topics inside of Steam Specialties, I just wanted to once again reinforce the importance of Steam Specialties for all the reasons I've been explaining just now. And because, quite simply, Steam is so important to our customers. So on that, here's Maurizio to tell you a bit more away. Thank you.

Thank you, Nick. It's a pleasure to be here today and to give you a bit more insight into the part of our company that I have the privilege to lead. As Nick said, my name is Maurizio Preziosa. I'm the Managing Director of Steam Specialties business in our group. I joined the group in November 2011 as a General Manager of Spirax-Sarco Italy and then progressing to the role of Regional General Manager for Southern Europe before becoming a Divisional Director of Gestra in May 2017. I took on my current role in Steam Specialties in January 2021. And before joining the group, I held different managerial position in ABB Group in the electrification, instrumentation and analytical measurement business. Having introduced myself, I'd like to take a minute before we go any further to talk about how Steam is a critical factor in nearly everything we do today. At the start of a typical day, most people have breakfast. I don't know what you ate this morning. But the cereal you ate or the bread you toasted would most likely have been made in a factory using steam as part of the production process. In fact, every kind of food, every ready meal, all of it relies on steam. When you travel, whether on public transport or driving yourself, oil and gas production uses steam in the refinery process. The tires are made using our vulcanization process in which steam is crucial. And now we can also say that steam is being used in part of the process for mining lithium and battery production. So again, when you travel in an electrical vehicle, steam is involved. So there are lots of other touch points in between the start of your day and the beer you perhaps enjoy at the end of it. But again, the quality of that beer is directly related to the steam control of the pasteurization process. So in nearly every modern industrial process and every sector uses steam in some way and the quality of the product and the productivity related to the process are directly impacted by the control and management of steam, which makes it a mission-critical element in today's industrial output. We'll get into more detail later, but before we do I'd like to start by introducing my team. So I don't lead the business on my own, of course. Our leadership is comprised of regional and functional leaders from 8 different countries and with diverse background who work globally across the business. On the left of the slide, you can see our functional leaders, including Andrew, our Finance Director, you will hear from him a bit later. And then Charles Song very recently took up the position of Global Business Development Director for Steam Specialties. He's a long service colleague who joined the company after completing his Ph.D. He rose to become President of our successful Chinese business before moving to the U.K. to take up the new global role. Then on the right side of the slide, you see the leaders of our 5 divisions, starting with Jennifer and Sean, who were introduced earlier. Jennifer Onofray is Divisional Director for the Americas region and [ leads ] on the customer sustainability initiative in our strategy. And Sean Clay, Divisional Director for EMEA, whilst also leading on digital for our customers. So now you know a little more about who we are. I want to cover what we do. And I'm going to play a short video, which explains how we use steam in those industrial processes I mentioned earlier. [Presentation]

Hopefully, that gives you a better idea about some of the sectors and applications for steam in industrial processes. The benefit being the high energy content as well as being sterile and environmentally safe. Our solutions control and manage the way steam is used in those processes. And steam has a direct impact on both the quality and output of the process as well as on productivity. It becomes mission-critical. When we think about the food or pharmaceutical and medical settings to just pick on 3 of the sectors that we work in. You will see in some of our products in the room outside before we came in. And in addition, we put all of this together in engineered packages. This means that Steam Specialty is really a one-stop shop for plant-wide applications of industrial steam systems, which deliver improved process efficiency and product quality. Our business has always been focused on improving efficiency in our customers' processes and systems. And furthermore, our solutions help to reduce CO2 emissions, energy consumption and water usage as well as cutting down on waste and maintenance downtime whilst continuously complying with industry standards. Have you look at what we do? I'm going to move on now to cover the market we operate in. Firstly, we define the market based on the installed base on industrial plants that use steam. The installed base generally increases, which drives the size of the market. Where we operate in that market, we provide value, and we supply products, systems and services. As you can see from the slide, we have about 17% of the global market share. And across regions that shares value has been with 12% in the Americas, 21% in EMEA and 17% in Asia Pacific. When it comes to our competitors, we have a fairly unique situation in that there is not a competitor who offers the same range of solutions operate in as many markets or has the same scale in direct space. We have, therefore, expressed a view of our competition in the table here. And this is a market which has typically grown according to the installed base and its expansion to which we can add self-generated opportunities. And it may be further expanded by structural initiatives such as the electrification of steam generation, for example, in our TargetZero initiative. To focus on the end customer's team in those markets, the first thing to note is that we have a broad exposure. And that exposure is largely to defensive market. Some of our biggest customers include Nestle, Diageo, Johnson & Johnson, AstraZeneca, Shell, BASF, Mars or OEMs such as Bosch and Tetra Pak. And as I mentioned a few minutes ago, we are opening up new sectors including lithium batteries and biofuel across the energy sector. Ours is a direct business model. And this is shown by our rules to market numbers on the right side of the slide. These are split in favor of direct at 74% based on Steam Specialties revenues for 2022 and 26% indirect through distributors. In the U.S.A., in Gestra, we see a higher percentage of sales through distribution, driven by the traditional structure of those markets. And we are working to increase our direct sales in those markets by creating demand downstream whilst at the same time making strategic use of our distributors. Having looked at our markets and our customers, I want to quickly cover our geographic spread before moving on. Here it is, so the strength we have through our diverse customer sectors and markets is enhanced by our geographic spread. Our business model is to be close to the customer wherever they are. So on Steam Specialty, we have a global reach but we sell and supply locally. And geographical expansion has been a part of our strategy for a long time. Recently, we have seen examples of this focus continuing in Africa or in Malaysia, where we acquired the Gestra distributor with our expansion in China being now longer lasting. Our manufacturing operations are in locations which are driven by demand. We currently have 11 factories, and we are accelerating a global manufacturing footprint program to ensure that the majority of what we manufacture is made closest to the customer. Indeed, our competitive advantage is partially due to this closeness because it drives our ability to respond quickly to the customer needs. And in terms of capacity, we currently have enough to meet the growth of the next years as well as having plans to add more in line with our program for future growth. In the next slide, I'd like to give you a more detailed view of our business model. As Nick said, as a group, we share the same business model that helps us focus on customer needs, enabling critical industrial processes. Steam Specialty is where the strategic and operational business model was established with direct sales, customer value proposition and self-generated growth being critical components of our original Customer First strategy. As a result, Steam Specialties is an enabler of growth across the group and also has the benefit of our ability to move talented and experienced people between our businesses and group functions. And we achieved that customer closeness through a sectorized sales force. So our sales engineers, wherever possible, are dedicated to our focus sectors so that we understand our customer businesses and their processes through deeper engagement, and this enables us to meet their needs, whether they are known or better unknown by combining our specialist team knowledge with industry and processes knowledge. So what are the drivers that made this approach so successful for us? Starting with our new strategy. Customer first squared which is an evolution of the original business strategy for Steam, Customer First, which now informs our business model across the group. In this new evolution, we continue to put the customer at the center of what we do, and we leverage global mega trends such as sustainability and digital as well as creating an inclusive environment for all of our colleagues. It's a 5-year strategy, which runs up until 2025 and aligned with our group purpose to create sustainable value for all our stakeholders as we engineer a safer, more efficient and sustainable world. Through our strategy, we have the ambition to deliver growth greater than or equal to 2x IP by combining a steady MRO demand with self-generated sales. The key elements of that strategy, you can see here starting top left and moving clockwise around the slide. First, a focus on core industries with critical manufacturing processes. And as I said, a sectorized sales force working closely with the customers in our focus sectors. Secondly, direct customer engagement through physical and now also digital connections. We have geographic breadth delivering local sales and supply, a dual brand strategy with the 2 brands, Spirax-Sarco and Gestra and wide product range to offer an end-to-end solution. Best-in-class team applications knowledge through our extensive academy development program, providing knowledge and training to support consultative selling. We sell based on the value delivered by our solutions that we are able to quantify and to use to support our sales. This being energy efficiency, productivity improvement or sustainability benefits. Indeed, CO2 is becoming the new currency. With this driver, we don't sell Steam traps or valves anymore. Instead, we sell tonnes of CO2 reduction that we are able to quantify and use to drive our sales negotiations. And once we install the system through our digital connection, we are able to monitor the results and prove that we can deliver what we promise as well as identifying opportunities for further improvements. I'll talk a little more about this later in the examples. Talk about MRO now. That steady MRO demand come from installed base, and this is what delivers our baseline growth. And because MRO spend comes from customers' OpEx budget is therefore less cyclical and has the highest correlation to industrial production. We are able to maintain this level of growth because of our business model of direct sales presence and our proximity to our customers. Our pricing power comes from the low-ticket size of our sales, combined with the criticality and our brand strength. Let's talk about self-generated growth now. Our ability to generate growth ourself, which is greater than or equal to 2x IP, is delivered by our sales engineers being close to their customers. Their visit to a customer site may start from a point at which the customer has no identified sale opportunity for us. There are no spares needed, no expansion of plant, no projects. On the face of it, nothing. However, by working the plant or by digitally working the data of its plant and by using the expertise of a sales engineer, we discover opportunities that the customer was not even aware of. And from this point, we can develop value-based offer and win the order that often comes with a good margin for us as well as a good payback for the customer. And these solutions funded from the customers' operating budgets are very likely to be high value for the customer, but with a low average invoice size and with a short payback, as I said. And once installed, the expertise and the value we deliver creates a high level of customer loyalty, which in turn leads to an invitation for us to work with the customer to identify further opportunities. And of course, with our digital offer, we are now able to connect digitally with the customers' plant so that we can monitor and suggest further improvements in performance and in efficiency. In this way, we are both a problem solver based on the customer known needs and the problem finder based on their as yet unknown needs. And lastly, when we consider the general reduction in the knowledge of steam systems in our customers' operation, that trend is in our favor as we can leverage our knowledge and expertise to support the customer even better. Customer value propositions. Our engineers sell to our customers using customer value propositions. They help us to deliver the right solution offering to the right person by creating value in the areas which are important to them. These value propositions are core to our self-generated growth and help us win new business with building closer relationships with customers. Each describes how we can create value for a specific type of customer base on their particular needs. And the methodology has been developed with supporting tools to understand the customers' [ pace ] so that we can design the solution, which provides the gains. Let's have a couple of examples. Here are 2 examples how we have added value to our customers using these customer value propositions. The first on the left is with a multinational food and beverage customer, which has been a key account for Spirax-Sarco in the U.S. for more than 15 years. In this case, they were facing a challenge in the form of a risk of contamination to the product, which was due to corrosion in one of the pump skids caused by the cleaning agent used in the plant. Our consultative selling approach led to the redesign of the complete condensate pump package, solving the customer problem and eliminating the risk of corrosion. But on top of that, the improved solution and processes also enabled a more effective condensate recovery, and this improved productivity, reduced operational risk and delivered energy and water savings. And we have been able to accurately quantify those savings for this customer. Here they are 25,000 cubic meters of water. That's about 10 Olympic swimming pools. 37 [indiscernible] BTUs of energy, which is the average annual energy usage of 400 people. Over 2,200 tonnes of CO2 reduction per year, the equivalent of 100,000 trees. So the improved solution and the process that go with it deliver a more effective recovery in condensate and is now a standard solution for us. This in turn has enabled further self-generated opportunities as well. Moving to the next case on the right. The next case study is for our clean steam solution. Here, we saw an opportunity to develop a new market creating a new application for our solutions. We opened our clean steam manufacturing unit in 2016 primarily focused on the pharmaceutical sector, where this solution is deployed most often. Based on the estimate of the pharmaceutical market size, we believe the addressable market size for clean steam to be around GBP 163 million with current sales at around GBP 36 million for us. Our clean steam business has been growing strongly at 11% CAGR over the last 5 years, with the spike prompt by the COVID-19 pandemic. So I hope these 2 examples were helpful for you to understand better what we do. Our strategy. Our strategy for growth is aligned with the key trends and has a long-term growth drivers that will accelerate growth greater than or equal to 2x IP. Externally, we see climate change and resource scarcity, along with the need of greater energy efficiency is clear and strong drivers for our growth, exacerbated by the current high energy prices. As we have already seen, Steam is a mission-critical in many industrial processes. And added to that, criticality is a decline in our customers' own knowledge of Steam systems. Internal drivers and enablers will give us incremental growth, starting with our self-generated opportunities. It is a unique methodology that drives our overperformance of the market. Our expansion into new territories or within existing markets, along with digital, where new data-driven insights can help to deliver increased efficiency in customer plant are also enablers for our continued growth. Adding our TargetZero solutions, and we have a clear and strong proposition for the current and future challenges our customers face. The increasing adoption of net zero target is driven by demand from all stakeholders in society will have a profound effect on industrial activity over the coming decades. The focus of our group for over 100 years has been to help our customers make their industrial processes more efficient and to reduce their energy costs. However, we also have the opportunity to help our customers make their business more sustainable. Steam itself is a clean technology, but it's still mostly raised through burning fossil fuel. The International Energy Agency identified a heat accounted for 50% of global final energy consumption with half of that consumption being for industrial processes. Heat in total also contributed 40% of global CO2 emissions. So we believe that the scale of the decarbonization opportunity is significant, as only 5% of industrial process heating is currently generated by electricity. And our group is uniquely positioned to capitalize on this unparalleled opportunity. And over the next few decades, we expect decarbonization of industrial processes to represent an exciting and incremental driver of revenues growth. Let's talk better on TargetZero -- about TargetZero. So I mentioned TargetZero before. It is the result of a multiyear collaboration between the Steam Specialties and ETS businesses. Seeking to leverage the electrical heating technologies of Chromalox with a direct customer relationship help by Steam Specialties. At our ETS investor seminar last year, we explained how ETS provides the technology and Steam Specialties leads the go-to-market approach. During 2022, we completed the development and the preliminary launch of the TargetZero solutions to decarbonize steam generation. We are already securing orders for the TargetZero solutions from various external customers. And as you would expect, we are installing all 3 of the solutions in our Runnings Road facility in Cheltenham, which we expect to fully decarbonize by the beginning of next year. The first of these solutions is SteamVolt. At 0 emission low- and medium-voltage first fit boiler solution that eliminates the need for a gas fire steam generation through the electrification of steam. This is the first time that Chromalox patented direct connect medium voltage heating technology is being used for efficient steam generation at industrial scale. And when the customer is powering the SteamVolt system with renewable electricity that will generate Zero scope 1 and 2 emissions, making this solution truly carbon-free. Moving on to ElectroFit. In simplified terms, we have developed a solution that converts specific types of fuel-fired boilers into electric steam generators. This is easy to install and to operate and means the customer retains the existing boiler vessel and the steam infrastructure, which give obvious advantages in significantly reducing the time line for electrification. And again, when combined with renewable power sources, a boiler using the ElectroFit solution will be free of Scope 1 and Scope 2 emissions. The third of our TargetZero solution is a SteamBattery. This is a zero-carbon steam generation solution, stores energy until the industrial process needs it. SteamBattery means that the mismatch between when renewable power is generated, and when it's needed can be mitigated. Compared to electrical battery storage, it offers approximately 60% more energy density, is 10% to 20% more energy efficient and has a lifetime 2.5 to 3x greater than electrical battery storage. So let's see now 2 case studies where decarbonization is expanding our addressable market. The first one on the left is Diageo, a multinational [indiscernible] drinks company who have an ambition to achieve net zero emissions across their direct operations in Scope 1 and 2 and only to use renewable source of energy, all by 2030. Their business involves over 200 brands with sales in 180 countries. And our global reach means that Spirax-Sarco has often helped with their steam systems wherever they happen to be. One of their subsidiaries is a manufacturer of gin. And the challenge was for us to eliminate Scope 1 emissions from their gas-fired boiler system with the aim of removing Scope 2 emissions from the operations when renewable energy sources come onstream. And we have to do that in a way that meant there was no downtime in the operation. And that any disruption from the new installation had to be kept to a minimum. Our local operating company and our Central Green Tech team joined forces to meet this challenge. Firstly, we're carrying out a thermal energy audit, which laid the foundations for our solution by identifying every option for improvements that would deliver safe, efficient and sustainable practices. Next, the team focus on how to convert the existing gas-fired system to take advantage of the geographies expanding renewable electricity generation and seeing the opportunity to employ the revolutionary new TargetZero technology, we suggested the ideal solution would be ElectroFit. As the existing boiler infrastructure could be retained, these minimize the downtime and made use of an existing asset, immediately replacing the carbon heavy gas fired burners and removing Scope 1 emissions. And there's a final note, the customer has moved to entirely renewable source of energy in this plant, which means in addition, the full removal of scope 2 emissions. The second example on your right, is in lithium battery production, which is decarbonization-driven sector, enabling us to provide both traditional and again TargetZero solutions. Demand for these batteries is driven by the increase in electrical vehicles and the current industrial base cannot meet that demand. There are currently between 60 and 80 new industrial projects in progress to meet this demand, each of which will enable 20,000 tonnes of lithium production every year. Our opportunity is twofold. Firstly, in supporting the lithium mining activities. And secondly, in the production of the lithium batteries themselves. So I hope these 2 examples were quite clear to you. I'm now going to move on and look at how digital present further opportunities in our business. Today, our direct sales model is based on our sales engineers ability to walk the plant and identify through our expert knowledge and understanding of Steam opportunities for efficiency, sustainability gains in the customer operations. The use of digital technology to build on our already deep customer knowledge is already paying off. This will continue to build as we deploy more of that technology into our customer size. Our ambition is to enable and empower our sales engineer to virtually walk the plant all year around and support our customers with data-driven actionable insight. We call this approach walk the data, and we believe it significantly increases our opportunity to maintain and grow the customer relationship with tailored solutions that support our customers' increasing needs for a more sustainable operation. It also maximize our share of the customers' available maintenance spending and creates a solid foundation of predictable and recurring revenues, incrementally increasing the need of our core products and services. We are currently approaching a number of our customers to connect parts of their processes so that we can prove the concept. And we are training our sales engineers to work with this new technology. Our belief is that it represents an opportunity with potential for incremental growth over the longer term. And to close my presentation, I'm going to show you a short video to demonstrate how our acquisition of Cotopaxi last year is contributing to our digital capabilities I just explained. [Presentation]

Okay. We'll now take a short break of 20 minutes, after which Andrew Guthrie, our Finance Director in Steam Specialties will talk about how we are investing to drive our sustainable and profitable growth. Thank you for your attention so far. [Break]

Welcome back, everybody. I hope you're feeling suitably refreshed, ready for the second part of our Steam Specialty seminar. I'm Andrew Guthrie, and I'm the Finance Director of Steam Specialties. I joined the group in 2021 as the Head of Investor Relations, and it's great to be back in a new capacity presenting to you all on how we're investing in Steam Specialties to drive sustainable growth. Our ability to deliver sustainable investment to support our long-term strategy is fundamentally underpinned by our strong track record of profitable growth. Since the introduction of our original Customer First strategy in 2014, we've increased our number of operating companies by 20 or nearly 50% as we build our global footprint to support our direct selling model. This has included the acquisition of Gestra but also our regional growth strategies, expanding our presence in regions with long-term growth potential, such as Southeast Asia and the Middle East and Africa. Including sales from the acquisition of Gestra acquisition in 2017, our expanded business has delivered 6% compound annual sales growth since 2014 despite the macroeconomic and operational challenges experienced since the COVID-19 pandemic. This translates into a performance of 2.1x IP on an organic constant currency basis over the period since we implemented Customer First. And I will talk in a moment about how this outperformance supports our long-term investment in innovation and growth. This sustained delivery of sales growth demonstrates both the resilience of our direct selling business model and the attractive underlying growth drivers of our business. Turning to profitability. Also since 2014, Steam Specialties trading margin has increased by 160 basis points. As Maurizio highlighted earlier, our focus on customer value propositions and the economics of our customers enables us to realize full value from the products we set, which is reflected in our margin. We've also built pricing tools and capabilities, which enable us to ensure we're offsetting the impact of inflationary pressures on our business. Furthermore, in 2021, we established a dedicated global supply chain division and are already seeing the benefits that a focused supply chain organization can bring across our manufacturing operations. Over the same period, we continue to invest capital into our business but at a lower rate than the growth in sales. Since the expansion of our facilities in China, the investment in a new manufacturing facility in India and the acquisition of Gestra, our capital employed has remained broadly flat. As a result, our return on capital employed for Steam Specialties has increased substantially to 57.7% in 2022, reflecting both the high profitability and low capital intensity of our business. So how do we translate the performance of the past into the growth of the future? As an organic growth-focused business, we're continuously looking for opportunities to reinvest in our business to build future growth platforms. Our approach, shown on the left of this slide, starts with IP, which drives underlying market demand. Our business model through direct selling and self-generated sales delivers outperformance of IP. Outperformance of IP creates operating leverage, which generates the funding to reinvest into the business. This supports our innovation investments, which act as accelerators of future growth. As you can see on the right of this slide, our innovation investments are fully aligned to the priorities of digital and sustainability, which are at the heart of our Customer first squared strategy. This includes our investment in Cotopaxi as an enabler of future digital connections with our customers in addition to the creation of regional digital hubs, which will enable us to support our customers through the use of data, complementing our existing direct selling business model. Alongside our customer-facing digital investment, we're also investing in the underlying systems required to support a more digital organization, including the global OPAL program to harmonize our ERPs across team, integrated with tools to support customer relationship management and field service management. We've invested in sustainability, in particular through the creation of a customer sustainability road map, which enables customers to optimize and manage their steam systems through the lens of sustainability and ultimately positions them to take advantage of our TargetZero product offerings. In parallel, we've been working to decarbonize our U.K. supply facility in Cheltenham, deploying our TargetZero solutions in our own operations. Alongside these new areas of investment identified through Customer first squared, we've continued to invest in new product innovation and business development, building on our core strength of direct selling, equipping our sales engineers to be increasingly effective in a more consultative solution-oriented selling environment. We're also building a central supply chain excellence capability to bring expertise in areas such as quality, procurement, supply chain planning, which can be leveraged across our global supply chain network. We expect this new division to deliver a more responsive customer-centric and effective supply organization. And we remain in the early stages of realizing the full benefits of this new organization, but we are excited by the opportunities it presents to deliver further improvements in customer service and in parallel, to support our own growth and profitability. Turning to margin. Our business has seen its overall profitability improve over time, whilst achieving attractive levels of growth and continuing to invest in the business. On an annual basis, we have seen yearly fluctuations in margin as a result of both the level of new revenue investments in a year in addition to the phasing of those investments in the prior year. By way of example, in 2021, as it became clear that the global economy is recovering rapidly and IP was strengthening, we chose to implement additional revenue investments during the year. However, most of the new colleagues recruited as part of those programs arrived in the second half of the year and the full P&L impact was only felt in 2022. At the time, we indicated that have these colleagues been in the business for the full year, the impact on our trading margin would have been around 200 basis points, so much closer to the 3-year trailing average on this chart. In 2022, we saw the full year impact of 2021 investments and further investments in the business, at least in the first half. Since then, given the significant weakening of IP during the second half of 2022, we have moderated our revenue investments while we monitor the global outlook. Despite these annual fluctuations, you can see that over time, our average margin has shown gradual improvement and has reached the 23% level on a rolling 3-year basis. Set against the reinvestment of margin into our business, our historical investments in Steam Specialties from a CapEx perspective have been more modest. Our last investments in new facilities with the Phase 2 expansion of our China site in 2016, in addition to the construction of our manufacturing facility in India at the same time. And these investments are reflected in the higher CapEx to sales ratio seen in 2016. More recently, capital investment in Steam Specialties has been focused on our Future Factory initiative, upgrading machinery in our supply chain operations to increase output and improve efficiency in addition to the OPAL program and the investment to decarbonize our U.K. manufacturing facility in Cheltenham. As a result, since 2018, Steam Specialties CapEx has been running at approximately 4% of sales. Going forward, we expect to remain a low capital intensity business, but do have a pipeline of priorities for future CapEx. These include modest investments to support the delivery of our One Planet strategy. The ongoing investment in OPAL, expansion of our manufacturing facilities in Asia Pacific to meet regional demand growth, including India, where we have scope for brownfield expansion at our current site, and ongoing upgrades to our sales facilities around the world. We have also recently secured a plot of land in Germany that would enable the renewal of the existing Gestra facilities at a site in Brainin. So looking ahead, we are excited by the potential for long-term sustainable value creation in our business. Through our Customer first squared strategy, we're participating in global mega trends in offering sustainability solutions to our customers and increasing our digital connections, supported by ongoing investment in the core of our business model, we expect to achieve sales growth at or above 2x IP over time. We will continue to reinvest operating leverage into our business to support future growth, but we will phase that investment over time, responding to both the external market conditions and our capacity to absorb that ongoing investment. As a result, our margin will fluctuate year-on-year, but we expect on average to deliver a modest incremental margin improvement over time. We expect to remain a low capital intensity business, prioritizing CapEx over time to build the infrastructure that will support the delivery of our strategy. Through delivery of growth and the careful phasing investment, we expect to remain a business which offers very attractive returns on capital over time. Now I'll pass back to Nimesh to open the Q&A.

Thank you, Andrew. So now before we move to Q&A, I thought I'd take just a few moments to wrap up. Firstly, thank you for your patience. There's a lot of material here for you to listen to and take in. So we really appreciate your attention. But how would I sum it all up? Well, hopefully, between us, we've given you a good sense of our group business model and our strategy. How that is embedded in Steam Specialty allowing us to continue to deliver compounding growth over the decades to come. For steam specifically, I hope you will leave with a greater understanding of how steam is a critical medium for transferring heat into industrial processes, and that demand continues to grow in applications which are mission-critical. How we have built a leadership position in the market with a significant competitive moat and plenty of opportunity [Audio Gap] years and why we anticipate it will continue to outperform as we invest the benefits of operating leverage back into the business [Audio Gap] come to you before asking your question. This is simply to make sure that everyone on the webinar can also hear you. Please also remember to introduce yourself. And as a reminder, in addition to today's speakers, we'll be inviting Jennifer, Sean and Jim to also answer your questions.

So with that, I'll look for the first question. We've got a few of that. I think [Audio Gap] Otherwise, people can't hear.

The fundamental thing that I would say is that we see it as an opportunity to continue to strengthen our moat. The digital, what it enables us to do is to combine what we already do very well in terms of our physical capabilities and expertise that we have in terms of that applied engineering. But then combining that with even more insights about what's really happening on our customer sites, 24/7, 365. So digital in itself is not enough. It might show you that something might be happening, but we need to combine that [Audio Gap] to be able to really help continue to find ways, which aren't necessarily visible to our customers or to the alternatives in the market. So we see that it's an enhancement to what we're already doing. It further strengthens and underpins our business model and as a consequence of our moat.

Thanks, Sean. I think that's -- just to add to that, I think, really [Audio Gap] you've got the microphone. It's going to be hard to take it away.

Yes, exactly. Well, I'm here. It's a geographic one, actually, it's probably a broad group question or theme question at least. Just in terms of thinking about India, which -- a lot of your kind of capital [ goods peers ] have started to talk about a lot more, I guess, positively, both activity now, but over the longer term as well [Audio Gap]. So I guess, [indiscernible] kind of position in India, and apologies if I should know that. And maybe more broadly as well, thinking about China, it's obviously has been a very good market, I think, for steam over time. I guess, sort of how you think about investment in China going forward given some of the sort of geopolitical tensions as well. So I'll kind of wrap those 2 up as 1. I promise to ask more.

Let me start the answer, and then Nick, I'll ask you if you want to add to it. But Nick and I and Jim, in fact, have just come back from a trip to Asia Pacific and part of which we spent in India, in Chennai visiting our factory there. And Andrew mentioned that that's a factory that we built back in around about 2016. And it's a tremendous facility. It really is. And just on a personal level, some of the things that struck me from being in that factory with our colleagues in India, both in sales and supply was the passion that they have for what they do, the real effort that they've put in on the ground to build our business in India, both on the sales side, but also in building up that manufacturing capability [Audio Gap] be short of capacity for some time to come. The domestic market in India is smaller, and it's a market in which we're still growing rapidly. But I think the opportunity goes beyond the domestic market. And I think that does link into your question around China. Now the thing to remember about China is we've been in China for a long time, I think, 30 years or so. And we have a phenomenal position in China, a really high-margin, high-growth business that absolutely lives the model that we've talked about today. It's the example that we use within Steam Specialties and within the group when we talk about our strategy and our business model and how they get implemented. And it serves the domestic market. There is a very significant, as you would expect, domestic Chinese market that we serve, and we've got local manufacturing and local sales. And that will continue to be important to us going forward. Nick, do you want to add anything to that?

Yes. Look, I think on India, as Nimesh said, we were there just recently, we are very pleased with the progress. Of course, we've been in India since 1946, before independence, okay? And we built a very strong -- we are -- we were the market leaders in India through a joint venture, which after 60, 70 years, we ended dissolving in amicable ways and each of the 2 partners chose their way to go. So what's happening is we are now growing again in India. But from a lower base given that our joint venture partner was already local and has remained there. But the growth opportunities remain very strong. And yes, we're actually discussing the growth opportunities as [Audio Gap] Indian market. So yes, we see a good opportunity. With regards to China, [Audio Gap] 85% of what we make in China today is for the Chinese domestic market, okay? We're not like other companies making [Audio Gap] and about Maurizio, 80% of what we sell into the Chinese domestic market, we make inside of China and 85% of what we make in China we're selling there. The rest is going to some neighboring countries. So our focus has been and will remain [Audio Gap] expected to be a faster-growing economy than most other developed nations. So with a really strong competitive position, market-leading position in that market, [Audio Gap] still expected to grow at higher rates than the rest of the developed market. It would be somewhat nonsensical to start trying to disinvest. And we honestly don't see the need, and that would also be throwing away opportunities. So yes, we are very excited about both those economies, the Chinese operation [Audio Gap]

[Audio Gap] trading opportunities, and that's the reason why they have been able to maintain this good growth and also profitability, as Nimesh said, over the past decade.

The EV market development is being led by our Chinese colleagues in [indiscernible]. That's just one example [Audio Gap]

[Audio Gap] how would that fit into your sort of business model of OpEx generated sets?

Okay. Maurizio, shall I take the first one around market size because we talked about this at the ETS investor seminar last year? And do you want to take the second part around how customers are making the decision? So in terms of market size, we haven't specifically quantified it, but what we have said is that if we think about the -- just the ElectroFit part of the TargetZero solutions. So this is where we are retrofitting the existing boilers, taking out the gas combustion unit and replacing with electric heating elements and control panels. We're talking about an installed base in our sweet spot, so not all boilers, but the ones we think we can really target of around about 500,000 boilers. By the way, that installed base is still growing. It's still growing the natural gas-fired [indiscernible] generate steam. And so that opportunity is getting bigger, not smaller. These boilers have a life generally of around about 30 years, give or take. But the gas combustion unit itself has a life of about 10 years. So you're looking at a decision point every 10 years about what you're going to do. And the average cost of retrofitting one of these boilers is going to be -- the components that we provide is going to be somewhere in the region of about GBP 150 to 2 -- GBP 100,000 to GBP 200,000, so you can take GBP 150,000 at the midpoint. When you do those numbers, you get a big addressable market opportunity, right? So that's the first point. That's before you get to steam vault and thermal battery, but steam vault itself, again, providing the components for first-fit electric boilers, probably also about GBP 100,000 to GBP 200,000. So the thing -- the only thing we really need to know here is that it's a huge market that we will access probably over the next 10, 20, 30 years. [Audio Gap] committed to achieving our Net Zero goals and because we can afford to do it, we have invested in building that infrastructure, but not everyone will. So that takes time. The second thing is, when you switch from gas to electricity, you increase your operating costs. The cost of electricity is higher than the cost of gas. Everybody knows that. That delta is likely to shrink over time. And today, it's probably around about 4x around that sort of order of magnitude that will shrink over time. The other thing is actually there are [Audio Gap].

We finalize the proposal from an engineering perspective, also from a commercial perspective. And we have targeted a few customers, especially those where the sustainability targets have been already disclosed for a customer who committed to go to TargetZero to carbon neutral in 2025, 2030. And so these are the ones we are put on top of the list. In that respect, these decisions are most likely taken at corporate level because in that way, they match their strategic agenda in terms of sustainability. And you have already said a bit that there are different forces because from one perspective, in one shot, we can help the customer to reduce heavily the CO2 emission connected to the steam generation. On the other hand, the infrastructure is not always there, talk about the megawatt installed. So they need infrastructure. The cost is higher. There are 3 forces: the cost of electricity, the cost of gas, but also the tax on CO2 emissions. And in some countries, also getting up. So the combination of these 3 elements make the decision easier or more difficult for customers. And the trend is there, the [Audio Gap].

[Audio Gap] important and exciting opportunity that we are all working on. And the even best part about it, it's incremental to all the other drivers of growth that we've been sharing with you. So all those things that have been underpinning our 2x or greater than 2x IP growth organically for the last decades are still going to remain in place, and decarbonization is now this additional vector of growth. What we can't predict is how quickly is it going to materialize.

Andy, we've made you wait, so make it count.

Andrew Douglas from Jefferies. I've still got 3 questions there. The first one goes back to the digital technology, walking the data, [indiscernible], et cetera. Can you [Audio Gap] 2018, you had 9% market share in thermal energy management, 26% market share in condensation management and 15% in controls. If we think about some -- maybe some inorganic opportunities, do we think that there's scope for maybe thermal and energy and controls to kind of catch up the global market share of condensation management? Or are we now predominantly an organic story?

Okay. Okay. Well, actually, you've got Sean sat there next to you. Sean, do you want to borrow the microphone and address the adoption question and the AI question?

Okay. I might just ask for the AI question again, so we'll go back to that. In terms of the [indiscernible] story and the adoption by our customers, when we were reviewing what digital meant for our business and how it was about enhancing our [Audio Gap]. There is a high level of complementarity with what they did and what they're doing relative to what we do [Audio Gap] signals. So it is something that we're very mindful of. It's about making sure that we get the right focus and see how we can best apply to continue to enhance and strengthen the business going forward.

Okay. And then the third question that you'd asked was, around our market share evolution over time and whether there's an inorganic opportunity to sort of grow that, right?

I suggest Maurizio takes that...

I was going to pass that to Maurizio.

We're just complementing what Sean was saying about AI. I think everybody understands that you need data to feed into a machine to be able to improve it. And that [Audio Gap] that we haven't yet released, okay? But obviously, these things were all connected.

[indiscernible].

Yes. In terms of nonorganic, the driver we use is not so much on the product side. It's more on the value we can drive for our customers, we can deliver to our customers. And by the way, when we design Customer First Square, we reach out our customers, we reassess what are the main drivers and guess what sustainability came on #1 priority. So the driver we use now in order to look for nonorganic growth in steam is more -- is there any additional part of the solution they offer that can enhance our way to help the customers to decarbonize, to be more sustainable, to reduce their CO2 emission, to reduce their water waste because this is becoming #1 priority. Customer told us this is becoming #1 priorities in their agenda. So that's driver for our inorganic growth search.

Again, if I can complement something, sorry. To your point, Andy, about market share by product category inside of steam, which is what you were quoting, historical numbers around market share in product categories [Audio Gap] products, okay? Hence, our high market share in those -- because of our huge installed base globally and et cetera. The thermal energy solutions, the thermal management side that you were asking where, yes, our shares are smaller because the market is much larger also. That's the part that [Audio Gap]

It's Aurelio Calderon from Morgan Stanley. I've got 2 questions. The first one is [Audio Gap].

Thanks, Aurelio.

Thanks for the question. When we think about the U.S. market, it is unlike the rest of the steam business [Audio Gap] The evidence that we're -- it's working is that there is -- we are growing faster in the U.S. in direct business, then we are growing faster in direct business. Also, we're growing faster in our focus sectors. And so there's evidence that we are solving more problems adding [Audio Gap] that direct business continues to grow faster. That ratio will change. But that will take decades to change, right? This is a long-term play, right? And so it's not going to flip next year. It's a long-term change. But again, it's continued to complement that value to the end user.

Perfect. Thank you. Maurizio, one group.

Yes. So I think we strike the balance between having the 3 business with their identity and with their autonomy, and also sharing some best practices. I think the first one with ETS is quite obvious. This is fantastic opportunity to combine a technology that ETS, Chromalox has -- has also patented the medium voltage solutions, electrical solutions with the Steam Specialties reach to end customers to steam users. This Is the first biggest opportunity we had explored [Audio Gap] the sharing goes also with group functions with HR or our inclusive agenda is something that we're adopting in steam and is adopted across the old group as well as One Planet. One planet is a group strategy. So again, coming to the conclusion is, it's the way we strike the balance with [indiscernible], autonomy and [Audio Gap].

Thank you. We've got a question over there. Tara?

Mark Davies Jones [Audio Gap].

[Audio Gap] We want to set our standards in Africa, as we have done in China decades ago and hopefully becoming leader there, as we have done in China. U.S. has been already mentioned. It is another -- is a mature market, but where we have still a long, long journey. So I will say, 17% market share globally offers still good room for improvement. [indiscernible] new geographies was also in -- penetrating better than markets we are in already.

Just supplementing what Maurizio said, I mentioned -- so the logic of your question is absolutely correct for the more mature parts of our group like Spirax-Sarco brand. But as I mentioned earlier, the Gestra brand, which -- when we acquired Gestra in 2017, actually only had a physical presence in 7 or 8 countries. [Audio Gap] is, in fact, through the acquisition of a distributor there. So the same business model that we've applied successfully over decades to globally expand the Steam Specialty -- the Spirax-Sarco side of the steam is also being applied to the Gestra side of Steam Specialties and, of course, to the other 2 businesses in Watson-Marlow and in ETS. And when you look at, for example, when we show how many countries the group is present for each 3 of the businesses, you'll see that there's still a long road ahead for both ETS and Watson-Marlow to get to the number of countries where steam is already present. So that is still valid driver of growth for steam, but also for the other parts of the group.

Okay. There was a question just in the table in front as well. And then I'll -- sorry, then I'll come back.

Camilla Ayling, Legal and General Investment Management. I just wanted to dig into the words that you have on the slide about customer knowledge declining. It'd be interesting if you could elaborate on that, please? And what more can be done to try and improve the understanding of the technologies?

Yes. Maurizio?

Yes. Thank you. It's a nice question. Fundamentally, what is happening is that at customer sites, the knowledge is reducing. A typical example is the steam expert, who retires, they don't replace. However, when you combine these with the criticality of steam, in the customer processes, that is a trend in our favor [Audio Gap] loss of knowledge of the customer. So this is happening, and both our physical and digital strategy helps us to make customers more safe in this respect.

Tom Fraine from Shore Capital. If you could just provide a bit more clarity on how you define your market -- define your market when you allude to your market share [Audio Gap].

[Audio Gap] for steam users. So we have developed this model that takes into account the original installed base and then evolves according to [Audio Gap].

[Audio Gap] market, things like new product development, which open up additional areas that we haven't been able to address before. So I'll give you an example in Watson-Marlow. So in Watson-Marlow, we've talked about the fact that we launched this additional pump head that fits with the Qdos existing pump that allows us to move into new applications, such as the pumping of highly corrosive liquids using something called Conveying Wave technology, right, through the [Audio Gap] you've yet to see the rate of adoption, what that will be and what the opportunity will be on a sort of a year-to-year basis. So that's a bit that's not in [Audio Gap].

[Audio Gap] I'm just trying to get to better understanding where [indiscernible] coming close to a saturation point.

The saturation, we're a long way -- in all 3 of our businesses, we're a long way from the saturation point. It wouldn't surprise you because you know just how fragmented our markets are. You know that we're competing against, in many cases, and I think Maurizio shared this on a slide, local players that don't have the model we have. But actually, as we come into those markets, we built relationships with the customers, we show them that we add value beyond simply bringing them product. We bring them solutions [Audio Gap].

[Audio Gap] in presentation. Our approach to defining the addressable market. And therefore, the market share is a consequence of the addressable market as we define it. We're looking to always define those addressable markets as broadly as possible, so that you have more opportunities to go out and get. It's not the traditional market share that most [Audio Gap] market size. We define it intentionally in a broader way so that you can go out and look for more opportunities. Example, in addition to the ones that Nimesh has just given, in Watson-Marlow, you're developing a new product and you're actually taking share away from a different type of pump. So you expand the addressable market. The immediate effect of that is that our market share is going to go down because we have expanded the market share, the addressable market, but we're not -- we just launched a new product to start tapping into that new addressable market. So if you look at the new addressable market with the same sales, market share is going to go down, okay? But actually, what we're doing is, we're expanding the [ measure ] and then we're beginning to take share [Audio Gap] for longer-term growth and market share will be whatever results between comparing that addressable market with our current share price. Well, we do -- not share price, sorry, with our current sales. What we do know is -- and we look at this very closely inside of each 1 of our 3 businesses is making sure that we're gaining share in each one of those addressable markets as we define them. And that is a permanent focus of all of our businesses.

I can complement because I try to pass on the message of how unique is the self-generation of opportunities for our market, right? There are markets where self-gen doesn't exist. So either the customer has something to buy from you or you don't sell anything. While the example I made is a typical example a customer has nothing to buy. [Audio Gap] Locally, there will be number 2s. There'll be a few markets like, for example, in India that Nick mentioned earlier, where we were in a joint venture and therefore, [ our ex ] joint venture partner is the bigger player in India compared to us but in what is quite a small domestic market. But in most of the countries where we're well established, we are the #1 and the #2 is quite a long way behind us.

Thank you. I think we've got one on the web.

Yes. We've actually had 2 questions on competing technology [Audio Gap].

[indiscernible] other question, so we don't forget the second one. On thinking about technologies, such as hydrogen, the thing to remember is steam is a medium for how we transfer thermal energy. We're talking about hydrogen in terms of generating energy in the first place. So it's a slightly apples and pears comparison. But Maurizio, do you want to add?

Yes. When we enter new scenario, new field, new arena, the competitive scenario, of course, is more volatile. Now talking about hydrogen, yes, there is a possibility to generate steam with hydrogen. But how you generate [Audio Gap] hydrogen. You're back to square one, right? So that's the way the market is still not really sure of the direction taken. It's possible some boiler OEMs, some of our customers have included in their offer hydrogen steam generation as an alternative, but only in those plants, so the end users only in those plants where hydrogen is already available because otherwise generating hydrogen adds one additional [Audio Gap] but this, we have studied this. There are different forces, and the direction taken is not clear. There are some studies saying hydrogen is the next future. Some other says, no, it is not viable. So we keep observing monitoring these technologies as they arise, and the moment is not sure at least from our perspective.

And Maurizio, I think one of the really important points there is that I think you're right, which is hydrogen adds an extra step and is there value to that, but actually still working with steam, right? And that's the important point because to the extent you're using hydrogen to generate steam rather than natural gas rather than electricity, you still got steam. So in terms of what we do, what you've heard about during today's seminar, [Audio Gap] use that energy consumption, which means you want to be efficient in your steam and condensate loop. So [Audio Gap].

Just to reinforce, I think the big picture thing is what Nimesh had mentioned earlier. [Audio Gap]