Good morning, everyone, and welcome. I'd also like to extend a warm welcome to those of you who are joining us remotely. I'm Nicholas Anderson, Group Chief Executive, and I'm joined here today by our CFO, Kevin Boyd. We have also announced this morning that Kevin has informed the board of his desire to retire from the group and from executive career before the end of 2020 following an orderly handover of his duties to a successor. On a more personal note, I would like to again thank Kevin for his dedication, professionalism, and unwavering support over the last four years, in which we have transformed Spirax Sarco into the successful FTSE 100 company that we are today. Thank you, Kevin.
Regarding today's presentation, I will start by sharing the highlights of 2019, then Kevin will take you through our financial performance. Later, I will return to cover the operations in 2019, our current estimate of the impact of COVID-19, and our outlook for 2020. Finally, we'll be happy to take questions from the analysts in the room, followed by questions from those on the call. I am pleased to report another year of strong organic sales growth, despite the global industrial production environment, as well as a strong organic profit growth that delivered organic profit margin progression without compromising on our revenue investments for future growth. Both the Steam Specialties and Watson-Marlow businesses achieved strong organic sales and profit growth, reflecting the successful implementation of our strategy and its focus on self-generated sales.
Chromalox profit margin increased in the second half of 2018 to reach 15.1%, 40 basis points ahead of 2018, reflecting the actions taken during the first half to improve the operational performance of that business. Thermocoax joined the group in May and was combined with Chromalox to form the Electric Thermal Solutions business, which accounted for 15% of the group's revenues in 2019. Strong cash flow performance enabled a robust increase of capital investments to support our future organic growth while containing our net debt levels below 1x EBITDA. We have continued to improve the group's health and safety performance, as well as the capture, measurement, and monitoring of our key sustainability metrics.
We have also taken actions to accelerate implementation of the group's sustainability strategy for the benefit of all our stakeholders, and you can read more about our progress in the upcoming annual report and accounts. Last but not least, I am pleased to report further progress during 2019 in the strengthening of the group's talent management and training and development programs, as well as the strengthening of the group's diversity in its broadest sense. With that, I'll now hand over to Kevin, who will take you through our financial performance.
Thanks, Nick, and thank you very much for those kind words. Good morning, everyone, and welcome to what potentially may be my last results presentation after nearly 20 years. As always, the numbers we're discussing today are adjusted results. Details are in the appendix. Reported sales grew by 8%, with organic growth of over 6%, and we saw a growth in both reported and organic profit of 7%. The reported operating profit margin fell by 20 basis points to 22.8%. On an organic basis, the margin grew by 10%. We saw excellent margin expansion in the steam business, which more than compensated for a fall in the Chromalox and Watson-Marlow margins at increased central costs.
Net finance expense reduced by GBP 1.9 million, despite the inclusion of a GBP 1.3 million of IFRS 16 interest. The reduction in bank interest was due to borrowings in US dollars and interest rates reducing, and we anticipate a similar charge in the current year. As I said at the half year, the overall tax rate increased as a result of changes to our internal financing structures and the mix of adjusted profits. In the end, it came in slightly better than anticipated at 28.5%, and we're looking at a 29% tax rate in the current year. Adjusted EPS of 266 pence was up 6% on the prior year, slightly less than the increase in operating profit due to the increased tax rate.
We're recommending a final dividend of 78 pence, bringing the full year dividend to 110 pence, an increase of 10%. Return on capital employed was 54%, an organic increase of 310 basis points, while return on invested capital was 19%, an organic increase of 120 basis points. Finally, net debt at the end of the year was GBP 295 million, up from GBP 236 million last year due to the acquisition of Thermocoax, and this equates to 0.9 x EBITDA. Looking at the sales bridge on slide five, currency impacts were minimal in the year. While there were some pluses and minuses, they summed to zero.
This year, we anticipate a currency headwind, and if February month-end rates were maintained for the rest of the year, we would see a 2% impact on sales. In December 2018 , we disposed of the non-core business, HygroMatik, and in May, this May 2019 , we acquired Thermocoax. The net effect of these two transactions was an additional GBP 50.2 million pounds sales in the year. Organic growth in the steam business was 6% in total, with all segments performing well, particularly Asia Pacific and the Americas. Watson-Marlow performed exceptionally, with over 12% organic growth in the year. Against a strong compare of 9% growth organically in 2018 , and a weakening of their core U.S. markets, Chromalox sales were down less than 1% organically.
This next bridge on slide six highlights the movement in adjusted operating profit for the year. Exchange movements decreased profits by GBP 2 million, a 4.6% decline due to translation, countered by a GBP 2.6 million boost from transaction. This year, we anticipate a currency headwind. Again, if February month-end rates were maintained for the rest of the year, we would see a 3% impact on profit. M&A posted a net gain of GBP 1.6 million. In 2018, HygroMatik had profits of GBP 3.8 million, while Thermocoax has added GBP 5.4 million since its acquisition in mid-May. The Steam Specialties business, in total, delivered GBP 16.4 million organic profit growth, while Watson-Marlow continued to perform strongly, delivering GBP 9.2 million organic profit growth.
Chromalox saw a fall in profits on an organic level of GBP 4.5 million, the vast majority of which occurred in the first half of the year due to operational issues, particularly in Europe. Excluding the effects of currency and M&A, we saw an improvement in operating profit of eighteen point two million pounds, or 7%. This next chart on slide sevenhows our operating profit margin progression over the last 10 years. In 2017 , 2018, and 2019, we have showed the dilutive impact of the Gestra and Chromalox acquisitions of 2017 . Over time, we expect these margins to grow to group level. Excluding Gestra and Chromalox, the margin was 25.1%.
As I said, reported margins fell by 20 basis points to 22.8%, but on an organic basis, the margin increased by 10 basis points in the year. In the Steam Specialties business, the margin increased by 100 basis points organically to 23.6%. In Watson-Marlow, the margin fell back 60 basis points on an organic basis to 31.8%, as we continued to invest in the business to maintain above-market growth. In Electric Thermal Solutions, the margin at 13.3% was down 270 basis points on an organic basis due to the underperformance of Chromalox in the first half of the year. In the second half, Chromalox's margin was 15.1% above that reported in 2018.
Despite the very uncertain macroeconomic backdrop and the twin headwinds of currency and COVID-19, we will strive to maintain the group's adjusted operating profit margin in 2020 at a similar level to 2019 . More information on the relative drivers of margins can be found in Appendix 2. Turning now to cash on slide eight. Operating profit to operating cash conversion was 84%, down from last year's 91%, primarily as a result of an increase in capital expenditure as work on Aflex's new factory progresses. Excluding the Aflex spend, cash conversion was 90%.
On a constant currency basis, excluding acquisitions and disposals, underlying working capital as a percentage of sales improved by thirty basis points to 21.5%, despite the building of GBP 5 million of Brexit buffer stock, which will remain throughout 2020 , and increasing Gestra's inventory to improve customer service levels. Capital additions increased by GBP 19 million. The most significant addition was the GBP 16 million spend on the construction of the new purpose-built factory in the U.K. for Watson-Marlow's Aflex hose business, which will consolidate the existing four locations into a single facility. It's estimated a further GBP 6 million will be spent in 2020 to complete the project, which will bring 2020 s total CapEx spend to approximately GBP 65 million.
In May this year, we announced the completion of the Thermocoax acquisition, which resulted in a GBP 138 million outflow of cash in the period. In January 2020, we paid an earn-out of GBP 5 million, which completes the small acquisition that Watson-Marlow made in early 2018. We ended the year with net debt of GBP 295 million, equivalent to 0.9 x EBITDA. This final finance slide, on slide nine, details our 10-year dividend history, showing compound annual growth of 12% over the period. We have a record of 52 years of dividend progress, stretching back to 1967, and over the period, the compound annual growth has been 11%. We have a progressive dividend policy, where dividend payments follow underlying EPS growth while maintaining prudent levels of dividend cover.
2019 , we're proposing an increase to the final dividend of 10%. This brings the total dividend for the year to 110 pence, also an increase of 10%, and equates to dividend cover of 2.4 x. Our capital allocation policy remains unchanged. Our first priority is to invest in ourselves for organic growth and performance improvement. Our second priority is to look for suitable bolt-on or related acquisitions. Should net cash balances accumulate with no significant acquisitions in sight? We would seek to return cash to shareholders by way of special dividends, as we did in 2010 , 2012 , and 2014 . However, in the near term, we look to reduce our debt levels prior to any returns of capital.
I'll now hand you back to Nick to take you through the operations and outlook.
Thank you, Kevin. As mentioned earlier today, I will cover three themes. First, I will cover our markets and operations in 2019 . Later, I will take you through our current assumptions of the impact of COVID-19 on our group. And to end, I will summarize the key points of today's presentation and our outlook for 2020 . Following all of that, I will open for your questions. So, on slide 11, you're already familiar with this graph that tracks the quarterly evolution of the annual industry production growth rates, which we refer to as IP. As you all know, IP is the best predictor of our markets. Today, I would like to highlight three observations.
The first point to note is that global IP growth in 2019 fell to 1.0%, significantly below the 1.6% anticipated at our interim results presentation in August. This was driven by a much weaker than forecasted IP in the second half of the year. My second observation is that the current IP slowdown cycle has already declined more and lasted longer than the other two slowdowns of the past eight years. And there is no evidence yet that this cycle has bottomed out. My final observation is that Oxford Economics' latest forecast in February predicts a 0.8% global IP growth rate for 2020 . This is their first estimate of the global impact of COVID-19 following the outbreak in China, and therefore, precedes the subsequent outbreaks outside China since early March.
Needless to say, the constantly changing circumstances surrounding the global spread of COVID-19, as well as the continued levels of IP softness encountered globally, bring a heightened degree of downside risk to this latest forecast of Oxford Economics. Moving to slide 12, we start the review of our operations with the Steam Specialties business, where organic sales and profit grew a strong 6% and 10%, respectively. While all geographic segments achieved organic sales and profit growth, an exchange headwind and the divestment of HygroMatik in late 2018 reduced the reported sales and profit growth to 3% and 5%, respectively. The operating profit margin increased to 23.6%, which represents an organic improvement of 100 basis points.
Gestra performed very well in its second year, second full year with the group and improved its operating margin by 110 basis points organically. This was achieved without the benefit of operational gearing, as sales were flat in 2019 after growing 10% in 2018 . These flat sales were mostly due to difficult conditions in the core European markets of Gestra. The Steam Specialties' strong performance of 2019 was driven by the successful implementation of our strategy, which leverages our resilient business model and improves our ability to self-generate sales. Therefore, we remain confident in our ability to continue outperforming our markets in 2020 and beyond. In the Steam Specialties, Europe, Middle East, and Africa segment, organic sales were up 2%, with operating profit up 4% organically.
Spirax Sarco experienced good organic sales growth in the U.K., Germany, Italy, France, the Middle East, and across Africa, as we strengthened our self-generated sales activity in the priority sectors of our strategy. The EMEA region represents 85% of revenues for Gestra, where the integration continues progressing well and overall performance remains in line with our acquisition plans. However, Gestra's core markets of Germany and Central Europe, as well as some of their core market sectors, faced very tough conditions in 2019 . The divestment of HygroMatik in November 2018 reduced sales and profit by almost GBP 13 million and GBP 4 million, respectively, a mid-single digit adverse impact for this segment. Operating profit margins increased 30 basis points organically, but declined 10 basis points on a reported basis due to the divestment of the higher margin HygroMatik business.
I'm moving to slide 14. The Asia Pacific segment, organic sales were up 7% while operating profit was up 13% organically, despite weakening industrial production growth rates across the region. China and Korea achieved strong sales growth, as good base business and increased self-generated sales were boosted by a small number of large capital projects. Elsewhere in the region, sales growth was mixed. Our wholly owned operation in India achieved strong domestic sales growth, and the manufacturing unit is now fully established as an intercompany supplier of the Steam Specialties business globally, which helped achieve a break-even position one year ahead of our plans. Gestra continues to invest in this important region, establishing a new sales company in China since April, as well as an expanded sales and training facility in Thailand.
Gestra, in Asia Pacific, achieved double-digit sales growth in 2019. Operating profit margins expanded by 150 basis points to 29.0%, while on an organic basis, trading margins improved by 140 basis points. As we benefited from operational gearing, active price management strategies, increased self-generated projects, and a higher proportion of locally manufactured products. Turning now to the Americas, overall organic sales were up 11%, while operating profit was up 18% organically. Organic sales were up 6% in North America, with both Spira Sarco and Gestra achieving strong organic sales growth in the USA as we expanded our direct sales presence. Latin America achieved 20% organic sales growth, with good organic progress across all but one of our operations in the region, as well as positive benefits from Argentina's US dollar-denominated pricing.
Excluding Argentina, organic sales growth across the region was a strong 8%, with our two operations in Brazil performing strongly despite the still challenging market conditions. Gestra, that still has a small presence in this region, continues to perform strongly and achieve double-digit sales growth in the USA, despite the weakening industrial production growth rates during the course of 2019 in that country. Reported operating profit margin was down 100 basis points to 22.6%, due mostly to the strong currency headwind. Organically, the margin was up a strong 120 basis points. I'm moving to slide 16. In our recently formed Electric Thermal Solutions business, comprised of Chromalox and Thermocoax, organic sales contracted 1% in 2019, following a strong 9% organic growth in 2018.
In the seven and a half months since joining the group, Thermocoax added GBP 27.9 million of revenues, taking the reported growth to 20%. Organic sales in Chromalox were up in the MRO and small improvement project category, but were offset by a decline of the larger custom-engineered capital projects as the market slowed in their core North American region, particularly in the heat trace product line. Thermocoax expands our technical offering to customers, enabling access to certain high-tech applications and industries, as well as expanding our addressable market and doubling the business's presence in Europe and Asia. Reported operating profit was up 8%, as contributions from Thermocoax and a currency tailwind offset the poor Chromalox margin performance in the first half of the year.
Nevertheless, actions initiated to improve Chromalox's profitability produced the expected outcome, increasing the operating margin to 15.1% in the second half of the year, which is 40 basis points ahead of the 2018 operating margin. In early 2020, we initiated a process to reorganize Chromalox France in order to eliminate the losses of the European operations by the end of 2021. We also completed last week the sale of ProTrace, a small, non-core heat trace engineering business in Canada that was loss-making in 2019. Going forward, we remain confident that all the actions taken to date will offset the inevitable headwinds resulting from the challenging markets and unfolding COVID-19 situation. Watson-Marlow organic sales grew an exceptional 12%, with strong contributions from all geographic regions. A small exchange tailwind increased reported sales growth to 13%.
The biopharm and biotechnology industry continues to grow at double digits globally, with the adoption of single-use technologies acting as an additional catalyst of that growth. Watson-Marlow is well positioned to benefit from this industry trend and continues gaining share in that market, which accounted for close to 50% of Watson-Marlow's global revenues in 2019. New sales companies started operating for Watson-Marlow 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 13%. The operating profit margin remains very strong at 31.8%. Organically, the margin actually decreased 60 basis points, as operational gearing and efficiency improvements were outpaced by our continued revenue investments for future growth.
Despite the slowing global industrial production growth rates, which correlate to the non-biopharm market sectors of Watson-Marlow, our competitive position in the biopharm industry remains strong, and we anticipate that Watson-Marlow will have a lower exposure to the effects of the unfolding COVID-19 situation. We are therefore well-positioned to deliver above-market organic sales growth in 2020. I'm moving now to slide 18 and our current assessment of COVID-19. China is an important country for the group, accounting for 11% of group sales and 8% of employees globally. We have two manufacturing facilities in China, and close to 75% of their output is destined to the domestic market. Sourcing from China for other manufacturing units around the world accounts for only GBP 10 million annually.
China's sales in February were significantly below original expectations due to the forced shutdown during week one of the month, as well as difficulties interacting with customers thereafter. Our manufacturing levels were approaching normality by the end of February, although recovery actions by our local suppliers lags our own progress. With Chinese infection rates in decline, and provided no resurgence occurs, we assume business activity in China will return to normal by the end of the second quarter. Outbreaks beyond China are evolving rapidly, making it very difficult to assess the global impact of COVID-19. However, we assume that the global impact will be contained by the end of the first half, that a global recovery will occur in the second half, and that the overall impact on global IP will be less intense than that experienced in China.
Based on all of the assumptions above, we anticipate a global headwind of 2% on sales and 4% on profits, with the majority of this effect occurring in the first half of the year. The health, safety, and well-being of our employees is always the top priority for us. Since the initial outbreak of COVID-19, we have taken numerous actions to protect our employees globally, and we continue to monitor and respond accordingly as the situation unfolds. We have also initiated multiple cost containment actions across the globe to mitigate the adverse impact of COVID-19 without compromising on our ability to capitalize on growth opportunities in the balance of the year. Nevertheless, as the situation continues to evolve on a daily basis, the final impact could be significantly different.
We have again added three new customer case studies that help illustrate how our three businesses improve the performance of our customers and help them to achieve their sustainability targets by reducing energy expenditure and waste. However, in the interest of time, on this occasion, we have moved these case studies to the Appendix One, slides 23 - 25 of this presentation, and I would encourage you to read more about them at a later moment. Moving now to the summary and outlook slide on number 20 of our presentation. We are pleased to report strong full-year performance, with 8% revenue growth on a reported basis and 6% on an organic basis. The group operating profit grew 7% on both an organic and a reported basis, with the group's operating profit margin at 22.8%.
Excluding the contributions of the 2017 acquisitions, the group's underlying operating margin was 25.1%. The Chromalox's operating margin increased to 15.1% in the second half of 2019, which is 40 basis points above the full year 2018 margin. We acquired Thermocoax in May, and together with Chromalox, formed the Electric Thermal Solutions business. This acquisition significantly enhances the technology and product offering of the Electric Thermal Solutions, expands its addressable market, and doubles its presence in Europe and Asia. Global industrial production growth rates are expected to slow further in the first half of 2020, when we assume the majority of the adverse impact from COVID-19 will occur. Against a very uncertain and rapidly evolving situation.
We assume that the twin headwinds of currency and COVID-19 will offset the underlying organic growth of the group. Nevertheless, we have already initiated cost containment actions to protect our bottom line, and we will strive to maintain the group's operating margin in 2020 at similar levels to 2019. We will now be pleased to take questions from the analysts in the room, followed by questions from those joining us remotely. I would request that before asking your questions, please state your name and that of your organization for the benefit of those listening remotely. Wait for the microphone there.
Thanks, Nick. It's Mark Davies Jones from Stifel. A couple, if I may. Firstly, in the past, you've been very defensive through periods of weaker growth, really driven by the self-generated sales model. Is there any threat to that in a period where people are getting more questionable about letting people into their facilities? Are you finding any issues in actually accessing customer premises? I mean, certainly in our industry.
Because of COVID-19?
Yes, where there's been outbreaks, that, it, like all companies, our customers are also restricting access of external people and sometimes limiting the access of their own employees. So it's we see this as a normal situation derived from COVID-19. We also see it as something that's transitional, and that as soon as the outbreaks are contained, we'll start going back to normal, and we've seen that already in China. Now, the situation in China has evolved quite rapidly. If you look at where it was at the beginning of February and where it is now, beginning of March. So whilst we did see access restrictions in the beginning, we're seeing that also returning to normality.
We don't think that puts the business model of Spirax in jeopardy. It's just a delay i n some of the activities that we would then, otherwise be doing anyway.
No. Temporary.
Thank you. And the other question was about the oil price. In looking at the outlook for Chromalox, it's obviously already looking relatively soft in the US. Some of that plays into US oil and gas markets on the heat trace side of gas. Is that an additional concern as CapEx budgets get cut there?
Look, this is a situation you remember we went through back in 2014 , and admittedly, we didn't have Chromalox at the time. But again, even in Chromalox, the exposure to the oil and gas industry is, you know, mid-teens% of their sales, okay? And for the group as a whole, it's somewhere in the range of 7%-8%. So it's one of the many sectors that we service and, and have a good, good response to. And a lot of the work that we do is at an MRO level. Yeah? And therefore, maintenance, replacement, overhauls, improvements, small improvements, those things continue. Where the capital budgets for expansions or new builds can get delayed or postponed.
But, you know, it is part, and you're right, heat trace, the heat trace part of Chromalox, which is about a quarter of their sales only, okay? So it's not the major part. The more important part of Chromalox and of Electric Thermal Solutions, in fact, is the industrial heaters and systems that we do. So heat tracing is about a quarter of Chromalox and maybe 20% of Electric Thermal Solutions as a whole. So yeah, there's always different areas that get impacted by certain industry movements, but it's nothing that dramatically alters the competitiveness or the outlook for the group.
Thanks very much. Can I ask just one to Kevin, if I'm not being too greedy? Working capital, are you having to leave more leeway given what's going on in the supply chain? Should we allow for a bit of outflow?
I think that is possible. We obviously have this buffer, Brexit buffer stock that we built, and we're utilizing that through the year, and we'll replenish it by year end. I think there's possibilities where you've got dual supply lines that we will see inventories increase during the year, but our stock's very durable, and we would see those wind down as the COVID-19 passes on. So I think in the year, probably not a huge impact. In the half year, maybe.
Next question, Jonathan?
Good morning. Hi, it's Jonathan Hurn. Just two questions. Firstly, can you just talk a little bit about your outperformance you're seeing in biopharma, in Watson-Marlow? Just give us a little bit more color, the rate of outperformance, where you're seeing it going forward. Do you think there's M&A opportunities in that space within Watson-Marlow? So just essentially fleshing it out a bit, that would be very helpful.
Yeah, so biopharm, as you all know, and I'm sure you've got analysts that are specialized in following that industry. It is an industry that is booming, you know, and growth has been double digits for the last many years. And in particular, the last couple of years, we seem to have seen an acceleration of that double-digit growth, which is what I'm referring to. And you will have noticed that obviously, Watson-Marlow's the share of biopharm of sales into the biopharm industry for Watson-Marlow has been growing.
And just a few years ago, we were talking of around 40% and then closer to 45%, and now we're saying it's actually got close to, not yet half, but close to 50%, which inevitably means we are gaining share in a rapidly growing industry. We're gaining that share because the products that we have in the Watson-Marlow portfolio for this industry, for the bio, are very well positioned and at the leading edge of some of their trends, for example, single-use applications. And we've got multiple products that we have either developed internally or acquired, like the BioPure connectors, or the Flexicon filling machines, which are gaining a lot of traction and helping us gain more share, and hence increasing the share of biopharm inside of the industry.
We're very pleased, and we think that, you know, that all the actions that we've taken in the past, and we continue to take, will continue to reinforce those trends. Now, in terms of M&A space, or M&A opportunities in that space, we're always on the lookout for them, you know? And, you know, we continue to monitor. We have a pipeline of opportunities that we see. The important factor to remember for the group, irrespective of whether it's in Watson-Marlow, it's in Specialties or ETS, so Electric Thermal Solutions , is that an M&A opportunity has to fit our overall strategy. It has to be able to supplement the organic growth, which is, and will continue to be, the main driver of our business.
Therefore, we have to find the right kind of M&A to reinforce our organic growth of the business, and we have to be able to see ways of adding value to that target, not just getting scale from it, okay? We are on the lookout, but you know, we never give any predictions in the M&A space, 'cause you never know what's gonna become available and when.
Thanks. And just one follow-up maybe on that biopharm. Obviously, when that Aflex Hose gets up and running and the capacity comes online, how much more capacity do you get out of that facility, from bringing the four sort of lines into one, relative to where you are now?
So for that plant that we are nearing completion of, safe to say, but also for all the other plants of Watson-Marlow, we are reviewing our capacity to be able to accommodate continued double-digits growth in the biopharm sector, right? Because and in some of them, we're strong. Some of the products, specifically within the biopharm portfolio products that we have to offer. Some of the products actually had very strong double-digits growth. And therefore, we've got to be constantly assessing our capacity and expanding it and debottlenecking it, so that you know, supply does not become a constraint to support this booming industry.
And the second question, just coming back to the oil and gas. If we just look at the steam business, I think South Korea is pretty strong for you in terms of oil and gas. How much of that geography is oil and gas, or how much is South Korea?
I don't recall that we've actually disclosed that level of granularity for Korea, but it is an important part of what we do in Korea, okay, and we have a very strong presence in Korea. We've got a very strong team there for over 40 years. Very well positioned with all the engineering, procurement, construction companies, the top ones in the country and top ones around leading companies in the world in that sector, and so we're constantly working on all the big projects that they've got ongoing. Yes, and so I think we're very well positioned in that sense.
Thanks.
Morning, it's Richard Paige from Numis. Just the one question for me, please. On, can we delve a bit more into the performance at Gestra, please? 'Cause obviously, it's had to contend with a pretty weak, core market. Have you-- and obviously pushed up the margin as well. Have you managed to make market share gains, or is that expansion to new territories that really driven it?
No, no, definitely, we, we believe that we have gained share in all geographies, okay? And if I, if I pull out the comments I've made throughout the presentation in three regions, what we're basically saying is that in the core markets of Germany, and just as a reminder, Germany accounts for around 40% of Gestra sales globally, in their home market. And then, some of the neighboring countries around Central Europe, like Italy and U.K., Poland, et cetera, those markets make up another just over 40%. So EMEA or Central Europe is an important part. And in those markets, Gestra did not see organic growth. There was a small decline, percentage-wise.
I want to remind you and everybody that's listening remotely that our strategy for Gestra is driven by a dual brand, market sector-driven strategy, okay? So we have the Spirax Sarco brand, and we have the Gestra brand, and each one of those two brands are focused on those priority sectors where they are stronger, they're better positioned, they've got better products and technologies to service the needs of those industry sectors, okay? One of the some of the core markets where Gestra is definitely the world leader, for example, are boiler controls, industrial boiler controls. The best industrial boiler controls in the world are from Gestra, one of the reasons why we were so keen to have them join the family.
Now, you can all figure out what the situation is for German capital goods manufacturers that are big exporters, and that that's been one industrial sector within Germany that's suffered a bit more, and the economy as a whole. So that's why we say some geographies, Germany, Central Europe, and specifically, some of these sectors where Gestra is focused on have been hard hit due to external factors. In the rest of the world, I mentioned in the USA and in Asia Pacific, Gestra's growth was 10%. Double, sorry, it was double digits. I don't know if I gave the figure, but I'll give it.
Okay, it was double digits growth in those other regions where their presence is smaller, admittedly, but you can see strong growth, and that's coming on the back of obviously, share gains in those markets. And even in the central economies where Gestra is well positioned, the markets fell by more than our sales, organic sales, just slightly off. So that tells you, yes, we're making share gains in across all of Gestra, and we're very pleased. Actually, the integration is going very well. The objectives that we set almost three years ago now, when we acquired the company, have all been met. We're tracking to those, and we're very pleased with the performance overall.
The margin gains are coming from, you know, just better practices in terms of price management, the tools that we've brought into Gestra from the group before, efficiency improvements, all the host of things that we said that we would be doing and that we're bringing from our original companies, and it's all going very well. Very pleasing for us.
Thank you.
Any more questions from the room? Robert.
Morning, it's Robert from Morgan Stanley. Just a couple of questions. One was on the non-biopharma bit of Watson-Marlow. Maybe you could just give us a little color in terms of what else you have kind of predominant exposure to within that business and kind of, I guess, after biopharma, what, what's the kind of next bit of that business that looks most promising in terms of end market? I'd be quite interested to see that, because obviously, you mentioned you've got quite good progress there, 40%-50% on biopharma. What, what's the next sort of biggest component or the biggest growth driver there?
So, the other industrial markets, sectors that Watson-Marlow has very strong presence, obviously not as broad as the steam business, okay? So more concentrated on, for example, food and beverage, water and wastewater, environmental markets, right? So Watson-Marlow products for dosing chemicals into water treatment and improving quality of water and et cetera, those kind of markets. Medical devices, so manufacturers of medical devices, which is another sector that's moving very rapidly, and our products, you know, can go into. OEM equipment and some of the OEM customers that we have are specific for biopharm sector, but then we have other OEM customers that are sector generic or sometimes for food and beverage, for all the other sectors.
Equipment manufacturers as OEMs is another sector that Watson-Marlow is also very well positioned, so I think I'll leave it at those for now. There's a smaller exposure in mining, but it's small, and it's concentrated, focused mostly on platinum refining processes, those kind of stuff. They are broad, but I think the main ones that you want to note are those that I've mentioned. Therefore, we say, you know, all of those industrial markets, non-biopharm, are the part of Watson-Marlow that tracks more closely to IP, to global industrial production, whereas the biopharm sector has a dynamic of its own, driven by that industry.
Thank you. And then, just on the Electric Thermal Solutions business, o bviously, you had the challenges in the first half in Chromalox, but what's really sort of been the sort of biggest surprises or challenges of integrating that new type of business within Spirax? And I guess I'd be interested, you mentioned they're sort of operating as different units compared to Spirax. Is there any opportunity for cross-selling or plugging in sales guys that you perhaps didn't do before? I know you're sort of targeting slightly different markets, so I'd be interested in that.
Well, actually, thank you very much, Robert. That's a very good question, and I'm glad that you asked it, so we can expand on that point. If we go back to the rationale, the strategic rationale for the acquisition of Chromalox in the first place, it's a very similar business to the Spirax Sarco steam business, with very similar dynamics, and driven by direct sales, in their core market of the USA. So it has many of the characteristics. It services essentially most, almost all of the same markets that Spirax services or the steam business services.
However, the weighting of those sectors differs a bit between the electric technology and the steam technologies, but they're basically the two main technologies for providing heat transfer into an industrial process. Steam and electricity are really complementary technologies, not competing technologies, and now, you know, we have both of those technologies at our disposal, and the characteristics of the heat energy or the level, the temperatures, or the power intensities will vary by applications, and therefore, the exposure to different markets varies, whether you're in steam, but it's all related to the type of applications that require that heat, okay, so trying to keep it at a high level.
So, but because basically we're serving the same purpose, to transfer heat into an industrial process, and we're doing it through a direct sales model into the same markets, there's always going to be opportunities for us to leverage the presence of one business to the benefit of the other. And we had planned, and we are rolling out synergy, so revenue synergy opportunities, okay? We are keeping, and we've always said this, that we keep the sales organizations of each business focused on their technologies, because you can't be a specialist in everything, right? The people that are specialists in steam will continue to be focused on steam, and the people that are specialists in electric technologies will stay with electric technologies.
But that doesn't mean that the colleagues can't speak to each other, and they can't be referring each other to customers. And the other synergy opportunities that we are seeing that are very exciting, for example, Chromalox developed a really, really nice leading technology called around medium voltage heaters, and we think this has got a lot of potential. And because those medium voltage technology allows you to provide that heat in a more efficient electric higher electric efficiency, if you want. So, and one of the things that Chromalox has developed, for example, is a medium voltage heater for steam generating boilers. So as the world moves to decarbonizing, the use of steam is not gonna go away, but the energy source used to generate the steam is changing, okay?
Electric is one of the ways where that's going. Electric heating to generate steam is one of the ways that this is going. So we've got some very exciting internal opportunities that we see that we will unfold over the coming years. It's always been in our plans. A little bit delayed by the. We were hoping to get started more on that in 2019, and for the reasons that you've already alluded in the first half, that was a bit delayed, but, but we're back on track, and, I think these are very exciting opportunities.
Thank you. And then maybe just my last one is just around, I guess your, kind of medium-term growth strategy. And I know you've gone through a period where you were buying various distributors, and that was part of your sort of growth model. I guess, where do you see sort of regions for further opportunities on that front? And I guess, related to that, if we do continue to see an IP slowdown progress longer through the year, where is the biggest risk to not maintaining the margins at, at a sort of flattish level in 2020 coming from? Maybe if, Kevin could give some insights on that.
Okay, so you've got a couple of questions, and one there. I think I'll take them in the order that you raised them. The first one being opportunities for conversion from distributor to direct sales, and that's an ongoing process. Obviously, the maturity of that process differs across the three businesses, because the more mature businesses like Spirax Sarco, we're a bit more evolved, and therefore, there's. We already have a direct sales presence in the steam business across sixty-six countries. And, you know, therefore, you're getting to that point where you've got less major industrial economies to expand in your direct sales force.
At the other end of the spectrum, you've got ETS, the Electric Thermal Solutions business, which is got a much more concentrated in the U.S. and less around the world. So we've got a lot more opportunities to grow our business globally and leverage the footprint at other parts of the group. And Watson-Marlow is in the middle of all that. So this is a dynamic that cuts across all of our businesses and will continue for the foreseeable future. But given the different maturity levels, the opportunity size also varies across those businesses. And then, the second part of your question was around risk to the margins?
Yeah, I guess if IP did slow more than expected through the first half of the year, what's the biggest risk to not maintaining the margins?
I think you were pointing to Kevin when you asked the question.
Just because you put that slide in the appendix again, showing all the sort of relative moving parts. So I'd just be interested if you could sort of flesh out which bits are higher or lower risk within the directions of arrows you've shown.
Do you want to get him talking for a while Just because you put that slide in the appendix again, showing all the sort of relative moving parts. So I'd just be interested if you could sort of flesh out which bits are higher or lower risk within the directions of arrows you've shown.
Yeah. So obviously, to counter the effects of COVID-19, we're already putting cost containment operations in place. Our biggest single cost is labor, 35% of sales. And our people, and everybody says this, are our most important asset. So we wouldn't look to drastically cut anything, unless we saw a really huge decline in industrial production. But we think that the cost containment process we've put in place now will be able to maintain the margin for what we see at the moment. If that changes, there are other things we can do, but it's more about not replacing people through churn rather than actually cutting resource. We wouldn't expect to do that, and we should be able to maintain margins.
Also, of course, you have to remember that our reaction to IP is less intense than some other companies because of the MRO business we have, because of the recurring business that we have in Watson-Marlow and the self-generated business. Remember, only 85% of our revenue is OpEx revenue, only 15% is CapEx, and it's the CapEx that tends to be hit most in terms of recession.
Thank you.
Any more questions from the room? Thank you very much. Have we got some calls? Okay.
Your first question comes from the phone, comes from Alexander Virgo from Bank of America.
Morning, Nick. Morning, Kevin. Thanks very much for taking the call. I'm sorry I couldn't be with you. I just wondered if you could talk a little bit bigger picture around how customers have responded in the current environment. Maybe contrast it with how things were developing into the end of last year, and how you have seen that sort of impact happen over the last quarter, also, and what you sort of see in terms of how people are talking to you, in generating business. Because we're just trying to get a better feel for how companies themselves are responding away from the sort of, obviously, the restrictions and requirements put upon them by governments. Thank you.
Hi, Alex. Good to hear you. Thank you for your question. So, I think it's all specifically related to COVID-19 that you want to understand the reactions from customers?
Yes, please.
Okay. Well, look, obviously, this is a very recent development. The outbreak only really started materializing at the end of January in China. And at which point, the country was already in its Lunar New Year migration process, which is huge in China. You got something like 400 million people traveling around to visit their families in what equates to, so for example, Christmas holiday seasons in the Western world. So, it is. There could have been a worse time for the outbreak to come out in China because of all those people. So, that forced the Chinese government to take very strong actions as soon as they recognized that there was an outbreak, and that they needed to contain it. The actions were very severe.
You've all followed in the press what happened since, which was delaying the return to work, trying to, you know, force social distancing so that you could try to contain within the Wuhan province to start with, but also trying to avoid it spreading across the rest of the group and the country. I think that was actually, looking back now, four or five weeks later, six weeks later, I think it was successfully tackled, albeit in a very necessarily dramatic form by the Chinese government. Customers, which was the question for us, have reacted in the ways that you hear about in the press. I mean, our relationship with customers is very deep.
Because of this direct sales model, we and the high exposure to MRO activities and the self-generated initiatives that we drive with our customers, a lot of our work is truly walking the plant of our customers. It's difficult to provide that kind of service and solutions for our customers if you can't access their plant or if the customer himself can't access his own plant. That does put a delay into the capture of certain opportunities that were already, you know, identified or being worked on for resolution after the Lunar New Year, for example, and still on China, in that sense. We don't see any of that business actually going away. What we are seeing is a delay in capturing of the order.
And it's almost like a little gap in the pipeline of the orders coming through. And as a reminder, our business has one of the good things about it is very granular. These are all small ticket items. Even the self-generated solutions that we provide for our customers are, you know, on average, somewhere around GBP 30,000, GBP 40,000, GBP 50,000, so still funded out of customers' OpEx budgets. And what we're seeing is just a natural delay on that, not businesses disappearing, like in some industries, if the plane takes off with an empty seat, well, that seat is lost. In our case, you know, it can be delayed a few weeks.
Some of the larger capital investment projects might be delayed a bit more than that, but that's basically the situation, and we're operating very well. Our sales engineers have remained in contact, sometimes calling from home, speaking with our customers, keeping a pulse. We've also, and I think it's nice to put a little note in that sense, that some of our customers. We support hospitals, we support the healthcare sector, biopharms, pharmaceutical industries, so both in Steam, Watson-Marlow, ETS. So in those sectors that are struggling, were prioritizing response to the outbreaks, we have had calls from customers saying, "Look, I know we're in lockdown. Nobody else can come in.
We're not letting anybody in, but we need. We've got a problem in the boiler in hospital X, so could you come and help us see how we fix it, because we. And we took exception, and the hospital put special conditions for our people to access the plant, our technicians, our service engineers, to access the plant and help them get up and running faster to support the recovery actions. So it's been, you know, intense period, of course, a lot of uncertainty, but very good support from customers, and we do believe it's a crisis, but it's a temporary one, and we believe that the business will get back to normal.
That's very helpful. Thanks very much, Nick. And if I could follow up just on Watson-Marlow. Obviously, a very, very strong growth there, again, consistently ahead of your sort of more normalized growth guidance, which is totally fair enough. But I'm just wondering how we should think about that, for 2020 in the context of your overall group guidance. I know you normally don't sort of break it out, but I'm just wondering how quickly we should think that might or might not fade off.
In terms of the biopharm sector fading off?
Well, I guess, I mean, overall, I mean, it very, very clearly, your commentary around biopharma is positive, and clearly, you're expanding capacity to meet stronger demand. So I don't anticipate that fading too much, but I'm guessing the rest of the business may be a little, but I'm just trying to piece together the divisional expectations, if you like, just to help build a picture for the, for the group. Thanks very much.
Thank you, Alex. Thanks for your question. Well, look, we are probably for the first time being a bit more explicit about the fact that you have those two dynamics within Watson-Marlow, the biopharm sector and all the other sectors that we support in Watson-Marlow. And it's. I'm not, I don't think I'm telling you anything that you didn't already know, but we're just reminding you that, you know, because at the moment, we expect the biopharm industry to continue to grow at double digits in a strong way.
And because of our strong positioning in that, we expect to continue to gain share in that industry, and therefore, grow at a faster pace than the industry itself, continue to do that. The other part of Watson-Marlow is more correlated to global IP, like the rest of the group. And therefore, if global IP is weakening, you'd expect that part of Watson-Marlow to also weaken to some degree. Not fade, you know, I would say it's just the normal cyclicality of that part of those sectors that we support in Watson-Marlow and around the rest of the group. So it is around that.
Of course, looking for 2020, the exceptionally strong growth rates that we saw in 2019 for Watson-Marlow are a very high bar and a very strong comparison for to measure yourself off for 2020, for 2020. So we want to keep that in context, which is why we continue to guide or to expect, I should say, that Watson-Marlow would continue to grow at mid, organically, mid to high single digits, because you've got these two dynamics, where one part continues to grow strongly, the other part will slow a bit because of the cyclicality of the markets. And we've got this tough comparison to the former year, the previous year. So that's really the outlook. Kevin, you want to add something?
Nick, if I could just add to that, so certainly prior to COVID-19, we were looking at sort of mid to high single digit growth for Watson-Marlow. I think COVID-19 will have an impact on Watson-Marlow as well. It's not as overweight as the steam business is to those territories of China, Korea, and Italy, but it will still have some effect, some effect, so I think the mid to high single digit is pre-COVID-19 impact.
Yeah, yeah, that's a good reminder. Thank you, Kevin. It's true. That was our pre COVID-19. We also state that we think the exposure of Watson-Marlow to COVID-19 is a bit less than the other parts of the group because of the biopharm sector. So not, you know, because not only because, well, one of our assumptions is that the biopharm sector will be less affected by COVID-19 than other industrial sectors, and therefore, that will also attenuate relative to other two businesses, Watson-Marlow's impact of COVID-19.
That's very helpful, gents. Thanks very much.
Thank you. We have two more calls.
This comes from Michael Tindall, from HSBC.
Morning, gentlemen, Michael Tindall from HSBC. Just one for me. If we can talk a little bit maybe about Chromalox Europe. I see that you've you're looking to make some changes in France. I wonder if you can give us a bit more detail in terms of perhaps the scale of that and the timing around that. And then, if my math is correct, that probably doesn't quite get you where you need to be on the margin in line with the rest of the group. So is there more activity, or are we now looking for more help in terms of top line to bring the margins up to the kind of group level? Thanks.
Okay. Thanks, Mike. Good to hear your voice. So, Chromalox in Europe, we had already indicated last year that the operations, the European operations of Chromalox, were loss-making. And last year, for the reasons we explained in the first half, it actually suffered a bit more. And therefore, we had indicated that we were looking at multiple ways to improve the operational performance. And in the case of Europe, we needed to do something a bit stronger.
So that's why we've now released and started a process of consultation with our employees in France, and the Chromalox employees in France, with a view to modify some of the processes, for example, that we are doing in-house, probably outsourcing those to either other plants of Chromalox or to third parties in some cases, and then other internal performance issues that we're addressing, but ultimately would lead to a reduction in force in that Chromalox European activities. And I can't disclose further details because the consultation has just started, and therefore, it would not be appropriate or legal of me to give any further indications because we're still in the consultation process.
But what we are making clear is that we have started that consultation process, and the view is that we will be getting the Chromalox European operations back to at least breakeven by the end of next year. Okay?
Okay.
That's what we wanted to indicate. This is just one more of the many actions that we're doing to recover the profitability of Chromalox to the levels that we expect.
Mike, if I could just add to that, we give ourselves ten years from the acquisition in 2017 , and we still are holding to that. We believe we can get both Gestra and Chromalox to the low twenties within that period.
Yep. So t hose longer term goals have not changed. These are just different activities that we're taking to get us to that goal, okay? That we report as we unfold them. Okay?
Thanks.
Okay. Thank you very much, Mike. Another call?
This comes from Andrew Douglas, from Jefferies.
Morning, gents. Three questions, please, if I may, hopefully all nice and quick. Can I just confirm that the GBP 25 million of sales impacts and GBP 11 million of EBIT impacts from COVID, that is just China? Or does that include any recent activity from Italy? Secondly, I noticed that Watson-Marlow had quite a lot of investment in new products in 2019 . Is that a hump for Watson-Marlow, or does that kind of continue into 2020 and beyond in terms of investment? And then last but by no means least, I noticed that you paid out a GBP 5 million earn-out on the pre-revenue acquisition that you made in Watson-Marlow. I'm assuming you're happy with the progress being made there.
What, why exactly did you pay out for the earn-out? And are you able to give us a bit more information as to kind of what's going on there, or is it still too early?
Okay. Hi, Andy, good to hear your voice also. Thanks for your questions. On the earn-out, I'll start with the third question in Watson-Marlow. We had been indicating that we'd made a small acquisition of a small pre-revenue company. And this is an exciting development for Watson-Marlow. This is a technology that this company has been developing, and it's, in essence, expanding the envelope of peristaltic pumping or taking the peristaltic technology to a new level. Therefore, Watson-Marlow as the world leader in peristaltic pumping technology is also leading the way in the development of new technologies. This company had developed some. It's a small company. It's literally a handful, a little bit more than a handful of very good PhDs that were doing research and had filed for some patents.
And we saw this as a technology that we can now plug into the global direct sales organization of Watson-Marlow, and create new products that would allow still peristaltic pumping, but in different ways for higher flow rates, higher pressures, and more importantly, higher chemical resistance. So being able to through this technology continue to displace other types of pumps with peristaltic technology. And the trials that we were running since the acquisition of these products have all been very successful, which is why and those were the conditions that the sellers needed to meet. We had to pass very stringent tests to prove the technology. They've been passed.
We are gearing up to launch some products with that, including that technology, and that's why we released the payment of the earn-out that you picked up in our announcements. Your first question was on COVID and whether the value impacts included was only China or included our estimate around the world. The answer is the latter.
That overall 2% on sales, and these are round numbers, of course, intentionally. Again, this is all about assumptions, right? We've always said, and if I can expand on your question, I think it's helpful for everybody that's listening. We've always said that this company, Spirax Sarco, has low visibility because we operate with average seven weeks order books. But high predictability because we've got this recurring revenues, MRO, self-generated sales, the strategies that we've been unfolding, and continue to strengthen. So we have good predictability, and I think our history and our track record shows that we've usually been able to be quite accurate in our predictions of where the business will go. And that's because we've got very strong internal models that we continue to deploy. But every model is based on assumptions, right?
So we've tried to outline, and that's why I went through this detailed outlining of the assumptions that we've made, and based on those assumptions, we estimate in the range of 2% top line and 4% bottom line headwind to the organic growth that we would be otherwise achieving. Is it right? We don't know.
It's our best estimate. At this point, we just think it's better to share with you openly, transparently, where we're going, you know? I like to joke, we're not trying to get a hole in one here, guys, if that analogy resonates with some of you, golf analogy. This is not about trying to hit the pin in one strike. There's a lot of fog out there on the field, so it's difficult to know where the hole is at the moment. So we're trying. We're assuming it's somewhere, and we're trying to get closer to it, and we'll update you as we go.
But we think giving you that guidance is better than saying nothing at this moment, and waiting till the fog clears, because we might find out that we're further away from the pin than we thought. So it, you know, we might have overshot the pin also. So it's all about trying to get closer to where we think it is, based on a list of assumptions, okay? Which will vary, but if those assumptions were to hold true, this is the impact that we're expecting, and c ontinue updating you as we go.
Okay, thank you.
Okay. So, we have no more calls. I thank you all. Sorry?
Second question on Watson-Marlow products.
Oh, sorry, Andy. Thank you. Can you just remind me? The second question was Watson-Marlow.
New products. Yeah, he's gone.
No, he's gone. Sorry?
It was about follow-up on new products, investments at Watson-Marlow, whether that was a one-off or-
Yeah, I can take that, actually.
Okay, go ahead.
The quick answer is no. You know, there's a continuous pipeline for products in all our businesses. Watson-Marlow, probably more so than the other two, in that they have a more dynamic vitality index and refresh products. So no, no particular bulge either last year or this year.
Yeah. It continues to be an important part of all of our business in terms of new product developments. And we try to do as much as the direct sales organization can absorb, right? Because that, it's not about how much money you throw at a new product development. Anybody can throw money at it, but we've got 1,600 men and women around 66 countries in the world, that later have to sell any new product that you launch. And you have to train them and deploy it and stocks to support it. So there is what I jokingly call an absorption capacity of a direct sales organization. So if you throw too many products simultaneously, your efforts might not be. So that's how we control.
But new product development for Watson-Marlow, for Electric Thermal Solutions, and for Steam Specialties, it continues to be an important part of our business model, and we try to push that envelope as far as the direct sales organization can absorb. And on that note, thank you all very much, and those on the call also. It's very nice to see you all, and hope you all have a very good day.