Spirax Group plc ($SPX)

Hello, and thank you for joining us for this presentation of Spirax Group's results. I'm Nimesh Patel, Group CEO, and I'm joined by Louisa Burdett, our Group CFO. I'm going to start by summarizing our 2025 performance. Today's results demonstrate our ability to deliver good organic growth at high margins by focusing on the operational priorities that are within our control, and despite the weak macroeconomic environment that endured through the year. Looking to our organic measures, we outperformed IP with group sales growth of 5%. Adjusted operating profit grew 6%, and all 3 businesses delivered growth and improved margins. Group margin was 20%, up 30 basis points as we maintained pricing and cost discipline and manage the headwinds from FX and tariff impacts while also investing in future growth. So a good set of results, slightly ahead of expectations. I would like to thank my colleagues around the world for their commitment to achieving these results through advancing the execution of our strategy. In STS, the market trends we've been highlighting since the first half of 2024 played out as expected, with geopolitical tension and tariff volatility driving lower IP and weak demand for large projects. This particularly impacted China and Korea, but in both markets, we began to see headwinds moderate in the second half as we'd anticipated. Importantly, we continued to offset these headwinds through our focus on MRO and solutions sales, delivering 1% growth in STS and 3%, excluding large projects in China and Korea, with a margin of 23.5%. Our operational focus is translating into real performance in ETS, where the North American factory output has risen by over 20% in the last 2 years. During 2025, strong demand across all 3 ETS divisions combined with these operational gains has driven 11% sales growth and further margin improvement. In Watson-Marlow, we have consistently said that the biopharm recovery would be U-shaped, and it has been. In 2025, demand growth of over 10% supported accelerating sales growth in the second half. And in Process Industries, where we reorganized our sales teams to better serve target sectors, we drove demand growth well ahead of IP. As a result, Watson-Marlow sales grew 6% and margins were up 160 basis points to 26.2%. Returning to a group-wide view. In January last year, we undertook a significant restructuring. This is now complete with annualized savings significantly ahead of where we had planned at GBP 40 million. These savings are funding our investment in future growth that I'll speak more about later. Turning to cash conversion. This improved to 89%, with leverage reducing to 1.5x, reflecting our cash discipline. Our return on capital employed improved to 36%, while return on invested capital improved to 13%, both despite strong FX headwinds. Looking ahead, we anticipate mid-single-digit organic growth for 2026 with operating leverage driving adjusted operating profit growth ahead of this. So to sum up, relative to the targets we set out at our Capital Markets event, we are very much on track. We are returning to the simplicity of delivering good growth at high margins and improving returns on capital. And through our focus on controlling the controllables, we are strengthening our resilience to economic conditions. Now let me give you some context on the broader demand environment. The macroeconomic backdrop remained weak and volatile in 2025. We successfully navigated geopolitical shifts, trade tariffs and regional conflicts to deliver growth ahead of IP, and we will do so again in 2026. The chart on the left illustrates how IP forecasts evolved through 2025. As a reminder, we focus on IP, excluding China, due to ongoing concerns about the quality and reliability of China-specific data. And what you can clearly see is that expectations for global IP weakened through the year, remaining below historic averages of closer to 3%. Importantly, you can see the impact of the U.S. tariffs announced in April. The pattern is similar to prior year forecasts, optimism early in the year, followed by actual IP falling short of expectations. Turning to the tables on the right-hand side, IP remained weak in our key markets and global IP, excluding China, was 1.7%. Now looking to 2026. Global IP, excluding China, is forecast at around 2%, although dependent on a significant step-up in growth from the first half 1.6% to the second half 2.5%, not dissimilar to the pattern forecast for 2025. Given the level of volatility we have experienced over the last 2 years, we have again taken a more conservative view in our internal planning assumptions. Let me touch briefly on the Middle East, accounting for around 1% of group sales. It's too early to fully assess the impacts on 2026, but we are preparing the potential supply chain disruption which we currently anticipate will be felt largely in the first half. And on changing tariffs, again, the most significant effect is likely to be on demand. From a manufacturing standpoint, our presence in the U.S.A. means we meet a significant proportion of domestic demand locally. In short, as we demonstrated in 2025, we have the flexibility, the regional footprint and the pricing discipline to respond effectively. What the IP outlook, changing tariffs and geopolitical risk all reinforce is the importance of our ability to self-generate demand. This is a point worth emphasizing. By leveraging our direct sales model through focusing on increased customer-facing time, sector specialization and disciplined pricing, we are continuing to generate high-quality demand from our large installed base. As we move into 2026, we have planned with caution, but remain confident in our ability to continue to outperform IP just as we have done consistently for decades. I'll now hand over to Louisa to talk you through the year's financial performance before I update you on our strategic progress.

Hello, everyone. I'll start with my usual quick reminders about my presentation. The numbers I'm presenting are on an adjusted basis excluding amortization of acquired intangibles, but more specifically, excluding the GBP 40 million cost of our restructuring project, which was undertaken this year. The reconciliation between statutory and adjusted operating profit is in the appendix of your pack. And as usual, our definition of organic growth excludes the effect of currency movements on sales and profit and the impact of any M&A [Technical Difficulty] the effect of currency in the year was a negative 3% on sales and a negative 4% on operating profit. So Nimesh has covered some of the group numbers in his introduction, so I'll be brief on this slide. Sales were 5% ahead -- sorry, I beg your pardon. Sales were 5% higher organically, ahead of IP and driven by growth in each of the 3 businesses, but particularly by ETS and Watson-Marlow. Operating profit grew 6% [Technical Difficulty] and operating margin of 20% was 30 bps higher organically. Our net financing costs of GBP 38 million were lower than the prior year due to lower average net debt, lower rates on the floating element of our debt book and the positive impact of our cash centralization initiatives. As expected, the effective tax rate increased to 27.3%, reflecting profit mix and some one-off benefits in the prior year. Adjusted EPS of 296.3p per share was 3% higher and the full year dividend of 170p per share reflects a 3% increase in the final dividend which underpins our continuing confidence in the return to higher levels of growth and margin. Turning to the sales bridge. Organic sales growth for the group was ahead of IP, up 5% with currency movements having a negative impact of GBP 37 million or 3%. In Steam, our full year organic sales growth was 1%. Having held broadly level in the first half, the business grew 2% in the second half, driven by MRO and Solution sales with moderating weakness in large projects in China and Korea. As you've already heard from Nimesh, if we adjust for these large projects in China and Korea, the rest of Steam grew 3%. In ETS, full year organic sales growth was 11% with a second half performance of 12% against a strong comp, and that reflects operational improvements and new business wins in processed heating as well as continued strength in Semicon. Watson-Marlow grew 6% organically. As expected, our Biopharm sales growth accelerated to high single digits in the second half, and Process Industries continued to perform strongly. In Process Industries second half growth reflected the timing of a specific second half medical order, which we noted at our half year results. But even if we adjust for this, growth in Process Industries was well above IP. Turning to the operating bridge, where all 3 businesses delivered higher margins. Currency movements had a negative impact of GBP 14 million or 4%. Operating profit in Steam grew 3% organically higher than the growth in sales which was driven by manufacturing efficiencies alongside a small amount of net savings from the restructuring program. And as a result, the operating margin in Steam at 23.5% was 40 bps higher organically. In ETS, operating profit grew 12% organically, driven by higher volume and continued efficiencies in process heating and the operating margin was up 20 bps organically to 16.2%. We were pleased to see that margin progression year-on-year in ETS, but as we highlighted at our interim results, the size of that margin progression relative to the strong sales growth was moderated by the fulfillment of the legacy orders at Ogden, which have not been repriced for inflation as well as some initial costs relating to the start-up of the new medium voltage facility. However, the ETS margin increased progressively during the year with a stronger second half margin. Watson-Marlow delivered organic profit growth of 13% and a 160 bps increase in the margin to 26.2%. And in addition to volume, our trading margin improvement was driven by manufacturing efficiencies. Our corporate expenses remain about 2% of group sales with the year-on-year increase representing investments in support of key strategic initiatives in digital and decarbonization. Turning to cash flow. Our operating profit to cash conversion rose to 89%, driven by the increase in operating profit, with disciplined capital expenditure at 4% of sales offsetting a working capital outflow. The working capital outflow largely reflects an increase in receivables given the strong sales performance at the end of the year. Our working capital to sales ratio was marginally better than the prior year by 10 bps, helped by some new supplier terms, which were negotiated in 2025. You can see that we ended the year with net debt of GBP 564.7 million, which equates to about 1.5x EBITDA, and we comfortably meet all of the covenants of our external debt facilities. Nimesh and I have already mentioned the GBP 40 million cost of our restructuring project, which has been charged to the statutory P&L. GBP 7 million of this was in noncash charges, and of the remaining GBP 33 million, we spent GBP 22 million of cash in 2025 with the balance of GBP 11 million to be mostly spent in 2026. This restructuring program will deliver annualized sales -- savings of GBP 40 million. Approximately half of these savings were realized in 2025, and Nimesh is going to share some examples later about how we have reinvested these savings across sales capability and headcount, digital capability, new product development, system development and our decarbonization opportunities. So having run through the highlights of our 2025 results, I'd now like to turn to guidance for the group for 2026 on the left-hand side of this chart, and then relate this to our medium-term financial targets, which we set out at the Capital Markets Day in October '24, which are on the right-hand side of the chart. So if I start on the left-hand side with 2026 guidance. We expect Steam to continue to grow ahead of IP outside China and to see ongoing improvement in the trend rate of large orders in China, and we are, therefore, guiding to low single-digit organic sales growth with a slight organic improvement in the Steam margin. In ETS, we anticipate that the strong order book in Process heating, together with momentum in Semicon will support high single-digit organic sales growth. The shipping of the legacy orders at Ogden removes a key headwind that affected margin progress in 2025, and we now anticipate strong margin progress in 2026, supported by operating leverage and a positive effect from the greater proportion of Semicon sales. In Watson-Marlow, we anticipate high single-digit organic sales growth driven by continuing growth in Biopharm demand with Process Industries again outperforming IP. Operating leverage in Watson-Marlow is expected to support another good year of organic margin progress with a bps improvement broadly similar to that delivered in 2025. Corporate costs will be slightly higher than 2025, reflecting investment in future growth such as digital services and decarb, but excluding such investments, the remaining corporate costs to support our plc remain tightly controlled. For the group as a whole, in 2026, this means mid-single-digit organic sales growth and a further increase in group adjusted operating profit margin with adjusted operating profit growing ahead of the growth in sales. There's some extra group guidance factors in the appendix of your pack. And then finally, finishing up for me, I'd like to switch gears on the same slide to the right -- the middle and right-hand side of the chart around the medium-term targets. During 2025, we have laid the foundations that underpin our confidence that organic group margin progression will accelerate over the next few years from the baseline of 20% that we have delivered in 2025. I'll touch on four of these items. Firstly, operating leverage. In Watson-Marlow, we have been able to respond to second half Biopharm sales momentum from a well-invested business. Volume leverage through the Biopharm growth cycle will be a critical component of our further margin progression back to the historic levels of 30% plus over the medium term that we have seen in this business. Second, ETS operating improvement. We have addressed the legacy orders in process heating, and we continue to resolve other internal operating barriers that have hitherto constrained throughput and margin, for example, our design engineer lead times. Our teams are responding really well to underlying demand in resistance heating and the semicon demand recovery, and all of this is starting to be reflected in the second half '25 exit margin, which together with pricing opportunities, helps us to see the path to a 20% margin for ETS. Third, growth investment. As we've highlighted, we are delivering GBP 40 million of annualized savings from our restructuring program. We will invest most of this back into the business, and whilst this is not immediately accretive to margin in the year, these investments will underpin future growth and returns, particularly on the commercial and digital side. And finally, continuous improvement. It's becoming business as usual at Spirax to seek out procurement savings and other continuous improvement opportunities to help us to offset inevitable negative margin factors that we can't control. So overall, in summary, we are on track to deliver our medium-term margin target for the group of between 22% and 23%, which will drive an improvement in return on invested capital to over 15%. We look forward to continuing to update you on our medium-term progress in future, but for now, Nimesh, I'm handing back to you.

Thanks, Louisa. So let's turn now to some of the key drivers of our performance in 2025 and how we're executing our Together for Growth strategy. Earlier, I described the macroeconomic backdrop that we faced in 2025. On this slide, I want to focus on the specific end market dynamics and how they shaped our performance. Firstly, looking at STS and large project demand in China. China accounted for around 15% of STS sales and has been affected by the slowdown in customer capital investment in manufacturing capacity expansion. Historically, China has been more exposed to large projects than other regions. However, as expected, this decline in large project demand moderated through 2025, with sequential improvement from the first half to the second half. What I'd really like to highlight is the continued success of our focus on MRO and solutions selling in China. Our deep process knowledge is critical here, helping us deliver double-digit growth across a significant installed base. With the trend in large projects moderating and MRO growth, China sales in 2025 were down 3% compared to a decline of 13% in 2024. Looking ahead, we expect demand for capital projects in China to stabilize and then increase so that alongside our continued progress in MRO, we see a path to China returning to growth at some point late this year or in 2027. Moving to ETS and Semicon, which as a reminder, although only 3% of group sales is high margin for us, given the highly bespoke applications of our products. Through the year, we saw an encouraging improvement in Semicon demand. It is not a return to 2022 peaks, but it is a meaningful recovery with double-digit growth. And finally, Biopharm, which makes up 50% of Watson-Marlow, saw orders increase by over 10%. In the first half and for the first time since peak COVID demand in 2021, orders exceeded sales. This supported stronger second half sales and our first year of Biopharm sales growth since 2022. Underlying Biopharm drivers remain robust. Demand from end users continues to grow strongly, and we also saw a recovery in OEMs, which had previously been more volatile. Against the economic backdrop I described earlier and the shifting market dynamics, we are adapting, and our teams have demonstrated the power of focusing on the controllables. When I refer to controlling the controllables, what do I mean? We're finding opportunities to both drive organic growth and deliver higher margins regardless of economic conditions. For example, in January 2025, we initiated a series of changes to improve organizational fitness. These changes have helped us to be more agile, scalable and customer focused. Additionally, through our work on operational excellence, we identified opportunities to optimize our manufacturing footprint and increase throughput without additional capital, reducing our overdue backlog and keeping pace with the growth in demand. These changes have also helped us sharpen our focus on commercial excellence, driving above-market growth. And we have combined this with adapting how we work with channel partners, how we target new sectors and how we develop new solutions to solve customers' challenges. I'll give you some examples on the next few slides. Both organizational fitness and operational excellence gave rise to our restructuring program, as described by Louisa with annualized savings of GBP 40 million, and I'll share examples of how we reinvested those savings. To demonstrate how organizational fitness is supporting growth above IP and establishing a stronger platform for the next phase of sustainable growth, I'll start with STS EMEA. During 2025, we reduced the number of operating companies in EMEA by almost half, while continuing to serve the same 23 countries and protecting our direct local sales force. We removed management layers, increased the number of customer-facing sales engineers and consolidated technical sales and service capability to be better leveraged across our operating companies. We are already seeing the benefits in stronger customer engagement and solution selling, with organic sales growth accelerating to 3% in the second half, well ahead of IP at 1%. A driver of ETS growth in 2025 was establishing Heat Trace as a division with a separate and focused team of sales engineers targeting new sectors, regions and customers. By identifying untapped opportunities, we are transforming Heat Trace into a meaningful growth engine delivering double-digit demand and sales growth in this attractive margin part of ETS. And finally, turning to Watson-Marlow. We reorganized our direct sales teams in EMEA around target sectors, allowing us to more effectively deploy our deep expertise directly into customers' processes and build even deeper relationships. This is delivering exactly as intended. We achieved double-digit demand growth in the region with especially strong second half performance and Process Industries growing well above IP. In fact, Process Industries across all regions through our sectorized focus, continues to perform well ahead of IP with double-digit demand growth in target sectors. Turning to operational excellence. This is an area where we have continued to make meaningful progress in improving efficiency across the group, driving improved margins while navigating trade tariffs and meeting growing demand. In STS, we closed our facility in Mexico, transferring production to the U.S.A. and following our decision to pause the planned expansion of our Gestra facility in Germany, we reached agreement with the Works Council on how to drive meaningful efficiency and performance improvements. In Watson-Marlow, we closed our higher-cost Alitea pump facility in Sweden and consolidated production in the U.K. We also continue to transfer manufacturing to our U.S.A. facility to support compliance with the Build America Buy America Act, increasing volumes by more than 20%. And in ETS, we consolidated production in the U.S.A. closing one site. But the key highlight was the operational improvement in process heating in North America, where, as I said, we have increased output from our factories by over 20% in the past 2 years and significantly reduced customer lead times. Our dedicated medium voltage facility expansion in Ogden has also now been completed on time and on budget, and we have begun to ramp up production. In both ETS and Watson-Marlow, our rapid response to demand growth has allowed us to meet customer needs, thereby strengthening long-term relationships. And finally, looking at our group-wide focus and continuous improvement, we delivered a high single-digit million savings in procurement, protecting our margin. Let's now look at some examples of how we have sharpened our focus on commercial excellence, starting with STS in the U.S.A. We reframed our approach to working with distributors in the U.S.A. that represent around 70% of local sales by thinking differently. We are working in partnership to cogenerate demand from end users to accelerate growth through defining combined go-to-market strategies in jointly targeted sectors and customers. During 2025, we embedded this approach with 22 distribution partners driving high single-digit increase in demand from those onboarded earlier in the year. This is an example of how we can adapt to local market structures while leveraging the strength of our direct sales approach to identify solutions to customer problems and self-generate higher growth. Today, around 50% of USA sales are either direct or co-generated. Moving to ETS, we have made good progress in expanding into new end markets. For example, we captured strong growth by targeting the data center sector with temperature-controlled solutions across both process heating and Heat Trace. This is a clear demonstration of our business model at work in ETS, identifying a customer need, using our applied and design engineering expertise to propose a solution in a new market and delivering consistently. The focus delivered a material contract win supporting ETS growth in 2025. We invested further in Watson-Marlow Architect, our proprietary single-use assembly solution for connecting disparate OEM systems across the bioprocessing fluid pathway. Additional sales headcount and expansion into new regions drove demand growth of over 30% and increased our opportunity pipeline materially, particularly in the U.S.A. Across the group, we have improved clarity, accountability and the speed of execution of our strategy. This is helping to align talent and investment with the biggest growth opportunities and is already delivering measurable commercial impact. Our operational priorities generate capacity to invest in future growth, such as through developing our digital and services capability. As you know, we are building customer partnerships by being more connected with them. We walk the data as well as walk the plant, helping us anticipate their needs, better solve their problems faster and sharing in the value we identify through our pricing. This approach is driving growth in MRO and Solution sales. In STS, we more than doubled the number of paid for customer connections to over 2,000 sites. Our targeted digital value propositions, particularly wireless steam trap monitoring, delivered high double-digit growth in digital product and service revenues and additional strong product pull-through from optimization and replacement opportunities. We have also made progress in developing our secure and scalable Connect platform, giving customers access to real-time data, operational insights, predictive analytics and sustainability metrics. This digital innovation is benefiting Watson-Marlow and ETS as well. With our Connect enabled Pump Insights pilot in Watson-Marlow, we have shifted a mining sector customer from reactive fixes and costly unplanned downtime to proactive pump management in abrasive high-density slurry applications. Finally, we continue to scale MiM, our large language model, now rolled out to over 1,000 sales colleagues around 1/3 of the total with the earliest users freeing up around 4 hours per person per week, time that is being redirected into additional customer-facing activities. The right-hand side of this slide sets out where we've been investing in decarbonizing thermal energy. We have 4 defined go-to-market strategies as set out on the slide. And across STS and ETS, we are combining our unique expertise in steam, heat transfer and electric resistance heating to deliver integrated solutions that are creating multiyear growth opportunities, particularly as customers seek to modernize and decarbonize aging thermal infrastructure. A few examples from last year. First, we designed and supplied medium-voltage heaters for renewables, energy storage and low-voltage heaters to replace highly carbon-intensive gas heaters and tissue production. And second, we delivered a multisite thermal energy assessment for a major food and beverage customer. While our cross-functional team identified annual energy savings of around 10%, with an associated pull-through revenue opportunity for us of over GBP 1 million. We are proving our unique customer value proposition and delivery model. Taken together, through our progress in digital customer connections, MiM and our decarbonization solutions, we are enhancing the long-term growth potential of our group. So that was 2025. Let me now put some context around how we are building on our strengths to deliver over the medium term and beyond. Some of this will be familiar to you. Starting on the left, we have a unique and powerful business model that underpins 3 strong growth engines and their durable competitive advantage. This is what has enabled delivery of consistent organic growth ahead of IP over many years and through multiple economic cycles. In the center of this slide, you see we have significant runway to keep delivering high-margin, high-return organic growth in a very large addressable market. We are well positioned to capture this through our Together for Growth strategy. One, by focusing on the operational priorities I've been explaining. We will deliver on our medium-term targets and generate the funding to invest in growth. And two, through targeted investments that enable us to capture the significant opportunities we see ahead, we will accelerate the rate of organic growth in the long term and generate attractive returns. So then on the right-hand side, you can see how our strategy translates into financial ambition. You're familiar with our sales, margin and cash targets. Delivery on these targets will drive an improvement in ROIC to over 15%, as many of you have already anticipated, and as Louisa described earlier. And today, we are confirming a target leverage range of between 1x and 1.5x. Having started with our business model and explained how our strategy built on that to deliver on our financial targets, the next critical component is how we approach capital allocation, to drive long duration and resilient compounding earnings growth and, therefore, attractive returns for shareholders. You will be familiar with different versions of this model. So what I want to highlight is how it applies specifically to Spirax. Firstly, we are a high margin, low capital intensity business with a track record of delivering high returns on capital employed currently at 36% and increasing. So we will continue to invest in our own business to strengthen our competitive position in target markets to enhance our profitable organic growth and high ROCE. I've shared with you today examples of where we have invested. Secondly, we are a high cash conversion business at 89%, which has supported a 58-year track record of dividend progress, which we will continue with cover improving to between 2 and 2.5x. Third, we will maintain a resilient balance sheet, and I've shared with you our leverage target. Once these priorities are achieved, we will apply a risk and opportunity-adjusted approach to the use of surplus capital to further enhance earnings growth and return on invested capital. These include bolt-on acquisitions and returns of capital to shareholders. On M&A, I want to be clear on how we think about future acquisitions. These would be bolt-ons, not building a fourth leg, that bring growth on margin enhancement opportunity in our core markets, where we clearly see how we can deliver better performance through our direct sales business model and/or through enhancing the solutions we deliver to customers and capturing that value through pricing. For the right acquisition, we are comfortable with temporarily elevated leverage, but with a commitment to bringing this back to our targeted range within a reasonable period. And we know what matters is shareholder return. And for any acquisition, we will always assess both the impact on ROIC and the impact on earnings growth, and we will benchmark this against a return of capital to shareholders. This is how we structure our approach to delivering compounding growth and, therefore, attractive returns to shareholders. To summarize before we move to Q&A, we delivered on the expectations we set out at the beginning of the year against the backdrop of a volatile external environment, which is continuing. We remained focused on executing against our operational priorities, successfully delivering our restructuring, which has strengthened our efficiency and effectiveness and is helping to fund investment in growth. And we are on track to deliver the medium-term targets we set out at our Capital Markets event, supporting the long-term compounding growth that our business model and strategy will deliver. Thank you. We're happy to take your questions and Andy, I'll come to you first.

Three questions, please. ETS, please, can you help us understand the base margin for this division now? So can you maybe give us the margin, excluding the legacy contracts? Or tell us what the legacy contract margins were? I'm just trying to figure out where our base is. And how long do we have the other tailwinds to margins that you talked to, Louisa, in your presentation? China and STS, it looks to me like you're still on track for the declining OE slowing down and the aftermarket MRO kind of catching up to get back into neutral territory back end of this year? Is that still fair? And then last one is on the additional GBP 40 million of investment in growth. If we were to look forward, and you can pick the time period, let's call it, 5 years, how much additional growth do you think that will have delivered relative to a base case of investing nothing? And how are you guys actually tracking it? Because it looks like a lot of those central costs are going into -- sorry, a lot of the investments going to central costs rather than in the divisions or maybe you're splitting it. So just trying to figure out how you track that growth?

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

Sure. So look, as I said, we're really pleased that the team have managed to push through the legacy margin -- the legacy contracts. And I've said that we're confident about that journey to 20%. It's not going to be linear over the next 2 years. We'll still do more in '27 than we will in '26, but we're pleased today to talk about that strong margin progression for '26. Look, I think you probably know, having followed this for a number of years, so there's still quite a lot going on in ETS. And there are a number of things that we believe and you have to believe to get us to 20%. We've got volume demand, which is positive. We've got legacy project orders, which we have driven through. We still got some operational improvements that we're working through. Semicon demand is coming back and pricing, which is sort of in the tail end of this. So not all of those things, Andy, are at a rate of 20% yet. And look, the recovery of the legacy margin piece is all in that mix. So we're not going to disclose that particular number, but those are the 5 things you need to believe. And of the 2 that we're still working on operational improvements and the pricing comes later in the cycle because you have to be good to get the price.

Andy, on your second question around China. So as I mentioned earlier, we are seeing a moderation of the headwinds that we were facing in large projects. It's a very difficult thing to forecast. But if you combine that with our continued strong growth in MRO, where we have high confidence because it's within our control, I expect that we'll hit that neutral -- that sort of neutral territory in China as a whole, either in the second half of 2026 or during 2027. Of course, more recent events, whether that be changing tariffs or conflict in the Middle East will impact business confidence and might impact that in some way. And then on your final point around how our investments in future growth are going to bear fruit for us, well, I'll let Louisa comment in a second on the investments that we're holding in corporate costs and why we're doing that and how we intend to see that going forward. But essentially, what we said in our medium-term guidance is we expected the group to be at mid-single-digit growth. And last year, we were at 4%. This year, we're at 5% organic growth. So we're in that area. But we also said that longer term, we believe this group is capable of doing better than that. It's these investments that will drive that growth at a higher rate. And therefore, at a higher multiple of global IP growth. Do you want to comment, Louisa, on the corporate cost?

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

Jonathan?

It's Jonathan from Barclays. I also have three questions, please. Firstly, just coming back to ETS and actually on the volume growth, obviously, 11% organic in '25, I think I'm correct in saying. Can you sort of break out how much of that was essentially down to that better execution in those North American facilities? And also what sort of level of contribution to growth can we expect from that in '26? That was the first one. The second one was just on Steam. Obviously, you're guiding to low single-digit organic growth. Is any of that volume? Or is that price? Can you just give us a split of how you think those dynamics work for that business in '26? And then the third and final one is just on Watson-Marlow. You're saying the business is well capitalized. Obviously, you're putting head count, I think into that business in '25. Is that now finished? So the question is essentially, do we go back to those really strong levels of operational gearing for Watson-Marlow in '26?

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

Sure.

Okay.

So in terms of the 11% organic sales growth in ETS and the execution element of that, we have tried to give you a little bit of a sense of the importance of that contribution in the throughput metrics that we gave you for the North American footprint, which is up 20% on the prior year. So very positive progress there, and we expect to see more in '26, but that may be a proxy, Jonathan, for some triangulation. In terms of well cap Watson-Marlow -- well-capitalized, Watson-Marlow, look, we are absolutely delighted that we've delivered 160 bps this year. We're signaling a similar bps next year. It's well on track to be getting back to 30% plus in the medium term. So that's not an unsignificant performance. So we will -- as I said in my presentation, if we continue to get that high single double-digit growth in Watson-Marlow, that drop-through comes through. But just a reminder, we have got some footprint in the -- in North America in Devons, which we're sort of thinking about moving volume from our U.K. facilities, which has served us really well through some volatile tariff territory. But getting that volume through both of those factories is a critical part of '26. But yes, we're on track to get to that 30% in the medium term.

I was just going to add to the answer on the ETS growth. I suspect what you're sort of trying to get to there is how strong is the underlying demand growth. And across all 3 divisions in ETS, we had very strong underlying demand growth. Now in equipment heating, we've talked about the contribution from Semicon, which had double-digit growth. In Heat Trace again, we had very strong growth. I talked a bit about that through the focus that we've brought to creating this as a new division with a dedicated sales force. And of course, neither of those 2 areas were suffering from the legacy contract issue. So that's a process heating issue. And in process heating, again, we had very strong demand growth, partly down to the fact that we have this large data center contract. But even if you take out the large data center contract, we still had growth that was above mid-single digit, okay? So I am not -- we are not here worrying about the demand growth in ETS. And so our challenge was to make sure operationally, we can get the output up to be able to meet our customers' needs. And then the third question you asked was around Steam, the split between volume and price. As you know, we don't give the split between volume and price. But what I can share with you is that typically, and it would be a safe assumption. Our pricing tends to be in line with or just slightly ahead. I'm talking about 10 or 20 basis points of inflation. So if you make your own assumption on inflation, you can see how much is coming through price. But there's another point I want to leave with you, which I think is the more important one, which is, in our business, looking at volume versus price can sometimes be a bit misleading. Why? Because of our solution selling and our pricing for value. So if I have customer A who has 5 failed steam traps, I might invoice those steam traps at GBP 300 each, GBP 1,500, okay, should be an average invoice size for us, give or take in MRO. But if I go to another customer, customer B, and they have a problem with the delivery of steam to a critical process, and they can't quite work out what it is, and it's costing them a lot of money in failed batches or lower throughput. And our engineers solve those problems for them and the value of what we've sold for them is GBP 10,000, we might charge them GBP 5,000. But you know what, it might still just be 5 steam traps. The value of that is reflected in price, not volume. Okay. So just -- we've got to bear that in mind when we think about that split. Yes. Okay, I'll come to you first, Lush, and then pass the microphone over.

I've got 2 questions, please, both on ETS. The first, just to follow up on that data center contract. It sounds like sort of follow-on progress has been really good. I mean how do we think about that as we go into this year? Is that sort of an incremental tailwind to your growth? Or sort of is that contract create a bit of a headwind? And then the second question is just going back to margins and sort of versus the 20% midterm target, it creates quite a back-end weighted pickup, I guess. You'd think the sort of semi recovery this year and the sort of the legacy contracts rolling off would be quite big margin tailwind. So when we think about pricing and operational excellence, I guess the 2 key things that come in, in 2027, I mean, can you put some numbers around it? I mean how underpricing are you, I guess, versus competitors, give us a size of what the opportunity could be? And also operational excellence. I think you talked about 20% increase in output. Where are we on that journey? Where do you want that business to get? So just trying to get an idea of how we get to that sort of big jump in 2027?

Okay. Well, let's start with the question about ETS growth in data centers. So we've made really good progress in that sector for everyone to understand what our products do. Essentially, they are designed to help test cooling systems in data centers. So rather probably at odds with what you would normally associate with data centers, which is cooling, we're heating them up, and we're heating them so that the cooling systems are tested rigorously and don't fail at a critical point, resulting in disruption to service. We won a large contract, as you rightly say, Lush, in 2025. But at the same time, we have also been developing our relationships with a whole series of additional data center players. Now because our products, and I gave the example of this, it's not just about applied engineering, it's also about design engineering. A lot of these products are bespoke for the specific OEM that is providing either the cooling systems or the testing of the cooling systems. We work with them through an R&D phase. So it takes a little bit of time just to make sure that we get those products embedded, tested before we get them scaled up. So coming to the specific question about what does all of this mean for 2026? Actually, we continue to see good data center demand in 2026. So I don't think it will be a headwind for 2026. Equally, it's not going to be as accretive to growth as it was in 2025 because we already won that big order. And I see a real opportunity beyond '26 to continue to build our servicing of the data center sector. So I think that's where we are there. On your question on margins. I think your question was really -- it started at group margin, which I think is a good place to start. And there are 3 things that I think about when I think about achieving our group margin target. The first is the impact of FX. So one of the most frustrating things over the last 2 years has been the headwind that we faced from FX. So we should keep that in mind. But it's -- if we could forecast FX accurately, we'd all probably be much richer doing other jobs. But there are 2 other things that we need to achieve in order to hit our medium-term group margin target, and you highlighted both. One is ETS at 20%. And the other is Watson-Marlow at 30%. I think on Watson-Marlow, Louisa answered the question earlier, but I think we all here have confidence that, that is a business that can achieve the 30% margin. And it's a question of how quickly we can get back to that margin, and that's going to rely on our ability to continue to drive growth. That's what will really impact our ability to get back to 30% in Watson-Marlow. In the ETS and Louisa has touched on this briefly earlier, there were sort of 5 things that were going to help us get from where we were in 2024 to where we want to be at 20%. The first was we needed to clear the legacy low-margin orders, tick. We've done that. The second was, we needed to get the Ogden expansion completed and start to ramp that up. At the moment, it's fixed cost but we will get more and more volume going through that plant. So that will come. The third was we needed to see growth in the higher-margin parts of ETS, particularly Semicon and of course, as I've described, we've identified Heat Trace as another opportunity within ETS, which is higher margin. So we're seeing that Semicon recovery, not back to the 2022 peak, as I said earlier, but we're seeing the recovery start to come through, and we're seeing strong growth in Heat Trace as well. And then the last 2 things are really, we've got some additional investment that we're making in ETS. So for example, the ongoing cyber investment, IT investment, safety investment. So we still have a bit of that going. And we didn't have as much restructuring benefit in ETS. Most of the restructuring benefits sat in STS and Watson-Marlow because ETS didn't have that significant cost base. So those are the different moving parts of the margin. Is there anything you want to add to that, Louisa?

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

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

Yes. So it's not just Ogden. It's North America because Ogden has stepped up very significantly, and we talked about that, I think, at our Capital Markets Day in 2024. But it's -- but actually, operational excellence is about performing better everywhere, both across our group, and particularly in ETS. So in North America, we've seen that 20% step up. My sense is we're getting now really close to a normal level of throughput without actually having fully ramped up the Ogden expansion. So there's a bit more space to come from that. And the point that Louisa is making quite rightly is that in the way that we think about efficiency, step one, get the output up, step two, think about how you do that as efficiently as possible, right? It's get a step-up in performance, stabilize the process and then think about how you make it more efficient. We're into that second part now, making it as efficient as we can. That will improve the drop-throughs that we start to see in ETS more broadly.

Two, please. On the first one, there's clearly an element of uncertainty in the broader macro backdrop at the moment and it might be too early to have a concrete view on any of this. But can you talk in general terms about how you may or have in the past seen customers to respond to periods of extreme energy price volatility, thinking obviously about energy efficiency solutions, electrification and the like. Just in broad terms, how long that takes? Whether you're seeing anything at the moment? And on the second one, on capital allocation. You've given an indication at the top end of the range that you're comfortable going over 1.5x for the right opportunity. Can I ask about the lower end of that range? And how comfortable you are that the balance sheet could be optimally structured below the lower end of that range? In other words, how proactive you might choose to be on buybacks and the like?

Thanks. So it's a really interesting question about customer response to higher energy prices. And you're right, we have seen it before, not least after the conflict in Ukraine commenced. What we typically tend to see, and this is a strength of our business is because we can help our customers to be more energy efficient. We do tend to see a step-up in that demand for our solutions. And that's why, in particular, our direct sales force and their deep process understanding and their local relationships and their ability to walk the plant is so important. And of course, then combine that with our digital solutions, in particular, steam trap monitoring, which is where you can have significant energy loss either through venting of heat in the form of steam or not recycling latent energy in waste condensate. We have solutions to deal with all of these things. So we absolutely anticipate that as energy prices spike, everybody starts to look at, okay, how can I be a little bit more efficient. And because our model is about, we'll find you the solution, we'll quantify the benefits and then we'll price on payback. In essence, it becomes a no-brainer for the customer to say, okay, that's something I want to do. And the earlier in the year you are, the more likely you're going to get your payback within the year. So that's definitely an opportunity for us. Of course, there is a flip side which is when the energy prices are high, businesses start to focus a little bit more on conserving capital, the larger project element of the business shrinks a bit. But remember, 85% of our business comes from customers' OpEx budgets, right, either from the MRO or the solution sales that I've been talking about. So that's definitely an important positive for us. And actually, maybe I'll just take this moment to talk a little bit about the broader state of affairs in the Middle East and how that may or may not impact our business. But as I said earlier, about 1% of our sales are direct from the Middle East. The biggest impact is likely to be on that overall global IP picture and the level of demand that we see. We've taken a conservative view relative to current IP forecasts. Whether that is sufficient or not, time will tell. I think one of the operational implications of what's happening in the Middle East is around supply chain and disruption to supply chain. We've already kicked into action to make sure that we are mitigating as much as possible, how that could impact our business, either through securing raw materials or critical components or through making sure we've got sufficient stocks at our local sales companies to be able to meet the demands of our customers. And remember, our regional manufacturing strategy really helps us there. And in terms of the cost inflation impacts of the conflict, I think you all know that we are very good at passing cost inflation back through to customers and protecting our margin. We've got a long track record of having done all of these things. So that's -- just to tackle that point, whilst we were on the global picture. And then on your question about the lower end of the leverage range. Louisa, I'll come to you in a second, but I just want to say, for me, I think the important thing is, historically, we haven't had that lower end of the range and actually quite -- in the past before, particularly the transactions in around 2022, our leverage was well below 1x. And I think the way to think about this is 1x is a trigger point for us to start making some of those decisions that you described exactly those decisions. Is there anything you want to add to that, Louisa?

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

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

So today, I don't think it's ready because we've got a lot to do in the ETS business, and we've been doing a lot for the last 2 years to get it to where it needs to be. So yes, I think it would be a distraction for management. And actually, the challenge, of course, is with potential bolt-on deals, we need to get the return. Right now we're working on getting the return from acquisitions that have been made in the past. But we make new acquisitions. We have to get the return. You can't get the return, if you can't get the management focus to really drive the integration and then the acceleration of those businesses we buy. We will want -- we will be picking up businesses where we want to accelerate the growth through utilizing our direct sales business model, we want to be enhancing solutions. We want to be enhancing margins. That's how we'll get the growth. But I can see further down the line that there will be opportunities actually in all 3 of our businesses. What we will both do together with our colleagues in the business is be disciplined about how we think about those opportunities to make sure that we're finding the most attractive opportunities for each -- either for each or within each of our businesses, again, to make sure that we drive those attractive returns.

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

Well, we've got big businesses in both. But standing here today, given the relative dynamics in the short term, by which I'm talking 1 to 2 years, I do see the U.S. as an attractive growth market. But longer term, I still continue to see China as a very attractive market for us. And we've got this established 35-year history in China, delivering high growth at attractive margins with a very strong market position, and that economy will continue to do well. So I don't think it's either or, but in terms of where we're allocating capital as it were in the short term. Actually, we're hiring sales engineers into the U.S. to expand our reach to support that cogeneration model with our distributors to drive that growth that we can drive by identifying the opportunities that we see in our target sectors. And of course, we're not adding that same level of head count in China. In fact, in China, we are retraining in order to be able to focus on MRO and reducing a bit the headcount that we have currently focused on large projects. So you can see how we're sort of allocating resources in the right way to make sure we benefit from those short-term trends. We should come to Bruno.

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

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

Watson-Marlow.

Watson-Marlow, okay. Sorry, I am with you. Well, I will have a go and Louisa, you can add to it. But Biopharm demand trends, so casting your mind back to 2024, what we started to see in the second half of 2024 is the recovery in the end user demand, which typically comes first. And remember, we've got over 4,000 end users, quite a diverse space. And what you can read into that level of demand is that the existing capacity is being used -- is being utilized at a higher rate. So you're seeing the pull-through on the consumables, the replacement of pumps, et cetera. What we hadn't seen at that point was the recovery in the OEM demand. There have been some good months and some bad months, incredibly volatile. This year, we've continued to see actually accelerating growth with end users, but we've also seen the OEM demand come back as well. And that gives us a sense of not only we're getting the consumable pull-through, but actually, there's probably a bit of capacity expansion out there in bioprocessing as well. So that's what's adding to our confidence in that ongoing recovery. And our view hasn't changed on the underlying growth in the Biopharm market. And then in terms of what do you have to believe for the high single digit? Well, essentially, remember, Watson-Marlow 50-50 Biopharm, Process Industries. We've always talked about underlying biopharm growth being around about the 10% level. And then we've talked about Process Industries growing ahead of IP, right, at least 2x IP. So you can kind of do your own math and probably quite quickly get to a high single-digit number based on those trends.

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

Actually, what we're finding is -- so we're going proactively to a lot of these OEMs and say, like, how are you thinking about the testing of these systems? And quite often, what we're finding is they're still thinking through the different technologies that are available to them and that everybody is looking for cheaper, faster, quicker ways to do this, right, more agile ways to do this. And so in the same way as we did with the large contract we won in 2025 with others, we're right in there from essentially what I would call an R&D phase. Now it's not long-duration R&D of the like that we see, for example, in the Semicon sector, in our equipment heating business, it's really, I would say, understand solution selling, understanding the needs of the customer, the problem they're trying to solve looking at the electric resistance heating products that we've got, thinking about how we can bespoke them sometimes in -- it's not that complicated to be able to do that with our design engineering capability, thinking about how we can scale up the manufacturing for that large contract order we won in '25. We put in a dedicated line in our Nuevo Laredo factory in Mexico. So thinking about how do we do that and then making sure that we really deliver to their needs. So it's -- that's the process we're going through with new names at the moment.

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

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

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

It's a great -- actually, it's a really good question. What we saw is design engineering lead times go from 60 weeks to 6 weeks. Overall, lead times are still greater than 6 weeks because there's the other steps you have to go through in the process. In process heating, large heaters in particular, which is what we're talking about there, the things that come out of North America, it's not unusual to have a 1-year lead time, 40- to 50-week lead time, that's sort of -- and the reason for that is because our products are critical in our customers' processes, or their facilities, they typically want to get ahead of making sure that they've been designed, they've signed up for the design. There's multiple steps all the way through and that they're in the queue to get it manufactured. And then they want certainty that they'll get it when they -- when we say they're going to get it. And so that's why you haven't seen kind of a more pressure on the demand. And at the same time, just the underlying demand for electric resistance heating, electrification products. We talked about data centers. All of that is just growing as well, which is helping us. So we're in good shape from a demand perspective as well. Thanks, Bruno. I'm going to check, Mal, was there anything on the phone? Nothing on the phone? Any other questions in the room? Excellent. Well, look, thank you very much for joining us, all of you in the room and for those people on the call. I appreciate your support and look forward to seeing you in 6 months' time. Thank you.

Thank you.