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Edited Transcript of SPX.L earnings conference call or presentation 7-Aug-19 8:15am GMT

Half Year 2019 Spirax-Sarco Engineering PLC Earnings Presentation

Cheltenham Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Spirax-Sarco Engineering PLC earnings conference call or presentation Wednesday, August 7, 2019 at 8:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin James Boyd

Spirax-Sarco Engineering plc - CFO & Executive Director

* Nicholas J. Anderson

Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director

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Conference Call Participants

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* Andrew J. Wilson

JP Morgan Chase & Co, Research Division - Analyst

* David Alexander Larkam

Numis Securities Limited, Research Division - Analyst

* Mark Davies Jones

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Mark Lewis Fielding

RBC Capital Markets, LLC, Research Division - Analyst

* Matthew Spurr

Exane BNP Paribas, Research Division - Research Analyst

* Michael John Blogg

Investec Bank plc, Research Division - Capital Goods Analyst

* Robert John Davies

Morgan Stanley, Research Division - Equity Analyst

* William Turner

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [1]

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Okay. Good morning, everyone, and welcome. I'd also like to a welcome to those joining us on the audio webcast. I'm Nicholas Anderson, group Chief Executive -- oops, sorry. We have a problem here. This was not sent back. Okay. Start again.

Good morning, everyone, and welcome. I'd also like to extend a welcome to those who are joining us on the audio webcast. I'm Nicholas Anderson, group Chief Executive; and I'm joined here today by CFO Kevin Boyd. I will introduce the first half results. Kevin will explain some of the financial detail later, and I will then take you through the operations and outlook, maintaining the format you're already accustomed to. Following all of that, we will be happy to take questions from the room.

We are pleased to report strong organic sales growth of 8% in the first half of the year and organic operating profit growth of 4% with all 3 businesses delivering organic sales growth ahead of industrial production. Both Steam Specialties and Watson-Marlow businesses achieved strong organic sales growth and margin progression, reflecting the successful implementation of our strategy and its focus on self-generated growth. Chromalox also grew sales organically against a very tough comparison.

The only disappointment of this period was the profitability deterioration in Chromalox. So we have intensified work to improve its operational performance. Our original expectations for this business, however, remain unchanged. While the group's strong first half organic sales growth was ahead of our expectations, industrial production growth forecast for the second half of the year have weakened below our earlier estimates. As a result, our overall full year expectations remain unchanged.

And now, I'll hand you over to Kevin.

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Kevin James Boyd, Spirax-Sarco Engineering plc - CFO & Executive Director [2]

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Thanks, Nick, and good morning, everyone. As always, the numbers that we will be discussing today are the adjusted results. Adjusting items in the first half, which are shown in the appendix, relate to the amortization of acquired intangibles and acquisition-related items.

Both reported and organic sales grew by 8% with organic operating profit up 4%. As expected, the operating profit margin fell by 110 basis points to 21.9%. On an organic basis, that is at constant currency excluding HygroMatik which we disposed of in December last year and Thermocoax which we acquired in May, the margin fell by 70 bps. This was due to the decline in the Chromalox margin and increased central cost outweighing margin increases in Steam and Watson-Marlow. Net finance expenses reduced by GBP 0.5 million despite the inclusion of GBP 600,000 of IFRS 16 lease liability interest, and we anticipate the full year finance charge to be in the region of GBP 10 million. As previously signaled, the overall tax rate increased 190 basis points to 29% as a result of changes to our internal financing structures and the mix of adjusted profits. We anticipate a similar rate for the full year. Adjusted EPS of 120p is up 1% from the prior year, less than the increase in adjusted operating profit due to the increased tax rate, and the interim dividend has been increased by 10% to 32p. Net debt at the end of the half year was GBP 392 million, up from GBP 336 million at year-end due to the acquisition of Thermocoax.

Looking now to sales bridge. Our currency impacts were minimal in the half year, adding just GBP 2.4 million or 0.4%. In December 2018, we disposed of the noncore HygroMatik business. And this year, we acquired Thermocoax in May. The net effect of these 2 transactions was GBP 1.2 million less sales in the first half. Organic growth in the Steam Specialties business was an excellent 8% with all segments performing well, particularly Asia Pacific and the Americas. Watson-Marlow continues to perform very well with 11% organic growth in the first half. Chromalox continues to grow the top line with 2% organic growth in the half year, ahead of industrial production growth and against strong H1 last year.

Moving now to profit. This highlights the movement in adjusted operating profit for the half year. Exchange movements decreased profit by GBP 800,000, a decline of GBP 2.1 million due to translation countered by GBP 1.3 million boost from transaction. In the first half of 2018, HygroMatik contributed GBP 2.1 million. Since its acquisition in mid-May, Thermocoax added GBP 1 million, a net negative of GBP 1.1 million. The Steam Specialties division delivered GBP 7 million organic profit growth, although this year, without the benefit we saw in 2018 from the Argentine devaluation. Watson-Marlow continued to perform strongly, delivering GBP 4.5 million organic profit growth. Chromalox saw fallen profits at an organic level of GBP 4.1 million due to continued operational issues, particularly in Europe where losses increased by GBP 2.3 million. Nick will take you through more details in a minute, together with the remedial actions that we are taking. Skewing the effects of currency and acquisitions, we saw an improvement in operating profit of GBP 5.4 million or 4.4% in the half year.

This chart shows the adjusted operating profit by half year over a 10-year period with the margin in the first half represented by the blue columns. The solid bars show the reported margins for the period while the full bar show what the margin would have been excluding the 2 large acquisitions made in 2017 of Gestra and Chromalox. This year, we expect reported margins to return to the historical phasing, bumping higher in the second half. The reported margin in the first half 2019 decreased by 110 basis points to 20 point -- 21.9% due in part to the effects of FX and acquisition -- FX and acquisitions and disposals. If we strip these out, the organic margin fell by 70 basis points. In the Steam Specialties business, the reported margin reduced by 50 basis points to 22.9% due to currency and the disposal of the high-margin HygroMatik business. On an organic basis, the margin was up 20 bps. Watson-Marlow, the reported margin increased by 50 basis points helped by currency. On an organic basis, the margin was up 10 bps. In Chromalox, the reported margin fell by 500 basis points. On an organic basis, it was down 560 bps for the reasons I've mentioned earlier, and then Nick will expand on in a few minutes.

Turning now to cash. Operating profit, operating cash conversion is 71%, down from last year's 75% as a result of an increase in working capital due in part to planning for Brexit and an increase in capital expenditure as work on Aflex's new factory progresses. At constant currency, compared with June 2018, working capital as a percentage of sales actually decreased by 50 basis points to 24.4%. Capital spend grew 22%, reflecting in part the spend on the new Aflex facility. The traditional second half weaning of the capital expenditure will see an increase in the second half of the year with spend to the full year anticipated to be in the region of GBP 70 million. In May this year, we announced the completion of Thermocoax acquisition, which resulted in GBP 138 million outflow of cash in the period. We ended the half year with net debt of GBP 392 million, equivalent to 1.3x EBITDA. The group remains committed to maintaining strong balance sheet, and we expect the ratio of net debt to EBITDA to be in the region of 1x at the end of this year.

This last slide for me looks at the various factors that influence the operating profit. It shows that each item, whether it had a positive, negative or neutral effect on margin, in the first half of the year compared with H1 2018 and how we think that they will impact the second half of the year compared with H2 2018. You are very well familiar with this slide. I, however, remind you, the purpose of each arrow is to provide a purely directional indication of the effect. There's no intent to quantify the impact on margin of each factor.

As I said earlier, currency had little impact on H1. And if we project the end of June exchange rates to the end of the year, we do expect it to have similarly negligible impact on the second half of the year. That said, Brexit is sure to have an impact, but we've not tried to forecast it. And given the high level of transactional hedging in place, we would be unlikely to have a material effect on this margin in the second half. We continue to plan for organic growth and therefore operational gearing, but also planning for increased revenue investment to support business growth. We've seen manufacturing efficiencies in the Steam business and Watson-Marlow, but not in Chromalox in the first half. But we are planning for improvement in the second half. The impact of the acquisition and disposal in the first half is marginally negative, but we expect a small positive contribution in the second half as we have a full 6 months of the larger Thermocoax and lose only 5 months of HygroMatik. Overall, we anticipate a return to our more traditional phasing of higher margin in the second half and, thus, expectations remain that the full year margin will be similar -- a similar level to 2018 despite the absence of the higher-margin HygroMatik and last year's devaluation-driven profit boost from Argentina.

I'll now hand you over to Nick to take you through the operations and outlook. Thank you.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [3]

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Thank you, Kevin. Consistent with previous presentations, I will again cover 3 main themes with you today. First, I'll cover our markets and performance in the first half of 2019. Later, I will share 3 new customer case studies. And to end, I will summarize the key points of today's presentations and open for your questions.

You are already familiar with this graph that tracks the quarter evolution of annual industrial production growth rates that we refer to as IP. As you all know, IP is the best predictor of our markets. Today, I would like to highlight 3 observations. The first point to note is the global IP growth in 2018 was 3.1%, below the 3.3% anticipated at our results presentation in March, and this was driven by weaker-than-expected IP in the fourth quarter of last year. My second observation is that Oxford Economics is now forecasting a 1.6% global IP growth rate for 2019. This is a 100 basis points below the level they forecasted in March. And my final observation points to an apparent stabilization of global IP at the low level of growth of 1.6% for the remainder of this year. However, I would note that increased levels of uncertainty encountered globally bring a heightened degree of risk to those IP forecasts.

Starting our segmental analysis with the Steam Specialities Europe, Middle East and Africa, where organic sales were up 4% and operating profit was also up 4%. We experienced good organic sales growth in the U.K., Germany, Italy, the Middle East and South Africa with France also growing at above market rate. The integration of Gestra continues progressing well, and overall performance remains in line with our acquisition plan. During the first half of 2019, Gestra's revenue grew at a slower rate due to a very tough comparison with the first half of 2018, an industrial production contraction in Germany and a global weakness in the OEM market. Nevertheless, Gestra's profitability increased in this period due to improved price discipline and manufacturing efficiencies. The divestment of HygroMatik in November of 2018 reduced sales by GBP 7 million and profits by GBP 2.1 million in this geographic segment. As anticipated, reporting operating profit margins declined 60 basis points due to currency headwinds and the adverse effect of the divestment of the higher-margin HygroMatik business. Organic margins have remained unchanged. We remain well placed and confident of further progress in this region despite the market uncertainties.

In the Asia Pacific segment, organic sales were up 11% while operating profit was up 16% organically. All of this despite weakening industrial production growth rates in the region. China and Korea achieved double-digit sales growth as good business -- base business and increase of self-generated sales were boosted by a small number of large capital projects in the beginning of the year. Sales performance across the other markets of the region was mixed with growth in India and parts of Southeast Asia, but contractions in Japan and Australia. We continue to invest for growth in this region with a new Gestra sales company training in China since April in addition to a new and expanded sales and training facilities that opened in Thailand. Operating profit margins expanded by 160 basis points to 28.8% while, on an organic basis, trading margins improved by 130 basis points as it benefited from operational gearing, active price management strategies, increased self-generated projects and a higher proportion of locally manufactured products. We remain well placed to make further progress in this important region as we continue investing in implementation of our strategy despite increased macroeconomic uncertainties.

Turning now to the Americas, where overall organic sales were up 12% while operating profit was up 7% organically. Organic sales were up in North America with Spirax Sarco USA grew 6% organically, aided by a strong order book carried over from 2018. Despite IP contracting across many countries, Latin America achieved 26% organic sales growth as the region benefit from continued currency devaluation in Argentina that operates with U.S. dollar-denominated pricing. Brazil and Colombia performed strongly while Mexico and Argentina contracted in real terms due to the challenging market conditions. Gestra, that has a small presence in this region, enjoyed very strong organic growth while Hiter Controls, the Brazilian valve business acquired in July 2016, also had an excellent start to the year. Operating profit margin was down 350 basis points to 19.4% due mostly to strong currency headwinds. Organically, the margin was down 80 basis points. We remain well positioned across the Americas to achieve further progress in 2019 despite continued uncertainties and slowing industrial production growth rates.

In Chromalox, organic sales grew 2% compared to the strong first half of 2018, which grew 7%. The order book expanded by a strong 8% in the second quarter following a slower start to the year. Operating profit was down 37% organically as we continue to address a number of operational challenges exposed by last year's rapid growth. Losses in the European operations increased by GBP 2.3 million as manufacturing inefficiencies and lower throughput volumes were compounded by the shipment of lower-margin projects secured in 2018. The first half operating profit was also adversely impacted by the full effect of the 2018 revenue investments for growth and an GBP 800,000 restructuring charge in North America that will deliver annual benefits of GBP 2 million.

We're actively addressing this profit deterioration and have invested in a number of initiatives to improve operation -- improve the performance in the second half of this year. We're also developing improvement plans to return our European operations to profitability over the course of the next 2 years. Although the operating profit margin declined to 9.7% in the first half of the year, it is worth noting that the North American business, which accounts for 80% of Chromalox revenues, maintained margins above 20% even before the restructuring charges. We have strengthened the Chromalox leadership team to drive the delivery of these improvement initiatives, overcome the current operational challenges and ensure delivery of our strategic vision.

The acquisition of Thermocoax was completed on 13th of May with contributions from those 7 weeks, increasing Chromalox revenues by 8% in the first half of the year. We anticipate that a combination of improved operational efficiencies, increased operational gearing, benefits from the first half restructuring, improved pricing discipline and the addition of higher-margin Thermocoax will result in the full year operating profit margin being similar to that reported in 2018. We remain confident in our ability to improve the Chromalox performance and deliver sustainable, profitable growth. Therefore, our original expectations for this business remain unchanged.

Watson-Marlow's organic sales grew 11% with strong contributions from all geographic regions. A small exchange tailwind increased reported sales growth to 13%. Sales growth was very strong across the pharma and biotechnology sector that accounted for close to 45% of Watson-Marlow's global revenues. The option of single-use technologies is accelerating, and Watson-Marlow's product portfolio is well positioned to benefit from this industry trend. Growth was also very strong in the medical device and diagnostic sector that now represents over 6% of Watson-Marlow's sales. New sales companies started operating in Spain, Colombia and the Philippines while the recently opened sales companies in Ireland, Canada and the UAE continue performing strongly. Operating profit increased by 11% organically while currency tailwinds increased the reported profit growth to 14%. The reported operating profit margin increased 50 basis points to 31.6%. Organically, the operating profit margin was up 10 basis points as operational gearing and efficiency improvements modestly outpaced revenue investments for growth. This construction of Aflex Hose's new purpose-built manufacturing facility in Yorkshire is well underway with the transfer and consolidation of the 4 current facilities scheduled to commence in the second quarter of next year. Given the strong start to the year, we now anticipate high single-digit organic growth for 2019 with operating margins at similar rate to that seen in 2018.

Consistent with previous results announcements, we have included 3 new customer case studies to help illustrate how the products, services and self-generated sales strategies underpin organic growth in our 3 specialized engineering businesses. Today first customer case study comes from Spirax Sarco South Africa, where our application engineers designed a bespoke solution to recycle waste steam and improve the customer sustainability and safety. RCL Foods (inaudible) is an important local manufacturer of processed foods and a top customer in South Africa. One of their many uses of steam employs a steam ejector to create vacuum in a peanut butter mixing tank, removing air bubbles strapped in the product during mixing operations. Our self-generated solution used an EVC, exhaust vapor condenser, to recover waste heat and use it for heating water in other parts of the process. This reduces the customer's water and energy consumption while also improving health and safety conditions for operators in that part of the plant.

Today's second case study comes from Watson-Marlow in the U.K., where A.E. Rodda & Son, the famous manufacturer of Cornish Clotted Cream, selected our recently launched MasoSine Certa pump to transfer pouring cream into the depositing machine used for packaging. The Certa 100 pump transfers the cream at a rate of 4,200 liters per hour but in a very gentle manner with low shear and low pulsation. According to the customer, using centrifugal pumps would churn the cream into something like butter. Our pump is 3x more energy efficient than a pneumatic pump. It's extremely easy to clean, requiring minimal downtime, and is extremely quiet during operation. This is another fine example of how our products help customers achieve significant process improvement and cost savings whilst preserving the integrity and quality of the product.

And today's final customer case study comes from Thermocoax in France that supplies ASML with highly engineered bespoked heating solutions for their EUV lithography machines. Dutch company ASML is an innovation leader in the semiconductor industry and the only manufacturer of lithography machines that employ EUV, extreme ultraviolet light, for nanopattering (sic) [nanopatterning] silicon wafers. EUV light is created when high-powered laser impacts molten tin. Thermocoax's highly engineered temperature management solutions ensures that the tin is maintained at very high temperature required and with high accuracy throughout the process. Temperature management is a mission-critical part of the EUV lithography process, impacting the efficiency and productivity of the customer's equipment.

So in summary, we are pleased to report strong first half performance with revenue growth of 8% on both an organic and reported basis, ahead of our expectations. The group operating profit grew by 4% on organic basis and the group's operating profit margin was 21.9%, in line with our expectations. On 13th of May, we completed the acquisition of Thermocoax, which will significantly enhance and strengthen the growing Chromalox business.

And turning now to the outlook. Global industrial production growth rates slowed further than estimated in March, and IP for the full year 2019 is now expected to be around 1.6%, almost half the 3.1% growth rate of last year. While the strong first half performance was ahead of our expectations, we believe the trading conditions in the second half will be below our earlier estimates, and therefore, overall, our full year expectations remain unchanged.

I will now be pleased to take questions from the room. We have 2 roving microphones for your questions. And we ask that as you use them, please state your name for the benefit of those listening in on the webcast.

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Questions and Answers

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William Turner, Goldman Sachs Group Inc., Research Division - Research Analyst [1]

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Goldman -- William Turner from Goldman Sachs. I've got a couple of questions. First one is on some of the operating leverage in some of the divisions, in particular Watson-Marlow and Americas. They seems quite low. Americas, for example, I think it was plus 12% organically and then mid-single-digits operating growth. Can you just go into a bit more details on how -- why that is the case?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [2]

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Of course. Look different reasons in both of those businesses that you mentioned. In the case of the Americas, the biggest effect there is this exchange aspect in Latin America, which really -- particularly in Argentina, which really shifts the situation. So yes, you'll see 26% organic growth in Latin America. But most of that is truly FX-related. Therefore, the true underlying volume effect, which is what gives you operational gearing, isn't that significant. In fact, I mentioned earlier, that in real terms, otherwise excluding the effect of -- volumes in Argentina were down. So you wouldn't get operational gearing.

Now second part of your question was also about Watson-Marlow. In the case of Watson-Marlow, we do have very strong operational gearing. But we also continue to invest, and we call those revenue investments, as you're all familiar with. We continue to invest in order to underpin the business. With the resources, we can sustain this high level, which was, in the first half, 11% organic growth. So in order to achieve that, we're going to continue to reinvest those operational leverages that are coming through very strongly and the manufacturing efficiencies that we're getting at Watson-Marlow, to underpin sustained organic growth going forward.

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William Turner, Goldman Sachs Group Inc., Research Division - Research Analyst [3]

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Just to clarify on that. So on the organic sales growth of plus 12% and the organic operating profit, that includes an FX component. And the Americas business?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [4]

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In the Americas business, yes, the question.

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William Turner, Goldman Sachs Group Inc., Research Division - Research Analyst [5]

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Sorry. Then that includes the FX depreciation impact from -- would it not be excluded from those numbers?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [6]

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So -- yes. We -- I'm sorry. I have to go back to the Argentina issue. Those of you that have -- are well familiar with the fact, in Argentina, you have effectively dollar-denominated pricing. So the price lists are in dollars. So when you invoice the customer, you're invoicing in local currency, but it gets converted -- the price is listed in dollars and you convert it to local currency on the day that you're invoicing, for example, okay, giving you an example here. What happens with that is that when you report that local currency sales back into pounds, the number gets inflated as the local currency devalues, okay? So it masks, in that sense, a organic growth in -- not organic growth, but you got an equal and opposite number in the currency column, okay? So that, unfortunately, is an issue that we've been reporting every year. It's the characteristic of the business in Argentina, and some other smaller countries have similar situation. But that's what really distorts that picture for you.

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William Turner, Goldman Sachs Group Inc., Research Division - Research Analyst [7]

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Okay. And then my second question is on the operating inefficiencies in Chromalox. Is anything structurally different about the European business? Could you just go into more details on why Europe is so much less profitable than the U.S.?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [8]

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Yes, of course. Okay, so it's important to put this into the right perspective. First thing, operation -- Chromalox is an American company, and still today, almost 80% of their revenues are coming from North America, which means that in Europe, which is 14% of their revenues (inaudible) subscale in Europe, very light in Europe and also light in Asia.

Second, when we acquired this business 2 years ago, we were fully aware of the fact that the performance in North America is very good, margins above 20%, consistently above 20% in the North American business. The European business was, for a number of historical reasons, loss-making. We've always known that. We addressed it during the due diligence. There's no surprise there, okay?

Now obviously we put in place plans as we took over to improve the performance in Asia -- sorry, in Europe, and effectively, the previous management was not very convincing in -- or effective in those improvement plans. So we have not made progress. And at the beginning of this year, as we started implementing multiple other situations -- other improvement plans, the performance in Europe has deteriorated. So a loss-making operation got even more loss-making, and we've disclosed -- we're very transparent. We disclosed that increase there, okay?

Now this is also part -- in part victims of our success in terms of sales growth last year. As we reported back in March, the organic growth of the Chromalox business all around the world in all regions was higher than we had anticipated last year. We were anticipating at the beginning of last year low, mid-single digit 3%, 4%. We ended up with 9% sales growth last year, and this was spread up around various regions. That higher-than-expected sales growth a bit overwhelmed some of the plants and expose manufacturing operational issues and inefficiencies. And in fact, it also exposed inefficiencies or issues that need to be addressed in terms of the manufacturing processes, some of the equipment, some of dispositions and et cetera. So we've been addressing all of those.

And in the European -- in the first half of this year, what happened was that sales volume -- so the throughput in the plant was lower. So we actually got less operational -- actually, negative operational gearing in the case of Europe because the throughput was lower. Now some bottlenecks in production in Europe didn't help us in that aspect. And multiple other reasons that we disclosed there that have made the performance in the first half in Europe worse than it was.

Now this is operational. There's no change in the strategic view, the strategic vision for the business. These are things that we know how to handle and that we've handled in our own business, and you've seen how the margins in the rest of the group have progressed over the last 10 years, solidly, consistently. And we know that -- and we've said since -- when we acquired Chromalox that we needed to address this issue and improve the profitability, and longer term, the profitability of Watson -- of the rest of Chromalox will also go up into above 20%. So it's only a matter of time, and we're addressing all of those things in an operational manner. And -- but it will take some time. It will take some time because these things, unfortunately, are not easy, and they take their time, okay? Michael.

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Michael John Blogg, Investec Bank plc, Research Division - Capital Goods Analyst [9]

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Michael Blogg from Investec. Following up along from that question. Thermocoax, as I understand, is mainly a European business. To what extent are you actually bolting it onto Chromalox? Can you do that while you're busy improving the operational performance of the European business of Chromalox?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [10]

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Okay. Let me just make a note of your question. Thank you. Okay. So look, you're right. It is not exclusively European, but it is primarily a European business. We've also highlighted that Thermocoax brings huge technology complementarities to the Chromalox business with products and technologies that allow Thermocoax to address certain market applications that Chromalox doesn't have products for. And the example of the business case I just said with the EUV lithography machine is a very good example of that. Chromalox doesn't have products for that technology or the technologies for those applications. Thermocoax does.

So the plan for both of these businesses is not a hard-core integrate the 2 business and take out some cost. Actually, it's the same strategy that we've been successfully deploying in the Steam business with the dual-brand strategy of Gestra and Spirax, each of the brand focused on different market sectors. So what we call internally a sector focus to your brand strategy. And that's what -- that's where we're going.

There is some -- there are some, in Germany particularly -- so the opportunity to have some rationalization, of course, by merging the 2 businesses, because in Germany, the ISOPAD business of Thermocoax is quite similar to the Thermocoax business -- to the Chromalox business. So there, there is some opportunity to get a bit of cost efficiency.

But for the most part, the 2 businesses will continue to -- the 2, Thermocoax and Chromalox, will be focused on their respective market sectors with their respective technology and leveraging that technology. So for example, into other regions, so for example, Thermocoax has great products in -- for the U.S.A. in certain markets there, but has a very light presence in the U.S.A. Now we can use Chromalox's strong presence in the U.S. to open doors and create those revenue synergies for growth of Thermocoax there. And equally, in some cases in Europe, we can see the better presence of Thermocoax leveraging the -- but it's always [attacked ,] in different market sectors with different people.

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Michael John Blogg, Investec Bank plc, Research Division - Capital Goods Analyst [11]

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Where you have your dual-band strategy -- your dual-brand strategies, does that mean that there's no combination of the operational -- the manufacturing infrastructure behind?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [12]

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Yes. We're not planning to do any rationalization of manufacturing plants, okay?

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David Alexander Larkam, Numis Securities Limited, Research Division - Analyst [13]

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Dave Larkam, Numis. Sorry, stay on Chromalox. But you said the U.S. is 80% and making 20% margin. So my back of the envelope suggests the rest of business has been losing about GBP 5 million of EBIT. So that's more than you mentioned about Europe. So I'm just trying to get a feel what else is going on there. And you said the order book there is at 8%, which is very encouraging for the second half. I noticed that Thermon was warning that the markets are softening for them. I wondered if you've seen any of that.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [14]

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Okay. So I didn't catch the second question so I'll ask you to repeat that in a second.

Your numbers are slightly off, David, but you're directly correct. Yes, there is loss-making in the European part. We said that. In fact, we said that European losses have increased by GBP 2.3 million. So they were just over a GBP 1 million, GBP 1.2 million, GBP 1.3 million last year in the first half, and they've gone to about GBP 3.5 million of losses in the first half of this year. So that's really way to solve. So you estimated GBP 5 million. But I think in the rest, you're slightly off in that sense. But direction is quite close. The second question was?

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David Alexander Larkam, Numis Securities Limited, Research Division - Analyst [15]

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Obviously, your order take was pretty good in the second quarter. Thermon was sort of warning that they are seeing a slowdown in North America. Wondered if you've seen any of that.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [16]

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So -- sorry, I'm just making notes here. So yes, in the U.S.A., particularly the -- we had very, very strong growth last year as you saw, high single digits. Just to remind everybody, 9% growth for the full year, and in some parts, like in the U.S., that was also the case. There was a bit of a slowdown at the beginning of this year, in the first months of the year, which we saw the catch-up in the second quarter. Hence, I mentioned that the order book has expanded strongly by 8% because what it really means is that we got -- the sales are up 2%, but the order intake was up by much more than that and -- therefore we haven't yet shipped it. So that was the intent of that reference to the order book expanding by a strong 8% and particularly towards the back of the year -- the back of the first half, yes.

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David Alexander Larkam, Numis Securities Limited, Research Division - Analyst [17]

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Just one for Kevin on the FX Argentina. Last year, we had a sort of a one-off devaluation gain, isn't it? Is that -- we -- not quite comparing apples-with-apples here or -- in terms of the impact that we've seen this year.

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Kevin James Boyd, Spirax-Sarco Engineering plc - CFO & Executive Director [18]

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Yes. So the issue there is that we had very severe devaluation in first half of last -- in the whole of last year in Argentina. As a result, we saw price increases, and therefore, organic growth. And that feeds through a little bit to profit because you're getting good organic growth. The cost of Europe, going to take a while to catch up because you're -- you have inventory in place. So you get some of that coming through as an exceptional profit.

The other thing we saw in the first half of the year was a revaluation of the dollar balances that we had in receivables and cash, which gave you in-country FX scales. This year, we've seen lot less devaluation, and we're not getting the -- that benefit is not recurring.

So like-for-like, Argentina, yes, you're seeing top line growth, but you're not seeing any profit growth. So overall, Argentina was roughly flat in profit terms year-on-year.

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David Alexander Larkam, Numis Securities Limited, Research Division - Analyst [19]

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Does that include -- just -- I mean the couple of million last year benefit, was it -- so if we adjust for that.

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Kevin James Boyd, Spirax-Sarco Engineering plc - CFO & Executive Director [20]

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GBP 0.8 million, I think, from memory, in the first half of last year. Except that we don't probably get -- so that -- we're not getting that again this year.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [21]

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Mark Fielding.

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Mark Lewis Fielding, RBC Capital Markets, LLC, Research Division - Analyst [22]

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Mark Fielding from RBC. Sorry, one more question on Chromalox. Just in the context of -- that you mentioned the lower-margin orders, and you also mentioned work in the pricing side. Just checking whether that's one and the same thing and whether that's European-focused. Or is there also an opportunity for shifts in the pricing structure into the North American side of that business, too?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [23]

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I didn't understand the second part of it.

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Michael John Blogg, Investec Bank plc, Research Division - Capital Goods Analyst [24]

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Whether the pricing is just a European thing or whether it is a wider-thought process around pricing in that business.

And a second question on Steam, and just in terms of the large projects that came through in Asia Pacific and what the pipeline looks like there, whether there's any feasibility to further large projects in the future.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [25]

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Okay. Thank you very much. Good questions, Mike. Okay. So starting with the first, on the Chromalox. Look, the reference about the shipping of some low-margin orders that were taken last year and it ended up shipping in this year. It's almost like combination to stars aligning unfavorably because you got low throughput, and then some of that throughput that comes in is actually coming in with a lower margin. So it was an unfortunate combination against us. And that was in the context of giving a bit more color around the increased losses in Europe. That's where most of the lower-margin projects did happen also, because these were some projects that were actually built in Europe but destined for the Middle East, okay, and for different reasons were taken at a slightly lower margin than we would have liked.

That is a separate point to your other part of that first part of the question, which is the pricing, okay. And thanks for that -- raising that because it's a good thing to talk about. You know that Spirax-Sarco as a group, we've always had a very strong practice of securing price increases every year to cover the inflation of our costs. And we have deployed those practices to all the businesses that we have acquired, and I'm very pleased to say that -- and we've talked about this last year. In Gestra, for example, that was rapidly adopted. Last year, in Chromalox, previous management did not really embrace it with the vigor that we expected them to, but that situation has changed. So the good news is that orders taken this year are getting better pricing, better pricing management practices today than were done last year. And that is across all of the Chromalox business, in all geographic regions, not just in Europe or in the U.S.A. So actually, that's one of the things that we do see contributing to improve margins in the second half, because you -- now you start seeing the positive kick-through of better price management actions, having flushed out what we believe the residual low-margin projects in the first half, okay?

Then the second part about the project pipeline for the Steam business. As we called out, the projects were very strong in Asia, particularly China and Korea. Now Korea, no surprise to anybody, has always been very strongly oriented to large projects because of the very strong position that we have in Korea with the Korean EPC companies. And Korean EPC companies, as you all know, have very strong competitive position in the Middle East. Most of the projects that are built in the Middle East are designed by Korean contractors. And our team in Korea has a very strong position with those Korean contractors. So we do get a higher share of projects in Korea than in any other country. In China, was also been growing at very strong organic growth rate. They also benefited from some strong projects. Some of those projects are going into China, and some of those projects were going into the Middle East also. So yes, we did see that.

How is the pipeline? The pipeline is -- it's okay. But it's not -- we don't see like we've got of big wave of projects coming, although some of our OEM customers, these are not project activities, but OEM customers who had very weak start to the year have now seen some pickup in order intake for OEMs. So that sometimes indicate some of it -- of an increase in capital investments around the world. But at the moment, our pipeline is similar to what it was last year, slightly up from last year. That is true for large projects. Yes, Mark.

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Mark Davies Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [26]

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Mark Davies Jones from Stifel. The first one just follows on a little bit from that really. With those lumpy projects coming through in Asia, you typically see some negative mix effects on margin. But in fact, your Asian margin was very, very strong in the first half. So what's the moving parts of that? And what's the outlook for the second half as that mix changes?

And then the second question related to Gestra. You said slow the business first half. Is the outlook for further slowing there? I remember it's heavily exposed to chemicals and power markets in Germany, in particular, and we've had some very negative news from the chemical sector in Germany. How does that play through to their outlook?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [27]

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Okay. So large-margin impact on margins for the second half. Look, as I said, the order book is looking similar to last year, slightly up in terms of large projects. Yes, sometimes you get larger projects with lower margins. It happened not only in Chromalox, as we mentioned here, but it also happened in Spirax in the past. I've also -- we have been reporting regularly how we've been stepping up our price management activities, and that means also, amongst other things, trying to secure projects with better margins. And I think we are seeing some progress in that sense. So there's nothing in the order book of the second half that we are aware of now that would suggest strong adverse mix effect in the order book for the project element, which I remind everybody, at a group level, these large projects represent 15% of our revenues, okay? It's obviously high (inaudible) in places like Korea or China. But overall, in the group, these large projects -- 85% of our business is coming from OpEx cycle, not CapEx cycle. So -- but at the moment, we do not anticipate any adverse mix effect on margins from larger projects in the second half.

On the Gestra and particularly Gestra in Germany, which does account for over -- just over 40% of Gestra sales, yes, we had a difficult start because Gestra's products, as you all recall, primarily focus around chemical industry, which, in Germany, is a big supply into the automotive industry, also power generation sector. So some of the specific sectors where Gestra is very well positioned have been weaker, particularly in Germany. OEMs, as we've reported, always the best boiler controls -- automated boiler controls, industrial boilers are the Gestra ones and the big German OEM boiler manufacturers, like Viessmann or Bosch or -- so those large customers had very weak order books in the first half. And the good news is we've seen very, very laterally now towards the end, June, we've seen a pickup in the order intake from those OEM customers in Germany, which is encouraging for the second half, okay? But inevitably, it did hold back their progress in Germany. Despite all of that, Gestra still grew in the first half organically against, equally, a very tough comparison last year. Might I remind you that also Gestra organic growth in the first half of last year was in the high single digits? And so they're still growing organically, similar growth to Chromalox. But in some of those sectors, like the OEMs and power generation sector, those have been a bit weaker in the first half. Any more questions?

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Matthew Spurr, Exane BNP Paribas, Research Division - Research Analyst [28]

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[Matt] Spurr from Exane BNP Paribas. Can I come back to Chromalox, again? I realized we spent a lot of time on that. But since your largest -- one of your largest acquisitions, can we -- for the second half and to get -- did you say you're going to get to last year's margins, about 14.7%? So can I take the -- is there seasonality in Thermocoax I need to consider? Or can I take half of what you added? I'm just trying to work out organically what you need to do in the second half. Do you need to do about GBP 14 million in the existing business of EBIT in order to get that 14.7% margin for the full year?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [29]

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So I think -- do you want to try, Kevin?

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Kevin James Boyd, Spirax-Sarco Engineering plc - CFO & Executive Director [30]

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It's a bit less than that. We'd expect somewhere in the region of maybe GBP 8 million EBIT from Thermocoax in the second half. And what we're saying is that we expect the underlying Chromalox margin to be similar to the -- what its margin was last year in the second half and therefore, for the full year, the Chromalox margin to be similar for last year. So that the underperformance in the first half is compensated by the over -- the higher margins in Thermocoax in the second half.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [31]

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But second half organic -- what Kevin just said, second half organic margin in Chromalox only, the Chromalox part, we are expecting similar to the second half margin of last year.

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Matthew Spurr, Exane BNP Paribas, Research Division - Research Analyst [32]

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(inaudible) I guess when did you sort of realize Chromalox was struggling a little bit this half? Because you didn't mention it after 4 months. Did something happen in May and June that changed?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [33]

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Also I think -- a slight correction, apologies to correct you. But actually we referred to this at the March results. We talked about the manufacturing inefficiencies and the growth pains that we were seeing in Chromalox through the second half of last year as a result of the very strong organic growth. So it -- no, it's not a surprise that the performance of Chromalox -- and I said, last time, it was growth pain.

Now what we are seeing today, new piece of information, is that, actually in Europe, it got worst, and we've addressed that already, I think, extensively. But no, this is not something that suddenly sprang up on us just recently. We've been working on it since last year and intensified that work in the first half of this year. Andy?

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Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [34]

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It's Andy Wilson from JPMorgan. I just have a couple -- sorry to start with another Chromalox one. It's just that -- it's perhaps the bigger picture a little bit. Just on everything that you said and obviously expect a pickup in terms of second half and I guess longer term. Through all the kind of list of reasons why it's kind of disappointed a little bit in terms of first half, it doesn't feel that there's anything which is external. It feels like it's a list of kind of internal operational things. And is that a fair summary? And I guess from a commercial perspective, it doesn't feel like there's anything there which would've damaged the market position bigger picture.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [35]

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Thank you very much for that question. It's a very good point, and you're absolutely correct. Your read is correct. These are exclusively operational issues, particularly in Europe. There is no doubt -- as I said throughout the presentation, there is no doubt in our mind about whether this was the right acquisition or whether it's a similar business or not to Spirax or whether we can grow this business organically over time at similar rates to the rest of the group or whether we can get this business margins to similar rates as a group. It took us 10 years to get the margins of the group from where they were to where they are today, and we've given ourselves that same period of time. And in the process -- and we say at the beginning, we're going to invest in the business. And you do encounter -- you bought a new company.

I think the important thing for everybody to remember here is that 2 years after we've acquired the company Chromalox, applies also for Gestra but we're talking about Chromalox, there have been no surprises. Nothing that's come out of the closet that we didn't know about, okay? So everything that we saw and considered in the due diligence phase prior to acquisition has been confirmed, including the loss-making situation in the European operations, which are operational in nature. They're not structural. They're not strategic issues. These are operational issues, which need to be addressed.

But the good news is that's what we do. We run companies improve their performance over time, and it takes a bit of time. So we give ourselves that time, and we're very transparent about it. But strategically positioning long-term aspects, I've said here and I reaffirm, no doubt, we're still in the same direction. No reason to suspect it. But we do have to address and improve the operational performance, which is already good in North America, as we highlighted here, above 20%. But we need to get the loss-making European operations to that place whilst continuing to grow organically.

So these are strictly operational issues, which we are addressing, and we've stepped up those. The initiatives that we started taking last year weren't having the effect that we wanted. So we've taken action. We strengthened the team, the management team in Chromalox, and we're putting in place additional actions, as I've been describing for this presentation, which will reverse the situation.

In Europe -- different than North America. We've already got above 20% profit margin. You can do some -- take some low-hanging fruit to make that margin even higher. In Europe, we got to go from loss-making to sustainable profitable growth. And that takes a bit more -- so that's why we've said here, we expect that to happen over the course of the next 2 years. But this is what we do, make good businesses better.

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Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [36]

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And just -- so switching (inaudible) actually to ask about Watson-Marlow, which I don't think we've mentioned despite those obviously very strong growth. I think -- and Kevin, you might have to help me a little bit on the numbers. But the business is growing 11%, and I think you alluded to sort of pharma and biopharma and kind of all that biz has been up 45%. It feels like that 45% has been increasing as a percentage of sales, which kind of implies that the growth in that market has been even better than their headlines. I guess -- assuming that's true, kind of interested as to what is -- I guess what's driving that growth and kind of how much of that is being -- it's been coming and it's organic? And how much is actually being kind of supported by the various acquisitions we've seen over probably 5 to 7 years, from memory, Watson-Marlow?

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Kevin James Boyd, Spirax-Sarco Engineering plc - CFO & Executive Director [37]

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I think it's a mixture of all those things. You're right in saying that pharma, biopharma are now bigger proportion of Watson-Marlow, not hugely bigger. I think last year, it was 42%, now maybe 45%. And that's in a half year, so it's small difference. But all of the things you say, so the acquisitions we've made, all the recent acquisitions in Watson-Marlow have been pharma-, biopharma-focused. So you would expect that to help that. The particular part of the market that Watson-Marlow serves is more biopharma-focus, and that's growing faster than the broad pharma-biopharma locket at all. So all of these things combined, and it's not one single thing. It's a mixture of products, mixture of acquisitions and a mixture of good growth in the underlying markets.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [38]

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Robert?

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Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [39]

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Yes. So Robert from Morgan Stanley. I just had a follow-up actually on the Watson-Marlow business. Maybe if you could just go through a little color on, I guess, the non-pharma, biopharma businesses and maybe the difference in sort of magnitude of growth to some of the other segments. And sometimes, I know it's difficult to get color. You quite often call out those 2, in particular, but maybe everything else that's going on.

And then just sort of separate to that. You mentioned the sort of drop-through in that business this year in the investments for growth. Where are you in that? I guess if growth keeps going along in this 8% to 10% band, do you keep having to sort of put money into that? Or are you kind of happy to keep putting money into that? Or do we take a pause at all? Or maybe just a little more color there.

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [40]

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Okay. So thanks. So it's very -- those are very good questions. So Robert, I'll start with the second one because that's -- yes, we're happy to put more money into this business because this is a 31.6% margin growing at 11% organically. So it's kind of business that we're delighted to put more investments in.

Of course, like with all of our businesses, we've got to balance it. I'd like to say that the difference between poison and medicine is the dosage. So you got to get the dosage right. You got to be able to put -- you can't get ahead of yourself and put too much investment in to underpin future growth because you'll have a short-term impact on your margins. On the other hand, you can't not put investments in the short term.

And when I'm talking about investments here, just reminding everybody, I'm talking revenue investments, that SG&A. It's people, it's training, it's new product development, opening new operations, as I described to you, around the world. So those investments, those are SG&A investments that you put in this year to underpin further organic growth in future years or underpin the same level of organic growth going forward in future years.

So we just keep a very sharp eye. And the stronger the organic growth and the expectations of continued organic growth, then we have more confidence in putting more of those investments in. Sometimes, we -- the margin actually goes up because we can't put investments in fast enough, and we're getting very strong drop-through from operational gearing so that the growth, high growth gets a high drop-through. And sometimes, you just can't put the underpin -- in investments any faster.

So our expectations in the Watson-Marlow business is to maintain margins at the levels that we -- that they are, because (inaudible) that, and reinvest all those operational efficiencies, operational gearing, all that back into more SG&A to support product management, to support geographic expansion, to support organic growth going forward. So we need to do that.

The first part -- thank you for the more color on different market sectors because you're right. In the limited time that we have, we tend to highlight the strong growth in biopharm, which of course is growing at a higher rate than the 11 otherwise share within the Watson-Marlow business, will be gradually increasing over the years. And of course, other sectors of that market get a bit in the shade, if you want, of the stronger growth of the biopharm sector.

But the other market sectors are also very interesting. I called out a new one today that we've not talked about. Just as a way of highlighting that this -- Watson-Marlow services other sectors, in this case, the medical devices and -- sectors. So selling to OEM manufacturers of medical devices, for example, is one factor that grew very, very strong and had been growing over the years. Food and beverage. We've called out food and beverage as a sector that -- especially with the launch of the Certa pumps that I referred to in the customer case study here. We've been having very strong growth in other products -- other market sectors that Watson-Marlow has good presence and has been growing at fast pace. Because you need all of those sectors to also be growing at high single digits, otherwise, you can't get the whole of the business growing at a high single digits.

So environmental sectors, especially selling into water treatment facilities, for example, dosing pumps like the Qdos pump that we launched a few years ago and we've talked about before, displacing actually with the Qdos pump, which was an R&D development internally at Watson-Marlow, displacing solenoid diaphragm pumps. So through R&D, expanding the envelope of applications with various top technology, displacing other types of pumps and gaining growth -- organic growth by displacing other types of pumping technologies. In this case, very typical of chemical metering applications, like water treatment or other (inaudible).

So yes, we do have different degrees of growth with all of the sectors that Watson-Marlow has. Because of this direct sales model, the product portfolio that we continue to invest in with R&D and launches of new products, that we can plug into a global direct sales organization in Watson-Marlow and leverage that position to get strong attraction and organic growth in all the sectors that we service.

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Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [41]

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And maybe just one final one. It's just -- you've called out your sort of market share position or you've qualitatively talked about market share positions maybe in some of the different end markets within Watson-Marlow. Could you give us a flavor for where you are in that biopharma and medical space? Because you've obviously -- as you said, that's been growing as a percentage of sale. That's been moving the quickest and it's the highest growth segment. Do you -- what's the runway on that business looking like in the next few years? Are you kind of reaching a bite point in those 2 end markets and that's why you're sort of focusing others. Or is -- are you pretty happy over next 3 to 5 years in that segment as well?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [42]

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Yes. No. We're very -- look, the dynamics of that sector, all the papers that we read by analysts like yourself that are specialists in the biopharma sector indicated that industry will continue to grow globally at this -- the similar rates of 10% or in that very high single digit or even very low-double digit growth, that the industry has been growing, particularly biopharm. And so that dynamic -- market dynamic, we don't see softening in the next 5 years that you inquired about, based on the papers that we read and our people's interactions with customers in those sectors.

And we see lots of investment going into there and a lot of what we've been investing in also is expanding our internal manufacturing capacity to keep up with that demand, to keep up. And this earlier question referred to acquisitions that we've done to plug into the biopharm, one good example was the company that we acquired in January 2014 BioPure in the south coast of England. We're on the second expansion of capacity in BioPure because we -- when we acquired it, we expanded the capacity. Growth has outstripped our expectations, the second one. We're now looking at the third expansion. So -- and why? Because we take a very strong direct sales presence in that biopharm sector, and we plug in a new product that goes -- these are connectors that go with the tubes that we extrude that go through the pumps that we make. So that leveraging of those acquisitions into that sector is very strong. So we don't see that dynamic changing in the market.

And the other dynamic that we don't see is our ability in Watson-Marlow to displace other types of pumping technologies, okay? And I gave you the example of the Certa pump and I gave you the example now of the Qdos pump again. So these are R&D developments that we're doing to displace other types of pumps and therefore gaining share. And those are very difficult things. So how do you quantify market share? It's very difficult, quantify taking market share from other types of pumps is even more difficult.

But we see that dynamic continuing to progress as we see also the geographic expansion. So -- because Watson-Marlow still hasn't got a stronger global footprint, although they're already in close to 40 countries. They haven't got the same global footprint that Spirax has.

So we still see those 3 -- those are 3 main drivers, and including the acquisitions that then bolt-on to boost all of that, that have underpinned the stronger organic growth of the Watson-Marlow business compared to the Steam business. And we don't see any of those dynamics changing in the immediate future or the next few years, at least. Michael?

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Michael John Blogg, Investec Bank plc, Research Division - Capital Goods Analyst [43]

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I've just remember that there was an acquisition last year, the -- was a technology acquisition that you weren't prepared to talk about. Are you any closer to doing that yet?

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Nicholas J. Anderson, Spirax-Sarco Engineering plc - Group Chief Executive & Executive Director [44]

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We are close. Absolutely, yes. In fact -- no, we're very pleased. There was a technology -- as we said, it is a technology. And pre-revenue, as we call it, because it's a new technology, which we believe will expand the envelope of peristaltic pumping technologies, so leading the way in expanding that. We are much closer to be able to talk about it because we're very pleased with the product implement that's coming out of there. But we haven't launched it yet. So I will keep you in suspense.

Okay. Thank you all very much for your time and for your questions.