Spectris plc

Good morning, everyone. I'm Andrew Heath, Chief Executive of Spectrus, and with me today is Angela Noon, our Chief Financial Officer. Thank you for joining us on this webcast as we present our results for the first half of 2025. We entered 2025 expecting a recovery in a number of our end markets. Clearly, the macroeconomic backdrop has been more challenging than we expected coming into the year. and the uncertainty caused by tariffs has led to continued customer caution. However, we have demonstrated the resilience of the group and delivered a robust first half performance. The improved momentum seen in the second quarter, particularly in Spectra Scientific, is encouraging and provides us with confidence in the outlook for the rest of 2025 and going into 2026. And I'll come back to this on the next slide. So starting with sales, reported revenue was 8% higher in the first half, including 20% growth in the second quarter, recovering the dip that we saw in Q1. While we did have a softer year-on-year comparator in Q2, nonetheless, after a prolonged and largely unprecedented downturn, we are now seeing building momentum in our end market-driven demand. Reported order intake was 5% higher in the first half, including 15% growth in the second quarter, with a book-to-bill ratio of just over one. That led to adjusted operating profit of £65.6 million, which was up 3% on a reported basis. Cash generation and returning leverage back within our one to two times target range remains a key focus for the group. We delivered a very strong cash performance in the first half, with cash conversion of 126%. And we've declared an interim dividend of 28 pence per share, which represents 5% growth on the 2024 interim dividend. Our profit improvement programme remains firmly on track to deliver at least £30 million of savings this year. Over £10 million was delivered in the first half, with more than £20 million expected to be realised in the second half. Cost synergies have already started to come through. We are seeing the benefits of the new ERP system in mobile and political and HPK, and headcount has been right-sized for current demand levels. Turning to last year's acquisitions, I'm delighted with the integration progress that has been made in the first half, In Malvern Panelistical, we have made great progress in successfully integrating micromeretics and SIAPS, including implementing a new organizational structure and reworked sales model. SIAPS is our new center of excellence for handheld instruments, which incorporates Malvern Panelistical's existing handheld business. And we are already seeing the benefits of collaboration between these two businesses, both in terms of accelerated sales and new products. In Dynamics, again, PiezoCRIST has been integrated into HBK. The PiezoCRIST and DITRAN teams are already working on developing a new groundbreaking high temperature accelerometer for demanding applications. And there are lots more new products in the pipeline. Through the integration process, it has become increasingly clear that the synergy opportunities are greater than those that we outlined in the acquisition business case. There is greater scope for cost synergies, which is a key driver for our upgraded cost savings target, and early discussions with customers have given us confidence in respect to greater potential revenue synergies as well. And finally, I just wanted to provide a summary of where we are regarding the prospective takeover of the group. As you know, on the 23rd of June 2025, the Board announced that they had reached agreement on the terms of a recommended cash acquisition by Advent for the entire issued and to be issued share capital of Spectrus for an offer value of £37.63 per Spectrus share, comprising £37.35 in cash. and an interim dividend of 28 pence per spectre share, and that's to be implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act. Subsequently, we recommended an offer from KKR at £40 per share on 2 July, followed by an improved offer from Advent last Friday at £41. The board then switched its recommendation again on the 5th of August, following an offer of £41.75 per Spectra share from KKR, which again includes an interim dividend of 28 pence per share. This represents a 104.9% premium to the undisturbed share price on the 6th of June and equates to a 20.3 times 2024 adjusted EBITDA for the Spectras Group. So in terms of the timeline from here, pending the acceptance of the offer from shareholders, completion is currently estimated in or by the first quarter of 2026, once regulatory approvals have been granted. This next slide provides some more color on what we are seeing in our end markets and also the signs of recovery that are emerging. One of the key indicators we look at internally is the momentum in our quarterly growth rate compared to that in our annual growth rate. When quarterly growth crosses above the annual growth line, this is often a good predictor of recovery. As you can see in the chart on the left-hand side, both orders and sales, the indicator suggests we have been in the early stages of recovery for the past 12 months. Orders have been in accelerating growth territory for the past eight to 10 months on a like-for-like and reported basis, and also moving to positive growth from quarter four. Clearly, the macroeconomic environment is still challenging. We continue to expect to broadly mitigate the direct impact of tariffs, but at the same time, we're also mindful of significant uncertainty still remaining. It's too early to call a sustained recovery, but this does provide us of the year. Orders at the end of the first half were up on the prior year, with the exception of automotive, clean tech and aerospace events, which had a very tough comparator. Automotive was down double digits, as larger CapEx and R&D projects are being delayed by customers due to the ongoing tariff and macro uncertainty. The table on the right-hand side shows the like-for-like sales performance by in-market for both the first half and the second quarter. The first thing to note is the significant improvement in sales growth in the second quarter at the group level. Now, having been down 8% in the first quarter, on a like-for-like basis, we grew by 9% in the second quarter. Part of this is clearly due to the softer year-on-year comparator that we had in Spectra Scientific, but we are seeing improving momentum in a number of our end markets, where we saw a notable increase in sales growth in Q2. Materials, academia and life sciences delivered the strongest growth, and it was also pleased to see pharma getting back to growth by the end of the period. Now, one quarter doesn't make a trend, so we're not getting carried away, but it's pleasing to see the improving momentum is broad-based across most of our end markets. And with that, I'll hand over to Angela to take you through the financials.

Thank you, Andrew, and good morning, everyone. I'm delighted to be here this morning to run through our H1 financial results. Let's jump straight into the numbers. I'll start with some of the key highlights for the first half of 2025. Orders were 2% lower on a like-for-like basis. As you heard from Andrew, we saw improved momentum throughout the periods, such that our like-for-like order intake in the second quarter was up by 4%. Our book-to-bill ratio was just over one times in the period. Sales were 1% higher on a like-for-like basis, with a very strong second quarter where sales grew 9% like-for-like, albeit helped by an easier comparator in Spectra Scientific. And of course, our reported numbers were even stronger due to the acquisitions made in 2024. Profit largely followed the sales performance with flat growth on like-for-like basis equating to an adjusted operating margin of 10.3%. Moving on to cash, I'm very pleased with the first half cash performance of the group. Adjusted cash flow was a very strong £82.4 million, resulting in cash conversion of 126%, which is the highest in many years outside of COVID. This was driven by a strong working capital performance in the period, mainly from the reduction in customer debt and improved management of creditors. There is scope for further working capital improvement, certainly in the second half. Our return on gross capital employed fell to 12.2% as a result of the increase in debt associated with the acquisitions. Net debt overall stands at £546 million with leverage of 2.3 times on a covenant basis, both broadly unchanged from the end of 2024. Given the typical seasonality of our cash flow, this is a very strong cash performance and I would expect material reductions in net debt and leverage in the second half. The next table provides a bridge between adjusted and statutory operating profit, as well as profit before tax. Costs associated with our profit improvement programme totaled £12 million. I am pleased to confirm that the programme is moving at pace and is in line with plan. My expectation is that we should exceed our original savings target of £30 million by the end of the financial year. A credit of £16.8 million includes an £18.1 million fair value adjustment, which relates to the release of deferred consideration partially offset by related fees. Public offer related costs, which refers to takeover costs incurred by Spectris thus far, was 7.9 million in the first half. Software implementation costs were 13 million pounds down from 22 million pounds last year. We have now reached steady state in Malvern Panalytical and for the first phase of Dynamics. So our ERP project costs have reduced substantially. We expect to see improved cost effectiveness from here. Our recent acquisitions have led to an increase in amortisation to £24.7 million. As a result, statutory operating profit was £24.8 million, broadly the same as last year. Further down the table, I want to remind everyone of the £210 million gain that we had on the disposal of Red Lion last year. We also incurred £22.9 million of net interest costs in the period, which reflects the current net debt position of the group after the acquisition of Micromeretics, SciApps and Piazzo Christ. This next slide shows the main drivers of our sales and operating profit performance in the first half. The disposal of Red Lion in April 2024 meant that 20 million pounds of sales and 3.7 million pounds of operating profit that were reported in the first half of 24 did not reoccur in the first half of 25. We saw good operating leverage in the period, driven by strong contribution from price and pass-through of tariff to end customer. The increase in overheads is a net number, with savings from our profit improvement programme of approximately £10 million being offset by other items, including higher variable compensation year-on-year. foreign exchange was a headwind in the period due to the strength of sterling against the dollar the euro and the chinese renminbi as you can see our recent acquisitions have had the biggest impact on our p l performance in the first half while slightly softer than we anticipated we expect an improved profit contribution the second half of the year which i'll come back to later If we can now turn to cash and net debt. As said, I was very pleased with our first half cash performance, with our net debt unchanged, despite the payment of the final dividend. Our focus on working capital helped to deliver £15 million inflow in the first half, driven by receivables and payables. Our focus is now on further improvement in inventories, with detailed group reduction plans fully underway. We tend to build inventory in the second quarter ahead of our stronger second half, hence we expect larger working capital gains in the second half of the year. Capital expenditure, restructuring, ERP costs and interest costs were all in line with expectations and our full year guidance. We received a 1.9 million tax credit in the period as a result of rebates in the UK and Germany in particular. This was fully expected and we have left our full year cash tax guidance unchanged. The largest outflow was the 2024 final dividend that was paid out in June, whilst a foreign exchange translation inflow of £26.2 million reflects sterling strength against the US dollar and to a lesser extent the euro. Taking these movements all together, we finished the period with net debt of £546 million. As said again, largely unchanged compared to the financial year past. Coming on now to our divisional performance, starting with Spectra Scientific. Orders in the first half were 2% higher on a like-for-like basis compared with 14% growth in the second quarter. On a reported basis, orders grew by 17% in the first half and 32% in the second quarter. The book to bill ratio was 1.04. As the chart in the bottom right shows, like for like order growth has been positive in three of our last four quarters. And this building momentum is encouraging as we look ahead to the second half of this year and on to 2026. Sales in Spectra Scientific were 3% higher on a like-for-like basis, again driven by a strong second quarter, where like-for-like sales grew by 19%. This was due in part to an easier comparator. On a reported basis, sales were 21% higher in the first half, with 38% growth in the second quarter. Adjusted operating margin increased by 70 bps to 11.1%, driven by operating leverage and cost savings. Turning now to Spectris Dynamics, order intake in the first half was 7% lower on a like-for-like basis, driven by continued weakness in automotive. This was compounded by a tough comparator as we booked a number of large simulator orders in virtual tests last year. On a reported basis, orders were 3% lower in the first half. Book to Bill was slightly below one. You can see the impact of the automotive downturn in the order chart in the bottom right. Encouragingly, after a prolonged downturn, we continue to see good momentum in machine manufacturing, with aerospace and defence remaining robust. Sales and Spectra's dynamics were 3% lower on a like-for-like basis, again impacted by automotive weakness. On a reported basis, sales were flat to the first half. Adjusted operating margin was resilient, increasing by 10 bps to 12.4% despite lower sales volumes due to a very strong execution on cost savings. This next slide shows the three key profit drivers in the second half that give us confidence in meeting our full year expectations. Firstly, our profit improvement programme. In our April trading update, we communicated that we saw potential upside to our original cost savings target of £30 million for 2025. We can now confidently say that we expect to realise savings of over £30 million this year. With over £10 million of savings in the first half, we will also expect to deliver at least £20 million of savings in the second half. The programme was always expected to be second half weighted and potentially even more so given the upgraded cost saving target. Another driver of profit growth in the second half will be the contribution from the three acquisitions we made last year. Their profit contribution in the first half was slightly lower than we had expected, largely due to timing and delays due to export control as a result of tariff regimes. These orders will be delivered in the second half. In addition, the order intake in the three acquisitions has been strong in the first half, particularly SIAPS, which has seen order growth of over 30%. Their combined order backlog gives us confidence in their second half profit contribution, which we now expect to total approximately £20 million. This is a greater second half weighting than we originally anticipated. And then finally, as Andrew highlighted earlier, we are building momentum in the business, particularly in Spectra Scientific. Our Q2 performance, even allowing for the easier comparator, was encouraging. And whilst we are mindful that macroeconomic uncertainty stemming from tariffs remains elevated, the underlying organic improvement that we are seeing gives an element of confidence for the second half. But to be clear, we are not relying on a strong recovery in the second half to meet our expectations. Our profit improvement programme and the contribution from the acquisitions will be the most significant drivers of profit growth in the second half. And with that, I'd like to hand back to Andrew.

Thank you, Angela. Over the past seven years, we have repositioned Spectrus as a leader in precision measurement that have made great strides in advancing our purpose-led strategy, enabling our customers to make the world cleaner, healthier, and more productive. We have simplified and refocused the group through eight divestments and attractive valuations, redeploying the cash into 16 complementary acquisitions. We've also delivered strong capital returns to shareholders, with over one billion pounds returned through dividends and share buybacks alone. Through careful portfolio management, disciplined execution and strategy, and exceptional people, Spectrus has become a more focused, higher quality, and higher performing company. Our commitment to innovation, sustainability, and customer-centric solutions, compounded by our acquisitions, has positioned us as a leader in our markets. We have built a business geared for long-term growth in exciting, structurally growing end markets. The company's commitment to operational excellence and sustainability is not only improving margins, it is also enhancing our brand and position with customers, as well as creating a positive and lasting impact to the planet and society. During the global pandemic, we took the decision to establish the Spectrus Foundation to support and empower the next generation of innovators, particularly in underrepresented groups. To date, we've improved access to a high quality STEM education for over 50,000 students. And I'm pleased to say the foundation's impact continues to grow year on year. I am very proud of the transformation of the group since 2018. From the beginning, We have sought to create an environment where great talent can thrive in a healthy high performance culture, aligned behind a clear strategy and encouraged to aim high in our delivery. Thanks to the continued hard work of all my colleagues, Spectra today is a high quality business, well positioned for sustained success. So in summary, it is pleasing to see the clear momentum coming through in our first half results. We have delivered a robust first half performance in a tough economic environment. Encouragingly, momentum improved through the period with a very strong second quarter, particularly in Spectra Scientific. And we delivered strong cash conversion in the first half, underlining the group's highly cash-generative nature and our focus on deleveraging. Looking ahead to the rest of 2025, We now expect over £30 million of savings from our profit improvement programme for the full year, with most of that still to come in the second half. We anticipate a strong second-half performance from last year's acquisitions, with higher levels of synergies than our business case. We do see signs of recovery in many of our end markets, and while tariff-related uncertainty still remains, our second quarter performance was encouraging. And as ever, positive operating leverage will always help support our second half profit performance. With continued focus on working capital improvement, we expect to deliver another strong cash performance in the second half, providing confidence in bringing leverage back down within our one to two times target range by year end. And finally, turning to our guidance, we continue to expect adjusted operating profit to be in line with management expectations. With that, thank you for listening. Angela and I will be very happy to take your questions whilst recognizing that we are still in an offer period. And as such, when it comes to the prospective takeover of Spectrus, we can only comment on what is already in the public domain.