Spectris : Financial Reporting Document

Spectris Industrial Solutions

Division Presentation

Wednesday, 8th December 2021

Spectris Industrial Solutions Division Presentation

Wednesday, 8th December 2021

Strategy for Profitable Growth

Andrew Heath

Chief Executive, Spectris plc

Welcome

Good afternoon, everyone. Welcome to today's presentation on our Industrial Solutions division. Thank you for taking time out of your busy schedules to join us. I am Andrew Heath. I am the Chief Executive.

Now I am conscious that we have not spent as much time focusing on the businesses within ISD, as we have on our platform businesses over the past two to three years. As we are now coming to the end of the disposal programme, I thought it was timely to put the spotlight on the businesses we are retaining:

• PMS;
• Servomex; and
• Red Lion.

I am delighted to be here today to introduce you to Mary Beth Siddons, who is our President of our Industrial Solutions business. She joined Spectris in February this year and today is going to provide a teach-in on the three business that form our Industrial Solutions division going forward.

Our strategy for profitable growth

Now you have heard me say before, that at Spectris, we believe in being purpose-driven and very much true to our values as we execute on our strategy, delivering value beyond measure for all of our stakeholders.

When I stood up at our Capital Markets Day back in 2019, I said then that I believed Spectris represented an exciting opportunity to make a good company even stronger and that we would benefit from being a more focused and simplified business.

28 months later, I am very pleased with how we have executed our strategy for profitable growth, alongside the balanced and socially responsible approach we have taken to managing our business. As you saw from both our recent interims and Q3 results, this approach is really delivering for us.

We are benefiting from:

• Our focus on end markets with strong fundamentals;
• We have addressed our cost base;
• We have simplified the portfolio and optimised our assets, while also continuing to invest in our strategic growth initiatives and also R&D, while driving the application of the Spectris Business System.

So two years on, we have repositioned our portfolio, prioritising those businesses where we are leaders in high growth markets, where we have compelling and differentiated customer offerings and where we can deliver the greatest value. In the process, we are improving the quality of the Group. Nowhere has this been more the case than in Industrial Solutions.

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Spectris Industrial Solutions Division Presentation

Wednesday, 8th December 2021

Divestment programme well executed

Within ISD, we have gone from eight disparate operating companies to focus in on three high-quality, leading, specialist businesses: PMS, Servomex and Red Lion.

We have delivered five divestments, and the sale of our share in a joint venture in just two years. That is an outstanding achievement by our teams, especially against the backdrop of the pandemic.

This has also been done at attractive valuations, generating £682 million of proceeds, at an average multiple of 14 times. For some of those businesses, the multiple achieved was notably above those for the Group as a whole.

We have exited a number of end markets and we are now concentrated around pharma, semiconductors and energy, all underpinned by strong, sustainability thematics.

Pro forma sales in 2020 were around £260 million, but importantly the operating margin has improved from 15.5% in 2018 for the division as a whole to 20% for the three retained businesses on a pro forma basis. ISD is now the most profitable segment within the Group.

In the past two years, as well as delivering our divestment strategy to focus on the higher margin businesses, we have also been deploying the Spectris Business System, improving the businesses underlying operational performance, and investing in them for future growth. This is reflected in that higher margin.

More focused profitable division

So today, the Industrial Solutions division is more focused and has a much-improved financial profile.

As Mary Beth talks in further detail about the retained businesses, I trust you will see how they fit within the wider group and how they are very much aligned both with our strategy and with our purpose.

Back in 2019, I outlined the attributes of the type of businesses we wanted to own and PMS, Servomex and Red Lion all meet these criteria.

They are positioned in high-growth markets, with leading technologies, differentiated products and deep domain expertise, which positions them well with customers.

From a financial point of view, they are asset-light, have strong growth potential, high gross margins, with further operating margin expansion opportunity.

There is also the scope to compound growth here through M&A, and we have an active pipeline of potential acquisitions from bolt-on technologies to larger synergistic transactions. Our balance sheet provides us with significant firepower to look at transactions here, as well as for our platform businesses.

So today's presentation is a chance for us to really highlight the positive attributes we see and outline the prospects for each of the businesses both individually and collectively.

With that, I will now hand you over to Mary Beth.

As I mentioned, she joined us in February this year, and has some really exciting ideas as to how to get the most out of these businesses and how they can best work together to grow

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Wednesday, 8th December 2021

and deliver on the opportunities. We will be talking more about this next year, but today our objective is for her to shine a light on each of the businesses in turn. Thank you.

Industrial Solutions Division Overview

Mary Beth Siddons

President, Industrial Solutions Division, Spectris plc

Thank you, Andrew, and good afternoon, everyone. It is a pleasure to be here today and talk to you about the great businesses that form the Industrial Solutions division.

I am truly excited to be a part of this team. What I have observed since joining Spectris are the many opportunities in these three businesses:

• The passion and our commitment to our customers;
• Our purpose; and
• The dedication of our employees.

Over my career, I have had the very good fortune of working with some iconic industry brands like Snap-on, ITW and the Marmon Group, a Berkshire Hathaway company. Industrial businesses that participate in a wide variety of end markets:

• Automotive;
• Food & beverage equipment;
• Retail;
• Consumer goods;
• Food manufacturing; and
• Aftermarket service.

I have a very high affinity for service and view it as an important strategic differentiator. The similarities in business models, diversified portfolios, managing the concept of flexibility within a framework is 100% transferrable to Spectris.

Additionally, having over 25 years of continuous improvement experience, learning from some of the best, like ITW, and the disciplined approach to business management, aligns completely to the Spectris Business System.

I would also like to take a moment and acknowledge the teams at Servomex, Particle Measuring Systems and Red Lion, along with all the ISD folks for their grace, patience and support as I was introduced to ISD and Spectris. Thank you.

High precision in-line sensing and monitoring solutions

Now let us turn to the strategy for the division, how each of the businesses fit in to that vision and how they align with the Spectris purpose. Our vision is:

• To be the leading provider of high-precisionin-line sensing and monitoring solutions. As you will see later, we have differentiated products and support our customers when they experience challenges.

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Spectris Industrial Solutions Division Presentation

Wednesday, 8th December 2021

• We are focused on attractive end markets with attractive growth drivers and we have deep application expertise, providing value; and
• We differentiate ourselves through our product quality, application knowledge and service

Let us talk about our businesses.

PMS

PMS is the market leader in micro contamination monitoring solutions in the cleanest of clean environments such as pharma and semiconductor manufacturing. Our customers rely on our products to detect the smallest trace contaminations, helping them make cleaner drugs and better chips. We can trace contaminants down to 10 nanometres, which is 20 atoms wide and equivalent to measuring how much your fingernail grows every 10 seconds. Think about that.

Servomex

Servomex is an expert in gas and moisture analysis. Their instruments are utilised in critical applications such as monitoring emissions or ensuing the purity of gases where purity and control are essential for regulatory, safety and quality reasons.

As you will have seen from our Annual Report, they produce oxygen sensors that are used in critical care ventilators to monitor the amount of oxygen administered to a patient. Also measure the purity of gasses in a wide range of sometimes hazardous environments where normal sensors just cannot operate.

Red Lion

Red Lion sits at the heart of the Industrial Internet-of-Things and their products help customers to connect and monitor disparate assets providing them with the information they need to control their operations and improve operational efficiency. For example, a large mining company uses Red Lion's products to remotely monitor water levels, usage, flows and quality to improve their operations and to use water in a more sustainable and beneficial way.

As you can see, all three companies are helping make the world healthier and cleaner and our customers be more productive.

We are a global business with local presence. We have more than 1,300 employees in 21 different countries around the world, plus a network of partners in those where we are not physically present. Together we serve over 7,000 customers a year.

Over a third of our employees are in sales and services, which highlights the strong touch points we have with our customers

All three businesses have strong brands in their industries with a reputation for industry- leading technology and quality.

Strong underlying financial performance

Turning to our financials. The left-hand side chart shows the pro forma financials for the past five years. We have delivered a strong underlying performance, and this really illustrates the continued improvements the businesses have been making while we have been delivering the divestment strategy.

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