Spirax-Sarco Engineering H2 2024 Earnings Report

Spirax-Sarco Engineering EPS Results

• Actual EPS: GBX 286.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Spirax-Sarco Engineering Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Spirax-Sarco Engineering Announcement Details

• Quarter: H2 2024
• Date: 3/11/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, March 11, 2025
• Conference Call Time: 5:30AM ET

Spirax-Sarco Engineering rebrands as Spirax Group On 22 February 2024, Spirax-Sarco Engineering changed its name to Spirax Group which reflects the Company’s evolution over many years to a larger and stronger Group of three aligned Businesses with differentiated and complementary capabilities. Our new name respects our history and where we have come from, with who we are today. It creates more distinction between the Group and its Spirax Sarco trading Division (part of Steam Thermal Solutions), providing improved clarity for all stakeholders. At our Annual General Meeting (AGM) on 15 May 2024, our shareholders voted in favour of approving the change of our legally registered name, from Spirax-Sarco Engineering (LON:SPX) to Spirax Group plc. The process completed on 3 June 2024. Shareholders should note that their shareholdings will be unaffected by the commercial rebrand or legal name change. There is no impact on the Group's financial reporting and the Group will retain the stock market ticker SPX. About Spirax Group Spirax Group is positioned to play a critical role in enabling the industrial transition to net zero, aligned to our Purpose to create sustainable value for all our stakeholders as we engineer a more efficient, safer and sustainable world. We put solving customers’ problems at the heart of our ‘total solutions’ approach. Our global thermal energy and fluid technology solutions improve operating efficiency and safety in our customers’ critical industrial processes. Our recently launched new-to-world decarbonisation* solutions use proprietary technologies to electrify boilers, for the raising of steam, as well as the electrification of other critical industrial process heating applications. Spirax Group comprises three strong and aligned Businesses: Steam Thermal Solutions helps customers control and manage steam within their mission critical industrial applications, such as cleaning, sterilising, cooking and heating. We are helping to put food safely on the world’s tables and keeping our hospitals running. Electric Thermal Solutions has proprietary technologies that deliver electrification solutions at scale in industrial settings, including for the raising of steam, supporting our customers to achieve their net zero goals. We also deliver freeze protection and defrost solutions critical to aviation and space industries and ensure thermal uniformity in semiconductor chip manufacturing to power the critical electronic systems we rely on. Watson‐Marlow Fluid Technology Solutions is engineering vital fluid technology solutions that optimise the efficient use of resources and support advancements in global health, such as lifesaving vaccines and gene therapies. Spirax Group is headquartered in Cheltenham (UK). We have 37 strategically located manufacturing plants around the world and are committed to building a safe and inclusive working culture for our 10,000 colleagues, operating in 66 countries and serving 110,000 customers globally. We aim to create sustainable value for all our stakeholders, with an excellent track record for growth and returns that has delivered 55 years of consecutive annual dividend growth. The Company's shares have been listed on the London Stock Exchange since 1959 (symbol: SPX) and we are a constituent of the FTSE 100 and the FTSE4Good Indexes. * Eliminates scopes 1 and 2 greenhouse gas emissions when connected to a green electricity source.

Spirax-Sarco Engineering H2 2024 Earnings Call Transcript

Presentation

[Nimesh Patel, Group CEO at Spirax Group]

Hello, and thanks for joining us for this presentation of Spirex Group's twenty twenty four results. So I'm joined by Louisa Baudette today and by now you all know her well. Actually, this is the first set of results that Louisa is presenting as our CFO. And I'd like to start by acknowledging the hugely positive impact she's had on our group since she joined us last July.

[Nimesh Patel, Group CEO at Spirax Group]

So let me now summarize our 2024 performance. All three businesses delivered organic growth as well as margins in line with our expectations. And full year group organic sales growth of 4% was well ahead of global IP of 1.7. Growth was delivered against the backdrop of a challenging trading environment characterized by firstly third party IP forecasts that were revised downwards throughout the year in light of shifting macroeconomic risks. In particular, the second half recovery that was forecast for IP did not materialize.

[Nimesh Patel, Group CEO at Spirax Group]

Secondly, a significant headwind to our STS business in China, which I highlighted at this time last year. Thirdly, a slower and more gradual recovery in biopharma orders than we had expected at the beginning of the year. And finally, material currency headwinds to growth and margins. Against this backdrop, we focus our efforts on delivering against the operational priorities that are within our control and advancing the execution of our strategy. I'm really pleased with the strong positive trajectory in ETS.

[Nimesh Patel, Group CEO at Spirax Group]

Our priority for this business is to improve the margin to 20% and deliver on its high growth potential. Supported by improving manufacturing throughput, we delivered organic sales growth of 10% and a margin improvement to 16%. And we are seeing a significant pipeline of customer inquiries for our decarbonization related electrification solutions. So we're on the right path to delivering on our targets. In SCS, organic sales growth was 1%, but outside China, we delivered strong growth of 4% against the comparable IP of 0.8%.

[Nimesh Patel, Group CEO at Spirax Group]

And in Watson Marlow which grew organically by 3%, we saw strong growth in process industries compensating for broadly flat sales from biopharm. In both cases, our growth was achieved through focusing on our target sectors and delivering on our solution selling. We protected margins in 2024 through continued pricing discipline and efficiency savings. Our group margin was 20.1% despite the partial reversal of prior year cost containment actions. And importantly, we increased investment in our future growth.

[Nimesh Patel, Group CEO at Spirax Group]

And we returned to higher cash conversion at 87% supported by working capital improvement and lower capital expenditure reflecting our focus on maximizing manufacturing capacity utilization. Having set out our intent at the capital markets event in October, we've also taken decisive action to simplify our organization and better position the group to deliver long term highly profitable organic sales growth. Luisa and I will talk about this more later, but the restructuring activity began at pace in January and is proceeding to plan. Now it's just over a year since I became CEO and I'm very encouraged by the progress that we've made in that time. The actions we've taken will put us in a stronger position to deliver on our financial objectives for the future and on our future growth potential.

[Nimesh Patel, Group CEO at Spirax Group]

Most importantly, I'd like to thank my colleagues around the world for their commitment as we executed on the operational priorities within our control. I spoke about a challenging trading environment. Let me now expand on what we faced in 2024. Now thermal energy management is necessary in almost all industrial production processes and we're present in almost all sectors and regions across the world. So global IP growth is an important lead indicator across our businesses.

[Nimesh Patel, Group CEO at Spirax Group]

As customers manage their production capacity, productivity and efficiency in line with anticipated demand. Equally, we aim to outperform IP growth through execution of our business model and our strategy. So through our local direct sales force and deep understanding of customer processes, we help them improve cost efficiency when times are hard and we help them improve productivity and capacity when times are good. With this in mind, let's now turn to the IP forecasts. Global IP growth for the full year was 1.7% and a much weaker 0.8% excluding China.

[Nimesh Patel, Group CEO at Spirax Group]

The top left chart shows the downward revision in forecasts throughout the year. Following weak IP growth in the first half, the forecast improvement in the second half didn't materialize as shown in the top right chart. Actual growth was 1% excluding China. This was not limited to a handful of sectors or countries, but reflects more caution from customers more broadly. IP has been lower for longer than we and many others had expected.

[Nimesh Patel, Group CEO at Spirax Group]

We saw industrial production fall compared to 2023 in key markets, The USA, Germany, France, Italy and The UK, which represent over 50% of group sales. This is only the third time in four decades as far back as we have consistent and reliable data that we've seen contraction in all of these markets at the same time. For China, IP forecasts remain uncertain with a wide range of expectations across different providers. What we're seeing in China is a meaningful slowdown in the expansion of customers manufacturing capacity in light of increasing barriers to global trade. Looking to 2025, CHR's forecast for global IP is 2.11.9% excluding China.

[Nimesh Patel, Group CEO at Spirax Group]

First Half growth excluding China is forecast at 1.7% and again growth is weighted towards the second half with 2.1%. This requires healthy sequential growth quarter on quarter above the rate achieved in the second half of last year. In the current highly uncertain macroeconomic environment, these forecasts follow a familiar pattern. So we're taking a cautious approach to IP in 2025. We recognize IP is likely to be weaker in the short term with potential for further disruption from tariffs and other geopolitical events.

[Nimesh Patel, Group CEO at Spirax Group]

Wherever it eventually lands, we are confident that we will continue to outperform IP in 2025. We're closely monitoring the situation with tariffs and assessing the impact on our operations. In all three businesses, we manufacture in The USA to meet a significant proportion of domestic demand. So through a combination of this regional manufacturing, changes to sourcing and our price management, we're prepared to respond to the effects of tariffs. But the precise impact is difficult to gauge while uncertainty remains high, particularly around the broader consequences for the macroeconomic outlook.

[Nimesh Patel, Group CEO at Spirax Group]

Now I also recognize that an important part of our group and Watson Marlowe, namely our biopharm business has been going through a period of volatility. And so we felt that this year it was important to share some additional insight to help explain our sales growth and our guidance. As a reminder, biopharm accounts for 12% of group and 50% of Watson Marlow sales. In 2024, we saw the beginning of a recovery in new order intake from biopharm customers with double digit growth, albeit this was off a low base. And that followed a decline in orders of over 50% by the end of twenty twenty three from the COVID related peak in 2021.

[Nimesh Patel, Group CEO at Spirax Group]

We saw good growth in end user customer orders and sales, which account for about three quarters of total biopharm sales. Large OEM customers also improved from a low base, although with high month to month volatility. So we saw orders improving from large OEM customers, but sales to these customers declined. Looking to the chart on the right hand side of this slide, you will see that total biopharma sales were above orders in 2024 as they have been in recent years, supported

[Nimesh Patel, Group CEO at Spirax Group]

by

[Nimesh Patel, Group CEO at Spirax Group]

the large carried forward order book. Our order book has now normalized. That means that going forward sales growth will be driven by new order intake. Now while we anticipate continued double digit recovery in biopharm orders, this is coming off a low base, so sales growth will be below orders growth. Hopefully, that gives you a little bit of insight into the quite complex moving parts and also why we expect a more gradual recovery in biopharm.

[Nimesh Patel, Group CEO at Spirax Group]

The underlying drivers of biopharm demand remain robust as is reflected in the end user activity that we're seeing. So I'll now hand over to Luisa to share more detail of our financial performance in 2024 and set the outlook for 2025.

[Louisa Burdett, CFO at Spirax Group]

Thanks, Dimesh. Good morning, everyone. Before I start, I'd like to draw your attention to a couple of presentational points. The numbers we will be discussing today are the adjusted results and a reconciliation between statutory and operating profit is included in the appendix. And then our definition of organic growth excludes the effect of currency movements on sales and profit.

[Louisa Burdett, CFO at Spirax Group]

And of course, we didn't have any M and A in the period. So as guided, the effect of currency in the year was minus 5% on sales and minus 8% on operating profit. Our full year numbers were in line with the expectations we set out at our half one results. And from a group perspective, sales were 4% higher year on year, well ahead of IP and driven by growth in all three of our businesses. Operating profit also grew 4% on an organic basis and operating margin of 20.1% was 10 bps higher organically.

[Louisa Burdett, CFO at Spirax Group]

Net financing costs were slightly lower than our guide of million, but GBP 4,000,000 higher year on year due to the annualized impact of a higher coupon rate on debt, which was refinanced at the end of twenty twenty three. As expected, our effective tax rate increased 100 bps to 26.5%, adjusted EPS of 286.3p per share with 8% lower year on year that was above the decline in operating profit due to the higher net finance expense and the increase in the effective tax rate. We are increasing our full year dividend by 3%, reflecting our confidence in a return to higher levels of growth and margin. So on the sales bridge on your next slide, as noted, currency movements had a negative impact of GBP 74,000,000 or 5% on full year sales. In STS, full year organic sales growth was 1%.

[Louisa Burdett, CFO at Spirax Group]

Having declined in the first half sorry, having declined 1% in the first half, the business returned to growth of 3% in the second. To explain the relative growth rates in the first and second half, it's worth remembering that we had a strong comp in the first half of twenty twenty three due to the post COVID expansionary investment phase in China, which was followed by weaker demand in the second half of twenty twenty three. In ETF, full year organic sales growth was a pleasing 10% with a strong second half performance of 15%. That reflects operational improvements in process heating, which Dimesh will talk about later on. What's the Marlowe sales grew 3% organically and as expected biopharm sales were broadly flat in absolute terms versus 2023, albeit with some month to month volatility.

[Louisa Burdett, CFO at Spirax Group]

Sales to process industry customers, which are more correlated to IP, performed well throughout the year, particularly in the second half. The bridge on the next page details the movements in adjusted operating profit for the year. Currency movements had an impact, a negative impact of GBP 28,000,000 or 8%. Profit in steam grew 1% organically, in line with the 1% organic growth in sales. During 2023, we moderated our investment in steam, but during 2024, we sought to retain an appropriate mix of costs with discipline on the base overhead whilst protecting investment for the future.

[Louisa Burdett, CFO at Spirax Group]

The operating margin in STS of 23.5% was broadly unchanged organically year on year. In ETF, profit grew by 13% organically with stronger growth in the second half driven by improvements at our Ogden manufacturing facility alongside good progress at Volcanic. Growth was partially offset by ongoing investments to deliver those operational improvements and some historic orders that could not be repriced for inflation. The full year operating margin in ETS was 16%, up 50 bps organically. We saw strong margin improvement in process heating year on year, but lower margins year on year in equipment heating as higher semicon did not meaningfully recover.

[Louisa Burdett, CFO at Spirax Group]

Watson Marlow delivered organic profit growth of eleven percent and one hundred and eighty bps increase in margin benefiting from the operating leverage of the increase in sales. Corporate costs were 2% of group sales with increased investments to support key strategic initiatives in digital and sustainability. So turning to our cash flow, our operating profit to cash conversion rate was 87% because of improvements in working capital and decisions that we took on capital expenditure. Capital expenditure of GBP 84,000,000 was 5% of group sales. Alongside our normal maintenance capital, we invested GBP 29,000,000 in our new low and medium voltage production facility in Ogden, which will come online in the early second half of this year.

[Louisa Burdett, CFO at Spirax Group]

But during the second half of twenty twenty four, we made two active decisions about our capital program. First, as part of our review of manufacturing footprint and capacity, we put construction of a new manufacturing facility in Gastro, Germany on hold. And second, with the exception of ThermoCoax France, we deferred our planned ERP spend whilst we aligned on the concept of a global common design for all three businesses. Nimesh will build on both of these two points later in our update when we talk about operational excellence. In recent years, we have invested in expansion projects in Watson Marlow and ETF.

[Louisa Burdett, CFO at Spirax Group]

We're now coming through that period of higher capital expenditure versus our historic rates. And in 2025, we anticipate CapEx as a percentage of sales to be around the 5% to 6% range and the CapEx mix in 2025 will include increased ERP costs offset by lower spend on that Ogden building as this investment completes. Back in 2024, we were pleased that our ratio of working capital to sales improved on a constant currency basis by 1% to 21.9% with a focus on inventory and overdue receivables. And we ended the year with lower net debt of GBP $596,000,000, which equates to 1.6x EBITDA. I'll now talk you through on the next slide through some of the key drivers of our operational performance and within that context give you our 2025 guidance, which we're giving for the first time today.

[Louisa Burdett, CFO at Spirax Group]

Many of the themes that we saw in 2024 continue into 2025. So if I start with STS on the left, in 2024, full year organic sales outside of China was 4%, well ahead of global IP excluding China of 0.8%. But we have talked previously about the decline in large orders in China following the period of post COVID expansionary investment. And as a result, in 2024, sales in China, which was 17% of STS in 2023, was 13% lower. MRO sales did increase by double digits in 2024, but they are not yet compensating for this continued weakness.

[Louisa Burdett, CFO at Spirax Group]

And again later on, Nimesh will share some of the actions we are taking to really drive that MRO pivot. In STS looking forward to 2025, we expect trading conditions in China to remain challenging and we are also seeing the impact of global instability in Korea, which is STS's second largest market in Asia. So weaker trading in China and Korea will be offset by growth ahead of IP in our other markets. And if we put these two things together, we expect steam to deliver low single digit organic sales growth with margin remaining broadly level with 2024. Moving on to ETS in the middle.

[Louisa Burdett, CFO at Spirax Group]

We've already talked about our strong operational progress in process heating during 2024 and we are also seeing early signs of semicon demand improvement from a low base. So supported by continuation of these two trends in 2025, we anticipate mid to high single digit organic sales growth for the ETS business. Margin progress will also continue, although until we are at full volume, the costs associated with the new building in Ogden will temper the rate of margin expansion. And then finally to Watson Marlowe on the right, Nimesh has already mentioned the total biopharm sales remaining above orders in 2024 because we were carrying forward that large order book. But we did see the beginnings of a recovery in new order intake of a very low base and that pattern continues to support our view that this will be a gradual U shaped recovery.

[Louisa Burdett, CFO at Spirax Group]

So in 2025 for the Watson Marlow business as a whole, we anticipate mid single digit organic sales growth and that's driven by the assumed continuing recovery in biopharm orders and in addition process industries outperforming IP. And this will deliver high single digit organic profit growth and an increase in margin compared to 2024. On the next slide at a group level, we guide on an organic basis and this is based on restating our 2024 results for the impact of exchange rate movements in 2025. So if exchange rates at the March were to prevail for the remainder of the year, 2024 sales would be approximately 2% lower at $1,637,000,000 pounds and 2024 adjusted operating profit approximately 4% lower at million resulting in an FX adjusted margin of 19.6%. And that FX headwind is driven by the pound strengthening against various of the basket of our trading currencies.

[Louisa Burdett, CFO at Spirax Group]

In 2025, we anticipate organic growth in group revenues consistent with that achieved in 2024 with modestly higher growth in the second half. Group adjusted operating profit margin is expected to be ahead of that currency adjusted margin of 19.6% that I've just talked about for 2024 with mid single digit organic growth in adjusted operating profit. As we noted at our Capital Markets Day, I would like to remind you that we are forecasting a return of a variable compensation charge in 2025 of the order of about GBP 15,000,000 to GBP 20,000,000 in aggregate across our three businesses and in corporate. We had a good start in 2024 and we are continuing to target procurement savings in 2025, which we expect to generate savings in the mid teen millions and that will partially offset these incremental remuneration charges coming back into the P and L. Our corporate costs will be approximately $40,000,000 reflecting increases in investments for growth initiatives that are centrally funded.

[Louisa Burdett, CFO at Spirax Group]

And these investments plus others within the three businesses will be funded through the restructuring program, which we've noted in our R and S today. This program will realize annualized savings of approximately million with about 40% of this achieved in 2025. The cash costs to deliver this program are expected to be approximately million plus non cash costs of about GBP 5,000,000, a total therefore GBP 40,000,000 focused on improving our organizational efficiency and closing some manufacturing sites across the world. And Nimesh will expand on both of those points very shortly. The GBP 40,000,000 exceptional costs are excluded from our adjusted operating profit and also from our margin guidance.

[Louisa Burdett, CFO at Spirax Group]

And then finally, I would like to draw your attention to your appendix of the appendix, excuse me, where we have some other group guidance factors around financing costs, ETR, CapEx and cash conversion. So my final slide just reiterates our medium term margin goal of reaching a 22% to 23% operating profit margin whilst continuing to invest sensibly. At the Capital Markets Day event, we laid out the four building blocks of this multi year bridge. Firstly, organic growth of around 200 bps secondly, around 150 bps of financial benefit from operating improvements thirdly, incremental investments of around 100 bps to support our longer term growth and fourthly, procurement savings targeted to help offset offset variable compensation returning in 2025. All of these actions still apply and we have started to deliver on them in 2025, the first year of this medium term plan.

[Louisa Burdett, CFO at Spirax Group]

We remain focused on those medium term goals and Nimesh will now take you through how we are delivering our Together for Growth strategy objectives. Thank you.

[Nimesh Patel, Group CEO at Spirax Group]

Thank you, Luisa. So I briefly want to remind everyone of that journey we're on as we set out at the Capital Markets event in October. We've got a clear objective to deliver on the medium term objectives that Louisa just explained and as set out on the right hand side of this slide in the long term, we expect to go further enhancing long term organic growth margins and shareholder returns. As set out on the left of this slide, a reminder that we've got three strong growth engines sharing a common business model that's enabled us to deliver consistent organic growth ahead of IP over many years and through multiple economic cycles. Our direct sales engineers sell value creating solutions to solve customers' problems.

[Nimesh Patel, Group CEO at Spirax Group]

We're evolving this differentiated model to be more connected with customers locally, directly and digitally to anticipate and meet their increasing complex needs. In the center of this slide, you'll see we have a very significant addressable market opportunity in front of us that we are well positioned to capture through our Together for Growth strategy, which is fundamentally about two things. Firstly, we will accelerate the rate of compounding organic growth in the long term by making targeted investments, which will enable us to capture the significant opportunities we see ahead generating attractive returns. This includes investment in digital and services and in our unique expertise in thermal energy efficiency and decarbonization. And secondly, we will generate the funding capacity for these investments from self help by focusing on our operational priorities, whether that is through commercial excellence, how we build on our sales capacity and capability, operational excellence, how we become more productive and efficient in our manufacturing or organizational fitness, how we improve the way we work across the organization to better serve our customers and better leverage our resources.

[Nimesh Patel, Group CEO at Spirax Group]

And we're already making good progress on our delivery as you'll see on the next slide which sets out progress in 2024 and priorities for 2025. My confidence in delivering on the opportunity ahead is rooted in the leadership team. Most recently Stuart Roby joined us as Managing Director of Watson Marlowe after I asked Andrew Mines to lead ETS. This new team with over 50% being either new or new in role has a blend of a deep understanding of the group, but new ideas and an experienced external perspective to go alongside that, all of which will support starting

[Nimesh Patel, Group CEO at Spirax Group]

with

[Nimesh Patel, Group CEO at Spirax Group]

the operational priorities and commercial excellence. Starting with the operational priorities and commercial excellence. In 2024, we increased the number of customer facing sales colleagues. And in STS and Watson Marlowe, our sectorized sales focus helped us grow well ahead of IP increasing market share in those target sectors. We're strengthening our position in new high growth sectors by leveraging regional teams expertise to support colleagues.

[Nimesh Patel, Group CEO at Spirax Group]

For example, from China in the electric vehicle battery sector as our customers explore new manufacturing locations. We launched new products, for example, in Watson Marlowe with WM Architect supporting self generated solution selling in the biopharm sector through bespoke approaches to connecting disparate systems along the fluid pathway and Q DOS High Flow, a chemical metering and dosing pump, which further expands our addressable market in process industries. I'll shortly also give you an example of how we're growing MRO sales from our installed base in STS. In 2025, our focus is on maximizing the productivity of our direct sales engineers, including increasing customer facing time and the number of customer visits to drive growth in a weaker macroeconomic environment. Now in operational excellence, during 2024, we started delivering procurement savings within and across all three businesses and will continue to increase those savings in 2025.

[Nimesh Patel, Group CEO at Spirax Group]

We also consolidated our manufacturing footprint in The USA closing a number of smaller manufacturing sites in ETS and Watson Marlowe. This represents the initial steps to optimize our footprint while retaining regional manufacturing that is critical to delivering high levels of customer service. Our focus is on mainly smaller sites or where we manufacture more standard products. Earlier this year, we announced the closure of our SDS facility in Mexico with production moving to The USA and we are putting on hold the previously planned construction of a new guest facility in Germany. As we make progress, we will have greater flexibility in how we manage our manufacturing footprint and we will continue to review how best to optimize and extract value from our fixed capital.

[Nimesh Patel, Group CEO at Spirax Group]

And moving to organizational fitness, in January 2025, we initiated a series of organizational changes. We're reducing our management layers and consolidating activity which can be better leveraged across operating companies regionally. For example, our product technical expertise, our field servicing and repairs teams and our digital services skills. These have been built individually in larger operating companies and will now serve as a center of excellence for all local companies in the region based on where the opportunity is greatest. These organizational changes are being supported with common processes built into our systems.

[Nimesh Patel, Group CEO at Spirax Group]

So turning briefly to ERP, during 2024, we moved from three separate business led programs to align around a single global common design. In the second half, we successfully completed the ERP implementation at Thermocolax in France. This project was already underway, but allowed us to test key design principles and ahead of developing our common approach. I am really pleased with the pace at which we have moved to execution across our operational priorities and our restructuring is the first significant activity of this nature that we've ever undertaken across our group. Luisa talked you through the financial benefits which are material and will support our investment in future growth.

[Nimesh Patel, Group CEO at Spirax Group]

But what I want to emphasize are the benefits of building a simpler, more agile, more scalable organization with simplified internal processes and increased customer facing time for our sales colleagues. This slide is a deeper dive into two important areas that shaped our performance in 2024. Earlier, I spoke about the challenge facing STS in China as customers slowed the expansion of manufacturing capacity with these large projects accounting for 60% of sales. I think it's helpful to explain how we've been reshaping this business as an example of commercial excellence and driving growth in MRO. Taking advantage of expertise from within STS, China has now completed a mapping of its significant installed base targeting the most attractive growth opportunities.

[Nimesh Patel, Group CEO at Spirax Group]

Added MRO focused sales engineers in larger regions where the opportunities are more concentrated, as well as developing and deploying training for large project focused engineers to identify and self generate MRO solutions, while also realigning their incentives. As a result, MRO sales growth in China in 2024 was in the double digits and we're expecting a further year of double digit growth in 2025. And of course, MRO comes at more attractive margins being funded from customers OpEx rather than CapEx budgets. The second example on this slide is of operational excellence focused on our Ogden plant, where throughout 2024 we've been focused on increasing shipments against a strong order book. As you know, improving manufacturing throughput is a critical step towards delivering a 20% margin in ETS.

[Nimesh Patel, Group CEO at Spirax Group]

As a reminder, Ogden manufactures large low voltage and medium voltage heaters and these also support our decarbonization solutions. On the slide, you can see a photo of a recently shipped triple stack heater for a mission critical application on a chemical customer's site. It is one of only a handful of such heaters manufactured in the past decade and we have made almost all of these because of our reliable performance in the field. Our Ogden operational improvement started with leadership changes in ETS and the local team. We're focused on improving key processes to meet customers' bespoke requirements without compromising efficiency and lead times.

[Nimesh Patel, Group CEO at Spirax Group]

These include implementing controls over complex designs, improving the interface between sales, engineering and manufacturing that created past production challenges. Addressing this quote to cash process shortens lead times in design engineering improves resource planning and production scheduling and enables us to better manage customer change requests thereby delivering higher throughput and improved efficiency. So after several years of flat output, we saw a material improvement in shipments. We delivered a double digit increase in Chromalox sales with Ogden shipments increasing by close to 40%, leading to an overdue backlog reduction of over 20% as well as improved margins through operating leverage. During 2025, we expect further improvements.

[Nimesh Patel, Group CEO at Spirax Group]

Separately, the expansion of the Ogden facility specializing in the manufacture of medium voltage solutions is progressing well and remains on track for completion during 2025 and will help to further reduce lead times. Let's turn now to look briefly at some of the areas on which we are focusing to drive that future growth. These are longer dated investments delivering multi year returns and we've made good progress in 2024. First, digital and services. We're augmenting customer relationships by being even more connected with them both physically and now digitally.

[Nimesh Patel, Group CEO at Spirax Group]

In this way, we walk the plant and we walk the data. In 2024, we increased paid for digital customer connections to over 10,000 assets principally STS steam traps and heat exchangers across 1,000 customer sites. And in Watson Marlowe we successfully trialed our machine learning enabled Breidel connected pump in the wastewater sector predicting blockages in the fluid path. As an example of the return on investment, an international brewery customer asked us to help resolve significant steam loss. Typically customers complete steam trap surveys annually meaning failures remain undetected for long periods.

[Nimesh Patel, Group CEO at Spirax Group]

Through our EcoBolt steam trap monitoring, we see process performance and energy consumption and detect failures in critical operations. Every failed trap costs over £3,000 in energy lost and 13 tons in CO2 emissions over a year and we were able to replace those traps within weeks growing our MRO sales. So you see how we've become even more knowledgeable on our customers processes, increase the frequency of engagement and thereby are able to anticipate their needs. Our work with this customer has also led to additional solution sales beyond these steam traps. Turning to the progress we're making on our decarbonization opportunity, which is delivered by combining complementary expertise from STS and ETS to significantly expand our addressable market.

[Nimesh Patel, Group CEO at Spirax Group]

The focus of our investment here is on technology and capability. During 2024, we continued to refine our proprietary technology to decarbonize the generation of steam through electrification and ETS technology, launching additional pilots. And we expanded our solutions portfolio with an investment in emerging technology, high temperature heat pumps to generate steam. We also made good progress in developing new resistive heating products that operate at higher voltages and higher temperatures. Similarly, we finalized the design of our decarbonization operating model, which you will recall is a critical first step in ensuring we have the appropriate resources and structures in place to leverage our STS and ETS resources effectively.

[Nimesh Patel, Group CEO at Spirax Group]

In 2025, in both digital and decarbonization, we will continue with our proof of concept pilots. Now, bringing everything together, I would summarize our performance in 2024 as follows. We met considerable external macroeconomic headwinds that were facing us by focusing on the controllables to deliver organic growth well ahead of IP with margins in all three of our businesses in line with our expectations. We are a new leadership team that has come together well, developing our growth strategy, setting our financial objectives and aligning the organization behind our operational and investment priorities. I'm proud of our colleagues who have risen to the challenge as reflected in the results, including delivering on our guidance for the second half of twenty twenty four, increasing manufacturing throughput in ETS, delivering growth well ahead of IP in SCS outside China and in Watson Marlow Process Industries.

[Nimesh Patel, Group CEO at Spirax Group]

And in the first part of twenty twenty five, we've taken early action on restructuring. I am confident that we have a clear and executable plan and the right team focused on delivering it. Turning to 2025, we're not expecting a meaningfully improved trading environment. And as I've said, we're taking a cautious view on outlook for IP. Against this backdrop, we're confident of making further good progress this year as we continue to focus on the controllables.

[Nimesh Patel, Group CEO at Spirax Group]

In 2025, we anticipate organic growth in group revenues consistent with that achieved in 2024 and well ahead of IP. And group adjusted operating profit margin to be ahead of the currency adjusted 19.6% margin in 2024, driving mid single digit organic growth in adjusted operating profit. Through our Together for Growth strategy, we're continuing to build the platform from which we will deliver on our medium term financial objectives and long term compounding organic growth at attractive margins, while also making progress in 2025. Thank you. We're happy to take your questions.

[Nimesh Patel, Group CEO at Spirax Group]

I'll start at the back. Jonathan?

[Jonathan Hurn, Stock Analyst at Barclays]

Yes. Good morning. Hi. It's Jonathan Herbn Park. So I just have three questions, if I may.

[Jonathan Hurn, Stock Analyst at Barclays]

Firstly, just on biopharma and apologies if I've missed it.

[Jonathan Hurn, Stock Analyst at Barclays]

But in

[Jonathan Hurn, Stock Analyst at Barclays]

terms of You

[Nimesh Patel, Group CEO at Spirax Group]

might have to hold the mic a little bit closer. Sorry.

[Jonathan Hurn, Stock Analyst at Barclays]

Can you

[Jonathan Hurn, Stock Analyst at Barclays]

hear me now? Is that better?

[Nimesh Patel, Group CEO at Spirax Group]

Yes. Just speak up.

[Jonathan Hurn, Stock Analyst at Barclays]

Yes. So firstly, the question was just on biopharma and apologies if I've missed that. But in terms of that order recovery that's coming through, can you just give us a feeling is that geared towards the aftermarket or is it geared towards the original equipment? And if it's geared towards that aftermarket, can we assume that we're going to see a mix effect in terms of the benefit to the margin from Watson Marlow going forward from that? That was the first one.

[Jonathan Hurn, Stock Analyst at Barclays]

The second one was just in terms of that new capacity you're putting on or putting in and holding in terms of that expenditure there. You're calling out is obviously a drag on the margin. Can you just give us a feel for how long that drag will sort of persist and essentially when does that facility to get to an acceptable level of capacity utilization? And then the third question was just on steam. Obviously, you're calling out China as being tough, but the other two areas outperforming.

[Jonathan Hurn, Stock Analyst at Barclays]

Can you just talk a little bit about U. S. Steam and what you're seeing there, maybe the growth rates? And obviously, within that, you're looking for a more of a direct sales approach relative to through distributors. Can you just give us an update about how that's coming through and what effects that's having, please?

[Jonathan Hurn, Stock Analyst at Barclays]

Thanks.

[Nimesh Patel, Group CEO at Spirax Group]

All right.

[Nimesh Patel, Group CEO at Spirax Group]

Thanks, Jonathan. I'll take the first and the third. And Louisa, maybe you take the second. So in terms of biopharma recovery, we're starting to see a recovery in new order intake across the board. Often the way to think about the leading indicators in the biopharma space is look at the long lead time items that are necessary for capacity expansion.

[Nimesh Patel, Group CEO at Spirax Group]

So quite often you'll see that in our Flexicon systems that are shipped out of Europe. And we're starting to see a higher level of inquiries for those products largely often in fill and finish in biopharm, because there's a kind of a twelve month, eighteen month timeline lead time for delivery of those systems. So we're seeing that pick up. We're seeing demand for pumps picking up and that's quite often the second lead indicator, which is a little bit nearer term. You don't have to put those orders in so far in advance, but it's a good indication of higher activity in customer sites and probably some existing footprint expansion of capacity.

[Nimesh Patel, Group CEO at Spirax Group]

And then the third area we look at is consumables, as you described Jonathan, which is about the extent to which those prices are running at full capacity and people are starting to churn through single use tubing, for example, or replacing pump heads. We are seeing a pickup in all three of those areas. Okay. So we're starting to see that biopharm order intake reflect what we always expected, which is this really strong underlying growth that remains in the sector. We're particularly seeing the pickup in end user customers.

[Nimesh Patel, Group CEO at Spirax Group]

I know there's a lot of disclosure from the larger OEMs, which you'll naturally be very focused on and looking at. Demand from the larger OEMs is more volatile. It is also more geared to capacity expansion quite often than our business. And we saw a lot of month on month volatility in large OEMs last year, but we are seeing order pickup in large OEM demand as well. So it is across the board, but it is going to take some time for those orders to recover back to where they were off a low base.

[Nimesh Patel, Group CEO at Spirax Group]

And that's why we've always guided to a more gradual recovery in biopharm. And that's what we continue to stand by. Do you want to take the Ogden point?

[Louisa Burdett, CFO at Spirax Group]

Yes, sure. Just a reminder that that plant should be coming online sort of around July year. The order demand continues to be strong. We're not going to talk about how much of that cover is there, but it's a positive trend. So we think, Jonathan, it will probably be tempering the margins through twenty six percent.

[Louisa Burdett, CFO at Spirax Group]

Don't forget that one of the key drivers of getting to our 20% margin for ETF by 2027 is that throughput and productivity and the volume leverage from those assets. So it will take a bit of time for them to get used to that new facility, but we're really encouraged by what we're calling our end to end quote to cash sort of revitalized process. We've got the teams actually looking at everything from the point at which the customer takes gets the quote right the way through to when we collect cash, which hasn't been our best performance at Ogden in the past. And actually that should mean that as we bring new stuff in the flow should get better and we'll have less bumps along the way.

[Nimesh Patel, Group CEO at Spirax Group]

Okay. And third question, so you're right, in The U. S, we have been looking to drive demand more directly with our customers. Now I'm going to introduce a nuance here. There is a difference between direct sales and driving direct demand.

[Nimesh Patel, Group CEO at Spirax Group]

And I'll explain what I mean by that. So we have a number of strategic distribution partners in The U. S. With whom we work very closely to visit the end customer. And what we do through that is bring our solution selling to bear.

[Nimesh Patel, Group CEO at Spirax Group]

So we walk the plant, we identify the opportunities, we help the customers understand how they can optimize their processes. How they then place those orders, I think we can afford to be more relaxed about. They want to place them through the distributor because it makes sense for them to do so. I think that's okay. And where we have those strategic relationships with distributors, we are thinking about how we share the value that is generated because they are introducing the customer, we are bringing expertise.

[Nimesh Patel, Group CEO at Spirax Group]

So there is value on both sides. This is about growing the pie rather than sharing an increasingly smaller pie in different proportions? How do we grow the total size of the pie? What I think is brilliant about what is happening in The U. S.

[Nimesh Patel, Group CEO at Spirax Group]

And we've particularly accelerated this journey over the course of 2024 also under new leadership in The U. S. Business is that we are now looking at co generation. So both direct sales and working with those distributors in the way I just described, that is around about half of the total sales in The U. S.

[Nimesh Patel, Group CEO at Spirax Group]

So remember direct was about 30% as in direct sales. Now cogeneration added to that gets us to a total of about 50%. And we're going to continue to I think grow that part of the business as we build more of the strategic distribution relationships. Remember, critical processes. Our customers need to be able to get hold of products quickly.

[Nimesh Patel, Group CEO at Spirax Group]

If they can't, they won't use our products. So distribution is good because it helps us hold that inventory around a country as large as The USA. And the output of that is we've seen really strong growth in The Americas in STS and particularly in The U. S. And we expect that to continue.

[Nimesh Patel, Group CEO at Spirax Group]

Thank you. Andy?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Good morning, both. It's Andrew Douglas from Jefferies. A few questions, please. Can we start with SDS in China? I'm just trying to plot a path going China in SDS back to positive territory.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

It looks to me like the China declines accelerated in the second half. It looks to me like OE was down about 25%. So are we expecting MRO to catch up in terms of the growth rates to offset that? Or are we expecting the OE declines to slow or a bit of both? And what does that mean for timing in terms of China?

[Andrew Douglas, Managing Director at Jefferies Financial Group]

I'll do our time.

[Nimesh Patel, Group CEO at Spirax Group]

Okay. That's very helpful. Thank you. So I'll start on China and Louisa you add. So the first thing to bear in mind, as I said earlier, is that the expand and refurbished demand is about 60%.

[Nimesh Patel, Group CEO at Spirax Group]

That's the bit that we're seeing the contraction in. So it's going to take time to rebalance MRO and expand and refurbish. We're expecting we saw double digit growth in MRO last year. We're expecting it again this year. So that will help bring those two into balance probably during the course of 2026.

[Nimesh Patel, Group CEO at Spirax Group]

Okay. The second thing is MRO will continue to grow as we build that platform and that muscle in China. But the other thing that will happen is expand and refurbish will start to will start to stabilize and flatten out and probably get back to growth at a point. So when you put all of that together, that's what gets us back to growth in China. Not ready to tell you exactly when that will be, but you get a sense of we're feeling a bit more optimistic about '26.

[Nimesh Patel, Group CEO at Spirax Group]

The other thing I'd say, which we didn't mention before is that we have taken cost action in China. So we have addressed the cost base, but making sure that we are reallocating resources towards MRO, that's number one. And number two, just a reminder, MRO margins are higher than expand and refurbish margins. So from a profitability perspective, this is healthy for our business.

[Louisa Burdett, CFO at Spirax Group]

Nothing to add.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Second question is on ERP. I appreciate that this is a big thing and you go ahead and take it sensibly. But is a common approach across the three businesses actually appropriate given the three businesses are different? And can you just give us a rough approximation of the cost of this whole ERP system over the next however many years it's going to take? Because it feels to me like it's going to be a big number.

[Nimesh Patel, Group CEO at Spirax Group]

So I'll ask Louis to take that question, but just as a bit of context, you remember at the Capital Markets Day, I talked about how our organizational structure helps us with ERP implementation. So I just want to say again, so everybody's clear. For me, ERP is not everything everywhere all at once. We don't need to because of the nature of our organization. You saw what we just did with Thermocoax France, okay, delivered successfully minimal disruption and at a reasonable cost within one of our businesses.

[Nimesh Patel, Group CEO at Spirax Group]

We didn't have to do ThermoCoax as a whole. We didn't have to do ETS as a whole. We didn't have to implement across the group as a whole. Because we can do that, we can spread the cost and we can spread the risk, the impact on our operations of implementing ERP over a long period of time. In all honesty, the way I think about ERP is that it is an ongoing cost of doing business, not a large one off project and we'll have a cost every year for ERP.

[Nimesh Patel, Group CEO at Spirax Group]

And you know what, when we get to the end of this one, we'll probably start again at the back end because it will be time to update systems again. And it's also generating returns. For example, from what we can what we've done now at ThermoCoax, we will drive increased productivity and efficiency from that facility as well. So that's how we'll get the returns as we go. Do you want to talk a bit about the global common design, Louise?

[Louisa Burdett, CFO at Spirax Group]

Look, so first of all, I would say that you talked about appropriateness. We think this gives us maximum optionality and it's not just about the business model, it's about common security and sort of common data environments, which give us some more flexibility. But if we think about the approach for each of the businesses, we really are trying to well, this is not about our systems, this is about how we do work, this is about changing the way we work, that's where the benefit comes. So standard functionality, standard ways of paying invoices, all of that stuff, that's a no brainer. And actually pushing into manufacturing, there are lots of companies that do manufacturing with standard out of the box ERP things.

[Louisa Burdett, CFO at Spirax Group]

We are no more complex than other companies. So we are really pushing ourselves to be where do we really need to be different. So we will respect where we need to be different, but we are taking quite a hard edge on maximizing the returns from what will be a big number. You're probably in the three digit million type environment. But to Nimesh's point, we are spreading that so that we are minimizing risk and minimizing capital expenditure.

[Louisa Burdett, CFO at Spirax Group]

But I can't emphasize enough the appropriateness comes from us getting sort of more balanced about how we do things in a similar way rather than their system.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

And those costs are below line?

[Louisa Burdett, CFO at Spirax Group]

Well, at the moment, well, our common design costs for 2025 will be on CapEx. And the contract will determine where we put them, but at the moment it's in the CapEx numbers.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

And then last one for me and then I'll come back.

[Nimesh Patel, Group CEO at Spirax Group]

Just to add to that, sorry, just put everyone at ease. Those costs already factored into our CapEx guidance and to our cash conversion guidance that we gave at the Capital Markets Day.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Okay, cool. And then just in terms of costs going back in, you talked about $15,000,000 to $20,000,000 is that the overall number or do we have more going back in $26,000,000 I appreciate as volume recovers you'll put cost back in, but this is more of a specific cost number. That's it. And I'll come back.

[Louisa Burdett, CFO at Spirax Group]

So the investments going back in. So we are broadly balancing the investments as the operational improvements come out across the areas that we've talked about today, digital sales engineer effectiveness, target zero, decarb and operational improvements. So they will they would broadly be in balance, they're not going to be perfectly in balance. You saw from the medium term bridge, it's 150 bps over the medium term savings with 100 bps back to investment. And we'll get some different we'll get some different balances.

[Louisa Burdett, CFO at Spirax Group]

We've got a bit more of the benefits staying in steam in the short term. So broadly, I would say one to one, but from a modeling perspective in the short term, it doesn't

[Nimesh Patel, Group CEO at Spirax Group]

I think Andy is asking about the comp. You said $15,000,000 to $20,000,000 you're talking about the variable comp coming back in.

[Andrew Douglas, Managing Director at Jefferies Financial Group]

Yes.

[Louisa Burdett, CFO at Spirax Group]

Oh, I'm sorry. I thought you said $15,000,000 I thought you said $15,000,000 investment. I'm sorry. I thought you said $15,000,000 investment. I'm asking a question.

[Louisa Burdett, CFO at Spirax Group]

What is it for?

[Nimesh Patel, Group CEO at Spirax Group]

Is that

[Nimesh Patel, Group CEO at Spirax Group]

helpful anyway?

[Louisa Burdett, CFO at Spirax Group]

Sorry, can you repeat the question? 15 to 26

[Jonathan Hurn, Stock Analyst at Barclays]

as well or Yes,

[Louisa Burdett, CFO at Spirax Group]

it will be in the base. So essentially I see this as you've got that variable cost coming back and then you've got the procurement savings in the base to cover it.

[Nimesh Patel, Group CEO at Spirax Group]

Lush? Not listening.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

Good morning, guys. Lush, Mohanarajah from JP. I think I've got two or three. The first is just on ETF and sort of in Chromelox in particular, you just talked about the backlog coming down 20% in the year. I guess I don't know how you sort of define it, but how much further has that got to come down to get sort of normalized levels, whatever normalized it is?

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

And I guess how much of that is in your sort of mid to high single digit guidance for ETS growth? I. E. Is that guidance just underpinned by the ChromaLoc backlog coming down and there's not really much in there for semis or sort of underlying growth. Yes, that's the first question.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

And I presume Ogden will help absorb some of that as well. So take them one at a time.

[Nimesh Patel, Group CEO at Spirax Group]

Okay, sure. So thanks for the question. So we are driving a reduction in the overdue backlog in particular and therefore bringing our backlog closer towards a more normalized level. But a backlog or an order book is a function of two things. It's a function of order intake, new order intake, the level of demand that exists as well as the pace at which we ship.

[Nimesh Patel, Group CEO at Spirax Group]

The other thing we're seeing here is really strong order intake, right, driven by the drive towards electrification that we've been talking about for a while now. So I'm not worried about a lack of demand being able to continue to drive ETS growth. Okay. That's not the thing that keeps me up at night or keeps any of the team up at night. In terms of what's driving the ETS forecast for 2025, it is that operational improvement.

[Nimesh Patel, Group CEO at Spirax Group]

We have put less weight on the semicon recovery. We have seen that in the fourth quarter of last year picking up in terms of orders. I dare say we will continue to see I hope we will continue to see a recovery, further recovery in semicon orders during the course of this year. Of course, a bit like biopharm, it's coming off a low base, but we're not overly reliant on that to deliver our guidance.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

Thank you. And the second one is just a follow-up on ERP. In the ETS statement, you talk about the implementation in ThermoCradics in France, been a bit of a margin headwind in the year. I guess exactly what was that, that's just disruption from switch to ERP? And then how should we think about that as you roll it out to sort of bigger sites and across the division?

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

Is that a headwind we need to factor in and sort of the phasing on that?

[Louisa Burdett, CFO at Spirax Group]

So the point is that we put ERP and ThermoCoax one instance, one site, normal sort of level of cost for that type of implementation. We have called it out as one of the dampness to margin in 2024 in equipment heating. But it's small beer, it's enough to be noticeable, but it's the law of small numbers. So as you roll that into 2025, it's mostly the CapEx and the depreciation that will be coming back into 2025 for ThermoCoax.

[Nimesh Patel, Group CEO at Spirax Group]

So it's not so just to be clear, it's not production disruption.

[Louisa Burdett, CFO at Spirax Group]

No.

[Nimesh Patel, Group CEO at Spirax Group]

It's just the cost of implementing ERP that impacted margin.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

But that sort of baked into your sort of investment guide.

[Louisa Burdett, CFO at Spirax Group]

It is.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

Okay. Yes. Thank you. And then just thirdly on SDS, I think you talked about maybe pricing normalizing a bit this year just given sort of the levels we've been at recently. I guess when you talk about is that sort of back to the sort of 3% you talked about the CMD in terms of the historic pricing?

[Nimesh Patel, Group CEO at Spirax Group]

I'll answer the question. Your question is, when did we increase prices by?

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

In 2025, I think you sort of talked about SDS pricing maybe normalizing a little bit. Is that sort of back to 3% you've done historically?

[Nimesh Patel, Group CEO at Spirax Group]

Back in line with our weighted average cost inflation, yes.

[Lushanthan Mahendrarajah, Analyst at JP Morgan]

Okay. Thank you.

[Nimesh Patel, Group CEO at Spirax Group]

No problem. Should I come to the where's the microphone? You've got it. Well, should we go to Maggie and then pass the microphone to the front? Thank you.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

Thank

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

you. Maggie Schooley from Redburn. I just one question. In ETS and the order book you called out that you had some repricing for inflation this year as you had to take it down. You weren't able to replace for inflation.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

And given the length of that order book, do you anticipate any further challenges on repricing portions of that order book? Or do you think that's cycled out? And just how we should think about this this year? And is that already factored into your margin guidance?

[Nimesh Patel, Group CEO at Spirax Group]

Yes. Okay. So factored into our margin guidance, number one. Number two, you're right for orders that were overdue, can't go back to the customer and reprice for the inflation. And so we've been shipping against those orders.

[Nimesh Patel, Group CEO at Spirax Group]

That's why you see less of the impact than you might expect on very high growth, but in terms of margin improvement. We will we've got some more to go during the course of 2025, but obviously it's declining over time.

[Margaret Schooley, Equity Research Analyst at Redburn Atlantic]

And then just lastly, sorry, you've talked a lot about digital and digital driving growth. Can you give us a little bit of color on what you've seen at least as we've entered the first half of the year about that rollout of digital and how it's galvanizing orders or is it not, is it still taking a long time? So how we should think about that as a leader in getting your order growth?

[Nimesh Patel, Group CEO at Spirax Group]

So good question. Digital is driving growth and we expect it to drive even higher growth in 2025 in Steam. But when we talk about outside China, we've got that specific headwind that Andy asked about earlier. Outside China, we're looking at in Steam 4% growth, right, in an IP environment where 0.8%. How do we achieve that huge outperformance versus IP in a difficult environment when we're in every country, in every sector around the world, we're not immune from IP.

[Nimesh Patel, Group CEO at Spirax Group]

And the answer is through things like that, through things like being better engaged with our customers, better serving their needs, delivering the solutions. That's how we do it. Digital is a tool that helps us do that. And in digital, what we see is we see one, we see revenue from the paid for connections, but that's small. What we really see is the product pull through like the example I gave around MRO.

[Nimesh Patel, Group CEO at Spirax Group]

So we are seeing digital help drive our growth. What we're able to do when we really scale up those digital platforms that we have add further connected products and across our three businesses will be even greater than what we're already achieving. Thank you. Mark's been very patient. I'll pass it down here and then we'll go across the row.

[Nimesh Patel, Group CEO at Spirax Group]

Thank you, Mark.

[Mark Davies Jones, MD - Industrials at Stifel Financial]

Thank you very much. Broad one then slightly more specific. Obviously, we live in interesting times. U.

[Mark Davies Jones, MD - Industrials at Stifel Financial]

S. Trade policy seems to be made up every morning and changed by tea time. So I fully understand why you can't give us an idea on tariffs. But presumably, what this is doing is impacting your customers' CapEx decisions and their ability to decide where to invest. So are you seeing any of that on the CapEx end of the business?

[Mark Davies Jones, MD - Industrials at Stifel Financial]

And I guess the specific bit is you called out South Korea as a new area of weakness. Is that because that's another like China more CapEx focused market for steam?

[Nimesh Patel, Group CEO at Spirax Group]

Okay. So yes, there is a high level of uncertainty and it's evolving every day. We are seeing an impact on our customers' decision making processes.

[Nimesh Patel, Group CEO at Spirax Group]

At the moment, what we're seeing, I would characterize probably as deferred decision making, no surprise there, while they wait to see how, some of these conversations play out on the global stage. That is unhelpful. It's unhelpful to the IP outlook. It is unhelpful as a driver of our business. But I'd also remind you that if you look at our business overall, we're about 15% from customer CapEx budgets, 85% from OpEx budgets.

[Nimesh Patel, Group CEO at Spirax Group]

So one of the advantages we have is that even when customers are saying, okay, we might hold off on making the CapEx decision, we still need to drive either cost efficiencies or more throughput in our existing footprint. We can help them with both of those. So that's where we're focusing our efforts. So what I talked about as happening in MRO in China, it's actually happening across the steam business to make sure that we are leveraging digital, that we are identifying the MRO opportunities, that we are driving growth in MRO and that we are bringing our solution mindset to MRO as well, much in the way described with that international brewing customer. In terms of South Korea, it was December when I turned on the TV and I saw what was happening in Korea and we spoke to our teams locally and tried to get our arms around very quickly the impact there.

[Nimesh Patel, Group CEO at Spirax Group]

The Korean business is interesting for us because there's a very strong EPC presence in Korea that serves not only Korean industry, but actually globally as well other customers. So the impact on Korea is a function of the impact of CapEx. It's a function of their global support, particularly oil and gas in The Middle East. And then it's a function of what's happening domestically. It's different to China, right.

[Nimesh Patel, Group CEO at Spirax Group]

It's not as heavily weighted as China, but we will see an impact in Korea as a result of political instability locally and then probably more broadly because of the CapEx impacts that's built into our guidance.

[Rory Smith, Senior Analyst at Oxcap Analytics]

Hi, it's Rory from OXCap. Thanks for taking my questions. I've got two on margins and Louis, it might be the one that you were wanting to answer previously. If we look at that $35,000,000 of restructuring going on 40% roughly you think this year, would you be willing to put a number to 2026 and 2027 how that phases out? And is that 100% for reinvestment?

[Rory Smith, Senior Analyst at Oxcap Analytics]

Or is there any kind of hockey stick on margins to come from that? And I'll pause there.

[Louisa Burdett, CFO at Spirax Group]

So thank you for giving me an opportunity to answer the question. I wasn't asked first of all. So we said 40% of the 35% this year broadly, the rest of it comes through next year. There's a little bit of stuff coming through later which are associated with some of the longer dated manufacturing actions, but as a rule of thumb, it's fortysixty. In terms of our investments, again, broad brush over the medium term, 150 bps out, 100 bps back, timing of which depends on where we think we need to be most agile to drive the most return.

[Louisa Burdett, CFO at Spirax Group]

But as again, as a principle, there are some things we're trying to front load. Nimesh has talked about digital sales engineers needing a couple of years to get up to full effectiveness. So we've got off the blocks quickly with the restructuring. We'll appreciate that we don't want to give a year by year pattern of exactly where we're going to invest. We'd like to retain that agility.

[Nimesh Patel, Group CEO at Spirax Group]

And just bear in mind, the medium term guidance that we've given is our way of trying to look through some of that year on year volatility. So we will get to over the medium term 22% to 23% margin. So immediately it gives you a sense of where we might be in 2026. We're not going to be at that target. We're going to be below that target, but we're going to make progress towards it, right?

[Nimesh Patel, Group CEO at Spirax Group]

And the same, we've given you guidance around the growth we expect in all of our businesses as well.

[Rory Smith, Senior Analyst at Oxcap Analytics]

Understood.

[Rory Smith, Senior Analyst at Oxcap Analytics]

Thank you. It sounds like 2027 maybe is a year of improvement. But just on that and within ETS, you've talked about the second half ramping of the medium voltage new facility that's coming online as well as the increased throughput in the low voltage stuff. How much of that medium voltage order book was done under the old regime when we talk about quote to cash and the sort of changes that you've put in there? I do you have visibility on the margins in the order book for that medium voltage piece?

[Rory Smith, Senior Analyst at Oxcap Analytics]

I guess the question there is, can we expect linear improvement in ETS margins or will it be lumpy towards that 20% in 2027 target?

[Louisa Burdett, CFO at Spirax Group]

I think I would say most of that order book was done from old regime, but of course there's transition. Look, the team used the phrase that 2025, particularly the second half because Nimesh only made the management changes early in the second half. It was about being effective and '25 and '26 is efficiency and profitability. So we that's we'll see more, but we do have some things that I'd just like you to caution on. I've talked about Rocky Mountain, you know, the volume leverage.

[Louisa Burdett, CFO at Spirax Group]

Sorry, I've done that again. They knew Austin, that's not the project name for it.

[Nimesh Patel, Group CEO at Spirax Group]

That's the mountain in the

[Nimesh Patel, Group CEO at Spirax Group]

Rocky Mountain.

[Louisa Burdett, CFO at Spirax Group]

But also, just while I've got the floor, we did exit 15% growth in ETF as a whole, obviously underpinned by process heating efficiency and that uptick in semicon. But actually the comps in 2023, the Cromwellox facility was not performing as it should in 2023. So you've got a bit of an uptick in that growth rate. So that's why we're guiding high to mid to high single digits rather than a continuation of the 15%. So I just encourage you to think about that.

[Rory Smith, Senior Analyst at Oxcap Analytics]

Thanks for taking my questions.

[Nimesh Patel, Group CEO at Spirax Group]

Thank you.

[Mark Fielding, Analyst at RBC Capital Markets]

Mark Hilling, RBC. Just actually a slight follow-up on the brief answer to Lush's question on pricing and steam. And just I suppose steam at a parent level had a very low organic drop through on growth last year. Is that just because actually also organically sales are up, volumes were down in the year? And because I'm assuming pricing was more than 1%, but maybe not.

[Mark Fielding, Analyst at RBC Capital Markets]

And then how do we think about that price volume mix for steam in 2025 as well with that sort of low single digit growth? Does that mean pretty flat volumes again in steam?

[Nimesh Patel, Group CEO at Spirax Group]

Yes. Thanks, Mark. Sorry, so a couple of things happening in steam. So why was the drop through lower in 2024? Number one, as we both said that the temporary cost containments that were put in place in 2023, we reversed in 2024.

[Nimesh Patel, Group CEO at Spirax Group]

So for example, investing more in future growth, building on our sales capability, all of those things happened in 2024. So you're seeing that effect reducing the growth. What we're essentially calling now with variable comp is a further effect in 2025. The second thing is, I think you're right, if you look at the business overall, when you look at the price volume balance, because we've got 1% overall growth for steam, you would reach the conclusion that volume is down and that's not unfair. However, you've got to strip China out of that because in China volume is down for the reasons that we've explained.

[Nimesh Patel, Group CEO at Spirax Group]

So then you've got to look at the 4% excluding China. So then you'll see volumes are actually up.

[Mark Fielding, Analyst at RBC Capital Markets]

And then taking out the other side of it in terms of Guatemala where apparently organic drops grew very strong and

[Mark Fielding, Analyst at RBC Capital Markets]

it feels correct me

[Mark Fielding, Analyst at RBC Capital Markets]

if I'm wrong that that 30% plus margin target is more about operating leverage probably than the other bits of the business. Historically, that was actually pre COVID pretty consistently more at 32%, thirty four % type margin. Is there any structural reason in your mind that the business has changed since then? Is it just a case of we're just waiting for leverage on growth? And in that context, what is a normal drop through level for that business?

[Nimesh Patel, Group CEO at Spirax Group]

Okay. So it's a high margin business, so you're right. The drop throughs are higher. And as you would imagine in a few years where we've seen weaker demand from biopharma and expected the weakness to continue for a little while, we have addressed the cost base already. So it is now highly geared towards sales growth.

[Nimesh Patel, Group CEO at Spirax Group]

The margin is highly geared towards sales growth. Our target is that 30% getting back to 30% in Watson Marlowe. Why is that the right target? It's not so much that anything is structurally changed in the business, but we did invest a large amount of capital in going all the way back, a new plant for AFlex in Huddersfield, a new plant for BioPure in Portsmouth, a new plant for The U. S.

[Nimesh Patel, Group CEO at Spirax Group]

In the shape of Devon's. And what comes with that is the additional depreciation on all of those investments, whereas the previous plants were old, had been there for a long time, very low depreciation costs. That's also impacting the margin. So we're comfortable with the guidance that we've given getting back to 30%.

[Mark Fielding, Analyst at RBC Capital Markets]

And a really small question. Just in terms of that now 40,000,000 central costs, do you think that's a sort of stable level for the future now in terms of that specific line or does it move around with some of these other factors?

[Louisa Burdett, CFO at Spirax Group]

I think yes, it might move around at the edges, but I think it's fair. I don't want to give guidance for '26 and '27, but I think the uptick is because we're sort of nurturing some of the central investments, particularly digital, whilst they're in that sort of first phase. We talked about MIM at the Capital Markets Day. So we'll probably see some of that early stage investment being carried to corporate. Yes.

[Nimesh Patel, Group CEO at Spirax Group]

So what we mean by together for growth, you can do these things much more efficiently different ways. You get better people, you can leverage that expertise in a better way, you can build common platforms and not have to build three platforms. So we'll figure out what we do at the center versus what happens in the business. But that's what you're seeing is driving the increase in the central costs. Thanks.

[Nimesh Patel, Group CEO at Spirax Group]

Just behind you.

[Martin Wilkie, Research Analyst at Citigroup]

Thank you. Martin Milke from Citi. A couple of questions on demand in a couple of areas. You've obviously got exposure to traditional energy markets, both oil and gas and power gen and also in decarbonization. Given what's happening in The U.

[Martin Wilkie, Research Analyst at Citigroup]

S, but even perhaps in other areas, is that mix changing for you? Are you sensing that investments in traditional energy areas as whether it's in gas or traditional power gen in The U. S. Is seeing lifetime extensions or expansion? Is that incrementally positive for you?

[Martin Wilkie, Research Analyst at Citigroup]

But on the flip side, our customer conversation on decarbonization becoming more difficult. I mean, again, probably most U. S. Centric, but just keen to hear how you're seeing that.

[Nimesh Patel, Group CEO at Spirax Group]

Yes. Great question. So roughly about six percent of our group sales is probably oil and gas, and that's good exposure to have. And we are seeing growth in that space as a result of some of the conversations that are happening around the world. Equally, specifically decarb related business is quite small and we've still got many, many customers, particularly in Europe, but also in The U.

[Nimesh Patel, Group CEO at Spirax Group]

S. Who are committed to delivering on the targets that they've set out some time ago and are thinking about how they do that using our products, using our expertise. And so we are seeing strong interest in our solutions, a building pipeline of opportunities and good growth in our order intake in that space as well. So at the moment, we seem to be doing well on both sides. The other thing I'd say is and something to bear in mind around decarbonization.

[Nimesh Patel, Group CEO at Spirax Group]

There are different reasons people make the decarbonization decisions. Sometimes it's because they want to achieve their sustainability goals. But when you're more efficient with your energy use, you also save money. So there is an efficiency driver to make the decarbonization investments as well. So I don't think this is binary, right.

[Nimesh Patel, Group CEO at Spirax Group]

We want to do decarbonization, we don't. Actually, it's just another way of looking at efficiency. We want to be more efficient with our energy. How do we do that? Thank you.

[Nimesh Patel, Group CEO at Spirax Group]

Any other questions? Excellent. Sorry, we'll go to the phones.

[Executive]

We've got one online, which

[Executive]

is on capital allocation. Can you just remind us of your capital allocation priorities in the context of your dividend and deleveraging ambitions?

[Nimesh Patel, Group CEO at Spirax Group]

Louisa, do you want to take that?

[Louisa Burdett, CFO at Spirax Group]

So primary focus is organic growth, progressive dividend. We are still keen on bolt on M and A where it makes sense for our product portfolio and then other returns to shareholders. Just on deleveraging, we're really pleased with the fact that net debt has gone down. We're at 1.6 times EBITDA, 1.7 times last year. We did well on working capital.

[Louisa Burdett, CFO at Spirax Group]

We had a small working capital inflow this year. The team did really well on inventory. We will continue that focus. It might be difficult to do some large deleveraging in this year 2025 because we've got to absorb the restructuring costs. But we see potential for that in 2026 and 2027 as we start to grow the margin again.

[Louisa Burdett, CFO at Spirax Group]

But the team really focused on working capital and some of the restructuring that we're doing where we've talked about sort of clustering opcos will mean we don't have to have stock in as many places. So hopefully that has some additional benefits as well.

[Nimesh Patel, Group CEO at Spirax Group]

Good. Thank you. Thanks, Matt. So if there are no other questions, thank you for joining us today. Really appreciate it.

[Nimesh Patel, Group CEO at Spirax Group]

Thank you for everyone on the webcast as well. We look forward to speaking to you all in the coming weeks and months. Thank you.

Participants

Analysts

• Nimesh Patel, Group CEO at Spirax Group
• Louisa Burdett, CFO at Spirax Group
• Jonathan Hurn, Stock Analyst at Barclays
• Andrew Douglas, Managing Director at Jefferies Financial Group
• Lushanthan Mahendrarajah, Analyst at JP Morgan
• Margaret Schooley, Equity Research Analyst at Redburn Atlantic
• Mark Davies Jones, MD - Industrials at Stifel Financial
• Rory Smith, Senior Analyst at Oxcap Analytics
• Mark Fielding, Analyst at RBC Capital Markets
• Martin Wilkie, Research Analyst at Citigroup
• Executive