Spectris Germany GmbH

Darmstadt

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2023 bis zum 31.12.2023

Spectris plc.

Egham/UK

Strategic Report 2023

Cleaner.

Healthier.

More productive.

Spectris plc Annual Report and Accounts 2023

Our Purpose

We harness the power of precision measurement to equip our customers to make the world cleaner, healthier and more productive.

We are focusing on where we have competitive and differentiated offerings, positioned in attractive, structural growth markets with high barriers to entry, to deliver value beyond measure for all our stakeholders.

Contents

48

Principal risks

Find out about how we manage risk in our day-to-day activities.

52

Sustainability

Discover how we are building our business for the future in our Sustainability report.

78

The Spectris Foundation

Explore how we are championing equal opportunities and global access to quality STEM education.

80

Governance

See how the Board and its committees manage the governance of the Group.

Find out more about us online at www.spectris.com

Strategic Report

2 Spectris in focus

6 Chairman's statement

10 Market overview

12 Chief Executive's review

20 Our Business Model

22 Our Strategy

24 Investing in growth

26 Key Performance Indicators

28 Division reviews

40 Financial review

44 Operational excellence

46 Risk management

48 Principal risks and uncertainties

51 Viability Statement

52 Sustainability Report

66 TCFD disclosure

77 Non-financial and sustainability information statement and index

78 The Spectris Foundation

Governance

80 Board of Directors

82 Chairman's introduction to corporate governance

84 Reporting in accordance with the 2018 UK Corporate Governance Code

85 Board and Executive Committees

86 Section 172 statement

88 Board evaluation and effectiveness

89 Workforce engagement

90 Our Purpose and our culture

92 Nomination and Governance Committee Report

95 Audit and Risk Committee Report

102 Directors' Remuneration Report

120 Directors' Report

128 Directors' Responsibility Statement

Financial Statements

129 Independent auditor's report to the members of Spectris plc

136 Consolidated Income Statement

136 Consolidated Statement of Comprehensive Income

137 Consolidated Statement of Changes in Equity

138 Consolidated Statement of Financial Position

139 Consolidated Statement of Cash Flows

139 Notes to the Accounts

190 Spectris plc Statement of Financial Position

191 Spectris plc Statement of Changes in Equity

192 Notes to the Company Accounts

Additional Information

185 Appendix - Alternative performance measures

203 Additional Information

102

Remuneration

See how our remuneration framework aligns with the Group's strategy and the wider workforce.

2023 Performance

Sales	Adjusted operating profit ¹	Statutory operating profit
£1,449.2m	£262.5m	£188.6m
(2022: £1,327.4m)	(2022: £222.4m)	(2022: £172.6m)
Change yoy 9%	Change yoy 18%	Change yoy 9%
LFL1 change yoy 10%	LFL1 change yoy 18%
Adjusted cash flow conversion1,2	Adjusted operating margin1,2	Statutory operating margin
1	18.1%	13.0%
(2022: 74%)	(2022: 16.8%)	(2022: 13.0%)
Change yoy 29pp	Change yoy 130bps	Change yoy flat
	LFL1 change yoy 130bps
Dividend per share	Adjusted earnings per share1,2	Basic earnings per share
79.2p	199.7p	140.3p
(2022: 75.4p)	(2022: 159.9p)	(2022: 106.7p)
Change yoy 5%	Change yoy 25%	Change yoy 31%
Non-financial highlights
Total recordable	Employee engagement -	1. Alternative performance measures (APMs) are used consistently throughout this Annual Report and are referred to as 'adjusted' or 'like-for-like' (LFL). These are defined in full and reconciled to the reported statutory measures in the appendix to the Consolidated Financial Statements on page 185.
incident rate2	Gallup GrandMean score2	2. See more in the Key Performance Indicators section on pages 26 and 27.
0.34	33664
(2022: 0.27)	(2022: 3.86)
Energy efficiency2	CDP score
(MWh per £m revenue)
48.9	A-
(2022: 58.2)	(2022: B)

Spectris at a glance

Spectris in focus

Spectris harnesses the power of precision measurement to equip our customers to make the world cleaner, healthier and more productive. We are focusing on where we have competitive and differentiated offerings, positioned in attractive, structural growth markets with high barriers to entry.

What we do

We combine precision with purpose, delivering progress for a better world. We provide critical insights to our customers through premium precision measurement, using technical expertise and deep domain knowledge to deliver value beyond measure for all our stakeholders.

How we equip customers

We equip our customers to solve some of their greatest challenges, harnessing the power of precision measurement to make the world cleaner, healthier and more productive.

We leverage our domain expertise alongside our market leading instruments, software and solutions to help our customers develop the technologies to drive the energy transition, the medicines that cure us, the materials we build with, the devices that connect us and the machines that help us work faster, better and more efficiently.

Our go-to-market model

Customer centricity is core to our business model. We combine leading instruments and technologies with deep technical knowledge and domain expertise, adding value throughout our customers' workflows.

By going beyond the measurement we deliver the services and solutions our customers need, building strong partnerships that drive innovation and growth over the long term.

Our key markets

(2023 percentage of Group sales)

Life sciences/Pharmaceutical

18% of sales

(2022: 24%)

Technology-led industrials1, 2

16% of sales

(2022: 16%)

Electronics and semiconductor

12% of sales

(2022: 11%)

Automotive1

10% of sales

(2022: 10%)

Materials

10% of sales

(2022: 9%)

Academic research

10% of sales

(2022: 8%)

Other

24% of sales

(2022: 22%)

1. 2022 has been represented following a recategorisation of marine and rail from Automotive to Technology-led industrials

2. Image: Blue Origin

Our organisational structure	Following the refocusing of the Group over the last few years around premium precision measurement businesses, Spectris is organised around two key divisions - Spectris Scientific and Spectris Dynamics - comprising 86% of Group sales.
Spectris Scientific	Spectris Dynamics
Comprising Malvern Panalytical and Particle Measuring Systems	Comprising HBK
Spectris Scientific is a leader in advanced material measurement and characterisation.	Spectris Dynamics is a leader in advanced, integrated virtual and physical test and measurement.
% of Group sales	% of Group sales
0	0
(2022: 50%)	(2022: 37%)
Reported sales growth	Reported sales growth
0	0
LFL sales growth	LFL sales growth
0	0
Adjusted operating margin	Adjusted operating margin
22.0%	17.2%
(2022: 21.3%)	(2022: 15.0%)
Employees	Employees
3	3
(2022: 2,793)	(2022: 3,407)
Read more on pages 28 to 33	Read more on pages 34 to 39

Group sales

Sales by location	(%)
1 Asia	36
2 Europe	31
3 North America	29
4 ROW	4

Sales by business	(%)
1 Spectris Scientific	49
2 Spectris Dynamics	37
3 Other	14

Sales by market	(%)
1 Life sciences/Pharmaceutical	18
2 Technology-led industrials	16
3 Electronics and semiconductor	12
4 Automotive	10
5 Metals, minerals, mining	10
6 Academic research	10
7 Other	24

Spectris Scientific

Leader in material measurement and characterisation

MALVERN PANALYTICAL

Leader in material measurement and characterisation, through the provision of high-precision instruments, workflow solutions, data science and services

Customer needs

• Precise, accurate and reliable measurements

• Application-specific solutions matched to customer workflows

• Instrument configurability and ease-of-use

• Expertise and bespoke analytics

• Maximum yield & instrument uptime

• Portfolio breadth

Competitive strengths

• Best-in-class solutions

• Precision and accuracy of measurement

• Domain expertise

• Predictive maintenance, remote diagnostics

• Automation and in-line/at-line monitoring

• A dynamic, evolving portfolio

Capability	Analytical technique	End markets
X-ray Fluorescence	Elemental Analysis	• Building Materials,	• Chemicals & Coatings
	• Elemental composition	• Mining & Minerals	• Advanced Manufacturing
	• Layer thickness	• Semiconductors
X-ray Diffraction	Structural Analysis	• Academia	• Batteries
	• Crystal structure	• Pharmaceuticals	• Mining & Minerals
	• Thin film metrology	• Semiconductors	• Advanced Manufacturing
	• Residual stress	• Building Materials
Laser Diffraction	Particle Analysis	• Pharmaceuticals	• Advanced Manufacturing
	• Particle size distribution	• Batteries	• Mining & Minerals
		• Chemicals and Coatings	• Pharmaceuticals
		• Food
Nanometrics	Particle/Molecular Analysis	• Pharmaceuticals	• Chemicals & Coatings
	• Particle size distribution	• Academia
	• Molecular size/structure
	• Zeta potential
	• Mobility
Biophysical	Interaction and Stability Analysis	• Pharmaceuticals	• Academia
	• Binding affinity
	• Binding kinetics
	• Higher order structure

PARTICLE MEASURING SYSTEMS

World leader in micro-contamination monitoring solutions for ultra-clean manufacturers

Customer needs

• Highest sensitivity

• Maximum yield and uptime

• Sterility assurance and regulatory compliance

• Faster contamination identification

• Predictive analytics

Competitive strengths

• Highest sensitivity and quality

• Reliability and ease of use

• Regulatory knowledge and expertise

• Data integrity

• Complete sterility assurance solutions

• Customer service orientation

Capability	Analytical technique	End markets
• Airborne particle monitoring	• Monitoring airborne particulates to provide critical data on the environment's filtration systems	• Semiconductor
• Gas particle monitoring	• Ensuring ultra-high purity in gases for semiconductor manufacturing and production of electronics
• Ultra-pure water	• Ensuring ultra-pure water for critical cleaning/rinsing steps in semiconductor processing
• Aerosol particle monitoring	• Monitoring airborne particles in critical environments ensuring aseptic control of manufacturing processes	• Life sciences /Pharmaceutical
• Microbial monitoring	• Continuous air sampling solutions to provide risk management against microbial contaminations
• Facility monitoring systems	• FacilityPro environmental monitoring systems combines the sampling, reporting, and data retention of particle, microbial and environmental data, meeting data integrity requirements.

Spectris Dynamics

HBK

World leader in advanced integrated physical and virtual testing and measurement

Experts in the provision of advanced integrated physical and virtual testing and measurement. The Division is focused on four premium product lines: virtual test, software, data acquisition and high-precision sensors with high growth prospects, where we have leading market positions. These products are complementary for customers and combine to offer the broadest test and measurement solutions in the market.

Customer needs

• Accuracy and precision of measurement

• Quality and reliability of product

• Usability and increased efficiency

• Insights through data

• Accelerated development at lower cost

• Increased production quality and output

• Increased asset performance

Competitive strengths

• Complete test and simulation offering

• Class-leading reliability and durability software offering

• Highest accuracy sampling rate and ease of use of data acquisition hardware and software

• Broadest range and sophistication of analytic capabilities, ease of use and flexibility

• Complete virtual test solution including software, simulators and hardware-in-the-loop

Life-cycle stage	Design Optimisation	Virtual testing	Physical testing	Production	Operation/in-use
Capability	• Fatigue analysis	• Driver experience	• Structural durability	• End-of-line testing	• Structural health monitoring
	• Failure mode analysis	simulation	• Vibrational durability	• Production quality	• Noise monitoring
	• Structural durability	• Real-time computing	• Energy efficiency testing	• Production efficiency	• Enhancing asset performance
		• X-in-the-loop testing/simulation	• Noise emissions testing
End	• Automotive	• Automotive	• Automotive	• Machine manufacturing	• High-value assets
market	• Aerospace & defence	• Aerospace & defence	• Aerospace & Defence	• Electronics	• Commercial space
			• Commercial space		• Medical
			• Electronics
			• Other
Solutions	• nCode DesignLife software	• Multi-attribute simulators	• Sensors: Force/Torque/	• Torque sensors	• Accelerometers
	• nCode Aqira software	• COMPACT Full Spectrum Simulator	Strain/Accelerometers	• Force sensors	• Fibre-optic strain sensors
		• AUTOHAWK hardware-	• Data acquisition hardware and software	• Production test systems	• Sound-level meters
		in-the-loop	• Analytical software	• Microphones	• Built-in OEM strain sensors
		• Real-time operating system		• Industrial data acquisition
				• Load cells

Chairman's statement

Delivering our Strategy for Sustainable Growth

"I am excited about the opportunities that lie ahead for the Group."

Mark Williamson

Chairman

Spectris delivered a strong performance in 2023. As well as generating record profits and a third successive year of double-digit LFL sales and profit growth, we continued to lay the foundations for sustainable further success by investing in our people, new products, digital services, and targeted acquisitions. As I look to the future, I am excited about the opportunities that lie ahead for the Group and confident in our ability to continue to deliver against our strategic priorities, benefiting all our stakeholders.

Introduction

2023 has been another year of strong LFL sales growth, building on our recent track record and demonstrating the quality and strength of the Group. As a result of supply chains becoming more reliable and the associated easing of inflationary pressures, alongside our focus on operational efficiency, we delivered strong progress on margins.

Demand for the Group's products remained strong with LFL sales growth of 10% (2022: 14%) with a 130bps improvement in adjusted operating margins to 18.1% (2022: 16.8%) (statutory operating margin 13.0% (2022: 13.0%)) resulting in adjusted operating profit growth of 18%. The Group remains highly cash generative with adjusted cash conversion of 103% resulting in the Group ending the year with a net cash position of £138.8 million (2022: £228.0 million).

Strategy for Sustainable Growth

2023 was the first full year of our Strategy for Sustainable Growth, following its announcement alongside new performance targets, in October 2022. As can be seen from our results, our Strategy is really working for us, delivering growth, improving profitability and generating strong cash flow. As a result, we are well on our way to delivering our adjusted operating margin target of at least 20% over the medium-term.

Our commitment to invest in R&D, which was 7.5% of Group sales in 2023 (2022: 7.8%), represents an important part of maintaining strong levels of organic growth. I am pleased to see a number of new products launched during the year and the strength of the pipeline. This investment ensures our best-in-class product portfolio remains at the forefront, helping us outgrow our end markets and maintain leading market positions and competitive advantage, key to driving volumes and improving margins.

During the year, we made progress on another key pillar of our Strategy, to compound growth through targeted M&A, completing a number of acquisitions, investing a total of £60 million. As well as bringing new talent into the Group, these additions provide access to new technologies and customers as well as broadening our product offering. We have a healthy pipeline of potential acquisitions, focused on technologies closely related to our core markets and existing expertise.

The announcement in December of the divestment of Red Lion Controls, also marks the end of the portfolio rationalisation programme envisaged in 2019. In Spectris Scientific and Spectris Dynamics, we now have two high-quality, premium precision measurement Divisions with attractive growth characteristics.

We have also made progress with our transformation initiatives, with our businesses on track to commence a phased rollout of a single ERP system in 2024. The adoption of the system alongside new, more efficient business processes, represents a key part of our journey towards meeting our medium-term targets.

The Group has a good track record of delivering operational efficiencies and reducing costs, reflecting our lean culture. The Spectris Business System (SBS), delivered further incremental benefits in 2023 and continues to make a meaningful contribution to margin expansion. The Board saw, first-hand, during its visit to the Malvern Panalytical site in Almelo, the Netherlands, a number of examples of how the SBS is bringing tangible benefits to our businesses and I am delighted to see that a number of sites were awarded Bronze certification during 2023, as part of our 'Going for Gold' programme.

Leading sustainable business

Sustainability continues to be at the heart of our strategy. How we do business is as important as what we do. I am delighted with our continued progress towards our Net Zero ambition, including a further 27.0% reduction in scope 1 and 2 emissions on a like-for-like basis during the year, as set out on page 64.

Building on our membership of the UN Global Compact, this year we launched our new Supplier Code. The code sets out the key expectations we have for suppliers working with us to ensure that our value chain is aligned with our ambition to create a cleaner, healthier and more productive world. More details are set out on page 59.

Read more about our approach to sustainability on pages 52 to 79

Capital allocation

Ensuring the appropriate allocation of capital remains a key area of focus for the Board, striking the right balance between generating strong returns for shareholders and investing for growth.

The Board remains committed to driving sustainable organic growth, with significant continued investment in R&D, while continuing to use our strong balance sheet to compound growth through value-enhancing acquisitions. Our M&A pipeline ranges from early-stage technologies, through bolt-ons, to larger acquisitions, where we continue to maintain an active pipeline of opportunities. In 2023, we advanced this strategy through the successful acquisition of MicroStrain Sensing Systems Business, EMS, the purchase of the x-ray diffraction line from Freiberg Instruments and a minority investment in LumaCyte.

In November, we completed a £300 million share buyback programme. Following the divestment of Red Lion, and having considered the future acquisition pipeline, we commenced a further share buyback programme of £150 million, with the first tranche, of £50 million, commencing in December 2023. This latest programme, once completed, will take the total amount of cash returned through buybacks since 2019 to £650 million. The Board is confident that our buyback strategy will support the maintenance of a strong and effective balance sheet, whilst providing the optionality to advance the Group's strategy through inorganic growth.

The Board is proposing a final dividend of 53.9 pence per share which, when combined with the interim dividend of 25.3 pence per share, gives a total of 79.2 pence per share for the year. This equates to a 5% increase, in line with our policy of making progressive dividend payments based on affordability and sustainability. We are proud that Spectris has an established track record of increasing the dividend every year for the past 34 years.

Looking ahead, the Group's strong cash generation and robust balance sheet continues to provide flexibility and agility to pursue further value-creating opportunities as they arise.

Our people and culture

Our people are critical to the success of the Group, with an engaged and motivated workforce key to building and maintaining a sustainable business. During the year, I was pleased to visit Malvern Panalytical in Almelo, the Netherlands, with the Board, which included the opportunity to meet representatives from the Almelo early careers network as well as to see the emphasis placed on safety and SBS across the site.

Kjersti Wiklund, our Workforce Engagement Director, has remained instrumental in providing the Board with valuable oversight of the development of the Group's culture, having held a number of face-to-face engagement sessions throughout the year with our people in Korea, Denmark and the Netherlands.

Now in its third year, the scores from our global Gallup employee engagement survey improved once again, increasing to a GrandMean of 3.92 (2022: 3.86), which is testament to the work being done to promote a strong, inclusive culture underpinned by Our Values. During the year, the Board received regular updates on the development of the Group's culture and continued to seek ways of further developing and advancing the Values-led, healthy high-performance culture of our business.

We remain committed to ensuring that we are building a diverse and inclusive workforce, recognising that a diverse workforce makes us more innovative, creative and competitive. I am pleased to see the increased gender diversity in our senior leadership community and our ambition to increase the number of women in leadership roles to at least 40% by 2030. In support of this ambition, I am delighted that we are partnering with peer companies in our sector to support the 25x25 initiative. In line with the Parker Review, we have set a target to increase ethnic diversity across our UK-based leadership population and we are progressing work to define our global ambition on ethnic diversity. Further details are set out on page 56.

Read more about our People strategy on page 54

Board changes

Bill Seeger will retire from the Board at the conclusion of the 2024 Annual General Meeting (AGM), having served since January 2015. On behalf of the Board and the wider Group, I would like to extend my sincere thanks and appreciation to Bill for his immeasurable contribution to the Group as Senior Independent Director and Chairman of the Audit and Risk Committee. Cathy Turner succeeded Bill as Senior Independent Director in May 2023 and Mandy Gradden will assume the role of Chairman of the Audit and Risk Committee at the conclusion of the 2024 AGM.

A succession process has been initiated for Ulf Quellmann, who will also have served on the Board for nine years at the 2024 AGM. Reflecting on the loss of experience in the departure of Ulf and Bill, it is proposed that Ulf remain on the Board for one further year to provide continuity and support to the Group before retiring ahead of the 2025 AGM. Further details are set out on page 82. Mandy Gradden joined the Board, and Audit & Risk Committee in October 2023, and will be appointed as Chairman of the Audit and Risk Committee at the conclusion of the 2024 AGM. In her current position as Chief Financial Officer of Ascential plc, Mandy brings a wealth of financial experience as well as a strong background in strategy, investor relations, digital and software, and I am delighted that she has joined the Board.

Read more about our approach to Corporate Governance on page 82

The Spectris Foundation

The Spectris Foundation has continued to build on its early impact in 2023, with £1.61 million donated to charities to date to encourage greater inclusion and access to science, technology, engineering and mathematics (STEM). In addition, the Foundation has approved 53 donations to employee-nominated causes since its launch in 2021. I am delighted that we are supporting our employees to give back to their local communities. Recognising its impact, I am proud that the Board has agreed to increase our ambition for the Foundation making a further contribution of £1 million in 2023 with the ambition to contribute an additional £5 million by 2030.

Summary and outlook

The Board is very aware of the evolving legislative and regulatory requirements impacting the Group, notably in relation to sustainability, over the coming years. We will ensure these regulations remain front of mind. As we oversee the Group's strategy, we are committed to coordinating the implementation of new workstreams aligned to the new regulations in an efficient and proportionate way.

On behalf of the Board, I would like to thank all our employees for their continued dedication and hard work in delivering another strong performance in 2023. We have made a great start on the next phase of our development to advance our ambition to be a leading sustainable business, delivering on our Purpose to make the world cleaner, healthier and more productive.

As we look ahead to 2024 and beyond, I am confident that we remain well positioned to continue to execute our Strategy for Sustainable Growth and deliver another year of progress.

Mark Williamson Chairman28 February 2024

Sales

£1,449.2m

(2022: £1,327.4m)

Dividend per share

79.2p

(2022: 75.4p)

Adjusted earnings per share1

199.7p

(2022: 159.9p)

1. Alternative performance measures (APMs) are used consistently throughout this Annual Report and are referred to as 'adjusted' or 'like-for-like' (LFL). These are defined in full and reconciled to the reported statutory measures in the appendix to the Consolidated Financial Statements on page 185.

Section 172 statement

The Board of Directors confirm that during the year ended 31 December 2023, it has acted to promote the long-term success of the Company for the benefit of shareholders, whilst having due regard to the matters set out in section 172(1) of the Companies Act 2006, being:

(a) the likely consequences of any decision in the long term

(b) the interests of the Company's employees

(c) the need to foster the Company's business relationships with suppliers, customers and others

(d) the impact of the Company's operations on the community and the environment

(e) the desirability of the Company maintaining a reputation for high standards of business conduct

(f) the need to act fairly between members of the Company

Read more about how the Board supports its Section 172 statement throughout the Corporate Governance section with specific examples on pages 86 and 87

The Spectris Foundation

The Spectris Foundation is a registered charity working across the globe.

The Foundation was established with the belief that every person should have an equal right to quality Science, Technology, Engineering and Mathematics (STEM) education. The Foundation's mission is to support charitable initiatives through grant-making, with a particular focus on enhancing and improving access to quality education in STEM; to empower students from all backgrounds.

Read more about The Spectris Foundation on pages 78 to 79

Apps for Good	Grant awarded
	£50,000
	Timescale
	1 year 2023 - 2024
	Location
	UK-wide
Apps for Good
Giving young people the skills to shape their future.
In a world transitioning towards digital transformation, many young people are being left behind, as they lack the necessary knowledge and skills to thrive in our digital world, due to adversity or disadvantage. The number of students pursuing IT courses in the UK at various levels (GCSE, A-Level, further education courses, and apprenticeships) is declining at an alarming rate.
Apps for good believe that all young people should be empowered. They provide free tech innovation courses to schools, giving teachers ready-made education content, so young people from all backgrounds can develop computing and essential skills to create a brighter future through technology.
The Spectris Foundation are partnering with Apps for Good to launch and expand their new project, Apps for Social Action (ASA). ASA is a solution-focused tech course focusing on young people, who are facing adversity, disadvantage, or are part of a minority group. The courses equip them with the essential skills to tackle pressing societal issues, empowering young people to use digital technology to positively influence the world they are living in.

Technovation	Total awarded
	£267,000
	Timescale
	2 years 2023 - 2025
	Location
	USA & Global
Technovation
Empowering girls to become leaders, creators and problem-solvers.
Technovation are a global technology education not-for-profit organisation that empowers girls to become leaders, creators and problem-solvers. Their innovative program equips young women with the support of volunteer mentors and parents. Girls work in teams to code mobile apps that address real-world problems and help them develop into our future entrepreneurs and leaders.
In the dynamic world of technology, a striking gender gap persists, with just a 25% representation of women in the sector. Amidst this global challenge, Technovation has emerged as a beacon of hope, dedicated to empowering young women through technology in their communities.
The Spectris Foundation is supporting Technovation to impact 1,426 young women's lives through Technovation Girls.

£16m

£15 million endowed in 2021 by Spectris plc to create the Spectris Foundation with a further £1 million contribution in 2023.

Since inception:

The Spectris Foundation has awarded

£1,365,799

(STEM and Employee nominations) with £1,161,299 committed to STEM education

Market trends

Accelerating growth in our markets

Our portfolio is focused and aligned to attractive, technology-driven, structural growth markets, underpinned by strong sustainability themes to make the world cleaner, healthier and more productive - aligned with our Purpose.

Cleaner

• Climate change and increasingly scarce resources require new solutions to solve the global environmental crisis; including the transition to cleaner energy and mobility solutions.

Healthier

• Ageing populations and a rising middle class in developing countries require greater healthcare provision, driving innovation across the Life sciences / Pharmaceutical space.

• Growing populations are increasing the need for precision agriculture and the evolution of food production.

More productive

• A more digital and automated world demanding ever more advanced computing, smart sensors, software and simulation; compounded by the need of our customers to improve yield, productivity and competitiveness.

Life sciences/ Pharmaceutical	Technology-led industrials1,2	Electronics and semiconductor
Pharmaceutical investment continues to grow, driven by demand for conventional and innovative biologics-based therapies. This growth is underpinned by onshoring activities, the application of analytics to improve drug pipeline efficiency and an increased regulatory focus on data integrity.	A more connected and automated world demanding ever more advanced computing and data is underpinning growth. In a higher inflationary environment, an increased focus on enhancing processes and assets to drive improvements in productivity and yield is also supporting demand.	Rising investment to satisfy amplified demand for digital infrastructure and greater processing power, combined with fast-evolving technologies such as 5G, internet of things, artificial intelligence and machine learning; supported by reshoring activities.
Sales 2023	Sales 2023	Sales 2023
18%	16%	12%
(2022: 24%)	(2022: 16%)	(2022: 11%)
Expected medium-term market growth	Expected medium-term market growth	Expected medium-term market growth
5-7%	5-7%	6-8%

1. 2022 has been represented following a recategorisation of marine and rail from automotive to technology-led industrials

2. Image: Blue Origin

• We have simplified our portfolio, with increased focus on core activities in attractive end markets.

• We have differentiated positions, supported by sustainable growth trends and a strong market share opportunity.

Read more about Our Markets on pages 10 and 11

Automotive ¹	Materials	Academic research	Other
Investment in automotive R&D is being driven by new platforms and a focus on electric vehicles, as well as new technologies for autonomous and increasingly connected vehicles. A growing use of simulation and software is required to generate smarter insights early on and to develop products faster, more efficiently and in a more sustainable manner.	Demand for new battery and catalyst materials to drive the energy transition and increasing focus on green metals and mining to minimise the environmental impact of production activities. This is leading to greater adoption of new technologies, automation and digitisation, fuelling demand for digitally connected instruments and remote monitoring/analytics.	Demand for advanced analytical and test systems, is being driven by the development of next-generation advanced materials and technologies for a cleaner, healthier and more productive world.	Includes other technology-driven markets such as Energy & Utilities and
			general Industrial Automation/Industry 4.0.
Sales 2023	Sales 2023	Sales 2023	Sales 2023
10%	10%	10%	24%
(2022: 10%)	(2022: 9%)	(2022: 8%)	(2022: 22%)
Expected medium-term	Expected medium-term	Expected medium-term	Expected medium-term
market growth	market growth	market growth	market growth
4-6%	5-6%	5-6%	3-5%

"Spectris today is a higher quality business, with a clear strategy and strong positions in attractive, sustainable, structural growth markets."

Andrew Heath, Chief Executive

2023

Read more about Our Strategy on pages 22 and 23

Chief Executive's review

A healthy, high-performance culture

"With thanks for the hard work of my colleagues, we made further, excellent progress in 2023, delivering another year of double-digit sales growth, record profit and an operating margin in excess of 18%."

Andrew Heath

Chief Executive

2023 was an excellent year for Spectris, reflecting the strength of the business and the strong execution of our Strategy for Sustainable Growth. Our people have continued to aim high, delivering a third successive year of double-digit sales growth and record profitability. Our strong performance is consistent with the ambitious, medium-term targets we laid out in October 2022 and provides further evidence of how we have improved the quality and resilience of our business.

Double-digit LFL sales growth with strong margin expansion and record operating profit

I would like to thank all my colleagues across Spectris for their commitment to delivering positive outcomes for our customers, working hard for each other and driving great results for the Group. Thank you for living our Values and inspiring a bold, high-performing culture that continually goes beyond and embraces our Purpose to make the world cleaner, healthier and more productive.

Despite the return of more normal customer ordering patterns in 2023, following the easing of global supply chains, our order book remains robust, providing good levels of visibility as we entered 2024. Order cover of between 4 and 5 months is higher than where the Group has been historically pre-pandemic, is in line with our expectations and consistent with where we expect order cover to settle over the medium-term.

We maintained strong sales momentum, with LFL sales growth of 10% which was ahead of our end markets, reflecting the introduction of exciting new products and the excellent conversion of our record order book at the start of the year. LFL sales exceeded the expected medium-term market growth rates in each of our major end markets with the exception of life sciences/pharmaceutical, where sales were 9% lower. This reflects the earlier normalisation of demand in this market after strong growth in 2022 and 2021.

We also continue to deliver higher quality, more profitable growth, with Spectris Dynamics producing a particularly impressive performance, delivering on the targets they set at the start of the year and carrying good momentum into 2024. Our focus on operational excellence, positive net pricing and a more benign input cost environment resulted in a 130bps increase in adjusted operating margins. The improved productivity and competitiveness is being driven through the Spectris Business System (SBS), which once again delivered significant, incremental benefits in 2023, materially contributing to the increase in profitability.

The Group delivered a record adjusted operating profit in 2023 - above our previous high in 2019, even after our divestment programme. Our adjusted operating margin of 18.1% fulfils a pledge we made when I joined Spectris in 2018, to restore Spectris to its previous margin highs. It is evidence of the progress made and the strength of our businesses, that we now see this as a stepping stone, on our way to margins in excess of 20%.

We are highly cash generative, with cash conversion over 100% on an adjusted basis, enabling us to maintain very strong balance sheet optionality and flexibility to invest in growth.

During the year we invested £108 million in R&D to ensure the future pipeline remains strong. We continue to have significant success in commercialising our technology with a number of new products launched in the year with additional exciting launches planned for 2024. We made four acquisitions/investments to bolster our capabilities and continued to develop further acquisition opportunities which we will work hard to realise in 2024. And in accordance with our capital allocation priorities, we completed the £300 million share buyback programme announced in April 2022 and commenced the first tranche of the £150 million share buyback programme announced in December 2023.

Towards the end of the year, we announced the sale of Red Lion Controls which, when completed, will mark the conclusion of the portfolio rationalisation envisaged in 2019. This programme has simplified and focused the Group through the divestment of eight businesses, at attractive valuations, generating £1.4 billion in gross proceeds, allowing us to reinvest in our future, as well as underpinning returns to shareholders.

The SBS represents a key building block to meeting our medium-term adjusted operating margin target of 20% plus. I have been impressed with the commitment to the SBS and the tangible progress I have seen across our sites during my visits throughout 2023. During the year, we commenced our 'Bronze, Silver, Gold' certification programme to drive lean operations across our core operational metrics, with seven of our sites achieving Bronze certification by the end of the year.

And we have enhanced our credentials as a leading sustainable business making strong progress towards our Net Zero ambition with a 27% reduction in our like-for-like scope 1 and 2 emissions, and achieving an 'A-' in our recent CDP rating. I am also very pleased with the progress we are making to ensure Spectris continues to be a great place to work with our engagement scores increasing again in 2023, rising to 3.92 (out of 5.00), up from 3.86 in 2022 and 3.72 in 2021.

Our performance in 2023 provides further evidence of the renewed strength of the business and demonstrates the benefit of the breadth of our portfolio, with exposure to both early-cycle and late-cycle end markets, with broad geographic exposure. Our high-quality, focused business, along with our strong self-help story, provides confidence in our outlook for 2024 and beyond.

Significant opportunities lie ahead for the Group

Spectris today is a very different business than it was five years ago. We have carefully and systematically refocused the Group around premium precision measurement businesses with attractive financial characteristics and long-term sustainable growth prospects, where we are solving some of our customers' toughest challenges.

We have already seen the impact on our performance, delivering strong levels of organic growth and increased operating margins. We have also significantly strengthened our financial position, while increasing investment in future growth through higher levels of R&D and targeted M&A. And alongside this, we have steadily increased shareholder returns through our progressive dividend and share buyback programmes.

But we are far from done. We are working to truly unlock the Group's full potential. With great people united behind a clear Strategy and common Purpose, I have never been more excited about the future for Spectris as I am today.

Spectris today is a higher quality business. The progress and investments we have made have created a stronger platform and a business with a clear Purpose. I have often said that we are a business blessed with opportunities, and we now more focused in our pursuit of them than ever before.

In 2024 and beyond, we will build on these strong foundations. We cannot remove the uncertainty from some of our end markets, but there are a number of levers we control to drive further progress in the years ahead. These 'self-help' opportunities include the implementation of a programme to transform our business processes, via the rollout of a single, cloud-based ERP solution, in addition to the SBS. The new system will provide a number of benefits, improving the visibility we have across the business, increasing our efficiency and making us more agile. Once complete, the new system will contribute an additional 150bps of margin, an important building block towards our target of at least 20%.

We are focused on creating shareholder value through a balanced approach to capital allocation. Our strong balance sheet provides the flexibility to maintain high levels of investment in R&D. We have a strong pipeline of new products and services that we will bring to market over the coming years, improving the vitality of our portfolio and helping us maintain our competitive advantage.

Compounding growth through targeted acquisitions remains a top priority and we would like to build on the 12 acquisitions and investments we have made since 2019. We have strengthened our teams within the business, generating leads, evaluating opportunities and maintaining a healthy pipeline of potential acquisitions, ranging from small bolt-ons to larger acquisitions.

And, as we have demonstrated, we will return excess cash to shareholders if opportunities to make acquisitions do not crystallise in a reasonable time-period. When completed, our latest £150 million share buyback programme will increase the total amount of cash returned to shareholders through buyback programmes to £650 million since 2019.

We will also continue to build on the great progress we have made by reducing our impact on the planet through our sustainability initiatives, to meet our Net Zero goals by 2030 and 2040. And we are building a lasting legacy for future generations through our work with the Spectris Foundation, with a plan to contribute an additional £6 million between 2023 and 2030, to support access to quality education in STEM for people across all backgrounds.

Delivering on these initiatives and opportunities is only made possible by the determination of our people, working for each other, and with our customers, to help solve some of their most critical challenges. I am proud of the work we have done to create a healthy, high-performance culture, a critical ingredient in our recent and future success. We will continue to invest in our people to drive even higher levels of engagement as we execute our Strategy.

Despite the near-term macroeconomic environment, I am more confident than ever in the future for Spectris, as a leading sustainable business, capable of compounding growth through the cycle and continuing to expand margins.

Strategy for Sustainable Growth

Our Strategy for Sustainable Growth is delivering compound growth and increased profitability, along with strong cash flow and returns on invested capital. This is reflected in our medium-term performance targets for the Group to deliver:

• Organic sales growth of 6-7% through the cycle

• Adjusted operating margin of 20%+

• Cash conversion of 80-90%

• Return on gross capital employed (ROGCE) in the mid-teens %

• Net Zero and increased employee engagement

The achievement of these performance objectives will materially enhance the value of the Group and deliver significant benefits to all of Spectris' stakeholders. The Group's Strategy and business model is aligned to delivering this framework, through six key elements:

1. Great businesses

Asset-light businesses focused on premium, precision measurement solutions and industry-leading domain expertise, aligned with our Purpose.

2. Structural growth markets

Aligned with attractive, sustainable, structural growth markets with high barriers to entry.

3. Customer centricity

Solving our customers' challenges with leading, differentiated solutions, equipping them to make the world cleaner, healthier and more productive.

4. Investing in growth

Disciplined capital allocation for the benefit of all stakeholders - investment in growth through R&D and M&A.

5. Operational excellence

Leveraging the SBS business improvement projects and our high-performance culture.

6. People and Culture

Purpose-led, healthy, high-performance culture with a clear ambition to create a positive and lasting impact to the planet and society.

	Organic sales growth	Adjusted operating margin	Adjusted cash conversion	ROGCE	ESG
Our medium-term targets	6-7%	20%+	80-90%	Mid-teens %	Net Zero - Scope 1 and 2 by 2023; Scope 3 by 2040
					Engagement - 4.06 by 2025
2023	10%	18.1%	103%	19%	Scope 1 and 2 ^* - 12,144.1 tCO ₂ e year-on-year reduction of 27.0%.
					Engagement improved year-on-year by 0.06 to 3.92
2018	5%	15.5%	59%	13.7%	Scope 1 and 2 ^* - 82,861.0 tCO ₂ e (Scope 3 and Engagement not measured in 2018)

Great businesses focused on premium, precision measurement solutions

Spectris is built around Spectris Scientific and Spectris Dynamics, two world class, asset-light businesses focused on premium, precision measurement solutions with industry-leading domain expertise and strong IP. Together, the two Divisions represented 86% of Group revenue in 2023 with the Other Division (consisting of Red Lion Controls and Servomex) representing the remainder.

Spectris Scientific is a leader in advanced material measurement and characterisation, for the high growth end markets of pharmaceuticals & food, primary materials, advanced materials, semiconductors and academic research. We are well positioned in high-value, premium areas where our domain expertise and analytics are valued by customers throughout the workflow. Our customers need the best measurement, and can't, and won't, compromise. The Division is made up of two businesses today: Malvern Panalytical and Particle Measuring Systems (PMS).

Malvern Panalytical is a world leader in materials analysis and characterisation, where we compete based on the precision and accuracy of measurement, our best-in-class solutions, our applications knowledge as well as a dynamic and evolving product portfolio. Our PMS business is a world leader in delivering micro-contamination monitoring solutions for ultra-clean manufacturing environments, where we win on the basis of having technology with the highest sensitivity and quality, our regulatory expertise, data integrity and the provision of complete sterility assurance solutions.

As announced in December 2023, the divestment of Red Lion Controls marks an end to our portfolio rationalisation programme envisaged in 2019. On completion of the sale, which is expected in the second quarter of 2024, we anticipate Servomex moving from our Other Division and being reported as part of Spectris Scientific. As a world leader in the provision of specialist premium gas and moisture analysis, Servomex is a great business that fits well with Spectris Scientific's focus on premium precision measurement instruments and solutions. Servomex serves many of the same end markets with exciting new technology in the pipeline and strong potential to address customer needs in the energy transition, particularly in areas such as carbon capture and hydrogen.

Spectris Dynamics is a world leader in the provision of advanced integrated physical and virtual testing and measurement. The Division is focused on four premium product lines with high growth prospects, where we have leading market positions: virtual test; software; data acquisition; and high-precision sensors. These products are complementary for customers and combine to offer the broadest test and measurement solutions in the market.

In virtual test we provide a complete solution including software, simulators and hardware-in-the-loop; in data acquisition (DAQ) our strength lies in the accuracy and sampling rate as well as the ease of use of our DAQ hardware and software; our software offering is known for its range and sophistication of analytic capabilities, ease of use and flexibility; and our sensors win on the back of their accuracy, reliability, durability and the breadth of our offering.

Spectris Dynamics supports customers in the long-term growth markets of automotive, aerospace and defence, machine manufacturing and personal electronics. These end markets are requiring greater test and measurement functionality and fidelity to accelerate the time to market for new products, reduce cost and manage increasingly sophisticated measurements for automated manufacturing and in-process applications.

Aligned with attractive, sustainable, structural growth markets

As a result of the rationalisation of our portfolio over the last four years, additional investment in R&D and enhanced capabilities through acquisition, Spectris today is a more focused, streamlined, and resilient business positioned in markets benefiting from a number of structural growth drivers and sustainability trends:

• Life sciences/pharmaceutical (18% of Group sales) - growth is driven by demand for both conventional and innovative biologics-based therapies, supported by onshoring activities, the application of analytics to improve drug pipeline efficiency and an increased regulatory focus. We play in three main areas, with the first two serviced by our Malvern Panalytical business: (1) Small molecule drug discovery, development and manufacturing - where we are a market leader in stability, affinity and structure analysis; (2) Biologics drug discovery, development and manufacturing - where we have built a strong position in affinity and stability analysis; and (3) Aseptic manufacturing - our PMS business is a market leader in the provision of instruments and services to support micro-contamination monitoring in pharmaceutical cleanrooms.

• Technology-led industrials (16% of Group sales) - a more connected and automated world demanding ever more advanced computing, sensing and data is underpinning growth. In a higher inflationary environment, an increased focus on enhancing processes and assets to drive improvements in productivity and yield is also supporting demand. We generate revenue from two main areas both of which contribute around half of the total revenue for this end market: (1) providing our leading smart and OEM sensor capability to machine manufacturers and OEMs; and (2) from aerospace and defence where our leading real-time computation systems, sensors, data acquisition systems and software provide customers with leading test and measurement technology in a number of critical applications.

• Electronics and semiconductor (12% of Group sales) - growth is being driven by rising investment to satisfy higher chip demand for digital infrastructure and greater processing power, combined with fast evolving technologies such as 5G, internet of things and machine learning; supported by reshoring activities and the construction of new fabrication plants across the world. Demand for our high sensitivity particle counters for semiconductor cleanrooms and particle characterisation instruments for silicon wafer structural analysis accounts for the majority of revenue for this end market, with the remainder coming from consumer electronics, including precision microphones, speakers and voice-control systems.

• Automotive (10% of Group sales) - investment in automotive R&D is being driven by electric vehicles and the rapid expansion of new manufacturers and platforms, as well as new technologies for autonomous and increasingly connected vehicles. A growing use of simulation and software is being used to generate smarter insights earlier during product development to bring products to market faster, more efficiently and in a more sustainable manner. Around two-thirds of our revenue from this end market is derived from EV development and production with our offering centred around virtual simulators, hardware-in-the-loop, sensing and data acquisition capabilities and end-of-line testing.

• Materials (10% of Group sales) - a growing need for sustainable, responsible and more effective sourcing to minimise the environmental impact of mining activities is leading to a greater adoption of automation and digitisation, closer to the point of extraction. This is also fuelling demand for digitally connected instruments and remote monitoring/analytics. The energy transition is also driving significant demand for new chemistries and materials for batteries and power electronics along with catalyst development and advanced gas analysis for carbon capture and the hydrogen economy. Advanced manufacturing and the drive for efficiency and weight saving also required the development of new materials. The bulk of our revenue in this end market is currently derived from material characterisation in mining, metals, petrochemical and building materials production, with the remainder from analysis to support the production of advanced materials such as batteries.

• Academia (10% of Group sales) - recovery in research funding is driving demand for advanced analytical and test systems, focused on developing next generation technologies for a cleaner, healthier and more productive world.

• In 2023, LFL sales exceeded the expected medium-term market growth rates in each our major end markets with the exception of life sciences/pharmaceutical, where sales were 9% lower. This reflects the earlier normalisation of demand in this market after strong growth in 2022 and 2021.

Customer centricity: leading solutions to make the world Cleaner, Healthier and More Productive

Customer centricity is core to our business model. Over the last four years we have shifted from transactional selling of hardware to concentrating on solutions, where we add value throughout our customers' workflows and processes. We serve over 67,000 customers globally and having reshaped the portfolio, our retained businesses predominantly go to market directly with over 80% of sales being direct to customers supported by over 2,200 sales, service and application engineers reflecting our high-touch approach. Our domain expertise is highly valued, with over 60% repeat customers annually and class-leading net promoter scores.

Our large and growing installed base has allowed us to build a strong aftermarket annuity, with recurring and service revenues now accounting for around a third of Group sales with software accounting for approximately a third of that. And through new innovations such as SMART Manager, which enables connections to customers' instruments in the field, we are expanding the range of aftermarket services that we provide.

During 2023, we continued to work across the world with customers using our expertise to help them solve their most critical and complex challenges. Two such examples include:

• At Spectris Scientific, we are delighted that the team at MIP Discovery, a leading developer of solutions for a range of diagnostics and healthcare applications in the UK, chose our particle characterisation technology. MIP is deploying our recently launched NanoSight Pro nanoparticle tracking analyser along with our Zetasizer system in the development of innovative alternatives to biosensor-based testing devices for drugs and also diseases, including coronaviruses and many cancers. MIP identified a number of key benefits of the NanoSight Pro including easy installation, alignment of software, faster results analysis, accuracy and a reduction in the use of expensive samples.

• At Spectris Dynamics, EDAG Group, one of the world's largest independent engineering partners for vehicles and smart factories, announced that our leading driving simulator and hardware-in-the-loop technology will feature at its Zero Prototype Lab at its development centre in Wolfsburg, Germany. Our state-of-the-art simulator offering will provide key tools in the centre, with EDAG investing in our DiM500, our largest simulator, along with the COMPACT Full Spectrum Simulator (COMPACT FSS) and an additional AutoHawk hardware-in-the-loop platform. The provision of a comprehensive suite of simulation tools will empower EDAG Group in pushing the boundaries of engineering services and also provide an excellent reference point for other automotive customers.

Investing in growth through R&D

The strength and resilience of our businesses and their competitive positions is being further enhanced by increased investment in R&D as well as adding new capabilities through acquisitions and investment in new technologies.

We invested £108.1 million in R&D in 2023 (2022: £103.8 million) representing 7.5% of sales (2022: 7.8%) in line with our stated guidance. Our direct sales approach enhances customer intimacy and fosters an environment of customer-back innovation with our strong innovation pipeline fuelling future organic growth and market share gains. We continue to see strong interest from customers and are having significant success in commercialising our technology with a number of new products launched in the period.

In Spectris Scientific we launched: our ParticleSeeker product, a smart aerosol manifold used to monitor air quality in semiconductor manufacturing; the Nanosight Pro which provides the quickest, most accurate, easy to use and install nanoparticle tracking analysis instrument; the SERVOPRO DF760E NanoTrace, a dual moisture and oxygen analyser for ultra-high purity bulk gases used in the semiconductor industry; and the FORJTM fusion instrument, the world's fastest, safest and most accurate fusion instrument for sample preparation. In addition, we made strong progress on our digital strategy, with around 2,500 customer instruments now connected to our SMART Manager cloud-based platform for remote and proactive instrument monitoring.

In Spectris Dynamics new product launches included: our COMPACT FSS to further augment our simulator offering for automotive customers; a number of major upgrades to our leading reliability and durability software; and a record number of prototypes for our global OEM sensor customers including: force sensors for batteries and brakes applications; strain sensors for fuel cells and electric vehicles; and torque sensors for robotics and mechatronics. Our simulation technology continues to gain recognition with our DiM300 simulator selected as the 2023 Development Tool of the Year by Vehicle Dynamics International.

Looking ahead, we expect R&D spend to remain at around 8% of sales, with all our R&D investments expected to return an internal rate of return of at least 15%. In 2022, we introduced our vitality index for the first time. This measures current year revenue from products released over the previous five years as a percentage of total revenue in the current period.

The vitality index was 22% by the end of 2023 (2022: 25%) with the decline reflecting a combination of two factors. First, our decision to divert engineering resource to redesign products to navigate input shortages delaying some of our new product introduction timescales and second, strong sales of our established core product portfolio, which is testament to the strength and longevity of our technology and leading market positions. We expect the vitality index to improve beyond 2022's level in 2024.

End market sales and growth rates	Sales 2023 (£m)	Sales as % of total Group	LFL sales Growth %	Expected medium-term market growth %
Life sciences / pharmaceutical	267	18%	-9%	5-7%
Technology-led industrials	233	16%	8%	5-7%
Electronics and semiconductor	175	12%	19%	6-8%
Automotive	149	10%	8%	4-6%
Materials	142	10%	16%	5-6%
Academia	142	10%	29%	5-6%
Other	341	24%	19%	3-5%

Investing in growth through M&A

We continue to maintain an active pipeline of potential acquisition targets from early-stage technologies to bolt-on acquisitions of varying sizes, through to larger-scale opportunities. This is an important component of our Strategy to compound growth, with acquisitions adding £23 million of additional sales (2%) in 2023. During the year, we invested a total of £60 million on four acquisitions.

In September, Spectris Dynamics completed the acquisition of MicroStrain Sensing Systems Business, a leading developer of inertial and wireless sensing systems, serving the industrial and aerospace sensing systems market, to further strengthen our overall sensor offering.

Spectris Scientific made three investments to broaden its offering: the x-ray diffraction product line from Freiberg Instruments providing complementary solutions to our existing semiconductor portfolio; a minority investment in LumaCyte providing further exposure and deeper insights into the high-growth cell & gene therapy and vaccine markets; and the acquisition of Particle Measuring Technique Ireland Limited (EMS), a long-established partner and exclusive distributor of PMS products in the UK and Ireland, which further strengthens our regional services offering.

Looking ahead, our strong balance sheet and active M&A pipeline provide us with considerable flexibility to continue to compound growth through targeted acquisitions.

Operational excellence: the SBS driving productivity and competitiveness

The deployment of the SBS continues to expand, delivering operational excellence and the adoption of a lean mindset across the Group, as a key productivity component of our journey towards our medium-term adjusted operating margin target of over 20%. I have been particularly delighted to witness the commitment to the SBS and the progress we have made across our sites during my visits throughout the year.

The main objectives of the SBS are to remove waste, drive efficiency and strengthen competitiveness as we grow the business. These activities not only deliver hard financial benefits, but they also strengthen our capabilities and create additional capacity, including investment in innovation and areas like automation. As reported at the half year, our focus during 2023 has been to drive maturity in lean operations across our sites while continuing to meet our commitments to customers. In particular, this has meant a focus on expanding our existing capacity efficiently, to convert orders into sales, while at the same time reducing costs and lead times.

During the year, the SBS continued to make a meaningful contribution to the profitability of the Group, with benefits realised from operational excellence initiatives in 2023 in excess of £10 million. These benefits are derived from a combination of gross profit improvement and overhead reduction, delivered through a range of projects including: improvements to workflow; layout and capacity utilisation; freight optimisation; and increased use of automation.

We commenced our 'Bronze, Silver, Gold' certification programme in the year to drive lean operations across our core operational metrics of Safety, Quality, Delivery, Inventory, Productivity. I am pleased to report that at the end of the year, seven of our sites (out of a total of 14 priority sites) had achieved Bronze certification.

Looking ahead, in 2024 we expect a number of additional sites to achieve Bronze status and others to make progress towards their Silver accreditation. We will also continue to broaden the focus of the SBS to encompass R&D as well as the enabling functions such as IT, Finance, HR and Legal.

We have made good progress on the implementation of our business transformation programme, enabled by SAP S/4HANA, focusing on four key areas: people, process, technology and data. The programme will deliver simplified and standardised processes, helping us more efficiently scale our business, through: simpler working practices; better customer experience; enhanced interaction with suppliers; and a more globally connected and scalable business. Our approach has been to adopt the standard SAP configuration wherever possible, adjusting our business processes to the system, thereby limiting customisation and reducing complexity. Implementation is scheduled to take place in 2024 through a phased rollout with benefits starting to be realised from 2025.

We made excellent progress on the build out of our new strain gauge production site in Porto. The new site, which will become operational in the second quarter of 2024, will provide additional capacity to supply OEM sensors to European and US markets from Portugal, while our existing site in Suzhou supports customers across Asia.

Work on the project to build a new, state-of-the-art facility for our PMS business in Colorado is progressing well. The new facility will allow us to continue developing, manufacturing and servicing products in Colorado, while providing increased capacity, improved operational efficiency and a modern working environment for employees.

Underpinned by our Purpose and our people

At Spectris, we believe that the way that we deliver our results is just as important as the results themselves. We are committed to creating a sustainable business for all our stakeholders, ensuring that we prioritise a culture of long-term growth set on solid foundations.

For our employees, this means creating a great place to work, where their safety and wellbeing is a priority and where they feel that they belong, are seen and can develop and grow. For our suppliers and customers this means shared ethical business practices and a joint commitment to making the world cleaner, healthier and more productive.

Our people are at the heart of our Purpose and we are committed to developing our healthy, high-performance culture. Across Spectris, we have exceptional leaders, deep technical experts and visionary thinkers, who collectively create a diverse and innovative global team who are passionate about serving our customers and supporting each other. I passionately believe that bringing brilliant people together behind our common Purpose, underpinned by our Values is the key to our continued success.

Nurturing a diverse and inclusive working environment is key to ensuring that our people thrive. To achieve our full potential, we need our people to bring their different backgrounds, experiences and perspectives to the fore in their work, supported by an inclusive leadership culture that ensures everyone feels they belong. Our people are guiding our approach and we have developed a number of inclusion groups across our Spectris Dynamics business covering areas such as late careers, gender diversity, parents and our Advocates and Allies Group, based in the US which support and promote the views of employees from diverse backgrounds. The views and feedback from these inclusion groups is helping to form and shape our approach to inclusion.

We are proud of the progress we have made in 2023 to build further gender diversity into our senior leadership team, increasing the percentage of women to 28.7% and setting our ambition to ensure this rises to at least 40% by 2030. In support of this, I am delighted that Spectris has joined the 25x25 initiative to provide a collective focus on the development of a diverse talent pipeline in our industry. We also remain a proud sponsor of International Women in Engineering Day which his year, was celebrated in conjunction with The Spectris Foundation, Young Professionals and Techgirlz involving over 275 young women from across the UK and US exploring different career paths in technology and engineering.

We recognise the importance of developing ethnic diversity, and other forms of representation. In 2023, we took early steps towards the voluntary reporting of ethnic diversity data and we have set a target to ensure that 10% of our UK-based leadership population is ethnically diverse by 2027. While this is an important first step, with employees in over 30 countries, our wider ambition is to ensure that our leadership community fully reflects and represents our employee base and the geographies where we operate.

Our healthy, high-performance culture is also being supported by our global leadership development programme, Ascend. The programme is founded on the principles of inspiring our people, strengthening our teams and growing our business, underpinned by our Values and Purpose. We expect our leaders to cast a strong shadow, demonstrating the right behaviours and fostering a culture in their teams of accountability, aspiration and doing the right thing, by creating an engaging and inclusive environment, where people can flourish.

The health, safety and wellbeing of our people is our priority. We prioritise a safety-first approach, to our operations, aligned to our Values. In, 2023 we saw a slight increase in the number of recordable incidents, with our Total Recordable Incident Rate (TRIR)increasing to 0.34 (2022: 0.27). While the absolute number of incidents remains very low, these incidents have been thoroughly investigated by the Group's Health and Safety Committee and are attributable to an increase in minor incidents and the embedding of our global health and safety reporting structure. Our goal remains to reduce our TRIR to below 0.2, which would represent a truly world-class performance.

We also continue to place great emphasis on ensuring the wellbeing and mental health of our people. This includes equipping our leaders with the know-how to support their teams in a holistic way through our 'Time to Talk' programme and increasing access to our Employee Assistance programmes, with over 86% of employees now having access to a programme.

The positive development of our culture is visible in the progress made in our annual Gallup engagement survey. Our engagement score increased again in 2023, rising to 3.92 (out of 5.00), up from 3.86 in 2022 and 3.72 in 2021. I am very pleased with the progress we are making and, in particular, the commitment I can see across the Group to make engagement an intentional core of our culture, making Spectris a great place to work.

Our Purpose guides our actions. We are harnessing the power of precision measurement to make the world cleaner, healthier and more productive. In 2021 we set challenging targets to become Net Zero across our own operations by 2030 and across our value chain by 2040. In 2023, we continued to make strong progress towards our Net Zero ambition with a like-for-like reduction of 27% in our scope 1 and 2 emissions, driven through the application of the SBS principles to energy reduction and the cost-effective deployment of onsite renewable energy.

We have also made excellent progress in the measurement and reduction of our scope 3 emissions, through the expanded use of EcoVadis to build supplier-specific data and the development of our product life cycle assessment protocol at Servomex and PMS. This progress has allowed us to measure and report additional supplier specific data for the first time. This level of granularity is supporting targeted action, resulting in a 9.5% reduction in our scope 3 emissions on a LFL basis compared with 2022.

We are very conscious that one of the biggest sustainable impacts we can have is through our supply chain. In 2023, we launched the new Spectris Supplier Code, which underlines our commitment to the UN Global Company, ethical business practices and sustainable supply chains. The Supplier Code serves as the foundation of our operations, outlining the minimum standards we expect from our valued supply chain partners and how we would like them to work with us to fulfil our wider sustainability ambitions.

Beyond our business we are also proud to be building a legacy. We created the Spectris Foundation in 2021 through an endowment of £15 million. The Spectris Foundation believes that every person should have an equal right to quality STEM education. To date, the Foundation has committed over £1.1 million to STEM education, supporting over 430 teachers and 43,000 students in 11 countries. The involvement of Spectris employees in Foundation activities amplifies the impact of the charitable grants, with over 2,940 hours donated in 2023 and plans in place to extend volunteering in 2024. Spectris is committed to the long-term impact of the Foundation contributing an additional £1 million in 2023 with plans for a further £5 million by 2030.

Summary and outlook

The Group's resilience, leading product portfolio and broad end market exposure, combined with a strong self-help story, provides confidence in the Group's ability to navigate an uncertain macroeconomic environment this year.

We expect to deliver another year of further progress in 2024, including margin expansion, after taking into account the impact of the Red Lion disposal. Progress is expected to be weighted towards the second half reflecting the strong performance of the Group in the first half of 2023, and an improving outlook in a number of key end markets.

28 February 2024

Andrew Heath Chief Executive

Sales

£1,449.2m

(2022: £1,327.4m)

Change yoy 9%

LFL change yoy 10%

Adjusted operating profit

£262.5m

(2022: £222.4m)

Change yoy 18%

Adjusted operating margin

18.1%

(2022: 16.8%)

Change yoy 130bps

Investment in R&D

7.5%

(2022: 7.8% of sales)

We are committed to creating a healthy, high-performance culture underpinned by Our Values of Aim High, Own It, Be True. We continue to make encouraging progress on our journey and driving high levels of engagement across the Group.

GrandMean

3.92

(2022: 3.86)

Driven by innovation

The strength and resilience of our businesses and their competitive positions is being further enhanced by increased investment in R&D as well as adding new capabilities through acquisitions and investment in new technologies.

Investment in R&D

£108.1m

(2022: £103.8m)

Committed to sustainability

We are making strong progress towards delivering our ambition to become Net Zero across our own operations (scope 1 and 2) by 2030 and across our value chain (scope 3) by 2040.

Scope 1 and 2 emissions

12,144 tonnes CO ₂ e

(2022: 17,546 tonnes CO ₂ e)

•

Six key elements of our Strategy for Sustainable Growth

1. Great businesses

Asset-light businesses focused on premium, precision measurement solutions and industry-leading domain expertise, aligned with our Purpose.

2. Structural growth markets

Aligned with attractive, sustainable, structural growth markets with high barriers to entry.

3. Customer centricity

Solving our customers' challenges with leading, differentiated solutions, equipping them to make the world cleaner, healthier and more productive.

4. Investing in growth

Disciplined capital allocation for the benefit of all stakeholders - investment in growth through R&D and M&A.

5. Operational excellence

Leveraging the SBS business improvement projects and our high-performance culture.

6. People and Culture

Purpose-led, healthy, high-performance culture with a clear ambition to create a positive and lasting impact to the planet and society.

Read more information on our Strategy on pages 22 and 23

Case Study

Servomex 2200 Oxygen Analyzer plays important role in green hydrogen production

Global demand for Hydrogen is expected to increase from 87 million metric tons (MT) in 2020 to over 600 MT by 2050. Within this market, the green hydrogen (ultra-low CO ₂ emissions) sub-sector is forecast to expand at a compound annual growth rate (CAGR) of 39.5% from 2022 to 2030 as the world seeks cleaner and sustainable energy alternatives.

Servomex is playing a crucial role in the expansion of green hydrogen through the development of advanced gas analysis technologies that enhance the efficiency and reliability of hydrogen production processes. With economies of scale and the reducing cost of electrolysis-the production process by which green hydrogen is produced is rapidly improving.

This transformation in the economic viability of green hydrogen, is making it increasingly competitive with conventional hydrogen production methods. Through precise monitoring and control of gas composition, Servomex aids the optimisation of the electrolysis process, ensuring a high purity of green hydrogen output. This not only improves the overall efficiency of hydrogen production but also aligns with the industry's commitment to reducing carbon emissions as the demand for green hydrogen continues to rise.

Servomex was pleased to supply the versatile Servomex 2200 Oxygen Analyzer to our customer CPH2 via our Channel Partner SGS. This analyzer is an excellent addition to their state-of-the-art and green hydrogen production system.

CPH2, who manufactures the unique 1 MWatt Membrane-Free Electrolyser, selected the Servomex 2200 Analyzer for its class-leading specification for measuring oxygen in hydrogen to enhance their technology's efficiency and safety processes.

The Servomex 2200 analyser is approved for the measurement of oxygen, including enriched oxygen (>21%), in hydrogen in hazardous areas. The CPH2 electrolysers are used to decarbonise energy systems, replacing diesel back-up systems and using excess wind and solar energy to generate hydrogen to power equipment, machinery and transportation (forklift trucks, buses, airport ground support equipment).

Servomex is playing a crucial role in the expansion of green hydrogen through the development of advanced gas analysis technologies that enhance the efficiency and reliability of hydrogen production processes.

Our Business Model

Our business model is driven by our Purpose and built on our Values

Purpose-led

Our Purpose

We are harnessing the power of precision measurement to make the world cleaner, healthier and more productive.

Our Commitment

to being a sustainable business partner, investment proposition and employer.

Delivered through our business model

Six key elements of our Strategy for Sustainable Growth

1. Great businesses

Asset-light businesses focused on premium, precision measurement solutions and industry-leading domain expertise, aligned with our Purpose.

2. Structural growth markets

Aligned with attractive, sustainable, structural growth markets with high barriers to entry.

3. Customer centricity

Solving our customers' challenges with leading, differentiated solutions, equipping them to make the world cleaner, healthier and more productive.

4. Investing in growth

Disciplined capital allocation for the benefit of all stakeholders - investment in growth through R&D and M&A.

5. Operational excellence

Leveraging the SBS business improvement projects and our high-performance culture.

6. People and Culture

Purpose-led, healthy, high-performance culture with a clear ambition to create a positive and lasting impact to the planet and society.

Underpinned by

Our Values

Be True - we believe in absolute integrity. It's how we win for stakeholders, the environment and each other.

Own It - we believe in teamwork and keeping our promises. It's how we build our brands and businesses.

Aim High - we believe in being bold and positive. It's how we perform at our best and achieve greater success.

Creating value beyond measure for all our stakeholders

Our customers

We build strong, collaborative customer relationships, underpinned by a deep understanding of our customers' businesses.

Our people

We ensure that our culture openly reflects our values and meets the expectations of our people. We are committed to creating the best possible working environment and culture where our employees feel included, engaged and can thrive.

Our value chain

We believe that our suppliers should have the opportunity to benefit from their relationship with us, working together with a shared purpose and Values.

Our society

We are committed to creating a positive legacy in our communities and for the next generation. The Spectris Foundation will enhance and improve our charitable giving to support quality access to a STEM education.

Our shareholders

We work to ensure the long-term success of the Group to deliver enhanced shareholder value through our financial performance, capital distributions and our focus on long-term value creation.

Our planet

We recognise that we have a role to play in tackling environmental degradation and climate change. Our products and services reduce our customers' environmental impact. We are also making strong progress in our ambition to become Net Zero across our own operations by 2030 and across our value chain by 2040.

For more information on our approach to sustainable growth, see the Sustainability Report on pages 52 to 77

Our strategy

Our Strategy for Sustainable Growth

There has never been a better time, or a greater need, to harness the power of precision measurement to make the world cleaner, healthier and more productive.

Since 2019, we have repositioned Spectris as a leading sustainable, compound-growth business, delivering value beyond measure for all our stakeholders.

In October 2022, we announced our plans and the outlook for the next stage of our journey - our Strategy for Sustainable Growth.

Our performance targets

(2022 - 2027)

Organic sales growth

6-7%

through the cycle

Adjusted operating margin expansion

20%+

Adjusted cash conversion

80-90%

ROGCE

Mid-teens

Net Zero

Net Zero across our operations by 2030

Net Zero across our value chain by 2040

Employee engagement

Gallup GrandMean score of 4.06 by 2025

Great businesses	Structural growth markets	Customer centricity
We are owners of world-class precision measurement businesses with industry-leading domain expertise. Our Scientific and Dynamics Divisions are fully aligned with our Purpose to make the world cleaner, healthier and more productive.	We are concentrated in high-growth end markets. Our end markets demonstrate structural growth, underpinned by sustainability themes and as such have strong CAGRs through the cycle, underpinning our organic growth.	Our focus on solutions adds value throughout our customers' workflows. Our direct relationship drives customer-backed innovation, informing our research and product development strategy such that we intercept our customers' needs, allowing us to move faster and deliver greater value.
Read more in our Division reviews	Read more about our markets	Read more in our customer case studies
on pages 28 to 45	on pages 10 and 11	on pages 19, 31 to 33, 37 to 39, 45 and 71
Investing in growth	Operational excellence	People and Culture
We leverage our strong balance sheet to deliver growth. We are driving organic growth through investment in R&D at 7.8% of revenue, innovating and problem solving with the customer in mind.	We are leveraging the SBS to continuously drive operational excellence to improve productivity. We are investing in new systems to improve processes and we continue to refine our lean operating model to remove structural inefficiencies and deliver our margin ambitions.	We have built a purpose-led, healthy, high-performance culture with a clear ambition to create a positive and lasting impact to the planet and society.
We are compounding this growth through investment in M&A to strengthen and expand our portfolio to add value across our customers' workflows.
Read more in the Chief Executive's review	Read more in our Division reviews	Read more on our Culture
on pages 12 to 18	on pages 28 to 45	on pages 54 to 58

Our progress is underpinned by our investment in

Our People

Read more about Our People on pages 54 to 57

Investing in growth

Research & development

High levels of customer intimacy drives customer-back innovation, informing our research and product development strategy such that we intercept our customer needs for the future.

Our recent strong growth has been underpinned by new and enhanced products which have helped deliver market share gains. We employ over 1,300 engineers, approximately half of which are in software. Over the last three years we have increased our R&D investment as a percentage of sales from 6% to around 8% with the proportion of engineering time now spent on new products increasing to around 60%. Going forward, we plan to maintain investment at or above 8% of revenue.

R&D investment

£108.1m

R&D investment as a percentage of sales

7.5%

(2022: 7.8%)

Examples of latest product launches in 2023

Spectris Scientific

• Maintaining leadership in XRF

• Strengthening XRD offering

• Expanding semiconductor metrology offering

• Next generation particle analysers and counters <10nm

• Remote monitoring

• Integrated cloud services and analytics

• Combining AI with instruments

Nanosight Pro - Nanoparticle Tracking Analysis instrument

• Quickest, most accurate, easy to use and install, Nanoparticle Tracking Analysis instrument

• Powered by machine learning, enables automated measurements, and provides the highest quality size and concentration data for both the light scatter and fluorescence analysis

NanoAirTM10 Particle Counter and Particle Seeker

• Condensation particle counter and seeker

• Used in ultra-clean environments inside semiconductor process tools and equipment

• 83% smaller than competitor products

• Provides 24/7, 365-day continuous operation without the need for maintenance or user intervention

FORJTM fusion instrument for sample preparation

• FORJ is designed to meet the highest material quality standards for elemental analysis

• Delivers the highest levels of robustness, productivity, and superior-quality results

• User-friendly instrument is suitable for full laboratory integration

Spectris Dynamics

• Enhanced virtual test solutions

• Simulation and data management software

• Software/hardware-in-the-loop

• Reliability and durability software

• Electric powertrain testing

• Data acquisition ecosystem

• Smart and OEM sensors

COMPACT Full Spectrum Simulator (COMPACT FSS)

• Broadens and strengthens our simulator portfolio

• Powered by a VI-grade AutoHawk real-time computer

• Provides highly accurate motion, vibration and sound in a small footprint

• Enables human-in-the-loop simulation

OEM Sensors

• Delivered 55 OEM customer prototypes including: force sensors for batteries and brakes applications; strain sensors for fuel cells and electric vehicles; torque sensors for robotics; and mechatronics

• Provides strong foundation for future sales growth

New smart sensors

• Introduced newly developed smart force sensors linked to a standard industrial interface

• Enabling simplified machine design and decisions to be made at the point of measure

• Improved efficiency and simplified machine operation

Mergers & acquisitions

Compounding growth through M&A is a key part of our strategy. We maintain an active pipeline of acquisition targets across the spectrum, from early-life technologies, to bolt-ons of varying sizes, through to larger-scale opportunities.

We take a disciplined approach - ensuring there is a clear industrial logic and financial rationale, consistent with our capital allocation policy. Since 2018, we have acquired 12 businesses for a total net consideration of £360 million. We are targeting opportunities in pharmaceutical & life sciences, advanced materials, metrology, sensors, electrification, software and advisory services.

Acquisition
Creoptix
2022: £37.3 million
Provides cutting-edge tools for molecular interaction analysis through its WAVE system of next-generation bioanalytical instruments
Benefits of acquisition	End markets and applications served
• Expands instrumentation and services capabilities	• Pharmaceutical/life sciences
• Strengthens position in small molecule pharmaceutical development	• Discovery and development of new drug products
• Grows capabilities in biopharmaceuticals
Acquisition
Dytran
2022: £70.5 million
Leading designer and manufacturer of piezo-electric and MEMS-based accelerometers and sensors for measuring dynamic force, pressure and vibration
Benefits of acquisition	End markets and applications served
• Strengthens piezo-electric and MEMS offering	• Space, aerospace, industrial and automotive industries
• Expands North American presence	• Product development testing and embedded monitoring solutions
• Enhances customer offering
• Accelerates product development
Acquisition
MicroStrain
2023: £29.1 million
Leading developer of inertial and wireless sensing systems supporting industrial automation and development of new robotics, logistics, unmanned vehicles and mobility applications
Benefits of acquisition	End markets and applications served
• Strengthens sensor offering	• Aerospace and defence
• Helps penetrate rapidly growing automation and smart manufacturing markets	• Industrial automation
• Expands North American presence	• Robotics, logistics, autonomous vehicles
Product-line acquisition from
Freiberg Instruments
2023: £13.0 million
Acquisition of the x-ray diffraction product line and crystal orientation metrology tools
Benefits of acquisition	End markets and applications served
• Complements existing semiconductor portfolio	• Semiconductors
• Helps respond to the industry requirement to improve yield and performance	• Wafer metrology/crystal orientation
Investment
LumaCyte
2023: £7.8 million
Minority investment in a bioanalytic instrumentation company producing label-free, single cell analysis and sorting instrumentation
Benefits of acquisition	End markets and applications served
• Provides Spectris with further exposure into the high growth cell & gene therapy	• Life sciences/pharmaceuticals
and vaccine markets	• Cell and gene therapy and vaccine markets
• Allows LumaCyte to build sales and applications teams and enhance its manufacturing capabilities and technology base

Key Performance Indicators

Measuring our performance

We monitor progress against the delivery of our strategic goals using both financial and non-financial key performance indicators (KPIs).

Our Strategy for Sustainable Growth is centred on long-term value creation. Seven of our KPIs are directly linked to remuneration under the 2023 Remuneration Policy. For further details, see the Directors' Remuneration Report on pages 102 to 123.

A number of the KPIs are adjusted operating metrics, as we believe these provide a more representative view of our underlying performance because they exclude foreign exchange movements and the impact of acquisitions and disposals. See the appendix to the Consolidated Financial Statements for a reconciliation between adjusted and statutory items.

The Directors' Report (pages 124 to 127) contains the statement on non-financial information and provides an index for where information relating to non-financial matters can be found.

1 Great businesses

2 Structural growth markets

3 Customer-centricity

4 Investing in growth

5 Operational excellence

Financial

Like-for-like sales growth (%). 1 2 R

LFL sales growth

LFL sales growth is a measure of how our R&D and other investments help to grow our business organically, i.e. excluding the effects of currency translation and acquisitions or divestments.

Performance

In 2023, sales were £1,449.2 million, a 10% increase on a LFL basis compared with 2022, driven from 1.5% volume and 8.0% pricing.

Link to strategy and objectives

We are customer focused and target attractive end markets where we are best placed to drive compound growth and profitability. Our aim is to achieve through-cycle growth of 6-7%.

Link to remuneration

30% of annual bonus opportunity.

Adjusted cash flow conversion1 (%) 1 2 4 R

Cash conversion

Adjusted cash conversion represents an effective measure of the quality of our earnings after investments in capital expenditure. Adjusted cash conversion is defined as adjusted cash flow as a percentage of adjusted operating profit.

Performance

Adjusted cash conversion was 103% in 2023, an increase of 29pp compared to 2022. With greater adjusted cash flow being generated from the increased adjusted operating profit, the improvement in adjusted cash conversion principally results from a favourable working capital movement, mainly attributable to a reduction in trade receivables, and lower capital expenditure.

Link to strategy and objectives

We have an asset-light business model and our strong adjusted cash generation enables us to reinvest in our businesses and provide capital returns to our shareholders. Our aim is to deliver a high level of adjusted cash conversion every year, in the range of 80-90%.

Link to remuneration

20% of annual bonus opportunity.

Adjusted operating margin1 (%) 3 4 R

Adjusted operating margin

Adjusted operating margin is the primary measure of improving profitability of our business and is defined as adjusted operating profit as a percentage of sales.

Performance

In 2023, the adjusted operating margin improved to 18.1%, an increase of 130bps from 16.8% in 2022. This reflected the higher sales volumes and a progressive pricing policy that remained ahead of inflationary cost pressures on materials, labour and overheads, and improved productivity.

Link to strategy and objectives

Our aim is to deliver strong operational leverage and drive operating margin expansion. As we grow, our immediate target is to achieve an adjusted operating margin of 18% in the near-term and >20% in the medium-term.

Link to remuneration

30% of annual bonus opportunity.

Growth in adjusted EPS1 (%) 1 4 R

Adjusted EPS growth

Adjusted EPS is the ratio of adjusted earnings for the year to the weighted average number of ordinary shares outstanding during the year, excluding certain items.

Performance

Adjusted EPS increased 25% to 199.7p, primarily reflecting an improvement in adjusted profit before tax, and as a result of the lower share count following the Group's £300 million share buyback programme completed in 2023 and the commencement of the £150 million share buyback programme on 13 December 2023.

Link to strategy and objectives

We are focused on improving profitability as we grow. Our aim is to achieve year-on-year growth in adjusted EPS.

Link to remuneration

33.3% of base LTIP award.

ROGCE1 (%) 2 R

ROGCE

ROGCE calculated as adjusted operating profit from continuing and discontinued operations for the last 12 months divided by the average opening and closing gross capital employed. Gross capital employed is calculated as net assets excluding net cash and excluding accumulated amortisation and impairment of acquisition-related intangible assets including goodwill.

Performance

ROGCE was 18.5% in 2023, a notable increase from 16.0% in 2022, primarily reflecting the increase in adjusted operating profit, as well as a reduction in the Group's capital base as a result of the divestments.

Link to strategy and objectives

ROGCE measures how efficiently we generate profits from investment in our businesses, both organically and via acquisition. Our aim is to improve ROGCE year-on-year.

Link to remuneration

33.3% of base LTIP award.

1. In 2022, following the divestment of the Omega business and its classification as a discontinued operation, 2022 and 2021 data has been restated to only show continuing operations.

Non-financial

Energy efficiency (MWh per £m revenue) 1 2 3 4

Energy efficiency

Energy efficiency makes a significant contribution to environmental sustainability and helps us to reduce our operating costs. This KPI measures the evolution of the energy efficiency of the Group, including the impact of portfolio changes on our efficiency and therefore we do not restate prior year emissions for divestments here.

Performance

In support of our Net Zero ambition, Energy efficiency improved to 48.9 in 2023, from 58.2 in 2022. The decrease is attributable to the ongoing impact of energy efficiency measures put in place at material operating sites combined with higher revenue.

Link to strategy and objectives

Our sustainability strategy sets out key commitments around the environment. We monitor our use of the sources of energy with the aim of reducing our carbon emissions and improving our energy efficiency to support our Net Zero ambition ‒ an 85% absolute reduction in scope 1 and 2 emissions and a 42% absolute reduction in scope 3 emissions by 2030.

Total recordable incident rate (TRIR) 3 4

Total recordable incident rate

We are committed to ensuring the health, safety and wellbeing of our people. We measure our progress against the TRIR, a standardised safety calculation defined by the US Occupational Safety and Health Administration which provides a clear measure of a company's safety performance.

Performance

In 2023, the TRIR was 0.34, an increase from 0.27 in 2022. This increase has been thoroughly investigated and is attributable to the increased use of reporting tools and a slight increase in minor incidents such as slips, trips and falls.

Link to strategy and objectives

High safety standards protect our people and help drive sustainable growth through operational excellence. Our aim is to reduce accidents and injuries at our sites to as low a level as reasonably practical. Further details of our approach to health and safety are set out on page 60.

Employee engagement (GrandMean) 1 2 R

Employee engagement

An engaged workforce has a significant positive effect on individual and team performance. We are committed to building a culture where our people feel inspired to Aim High and work together to deliver strong business performance.

Performance

We launched our first annual global engagement survey with Gallup in 2021 . We have since implemented a number of high-impact initiatives to make a real difference to how our people connect with their work and with each other. This has seen our GrandMean score improve from an initial score of 3.72 out of 5.00 in 2021 to 3.92 out of 5.00 in 2023.

Link to strategy and objectives

Improving employment engagement is a strategic priority and we are committed to making Spectris a truly inspiring place to work. Our aim is to improve our engagement score by >0.14 every year, in line with Gallup best practice.

Link to remuneration

16.65% of base LTIP award.

Scope 1 and 2 emissions (tonnes CO ₂ e) 3 2 R

Scope 1 and 2 emissions reduction (market-based)

We are committed to our ambition to reach Net Zero across our scope 1 and 2 emissions by 2030.

Performance

in 2021, we launched our ambition to become Net Zero across our own operations by 2030 and across our value chain by 2040. Since launching our ambition we have worked to address our own emissions through a combination of energy efficiency assessments, employee-led activities and the transition to renewable energy sources. The reduction in our emissions since 2019 reflects changes to the energy efficiency of our portfolio of businesses and the impact of our Net Zero strategy.

Link to strategy and objectives

We are committed to being a leading sustainable business. To build our relevance to all our stakeholders we must support their Net Zero ambition through the delivery of our own emission reduction targets.

Link to remuneration

16.65% of base LTIP award.

Our Businesses

Making the invisible... visible

Spectris Scientific

Leader in advanced material measurement and characterisation.

"We are well positioned to outperform in high-growth end markets, aligned to clear sustainability trends."

Mark Fleiner

President, Spectris Scientific

Continued strong growth and sustainable margin performance

Spectris Scientific delivered a strong financial performance in 2023, with sales growth of 7% to £704.2 million (2022: £657.8 million) and a double-digit increase in adjusted operating profit. LFL sales growth was 12% after taking into account the £17 million (+3%) net impact of acquisitions and disposals (primarily the disposal of the remaining element of CLS and adverse foreign exchange movements of £13 million (+2%).

We saw strong sales growth across all key end markets, with the exception of life sciences, which was impacted by the earlier normalisation in customer demand after strong growth in prior periods. Sales grew across all regions with growth strongest in Asia, including China.

Orders were 6% lower (3% lower on a LFL basis) than the prior year, with good demand growth in materials and academia, offset by both life sciences and semiconductor. Regionally, order growth in the US and flat demand in Europe was offset by lower orders in Asia.

Adjusted operating profit increased by 11% (13% LFL) to £155.2 million (2022: £140.0 million) reflecting the strong sales growth and good operational performance, with adjusted operating margin improving by 70bps to 22.0% (2022: 21.3%). On a LFL basis, the increase in adjusted operating margin was 10bps, with higher sales volumes largely offset by cost inflation.

Statutory operating profit was 5% higher at £124.4 million (2022: £118.3 million) after including £10.7 million of additional costs related to the investment in our new ERP system, as part of the business transformation project. Statutory operating margin was 17.7% (2022: 18.0%).

Strongly positioned in high-growth end markets supported by sustainability trends

We are well positioned in high-value, critical-to-quality areas where precision measurement, domain expertise and analytics are valued by our customers throughout the workflow. We are market leaders reflecting our broad solution portfolio, strong domain knowledge for material analysis and characterisation, as well as our deep customer relationships. We are a key facilitator of customer innovation, supporting opportunities across the material life cycle from extraction, through functional performance, sustainability, and recycling.

Spectris Scientific is focused on the high-growth end markets of life sciences, material sciences (primary and advanced materials), semiconductors and academia, that are benefiting from a number of structural growth trends:

1. Life sciences - ageing populations, population growth, personalised medicines and reshoring.

2. Primary materials - minerals for the energy transition, lower carbon building materials and increased recycling.

3. Advanced materials - batteries and power electronics for the energy transition, supply chain security and advanced manufacturing technologies.

4. Semiconductors - electrification of mobility, reshoring of manufacturing including US and EU Chips Act, increase use of personal devices.

Life Sciences

LFL sales during the period were somewhat lower than the prior year, reflecting the earlier normalisation of customer ordering patterns through the year after an exceptionally strong performance in 2021 and 2022.

In particle characterisation, we saw good sales growth in laser diffraction driven by small molecule research and development, particularly in the US and India. This was more than offset by lower sales in nanometrics into Biologics, after a very strong performance over the last two years. Sales into aseptic pharmaceutical manufacturing were broadly flat in our PMS business, with strong demand in Europe offset by other regions. We have been encouraged by growth in our advisory services driven by our strong offering and recent changes in the regulatory environment.

After a period of demand normalisation in 2023 where order intake was lower than the prior year, we anticipate demand to remain broadly flat in the first half of 2024, returning to growth in the second half.

The outlook over the medium-term remains positive, with growth in life sciences underpinned by a number of structural trends including ageing and expanding populations, the onshoring of manufacturing and the need to develop new medicines and treatments.

Materials

Primary materials

LFL sales grew across all regions, with particularly strong growth in Asia predominantly driven by mining and minerals. We saw strong sales of our x-ray systems into our petrochemical, polymer and building material customers, driven by their need to become carbon neutral, with our products providing solutions in areas like production efficiency and recycling. Our XRF and XRD systems, including our Zetium, Epsilon, Aeris, and Empyrean product lines are used by customers to analyse materials for elemental properties and structural characteristics.

We saw continued order momentum in 2023, growing the order book to record levels, providing a positive outlook for 2024.

Advanced materials

We delivered very good LFL sales growth in 2023 reflecting our strong order book as we entered the year and robust demand, driven by a number of structural growth trends.

We support our customers to meet their challenges through a range of solutions, including our laser diffraction products for researching and developing the next generation of battery materials as well as quality control, and we have also seen increased interest in our online process solutions, both for batteries and hydrogen fuel cells. Similarly, we saw an increase in our x-ray diffraction sales, especially in China, partly driven by the government investment schemes supporting universities and research laboratories in the first half of 2023.

Looking ahead, the outlook for advanced materials remains positive with continued investment in new energy sources such as hydrogen, the enhanced electrification of mobility, growing applications for power electronics and the onshoring of manufacturing, all of which underpin the development of new technologies and customer R&D.

Semiconductor

Sales into semiconductor and electronics customers grew strongly across all regions, reflecting the strength of our order book at the start of the year and solid underlying demand. Within semiconductor contamination monitoring, we saw strong sales growth in our aerosol, liquid, and gas particle counters to customers in support of the buildout of new semiconductor fabrication plants.

We saw good sales growth in our MRD XL products in the compound semiconductor market, especially power electronics. The acquisition of the XRD product line assets from Freiberg Instruments in the second half of 2023 further enhances our capabilities and solutions in this area.

While order intake was lower in 2023 against a strong comparator as demand normalised, our pipeline remains robust. In 2024, we expect order levels to pick up in the second half as the industry returns to a more normal business cycle.

The multi-year outlook for semiconductor remains positive, driven by fabrication plant expansion and technology advancements driven by a number of sectors such as automotive, artificial intelligence and compound semiconductors. We are also encouraged by positive customer feedback in relation to recent product launches including our NanoAir 10 particle counter for use in ultra-clean environments.

Academia

We are well positioned to take advantage of the academic research that feeds into our end markets, with a strong brand built on high-precision measurement and scientific credibility.

In 2023, we delivered very strong LFL orders and sales growth driven by North America and Asia. We have benefited from strong demand from universities and research organisations for our XRD systems, to support materials research and analysis for batteries, and our MicroCal product range used in a number of applications from research to the discovery and development of small molecule drugs, biotherapeutics and vaccines.

Helping solve customer challenges

Spectris Scientific provides critical insights and domain expertise to help our customers find solutions to their most complex challenges. Our customer value proposition extends far beyond supplying our leading products.

In advanced materials, the increased focus on energy transition and battery development is creating a number of opportunities. With energy systems fuelling every aspect of our modern life, from cell phones to electric cars and even space travel, achieving energy that is clean, renewable and reliable, requires the development of better batteries and fuel cells. A collaboration in the US between the University of Pittsburgh and Spectris is enabling researchers to do just that. Using data and insights drawn from our Empyrean x-ray diffraction technology, the team at Pittsburgh are working towards a series of ambitious goals to improve the power, efficiency and cost-effectiveness of batteries.

In primary materials, we secured a major order from a leading building materials producer in Asia for a measurement and analysis solution based on our leading XRF Zetium and XRD Aeris technology comprising 30 separate systems. This order reflects our proven technology and application expertise demonstrated in previous projects with our systems providing better measurement, speed and greater operational stability as well as a better user experience than the competition.

In pharmaceuticals, we continued to strengthen our partnership with QILU Pharmaceutical, a leading manufacturer of finished formulations and active ingredients in China, with a significant order for our Mastersizer and Zetasizer products across multiple sites. As well as being recognised for our leading particle characterisation technology, this order reflects our strong applications expertise and aftermarket support including superior service support and product training.

Investing for growth: R&D is driving growth and market share gains

To drive growth, we have increased investment in R&D to both enhance the performance of existing products and develop new platforms, along with software, services and analytics being key areas of focus. In 2023, we introduced a number of new products to the market.

The Nanosight Pro provides a best-in-class, simple and rapid solution for nano and biomaterials characterisation for use in life sciences and pharmaceutical development. The combination of advanced engineering and a blend of smart features ensures measurements are efficient, quick and accessible. Powered by machine learning, our Xplorer software enables automated measurements and provides the highest quality size and concentration data while connection to SMART Manager assures robustness and minimises downtime.

Our ParticleSeeker product, a smart aerosol manifold used to monitor air quality in semiconductor manufacturing used in conjunction with the NanoAir10 nanoparticle counter, provides multiple sample locations ideal for applications requiring broad contamination monitoring in the cleanest and most confined spaces in a semiconductor manufacturing facility.

And in the FORJTM fusion instrument, we have developed the world's fastest, safest and most accurate fusion instrument for sample preparation for x-ray fluorescence supporting elemental analysis. Based on our expertise in x-ray fluorescence, inductively coupled plasma analysis, sample preparation, and the entire analytical chain, FORJ is designed to meet the highest material quality standards for elemental analysis.

M&A

During the year, we completed three acquisitions/investments to augment our capabilities and compound growth in the future.

We acquired the x-ray diffraction product line from Freiberg Instruments for a total consideration of up to £13.0 million. The acquisition of crystal orientation metrology tools provides complementary solutions to our existing semiconductor portfolio allowing us to further respond to the industry requirement to improve yields and performance.

We took a minority investment of £7.8 million in LumaCyte Incorporated, a bioanalytic instrumentation company, providing further exposure and deeper insights into the high growth cell & gene therapy and vaccine markets.

The acquisition of Particle Measuring Technique Ireland Limited, a long-established partner and exclusive distributor in the UK and Ireland of Particle Measuring System's micro-contamination products for £6.4 million, further strengthens our regional services and aftermarket offering.

Operational excellence

We continue to leverage SBS to improve productivity and drive operational excellence across the Division. During the year we completed a number of projects delivering tangible financial benefits as well as promoting increased engagement across our sites.

In Malvern Panalytical, our 'Land and Expand' upselling programme drove additional sales of £4 million to existing customers. A project to extend the life of a key component in our x-ray diffraction instruments delivered £0.3 million of benefits in the year and improved cleanroom capacity and layout at our Almelo site in the Netherlands delivered a 20% increase in output and £0.5 million of benefits.

During the year we adopted the 'Bronze, Silver, Gold' certification programme to drive lean operations as measured by a number of core metrics, with two of our sites, Zhuhai, China and Malvern, UK achieving Bronze certification in 2023.

We have made good progress in our business process transformation programme. In 2024 we will implement a series of more simple, common and scalable global processes supported by the introduction of a new ERP solution. The new solution will provide improved visibility and deliver a number of significant benefits to be realised from 2025 onwards.

Summary

Spectris Scientific is an excellent business. We provide critical materials insights through our instruments, data science and technical expertise. We are well positioned to outperform in high-growth end markets, aligned to clear sustainability trends. In 2024, we will continue to work closely with customers to innovate and solve their challenges.

Sales by location	(%)
1 Asia	46
2 Europe	25
3 North America	22
4 ROW	7

Sales by end market	(%)
1 Life sciences/pharmaceutical	34
2 Materials	19
3 Electronics and semiconductor	18
4 Academic research	14
5 Other	15

Spectris Scientific

	2023	2022	Change	LFL1 change
Statutory sales (£m)	704.2	657.8	7%	12%
Adjusted operating profit1 (£m)	155.2	140.0	11%	13%
Adjusted operating margin1 (%)	22.0%	21.3%	70bps	10bps
Statutory operating profit (£m)	124.4	118.3	5%
Statutory operating margin (%)	17.7%	18.0%	(30bps)

1. This is an alternative performance measure (APM). APMs are defined in full and reconciled to the reported statutory measures in the Appendix to the Consolidated Financial Statements.

Case Study

Bringing speed and simplicity to analytical workflows

"The NanoSight Pro is quick, easy to use, and gives us the guidance we need to make sure that we're getting the right results first time. This also means we're wasting less sample because we don't have to play around with concentrations and get the right thing after 5 or 6 runs - it's right the first time we measure it."

Oliver Huseyin

Research Scientist, MIP Discovery, Bedford, UK

NanoSight Pro

Early detection of illnesses including cancers and infectious diseases like COVID-19 enables us to prioritise critical care for those most at risk. Easy, point-of-care monitoring and diagnosis help reduce community spread and strengthen public health measures.

Revenue generated from the point-of-care diagnostics market reached $45.4 billion in 2022, is growing at a CAGR of 10.7%, and is expected to reach $75.5 billion by 20271.

At MIP Discovery in Bedford, UK, Research Scientist Oliver Huseyin and his colleagues are using Malvern Panalytical technologies including the new NanoSight Pro Nanoparticle Tracking Analyzer to develop innovative alternatives to biosensor-based testing devices, with Molecularly Imprinted Polymers (MIPs) at their core. NanoMIPs are 'smart' polymers, often around 40 nm - 50 nm in size, created to specifically target proteins, peptides, and small molecules of interest, including viral particles, antigens on the surface of tumour cells, or markers for particular conditions including heart failure. As MIP Discovery moves into Cell & Gene Therapy applications, these biosensors will help improve the quality of advanced therapies, further demonstrating their utility.

Biosensors currently contained in traditional diagnostic devices require a constant supply of effective antibodies - often hampered by time, cost, instability, and often ethical considerations. MIP Discovery is leaving behind biological systems and using polymer chemistry to build synthetic sensor molecules for use in innovative new diagnostic devices. This should also help enable continuous biosensors deployed over a number of hours or days.

The MIP Discovery Team meets the NanoSight Pro

A key challenge for the MIP Discovery team is measuring the size of the nanoMIPs they are developing - this is where the NanoSight Pro comes in.

The NanoSight Pro has delivered many advantages to the team. These benefits relate to the robustness of the hardware, and the alignment of the instrument's software with that of their other key Malvern Panalytical instrument, the Zetasizer. The similarities between the two mean that users can transfer easily between both systems, saving time and expanding the skillset of the team. In addition, Oliver was positively surprised by the ease of delivery, installation and first measurements, all enabled by the Malvern Panalytical Self-Install Program. The team has seen a dramatic uplift in the speed of results analysis with the NanoSight Pro - this time-consuming work has been reduced up to tenfold, freeing up valuable scientist time and enabling more hands-on time at the lab bench.

1. www.marketsandmarkets.com/Market-Reports/point-of-care-diagnostic-market-106829185.html

Case Study

PMS: playing a pivotal advisory role

Particle Measuring Systems offers specialised advisory services focused on contamination control, designed to assist with diverse operational challenges. The team are equipped with a wealth of background, education, and industry expertise and are able to provide guidance at every stage of a customers process.

Whether it involves addressing non-compliance issues, establishing new policies, or training employees, the advisory services aim to navigate and enhance customers' contamination control efforts.

The team engage in ongoing dialogue with global regulatory agencies, to ensure that customers stay informed about the latest requirements, aligning operations with industry standards.

These two case studies spotlight specific instances where Particle Measuring Systems advisory services have played a pivotal role in resolving contamination control issues and illustrate the practical application and impact of the advisory service expertise in supporting customers across different scenarios.

Providing high-level expertise to meet compliance requirements

Challenge

The COVID-19 crisis has launched a manufacturer of next generation vaccines into the spotlight, transforming it from a company that was pioneering research into mRNA technology into a large-scale drug manufacturer that is mostly managed through Contract Manufacturing Organizations (CMOs). The company was inundated by the enormous amount of data generated by CMOs and requested by regulatory authorities, and they needed expert and specific knowledge about handling data and a large number of people.

PMS offer

Particle Measuring Systems (PMS) has been offering consultancy support on a global scale since 2019, and its team is comprised of pharmaceutical manufacturing process experts with direct experience in the field. The services offered by PMS contribute to their positioning as a leader in contamination monitoring, ranging from sterility assurance and quality and control assurance to improving production processes. In short, the PMS Advisory Team provides high-level expertise to help its customers meet compliance requirements.

Creating a customer-win situation The collaborative relationship between the vaccine manufacturer and PMS was born thanks to the team's reputation, high professional level, and proven experience. Key personnel contacted the team directly to request urgent Quality and Control support to assess that critical phase. What started as an arrangement to support vaccine manufacturer for a few months subsequently became a collaboration started in 2022 that the customer renewed again this year.

How does this apply to other customers?

The successful experience with a global vaccine manufacturer in the spotlight demonstrates how a high level of competence and knowledge increases PMS's reputation by building a solid bond of trust over time. More and more clients have requested consultancy services thanks to recently hired key people who introduced PMS because they have collaborated with us successfully in previous work experience and trust us.

Solving challenges and advising on best practices

Challenge

PSM Pharma, a PMS customer, requested help on how to best install a particle counter in a cleanroom where they planned to manufacture aseptically filled injectables, which need the highest purity of air quality in the pharma industry for manufacturing. One of our international Advisors from the USA helped with this relatively easy task on short notice. During this consultancy, it became clear that the end customer had several further projects on which our Advisory group could assist.

About the customer

PSM Pharma is a contract manufacturer (CDMO) for pharmaceutical manufacturers around the world that offers aseptic fill & finish as well as final packaging services for clinical and commercial phases. The company is a powerful partner that offers its customers comprehensive end-to-end customer support, maximum flexibility for different batch sizes, and top performance in the small to medium batch size range.

Benefits to the customer

The customer has access to the complete range of environmental monitoring knowledge of PMS. The advisory group was able to help with knowledge on particle transportation, risk assessments in rooms and machines, and microbial collection in water, in air, and on surfaces. Even the data collection and the use of the data for trending later are being worked on by PMS personnel. The environmental monitoring specialists of PMS have helped to solve challenges, advised on best practices, and gave feedback on the process and the facility design. With up-to-date knowledge of current regulations, PMS has helped PSM to build a state-of-the-art, world-leading, fill-finish facility.

"We have been using the services of the PMS advisory group over the past years and are working on several projects together at the moment. They have shown great expertise with environmental monitoring knowledge and are very helpful to us as an external consultant. The fact that the PMS advisory team knows about current regulations worldwide helps us build the best facility for all the needs of our customers."

Bianca Bohrer

CEO, PSM Pharma

Our Businesses

Empowering the innovators

"We have made excellent progress in 2023, expanding margins and delivering strong profit growth through a number of initiatives."

Ben Bryson

President, Spectris Dynamics

Spectris Dynamics

Leader in advanced, integrated virtual and physical test and measurement.

A very strong financial performance underpinned by significant margin expansion

Spectris Dynamics delivered a very strong financial performance in 2023, delivering double digit-growth in sales and operating profit, underpinned by particularly strong margin expansion. These results reflect the successful re-organisation of the Division at the start of the year into three customer-aligned sectors of virtual test, physical test and in-process, alongside a number of specific actions to improve gross margins and overheads.

Sales increased by 10% to £542.8 million (2022: £492.2 million). After taking into account £21 million (4%) sales growth from the acquisition of Dytran and MicroStrain and £1.9 million (0%) for foreign exchange movements, LFL sales grew by 6%. Sales grew across all key end markets, with particularly strong growth in aerospace & defence and academia and on a regional basis, our largest market, Europe.

Orders were 3% lower (6% lower on LFL basis) than the comparative period with strong double-digit order growth in aerospace & defence (A&D) and academia more than offset by the expected softening in order intake across machine manufacturing and automotive. On a regional basis, good levels of order growth in the US were more than offset by Europe and Asia with these two regions having the largest exposure to softer end markets.

Adjusted operating profit of £93.1 million was significantly ahead of the comparative period, up 26%, (24% on a LFL basis), with a significant increase in adjusted operating margin which ended the year 220bps higher (240bps higher on a LFL basis) at 17.2% (2022: 15.0%). This increase reflects the anticipated strong increase in gross margins resulting from our focus on operational excellence alongside the successful execution of a margin expansion plan comprising pricing, re-organisation, product design cost outs, supply chain optimisation and rationalisation of our product portfolio.

Statutory operating profit increased by 21% to £56.2 million (2022: £46.5 million) reflecting growth in the underlying business, which was partially offset by £7.6 million of additional costs related to the investment in our new ERP system, as part of the business transformation project. As a result, statutory operating margin increased 100bps to 10.4% (2022: 9.4%).

Well positioned in attractive markets

We are a world leader in the provision of advanced integrated physical and virtual testing and measurement. The Division is focused on four premium product lines: virtual test; software; data acquisition; and high-precision sensors with high growth prospects, where we have leading market positions. These products are complementary for customers and combine to offer the broadest test and measurement solutions in the market. We are well positioned in attractive growth markets that are benefiting from a number of structural growth trends:

• increased adoption of Virtual Test particularly in automotive and defence to accelerate the innovation cycle;

• digitisation and the increased use of digital tools to design and test, lowering the cost of new innovations and to process large amounts of more complex data;

• electrification and the transformation of mobility and energy; and

• automation to enhance productivity in a more connected world.

These four key growth trends are aligned with our Purpose to Empower the Innovators for a cleaner, healthier, and more productive world and are supporting higher levels of growth within our market segments.

Automotive

LFL sales were ahead of a tough comparator, with a strong performance in Europe partially offset by North America and Asia.

We saw very good sales growth for our electric powertrain testing solutions in Physical Test leveraging our high-speed data acquisition systems, sensors and software. And in In-process, demand for our end-of-line testing solution for electric drive systems continued on a positive trend during the year. In Virtual Test, while sales were lower compared with 2022, we made good progress selling our hardware-in-the-loop solutions and secured a number of new orders for our multi-attribute simulators including our COMPACT FSS which was launched during the year. Our Virtual Test offering also gained recognition through a Supplier of the Year award from Pirelli and an innovation award for our DiM 300 simulator as the 2023 Development Tool of the Year by Vehicle Dynamics International.

As reported at the half year, we have seen a softening in demand with LFL orders lower than the prior year, as customers adjusted their order patterns, reflecting a combination of easing supply chains as lead times have shortened and a reduction in the speed of rollout of new EV programmes among leading automotive manufacturers.

Over the medium-term, we continue to expect growing demand for automotive R&D, driven by the development and adoption of electric and software-defined vehicles and the need to reduce development time. With our broad product offering across Virtual Test, Physical Test and In-Process we are extremely well placed to benefit from this growth.

Machine manufacturing

Sales to customers wanting to monitor their production processes and deployed assets were slightly ahead of 2022 on a LFL basis, with growth in North America and Europe largely offset by Asia.

In our OEM sensor business, where customers incorporate our custom sensor solutions into their end products, we delivered 55 customer prototypes, setting a new record in the process. These projects which provide strong foundations for future sales growth were broad-based covering a range of sensing capabilities and end uses including: force sensors for batteries and brakes applications; strain sensors for fuel cells and electric vehicles; torque sensors for robotics; and mechatronics.

We were also successful selling our high-precision accelerometers into the semiconductor industry to control machine vibration. During the year, we strengthened our In-process offering combining structural health monitoring, optical sensing and software to create a turnkey solution for customers.

Against a strong comparator, order intake in machine manufacturing for the full year was lower on a LFL basis, particularly in Asia, which more than offset demand growth in North America.

We believe that over the medium to longer-term, the move towards greater levels of automation driven by the scarcity of labour and the need for greater efficiency, will continue to drive demand from machine manufacturing customers and in turn, our smart and OEM sensor offering. Sales to this sector continue to be helped by our focus on selected high-value end markets, where customers are focused on improving the productivity of high-value assets. This has driven demand for our weighing technologies, including for smart OEM-type solutions in medical and healthcare applications, where accurate and reliable sensors are critical.

Aerospace and defence

We saw strong LFL orders and sales growth in 2023 in Europe and North America underpinned by the continued investment in new and existing propulsion technologies, as well as increased spending in commercial space and defence.

In civil aerospace, we are seeing strong demand for our expertise to support the development of alternative propulsion technologies including electrification and hydrogen-based solutions. We secured a large order from a major engine manufacturer for our latest Fusion DAQ product and sound & vibration software to support the development of its next generation gas turbine.

We saw strong growth in our leading real-time computation software that provides critical simulations in defence applications enabling pinpoint accuracy and used in systems such as threat detection. Also, during the year we secured a major order from BAE systems to supply hull vibration monitoring equipment for the UK Royal Navy's shipbuilding programme. Our solution includes transducers, data acquisition, and vibration measurement and analysis software.

And in civil space, a market which is growing quickly, with significant future potential, we are seeing continued growth in demand for our piezo-electric vibration sensing systems, which have been used in a number of customer applications.

We were proud to provide Dynetics with a solution to evaluate the capabilities of its United Launch Alliance Vulcan Centaur booster to ensure it can cope with extreme forces during space flight. Our solution, based on proven and precise structural testing tools, comprised a data acquisition system to acquire data from more than 3,000 strain gauges and over 300 full-bridge pressure transducers, along with additional sensors. As a result of deploying the solution, Dynetics improved the efficiency and accuracy of testing enabling it to provide better services to its customers and commercial space projects.

We remain well placed to support long-term innovation projects. OEMs continue to invest in sustainable fuels, efficiency gaining technologies, especially weight saving and power improvements. We also see demand increasing for energy transition related projects, including electric aircraft and those running on alternative lower-carbon fuels. Our sound and vibration and EPT solutions are well placed to capture this.

Academia

LFL sales into universities and research institutes grew strongly with orders also up on the prior year, underpinned by the same core trends that underpin the Division, notably growth in virtual testing, digitalisation and electrification, with initiatives to reduce carbon emissions and deliver Net Nero ambitions.

Consumer electronics and telecoms

LFL sales and demand in consumer electronics and telecoms, which represented 6% of Dynamics sales were lower than the comparative period, reflecting reduced levels of customer investment in end-of-line-testing.

Investing for growth: R&D is driving growth and market share gains

The organisation of the division around Virtual Test, Physical Test and In-Process allows us to leverage growth and customer intimacy from our domain expertise. These three sectors align with our customers' test and measurement requirements, as their products are conceived, developed, then manufactured and maintained.

By focusing on our customers' needs, through their product lifecycle, we are able to accelerate innovation, save costs and reduce time to market for their products, with key R&D focus areas including: enhanced virtual test solutions; simulation and analytic software; electric power testing; data acquisition ecosystem; and smart and OEM sensors.

During 2023, we launched a number of new products. In Virtual Test, the launch of our COMPACT FSS broadened and strengthened our simulator portfolio. Powered by a VI-grade AutoHawk real-time computer, the FSS provides highly accurate and immersive motion, vibration, and sound simulation in a small footprint. It also enables human-in-the-loop simulation, which is the vital connection between objective physical characteristics with subjective human perception.

As well as delivering 55 OEM customer prototypes, we introduced newly developed smart force sensors that link to a standard industrial interface enabling simplified machine design and point of measure decision-making, ensuring improved efficiency and simplified machine operation.

We continue to develop our new Fusion and Advantage data acquisition offering with additional products expected to be launched in 2024. And in our software business, which represents around 15% of Spectris Dynamics sales, we released a number of major updates to our market-leading nCode durability and Reliasoft reliability products and updated our perception software for EPT.

Investing for growth: compounding growth through M&A

The acquisition of MicroStrain for £29.1 million, which completed in September, represents an excellent addition to Spectris Dynamics, bringing complementary technology and strengthening our sensor offering, particularly in the fast-growing autonomous mobility, industrial and robotics markets. It also enables further penetration into the rapidly growing automation and smart manufacturing markets, while increasing our presence in North America.

September 2023 marked the first anniversary of the acquisition of Dytran, a leading designer and manufacturer of piezo-electric and MEMS-based accelerometers and sensors for measuring dynamic force, pressure, and vibration. Integration has gone extremely well, including a significant increase in productivity under our ownership. The business has also made a meaningful and positive contribution to the Division including securing a number of customers orders in commercial space.

Operational excellence to drive margin expansion

We are driving operational excellence to improve productivity and increase operating margin towards the Group target level. The ongoing roll out of SBS alongside our actions on pricing, product redesign to lower cost solutions and portfolio rationalisation have all made a contribution to the substantial 220bps improvement in adjusted operating margin in the year.

In 2023, we embedded our 'Bronze, Silver, Gold' certification programme to drive lean operations across our core operations with three of our sites, Porto, Suzhou and Marlborough achieving Bronze certification by the end of the year.

At our Suzhou facility, through numerous kaizen events and increased automation we delivered 30% reduction in lead time as well as labour and inventory cost savings of over 40% for a key product family with a total cost reduction from improvement projects of £0.8 million. Through optimisation of sea /air and courier strategies we also delivered a significant reduction in freight costs in excess of £2.1 million and our Net Zero improvement projects across our facilities, resulted in £0.3 million in energy savings.

Alongside this we have made good progress preparing for the further operational transformation through a new CRM and ERP solution which is being introduced in 2024 across the whole Division, creating a simpler, common and more scalable set of processes. Benefits from the new solution will start to be realised from 2025 and it also represents a key building block in driving further margin expansion in the Division.

Summary

Spectris Dynamics is an established leader in high performance virtual and physical test, design software, data acquisition and sensing. We are well positioned in strong end-markets supported by sustainable trends for a digitising and de-carbonising world. We are executing and expanding on strong fundamentals - integrated virtual and physical test solutions, more software-oriented R&D, operational excellence, and strategic value-creating M&A. Having delivered a strong performance in 2023, we remain focused on margin expansion through strategic growth initiatives, business process improvement and benefiting from our lean culture.

Sales by location	(%)
1 Europe	44
2 North America	28
3 Asia	26
4 ROW	2

Sales by end market	(%)
1 Technology-led industrials	40
2 Automotive	27
3 Academic research	8
4 Electronics and semiconductor	6
5 Other	19

Spectris Dynamics

	2023	2022	Change	LFL change
Statutory sales (£m)	542.8	492.2	10%	6%
Adjusted operating profit ¹ (£m)	93.1	73.6	26%	24%
Adjusted operating margin ¹ (%)	17.2%	15.0%	220bps	240bps
Statutory operating profit (£m)	56.2	46.5	21%
Statutory operating margin (%)	10.4%	9.4%	100bps

¹. This is an alternative performance measure (APM). APMs are defined in full and reconciled to the reported statutory measures in the Appendix to the Consolidated Financial Statements.

Case Study

Developing improved durability simulations

NIO, a global automobile manufacturer headquartered in Shanghai, is a pioneer and a leading company in the premium smart electric vehicle market. NIO differentiates itself through its continuous technological breakthroughs and innovations, such as its industry-leading, battery swapping technologies.

HBK's Advanced Material Characterisation and Testing facility (AMCT), near Sheffield, UK, has helped accelerate NIO's capabilities for fatigue simulation through a unique combination of custom testing solutions to provide high quality material fatigue data and the power of nCode software.

Challenge

Performing accurate virtual failure prediction in innovative BIW (Body-in-White) structures requires new material fatigue properties.Comparison of design proposals and engagement of key suppliers earlier in the process to accelerate development and minimise waste.

Solution

NIO selected HBK's AMCT facility to carry out material characterisation testing due to its testing expertise and the ability to deliver a materials database that could be used directly and easily in nCode software.

Result

A standardised materials database for fatigue and common processes enabling higher quality results from which engineering design decisions can be made. This enables NIO to develop efficient and robust structures for durability performance, reducing weight and energy consumption to maximise range.

"There is nothing like HBK's AMCT lab that provides the entire package both in terms of the available testing expertise but also the ability to deliver a materials database that could be used directly and easily in nCode software."

Artur Tarasek

Durability CAE Expert, NIO

Case Study

HBK: empowering rapid audio advancements

Sound and vibration are critical to our quality of life. They affect us every day, from the smartphones we use and the cars we drive to the aircraft we fly in and the environment in which we all live. At Spectris Dynamics, we produce the world's most accurate and advanced technology for measuring and managing the quality of sound and vibration.

These two examples show the breadth of our expertise and applications. We're empowering rapid advancements in ways as diverse as improving the lives of people with hearing loss to equipping modern naval combat ships to manage their acoustic signature.

Revolutionising hearing aid development

Challenge

Recent reports indicate that approximately 1.5 billion people worldwide experience some form of hearing impairment. This widespread issue is fuelled by factors such as an aging population and a significant surge in hearing loss among younger individuals, often attributed to excessive exposure to loud noise. Consequently, the market for audiology devices is witnessing significant growth.

At a leading global healthcare company , hearing aid developers and test engineers face a formidable challenge of staying at the forefront of technological advancements, while meeting user expectations for natural, comfortable sound quality and seamless communication. Additionally, they must address the increasing demand for personalised solutions and designs tailored to individual inner and outer ear conditions.

Benefits to the customer

Having robust systems in place that enable this company's engineers to test, benchmark, ensure quality, and enhance product design is paramount. These systems must prioritise high-quality hearing reproduction while accommodating both traditional, standardised electroacoustic measurements and flexible, open processes that support the development of innovative hearing aid technologies and features.

To meet these requirements, the healthcare company employs a HBK Head and Torso Simulator (HATS) for both R&D and the complex task of testing hearing aid features. Optimised for the evaluation of audio devices placed in, on or near the ear, it provides an accurate representation of the experience realised in an average human ear. With a pair of hearing aids mounted on a HATS, the acoustic properties of the hearing aids can be measured from various directions, and in a range of background noise environments..

The healthcare company has recently acquired the latest high-frequency incarnation of HATS, extending the evaluation potential to encompass the full audio range and anthropomorphic ear canal to allow refinement of product geometry. High-frequency HATS represents the culmination of more than ten years of research into human ear geometry and acoustic response and is the first major advance of HATS technology in 30 years. It's recognised in the market as the state-of-the-art for evaluating human hearing perception.

The development of intelligent hearing aids that seamlessly adapt to the user's sound environment is an immensely complex undertaking. Nevertheless, leveraging HBK solutions, the hearing healthcare engineers, working at the edge of what is technically possible, remain committed to their ongoing pursuit of enhancing speech comprehension for people with hearing loss and providing a life-changing solution for those in need.

Ensuring the acoustic stealth of modern naval combat ships

Challenge

To maintain a naval vessel's acoustic discretion, design engineers need to identify and assess all noise sources. Permanently installed systems monitor noise levels during operation and advise the crew when the acoustic signature of the vessel has exceeded limits in many operational modes.

From modal testing and analysis of models and prototypes to permanently installed noise monitoring systems, HBK offers best-in-class acoustic and structural testing and monitoring solutions throughout a vessel's lifecycle , including underwater acoustic measurements.

Benefits to the customer

We are providing Hull Vibration Monitoring Equipment (HVME) to BAE Systems for the UK Type 26 Global Combat Ship programme, currently being built for the Royal Navy. All eight Type 26 frigates will be equipped with the latest self-noise monitoring software to ensure that they can accurately manage their own acoustic signature.

One of the tasks of the Type 26 is to protect against potential intruding submarines; it is vital they can monitor and keep their own acoustic signature - the noise and vibration a vessel and its on-board equipment and systems project into the water - as low as possible.

The HVME comprises commercial off-the-shelf equipment that includes transducers, data acquisition, vibration measurement and analysis capabilities. The kit is tailored to each vessel's layout, enabling location-specific alarms to be triggered in the event of excessive noise or vibration, so the crew can take action to reduce it.

Financial review

A year of strong margin progression and record profitability

"We are on track to deliver our 20% margin target."

Derek Harding

Chief Financial Officer

Sales increased by 9% or £121.8 million to £1,449.2 million (2022: £1,327.4 million) on a continuing basis. Gross profit increased by £87.3 million driven by a combination of pricing, increased volumes, a more benign input cost environment and cost efficiencies derived from SBS.

Selling, General & Administration (SG&A)expenses increased by £71.3 million, resulting from higher staff costs including salaries, an increase in travel costs reflecting a return to more normal levels of customer interaction, and foreign exchange impacts from translation and revaluation.

Included within SG&A are configuration and customisation costs carried out by third parties on material software-as-a-service (SaaS) project costs of £40.0 million (2022: £21.7 million), to support the implementation of a new SAP cloud-based ERP system. This is a significant multi-year programme that will continue in 2024. Investment in R&D increased by £4.3 million to £108.1 million representing 7.5% of sales (2022: £103.8 million or 7.8% of sales).

Headcount increased by 1.4% versus the comparative period, with increases to support growth offset by efficiencies from SBS and structural changes, mainly within Spectris Dynamics.

Statutory operating profit was £188.6 million, an increase of £16.0 million (2022: £172.6 million).

Statutory operating margin of 13.0% was in line with 2022 (13.0%).

Net transaction-related costs and fair value adjustments were £14.0 million (2022: £8.3 million) primarily relating to the acquisitions completed during both the current and prior years.

In 2023, the Group made an additional contribution of £1.0 million to the Spectris Foundation (2022: £nil). Consistent with the prior year, material SaaS project costs of £40.0 million (2022: £21.7 million) are excluded from adjusted operating profit, as are amortisation of acquisition-related intangible assets £18.9 million (2022: £19.6 million).

Our adjusted operating margin of 18.1% was 130bps higher than the comparative period (2022: 16.8%) resulting in a record level of adjusted operating profit of £262.5 million (2022: £222.4 million) an increase of 18% (18% on a LFL basis). As a result of this excellent performance, which is testament to the hard work of our colleagues, we are well on our way to meeting our medium-term target to deliver margins in excess of 20%.

Statutory operating profit to profit before tax

Statutory profit before tax for the period of £185.6 million (2022: £151.5 million) is calculated after net finance income of £6.9 million (2022: £17.3 million cost) and £12.6 million loss on disposal of businesses, predominantly related to the divestment of Concept Life Sciences (CLS) (2022: £0.3 million profit).

The £24.2 million improvement in net finance income was mainly due to retranslation of short-term intercompany loan balances that moved from a £14.6 million loss in 2022 to a £5.7 million gain in 2023. This reflects the strengthening of Sterling against both the Euro and US Dollar over the last 12 months, compared with 2022 where Sterling weakened markedly against both currencies.

Bank interest receivable was £3.8 million higher, due to a higher average cash balance and the significant increase in Sterling interest rates during the year. There have been no drawings against our loan facilities during the year, with interest payable solely relating to the commitment fee on the Revolving Credit Facility (RCF) and the amortisation of capitalised loan fees relating to this facility.

On 31 March 2023, the Group disposed of the remaining part of CLS, which formed part of the Spectris Scientific Division. The consideration received of £15.5 million was settled in cash, resulting in a loss on disposal of £10.3 million. Further details are provided in Note 24. Also included in the £12.6 million loss on disposal of businesses is £2.3 million of transaction costs relating to prior year disposals.

Tax

The effective tax rate on adjusted profit before tax for 2023 was 21.5% (2022: 21.7%). The effective tax rate on statutory profit before tax was 21.7% (2022: 24.2%).

Earnings per share

Adjusted earnings per share grew by 25% to 199.7 pence (2022: 159.9 pence). Statutory earnings per share of 140.3 pence were 31% ahead of the prior year (2022: 106.7 pence).

LFL movements

After very strong order intake growth of 9% on a LFL basis in 2022, the easing of global supply chains has led to the return of more normal customer ordering patterns in 2023 with order intake 5% lower on a LFL basis for the full year. On a LFL basis, orders in North America and Europe were down 0.5% and 3% respectively, with Asia 10% lower largely driven by China where demand has been slower to recover.

LFL sales increased by £132.4 million (10%), reflecting the excellent conversion of our record order book at the start of the year and the easing of global supply chains. Acquisitions, net of disposals, increased sales by £5.4 million (0%) and foreign exchange movements decreased sales by £16.0 million (1%). The relative contribution of the drivers of sales growth reversed in 2023 as expected, with LFL sales growth of 10% comprising 8% price and 2% volume.

Strong sales growth, alongside positive net pricing and a more benign input cost environment as supply chains improved resulted in a 120bps increase in adjusted gross margins. Within this, Spectris Dynamics delivered a particularly impressive performance, delivering on the target they set at the start of the year. LFL adjusted gross margins increased by 90bps to 57.6%.

Cash flow

Adjusted cash flow from continuing operations increased by £107.3 million to £271.1 million compared to 2022, resulting in an adjusted cash conversion rate from continuing operations of 103% (2022: 74%).

The Group generated a substantial increase in adjusted cash flow from continuing operations driven by the increase in adjusted operating profit, a significantly lower net outflow in working capital and lower levels of capital expenditure.

Capital expenditure of £24.7 million (2022: £44.1 million) equated to 1.7% of sales, compared to 3.3% in 2022. The lower level of expenditure in 2023 reflects the phasing of spend relating to the new PMS facility in Colorado that is planned to complete in 2024. Capital expenditure was 64% of adjusted depreciation and software amortisation (2022: 111%).

During the year ended 31 December 2023, 3,382,896 ordinary shares were repurchased and cancelled by the Group, representing the final tranches of the £300 million share buyback programme announced on 19 April 2022 and part of the first tranche of the £150 million share buyback announced on 11 December 2023. This resulted in a cash outflow of £114.9 million, including transaction fees of £1.2 million.

During the year ended 31 December 2022, 6,439,493 ordinary shares were repurchased and cancelled by the Group as part of the £300 million share buyback programme announced on 19 April 2022, resulting in a cash outflow of £191.0 million, including transaction fees of £1.2 million.

Financing and treasury

The Group finances its operations from retained earnings and, where appropriate, from third-party borrowings. Total borrowings as at 31 December 2023 were £nil (2022: £0.1 million).

At 31 December 2023, the Group had a cash and cash equivalents balance of £138.8 million of which £0.3 million related to assets held for sale. The Group also had various uncommitted facilities and bank overdraft facilities available but undrawn. Gross debt was £nil, resulting in a net cash position of £138.8 million, compared to a net cash position of £228.0 million at 31 December 2022, representing an £89.2 million year-on-year decrease in net cash.

As at 31 December 2023, the Group had £393.1 million of committed facilities, consisting entirely of a $500 million multi-currency RCF maturing in July 2025. The RCF was undrawn at 31 December 2023 (2022: undrawn).

For the 12 months ended 31 December 2023, there was net finance income for covenant purposes of £3.9 million, resulting in the interest cover ratio being n/a (31 December 2022: n/a). The minimum covenant interest cover requirement is 3.75 times (covenant defined earnings before interest, tax and amortisation divided by net finance charges). Leverage (covenant defined earnings before interest, tax, depreciation, and amortisation divided by net cash) was less than zero (31 December 2022: less than zero) due to the Group's net cash position, against a maximum permitted leverage of 3.5 times.

The Group has prepared and reviewed cash flow forecasts for the period to 31 December 2028, which reflect forecasted changes in revenue across its business and performed a reverse stress test of the forecasts to determine the extent of downturn which would result in insufficient liquidity or a breach of banking covenants. Revenue would have to reduce by 38% over the period under review for the Group to run out of liquidity headroom. The reverse stress test does not take into account further mitigating actions which the Group would implement in the event of a severe and extended revenue decline, such as cancelling the dividend or reducing capital expenditure. This assessment indicates that the Group can operate within the level of its current facilities, as set out above, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

Following this assessment, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, it continues to adopt the going concern basis in relation to this conclusion and preparing the Consolidated Financial Statements.

Currency

The Group has both translational and transactional currency exposures. Translational exposures arise on the consolidation of overseas company results into Sterling. Transactional exposures arise where the currency of sale or purchase invoices differs from the functional currency in which each company prepares its local accounts. The transactional exposures include situations where foreign currency denominated trade receivables, trade payables and cash balances are held.

After matching the currency of revenue with the currency of costs, wherever practical, forward exchange contracts are used to hedge a proportion of the remaining forecast net transaction cash flows where there is reasonable certainty of an exposure. At 31 December 2023, approximately 65% of the estimated transactional exposures of £269.4 million for the next 18 months were hedged using forward exchange contracts, mainly against the Euro, US Dollar, Chinese Yuan Renminbi and Japanese Yen.

The largest translational exposures during the year were to the US Dollar, Euro and Chinese Yuan Renminbi. Translational exposures are not hedged. The table below shows the average and closing key exchange rates compared to Sterling.

During the year, currency translation effects resulted in adjusted operating profit being £1.9 million lower (2022: £12.5 million higher) than it would have been if calculated using prior year exchange rates.

Transactional foreign exchange losses of £5.8 million (2022: £nil) were included in administrative expenses, whilst sales include a gain of £4.5 million (2022: £4.3 million loss) arising on forward exchange contracts taken out to hedge transactional exposures in respect of sales.

Other non-reportable operating segment

The financial and operating performance of the Spectris Scientific and Spectris Dynamics reportable segments are provided in accordance with IFRS 8. The Red Lion Controls and Servomex businesses are reported within the Other non-reportable operating segment.

On a statutory basis, sales for the Other non-reportable operating segment of £202.2 million increased by 14% compared to 2022 (2022: £177.4 million) with LFL sales also up 14%. Adjusted operating profit for the segment was £38.4 million (2022: £27.2 million), an increase of 41% (40% LFL), with an adjusted operating margin of 19.0%, an increase of 370bps on 2022 (350bps LFL). Statutory operating profit rose 27% to £33.2 million (2022: £26.2 million), primarily due to improved gross margins from pricing and volume drop through, with the statutory operating margin improving 160bps to 16.4%.

Red Lion Controls had a very strong year, continuing the trends we saw in the first half, with both sales and profitability benefiting from a combination of volume growth and revised pricing. Volume growth was driven by easing supply chains and increased capacity due to operational improvements leveraging the SBS, with the latter also contributing to strong margin improvement.

On 11 December 2023, the Group announced that agreement had been reached for the sale of the Red Lion Controls business. As a result, the Red Lion Controls business has been classified as a disposal group held for sale and presented separately in the Consolidated Statement of Financial Position. The required regulatory approvals were received in January and February 2024 and the completion of the sale is expected to take place during the second quarter of 2024.

In 2023, Red Lion had sales of £101.8 million and adjusted operating profit of £21.9 million.

Servomex also delivered a very good performance with sales growth driven by higher demand and a strong operational performance. Higher contribution margins due to price increases and easing material cost inflation drove a strong increase in profitability.

Derek Harding

Chief Financial Officer

Sales

£1,449.2m

(2022: £1,327.4m)

Change yoy 9%

LFL change yoy 10%

Adjusted operating profit

£262.5m

(2022: £222.4m)

Change yoy 18%

LFL change yoy 18%

ROGCE

18.5%

(2022: 16.0%)

Change yoy 250bps

Financial highlights

[Charts]

Continuing operations

	2023 £m	2022 £m
Statutory operating profit	188.6	172.6
Net transaction-related costs and fair value adjustments	14.0	8,3
Spectris Foundation Contribution	1.0	-
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	-	0.2
Configuration and customisation costs carried out by third parties on material SaaS projects	40.0	2.7
Amortisation of acquisition-related intangible assets	18.9	19.6
Adjusted operating profit	262.5	222.4

Continuing operations

	2023 £m	2022 £m
Statutory operating profit	188.6	172.6
Fair value through profit and loss movements on debt instruments	2.8	(4.1)
Share of post-tax results of associates	(0.1)	-
(Loss)/profit on disposal of businesses	(12.6)	0.3
Finance income	11.0	1.9
Finance costs	(4.1)	(19.2)
Statutory profit before tax	185.6	151.5

Adjusted cash flow from continuing operations

	2023 £m	2022 £m
Adjusted operating profit	262.5	222.4
Adjusted depreciation and software amortisation ¹	38.8	39.6
Working capital and other non-cash movements	(5.5)	(54.1)
Capital expenditure	(24.7)	(44.1)
Adjusted cash flow from continuing operations	271.1	163.8
Adjusted cash flow conversion from continuing operations	103%	74%

¹. Adjusted depreciation and software amortisation represent depreciation of property, plant and equipment, software and internal development amortisation, adjusted for depreciation of acquisition-related fair value adjustments to property, plant and equipment.

Other cash flows and foreign exchange

	2023 £m	2022 £m
Tax paid	(50.3)	(46.8)
Net interest received on cash and borrowings	4.4	0.5
Dividends paid	(79.7)	(78.6)
Share buyback	(114.9)	(191.0)
Acquisition of businesses, net of cash acquired	(49.5)	(114.7)
Acquisition of investment in associates	(7.8)	(2.9)
Transaction-related costs paid	(5.8)	(6.5)
Proceeds from disposal of businesses, net of tax paid of £5.9 million (2022: £27.9 million)	3.4	365.4
SaaS-related cash expenditure	(40.0)	(21.7)
Lease payments and associated interest	(15.6)	(16.4)
Restructuring costs paid	(1.4)	(7.6)
Net proceeds from exercise of share options	0.6	0.2
Total other cash flows	(356.7)	(120.1)
Adjusted cash flow from continuing operations	271.1	163.8
Adjusted cash flow from discontinued operations	-	7.3
Foreign exchange	(3.6)	9.2
(Decrease)/increase in net cash	(89.2)	60.2

	2023 (average)	2022 (average)		Change	2023 (closing)	2022 (closing)	Change
US Dollar (USD)	1.24	1.24	0%	1.27	1.21	5%
Euro (EUR)	1.15	1.17	-2%	1.15	1.13	2%
Chinese Yuan Renminbi (CNY)	8.81	.8.30	6%	9.03	8.31	9%

Capital allocation priorities

Ensuring the appropriate allocation of capital remains a key area of focus for the Board and within that, striking the right balance between generating strong returns for shareholders and investing for growth.

1. Organic growth

• Maintenance capex - In line with depreciation

• R&D > 8% of sales improving vitality

• Growth capex projects

2. Progressive dividend

• Sustainable progressive dividend policy

• Strong track record of dividend growth

3. M&A growth

• Deployment of capital to drive growth

• Technology

• End markets

• Customers

4. Additional shareholder returns

• Return excess capital, not used for profitable growth, via appropriate mechanisms

A balanced approach to capital allocation

[Charts]

Operational excellence

Embedding a lean mindset across the Group

Deploying the SBS to improve and simplify our business processes, and creating a healthy, high-performance culture, are key elements of our Strategy for Sustainable Growth. These provide a series of building blocks on our journey towards delivering operating margins of 20%+.

SBS

The main objectives of the SBS are to remove waste, drive efficiency and strengthen competitiveness as we grow the business, with each of our global sites driving a number of continuous improvement activities. These activities not only deliver hard financial benefits, but they also strengthen our capabilities and create additional capacity to invest in innovation and areas like automation.

• During the year, the SBS continued to make a meaningful contribution to the profitability of the Group, with benefits realised in 2023 from operational excellence initiatives amounting to over £10 million.

• Benefits derived from a combination of gross profit improvement, through sales volume drop-through, and overhead reduction.

Benefits derived from the SBS in 2023:

> £10m

• In 2023, we embedded our 'Bronze, Silver, Gold' certification programme to drive lean operations across our core operational metrics.

• At the end of the year, seven of our sites had achieved Bronze certification.

• In 2024 we expect additional sites to achieve Bronze status and others to make progress towards Silver.

• We are also broadening the SBS to encompass innovation as well as the enabling functions including IT, Finance, HR and Legal.

Business transformation

We have made good progress on the implementation of our business transformation program, enabled by SAP S/4HANA, focusing on four key areas: people; process; technology; and data.

The programme will deliver simplified and standardised processes, helping us deliver our growth objectives and a number of benefits including: simpler working practices; better customer experience; enhanced interaction with suppliers; and a more globally connected and scalable business.

Our approach has been to adopt the standard SAP configuration wherever possible, adjusting our business processes to the system, thereby limiting customisation and reducing complexity.

Implementation is scheduled to take place in 2024 through a phased rollout, with benefits generating an additional 150bps in adjusted operating margin.

2023

Preparation, design and test

2024

Phased implementation across Spectris

2025

Benefits realisation begins

SBS delivers tangible and sustainable value and is embedded in our DNA so that continuous improvement is owned by everyone

Grow Foundation 2020-2021

• One language

• Eight core methods

• Training

Expand Impact 2022-2023

• Clear expectations

• Deliver value

• SBS investment

Go for Gold 2023-2024

• Bronze, Silver Gold

• Expand SBS framework

• SBS capability building

Embed 2024 >

• Value stream flow

• Lean culture shift

• Sustainable systems

Case Study

Delivering sustainable solutions to current challenges in energy storage and conversion

Energy systems drive every aspect of our modern life, from cell phones to electric cars and even space travel. But to achieve energy that is clean, renewable and reliable, we need better batteries and fuel cells. If scientists could see inside energy storage and conversion systems while they operate, they could not only identify where changes are needed, but also develop new materials to enhance their performance. A unique collaboration in the US between University of Pittsburgh's Kumta Lab and Malvern Panalytical is enabling researchers to do just that.

Dr. Prashant N. Kumta and his team aim to deliver improvements in two key areas:

• Energy storage

The lithium-sulfur battery is viewed as an attractive replacement for the rechargeable lithium-ion batteries currently used in applications such as electric vehicles, cell phones and laptops. Kumta Lab is targeting improvements to its safety, cost and efficiency.

• Energy conversion

The lab's primary focus is water electrolysis and hydrogen fuel cells. These are clean, renewable and low carbon energy sources that could help to achieve Net Zero goals, but they are currently very costly.

Using data and insights drawn from Malvern Panalytical's Empyrean X-ray diffraction technology, Dr. Kumta and his team are working towards achieving a series of ambitious goals:

400%	300%
growth in the watt hours per kilogram a rechargeable battery delivers	increase in the miles an electric car can travel between charges
100%	50%
reduction in the volume of precious metals used in water electrolysis and hydrogen fuel cells	reduction in the price tag of an electric vehicle

Find out more online

Revolutionising Energy Storage and Conversion: Collaboration with the University of Pittsburgh

"If we can create a battery pack system that can be charged or recharged on a continuous basis using wind and solar power - for example, a car that charges while you drive - we will eliminate the current reliance on carbon and fossil fuels almost entirely."

Dr. Prashant N. Kumta

University of Pittsburgh

Risk management

Our approach

We recognise that effective management of risk is essential to the successful delivery of our strategic objectives. As such, risk management is built into our day-to-day activities and forms an integral part of how we operate.

The Group has a well-established process, which delivers visibility and accountability for risk management across our businesses. This process forms part of the Group's overall internal control framework, as described on page 47.

Risk management process

Our approach to risk management combines a granular bottom-up assessment of day-to-day operational risk (managed by the businesses) with a top-down assessment of those risks that are most significant at the Group level (managed by the Executive Risk Committee and reviewed by the Audit and Risk Committee).

Business unit risk management

Each business undertakes a detailed assessment of risk across their markets, processes and operations, including a consolidation of any emerging risks that should be formally evaluated. We operate Audit and Risk Committees for each of our businesses. These Committees, which meet quarterly, represent a key component of the second line of risk management (see page 100) in respect of Internal and External Audit matters, internal control, risk management, and other areas of compliance.

A formal risk register is reviewed and finalised in each respective business Audit and Risk Committee and submitted to the Group, with each risk assessed in terms of gross and net impact and likelihood. Key mitigations, both planned and existing, have formal owners and are subject to regular operational review as well as independent assurance where appropriate.

Group risk management

Group oversight of risk management is conducted through the Executive Risk Committee whose purpose is to ensure appropriate management of the Group Principal Risks and to oversee the operation of the Group's Enterprise Risk Management framework. The Executive Risk Committee is supported by the Risk and Control function, who enable the risk management process and act as a centre of excellence as part of the Group's second line activities, consistent with the four lines of risk management model described on the following page.

The Executive Risk Committee, together with the Audit and Risk Committee, performs a continuous top-down assessment of risk throughout the year, informed by the approach established at each of the businesses. The aim of this process is to identify those Group Principal Risks that represent the most significant threat to the achievement of the Group's performance against its strategic objectives and/or those risks that are more suitably assessed, monitored and mitigated centrally. In addition, the Board carries out a robust assessment of the Group's principal and emerging risks on an annual basis.

An owner is assigned to each Group Principal Risk, which is formally assessed in terms of its gross and net severity, a risk appetite is defined, and mitigations are identified within the four lines of defence framework. Each risk is subject to a formal assessment by the Executive Risk Committee during the year and the suite of Group Principal Risks is reviewed twice yearly by the Audit and Risk Committee.

Our risk management approach includes the consideration of emerging risks, whether they be operation-specific or broader in scope, such as climate change and environmental matters or developments in artificial intelligence. Further details on how climate-related risks are managed are provided on page 66.

During 2022, we saw an increase in gross risk in a number of areas, including geopolitical and market risk, cyber threat and business disruption. We consider that across our Principal Risks the level of gross risk remains heightened, with a further increase in respect of market/financial shock as a result of greater uncertainty in external markets . All of these risks are subject to Executive oversight and formal assessment, and we continue to review the effectiveness of existing controls over those risks and to identify and execute further actions where appropriate in order to manage our net exposure.

In 2022 the net risk rating for geopolitical risk was reassessed from moderate to high in view of the increased potential for this risk to have an adverse impact on the Group, whilst in respect of compliance risk the continued work to strengthen our controls framework and to further embed the Spectris Code of Business Ethics resulted in a reassessment of the net rating from high to moderate. The Board considers that, after taking into account existing controls, no changes to the net risk ratings are required in 2023, although we continue to monitor developments and to keep our assessment of both gross and net risk under review.

Four lines of risk management

The Group has in place a four lines risk management model

First line

The first line is responsible for the identification of all risks in the 'risk universe' of each business unit. This risk awareness informs the control environment (the first line is primarily responsible for the execution of key controls), specific mitigations and is a key consideration in driving business decisions.

Second line

The second line is responsible for the risk management framework that the first line operates within. This includes the development of a standardised approach to identifying and reporting risk, an internal control framework aligned to those risks, and a suite of policies to ensure the consistent application of business processes and controls. The second line is also responsible for monitoring the performance of first line activities and for taking a holistic view of risk, to determine which risks are of principal importance to the Group.

Third line

The third line is responsible for providing assurance over the effectiveness of the Group's risk management and internal control framework. This is most commonly undertaken by Internal Audit on behalf of the Audit and Risk Committee and Board of Directors.

Fourth line

The fourth line is the Audit and Risk Committee, Board of Directors and External Audit, providing independent, external, and/or non-executive oversight across the entire risk management framework, holding accountable those responsible for all activities within the three lines of defence.

Group Principal Risks

Oversight and independent assurance

Fourth line

External/Non-executive oversight

Third line

Independent assurance

Ownership and control

Second line

Risk management framework, policies, processes and controls

First line

Risk identification and control execution

Principal risks and uncertainties

Managing our principal risks

Risk assessment scale ^*

• Very low

• Low

• Moderate

• High

• Very high

Risk appetite

• Highly cautious

• Cautious

• Balanced

• Opportunistic

• Highly opportunistic

^* The combined impact and likelihood of a risk occurring, net of mitigation activities

Strategic transformation	Cyber threat
Definition	Definition
Failure to successfully deliver the Group Strategy for Sustainable Growth.	Failure to appropriately protect critical information and other assets from cyber threats, including external hacking, cyber fraud, demands for ransom payments and inadvertent/intentional electronic leakage of critical data.
Link to strategy	Link to strategy
• Great businesses	• Customer centricity
• Aligned to structural growth markets	• Operational excellence
• Customer centricity
• Investing in growth
• Operational excellence
Risk assessment	Risk assessment
Moderate	High
Change in rating	Change in rating
<>	<>
Risk appetite	Risk appetite
Balanced	Cautious
Impact	Impact
Our day-to-day activities are inherently aligned to the successful achievement of the Group's strategic objectives. Nevertheless, we recognise the importance of specifically managing some of the more transformative elements of strategic execution as a Principal Risk. These elements include mergers and acquisitions, business transformation programmes and other growth initiatives, R&D, technology and digitising our offering.	Our businesses face an ever-evolving landscape of information security threats, both internal and external, that are continuously growing in sophistication and unpredictability. In light of the persistence of high-profile information security breaches occurring across a wide range of businesses, the Group takes a necessarily proactive and cautious approach to safeguarding its information assets. Geopolitical tensions, the ever-changing regulatory landscape and technology advances such as generative AI introduce new and evolving risks that necessitate constant vigilance.
Mitigation	Mitigation
• Remuneration policy aligned to incentivise delivery of the strategy	• Information security and data privacy policies and a well-defined security controls framework
• Deployment of the SBS	• Cyber risk assurance undertaken by Internal Audit
• Continued review of acquisition/merger pipeline, integration processes and capability	• Continued focus on 'cyber fitness' training across the Group
• Regular reviews to track strategy execution	• Regular Board, and Audit and Risk Committee reviews
• Introduction of Vitality Index to track R&D effectiveness	• Continued strengthening of IT systems
• Structured approach to delivering business transformation	• Regular cyber-attack simulation exercises and penetration tests
• Business Audit and Risk Committees	• Systems in place to immediately isolate identified threats
	• Cyber threat intelligence services and brand monitoring

Viability Statement

Longer-term viability of the Group

In accordance with section 4, provision 31 of the 2018 UK Corporate Governance Code (the Code), the Directors have assessed the viability of the Company over a five-year period, taking into account the Group's current position and the assessment of the Principal Risks and Uncertainties as set out on pages 48 to 50. The assessment considers both the Company's long-term prospects and also the viability of the Company over that period.

Analysis of business prospects

The Board has considered the prospects of the Company over the assessment period based on the strategy, markets and business model as outlined previously within this report. In the strategic review of the Company, the Board highlights a number of factors that underpin its prospects and viability over this period. These include:

• alignment with structural, sustainable growth markets with high barriers to entry ;

• leading, differentiated solutions for solving customer challenges and continued investment in R&D; and

• our financial model which is asset light, highly cash generative and with a clear capital allocation process and access to funding.

Assessment of viability

In determining the appropriate period over which to assess viability the Board has considered budgeting, forecasting and strategic planning cycles, the time frame within which we assess our risks, the maturation of the Group's credit facilities and the approach taken by our peers. The assumptions and forecasts used throughout the viability period are consistent with those used in other areas involving future forecast. Taking into account all these factors the Board continues to be of the view that a five-year period is appropriate.

The Directors carried out a robust assessment of the Principal Risks facing the Group, considering those that could threaten its business model, future performance, solvency or liquidity. In assessing the viability of the Group, the Board has reviewed the future prospects of the business as outlined by the Group's strategy and considered the financial/liquidity impact that a number of scenarios might have on those prospects. The Board has also considered the Group's RCF, which is due to expire in July 2025 as part of its assessment. On the basis of the Group's continuing strong balance sheet and ongoing support from its banking group, the Directors have assumed for the purposes of the Group's viability assessment that this will be renewed before expiry in the same amount and with the same covenant requirements.

As part of their assessment, the Directors have considered the natural hedging that occurs across the broad spread of markets, products and customers maintained by the Group. Assumptions have also been made in terms of the Group's ongoing ability to raise finance, deploy capital, and re-finance debt in order to maintain sufficient headroom. In certain instances, the Directors have included mitigation actions as part of the assessment, including cost reduction, reduced capital expenditure, and tactical recovery processes following from a major disruption.

Reverse stress testing has also been applied to determine the level of fall in sales that would be required before the Group would be at risk of breaching its existing financial covenants or current liquidity headroom during the assessment period. The reverse stress test was conducted on the basis that mitigating actions would be undertaken to reduce overheads during the period as sales declined and, on that basis, a fall in forecast sales of 38% (applied uniformly across the five-year assessment period) would be required before such a breach occurred. The Board considers the possibility of such a scenario to be remote and further mitigation, such as suspension of dividend payments or a reduction in planned capital expenditure, should be available if future trading conditions indicated that such an outcome were possible.

Viability Statement

Based on the outcomes of the viability assessment, the Board has a reasonable expectation that the Group would be able to withstand the impact of each of these scenarios, in isolation and in a number of plausible combinations, should they occur in the course of the five-year assessment period. In each event the Group would continue to operate and meet its obligations and liabilities as they fall due over the period to 31 December 2028.

Compliance	Geopolitical	Market/financial shock
Definition	Definition	Definition
Failure to comply with laws and regulations, leading to reputational damage, substantial fines and potential market exclusion.	Material adverse changes in the geopolitical environment putting at risk our ability to execute our strategy. Includes trade protectionism, punitive tax/regulatory regimes, and general heightened tension between trading parties or blocs.	Material adverse changes in market conditions, such as economic recession, inflation, increased interest rates, sudden negative investor sentiment and currency fluctuation.
Link to strategy	Link to strategy	Link to strategy
• Customer centricity	• Aligned to structural growth markets	• Great businesses
• Operational excellence	• Customer centricity	• Aligned to structural growth markets
	• Investing in growth	• Customer centricity
		• Investing in growth
Risk assessment	Risk assessment	Risk assessment
Moderate	High	High
Change in rating	Change in rating	Change in rating
<>	<>	<>
Risk appetite	Risk appetite	Risk appetite
Cautious	Balanced	Balanced
Impact	Impact	Impact
We operate in many jurisdictions and, as a consequence, are subject to wide-ranging laws and regulations, including export controls, data privacy, fair competition and anti-bribery and corruption. Any compliance failure by the Group or its representatives could result in civil or criminal liabilities, leading to significant fines and penalties or the disqualification of the Group from participation in government-related contracts or entire markets.	We operate in a range of end markets around the world and may be affected by political or regulatory developments in any of these countries. Material adverse changes in the political environment in the countries in which we operate have the potential to put at risk our ability to execute our strategy. We continually monitor the geopolitical landscape, de-risk our strategies and develop response plans accordingly.	As a public company, and one that conducts business in a large number of markets, we recognise the global or local impact that a recession or period of instability could have on the Group. As with political risk, we are limited in our ability to reduce the likelihood of such events, but with careful monitoring and response planning we can ensure that the potential impact is restricted.
Mitigation	Mitigation	Mitigation
• Strong cultural alignment to the Spectris Value of 'Be true'	• Event monitoring and horizon scanning	• Market monitoring and horizon scanning
• Global implementation of new Code of Business Ethics	• Working groups and sub-committees to limit the impact of materialising risks, including Executive Export Controls Committee	• Maintain a strong balance sheet
• Formal compliance programme including policies, procedures and training	• Operate in a broad spread of geographical markets and end users	• Operate in a broad spread of geographical markets and end users
• Contract review and approval processes	• De-risking of relevant strategies	• Response planning
• Investment in experienced compliance professionals	• Response planning	• Cost saving opportunities identified by SBS and regular review of pricing to mitigate impacts of cost inflation
	• Maintain a strong balance sheet

Sustainability Report

Building our business for the future

We are evolving our approach to doing business to meet the demands of a changing world. Our stakeholders are at the heart of this evolution. We are creating a strong foundation for our future based on our stakeholders' needs and expectations. In 2023, we have advanced our ambition to become a leading sustainable business.

Talent and capabilities	Business disruption	Climate change
Definition	Definition	Definition
Failure to attract, retain, and deploy the necessary talent to deliver Group strategy.	Failure to appropriately prepare for and respond to a crisis or major disruption to key operations either across the Group, in a key region/location, or via a critical supplier.	Failure to respond appropriately, and sufficiently, to climate change risks or failure to identify the associated potential opportunities in assisting others to manage their climate agendas.
Link to strategy	Link to strategy	Link to strategy
• Great businesses	• Operational excellence	• Aligned to structural growth markets
• Customer centricity		• Customer centricity
• Investing in growth		• Investing in growth
• Operational excellence		• Operational excellence
Risk assessment	Risk assessment	Risk assessment
Moderate	Low	Moderate
Change in rating	Change in rating	Change in rating
<>	<>	<>
Risk appetite	Risk appetite	Risk appetite
Balanced	Cautious	Balanced
Impact	Impact	Impact
The Group needs to attract, develop, motivate and retain the right people to achieve our operational and strategic targets. Effective talent management is essential to successfully delivering our current business requirements and strategic goals, and to realising the full potential of our businesses. Therefore, failure to leverage talent and capabilities could significantly impact the successful execution of our strategy. The three broad areas of focus are leadership, engineering and entry level roles.	The nature of our geographically diverse and segmented businesses provides a degree of natural hedging from Group-wide disruption arising from a major event, be it a physical disaster at a major site, or a global external event, such as the COVID-19 pandemic. However, we acknowledge the importance of proactively ensuring a consistent and effective business continuity management process across the Group.	The transition and physical risks present in climate change have the potential to impact the medium- and long-term success of our business through market regulation and additional taxes, the changing macroeconomic landscape and the potential physical impact on our operations. We see the potential for additional sales opportunities as well as increased costs and investment.
Mitigation	Mitigation	Mitigation
• Structured recruitment and succession processes for senior Group talent	• Common policy and enhanced standard for business continuity planning across the Group in progress	• Strategy built around sustainable growth
• Full deployment of Workday HR system with recruitment, performance and talent management processes extended to top 600 leaders and managers	• IT disaster recovery plans	• Agreed action plan to meet Net Zero targets validated by the Science Based Targets initiative
• Annual organisation capability review process	• Testing plans	• Board and Executive oversight of sustainability performance as well as progress against Net Zero roadmap
• Appropriate incentives with benchmarking at all levels	• Risk identification and monitoring	• Geographical diversity of businesses and supply chain
• Global employee engagement programme	• Effective internal and external communications	• Climate physical risks monitored and reported by each business
• Leadership development programmes to ensure development of talent pipeline		• Aligning strategy with current and emerging sustainability thematics

A values-driven culture of healthy high- performance

We want our people to be happy, to be fulfilled by what they do, and to have the right skills for success. We are committed to creating a values-driven, healthy high-performance culture. A workplace with engaged, highly skilled teams that are recognised and rewarded for their contribution accelerates our Purpose to make the world cleaner, healthier and more productive.

We are focused on ensuring that our people have the rights skills to build meaningful, long-term careers and to build the collective capabilities that we need to achieve our strategic ambitions.

We are proud of the progress made on our people strategy. Our Values, our approach to engagement and our leadership model have formed a distinct and strong foundation to develop our employee value proposition.

We are committed to continuous improvement and regularly review the effectiveness of our people practices within the context of the ever-changing external environment and the evolving world of work. Our approach is underpinned by the development of our people data and diagnostics through the active use of Workday to enable smarter and more agile decision-making, and to help us predict the talent we need in the future so that we put the right plans in place today.

Boosting our Values

Our Values are an integral part of our cultural DNA. They define how we act and what we expect from each other. Our three Values Be True (integrity), Own It (accountability), and Aim High (ambition) reflect who we are as employees of Spectris.

Our Values are an integral part of the Spectris culture. They are woven naturally into everything we do and bring us together as a community. They are also the core of our leadership development programmes. But we don't just assume the work is done, and through structured interventions we keep our Values real, ensuring they remain fresh and have an ongoing relevance to our people.

In 2023, we rolled out a Values Booster programme across our teams in Asia to bring our Values even more to life, ensuring the right behaviours are recognised and the wrong behaviours are called out. This interactive programme presented managers with a number of challenging scenarios and encouraged an honest exchange of views and the sharing of real-life experiences. As a result of the programme, 95% of participants agreed that they are now better equipped to bring the Values to life in their teams.

95%

of participants in the Values Booster programme agreed that they were now better equipped to bring the Values to life in their teams

Putting real value on talent

Having the right people, with the right skills in the right role at the right time is critical to achieving our operational and strategic priorities. We've made major enhancements to how we manage talent over recent years and are continuing to review how we can maximise the strategic value of our most important resource: our people.

We are concentrating on identifying the talent we need, building our capabilities to deliver our strategic ambitions. We identify the roles most vital to developing these capabilities and ensure appropriate plans are in place to create a sustainable talent pipeline for those roles.

In 2023, we have made enhancements to how we evaluate potential through the organisation. We have improved our approach to succession planning to ensure we look deeper into the business to identify talent and offer opportunities to grow.

We continue to build greater dialogue across the organisation to break down any functional and geographical barriers to talent development. Our approach is creating transparency and helping us match the right people to the right jobs at the right time; ensuring that we build our strategic capabilities whilst further opening up opportunities for our people.

Building manager accountability for employee engagement

We continue to make encouraging progress on our journey to creating a high-engagement culture. The results from our third Gallup annual employee engagement survey demonstrate the success of our approach while also highlighting the opportunities for further improvement.

In 2023, a key focus has been supporting people managers to take accountability for action-planning based on their survey results. We measured the difference in engagement scores for teams whose managers undertook active action planning with their teams and highlighted the real difference this makes to how connected people feel to the company culture, their work and their colleagues.

All managers are required to take accountability for driving engagement in their teams. Every manager is expected to have open and honest discussions about what's working well, and what could be better. Action plans are agreed and driven at a team level with leaders encouraged to regularly review progress and course-correct when needed.

We are recognising and celebrating managers who have built highly engaged teams, while providing targeted coaching and support to those who need help to improve engagement. In this focus, we recognise that great managers are the key ingredient for success in our engagement journey and we are focusing on helping our managers to become role models of engagement.

Employee turnover
2023	2022	2021	2020	2019
10.6% ¹	13.5%	15.6%	13.6%	11.4%

¹. Of the total labour turnover, 58% of leavers were resignations, 14% were retirements and 8% were redundancies with the remaining 20% leaving for a variety of other reasons.

[Chart]

Spotlight

Developing leadership

Building a values-based healthy high-performance culture requires a leadership population equipped with the right behaviours, skills and knowledge. Being a leader at Spectris means knowing how to build great teams; enabling them to play to their strengths, modelling our Values and inspiring them to do great things. We continue to build future leaders through various management programmes across our businesses.

In 2022 we launched our global leadership programme, Ascend, and our first cohort graduated in May 2023. This 100% virtual and highly interactive course is built around the themes of our leadership model, helping leaders inspire their people, strengthen their teams and grow the business. The programme has received really positive feedback from participants and those who work with them, with nearly 90% of participants' managers agreeing that they have become better leaders because of what they learned.

The second cohort of leaders began their Ascend programme in September 2023. Many of the graduates from the first cohort are acting as mentors - providing practical guidance on how best to apply the learnings from the programme in their leadership roles and wider day-to-day life.

90%

of participants' managers agreed that they have become better leaders following their participation in the Ascend programme.

voices OF EXPERTISE

"A truly remarkable leadership course. Really well planned, structured, organised and delivered. It was a joy to attend and so much of the content will stay with me. I feel privileged to have been in the first cohort."

Anna-Lisa Miller

Group CIO

We are committed to building a diverse and inclusive business

To build our business for the future, we need the best team, a diverse mix of people and skills, where different ideas can grow, and where everyone can succeed. Our ambition to reflect the full diversity of the communities in which we operate and trade is therefore essential - but we also recognise that creating true diversity is challenging and building an inclusive culture is a continuous journey.

In 2023, we reached the milestone of 40% of our Board being comprised of women, reflecting the target set by the FTSE Women Leaders' review. This year we also made good progress in improving gender diversity in our senior leadership population, attracting, promoting and retaining more diverse talent. As at the end of 2023, 28.7% of our senior leadership population are women (2022: 22%). In recognition of the importance of growing the gender diversity in our leadership population, we have set an ambition that by 2030 40% of our senior leadership population will be women. To reach our ambition, we are taking targeted action, including:

• embedding tailored diversity, inclusion and belonging dashboards in our Organisation Capability Review process which is reviewed annually by the Group Executive and Board;

• commencing the review of Group-wide policies to support genderneutral parental leave and caregiver leave;

• the active development of inclusion groups across the Spectris Dynamics Division;

• reviewing the Group's recruitment practices to ensure they contain suitable safeguards to avoid unconscious bias; and

• joining the 25x25 initiative, working with like-minded peer companies to explore the pathways to developing diverse talent.

At the same time, we recognise the importance of developing ethnic diversity, and wider forms of representation, across our leadership population and wider workforce. In 2023, we took early steps towards voluntary reporting of ethnic diversity data in compliance with the requirements of the Parker Review. Our Board composition is compliant with the Review and as requested by the Review, we have set a target to ensure that 10% of our UK leadership population is ethnically diverse by 2027.

While we agree with the spirit of the Parker Review, setting this target does not fully reflect the challenge the Group must overcome to create an ethnically diverse senior leadership community across the world. With employees in over 30 countries, our ambition is to ensure our leadership community fully reflects and represents our employee base and the geographies in which we operate. In particular, we recognise the need to develop leadership pathways for our employees based in Asia. We believe that, by fully reflecting the geographic diversity of the Group in our leadership community, we will be building authentic ethnic diversity, that truly reflects the necessary diversity of thought and experience the Group needs to build a sustainable future. Building a fuller picture of our existing diversity, to create a baseline to measure progress, is challenging and we are cognisant of the varying laws and regulations that limit, and in some cases prohibit, us requesting diversity data, and notably ethnic diversity data from employees. Developing our baseline data within these constraints is a key focus for the Group in 2024.

We are evolving our culture to encourage a mindset and behavioural shift on inclusion and belonging at all levels of our organisation. Beginning with the rollout of the PwC immersive virtual reality experience, 'In My Shoes', to the global senior leadership population and head office employees. We have developed a programme of work to ensure that we build a future-focused inclusive organisation where every employee can feel that they belong. During the year, our Divisions progressed the establishment of employee resource groups to complement our Group-wide work. These resource groups have been instrumental in advising regional management on a range of topics to help deliver real change in our employee experience.

Our ambition to build a more diverse company and a more inclusive culture is underpinned by the commitments set out in our Code of Business Ethics. We have a zero-tolerance policy in place for any form of discrimination or harassment and we are committed to embracing diversity and inclusion across the Group. We aim to provide equal opportunity in recruitment, career development, promotion, training and reward for all employees - regardless of ethnicity, national origin, religion, gender, age, sexual orientation, marital status, disability, or any other characteristic protected by applicable laws. Where existing employees become disabled, our policy is to engage and use reasonable accommodations or adjustments to enable continued employment.

Gender diversity in senior leadership

28.7%

(2022: 22%)

Percentage of women on the Board

40%

(2022: 33%)

In December 2023, the Group was proud to join the 25x25 initiative, joining other UK listed industrial peers to create new and defined pathways for women to reach the role of CEO. The initiative recognises that the concept that talented women will 'bubble-up' into senior positions by virtue of volume is unproven and a clearer focus is needed on the early identification of talent and the formation of clear progress routes. We are pleased to be working with peer companies in our sector who are managing similar demographics, career disciplines and geographies to enhance gender diversity across the industrials sector.

"25x25 resonates deeply with our Values of equity and inclusion. By working with our peers, we aim to drive positive change within Spectris, across our industry, and through the entire business community."

Andrew Heath

Chief Executive

Employees by gender and role

as at 31 December 2023

Board	Leadership community
(2022: Male: 6 Female: 3)	(2022: Male: 80% Female: 20%)
Executive Committee	Wider employee population
(Incl. Executive Directors)	(2022: Male: 65.99% Female: 34.01%)
(2022: Male: 5 Female: 2)
Data required under the UK Listing Rules on gender and ethnic diversity can be found on page 125.
Gender pay gap reporting
for the year ended 31 December 2023
Bonus pay gap: Mean	Gender pay gap: Mean
11.7%	11.5%
(2022: 37.2%)	(2022: 21.7%)
Bonus pay gap: Median	Gender pay gap: Median
11.2%	0
(2022: 31.6%)	(2022: 18.6%)

Living by our Values

At Spectris, we uphold our Values of Be True, Own It, and Aim High, which embody the traits and behaviours we strive for when conducting our business.

The foundation of our ethical standards is reflected in our Code of Business Ethics which sets out the expectations and responsibilities for all employees to act with absolute integrity. This is embedded through annual Code of Business Ethics refresher training, with 96% of employees completing this refresher training in 2023.

We are committed to maintaining high ethical standards in all our global operations, and we expect our suppliers and other business partners to adhere to the same principles. Our third-party risk management processes require export controls and sanctions screening, and regular assurance activities, the effectiveness of which is overseen by the Board and Executive Committee.

Speak Up

We are dedicated to fostering a culture of 'speak up', encouraging individuals to freely voice their concerns and to call out behaviours that do not align with our Values. We acknowledge the significance of ensuring that those who speak up feel supported and at ease and provide assurance through tone from the top and our network of business ethics officers. We offer multiple routes to speak up including an independent helpline (www.spectrishelpline.com) that employees, stakeholders and third parties can use to raise ethics and compliance questions and concerns. Our Spectris helpline cases are reviewed and triaged appropriately to ensure sufficient investigation, reporting and remediation activities are carried out. The Audit and Risk Committee receives regular updates on the Group risks identified through our helpline cases with the Board undertaking an annual review.

During 2023, the total number of reports received by the Spectris helpline was 84 (2022: 44) and, after investigation, 29 of the reports were substantiated. This is a significant increase from the case numbers reported in 2022 and reflects both the emphasis placed on encouraging employees to raise concerns and the heightened awareness and willingness among employees to speak up. Disciplinary action was taken against 26 individuals based on the severity of the misconduct identified: final warning (1 person): verbal feedback (6 people); written warning (7 people); resignation in lieu of notice (2 people); suspension (1 person); performance improvement plan (1 person); termination mutual agreement (2 people); termination with cause (4 people); warning (1 person) and verbal warning (1 person).

Spotlight

Spectris Ethics Week: Nurturing a culture of integrity, transparency and respect

In an initiative to reinforce its commitment to ethical practices, Spectris organised an Ethics Week, which involved a dedicated series of events and discussions across our Group that delved into crucial topics such as organisational culture, the ethical implications of AI, and the importance of fostering a culture of open communication through the 'speak up' ethos. The week also provided an opportunity for our businesses to recognise individuals who were nominated for their exceptional efforts in exemplifying our Values through their dedication to ethics and compliance initiatives.

Employees completing refresher training in 2023

96%

Ethics

Number of helpline reports received
2023	2022	2021	2020	2019
84	44	40	37	54

Our Values

Be True

We believe in absolute integrity. It's how we win for stakeholders, the environment and each other.

Own It

We believe in teamwork and keeping our promises. It's how we build our brands and businesses.

Aim High

We believe in being bold and positive. It's how we perform at our best and achieve greater success.

Committed to sustainable supply chains

We are committed to doing business in the right way, mindful of our impact on the communities in which we operate and wider society. This commitment is underpinned by our membership of the UN Global Compact.

We are very conscious that one of the biggest sustainable impacts we can have is through our supply chain. In 2023, we have taken meaningful steps forward in managing that impact through the publication of our new Global Supplier Code of Conduct.

This Supplier Code underpins our commitment to ethical business practices and sustainable supply chains. The Supplier Code serves as the foundation of our operations, outlining the minimum standards we expect from our valued supply chain partners and how we would like them to work with us to fulfil our wider sustainability ambitions.

The Supplier Code outlines our commitment to integrity, transparency, and responsibility and it provides a comprehensive framework that guides our interactions with suppliers and reinforces our core values of Be True, Own It and Aim High. The Supplier Code works in tandem with Our Code of Business Ethics, creating a robust foundation for our business practices. We require that all suppliers commit to the highest standards of ethical conduct when dealing with their workers, suppliers and customers.

Suppliers are expected to support and respect all internationally recognised human rights in any part of its supply chain. These are those expressed in the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organization's Declaration of Fundamental Principles and Rights at Work from time to time in force. Suppliers must actively identify and address potential violations across their own operations and throughout their value chain.

We are confident that by collectively embracing the standards in our Supplier Code with our supply chain, we will strengthen our global impact and reinforce our position as a leading, sustainable business.

Spotlight

Monitoring supplier performance

We are committed to monitoring the environmental, social, and ethical performance of our supply chain. We manage this through the EcoVadis platform with 66.7% of Malvern Panalytical and 24.2% of HBK spend currently assessed. In 2024, we will extend the EcoVadis platform to Servomex and PMS. The annual external verification of our supplier data provided by sustainability experts and reporting dashboards provided through the EcoVadis platform allow us to take informed decisions on the use of suppliers and to build an ongoing dialogue to ensure our sustainability ambitions, including our Net Zero ambition, are reflected in our supply chain.

Malvern Panalytical supplier spend rated via EcoVadis

66.7%

HBK supplier spend rated via EcoVadis

24.2%

Read more about our Global Supplier Code of Conduct www.spectris.com/buiding-a-sustainable-business/ethical-business/supplier-code-of-conduct/

A safety-first culture

The Group is committed to the highest standards of health and safety and maintaining a proactive safety culture. We adhere to all laws and regulations governing safe working practices and often go beyond local legal requirements to ensure that the policies and practices at our sites and the behaviours of our people are driving towards a zero-accident safety culture.

Total recordable incidents

There were no work-related fatalities of employees or contractors in 2023 (2022: nil). Our key performance indicator is our Total Recordable Incident Rate (TRIR) as defined by the US Occupational Safety and Health Administration. The TRIR increased in 2023 to 0.34 (2022: 0.26). All events were thoroughly investigated at a site level, and corrective actions shared and implemented across the Group.

The Group's Health and Safety Committee has taken time to review and assess the increase in recordable incidents. In 2023, there was a marked increase in recordable incidents caused by non-routine tasks, representing around 20% of total recordables in the year. The variation in the mix of incidents compared to the prior year has highlighted the challenge of low-risk events leading to recordable incidents, such as cuts and grazes. The development of a clear and consistent approach to reporting health and safety incidents is also considered by the Committee to be a contributory factor to the rise in recordable incidents. We are committed to creating a culture in which our people are empowered and encouraged to challenge their environment and take action for improvement and as we build awareness, we do expect some increase in recordable incidents as employees better understand reporting processes. We expect that this trend will be reversed as we challenge the root causes of these incidents through the continued reinforcement of our safety principles.

Safety observations

The Group continues to also measure the leading indicator of safety observations as a core value driver across the Group. Creating a culture where everyone is responsible for their own safety and the safety of those around them aligns with our Values and is the foundation of a safety-first culture. In 2023, our safety observations increased to 9,528 (2022: 8,900), with observations recorded through the Global Benchmark system and acted on locally, with thematic reviews undertaken by the Group's Health and Safety Committee.

To further support the development of the Group's safety-first culture, the Committee leveraged the experience of members and the findings from incident investigations to create a guide of best practice that has been shared across the Group. A further key success was the introduction and endorsement of a suite of online training modules focused on specific needs at key sites with the intention of addressing localised safety gaps and placing health and safety at the centre of daily decision-making.

Safety observations

9,528

(2022: 8,900)

Spotlight

Safety-first culture aligned to our Values

As an integral aspect of our safety-first culture, a key focus for 2023 was the implementation of a comprehensive Group-wide Health and Safety Policy. The Policy is aligned with the Group's values and was supported by a Group-wide video communication, reaffirming the Group's commitment to a safety-first culture. The Policy was launched by Andrew Heath and Ben Bryson, in his capacity as leader of the Health and Safety Committee, and confirmed that of all our ambitions as a Group, our first priority is the health, safety and wellbeing of our people. The communication also highlighted that every safety observation made is a reminder that we all have a responsibility to call out risks and intervene when we see something is unsafe.

Strategic Report

Prioritising mental health

We are committed to creating a positive and open culture around mental health.

It is crucial that we cultivate an environment where mental health is a continuous and open topic of discussion, where seeking support is encouraged, and where there is always a network of individuals and programmes that are ready to provide help and guidance. This focus underpins the development of our healthy, high-performance culture.

The Group's culture is formed by the behaviour of our leaders. In October, we invited David Beeney to our Leadership Conference for a second year to speak with the leadership community on the importance of creating a healthy culture to deliver high performance. Leaders were reminded about the key techniques to open discussions and their important role in creating a safe space to talk about mental health.

In October we also marked the third year of our celebration of World Mental Health Day. During this time, we organised global wellbeing sessions in several languages, aligned to our 'Time to Talk' campaign. These sessions addressed various aspects of well-being and mental health, including the important aspect of financial wellbeing, resilience and support for working parents.

In 2023, we worked with HSBC to provide financial wellbeing seminars and advice to employees, and in 2024 financial wellbeing will be a continued focus across the Group.

By collectively prioritising positive mental health, we are building stronger, more resilient, and more compassionate teams.

Access to an Employee Assistance Programme

86%

2022: 82.2%

Spotlight

A healthy high-performance culture in action

During 2023, we continued to drive our Group-wide mental health campaign 'Time to Talk'. Significant strides were made across the Group to focus on the mental wellbeing of our workforce, ensuring our people both receive support and recognise their role in creating our culture. Some highlights and achievements were:

• Spectris China was awarded the status of a Gold Standard Certified Company through the 2023 China Corporate Health Management Forum, organised by the HR Excellence Center - one of the China's largest and most influential membership-based networks for HR professionals.

• Malvern Panalytical launched a new Employee Assistance Programme which provided support in geographies not previously covered ensuring that all employees now have access to independent, confidential and professional support.

• Employee Assistance Programme coverage in Asia reached 100% of employees, including all manufacturing plants.

• Servomex were awarded the Gold Wellbeing at Work Award through East Sussex Public Health.

Reaching Net Zero

Our Net Zero commitment is ambitious and is supported by our targets which are validated by the Science Based Targets initiative against a 1.5°C warming scenario. We have made meaningful progress towards our ambition, reflected in our A- CDP score awarded in 2023.

Our roadmap

Since setting our Net Zero ambition in 2021, the Group has focused on identifying and implementing emissions and energy-saving initiatives in our operations, guided by the Schneider Electric-led emissions and energy efficiency assessments completed in 2022. Our approach is clearly detailed in our Roadmap to Net Zero, with nominated leaders within each of the businesses responsible for introducing initiatives aligned to their bespoke roadmaps. In scopes 1 and 2, energy efficiency measures have been introduced at many of our manufacturing sites, supported by the installation of on-site solar generation. Meanwhile, on scope 3, we have focused on building supplier engagement through the use of EcoVadis, as well as developing our approach to product sustainability through life cycle assessments. We have committed a minimum of £3 million per annum to fund our ambition, spending £3.2 million in 2023.

Our ambition:

Spectris operations

Net Zero by 2030 (scope 1 and 2 emissions)

Our value chain

Net Zero by 2040 (scope 3 emissions)

Read our full Net Zero roadmap www.spectris.com/assets/Uploads/Documents/Roadmap-to-Net-Zero/Roadmap-to-Net-Zero.pdf

Scope 1 and 2 - Our Roadmap

[Chart]

In 2023, initiatives introduced across our largest global manufacturing sites have enabled a 27% like-for-like reduction in scope 1 and 2 (market-based) emissions since 2022. The case study on the following page highlights some of the key successes towards achieving this reduction from across the Group. In 2023 we also took steps to improve the quality of data used for tracking electricity and natural gas consumption through the commencement of the installation of real-time energy monitoring leading to emissions reductions through more granular energy management.

Key activity in 2023

• Solar generation capacity installed at Malvern, Royston and Crowborough

• HBK's Darmstadt and Suzhou achieved 11.2% year-on-year savings in energy consumption largely through optimisation and upgrade of HVAC

• Installation of real-time energy monitoring at Almelo and Eindhoven

• Installation of intelligent lighting and LED at Eindhoven, Almelo and Crowborough

• PMS has now transitioned 38% of its fleet to electric and hybrid

Planned activity for 2024

• Continued roll-out of renewable energy generation at key manufacturing sites, including Darmstadt, Marlborough, Almelo, and Malvern

• Continued roll-out of real-time energy monitoring at key manufacturing sites

• Expansion of electric vehicle and hybrid vehicle use in line with our EV100 commitment

Chart]

Scope 3 - Our Roadmap

[Chart]

In 2023, we have continued to focus on progressing supply chain and product sustainability as the two key levers of our scope 3 roadmap across the Group.

For supply chain, our partnership with EcoVadis has enabled us to capture actual emissions data from suppliers. In 2022, we began this work in Malvern Panalytical, which has now captured 66.7% of its purchasing spend within the EcoVadis supplier engagement programme (2022: 43.1%). In 2023, we expanded the programme in HBK, which has now captured 24.2% of supplier spend. This data has supported the move to a supplier-specific methodology for calculating supplier-related emissions in our scope 3 reporting, as set out on page 64.

For product sustainability, Servomex has completed the design of a sustainable product taxonomy with the support of Finch and Beak, the results of which have been used to inform Servomex's product roadmap. The results have also been incorporated into our scope 3 emissions reporting with the support of EcoAct, to allow us to move some of our reporting to the supplier-specific method, the most accurate method of reporting. In 2023, the approach has now been expanded to PMS, which has designed its own sustainable product taxonomy with Finch and Beak for two representative products: Airnet II, and Chem 20.

Planned activity for 2024

• Expand EcoVadis programme to PMS and Servomex

• Commence a supplier engagement programme with key suppliers based on the outcome of the EcoVadis programme

• Expand product lifecycle assessments across the remainder of the Group

• Completion of zero-waste-to-landfill audits at key sites

In 2023, we have seen progress across our businesses as Net Zero has increasingly become embedded into our operations and culture. This has included implementing some of the outcomes of the Schneider Electric energy and emissions efficiency assessments. The adjacent case study presents some of the main highlights from 2023 from each of our businesses, focusing on the successes at some of our key manufacturing sites. In 2024, we will be continuing to build on the success of 2023, guided by the development of our Net Zero Transition Plan, and sharing learnings across the Group as we transition to Net Zero.

% of suppliers by spend captured by Malvern Panalytical in EcoVadis

66.7%

Year-on-year energy savings achieved at HBK Darmstadt and Suzhou

11.2%

Case study

Net Zero success from around the Group

HBK

Darmstadt and Suzhou, representing 56.8% of HBK's total 2023 carbon emissions, both have local energy management teams working with the site lead and Net Zero focal point to create and implement a raft of energy-saving ideas. These ideas include changing lightbulbs for LED and motion-sensing replacements, and upgrading air-conditioning units, to adjusting production processes involving ovens for heating to optimise energy use whilst maintaining, and enhancing, product quality. In 2023, Darmstadt was awarded 'Site Energy Saver Of the Year' at HBK due to achieving the largest reduction in emissions of all of HBK's sites in the previous year. Suzhou has also managed to reduce its electricity and steam consumption by 10% year-on-year. HBK has saved around £0.3 million at Darmstadt and Suzhou compared to 2022 through these initiatives.

"The site-based teams at HBK are making a huge difference to our energy consumption and CO ₂ emissions - it's a real honour to guide and support them."

Lawrence Grasty

Director - Net Zero, HBK

Servomex

In 2023, our Crowborough site made significant improvements in energy efficiency through the installation of a new high efficiency cleanroom HVAC, expected to save 3% of its electricity consumption per year, and the installation of LED lighting (expected to save 3.5% of electricity consumption per year). In addition, they have installed solar panels on the roof which is estimated to provide 15% of the site's electricity demand. This progress has helped it towards achieving an EcoVadis gold award for the second year running, and being shortlisted for two awards at the Energies Industries Council 2023 National Awards Dinner.

Particle Measuring Systems

PMS has been powered by 100% renewable electricity since 2022, and has successfully transitioned more than one-third of its fleet to electric and hybrid vehicles. The team in Boulder has reduced waste generated in operations by 40% year-on-year driven by better measurement and monitoring of waste and identifying recycling opportunities. In 2023, PMS also made progress in developing sustainable packaging for their products, including eliminating unnecessary packaging and using recycled materials where possible.

Malvern Panalytical

In 2023 Malvern Panalytical have worked to embed multidisciplinary approaches further into its approach to sustainability. Teams across R&D, facilities, HR, finance, and IT came together to hold kaizens to identify sustainability solutions at Almelo and Eindhoven for reducing scope 1, 2 and 3 emissions against the Group's Net Zero ambition. The kaizens led to around 90 projects being identified ranging from LED and intelligent lighting installations to IT waste reduction initiatives. The projects are now being distributed to different teams and the work so far has contributed to a 17.1% reduction in energy consumed at Almelo in 2023.

Estimated annual future savings made by HBK

£0.3 million

through energy-saving initiatives at Darmstadt and Suzhou

Red Lion Controls

Red Lion Controls led a literature reduction project to reduce the number of pages included in its product boxes, which will also help their customers to reduce their own waste. Thanks to the expertise of the working groups at Red Lion Controls, spanning the regulatory, product, management, engineering, legal and technical documentation teams, it was able to reduce the number of pages included in product boxes by over 90%, saving 1.3 million printed sheets of paper per year.

Environmental reporting

Environmental performance summary (absolute)1

	Energy consumption (MWh)	Energy efficiency (MWh per £m revenue)
	70,878	48.9
	(2022: 77,194)	(2022: 58.2)
	(2020: 123,205)	(2020: 92.2)

	Greenhouse gas emissions (tonnes CO ₂ e)2	Total carbon emissions (tonnes CO ₂ e per £m revenue)2
	12,144	8.4
	(2022: 17,546)	(2022: 13.2)
	(2020: 43,111)	(2020: 32.3)

1. Numbers stated reflect in-year reported emissions to measure the evolution of the energy efficiency of the Group, including the impact of portfolio changes on our efficiency.

2. Scope 1 and 2 (market-based) absolute emissions.

We are committed to transparent reporting of our carbon footprint and our transition towards Net Zero.

Restatement of comparative environmental data

Comparative data disclosed on page 65 has been restated to reflect the following changes:

• Removal of data relating to the divestments of Concept Life Sciences which took place on 31 March 2023, and addition of data relating to the acquisitions of MicroStrain and EMS which took place during September 2023 and October 2023, to support a fair comparison of the Group's in-year environmental performance. This approach, in line with Greenhouse Gas Protocol (GHG Protocol) guidelines and consistent with reporting in 2020, will be followed for all future material acquisitions and divestments

• Replacing estimated data with actual data where available for prior years

Scope 1 emissions

Scope 1 emissions have decreased by 5.4% on a like-for-like basis during 2023. This is primarily due to energy efficiency activities across a number of our manufacturing sites, including at Boulder, Almelo and Eindhoven.

Scope 2 emissions

Market-based scope 2 emissions have decreased during 2023 by 35.3% like-for-like. This has been primarily driven by the green electricity secured at Suzhou. Energy efficiency improvements across our manufacturing sites have also contributed to reducing our emissions from electricity and steam. HBK in particular has achieved significant emissions savings by increasing the efficiency of steam and district heating used at Darmstadt, Suzhou, and Virum.

Scope 3 emissions

This is the third year of reporting against all relevant scope 3 categories, which in 2023 has included category 15 (Investments) for the first time as it is now considered material following the investment in LumaCyte in 2023.

In 2023, we further improved scope 3 data quality by accelerating our move away from a spend-based methodology to one that uses supplier-specific emissions data, by introducing more primary data for our calculations of categories 1, 2, 11 and 12.

For our suppliers, we have used EcoVadis to collect primary carbon emissions data which is being used to calculate categories 1 and 2. As of 2023, Malvern Panalytical has captured 66.7% of supplier spend in EcoVadis, and HBK has captured 24.2% of supplier spend in EcoVadis. EcoVadis use will be expanded to PMS and Servomex in 2024.

For our products, Servomex and PMS have developed life cycle assessments of their product portfolios, with Servomex's results now being incorporated into our calculations of categories 11 and 12. The life cycle assessments undertaken to date have enabled the identification of emissions and energy-saving opportunities through product design and supplier engagement. This approach will be expanded to Malvern Panalytical and HBK in 2024.

Geopolitical challenges affected our ability to move goods by ocean rather than air, whilst business travel has continued to shift to pre-pandemic levels, affecting our emissions performance for logistics and business travel.

Streamlined Energy and Carbon Reporting (SECR)

This is our fourth year of reporting in compliance with the SECR regulations which are designed to increase awareness of energy costs and provide data to inform the adoption of energy efficiency measures. In 2023, 3.8% of our scope 1 and 2 (market-based) emissions were generated in the UK.

Environmental performance summary (absolute) ¹
Indicator	20231	20221	Base year
			20201
Energy consumption (absolute) (MWh)	70,877.6	77,194.3	123,205.0
Energy efficiency (MWh per £m revenue)	48.9	58.2	92.2
Greenhouse gas emissions (tonnes CO ₂ e) ²	12,144.1	17,546.0	43,111.0
Total carbon emissions (tonnes CO ₂ e per £m revenue) ²	8.4	13.2	32.3

Energy consumption (like-for-like) ^3,4
Unit of measurement - MWh	Change	2023	2022	Base year 2020
Electricity	-5.5%	38,389.4	40,639.6	39,268.5
- of which renewable	16.9%	22,596.9	19,323.8	2,966.0
Natural gas	1.7%	5,503.3	5,408.9	6,049.7
Fuel oil	-0.4%	18	18	28
Steam and other imported energy	-12.3%	13,047.5	14,879.8	13,930.2
Other fuels	-18.5%	289	354	64
Vehicle energy	-0.8%	13,630.9	13,744.5	18,165.9
Total energy ^*	-5.6%	70,877.6	75,044.8	77,507.1
- of which UK ^*	-25.7%	6,101.5	8,212.4	5,761.7

3. All like-for-like numbers have been restated to reflect the divestment of Concept Life Sciences, and the acquisitions of EMS and MicroStrain during the year.

4. 11% of scope 1 & 2 (location-based) emissions and 11% of total energy data has been accrued or estimated as per the methodology detailed in the basis of reporting document available at www.spectris.com/environment.

Waste data (like-for-like)3
	2023	2022	Base year 2020
Total waste captured (tonnes)	4,083.8	1,649.4	4,824.6
- of which landfill	250	122	3,447.9
Waste recycling rate5	85.8%	78.9%	25.9%
Waste diversion rate6	93.9%	92.6%	28.5%

3. All like-for-like numbers have been restated to reflect the divestment of CLS, and the acquisitions of EMS and MicroStrain during the year.

5. Proportion of waste recycled, including that of composted organic matter.

6. Proportion of waste diverted from landfill via recycling, composting or incineration.

Greenhouse gas emissions (tonnes CO ₂ e) (like-for-like) ³
Unit of measurement - tonnes CO ₂ e	Change	2023	2022	Base year 2020
Scope 1 ^*	-5.4%	4,373.6	4,623.2	6,393.5
Scope 2 - Location-based ^*	-4.2%	16,103.8	16,814.0	17,832.0
Scope 2 - Market-based ^*	-35.3%	7,770.5	12,011.1	17,413.4
Scope 1 & 2 (Location) total	-4.5%	20,477.4	21,437.2	24,225.5
- of which UK	-12.0%	1,144.6	1,300.9	1,391.5
Scope 1 & 2 (Market) total ⁷	-27.0%	12,144.1	16,634.3	23,806.9
- of which UK	-30.2%	461	661	1,367.1

7. 11% of scope 1 & 2 (location-based) emissions and 11% of total energy data has been accrued or estimated as per the methodology detailed in the basis of reporting document available at www.spectris.com/environment.

Scope 38 (like-for-like) ³	Change	2023	2022	Base year 2020
Category 1 - Purchased goods and services	-21.1%	168,313.7	213,441.8	162,104.6
Category 2 - Capital goods		(Included in Category 1)
Category 3 - Fuel & energy related activities ^{* 9}	-8.3%	1,759.3	1,917.8	2,159.4
Category 4 - Upstream transportation / distribution ^{* 9,10}	42.6%	22,243.9	15,595.5	20,822.9
Category 5 - Waste	139.2%	208	87	1,177.4
Category 6 - Business travel ^{* 9}	95.7%	9,707.3	4,959.9	3,565.6
Category 7 - Employee commuting	24.6%	12,369.4	9,924.0	11,093.3
Category 9 - Downstream transportation / distribution		(Included in Category 4)
Category 11 - Use of sold products	-6.7%	246,422.3	263,984.7	210,613.2
Category 12 - End-of-life treatment	170.8%	141	52	50
Category 15 - Investments	0.9%	3,946.6	3,911.7	69
Total scope 33	-9.5%	465,111.4	513,874.3	411,655.1
Total gross emissions (Market-based)	-10.0%	477,255.5	530,508.6	435,462.1

3. All like-for-like numbers have been restated to reflect the divestment of Concept Life Sciences, and the acquisitions of EMS and MicroStrain during the year.

8. Scope 3 categories 8, 10, 13, 14 are not included as not relevant to the Group's business model.

9. In 2022, Deloitte provided independent third-party limited assurance against scope 1 and 2 emissions and scope 3 (categories 3, 4 and 6). Those assured figures have been restated to reflect the divestment of CLS, and the acquisitions of EMS and MicroStrain and have not been subject to further assurance in 2023.

10. Category 4 2022 emissions have been restated to reflect new data becoming available relating to our logistics.

^* Data assurance and methodology

Deloitte has provided independent third-party limited assurance in accordance with the International Standard for Assurance Engagements 3000 (ISAE 3000) and Assurance Engagements on Greenhouse Gas Statements (ISAE 3410) issued by the International Auditing and Assurance Standards Board (IAASB) over selected metrics, identified with ^* , within Spectris' energy consumption and greenhouse gas (GHG) emission disclosure. Deloitte's full unqualified assurance opinion, which includes details of the metrics assured, can be found at www.spectris.com/environment

Taskforce on Climate-related Financial Disclosures (TCFD)

Governance

We have undertaken a comprehensive programme of work to support our considered view of the risks and opportunities present in climate change. We have set out below our Climate-related Financial Disclosures consistent with all of the TCFD recommendations and recommended disclosures in compliance with Listing Rule 9.8.6R.1

Oversight of climate-related risks and opportunities

The Board oversees the delivery of the Group's Strategy for Sustainable Growth, a key priority of which is the management of climate-related risks and opportunities. Andrew Heath, Chief Executive, is the Executive Board Director responsible for implementation and delivery of the Group's Strategy for Sustainable Growth and is supported in this by the Head of Corporate Affairs and Company Secretary, Rebecca Dunn, a member of the Group Executive Committee.

The Board is supported in the oversight of climate-related risks and opportunities by Alison Henwood who is the designated Non-executive Director with oversight of sustainability matters.The Board Committee structure also includes groups specifically formed to manage climate-related and wider sustainability risks and opportunities.

A summary of the roles and responsibilities in relation to climate change is set out in the diagram on page 67.

During 2023, the Board and the Committees of the Board received updates at five scheduled meetings on the progress of the Group's adaption to climate change through the lenses of strategy, acquisitions, budget, risk and the assurance of the metrics utilised by the Group to monitor progress towards Net Zero. This included a deep-dive review of the Group's approach to the identification and mitigation of climate change risk as part of an ongoing series of deep-dive reviews of the Group's Principal Risks.

1. The climate-related financial disclosures made by Spectris Group plc comply with the requirements of the Companies Act 2006 as amended by the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022.

Key activity during 2023

Throughout 2023

Governance

At every scheduled meeting, the Executive Risk Committee reviewed progress against the Group's action plans to minimise the Group's exposure to physical and transition risks.

Management

The Head of Sustainability oversaw the development of a sustainable product impact taxonomy at Servomex for integrating sustainability design criteria into R&D.

Strategy

The Group worked with PwC to devise and launch a physical climate risk dashboard for the Group's material sites with ongoing use overseen by the Business Audit and Risk Committees.

Strategy

The Head of Corporate Affairs and Head of Sustainability attended several site visits, which included attending kaizens at key manufacturing sites in the Netherlands to identify energy-saving opportunities.

Strategy

The Head of Sustainability coordinated global working groups to assess transition risks and opportunities focused on logistics, raw materials and product.

Risk management

A new cross-functional ESG Regulatory Steering Group was formed by the Head of Corporate Affairs to monitor emerging ESG regulations relevant to the Group.

Feb

Governance

The Audit and Risk Committee reviewed the findings of the second limited assurance engagement performed by Deloitte over selected environmental data included in the 2022 Annual Report and Accounts against International Standard on Assurance Engagements (ISAE) 3000.

May

Governance

The remit of the Nomination and Governance Committee was updated to include oversight of the Group's response to ESG regulation, and the Committee received updates on regulatory developments in 2023.

Jun

Governance

The Executive Committee received a monthly report on the progress of the Group's sustainability strategy, including updates on climate risk and opportunity and the Group's progress towards Net Zero. A summary update of progress was also regularly provided to the Board.

Jul

Governance

The Board met with sustainability experts from Goldman Sachs to discuss climate and sustainability trends in the context of increasing regulatory and investor requirements.

Oct

Strategy

The Board received its annual update on the progress of the Group's sustainability strategy.

Strategy

The Executive Committee approved capital and operational expenditure plans for 2024 to progress the Group's Net Zero ambition, including installation of solar panels at Malvern, Royston, and Crowborough.

Nov

Governance

The Board undertook a site tour of the Almelo facility, which included a review of local energy efficiency activities.

Dec

Governance

The Board undertook a deep-dive review of climate change as a Group Principal Risk, including a review of the quantitative analysis on physical risks from the interactive physical climate risk dashboard, and the findings of qualitative and quantitative analysis on transition risks and opportunities.

The Nomination and Governance Committee reviewed the efficacy of the non-executive oversight role undertaken by Alison Henwood and agreed that the role continued to provide effective additional support to the Board's understanding and oversight of the Group's approach to sustainability.

Oversight

Board level

BoardResponsible for setting the Group's strategy for mitigating the risks and delivering on the opportunities presented by climate change.

Audit and Risk CommitteeComprised of independent Non-executive Directors and oversees the identification, assessment, management, and reporting of risks, including climate-related risks.

Nomination and Governance Committee

Comprised of independent Non-executive Directors and reviews the governance mechanisms in place to support the Board's effective oversight of sustainability risks, including climate-related risks and emerging regulation.

Remuneration CommitteeComprised of independent Non-executive Directors and oversees the Group's Remuneration Policy to ensure that metrics and targets align with our Strategy and Purpose and wider stakeholder interests.Executive level

Executive CommitteeSupports the Chief Executive in devising and executing the Group's strategy on climate change and determining the relevant budgets.

Executive Risk CommitteeReviews effectiveness of existing risk management strategies and processes in relation to individual Group Principal Risks and the cumulative risk profile of the Group, and reviews outputs from the Business Audit and Risk Committees.

Management level

Sustainability Steering Group

A sub-committee of the Executive Committee, comprising leaders from across the Group providing governance, strategic leadership and execution support to the Group's management of climate risk, reporting to the Board and Executive Committee monthly. It leads identifying Group-level climate risks by keeping up to date with external developments, supported by inputs from both internal and external experts.

Business Audit and Risk Committees

Operating in each Division, formed of a broad set of internal stakeholders to provide their expertise and perspectives on business risks, including climate risks. The Committees identify and report local risks each quarter which are assessed by a designated risk owner. The risk owner implements actions as appropriate and reviews the progress of these actions each quarter. The outputs of the Committee are reported to the Executive Risk Committee.

Planned activity in 2024

Board

• Oversee the development of the Group's Net Zero Transition Plan

• Deep-dive reviews on the progress on the Group's product sustainability workstreams and sustainable freight workstreams

Audit and Risk Committee

• Oversee the Group's reporting of climate risk and the approach to the inclusion of financial data.

• Oversee the Group's approach to the implementation of the Corporate Sustainability Reporting Directive

Nomination and Governance Committee

• Consider the emerging legislative and regulatory environment regarding climate change and wider sustainability issues

• Review the optimal approach to ensuring the Board has sufficient oversight of the Group's sustainability agenda

Remuneration Committee

• Review progress of LTIP measures relating to the Group's Net Zero strategy and setting a new target for the 2024 LTIP to support the Group's Net Zero ambition

Executive Committee

• Oversee the outcomes identified based on the transition risk and opportunity workstream, including the Net Zero Transition Plan

Executive Risk Committee

• Oversee the risks identified in the physical climate risk dashboard

• Implement risk management initiatives based on the transition risk and opportunity analysis completed in 2023

Sustainability Steering Group

• Develop the Group's Net Zero Transition Plan

• Oversee progress in developing product life cycle assessments (LCAs) and assessing supply chain emissions

• Oversee a feasibility study into the implementation of an internal carbon price

• Facilitate global progress towards the Group's Net Zero ambition

Business Audit and Risk Committees

• Review of physical risk mapping of owned sites using the interactive physical climate risk dashboard

• Identification and management of climate-related risks

[Diagram]

Climate Strategy

In 2023, we have applied quantitative and qualitative methodologies to develop our understanding of our exposure to physical and transition risks and opportunities and reassessed the key strategic implications for the Group.

This year, we have increased the granularity of our climate scenario analysis within each Division, including site-level physical risk assessments and Division-level transition risk and opportunity analysis, with the key findings described in this disclosure. A summary table of identified physical and transition risks and opportunities is set out on pages 72 and 73.

Physical risks

In our 2021 TCFD disclosure, we first reported on physical risks at material sites. This work helped the Group to identify which physical risks could impact our sites. In 2023, we have built an interactive physical climate risk dashboard on the Jupiter Intelligence platform to better understand and monitor these risks at site level aligned to the latest climate projections. The dashboard gives site-specific information on long-term (up to 2050) exposure to acute (wildfires, precipitation, thunderstorms, flooding), and chronic (extreme heat, drought) climate risks under three climate change scenarios, as well as potential financial losses.

The scenarios used are produced by the Intergovernmental Panel on Climate Change (IPCC) and represent three possible futures dictated by different levels of global warming, described in the adjacent table.

These scenarios have been selected because they represent leading public data sources on future climate change, are widely used by governments, academia and companies and are a key recommended public source of scenario data by the TCFD. The range of scenarios represents a suitable breadth of possible future outcomes to allow the comparability of effects of scenarios on physical risk at the site level.

Physical risk scenarios
Scenario	Scenario	Warming by 2100	Terminology definitions
	alignment
SSP 5 - RCP 8.5	IPCC (CMIP-6)	>4°C	'Shared socioeconomic pathways' (SSPs) are scenarios of projected socioeconomic global changes up to 2100 to derive greenhouse gas emissions with different climate policies.
SSP 2 - RCP 4.5	IPCC (CMIP-6)	2-3°C	'Representative Concentration Pathways' (RCP) are GHG concentration trajectories describing possible climate futures driven by the volumes of greenhouse gases emitted.
SSP 1 - RCP 2.6	IPCC (CMIP-6)	<2°C	The IPCC's '6th Coupled Model Intercomparison Project' (CMIP-6) uses models which incorporate significant scientific advances aligned with the most recent IPCC report (AR6).

Impacts

We have quantified the inherent financial magnitude of potential physical impacts associated with flooding, heat, wind and wildfires driven by damage, disruption, and heat-related productivity loss.

Flooding: Under a >4°C (SSP5-8.5) scenario average annualised loss risk per year increases by 16% from 2020 (~£14 million) by 2050 (~£16 million). HBK Suzhou, and MP Zhuhai are most at risk from flooding impacts due to their proximity to the coast, and exposure to tropical storms and precipitation which could lead to flash flooding. For these sites, the estimated increase in risk of a 1-in-50 year flood event is 10%.

Heat: Several sites are exposed to an increasing number of days exceeding 35°C, and this is most pronounced for MP Zhuhai, HBK Suzhou and HBK Porto. In a >4°C scenario (SSP5-8.5), by 2050, MP Zhuhai, HBK Suzhou and HBK Porto would see a >30% increase in number of days exceeding 35°C. In the very unlikely scenario that cooling systems should not be functioning, the temperature rise could lead to productivity losses of on average ~£14 million per year by 2050 under a >4°C scenario.

The scenario analysis has indicated minimal difference in financial impact between a <2°C (SSP1-2.6) scenario and a 2-3°C (SSP2-4.5) scenario and the greatest change in impact comes in a >4°C scenario (SSP5-8.5). Across all scenarios, there is minimal change between the short- and medium-term, with the greatest effects occurring in the long-term (by 2050). The potential costs that could be incurred under a >4°C scenario are also not considered to be material due to our decentralised operating structure allowing for flexibility in site configuration over the medium- and long- term preventing possible long-term financial impacts. Mitigating actions are also widely understood and already being taken; for example, in 2023, key sites have focused on installation of solar energy to reduce exposure to potential energy price shocks and power outages caused by excess cooling demand with increasing high heat days; see page 72 for more detail.

The interactive physical climate risk dashboard has now been adopted by each Business Audit and Risk Committee to enable continuous monitoring of physical climate change risk, with the ability to add new sites as needed. In 2024, we will embed the dashboard into our M&A due diligence process.

Climate hazard exposure at our main manufacturing sites

Key
Present day hazard score	Each bubble represents a manufacturing site. The size of the bubble indicates total site value, with HBK Darmstadt representing the site with the highest overall value.
Measures the absolute potential hazard level according to the selected climate change scenario (SSP5-8.5) by 2050 (long-term time horizon), based on potential exposure. A combined score is used for all hazards analysed (flood, wind, heat, precipitation, cold, hail, drought and wildfire), normalised between 1 and 100.
2020-2050 change score	Relative risk
Measures the level of change in hazard score between 2020 and 2050 (long-term time horizon), normalised between 1 and 100.	Low
	Low	High
	Medium	Very high

The results of the >4°C scenario (SSP5-8.5) analysis can be seen in the figure on the left. The >4 ⁰ C scenario is where the greatest exposure to physical risks arises so this scenario has been used to assess climate hazard exposure at the Group's main manufacturing sites. Each bubble represents one manufacturing site, and the size of the bubble indicates the relative value of the site.

The analysis combines the results of all the physical risk hazards assessed into two main scores: a present day hazard score (x-axis) and a 2020-2050 change score (y-axis).

The results show that the majority of the Group's manufacturing sites included in the analysis are subject to a relatively low level of present and future climate-related exposure e.g. Servomex UK, MP Malvern, MP Eindhoven, HBK Virum.

Higher present day hazard scores and 2020-2050 change scores are largely driven by exposure to flooding (HBK Suzhou, MP Zhuhai) and heat (HBK Suzhou, MP Zhuhai, HBK Porto). Flooding and heat have therefore been identified as our greatest potential risk exposures in terms of physical risk due to climate change for the Group's manufacturing sites.

Transition risks and opportunities

Following the work completed in 2021, this year we conducted a more detailed assessment of transition risks and opportunities incorporating both qualitative and quantitative methodologies supported by consultancy ERM (Environmental Resources Management). Risks and opportunities relating to our products, input materials and logistics were considered by global working groups across the Divisions as the areas of greatest potential risk or opportunity. Our 2022 disclosure recognised the potential for an increase in operating costs due to government policy and regulation of carbon, including carbon pricing and tax. This risk has now been reviewed and understood in further detail in the context of our products, input materials and logistics. The transition risk scenarios applied are summarised on page 70.

Deep-dive: Input materials

The analysis identified the risk of increasing input material costs leading to higher direct costs, driven by carbon pricing impacts and demand for critical materials. In all scenarios, all materials assessed were, to some extent, at risk from carbon pricing. Steel and aluminium are the materials most exposed to carbon pricing cost impacts, and are already subject to carbon pricing schemes in some locations.

In all scenarios, demand for materials will also grow with the Net Zero transition leading to cost impacts, which are expected to be greatest up until 2030, aligned to the Group's medium-term time horizon. Our programme to increase coverage of suppliers on EcoVadis, and our Net Zero roadmap, will enable us to mitigate risks associated with climate-related cost burdens from input materials.

Deep-dive: Logistics

The analysis identified the risk of increasing climate costs within the logistics network. A financial impact was considered possible through pass-through costs from logistics providers associated with their own decarbonisation costs and increasing carbon pricing burden for their owned fleets. In all scenarios, a quantitative scenario analysis demonstrated that the majority of the additional financial impact is seen by 2030.

This cost profile is largely driven by supply side decarbonisation costs for logistics increasing significantly out to 2030, with technology maturity effects decreasing this cost burden post 2030. This could lead to increased logistics costs of around 50% over the next 5 to 6 years if no action is taken. To mitigate this risk, the Group is already progressing to transition its logistics network to lower carbon modes of transport, aligned to our Net Zero roadmap.

Deep-dive: Products

The analysis identified the opportunity for further development and repositioning of products within growing customer markets benefiting from the Net Zero and energy transition. The period up until 2030 is a key period for growth for Net Zero-aligned technologies in all scenarios (medium-term), particularly relating to electrification of vehicles and battery storage. Other trends with strong alignment to the Group's products include carbon capture and hydrogen, however both will require significant additional external policy support or technological innovation before being scaled up, even in the high ambition Net Zero scenario.

In responding to this opportunity, the results reinforce the focus of the Group's Strategy for Sustainable Growth and demonstrate the opportunity for the Group to drive growth in markets aligned to decarbonisation.

Strategic response

Whilst physical risks are not considered material in our direct operations, transition risks and opportunities are likely to incur increasing costs over time, particularly between now and 2030 if not subject to appropriate mitigation and adaption activity. Our Net Zero roadmap provides our main mitigation mechanism to transition risks and opportunities and applies to all business operations; in 2023 we spent £3.2 million on delivering this ambition. The ESG Regulatory Steering Group was created to support our response to such risks. In 2023, this included actions to review EU Carbon Border Adjustment Mechanism (CBAM) implications. In 2024 the Group will develop a Net Zero Transition Plan aligned to the Transition Plan Taskforce (TPT) framework. This will include:

• Considering the implementation of an internal carbon price, upon completion of a feasibility assessment at Servomex in 2023

• Continued focus on product and supply chain sustainability through product life cycle assessments and building supplier engagement with EcoVadis

• Continuing to reduce reliance on air freight in our supply chain where possible aligned to our target to reduce airfreight (long and short haul) by 50% by 2030

A summary of the physical and transition risks and opportunities identified to have the possibility of being material, and the strategic response for each, are outlined in the table on pages 72 and 73. Where we have assessed the risk or opportunity under different climate scenarios, we have indicated the scenarios applied. Whilst the scenario analysis has shown that impacts from these risks and opportunities could arise across all scenarios and time horizons, the scenario and time horizons found to have the greatest potential impacts are identified in the table. We will continue to assess the benefit of conducting further scenario analysis on other risks and opportunities.

Transition risk scenarios
The scenarios used are produced by the International Energy Agency (IEA) and represent three possible future outcomes relating to the energy transition. These scenarios have been selected because the IEA is highlighted by the TCFD as a leading source for conducting climate scenario analysis on transition risks and opportunities, with IEA sources also being used widely by governments, academics and industry. The scenarios selected represent a range of different policy outcomes, all of which could lead to differing impacts on the Group.
Scenario	Scenario alignment	Warming	Scenario descriptions
		by 2100
Current policy (Low)	IEA WEO STEPS (Stated Policies Scenario)	~3 ⁰ C	A scenario which reflects a 'base case' level of climate ambition, aligned with 'current stated and implemented' policies, such as the Paris Agreement, whilst also taking into account manufacturing capacity for clean energy technologies.
Medium ambition	IEA WEO APS (Announced Pledges Scenario)	<2 ⁰ C	A scenario which reflects a 'medium' level of climate ambition aligned with 'current stated and implemented' policies in addition to pledges without specific policy action, e.g. UK 2050 Net Zero targets. This scenario assumes that national energy and climate targets made by governments are met in full and on time.
High ambition	IEA WEO NZE (Net Zero Energy Scenario)	<1.5 ⁰ C	A scenario which reflects a 'high' level of climate ambition, aligned with the global economy reaching Net Zero by 2050. This includes policies on top of those included in the low and medium ambition scenarios. It requires a transformation of the global energy system, clean energy investment and innovation, and a rapid shift away from fossil fuels.
	NGFS Net Zero scenario
Spend in 2023 to deliver our Net Zero ambition
£3.2 million

Case Study

Customer:

International banana-growers

Sustainably boosting production and productivity in agriculture

Malvern Panalytical Smart Return Agriculture

Smart Return Agriculture is an innovative solution that combines a Vis-NIR sensor and a cloud-based platform that uses artificial intelligence to provide real-time predictive measurements in the field for leaf nitrogen levels, soils, disease, and fruit maturity. Nitrogen Mapping uses the proven Trek Product, for nitrogen analysis based on assay analysis in the field.

Challenge

Nitrogen is a vital nutrient for plant growth, but can also pose challenges for farmers and the environment. Applying too much nitrogen can lead to water pollution and greenhouse gas emissions, while applying too little can compromise crop yield and quality.

Solution

Smart Return Agriculture allows crop producers to measure the nitrogen content in plant leaves, and then generate a map that indicates the amount and location of nitrogen fertilizer levels for each field. By using advanced algorithms and data analytics, Smart Return provides data to make customised recommendations for the optimal amount, timing, and frequency of nitrogen applications. It also monitors crop health and performance throughout the growing season and alert crop producers to any potential risks enabling producers to reduce their costs, improve their income, and minimise their environmental impact.

Our work with one of our banana growers over the last two years has shown that they can save at least 20 to 30% on nitrogen fertilizer by using Smart Return Agriculture for real-time monitoring which allows them to make frequent adjustments to their fertilizer application plans.

The market and potential for Smart Return Agriculture is vast and promising. Smart Return Agriculture is currently geared toward high value crop applications, such as cereals, oilseeds, pulses, fruits and vegetables, and can target any crop.

The main drivers for the potential growth of Smart Return Agriculture are the increasing demand for high-quality crops, the rising adoption of precision agriculture practices, and the growing awareness of environmental issues.

Benefits

Smart Return Agriculture leverages its unique features and benefits to capture a significant share of the high value crop market and differentiate itself from competitors by expanding its potential through integration with other digital platforms and services, enhancing its value proposition. Smart Return Agriculture creates a loyal customer base by providing consistent and reliable results, enabling long-term relationships with the crop producers.

Smart Return Agriculture is also enhancing the sustainability of farming practices, by minimizing greenhouse gas emissions and water pollution associated with excessive nitrogen use, therefore contributing to the global goals of food security, climate action, and environmental protection.

Key

Short-term - 5 years (aligned to the 2023 Viability Statement)

Medium-term - to 2030 (aligned to Group 2030 Net Zero target and Science Based Targets)

Long-term - to 2050 (aligned to the Paris Climate Change Agreement)

^* Note on methodology: We have undertaken quantitative and qualitative analysis using climate change scenarios for risks and opportunities where; (1) data availability is sufficient; and (2) potential magnitude or likelihood deems further analysis appropriate. For the remaining risks and opportunities, a scenario agnostic methodology has been applied.

Risk or opportunity	Risk description and	Methodology ^*	Scenarios	Main	Main scenario	Strategic response
	potential financial impact		considered	scenario	time horizon
Physical risk:PR1	Flooding at our sites could lead to water damage to sites or equipment, interruption to business due to travel disruption, and capital expenditure required to increase resilience of sites. Estimated financial impact from flooding is <1% of operating profit per year up until 2050.	Quantitative analysis of estimated financial losses due to damage and disruption using financial input data and scenario data with support by PwC and Jupiter Intelligence.	<2 ⁰ C SSP1-2.6	>4 ⁰ C SSP5-8.5	Medium-term	• Local review of flood defence initiatives
Acute			2-3 ⁰ C SSP2-4.5			• Introduction of interactive physical climate risk dashboard at sites to enable effective monitoring of physical climate risks
			>4 ⁰ C SSP5-8.5			• In 2024, we will include the results of the climate modelling into our standard M&A processes
Physical risk:PR2	Extreme heat can reduce worker productivity or impact the performance of machinery without proper cooling equipment. Increased capital expenditure may be necessary to account for increasing high temperature (>35oC) days. Estimated financial impact from heat is <1% of operating profit per year up until 2050.	Quantitative analysis of estimated financial losses due to productivity losses, using data from Jupiter Intelligence.	<2 ⁰ C SSP1-2.6	>4 ⁰ C SSP5-8.5	Long-term	• Review of current HVAC capacity and building insulation capabilities
Chronic			2-3 ⁰ C SSP2-4.5			• Installation of onsite-renewables generation to increase resilience to demand-side shocks on the grid from extreme heat
			>4 ⁰ C SSP5-8.5			• Introduction of interactive physical climate risk dashboard at sites to enable effective monitoring and management of physical climate risks
						• In 2024, we will include the results of the climate modelling into our standard M&A processes
Opportunity: Products and	Development of products within growing 'low carbon' customer markets such as the electrification of vehicles and battery storage, in particular for Spectris Dynamics.	Qualitative analysis based on product groupings compared to Net Zero trends identified in each climate scenario.	~3 ⁰ C IEA STEPS	<1.5 ⁰ C IEA NZE	Medium-term	• Continued focus on Net Zero-aligned markets, in particular relating to transformation of mobility for Spectris Dynamics
services			<2 ⁰ C IEA APS
			<1.5 ⁰ C IEA NZE
Opportunity: Products and	Increasing demand for products that help customers reduce the emissions and energy intensity of their own production processes leading to higher revenues through demand for lower-emission products and services.	Scenario agnostic qualitative assessment of potential impact and likelihood.	Scenarios have not yet been considered for this opportunity assessment	Medium-term		• Continued rollout of product impact life cycle assessments (LCA) to embed sustainability criteria into R&D decision-making, currently underway at Servomex and PMS
servicesO2						• Targets to be Net Zero in scopes 1 and 2 by 2030, and by scope 3 in 2040, with a commitment to spend £3 million per annum towards our Net Zero ambition
Transition risk:TR1	Increasing input material costs driven by increasing impacts of carbon pricing (e.g. on materials such as steel and aluminium linked to CBAM) and increasing demand for materials directly linked to the Net Zero transition (e.g. lithium), leading to an increase in operational expenditure.	Qualitative analysis based on known purchased input materials compared to carbon pricing and demand impacts in each climate scenario.	~3 ⁰ C IEA STEPS	<1.5 ⁰ C IEA NZE	Medium-term	• Use of EcoFact to provide ongoing overview of changes in global sustainability legislation and regulation
Market			<2 ⁰ C IEA APS			• ESG Regulatory Steering Group will continue to oversee emerging regulations relating to carbon pricing e.g. the EU's Carbon Border Adjustment Mechanism (CBAM)
			<1.5 ⁰ C IEA NZE			• Feasibility review of implementing an internal carbon price
Transition risk:TR2	Reduced customer demand for 'higher carbon' products, particularly in a low-carbon scenario, driven by customer choice and regulatory pressure.	Scenario agnostic qualitative assessment of potential impact and likelihood.	Scenarios have not yet been considered for this risk assessment	Medium-term		• Continued rollout of product impact life cycle assessments (LCA) to embed sustainability criteria into R&D decision-making, currently underway at Servomex and PMS
Market						• Targets to reach Net Zero across scopes 1 and 2 by 2030, and scope 3 by 2040, with a commitment to spend a minimum of £3 million per annum towards our Net Zero ambition
Transition risk: TR3	Required investment to decarbonise direct operations leading to an increase in capital expenditure.	Scenario agnostic qualitative assessment of potential impact and likelihood.	Scenarios have not yet been considered for this risk assessment	Short-term		• Targets to reach Net Zero across scope 1 and 2 by 2030 and across scope 3 by 2040
Technology						• Net Zero Transition Plan to be developed in 2024 aligned to the Transition Plan Taskforce (TPT) Framework
Transition risk: TR4	Required investment to decarbonise logistics network and transition towards 'lower carbon' modes of transport, for example through the expansion of the EU-ETS into shipping. Logistics costs for Spectris could increase by up to 50% in a 1.5oC scenario as logistics partners invest in decarbonisation and are impacted by carbon pricing mechanisms. Quantitative analysis was conducted for Malvern Panalytical only, so a Group-level financial impact is not available.	Quantitative analysis considering current logistics costs and carbon pricing and pass-through costs in climate scenarios.	~3 ⁰ C IEA STEPS	<1.5 ⁰ C IEA NZE	Medium-term	• Continuing our progress to reduce airfreight (long and short haul) by 50% by 2030, see more on page 76
Technology			<2 ⁰ C IEA APS
			<1.5 ⁰ C IEA NZE
Opportunity: O3	Use of lower emission sources of energy and switching to renewable energy sources in operations leading to lower operating costs, increase energy security, and reduced exposure to energy taxes. Projected impact is < 1% operating profit per year up until 2050.	Scenario agnostic qualitative assessment of potential impact and likelihood.	Scenarios have not yet been considered for this opportunity assessment	Short-term		• Installation of renewable electricity generation at Malvern, Royston and Crowborough in 2023
Technology						• Introduction of energy saving measures at key sites
						• Targets to reach Net Zero across scope 1 and 2 by 2030 and across scope 3 by 2040
						• Net Zero Transition Plan to be developed in 2024 aligned to the TPT Framework

Resilience and Risk Management

The scenario analysis we have undertaken shows that without any action, climate change will impact our businesses to a varying degree in terms of both transition and physical factors. Up to 2030, our most significant risks are likely to be transition risks driven by increasing costs over time. These risks can vary significantly depending on the nature and speed at which countries act to align to a Paris Agreement trajectory and the subsequent development of Net Zero-aligned markets and technologies.

Resilience

Physical risks, which have limited impacts today, will present a growing challenge beyond 2030 as warming of the planet continues, particularly in a >4oC scenario. However, our decentralised operating structure allows for flexibility in site configuration over the medium- and long-term, preventing possible long-term financial impacts. Mitigating actions already in place also do not make these risks material to our operations. The addition of the interactive physical climate risk dashboard empowers our sites to incorporate climate resilience into their own operational decision-making.

By delivering on our Net Zero roadmap, we can mitigate many of the transition risks we face due to climate change. Our roadmap has been incorporated into our financial planning, which includes our commitment to spend £3 million per annum towards our Net Zero ambition. This will be further supported through the development of our Net Zero Transition Plan in 2024. Our focus on product and supply chain sustainability in 2023 and into 2024 will help to foster greater resilience to many of the transition risks identified as well as helping us to harness relevant opportunities. Read more about our Net Zero roadmap on page 62.

We are committed to working closely with all our stakeholders in taking action to combat climate change. Our focus on innovation and strong relationships with customers and suppliers will support our swift response to changing priorities to mitigate the risks present in the transition to a low carbon economy.

The challenges that we face on climate change are matched and potentially outpaced by opportunity. We recognise that the greatest difference we can make to a Net Zero world is through our products and solutions which support our customers to make the world cleaner, healthier and more productive.

Read more about our Strategy to maximise this opportunity on pages 22 and 23

Risk management

Our approach to identifying, assessing and managing the risks in our business is set out in the Principal Risks and uncertainties section on page 48. In 2021, climate change was designated a Group Principal Risk for the first time as a result of the scenario analysis undertaken to implement TCFD.

Risks are identified on an ongoing basis throughout the year. They are assessed and reported on a quarterly basis at a business level, via individual Business Risk Registers, maintained by Business Audit and Risk Committees, and via the Group Principal Risk Register at Group level.

The climate change Group Principal Risk is under the executive ownership of the Head of Corporate Affairs and Company Secretary and is underpinned by a series of controls and actions designed to mitigate risks from climate change which are aligned to our Net Zero roadmap. As a Group Principal Risk, key indicators and mitigation strategies relevant to climate change are reviewed three times a year by the Executive Risk Committee.

During 2023, the Executive Risk Committee has reviewed the progress against our Net Zero targets, alongside planned mitigation activity for the Group's other Principal Risks to ensure that our action plan is proportionate to the short-, medium- and long-term risk posed by climate change.

In 2023, focus has been on building a more detailed and quantified understanding of the impacts of transition risks, considering longer time horizons than our typical risk management processes, up to 2050. Division-level working groups were established who are now focused on determining key mitigating actions to addressing the results of the climate scenario analysis.

To support these efforts, in 2023, the ESG Regulatory Steering Group was established to aid our response to emerging regulations and use of the EcoFact database to support early understanding of the materiality of regulatory and reporting changes to the Group.

At Division level, each Business Audit and Risk Committee added relevant physical risks to their risk registers, informed by the physical climate risk dashboard which uses the latest climate projections to assess the materiality of physical climate risks at our sites up to 2050; this provides an accurate assessment of the risk currently posed by climate change to the Group. Any changes in risk profile are considered by the Sustainability Steering Group and material changes will then be escalated to the Executive Risk Committee.

In 2024, further planned risk management activity includes developing our Net Zero Transition Plan aligned to the Transition Plan Taskforce (TPT) framework.

Metrics and Targets

In 2023, we continued to progress against the metrics and targets set to support our Net Zero ambition and aligned to our Strategy for Sustainable Growth. We will continue to review the metrics and targets set to ensure their effectiveness at providing our businesses and our stakeholders with meaningful indicators of our progress, as well as addressing material risks and opportunities identified.

We have set a clear ambition to reach Net Zero across our own operations (scope 1 and 2) by 2030 and across our value chain (scope 3) by 2040, set against a 2020 base year. The 2030 targets accompanying this ambition have been validated by the Science Based Targets initiative (SBTi) against a 1.5 ⁰ C warming scenario.

Read more about our progress against this ambition on pages 62 and 63

The Group's 2023 Remuneration Policy also incorporates specific targets relating to the reduction in scope 1 and 2 emissions.

Read more about the alignment of our remuneration strategy with our Net Zero ambition on pages 102 to 123

As part of our commitment to transparency in our progress to lower our emissions, we disclose our annual emissions against all relevant categories of scope 1, 2 and 3. We also obtain limited assurance over scope 1 and 2 and selected categories of scope 3.

Full disclosure for 2023 and comparative disclosures are set out on pages 64 and 65In support of our Net Zero ambition, we have agreed several 'input' metrics which are focusing action across our businesses. All are measured against a base year of 2020. A summary of cross-industry metrics from TCFD that are relevant to us are set out on page 76. The alignment of the metrics and targets to risks and opportunities identified has been updated to reflect the climate scenario analysis completed in 2023.

In 2024, we will be exploring additional metrics and targets through the development of our Net Zero Transition Plan, whilst we continue to embed sustainability within our operations across the Group. We will also consider the feasibility and effectiveness of the introduction of internal carbon pricing.

Resilience and Risk Management

The scenario analysis we have undertaken shows that without any action, climate change will impact our businesses to a varying degree in terms of both transition and physical factors. Up to 2030, our most significant risks are likely to be transition risks driven by increasing costs over time. These risks can vary significantly depending on the nature and speed at which countries act to align to a Paris Agreement trajectory and the subsequent development of Net Zero-aligned markets and technologies.

Resilience

Physical risks, which have limited impacts today, will present a growing challenge beyond 2030 as warming of the planet continues, particularly in a >4oC scenario. However, our decentralised operating structure allows for flexibility in site configuration over the medium- and long-term, preventing possible long-term financial impacts. Mitigating actions already in place also do not make these risks material to our operations. The addition of the interactive physical climate risk dashboard empowers our sites to incorporate climate resilience into their own operational decision-making.

By delivering on our Net Zero roadmap, we can mitigate many of the transition risks we face due to climate change. Our roadmap has been incorporated into our financial planning, which includes our commitment to spend £3 million per annum towards our Net Zero ambition. This will be further supported through the development of our Net Zero Transition Plan in 2024. Our focus on product and supply chain sustainability in 2023 and into 2024 will help to foster greater resilience to many of the transition risks identified as well as helping us to harness relevant opportunities. Read more about our Net Zero roadmap on page 62.

We are committed to working closely with all our stakeholders in taking action to combat climate change. Our focus on innovation and strong relationships with customers and suppliers will support our swift response to changing priorities to mitigate the risks present in the transition to a low carbon economy.

The challenges that we face on climate change are matched and potentially outpaced by opportunity. We recognise that the greatest difference we can make to a Net Zero world is through our products and solutions which support our customers to make the world cleaner, healthier and more productive.

Read more about our Strategy to maximise this opportunity on pages 22 and 23