Spectris plc

Good morning, everyone. I hope that you're all keeping safe and well at this time. Welcome to this, the Spectrus full year results presentation for 2020. I'm Andrew Heath, I'm the Chief Executive. I'll go through the headlines and then we'll hear from Derek Harding, our CFO, who will run through the numbers in more detail. I'll then come back to talk to you about some of the operational and strategic developments in our businesses before closing with our outlook and then moving into Q&A. At Spectrus, we very much believe in being purpose-driven and also true to our values as we execute on our strategy. Our priority continues to be protecting the health and safety of our employees and supporting our customers as we balance the needs of all our stakeholders. And I just wanted to start this presentation with an immense thank you to all of our people for their selfless dedication, their flexibility, and also their outstanding support in what has been a most challenging year. I truly couldn't be prouder of the entire Spectras team. And I'd also like to thank our shareholders for their understanding and support over the past year. As we've consistently said, we deliberately chose to take a socially responsible approach to navigating through this pandemic, very much keeping in mind all of our stakeholders, balancing their needs. And it's very pleasing that this approach is working well for us. We delivered a resilient performance last year, which was better than we had expected. And while sales decreased 11% on a light for light basis, the actions we took last year limited the drop through impact to only 38%. And this resulted in an adjusted operating margin of 13%. And this was after reversing the temporary cost measures and repaying the salary sacrifice, which we did in December of last year. Overheads finished down 8% overall on a like-for-like basis year over year, and that saved us 50 million pounds. On the other hand, order intake has held up well, being only 7% down on 2019. And I really feel that underlines the support we were able to provide our customers, as well as frankly, the strength of our product and our service offering. Our cash flow generation in the year was also strong, such that we ended the year with a net cash exposition of £106 million, giving us a great deal of balance sheet optionality. And today we've announced an increase in the dividend, as well as a £200 million share buyback. But to be clear, that still leaves us with a lot of firepower to undertake M&A. Last year, we also found new and innovative ways to support our customers. Equally importantly, we also continued to execute on our strategic commitments. We completed the profit improvement program and we also undertook further initiatives to address costs, very much sort of focusing on what we could control. Likewise, we announced the divestment of B&K Vibro and the Millbrook business, both of which improved the underlying quality of the group. And all of these actions position us well for the future as our markets recover. Our cost base has been improved. We have retained core capability and talent. We've maintained investment in R&D. Our relationships with our stakeholders have been further strengthened. And we've also improved our operating leverage opportunity. So given the circumstances, I am really very pleased with our achievements in 2020. As I've said, as an organization, we are very much purpose-driven. and in light of the events of 2020, we did reflect on our strategic direction and also our purpose, but concluded that they remain both highly relevant but also appropriate. Look, precision is at the heart of what we do. Through a combination of our hardware, our analytical and simulation software, we provide customers with superior data and the invaluable insights that they need that enables them to work faster, smarter, and also more efficiently. And our expertise supports them to reduce time to market, improve processes, improve quality, and also improve yield. And the solutions that we create equip our customers to make a real difference to the world around us. And we're really, really, really proud that our know-how creates value for wider society as our customers manufacture and develop new products to make the world a cleaner, healthier and more productive place. And our purpose is core to our strategy and is very much supported by our values-based leadership and our approach to being a sustainable business. During 2020, we refreshed our values and we also revised our code of business ethics. And that was very much to further reinforce this approach. Our values underpin our behavior. Our values are be true, own it, aim high. They represent Spectrus very much at its best and reflect what we want to see every day. Integrity, accountability, and also aspiration in action. The strength of our culture really came to the fore last year, both in terms of what we achieved, but also how we went about doing it. And in 2020, our people absolutely stepped up as a team to support our customers, our businesses, and very much support one another. Additionally, we continue to execute on our strategy for profitable growth, focusing on our customers. driving improvement in our operating performance and optimizing our assets supported very much by the Spectrus business system. And in this way, we are committed to delivering value beyond measure for all our stakeholders. In further support of this approach, a new corporate-wide sustainability strategy is also being implemented, and that's very much to ensure that we remain a sustainable employer, a sustainable partner, supplier, and a sustainable investment proposition. It focuses on further embedding sustainable thinking in our operations and our business aims, on mitigating risks, whilst also capturing opportunities for the increased focus that sustainability has by all our stakeholders. And following a detailed materiality assessment, we identified three areas of focus which will form the basis of our strategy, and they are focusing on the environment, focusing on operations, and focusing on our people. And in line with this approach, we've identified three UN sustainable development goals. They are goal seven, affordable and clean energy, goal eight, decent work and economic growth, and goal nine, industry innovation infrastructure. And these goals will inform our strategy, enabling prioritization and also our planning. And during the year, initiatives to support and baseline these goals were undertaken. And in 2021, we will set stretching and also meaningful targets for each of them, including targets around net zero carbon and also compliance with TCFD. And I think this will provide a clear line of sight to the key commitments around our people, around the environment and around our operations, ensuring that we stay absolutely true to our purpose. And I'm also delighted today to be able to announce that we'll be establishing the Spectrus Foundation. That's going to be a benevolent fund of £15 million that we used for community and charitable projects such as STEM educational schemes. As I've previously said, we are taking a balanced, socially responsible approach to managing our business, very much consistent with our culture and our values. And while, of course, we worked hard to deliver as strong a financial performance as possible last year, we really wanted to address the needs of all our stakeholders, safeguarding and supporting our people, working more closely and flexibly with customers and suppliers, while finding ways to aid the communities within which we operate. So to address the crisis, we therefore managed it in three phases, react, respond, and finally reset. We've previously described many of the actions we took in the first two phases, so I'll just provide a brief summary here. The Spectras team reacted superbly in the early days of the pandemic, protecting and supporting our people and working more closely and flexibly with our customers and also our suppliers. And in the respond phase, we took swift action to protect the company whilst really retaining capabilities and focusing on protecting as many jobs as possible. We prioritise short-term cost savings to support our financial performance and also try to mitigate the impact on jobs. And that was through a range of temporary measures. And this resulted in overheads, as I said, being 8% lower on a light-for-light basis. And Derek will cover this in more detail shortly. To preserve cash, we withdrew the special dividend and we also postponed the final dividend for 2019 whilst limiting spend on CapEx to key projects. But we did maintain our spend on R&D. Subsequently, we moved into the reset phase, ensuring that the group was as well positioned as possible to benefit from a resumption in growth in our target markets, as well as addressing any nearer term opportunities as well as challenges. Our restructuring programmes delivered £30 million of sustainable benefits last year, which was ahead of expectations. And the temporary cost measures delivered an additional £20 million of savings, of which £10 million will be sustained in 2020 through a combination of things like footprint rationalisation, lower discretionary spend and the resizing of capacity. The successful delivery of these cost savings and our strong cash flow generation as we came through the year meant that we were able to reinstate salaries in quarter three and return as many people as possible to full-time working at the same time. And then in December, we also paid back the salary that had been forgone. We also reinstated our dividend. We paid an interim dividend for 2020 and also an additional interim dividend in lieu of the 2019 final dividend that had been postponed. And today I'm really pleased to announce we have increased the final dividend again and in line very much with our progressive dividend policy. And throughout last year, our primary focus was on safeguarding the wellbeing of our employees. And we implemented a range of measures to keep people safe, keep them connected and to help their wellbeing, including their mental wellbeing, wherever they were working. So our achievements in 2020, I think have really positioned us well for a market recovery. Although much uncertainty remains in the short term, our stronger order intake in the last three months of 2020 does provide momentum for the first quarter of this year. We have continued to invest in the business and we've retained capability. Our reduced cost base presents us with a strong operating leverage opportunity. And going forward, we'll also deploy the Spectrus business system to deliver further sustainable improvements to our businesses. And the divestments that we've made to date and those that we plan to do so in 2021 further enhance our margin. We're improving the underlying quality of the group And as I said, our balance sheet position gives us optionality to participate in M&A. With that, I'd now like to hand over to Derek, who will run through the financials in more detail.

Good morning, everyone. My first slide is a repeat of the scorecard slide that we used last year. On the face of it, there are more crosses on this page than we would like. Not unexpected given the impact of COVID-19 and I will dig into the detail over the coming slides, but first I will highlight the positives. While our top line declined 11%, after a trough in Q2, the rate of decline slowed and we saw some very resilient performances across the group with a stronger than expected finish to the year. Although sales were down notably, the cost actions taken limited the group drop through to 38%, slightly ahead of our guidance of 40% to 50%. I am pleased with our margin performance in the circumstances, a decline of 270 basis points, resulting in 2020's margin at 13%. We took a proactive approach to working capital management, resulting in a reduction in inventories and trade receivables. Average working capital of 14% was within our guidance range. Reflecting the above and a prudent approach to capital expenditure, our adjusted cash flow improved by 10.3 million to 244.5 million, resulting in an adjusted cash flow conversion rate of 141%, up 50 percentage points on 2019. So against a challenging market backdrop, we delivered a highly resilient and sustainable financial performance in 2020, ahead of our revised expectations. Let me now take you through the specific details. Reported sales decreased by 18% to 1,336.2 million, 11% on a like-for-like basis. Adjusted operating profit decreased by 33% to $173.6 million, 26% down like for like. Despite an 18% sales reduction, our cost-saving programme resulted in an adjusted operating margin decline of 280 basis points to 13%. Adjusted profit before tax was $166.4 million, down 33%. Our tax rate came in at 21.8%, which is in line with the guidance given during the year. And adjusted earnings per share were 112.1 pence. The full year dividend per share of 68.4 pence is a 5% increase over the prior year, when you include the postponed final dividend, which we actually paid in October 2020, and demonstrates our continued commitment to paying a progressive dividend. Obviously, due to the impact of COVID on 2020, our dividend cover of 1.6 times is lower than our long-term average, which is usually around 2.5 times. But we are comfortable with this given the exceptional nature of the past year. Adjusted cash conversion was a pleasing 141% compared with 91% last year. We were particularly pleased to see net cash increase by £72.6 million in the year. resulting in a year-end position of £106.1 million. During the year, there was a net cash inflow from proceeds on disposals of £20.6 million and further income from Millbrook and BKVBRO of around £220 million is expected in the first quarter of 2021. Our leverage is outside the target range of our long-term policy, And reflecting this, and in order to make the balance sheet more efficient, the board has approved a share buyback programme of £200 million to take place during 2021, and this will commence as soon as possible. The group still has considerable financial flexibility and will continue to target acquisitions in support of its strategy. Finally on this slide, return on gross capital employed fell from 13.5% to 9.8%, mainly due to the COVID-related reduction in trading volumes in 2020. This slide provides a graphical view of the main P&L movements in the year. Sales are shown across the top with adjusted operating profit at the bottom. First of all, I have adjusted 2019 to remove the sales and operating profit relating to disposals, primarily BTG, to provide an organic baseline. Foreign exchange movements had a very limited impact in the year, reducing sales by £100,000 while improving operating profit by just under £1 million. The real story of the year is the 159.2 million like-for-like sales reduction resulting from the impact of COVID in 2020. This reduction created a 111.1 million reduction in our gross profit, which was then subsequently offset by 50.1 million of cost saves. Of the 50 million cost save achieved in the year, 10 million is temporary and is expected to come back in 2021. FY20 adjusted operating profit was 173.6 million or 13% of sales. This slide shows how we generated cash in the year and illustrates what we have then done with that cash. Starting by adding back the 60.7 million of depreciation and amortization charged to the adjusted operating profit brings you to 234.3 million of EBITDA generated in the year. Partly driven by the reduced trading activity in 2020 and partly driven by an additional focus on working capital management, we released 53.1 million of working capital cash during the period. Capital expenditure net of grants was 42.9 million pounds and this includes investment at Millbrook of 11.2 million. This gives us an adjusted cash from operating activities of £244.5 million, which we divide into the adjusted operating profit to get our cash conversion metric of 141%. Interest and tax had a combined cash impact of £33.1 million and the payment of dividends utilised £75.7 million. We spent 15.1 million of cash in relation to restructuring and a net of 19.1 million relating to transactions. Within the other items of 28.9 million, we had a lease payment of 21.6 million, which were offset by 3 million loan repayment from the EMSJV. And then there is a balance sheet FX adjustment of 10 million to enable a reconciliation back to the final year-end cash difference. This slide is included to help you understand the moving parts between our adjusted operating profit measures and our statutory profit measures. I'll take each one in turn. The Group has incurred costs of £19.5 million relating to restructuring in 2020. These include 8.2 million related to impairments and disposal of property, plant and equipment, 7.8 million of staff related costs, including redundancy, and 3.5 million of other costs. We incurred 19.4 million of acquisition related costs relating to the businesses that were sold during the year, but also some acquisition opportunities which we did not ultimately complete. At the half year we discussed the goodwill impairment of Millbrook and you can see the 58.4 million here. Next is 98.9 million of amortisation and impairment of acquisition related intangibles. 67.5 million of this relates to Millbrook impairment and the remainder is normal ongoing amortisation of intangible assets. These adjustments take us down to the statutory operating loss of 23.3 million. There are then some further adjustments which need to be considered to get to the loss before tax, which I will cover on the next slide. The fair value through profit and loss movements on equity investments is a new line in our P&L, the background to which I will explain. During 2020, the group made an approach to acquire a US publicly listed company. To support the approach and demonstrate our intent, we acquired a minority holding in the company for a total consideration of $19.8 million. At the end of the year, our holding was valued at $52.3 million, resulting in a mark-to-market gain of $32.5 million, or the £23.2 million that you see here. We maintained our capital discipline throughout the deal process and were ultimately unsuccessful in the transaction, which is likely to close in the second quarter of 2021 and thus crystallise the gain reported here. It is proposed that £15 million of this gain is used to establish the Spectrus Foundation mentioned earlier by Andrew. Next, you can see 4.4 million profit on disposal, which predominantly relates to the sale of our rheology product line completed at the start of the year. Deduction of net finance costs then results in the statutory loss before tax of 4.1 million. When we look again at this slide in H1, you will see the profit on sale of BK Vibro, which will more than offset the cumulative impairments on Millbrook booked in 2020. But for accounting reasons, these gains will be recognised in 2021. This slide sets out the primary movements in our return on gross capital employed, which for the 12 months ended 31 December 2020 was 9.8% compared to 13.5% in the prior year. The main driver of the decrease is, of course, the significant reduction in operating profit in the year compared to the reduction in the capital base of the group. compounded by the removal of BTG which had a higher return than the group average. The combination of the removal of Millbrook plus the operating recovery from Covid is expected to have a positive impact on this measure in 2021. There have been a number of moving parts over the past few years and it is important to understand the significant improvements that are taking place within our core business. This slide is included to help you with your models as you think about the impact of the disposal of Millbrook and BK Vibro and previously BTG. It provides a pro forma view of the group, excluding these disposals from each of the last three years, and I think it highlights some interesting points in relation to the underlying business that we now have as we enter 2021. I'm not going to cover every number, but the first point that I will draw your attention to is the overheads line, which has reduced by £96.3 million since 2018. £46 million of this reduction is due to the removal of BTG, which was sold in 2019. But if you look on the pro forma basis, you can see that £49 million of this reduction is from the underlying ongoing businesses. This is encouraging and is a clear demonstration that our strategy of driving a more profitable business is working. It is particularly interesting to note that on a pro forma basis in 2020, we limited our profit drop through on reduced sales to 29.5% compared to the 38% that I mentioned earlier. When you strip out the impact of Millbrook, it is also encouraging to see the improved cash conversion in 2019 and 2018 on the pro forma basis, as well as a switch to statutory profit in 2020 without the impairments. Cost saves and efficiency improvements have been achieved across all of the major cost categories, but particularly in headcount, which is down by 807 since 2018 on a pro forma basis. Much of this reduction has been achieved on a voluntary basis or through natural attrition. And this means that despite the significant sales reduction experienced in 2020, sales per employee are equal to the rate achieved in 2018 at £160,000 per employee. So despite the challenges that COVID-19 presented this year, it is important that we don't lose sight of the journey that we are on improving our underlying financial performance. Which brings me to 2021. We anticipate a better financial scorecard across all of the trading metrics underpinned by continued focus on our working capital and cash generation. As always, there will be headwinds and tailwinds. This time last year, on a similar slide, I had coronavirus question mark as a potential headwind. At that point, none of us expected the year to turn out as it did. I have included COVID-19 again this year. Although we believe that our customers are better prepared to deal with the implications in 2021, as are we, it should be recognised that the rate of recovery from COVID lockdowns is still unclear and we have limited visibility beyond Q1. we will see the reversal of around 10 million of COVID-related temporary cost savings mentioned earlier, as well as a similar amount of cost inflation. Assuming that the pound continues to strengthen against the dollar, we will also see a negative translation effect. As a guide, we anticipate that every cent change has a £3.3 million impact on sales and a £500,000 impact on profit. So, for example, if the pound dollar stays at 1.40, that would roughly be a 43 million headwind at the top line and a 6.5 million headwind at the bottom line. On the positive side, although visibility is limited, we do anticipate a comparative year-on-year recovery in revenue, and we will continue to benefit from the 40 million of savings banked in 2020. Our organic growth will continue to benefit from continued product launches, And we will also begin to benefit now from the greater focus that can be brought to our core platform businesses now that Millbrook and BK Vibra have been sold. Finally, we are continuing to deploy the Spectris business system to reduce waste and further build on our self-help activities. In terms of other guidance, CapEx will be around £50 million and we expect our tax rate to be 22%. Working capital should be within our previous range of circa 14% of sales, and we do not anticipate any new restructuring programs and therefore should have limited costs, mainly associated with completing the activities from 2020. And with that, I'll hand you back to Andrew.

Thank you, Derek. I'll now turn to the operational performance at our platform businesses and industrial solutions. I'll also touch on a number of the strategic growth initiatives within the businesses, These continue to be implemented in 2020, and we'll carry on investing in R&D, CapEx, ensuring that we continue to deliver the leading products and services that our customers require. But before I do, Derek shared our financial scorecard, and I'd quickly like to start by summarizing the scorecard that we also use to measure our strategic achievements. As I said in my opening, despite the challenges of 2020, we continue to execute on our strategy. Driving growth and operating leverage as well as optimising the portfolio and focusing on those businesses with growth and margin potential is as critical now as when we first set it. Our aim remains to return margins to at least previous highs. Overheads reduced by 8% last year and we'll see £40 million of those savings coming through in 2021. We made further steps towards optimizing the portfolio, and on capital allocation, we reduced capex by 47%. We maintained spend on key projects, but we did materially reduce the spend at Millbrook, but that was planned. We ended the year in a strong net cash position, and we've increased the dividend. And having reviewed the balance sheet at the year end, and very much in accordance with our capital allocation policy, we're proposing a share buyback program. Although we did participate in a number of M&A opportunities last year, we retained our financial discipline. So ultimately, we didn't transact on any of those. To be clear, M&A does, however, remain a key strategic aim, and our balance sheet strength clearly puts us in a good position to pursue opportunities. So all in all, against this, it positions us well for the market recovery. So let's now turn to our business, and I'll start with Malvern Panalytical. Here, sales declined 13% on a like-for-like basis, with all regions down, although North America less so than Europe and Asia. And as we've stated before, Melbourne Panalytical was experiencing weakness in several of its end markets coming into 2020. And they were subsequently further impacted by COVID as all our other businesses were, particularly in the early days with extensive university and research institute closures and some customers delaying installations, particularly where there were access issues or social distancing requirements needed to be met. However, they were as a business able to deliver a much improved performance in the second half. All regions saw very much improved performance with China posting 7% growth in the period. And there was a particularly strong recovery in pharmaceuticals. However, with the adverse volume impact, despite the lower overheads that were achieved, like for like adjusted operating profit did decrease 27% and operating margins declined 280 basis points. Orders, similarly, had an improved performance in the second half. Our order book is stronger now than in prior years. And with customers having adapted to COVID-19 restrictions, as we have, very much based on our greater experience of remote working, we have a very positive outlook for 2021 for Malvern Analytical. And there are a number of key trends that underpin future demand. In pharma, we're seeing an increase in onshoring in the traditional small molecule area and a significant uplift across the industry, particularly in support of vaccine and viral vector manufacturing. In mining and building materials activities here, we expect to be driven by general economic recovery. And in advanced materials, emerging bacteria technologies, greater environmental focus and a shift to digital solutions are all supporting growth. We're also driving numerous organic growth initiatives and during 2020, Malvern Panalytical launched a number of new products to particularly enhance its customer offering around software services and analytics. And very much in line with that, Malvern Panalytical launched Amplify Analytics and Omnitrust last year. They're two new key product offerings, which in combination actually provide a powerful partnership of both instrumentation on one hand and analytics know-how on the other. And this enables our pharmaceutical customers to accelerate the successful drug development. Malvern Panalytical also launched additions to their Zetazizer and XRD product ranges, both having improved attributes and functionality. And the business continues to expand its capabilities in data science, machine learning and AI, in particular to support our movement into providing customers with greater solutions. In HBK, we saw a very resilient performance in 2020 with a strong first half. And for the full year, light flight sales were only down 9%. North America saw flat light flight sales, while Europe and Asia both declined materially. Sales to the automotive and aerospace and defense markets were down notably. And in contrast, we actually did see a very buoyant machine manufacturing sector come back, particularly in the second half. And just looking forward in automotive, the technological advances in hybrids and electric vehicles, connected and autonomous vehicles, that market continues to remain a bright spot as we see OEMs maintain spend on R&D budgets in those areas. And in aerospace, investment in new carbon neutral propulsion concepts using hybrid or full electric concepts or hydrogen or synthetic fuels are all expected to support future demand. And I think just to be clear, HBK is more exposed to defense and the sort of satellite space markets where there has been much less of an impact on spending. And we have seen growth in North America within the software and services area here. Unquestionably, the merger and restructuring activities at HBK are working and along with the other sort of measures taken in 2020 have positioned the business to be much stronger. The management team are doing a great job in driving the improvements and the performance of the business. Adjusted operating profit was only 20% lower on a like-for-like basis with adjusted operating margin decreasing just 170 basis points. The merger activities, to be clear, are continuing at HBK. We have a number of programs to enhance the sales and also the marketing efforts in order to drive further growth and better serve our customers. On the product side, simulator and simulation tools have been key areas of focus. Here, new products include WorldSim, a rich and immersive simulation software environment for testing ADAS and autonomous driving scenarios. And Viagrade also launched their new DIM-400 platform. This is a new line of high-performance and highly scalable cable-driven driver-in-motion simulators. And I encourage you to go and look at the Viagrade website where you can see the simulator in action. And during the year, we acquired Imtek Engineering, a provider of vehicle driving simulators and machine automation systems, which will help bolster and strengthen our VI-grade activity. Additionally, in support of the trend towards electrification, HBK continues to expand its eDrive solution to provide a more complete ePowerTrain testing and optimization offering, as well as expanding into eGrid, that's sort of engineering and distribution systems and the whole testing regime associated with that. HPK also increased their leadership in force measurement technology, introducing a new range of sensors. And they also expanded their software offering launching B&K Tessier for acoustic testing and monitoring of rotating machinery. At Omega, sales decreased 13%, mainly driven by COVID-19 business disruption. That was both in North America and in Europe. However, we did achieve growth in Asia driven by a very strong performance in South Korea due to high electronics and semiconductor demand, as well as market share gains. Growth is expected to be modest in the first half of 2021, but we do expect recovery gaining pace in the second half. In Asia, however, demand looks more positive than maybe some of the other end markets, particularly helped by the outlook in semiconductors. Like-for-like adjusted operating profit declined 49% and like-for-like operating margins fell 500 basis points, primarily resulting from the lower like-for-like sales, but also headwinds in overheads caused by the higher license and depreciation costs associated with the new digital platform that was launched in 2019. And those increased costs could only be partially offset by other cost reductions last year. Now to be clear, Omega's performance remains unsatisfactory and achieving greater scale through organic sales growth is a key requirement for recovery. Amit Agarwal joined us in Q4 as the new president to lead the required turnaround and brings with him a great experience set in order to help us do that. The business has four focus initiatives that have been enacted to drive above market growth and in turn recover that lost margin. They are enhancing the digital experience, expanding the sales channel, accelerating product development and improving operational performance. Progress was made on all fronts last year, but clearly we need to see the pace accelerating, in particular, the business starting to not just grow with the market, but take share as the markets return. Turning now to industrial solutions, like-for-like sales declined only 9%, and there was a 19% negative impact from the disposal of BTG on a strategy basis. Servomex and PMS were particularly resilient with only a 6% and 4% sales decline respectively. Like-for-like sales fell in all regions, more so in Asia, which reflected a tough comparator in semiconductors. But looking at the end markets, there was strong growth in pharmaceuticals, and we also saw sales to electronics customers recover. Energy and utility sales did decline, and that really reflected the weaker sort of backdrop on petrochemicals and industrial processing more generally. And again, due to the sales decline, like-for-like adjusted operating profit decreased 25%, and like-for-like adjusted operating margins decreased 290 basis points. But good progress was made in executing the strategy last year, improving the performance of the underlying businesses, as well as executing on the divestment strategy. Overheads were lower from the successful implementation of the Profit Improvement Programme in 2019, and this was helped by other temporary cost measures taken last year. Additionally, with the disposal of Millbrook and BK Vibro, we will see margins recover quickly in 2021. In semiconductors, the rising demand for chips is expected to drive an increasing global fabricated equipment spending this year. We also expect to see the sales pipeline strengthen across electronics, supported by LED demand in consumer products, cloud computing, 5G infrastructure rollout, as well as increasing semiconductor demand. And demand for our products in pharma and life sciences continues to increase due to the large investment in vaccine manufacturing and the trend on around near shoring of production. Increasingly, demanding levels of clean room monitoring and manufacturing requirements will also drive up the demand for our instruments as well as our sensors, which will help maintain the product quality, improve yield, and reduce the risk of expensive product recalls for our customers. In other industrial markets, the drive to reduce emissions and meet environmental standards remains, and this will only increase the demand for Servomex's solutions in the areas of process control, safety and quality. Also, Redline launched its new FlexEdge Intelligent Edge automation platform that will help customers address their needs in simplifying the connectivity of their factories with data as our customers increasingly become more automated and are digitizing their facilities to improve productivity. And this month, Mary Beth Siddons joined as the president for Industrial Solutions. She replaces Andy Cowan. who has returned to his role as finance director after doing a great job in his interim capacity. Mary Beth was most recently sector president at Marmon Group, a Berkshire Hathaway company responsible for the strategic direction of 15 global businesses, and she's previously also worked at ITW and Snap-on. Marybeth brings extensive experience in leading and successfully developing global industrial businesses. So she will be a strong addition to the team as we continue the disposal program, but also increasingly shift our attention onto building platform businesses from within industrial solutions. And I'd just like to end my presentation by bringing you back to our purpose and just sharing with you a few examples of just how our strategy is delivering value beyond measure, how it equips our customers to make the world cleaner, healthier, and more productive. And in line with that, let me start by cleaner. The electrification of transportation is a critical component in increasing the use of fossil fuels and also reducing carbon emissions and damaging particulates. The automotive industry It's investing heavily in new hybrids and all electric vehicles, as I've said previously. We are helping our customers in developing many of the new technologies required, be it in developing battery materials or testing batteries or powertrain testing, all the way through even to meeting the new drive-by-noise standards. And one such customer is Locchione, who produce everything from end-of-line and laboratory test benches to measurement instruments as well as offering outsource testing services for hybrid and electric powertrains. And due to the industry's frequently changing testing requirements, Locchione needed a measurement solution with a high degree of expandability and flexibility. And here, HBK's eDrive solution really helped them as it's easily integrated with their existing equipment, and its expandability and flexibility means it can be readily upgraded in response to future measuring requirements by the customer. As such, we are providing a future-proof test and measuring system, very much helping in the development of ever more efficient and durable powertrains that in turn helps support the drive to cleaner transportation. Moving on to healthier, in 2020, I guess we'll look back on 2020 as a year... in so many ways as a terrible time. However, we did see the generosity of people, their compassion, their desire to serve, come together with the ingenuity of science to help address the needs of society. I just wanted to highlight the team at Servomax who did a phenomenal job in ramping up the production of its oxygen sensors to meet the rapid increase in the need for ventilators. Servomax's Hummingbird sensing technologies produce high performance paramagnetic oxygen sensors that are used in critical care ventilators to monitor the amount of oxygen administered to a patient. And as we all know, there was a global shortage of ventilators as the pandemic struck. So to address the rapid increase in demand, GE Healthcare partnered with Servomix to rapidly ramp up the supply of the sensors. And this included not just a large expansion of the clean room operation where our sensors are produced, but also launching a new variant of the PowerCube. that is much faster to manufacture and at much greater volumes. And the team here rose to the challenge. They managed to condense 18 months of development time into under three months, very much directly helping in the fight against COVID-19. And then lastly, in mining, we are seeing mining companies needing to ensure ever more safe and efficient running of their operations. Improving yield reduces both the cost of mineral extraction, but also energy consumption. And last year, Malvern Panalytical was selected by Scott Technology Limited to supply a fully automated robotic material analytical system at Rio Tinto's Kudarideri iron ore project in Australia. It involves the provision of complementary technologies from the two companies, including Malvern Palleticle's X-ray spectrometry equipment that's used for both sample preparation all the way through to complete analysis. The frequent monitoring of the mineralogical and elemental composition during oil processing will help Rio really improve efficiency by enabling constant and optimal minimal processing conditions. This project is a major step forward in the combined offering of automated solutions from Morgan, Panalytical and Scott, and it will enable this facility to be one of the safest, highest quality and most productive iron ore laboratories globally. And what's additionally good news for us is that this solution can be deployed in mining locations around the world. So in summary, look, I am extremely pleased with how we've reacted and also how we responded to the challenges presented last year, not just in terms of how we performed against that backdrop, but also in terms of how we went about it. We consciously took a balanced approach to managing our business. As a consequence, we've seen strong support from our people, our customers, our suppliers, and also our shareholders. And although sales were down notably due to the as a consequence of COVID, by reacting swiftly as a business and by continuing to execute our profit improvement program last year, we limited the profit drop through impact. And I think our margin demonstrates the resilient performance of our businesses in the circumstances. Our cash generation was extremely strong. And the balance sheet was further strengthened, allowing us to return people to full pay, repay the salary sacrifice, and today increase the final dividend and announce a 200 million share buyback program. Our achievements in 2020 have absolutely positioned us well for a market recovery. And while the outlook is still uncertain in the short term, the stronger order intake in the last quarter of 2020 does provide momentum for the first quarter of this year. And we've entered 2021 very much in an enhanced position. We've continued to invest in the business and we've retained capability. The cost base has been reduced, increasing the operating leverage opportunity and divestments will only further enhance margins. We will continue to deploy the Spectra's business system to drive continuous improvement. And our balance sheet position gives us optionality to participate in M&A. So we will maintain this approach, acting with purpose, being values-led to deliver long-term, sustainable financial health. Thank you very much.