Spirax-Sarco Engineering plc

is waiting for the queue. Hello, and thank you for joining us for this presentation of Sparex 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 three businesses delivered growth and improved margins. Group margin was 20%, up 30 basis points, as we maintained pricing and cost discipline, and managed 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 SCS, 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 solution 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 two years, During 2025, strong demand across all three ETS divisions, combined with these operational gains, has driven 11% sales growth and further margin improvement. In Watson Marlowe, 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 Marlowe's 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 annualised savings significantly ahead of where we had planned, at £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 Fed wins. 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 US 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 two 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 for 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 USA 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 emphasising. By leveraging our direct sales model through focusing on increased customer facing time, sector specialisation 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 IEP, 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 £40 million cost of our restructuring project, which was undertaken this year. The reconciliation between statutory and adjusted operating profits was in the appendix of your pack. And as usual, our definition of organic growth excludes the effect of currency movements on sales and profits and the impact of any M&A. Thank you. The effective 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 three businesses, but particularly by ETS and Watson Marlowe. Operating profit grew 6%. and operating margin of 20% was 30 bits higher organically. Our net financing costs of £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 centralisation 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 296.3 pence per share was 3% higher, and the full-year dividend of 170 pence 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 at 5%, with currency movements having a negative impact of 37 million pounds 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 the mesh, if we adjust for these large projects in China and Korea, the rest of steam grew 3%. In ETS, four-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 Marlowe grew 6% organically. As expected, our biofarm 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 three businesses delivered higher margins, currency movements had a negative impact of £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 programme. And as a result, the operating margin in steam at 23.5% was 40 bits 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 bits 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 startup of the new medium voltage facility. However, the ETF margin increased progressively during the year with a stronger second half margin. Watson Marlowe delivered organic profit growth of 13% and a 160-bit 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 decarbonisation. 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 £564.7 million, which equates to 1.5 times EBITDA, and we comfortably meet all of the covenants of our external debt facilities. Nimesh and I have already mentioned the £40 million cost of our restructuring project, which has been charged to the statutory P&L. £7 million of this was in non-cash charges, and of the remaining £33 million, we spent £22 million of cash in 2025, with a balance of £11 million to be mostly spent in 2026. This restructuring programme will deliver annualised savings of £40 million, Approximately half of these savings were realised 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, systems development and our decarbonisation 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 Marlowe, 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 Marlowe is expected to support another good year of organic margin progress with a BIPs 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 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 Marlowe, 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 £40 million of annualised savings from our restructuring programme. We will invest most of this back into the business, and whilst this is not immediately accretive to margin in-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 SCS 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 solution selling in China. Our deep process knowledge is critical here, helping us deliver double-digit growth across a significant install space. 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 stabilise 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 Marlowe, 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 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 organisational 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 optimise 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 £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 SDS 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%. The driver of ETS growth in 2025 was establishing Heatrace 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 HeatTrace into a meaningful growth engine, delivering double-digit demand and sales growth in this attractive margin part of VTS. And finally, turning to Watson Marlowe, 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 USA. 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 Marlowe, we closed our higher-cost Alatea pump facility in Sweden and consolidated production in the UK. We also continued to transfer manufacturing to our USA 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 USA, 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 two 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 Marlowe, 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 margins. Let's now look at some examples of how we have sharpened our focus on commercial excellence, starting with STS in the USA. We reframed our approach to working with distributors in the USA that represent around 70% of local sales by thinking differently. We are working in partnership to co-generate 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 control 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 Marlowe 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 USA. 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 Marlowe and ETS as well. With our Connect enabled pump insights pilot in Watson Marlowe, we have shifted the 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 one-third of the total, with the earliest users freeing up around four 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 decarbonising thermal energy. We have four 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 multi-year growth opportunities, particularly as customers seek to modernise and decarbonise ageing 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 in tissue production. And second, we delivered a multi-site thermal energy assessment for a major food and beverage customer. Our cross-functional team identified annual energy savings of around 10% with an associated pull-through revenue opportunity for us of over £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 decarbonisation 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 three 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. 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 one times and one and a half times. Having started with our business model and explained how our strategy builds 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 ROSI. 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 two and two and a half times. 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 both 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 belt-ons, not building a fourth leg, that bring growth or 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 summarise 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 events, supporting the long-term compounding growth that our business model and strategy will deliver. Thank you. We're happy to take your questions. Go on, Andy. I'll come to you first.