Hello, and welcome to the Spirax-Sarco Engineering 2021 half-year results call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only; however, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to our host, Nicholas Anderson, Group Chief Executive, to begin today's call. Thank you.
Good morning, everyone, and welcome to our 2021 half-year results announcement call. I'm Nicholas Anderson, Group Chief Executive, and I'm joined here today by our CFO, Nimesh Patel. Regarding today's presentation, I will start by sharing the highlights of the first half, and then Nimesh will take you through our financial performance. Later, I will return to cover the operations and outlook for the full year 2021. To finalize, we'll be happy to take questions from the analysts on the call. Moving now to slide two. The outstanding efforts and contributions of all our employees worldwide were of pivotal importance to continue serving our customers during these unprecedented times, meeting their strong demand requirements while maintaining good cost controls and delivering a very good performance in this first half year. I am very proud and very grateful to all our colleagues for their engagement and contributions.
We continue to improve the group's health and safety performance with a further reduction in lost-time accidents. We also continued our numerous initiatives to improve employees' well-being while becoming more inclusive and diverse. Our COVID-19 minimum standards were also updated to reflect the evolving learnings from the pandemic. We have accelerated the recruitment of new direct sales and service engineers, as well as stepping up revenue and capital investments to expand our digital capabilities, including the appointment of a Group Digital Director. We have also accelerated our capital investments to increase manufacturing capacity and improve manufacturing efficiencies across all three businesses, with multiple new state-of-the-art facilities at different stages of construction. In particular, we have accelerated and expanded capital investment in Watson-Marlow, increasing operational capacity to meet current extraordinary demands.
We remain committed to innovation and have accelerated investments into new product introductions, with multiple new products and services released during the first half. We have also stepped up our initiatives to leverage the ample synergies between the Electric Thermal Solutions and Steam Specialties businesses, particularly focused on helping customers decarbonize and mitigate the impact of our customers' operations on the environment. During the first half of 2021, we completed a third exercise to refresh our group's sustainability strategy that we launched globally in June and are now actively resourcing to ensure an effective implementation. Moving now to slide three. During the first half of 2021, global industrial production expanded 11% compared to a 7% contraction in the same period of last year, helping drive strong underlying base business demand across all three businesses, which is mostly derived from our customers' operational and maintenance budgets.
We have also experienced sustained extraordinary demand from the pharmaceutical and biotechnology industry, driven by COVID-19 vaccine production. Our robust strategy, anchored on a direct sales model that favors self-generated growth, as well as excellent execution that included agile price and cost management practices and flexing over our manufacturing capacity, enabled all three businesses to capitalize on this increased demand and convert operating leverage into strong trading margin growth. The Steam Specialties business achieved strong sales and margin progression, while the Electric Thermal Solutions business continued improving its underlying operating performance together with its organic sales growth. The Watson-Marlow business leveraged the exceptional demand from the pharmaceutical and biotechnology sector, as well as the strong demand growth from its process industries, to achieve exceptional organic sales and profitability growth. Continued strong working capital management practices delivered good cash flow performance while supporting sales without compromising on capital investments.
On slide four, we provide a summary of our ESG activities in the first half, which included the launch in June of our refreshed sustainability strategy, internally branded One Planet: Engineering with Purpose. The strategy was developed with the input from over 600 people, internal and external, and is our commitment to sustainability, as well as our roadmap to build a more sustainable future and to leave a better world for the next generations. As the graphic illustrates, One Planet underpins our ESG objectives and builds on our responsible business foundations of health and safety, people and well-being, inclusion and diversity, as well as ethical business practices, in order to achieve our company purpose, which remains to create sustainable value for all our stakeholders as we engineer a more efficient, safer, and sustainable world. The four objectives contained within the strategy are aligned to the UN Sustainable Development Goals.
These are addressing climate and environmental impact within our own operations, helping our customers become more sustainable, improving the sustainability of our supply chains, and engaging with our communities to support well-being and sustainability challenges. We will achieve these four objectives through six strategic initiatives, which I will cover in more detail on the next slide. In addition to these six strategic initiatives, we have continued to progress our broader ESG agenda. Our lost-time accidents reduced by a further 50% to our lowest level on record. We undertook our third global employee engagement survey with a record 91% participation rate and strong progress over the 2019 and 2017 surveys. Female representation among senior leadership rose to 31%.
We participated in over 200 community engagement activities across the world, and we became a signatory to the Change the Race Ratio campaign, which strongly signals our intent to continue our focus on creating an inclusive culture where the full diversity of our people can thrive. Now, on slide five, you can see the six strategic initiatives that will deliver our sustainability strategy. Each of these initiatives has an executive committee sponsor in order to ensure focused implementation of our One Planet sustainability strategy. Our six strategic initiatives are, first, achieve net zero greenhouse gas emissions. We have brought forward our net zero goals for Scope 1 and 2 by 10 years to 2030. Additional climate-related goals include 100% of electricity to be sourced or self-generated from renewable sources and 100% of our vehicle fleet to be electric. Second, deliver Biodiversity Net Gain.
Our aim is to protect and restore biodiversity by implementing biodiversity improvements at our sites and in the communities in which we operate to deliver a 10% net gain on our operational footprint by 2025. Third, implement environmental improvements in our own operations, which includes reducing water usage by 15%, reducing waste generation by 10%, and zero waste to landfill by 2025. Fourth, grow sales of products with quantified sustainability benefits. We aim to achieve sustainable sales growth by understanding the whole life cycle impact of our products, growing sales of solutions with quantifiable sustainability benefits to customers, and eliminating all virgin, non-recyclable, or non-biodegradable packaging by 2025. Fifth, raise sustainability standards across our supply chain. We will embed additional sustainability criteria into our supply chain management and drive improvements in our supply chains that reduce our Scope 3 carbon emissions.
And sixth, support the well-being of people in our communities. Among our main initiatives is the establishment of a GBP 5 million education fund to support inclusive access to education, as well as supporting all employees to use their three days per year of paid volunteering leave to achieve 150,000 hours of employee volunteering by 2025. In appendix six of this presentation, we added three slides with further details on the actions that we are undertaking to accelerate our ESG agenda and implement our One Planet sustainability strategy. With that, I will hand over to Nimesh, who will take you through our financial performance.
Thanks, Nick, and good morning, everyone. Alongside Nick, I'm pleased to be presenting another strong set of results built on the foundations of our robust business model and the implementation of our strategy. So moving to slide seven. As always, the numbers we will be discussing today are the adjusted results. Details of the adjusting items are given in the appendix. Sales were 13% higher, reflecting organic growth of 17%, partially offset by a currency headwind. Operating profit grew by a higher than anticipated 37%, or by 42% organically, and was also impacted by currency movements. Our operating profit margin increased by 440 basis points to a record 25.3%, also increasing by 440 basis points organically. We achieved this margin as a result of the higher volumes we experienced in the first half and our ability to quickly and efficiently expand production to meet our customers' needs.
This delivered a positive impact from operational gearing. Also, our established price management practices allowed us to mitigate the impacts of cost inflation. The 440 basis points increase in margin was after our step-up in revenue investment to support our future organic growth and margin improvement. Following the strong first half, we will further accelerate these investments in the second half. Net finance expense was slightly lower, and we anticipate the charge in the second half of the year to be broadly similar to that in the first half. The tax rate decreased by 100 basis points to 27.0%, in line with guidance for the full year, which does not yet reflect a potential rise in the U.S. federal tax rate. Adjusted EPS of GBP 1.576 was 41% higher and above the increase in operating profit due to the reduced tax rate.
In respect of the first half, we are proposing an interim dividend of GBP 0.385, reflecting our robust performance and confidence in the full year outlook, while still moving our dividend cover back towards the top end of our stated range of 2x-2.5x . This is an increase of 15% in the interim dividend, following an increase of 7% in the total dividend for 2020. Moving to the sales bridge on slide eight. Currency had an adverse impact of over GBP 21 million on sales, which is 3.7%, driven by a strengthening of sterling, particularly against the U.S. dollar. If July month-end rates were maintained for the rest of the year, we would expect to see a headwind of below 4% for the full year.
Organic growth in Steam Specialties sales was 12.6%, with double-digit growth across all our regions, reflecting a recovery from the impacts of the COVID-19 pandemic in 2020. Organic sales growth in ETS was 6.1%. We experienced a higher growth in orders, which typically have a longer lead time to ship. This is reflected in the further increase in our order book at the end of the first half, which will support our second half sales. Watson-Marlow performed strongly with continuing exceptional COVID-19-related demand from pharmaceutical and biotechnology customers and strong growth in our process industry sectors, with organic growth of 34.7%. The group's organic growth in sales was 17.4%. The next bridge on slide nine highlights the movements in adjusted operating profit. Exchange movements reduced profits by GBP 4.4 million, or 3.7%, as a result of both translational and transactional impacts.
If July's month-end rates were maintained for the rest of the year, we would expect to see a headwind of over 4% for the full year. Steam Specialties organic profit was up GBP 23.9 million on organic growth of 36.3%. We benefited from operational efficiencies in supply as we ramped up to meet higher demand, and we mitigated inflation in our costs. ETS organic profit was up GBP 2.7 million, an organic growth of 31.8%, reflecting the benefits of our restructuring actions, ongoing operational improvements, as well as the increase in demand. Watson-Marlow's strong performance delivered an additional GBP 24.1 million of organic profit, or organic growth of 51.1%, while incurring additional costs to grow our capacity and invest in future expansion in light of the exceptional demand.
As mentioned, we have sought to step up our investment in future growth and margin expansion, including in our announced sustainability initiatives. Part of this will be reflected in our central costs as we seek to resource our organization, and in the first half, our costs were GBP 2.4 million higher. We expect a larger increase in the second half. The organic increase in the group's adjusted operating profit in the first half was GBP 48.3 million, or 42.1%. Turning to slide 10, our profit margin expanded by 440 basis points to 25.3%, a record margin for our group. On an organic basis, the margin also increased by 440 basis points. I spoke earlier about the drivers of the increase in our group margin, with these actions being taken across all three of our businesses.
As a result, in the Steam Specialties business, our margin increased by 430 basis points to 24.8%, also increasing the same amount on an organic basis. In ETS, our margin increased by 200 basis points to 12.6%. On an organic basis, the margin increased by 250 basis points, with the difference being the result of currency impacts. In Watson-Marlow, our margin increased by 440 basis points to 37.0% and by 400 basis points organically. As we've done previously on this slide, we have set out our adjusted operating profit margin in both the first and second half of the year. As you will see, typically, our profit margin tends to be higher in the second half of the year, reflecting the higher level of sales, except in those years impacted by acquisitions.
This year, we are guiding to a flat margin in the second half, as following the strong first half, we plan a further acceleration of our revenue investments, which will offset the positive operational gearing effect in the second half. Turning now to cash flow on slide 11. Operating profit to operating cash conversion was 85%, broadly in line with last year's 86%, with the increase in operating profit being offset by an increase in working capital. We anticipate that cash conversion will be close to 80% for the full year as we step up capital investments, including those previously announced to expand our manufacturing capacity in Watson-Marlow. In light of the higher demand, and while we ramp up our capacity expansions, we have maintained our level of inventory in line with the end of last year.
Overall, working capital as a percentage of sales has therefore decreased by 140 basis points to 21.5%. We continue to expect our capital expenditure in 2021 to step up significantly to 5%- 6% of sales. We ended the first half with net debt of GBP 193 million, down from GBP 229 million at the end of last year, and net debt equated to 0.6 x EBITDA. Thank you, and I will now hand you back to Nick to run through our market and operations.
Thank you, Nimesh. On slide 13, you can observe the sequential evolution by quarter of global industrial production output, which we refer to as IP, and as you all know, is the best predictor of our markets. The blue line represents the latest forecast by Oxford Economics published on the 27th of July, which is generally in line with the overall global IP forecast available at the time of our previous trading update in May. The red line represents Oxford Economics' forecast five months earlier at the time of our 2020 full year results announcements in March. The first point is to note the higher level of global industrial production output that occurred in the first half of 2021 compared to the forecast from earlier in this year, which is what raised the global IP forecast for the second half and for the full year 2021.
My second observation regards the forecast of further global IP acceleration in the fourth quarter of this year, which could lead to another year of strong global IP growth in 2022. My final observation is that we've seen Oxford Economics' forecast fluctuate considerably over the past six months, given the unprecedented circumstances created by the COVID-19 pandemic and successive infection waves, the uneven vaccination rates occurring across the globe, the complexities surrounding global trade, and the varied economic response plans different governments have enacted in response to these constantly evolving circumstances. I would therefore conclude by cautioning that while 2021 seems set for an unusually strong recovery, where global IP rates expand by close to twice the contraction levels of 2020, it is still too premature to draw firmer predictions for 2022. Now, on slide 14, we start the review of our operations in the Steam Specialties business.
Sales grew 13% organically in the first half of 2021, with a 3% currency headwind reducing reported sales growth to 9%. We have seen strong demand growth for products, services, and solutions derived from customers' operational and maintenance activities, which we refer to as OpEx-driven business. Demand was strong for both MRO-type base business as well as smaller projects or self-generated type business. Demand for larger projects, typically driven by the customers' capital expenditure budgets, remained below pre-pandemic levels. The operating profit expanded by a strong 36% organically, while a currency headwind reduced the reported operating profit growth to 32%. The operating profit margin expanded by 430 basis points to an all-time high of 24.8%.
Excellent execution that included agile price and cost management practices, flexing our manufacturing capacity, and continued efficiency improvements underpinned operating leverage to drive strong profitability gains without compromising revenue investments in digital sustainability and new product developments. The recovery in base business and smaller self-generated projects strongly expanded the order book in the first half and underpins our expectations of strong organic sales growth in the second half of the year. A step up in revenue investments, as well as the full impact of revenue investments carried out in the first half, are expected to offset the operational gearing from the organic sales growth and result in broadly flat margin in the second half compared to the first half of this year. Now, moving to slide 15.
In the Steam Specialties Europe, Middle East, and Africa division, sales were up 10% organically, but a 1% currency headwind reduced reported sales growth to 9%. The main operations in Europe of the U.K., Italy, France, Benelux, and Spain achieved strong organic sales growth, as well as South Africa and the Middle East. The operating profit grew 41% on both organic and reported basis, resulting in a 480 basis points organic trading margin expansion. Moving to the Asia-Pacific division on slide 16, sales were up 15% organically, but again, a 1% currency headwind reduced reported sales growth to 14%. China's exceptional sales growth was supported by very strong demand from smaller projects funded from the customers' OpEx budgets, many of which are self-generated. Larger CapEx-driven projects remained below pre-pandemic level and also impacted sales in Korea, which remain lower than the same period of 2020.
The operating profit grew 32% on both organic and reported basis, resulting in a 400 basis points organic trading margin expansion. Turning now to slide 17, the Steam Specialties Americas division achieved an overall 14% organic sales growth, while a strong 11% currency headwind reduced reported sales growth to 2%. The main operations of the USA, Canada, Brazil, and Argentina achieved strong organic sales growth, despite many countries across the region still suffering the impact of COVID-19. The operating profit grew 36% organically, resulting in a 340 basis points organic trading margin expansion. However, that strong currency headwind reduced the reported operating profit growth to 15%. Moving now to slide 18, the Electric Thermal Solutions business, or ETS as we call it, achieved 6% organic sales growth, which was fully offset by a 6% currency headwind to result in flat reported sales growth.
The strong order book built towards the end of 2020, as well as rising demand for base business solutions that are driven by the customers' operational budgets, underpinned organic sales growth in the first half of 2021. Order intake was very strong in the first half, in fact, even stronger than the orders growth in Steam Specialties. This resulted in a further order book expansion, which was driven mostly by increasing demand for ETS's highly engineered solutions. We have accelerated the thermal solution synergy project between ETS and Steam Specialties, uncovering additional exciting growth opportunities in the areas of electrification, decarbonization, and sustainability. The operating profit grew a strong 32% organically and expanded the operating profit margin by 250 basis points. The currency headwind reduced reported operating profit growth to 19%.
Going forward, we anticipate that the higher than normal order book combined with the scheduled shipments of some larger projects, such as the U.S. Navy orders booked in the fourth quarter of last year, will result in strong sales and margin progression in the second half of 2021. On slide 19, we note that Watson-Marlow's organic sales grew 35% with strong contributions from all geographic regions. A 4% exchange headwind decreased sales growth to 29%. The pharmaceutical and biotechnology industry, which accounted for over 55% of Watson-Marlow's sales in 2020, continues to experience exceptional growth driven by the development and production of COVID-19 vaccines. Watson-Marlow's strong competitive position within this industry underpinned exceptional demand and sales growth in that market during the first half of this year.
The process industries and medical device sectors, which accounted for close to 45% of Watson-Marlow's sales in 2020, also achieved strong sales growth, comfortably ahead of global industrial production growth. We have stepped up investments across our manufacturing facilities, particularly in our three U.K. locations, and achieved good progress expanding our manufacturing capacity to ensure uninterrupted support to our customers in the face of sustained strong demand. Operating profit increased 51% organically. Our currency headwinds reduced the reported profit growth to 47%. The operating profit margin expanded a strong 400 basis points organically to reach an extraordinary 37.0%. We anticipate continued strong demand across all Watson-Marlow sectors, which, combined with a higher than normal order book, will underpin strong sales growth in the second half of the year.
This increased operational cost and the full impact of the first half revenue investments, combined with the additional revenue investments planned for the second half, will offset the operational gearing benefits from higher second half sales to deliver similar operating profit margins to those achieved in the first half of this year. Now, moving to slide 20, 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 achieve their sustainability targets by reducing energy expenditure and waste while contributing to a more efficient, safer, and sustainable world. These case studies are in Appendix 1 of this presentation, and I would encourage you to read more about them at a later moment. So, moving now to my final slide, number 21, with the summary and outlook.
Group revenues increased 13% on a reported basis, as 17% organic sales growth was partially offset by a 4% currency headwind. All three businesses achieved strong organic sales growth in the first half of this year. The group operating profits increased 37% on a reported basis and 42% organically. The group's operating profit margin reached a new all-time high of 25.3%, 440 basis points higher than last year's first half on an organic basis. Excellent execution enabled strong operating leverage to drive that record operating profit margin. This strong first half operating profit performance was above our initial expectations and underpins the improved full-year profit outlook. If current exchange rates prevail for the remainder of the year, there would be a less than 4% adverse impact on sales and a more than 4% adverse impact on operating profits.
We anticipate continued strong market conditions in the second half of the year, in line with our previous guidance and supported by strong order books across all three businesses. Therefore, our expectations for full-year revenues remain unchanged. We intend to further accelerate revenue investments in the second half of the year, which, combined with the full cost impact of the first half revenue investments, will mitigate the positive operational gearing from higher second half sales. Therefore, we now anticipate a similar second half operating margin to that achieved in the first half of the year. That concludes today's presentation. We will now be pleased to take questions from the analysts on the call.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. So, once again, that's star one if you would like to ask a question. And the first question comes from the line of Andrew Wilson from JP Morgan. Please go ahead.
Hi, good morning, everyone. Thanks for taking my questions. I've got three, I think. It's starting with the margin guide for the H2. I guess just trying to get a few additional thoughts. I mean, you've clearly flagged what feels like a pretty significant step up in investment in the second half, and obviously, some of the investment in the first half kind of coming through in the numbers more fully. But just interested in terms of the other moving parts within the margin. So, for example, kind of price cost, given obviously the degree to which we've seen cost inflation and logistics cost inflation in a number of areas.
Just interested in terms of your sort of confidence in terms of offsetting that, maybe if we start there?
Hi, Andy. Good morning, and thank you for your question. Good one. Look, Andy, what we really want people to take away here is that that mitigation and the second half being the margin being somewhat mitigated or not fully capturing the operational leverage. We always have higher sales in the second half, and therefore, we always tend to have, other than two exceptional years where we had the 2017 acquisitions, we always have a higher margin in the second half. What's going to dampen that higher second half margin this year is not inflation. It's not the inflation of our costs or anything like that.
It is truly those revenue investments that we have stepped up in the first half, and therefore, we get the full impact in the second half, and we continue to step up in the second half, and those revenue investments that we talk about, just to be clear, this is additional people: sales, service, product development, sustainability engineers, energy engineers, digital investments in all of these areas that we know will underpin better performance, higher growth in years to come, but also, we're adding on all these resources to make sure that we can fully comply with this increased demand that we're already experiencing and not leave sales on the table because we didn't have capacity or something like that, so it's that step up of all these things that we call revenue investments that really is going to dampen a bit this second half margin.
The cost inflation that you asked about in your question, you all know we've got very good price and cost management practices across this group and fully embedded across all three businesses now. So, we have good internal processes to track the expected inflation of all of our costs, materials, labor, etc., and ensure that through good price management, we at least offset that inflation and protect our margins. So, we track those models very quickly. Yes, we are seeing rising inflation in some areas and in some materials, but that's all captured within our, as I call them, agile price and cost management, and therefore, that's not having any impact on the dampening of the second half margin. It is truly the investments that we're making to strengthen the business and support the growth.
Perfect. Same questions on ETS. Kind of from the comments around the order growth, it seems like sort of the organic sales number that we saw in the first half is really a function of kind of the slightly different markets that you have in ETS and the slightly different geographical spread that you have in ETS versus the steam businesses. I just wanted to check there wasn't any sort of change in the market on ETS or kind of sort of how you felt that business was positioned. I mean, it feels like the second half in 2022 is going to be pretty good for ETS given the momentum that you're seeing in the orders. Is that a fair comment?
Yes, Andy. You've absolutely captured it correctly. I made a point of mentioning that actually the order intake growth, we don't usually talk about orders, but we have highlighted that the order book was already up strongly at the end of last year and it's up even further in the first half of this year, which is a hint to tell you really that the order intake has been very, very strong. And we're very pleased about that. And it's driven by the engineered solutions that we have, these really good products, the opportunities with the leveraging of the relationship with Steam Specialties, this thermal synergy solutions that I mentioned. That project is really uncovering lots of exciting opportunities. So, we see the orders coming in very strongly. But you'll also recall that many of the ETS products have a slightly longer compared to Steam Specialties, slightly longer delivery time.
And therefore, the first half sales growth is a bit lower than steam despite the fact that the order intake was stronger than steam. And therefore, you're going to see that difference evening out in the second half of the year. So, when you look at the full-year results, you'll see that the growth in ETS will continue to be as robust as you would expect it compared to Steam Specialties. And there's definitely nothing related to market that's or the markets that ETS is more prevalent in that would be helping or holding that back. It is really very exciting. And I think you don't see it all in the first half sales growth because it's still in the order book, but you'll see it come through in the second half.
Very clear. Maybe if I can just venture one on 2022, specifically on Watson-Marlow, I remember the comments you made at the capital markets there around obviously what's going to be a very, very, very difficult comp period for 2022 for Watson-Marlow. I think the comments at the time was that there was still confidence that that business would be growing in 2022 on 2021. I don't know if you sort of prepared to kind of update us on that if there's any change at all.
No, the good news is there is no change, Andy, so I'm happy to confirm that. What we said in May regarding the outlook for future years in Watson-Marlow stands. Again, I've cautioned on the call just now that it's a bit too early to make stronger predictions for 2022 because things are still moving around. And as you would expect, it's still a bit premature to be making more firmer predictions or outlooks for 2022 as a whole. But with regards to Watson-Marlow, we do understand the concern about this such a strong first half and 2021 that there's an actual concern of do we see Watson-Marlow falling off a cliff next year or something like that. And we absolutely don't. We said that very clearly before, and we can confirm that today.
We still think that Watson-Marlow will see sales growth and profit growth next year, the magnitude of which will give better guidance in the future. But clearly, we are confident that both Watson-Marlow and the group will see further sales growth and profit growth next year. The margin will probably come down a bit, of course, because this year has been exceptional, and you wouldn't expect it to stay at that as all of those revenue investments catch up and you get the full impact, and you won't have as much operational gearing next year as you're having this year, but we'll still see sales growth and profit growth, and I think hopefully you don't have any concerns regarding that going forward.
Perfect. Very clear. Thank you, Nick.
The next question comes from the line of Michael Tyndall from HSBC. Please go ahead.
Morning, gentlemen. A couple of questions, if I may. Can we talk a bit more about the revenue investment? I guess in my head, I'm trying to figure out to what degree you've got a business at the moment that's working overtime, as it were, and you need to basically fill to kind of settle things down, and to what degree there is kind of a greenfield opportunity, and if there is, how long does it take when somebody comes on board before we start to see them operating at kind of full tilt? And then the second question is around one planet that looks to be a very comprehensive strategy, potentially class-leading, I guess. I mean, are you seeing that in terms of commercial rewards? I know all along it's been a case of heat transfer. It's all about efficiency, so naturally, it pairs well with ESG.
But now that you've rounded that policy out to consider a whole bunch of factors, does that now put you in a position where customers are saying, "Actually, we're definitely going to go with you because you've got a much more comprehensive strategy"?
Good morning, Mike. Thanks for two very good questions. I'll take them in the order that you asked them. On the revenue investments, yeah, I mean, you heard my response to Andy earlier. The revenue investments, again, just reminding everybody, yes, it is sales and service engineers, which, as you well know, take a bit longer to become operationally effective, etc., be paying their rent in terms of additional sales created by those people. But it's not only sales and service engineers. You've got design engineers. You've got energy engineers, the sustainability engineers, people related to digital.
Many of those other positions, we do expect and we do see more short-term contributions. Another point that I think it's important to call out, you'll remember that last year, this time last year, we were very proud that we didn't have to do major restructurings or reductions in force or anything like that across our operations despite the wheels having fallen off the world and everything looking very dire. We contained our costs, and we didn't have to do big reductions in force. So all of these revenue investments, and we did that because we wanted to preserve our ability to bounce back when the market came back. And that's exactly what's been underpinning it. But the market is bouncing back stronger than we expected.
And therefore, we're having to do more than just replace the normal attrition and really expand that capacity in all areas, not just manufacturing, but in all areas so we can continue to service this demand. And most of those costs are going to be hitting us on the SG&A lines. And therefore, it isn't. That's why we call them revenue investments because we know they'll have most of the benefits will be coming through in years to come. But they will have some impact in just helping satisfy that stepped-up demand that we're experiencing across all customers. So hopefully, that gives you a bit more color on the revenue investments that we talk about. Now, regarding the One Planet, we are extremely proud and excited about this strategy.
You will recall that Spirax has, ever since its creation more than 130 years ago, always been focused on energy reductions, helping customers save energy and be more efficient in water consumptions and all of these things. So sustainability has, or what we call sustainability today, has been embedded in our DNA for decades, more than a century, I would say, long before it was even fashionable. Now, what we have done, and we've been doing this for 2015, we launched our previous sustainability strategy to step up those initiatives because we see ourselves very well positioned, not only because of our global footprint and the variety of industries that we service, but because of these effects that our products and services can have on our customers' sustainability. And that's why we think that we are uniquely positioned to deliver that. And that's why we've stepped up these investments.
We've sharpened it. We've broadened the impact. We've brought in biodiversity. We're making sure that we're capturing all aspects in terms of not only supporting our customers, which we've always done, but also help our supplier base and supply chains in a more structured way than we had. So we have really put a lot of thought and effort into this. We want to lead by example. We want to walk the talk. We want to make sure that we are leading in our sector in terms of our own sustainability performance. So that's what's driving all of this. And we're doing it because we're well positioned and we think we can positively contribute to our customers, to our supply chain, to the world in general, and because we think it's the right thing. Now, do we expect to derive some commercial benefits from that?
Yeah.
Yes, of course, because we're very well positioned and because we help our customers do it. But that's not the main reason. But of course, we do. And this is not new. I mean, you've heard us talk about, for example, working with the Nestlé sustainability teams for more than 10 years on these subjects. And do some of the customers come closer to us because of that? We believe so because we think we're unique in the sense of being able to help our customers improve their performance, their sustainability performance through the use of our products and services. So yeah, there might be commercial, and yes, we see some commercial benefits, but that's not the main reason why we're doing it.
Got it. Thank you.
Thank you, Mike.
The next question comes from the line of George Featherstone from Bank of America. Please go ahead.
Hi. Good morning, gentlemen. In terms of the order book at H1, can you give us some color about how this compares historically in terms of the visibility you now have for H2 and beyond? And also, if you could help us understand how much of your backlog now extends into 2022, that would be great?
Okay. Thanks, George. Look, I have to start with the usual disclaimer that we always put in when we talk about order book, right, which is this business, this group, all three businesses, we've got good predictability but low visibility. Remember that, right? Because our order books are always shorter than most other industrial companies. We tend to operate on average seven, eight weeks of order book across the group. It fluctuates throughout the year, but on average, that's where it tends to be. So yes, the order book is substantially up on those levels.
If you look at it in weeks, it's up on weeks because we've seen really strong bounce back from all our markets across all three of our businesses. And therefore, even with the increased sales, if you look at it over an intake, if you look at it in weeks, it is higher. But again, it's not like we've got the rest of the year already in the bag. That would be untypical for us. But it does give us more confidence. When we see the stronger levels, it gives us more confidence in that second-half sales predictions. As we say, we've got good predictability because we understand our businesses and how they correlate with IP and etc., etc.
So when we see these stronger order books relative to the low levels that they always have, then it just strengthens that visibility or that confidence, really, in our ability to deliver second-half sales, which is going to be the biggest challenge, actually, this year, is delivering this higher, continue to delivering these high levels of sales in the second half of the year. In terms of how much of that rolls into 2022, it's usually very little. This year, of course, it's a bit more than before. I would say mostly in the Watson-Marlow BioPure area, where some customers have already started giving us orders for next year because they want to make sure that they get ahead of the curve.
Given the very robust, very strong demand in these areas, our key customers want to make sure that we are planning capacity for them, and they're giving us visibility so that we can make those investments in expanded capacity, etc., so that not only we satisfy their demands this year, but also satisfy their demands, continue to satisfy their demands next year. So that's the only area where I think it's relevant to talk about some bit of the order book for 2022.
Thanks very much for that, and maybe one more if I can. On customer behavior, what are you seeing in terms of customers looking to address some of the issues that they're facing within the supply chain? Are customers looking to engage with you on brownfield efficiency upgrades, and how is the pipeline for new greenfield and larger projects evolving?
Good question, George. Look, I think one of the best things that this group has is the strength, the robustness of that customer relationship, right? And so we work with our customers not just on a transactional basis, as you well know. The beauty of our business is that we have these strong business relationships, partnership relationships with our customers across all three of our businesses. And that means that we support them in their sustainability needs, and frequently, they're speaking to us. And again, it would vary. The degree of all of this varies across the different businesses. And of course, at the moment, the customers in Watson-Marlow are more concerned because they're also feeling this strength of demand driven by COVID-19 and that kind of stuff.
So yes, we work with the customers also to help see how their supply chains are coming along and making sure that as we're part of their supply chain, we don't let them down in those senses. And we do get inputs from the customers. Some of them will give us some inputs as best as they can of visibility that they see. And our teams are working closely with our sales teams to bring that feedback back into our own supply planning operations.
Thanks, Nate.
The next question comes from the line of Jonathan Hurn from Barclays. Please go ahead.
Hey, guys. Good morning. Just a few questions from me, please. Firstly, can I just start with capacity? Obviously, you're adding a lot of capacity across the business. And obviously, looking ahead, there's more to come in places such as the U.S. But can you just give us a feel for the revenue opportunity from all the capacity additions that are going to come through? And also, maybe I misheard this, but I think Nimesh said that new capacity in his earlier comments will support margin expansion. Can you just talk us through what this can bring in terms of capacity to the margin as well, please? That was the first one.
Hi, Jonathan. Good morning.
Good morning.
Yes. Look, good question. Look, you've expanded the topic of capacity out into revenue opportunities and margin opportunities, as I understood the question. Is that right? Yes, pretty much. Yeah. Okay. Look, let's take it in pieces because this is important to understand correctly. Given the strong levels of demand that we're experiencing, and again, let me just phrase this once more for the avoidance of doubt for anybody on the call, organically, our sales, our demand declined last year, full year, 4%, right? Less than probably most other industrial companies, and this year, we've talked about a 17% organic increase across the group in the first half. Okay?
Varies across the three businesses, but I've just said that from an order intake point of view, demand, it's up double digits across all three businesses, and that's on top of a strong base, so that obviously means that we're already facing levels of demand stronger ahead of pre-pandemic levels, 2019, etc. Okay, and therefore, expansion of capacity is the big thing that we are all focused on because we don't want to let any of that capacity or that demand, sorry, fall by the wayside.
We want to make sure that we continue to support our customers. And if they've got more business, we've got to make sure that they can capture that business. And therefore, we've got to be able to satisfy their demands and expand our capacity across all three businesses of the group in order to meet that demand in a timely and cost-efficient way. Yeah? And that's important. We've all seen situations in other companies or in other parts of our life where, to meet spikes in demand, you end up throwing more cost in it, and it actually damages your margins. So that's one of the things that we've been very focused on, and we're very pleased to be managing the expansion capacity in order not to lose sales growth opportunities. That's the fundamental thing and try to do it in a way.
Therefore, if we're not losing growth opportunities, that underpins the revenue growth. If we're doing it in a cost-effective way, that will protect our margins. Inevitably, as we've been talking about with the revenue investments and capacity, when you build a new plant, capacity goes up in steps. It doesn't go up linearly. Demand might be going up in a steep curve linearly, but the capacity will come up in steps. Therefore, when the first tranche of extra capacity comes on in some place when you build a new plant, for example, if it's incremental capacity in the plant, no. If you've got these step-up of new plants, you will have a first impact of that extra fixed cost that you put in place that will get absorbed better over the coming years.
You do have some negative impacts of the expansion of capacity, which then quickly get absorbed by the higher volume, operational gearing, those kind of things. It is complex. We think, however, we've got it very well under control or we're managing it. Managing these very strong levels of demand is the biggest challenge that we have in the second half, actually. It's delivering to those levels of demand. That's what all of the team is working around the clock to achieve.
Thank you. Second question was just on the balance sheet. If we look at H1 cash generation, obviously, that was good at 85%. Net debt to EBITDA is down to 0.6 times. How do we think of it going forward? Is there a time that you come back to paying special dividends as that sort of net debt level starts to reduce further? Or are you now at a position that you're more willing to go out there and embrace M&A? I know post the deals that you sort of did 2017, 2018, obviously, you put us sort of hiatus for a year. Are we kind of back on the acquisition trail to utilize that balance sheet? I'll let Nimesh answer that one. Give me a break, okay?
Thanks, Jonathan. Yeah. Look, you're right. As we've continued to demonstrate as a group, our cash conversion, our cash generation levels remain high. We're not a capital-intensive business. And those cash conversion levels that we're talking about this year are after some of those important and significant capital investments we're making in the business. I think it's worth just reminding everyone that our first call on capital is to find opportunities to invest in ourselves because the returns that we generate on those investments are high. We are still at a point where we have 0.6 times net debt to EBITDA, and so we're not at a point yet where we have paid down all of the acquisition debt that we picked up following the 2017 acquisitions and then 2019.
There's more to do there. As we start to have more flexibility with our balance sheet, it is our intent to look at M&A opportunities. You know that we've been doing that anyway. We maintain a pipeline of opportunities that we monitor. Of course, as always with M&A, it is by nature opportunistic. We don't have control over the timing of when these opportunities will come up, and we can action them. So it's important for us to be ready when they do, and making sure that we've got a robust and flexible balance sheet is part of being ready. In the meantime, as you've seen again, following a 7% increase in the total dividend last year, we've increased our dividend by 15% in the first half.
So when you take those individually or indeed together, that's a pretty powerful statement that we are communicating around the robust nature of our business and our confidence in our outlook.
Very, very helpful, and then just the final one. Can you just talk a little bit about your distribution channels in the U.S. and their performance through the first half? Have you seen an element of restocking coming through in those?
Yes. It's normal in any distribution channel, not only in the U.S., but in any channel. When the clouds gather on the horizon, distributors will start stopping to replenish their stocks and ultimately destock a bit to preserve their working capital. And of course, as soon as they see the clouds dissipating and the sun coming out in the markets, they will start replenishing those stocks and building up so that they don't fall into the trap of not being able to satisfy the demand of their customers as those pick up. So yeah, that's a normal phenomenon that we see in Spirax USA. It might be a bit more pronounced only because of the fact that they're a bit more dependent on distributors. But that is the phenomenon that we see naturally across all our distribution channels around the world.
Great. Thanks very much.
The next question comes from the line of Mark Davies Jones from Stifel. Please go ahead.
Thank you very much. Morning, Nick. Morning, Nimesh. Two, if I may, two quite different ones. Firstly, you referred a couple of times to focusing on synergies between ETS and Steam, and particularly, you were talking about some energy storage solutions. All sounds very interesting, but can you give us a bit more detail in practice in terms of what that means and why the combination of ETS and Steam is particularly relevant in that regard? That's my first one.
Hi, Mark. Yes. Oh, thank you for the question. I'm glad you picked up on that because, as I said in my quote, this is an area of great excitement for all of us. The opportunity we can't really quantify them yet, so I'm going to save you the trouble of asking the question. But it's difficult to quantify those, but we are all excited. I've got to contain my excitement when I talk about this because the power of the synergies that we see combining between Steam Specialties and the ETS business, the combination of those two technologies. You will all recall that we said when we acquired Chromalox and then Thermocoax and started building this ETS business is because we see electric energy as the other side of the coin with the steam energy, right?
So the two most prevalent ways of delivering energy in the form of heat into an industrial process for any transformation process is either steam or electricity. And we're the only company in the world that has those two. And so we've all along strategically thought this has got to be a great opportunity for us. That's been more than confirmed in these last four years since we've acquired and we've put senior teams, commercial and product development and business development teams of both businesses working together. We call it a thermal solutions synergy project. It's actually co-sponsored by the heads of the ETS and the Steam Specialties businesses. Just to give you a little flavor of the kind of opportunities that we can see, every user of steam around the world knows that they need to continue using steam.
The properties of steam haven't changed. The laws of physics haven't changed. The need for steam remains as a critical contributor to all industrial processes. The source of that energy to raise the steam is typically from hydrocarbons, gas primarily, but other forms, but usually hydrocarbons. All steam users are in a point where they want to decarbonize. They need to continue using steam, but they don't want to use fossil fuels to raise the energy, the energy source to raise the steam. And of course, Chromalox, when we acquired them, one of the things that was attracting us was that they have this patented medium voltage technology for electric heating of industrial processes. And medium voltage is a more electrically efficient way of raising the heat necessary in those applications where you need that heat.
And so you just think of it now. Steam Specialties have direct sales contact with all the end users of steam and all the boiler manufacturers. So anybody building a new boiler, we already trade. We have strong, robust relationships with all the steam users and steam boiler manufacturers. And through ETS, we've got this electric heating, more efficient medium voltage electric heating solutions. So you can suddenly combine the two, the relationships of one with the technology of the other, to provide solutions that help decarbonize our customers. If you were able to retrofit, for example, an existing well-functioning steam boiler that's powered by gas and replace that with an electric heater from ETS, you've suddenly eliminated the Scope 1 of that application for the customer. So you can see the power and just think about how many boilers there are around the world.
And that's just one example. Okay? So we do foresee huge potential, and we're working very hard to capture and materialize that potential. The thermal batteries that we mentioned and that you picked up on is one of the different products that we are combining. We're not going to say too much more about it because it's in field trials, and we'll give you more once that's formally launched in the market. That's just one more of the other products other than the electric heaters that I was talking about. Again, it combines technology from both sides, our understanding of steam and our understanding of electric heating to create what we've called this Thermal Battery, but that's a provisional name.
Thank you. Fascinating stuff. I look forward to hearing more on that. My other one was quite different. On Watson-Marlow, as we try and get our heads around this enormous spike in activity currently and how much it might continue, is there any way of saying of that sort of biopharma activity related to the virus build-up, how much of that is capital spend on new facilities versus how much might be consumables that is therefore likely to be more ongoing? Can you give any kind of split on that?
It is very challenging. Our team have been working very hard with our customers to try to get a bit more insight into that and therefore be able to plan better in terms of the oncoming demand. Look, again, I can't give you specifics, but just generically speaking, we believe, and this is because also customers are reluctant to share too much information about their own internal processes because it's sensitive for their business, okay?
But our best estimate, our best assessment is that the majority of what we are seeing, not all of it, but the majority of the demand is more related to operational OpEx, not the building of new facilities, for example. It's the expanding capacity within existing facilities, putting in another line inside of an existing building, the kind of stuff that we're doing. Because the longer-term capital investments, building a new plant, it takes a couple of years to build and then commission and get the certifications. And so they are also investing in capacity expansion by new build, but those aren't going to help them satisfy the short-term immediate capacity needs that they have. So we believe most of it is leveraging existing footprint.
While it's a bit easy in expanding, but it's about, for example, as I said, adding additional lines to existing buildings, working these shifts when before they might have been working two shifts, those kinds of stuff, which has an impact on the consumable side, right? Because they're just working at a higher level of revolutions and therefore consuming our products at a faster pace. That is the best assessment that we have today.
Okay. Thanks very much.
Th e next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead.
Yes. Thank you for taking my questions. My first one was just around, I guess, the flexibility of the cost base. You mentioned obviously adding sort of or taking a sort of step up in investments, adding some additional people and capacity, particularly around the Watson-Marlow business to respond to the sort of surge in biopharma demand. Just as sort of, I guess, sort of following on to a few of your kind of earlier points, just be kind of curious there. Is the capacity addition that you're talking about in terms of headcount, particularly going into Watson-Marlow as well, and sort of what happens afterwards if growth sort of tapered off a bit? Would you be able to pull back on people, or is it a case of being able to sort of pull back on capacity?
And just wondering about the flexibility if demand fluctuates across that part of the business in particular was my first question? Thank you.
Yes. Good question, Robert. Thanks. Good to hear your voice. So Robert, the flexibility of capacity is happening across all three of the businesses. But of course, it's a lot more intense in Watson-Marlow because of the higher intensity of demand coming forward, right? But it is happening across all three. And it happens in different ways. So I'll expand a bit more on the Watson-Marlow to give you a bit more clarity. You know we announced earlier that we were already planning a new state-of-the-art greenfield facility in the USA, and we announced that back in March. But we also said and that was being planned before pandemic, so it's not related to pandemic. But that's only really going to come on stream and start contributing to our capacity fourth quarter of next year.
So those are part of the investments and the step-up in CapEx that Nimesh was mentioning also, but that's not going to impact the short-term immediate capacity needs. But we have, for example, in pharma, we've put in a third extrusion line for the tubes, which are consumables in the Watson-Marlow products, as you well know. We've been putting in extra machines, injection molding machines for the BioPure connectors that go on those tubes. We've been putting in. We had already planned and yes, in BioPure, just to finish. Of course, we had already planned to expand and actually build a new plant in Portsmouth because we got tired of expanding the one that we bought by 2015. We ran out of space. So we took this leap before the pandemic to build a much larger state-of-the-art facility close to the current location.
And when we did that project, we anticipated a phase one and a phase two. And now, because of the pandemic, we've just brought phase two together, and we're putting the investments in for both. That facility is expected to come on stream by the end of this year in the fourth quarter. So we might get a little bit of benefit from that. But in the meantime, it's putting more people in and putting more equipment in the existing space so that we can satisfy that immediate demand. Aflex, we built a new facility there, and that was planned before the pandemic. And again, we're doing similar stuff there. And this goes on across all of the plants.
Now, as we said earlier, we do anticipate that this demand from biopharma will be with us for a bit, not at the same intensity of this year, but we'll still see growth next year of demand over this year in Watson-Marlow. So as we do all of this expansion, it's primarily focused on making sure that we don't fall short of satisfying the demand that we're already facing, but we keep a close eye on our best guess of how the markets will evolve in 2022, 2023, so that we don't get caught out with bringing in too much cost upfront. But yes, we have, and you've seen that in the past. We have good flexibility when downturns do come, and we're able to either absorb or redeploy those resources.
So we keep a close eye on it, but we feel we have good flexibility to be able to contain it in the, at the moment, unforeseen situation where suddenly you had a sharp decline of demand in the short term.
Thank you. And then our two other questions I'll maybe give them together. One was just on the trajectory of the ETS margins. Obviously, you've had a few different bits of businesses bolted together there as you built out that new division for the new name, etc. But I'd just be curious, in terms of the underlying performance of those assets and things you've still got to fix and work on, how are you feeling about that trajectory of margins as you go through? I know you were sort of trying to push them up towards kind of closer to the group average over, I think it was a longer period, closer to sort of the next five to 10 years or something.
But is that still what you're thinking? Are you seeing any changes that are going sort of faster or slower in that business? And then the second one was just around, obviously, the biopharma bit of Watson-Marlow has had a lot of attention, but just on the process industry, medical devices bit, sort of the other part of Watson-Marlow. Just be curious to get a bit more color in terms of what's going on in that part of the business too. Thank you.
Okay. Thank you, Robert. Two very good questions. Look, we feel well, first, on the ETS one, absolutely our plans have not changed. Yes, we are still not only planning, but certain that we will get to above 20% margins for the whole of the ETS business in the next four or five years, yes, and in line with what we've said since the first acquisition of Chromalox. And those plans are going on track as we said they would. We've been very open about these plans, how much investment we're putting into modernize those businesses. And we're executing, and we're making progress. And you will see more of that coming through on the margins as we get the higher drop-throughs of sorry, the higher volumes. You get that leveraging, that drop-through of the higher volume. It comes in strongly.
And look, we've seen it already, okay? On months where we've got a higher drop-through, we see that performance coming through. So we continue to invest. We're not there yet. We're improving the operational performance across the different businesses. Some of these operational issues are a bit more complex, and inevitably, they take a bit more time. We always want to do things faster, but we know what we have to do.
We are doing it, and we're getting the progress, and we're making progress, so we're comfortable with that, and our plans are unchanged, and so very comfortable in that sense, and I want to remind you that there's many parts of ETS that are already above 20% margins, the Chromalox North American operations, the Thermocoax operations are well above 20% margins, so it is fixing those some parts that needed a bit more fixing, and we're doing that, and we're very confident and very sure that we're on the right tracks and so not losing sleep.
Sometimes we get frustrated with the pace with which we can increase it, but that's normal, isn't it? Then on the process industries in Watson-Marlow, thanks for picking that up because biopharma does get a lot of attention at the moment, and we tend to not have a chance to talk about the other process industries such as food and beverage, the wastewater sectors, the medical device sectors. These are all sectors that are performing very strongly as they do, for example, in the Steam or the ETS sectors, especially Watson-Marlow, which is very strong in steam. So we're seeing, again, very good progress there and well ahead of IP's growth, as we said. Yeah, the team in Watson-Marlow continues to do a cracking job in that part of the business also.
That's great. Thank you. Thanks a lot.
There are no further questions in the queue, so I will hand the call back to your host for some closing remarks.
Okay. So I'm looking at Nimesh. Nimesh, any further comments you want to make?
No, just thank you to everyone for joining us today.
Yes. And I'd second that. Thank you very much. Thank you for your questions. Thank you for your attention and your support. Stay safe, everybody.
Thank you for joining today's call. You may now disconnect your line.