Annual Report • Mar 27, 2023
Annual Report
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Healthier. More productive. Spectris harnesses the power of precision measurement to equip our customers to make the world cleaner, healthier and more productive. Our Purpose Find out more online Our website provides a range of information about Spectris plc www.spectris.com 2022 Performance Sales 1 1,2 1 £1, 327.4m £222.4m £172.6m (2021: £1,163.0m) Change yoy 14% LFL 2 change yoy 14% (2021: £189.6m) Change yoy 17% LFL change yoy 14% (2021: £139.9m) Change yoy 23% 1,2,4 Adjusted operating margin 1,2,4 Statutory operating margin 1 74% 16.8% 13% (2021: 94%) Change yoy (20 pp) (2021: 16.3%) Change yoy 50 bps LFL (2021: 12.0%) Change yoy 100 bps Adjusted earnings per share 1,2 Basic earnings per share 3 75.4p 159.9p 373.1p (2021: 71.8p) Change yoy 5% (2021: 127.4p) Change yoy 26% (2021: 305.1p) Change yoy 22% Total recordable incident rate Employee engagement – Gallup GrandMean score 1. Following the divestment of the as a discontinued operation, the statements have been restated to 2. Alternative performance measures (‘APMs’) are used consistently throughout this Annual Report and are referred to as ‘adjusted’ or ‘like-for-like’ reconciled to the reported statutory measures in the appendix to the Consolidated Financial Statements on page 162. operations. 4. See more in the Key Performance Indicators section on pages 20 and 21. 0.27 3.86 (2021: 0.32) (2021: 3.72) (MWh per £m revenue) CDP score 58.2 B (2021: 73.7) (2021: B-) Strategic Report Financial Statements Additional Information 18 Our Strategy Read more about our Strategy for Sustainable Growth 60 Spectris Foundation Read a summary of the impact of the Spectris Foundation 40 Sustainability report Find out more about how we are delivering value for today and for the next generation of stakeholders Contents Spectris plc Annual Report and Accounts 2022 1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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. Our leading, high-tech instruments, equipment and software accelerate the reduction of emissions into the environment and develop technologies that drive our medicines that cure us and enable our customers to work faster, better, and 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 By going beyond our products to deliver the services and solutions our customers need, we build strong partnerships that drive innovation and growth over the long term. Our key markets (2022 percentage of Group sales) Life sciences/ Pharmaceutical 24% of sales (2021: 23%) Technology-led industrials 13% of sales (2021: 14%) Automotive 13% of sales (2021: 13%) Electronics and semiconductor 11% of sales (2021: 11%) Metals, minerals, mining 9% of sales (2021: 10%) Academic research 8% of sales (2021: 9%) Other 22% of sales (2021: 20%) Spectris plc Annual Report and Accounts 2022 2 Our organisational structure Our organisational structure Following the refocusing of the Group around premium precision measurement and Spectris Dynamics – comprising 87% of Group sales. Spectris Dynamics Comprising Malvern Panalytical and Particle Measuring Systems Comprising HBK A leader in advanced sensors and instruments used to Spectris Dynamics provides differentiated sensing, data acquisition, analysis modelling and simulation solutions to help customers accelerate product development and enhance product performance. % of Group sales 50% (2021: 46%) % of Group sales 37% (2021: 37%) LFL sales growth 18% LFL sales growth 7% Adjusted operating margin 21.3% (2021: 21.1%) Adjusted operating margin 15.0% (2021: 16.5%) Employees 3,130 (2021: 2,880) Read more on pages 22 to 25 Employees 3,510 (2021: 3,260) Read more on pages 26 to 29 Sales by location (%) 1 Asia 37 2 Europe 30 3 North America 29 4 ROW 4 Sales by business (%) 1 2 Spectris Dynamics 37 3 Other 13 1 2 3 4 1 2 3 Group sales 1 2 4 5 6 7 3 Sales by market (%) 1 Life sciences/pharmaceutical 24 2 Technology-led industrials 13 3 Automotive 13 4 Electronics and semiconductor 11 5 Metals, minerals, mining 9 6 Academic research 8 7 Other 22 Spectris at a glance Spectris plc Annual Report and Accounts 2022 3 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Chairman’s statement A leading sustainable business in our ability to deliver the next phase of our strategy. Since 2019, Spectris has been transformed into a more focused and higher quality business, 2022 has been another year of strong margin expansion, despite the supply chain for the Group’s products and services, with and good cash conversion, which alongside further divestment proceeds from the sale of Omega, saw the Group ending the year with a net cash position of £228.0 million payments based on affordability and sustainability. In 2022, we also implemented been completed. Strategy for Sustainable Growth spent the last four years refocusing and simplifying our businesses, creating a strong foundation on which to build. With the divestment of Omega, completed in July, generating more than £1 billion in proceeds and notably enhancing the quality of the Sales £1, 327.4m Dividend per share 75.4p an exciting new phase in our strategy.” Mark Williamson Chairman Spectris plc Annual Report and Accounts 2022 4 Chairman’s statement our new Strategy for Sustainable Growth. sustainable business, with premium targets were formally presented to investors the clear articulation of the quality of Spectris and the transformation of the Group in recent proposition was welcomed by investors who our technology and our people. We will continue to invest in M&A as an important component of our strategy to compound growth, enabling us to further portfolio to add value for our customers. number of customers, including a site visit In 2022, we completed several successful acquisitions and divestments, alongside an approach for Oxford Instruments, which we terminated due to a deteriorating economic pipeline of potential acquisition targets New performance targets to deliver long-term stakeholder value which aligns our remuneration structure Cathy Turner, Chairman of the Remuneration Committee, for her stewardship of this new Policy and our shareholders for their support engagement process. metrics into our remuneration structure have added, covering emissions reduction and employee engagement, are a clear demonstration of our ambition to deliver oversight of our sustainability ambitions, I am delighted that Alison Henwood has agreed to our exciting ambitions. Our people Our people are critical to the successful execution of our strategy. I was pleased to visit employees and to spend time informally with the wider teams in person. focus on meeting with employee groups in these meetings have been pivotal to the Group’s culture. Gallup employee engagement survey and meaningful progress being made in building employee engagement. Our engagement score has improved in line with our continue to build an inclusive and supportive culture where individuals can thrive and have the development and opportunity to meaningfully progress their careers. talented technical individuals is a core enabler of our growth ambitions as a Group. I am science, technology, engineering and maths including strategic partnerships with the Society of Hispanic Professional Engineers education platform supporting students’ development, is an exciting development which will bring the opportunities available through a career in Spectris to a new and wider audience. Summary and outlook for their continued dedication in delivering our strategy, which will advance our ambition to be a leading sustainable business, delivering cleaner, healthier and more productive. I am deliver on this ambition and I strongly believe Mark Williamson Chairman Section 172 statement Spectris plc Annual Report and Accounts 2022 5 STRATEGIC REPORT GOVERNANCE Market trends Pharmaceutical investment continues to grow, driven by demand for conventional and underpinned by onshoring activities, the application of analytics to improve drug pipeline regulatory focus on data integrity. A more connected and automated world demanding ever more advanced computing and data is underpinning growth. In a higher increased focus on enhancing processes and assets to drive improvements in productivity and yield is also supporting demand. electric vehicles, as well as new technologies for autonomous and increasingly connected vehicles. software is required to generate smarter insights early on and to develop products faster, more sustainable manner. Sales 2022 24 Sales 2022 13 Sales 2022 13 Expected medium-term market growth 5–7 Expected medium-term market growth 5–7 Expected medium-term market growth 4–6 Read more about Our portfolio is focused and aligned underpinned by strong sustainability healthier and more productive – aligned with our Purpose. Cleaner • Climate change and increasingly scarce resources require new solutions to solve the transition to cleaner energy and mobility solutions. Healthier • Ageing populations and a rising middle class in developing countries require greater healthcare provision, sciences / Pharmaceutical space. • Growing populations 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 Accelerating growth in our markets Spectris plc Annual Report and Accounts 2022 6 Andrew Heath Market trends Rising investment to satisfy infrastructure and greater processing power, combined such as 5G, internet of things and reshoring activities. 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, fuelling demand for digitally connected instruments and remote monitoring/analytics. Continued recovery in research funding is driving demand for advanced analytical and test systems, focused on developing next generation technologies for productive world. Includes other technology driven and general Industrial Automation/ Sales 2022 11 Sales 2022 9 Sales 2022 8 Sales 2022 22 Expected medium-term market growth 6–8 Expected medium-term market growth 5–6 Expected medium-term market growth 5–6 Expected medium-term market growth 3–5 Read more about Our Strategy Spectris plc Annual Report and Accounts 2022 7 STRATEGIC REPORT GOVERNANCE Chief Executive’s review Reshaped, stronger, positioned for sustainable growth for our customers, improved our business and supported each other, in a A strong performance in 2022 future and continuing to expand operating sales in 2023. 222.4m Adjusted operating margin 16.8% Investment in R&D 7.8% of sales performance and strategic progress in 2022. We continue people across the Group to deliver for our customers.” Andrew Heath Spectris plc 8 Chief Executive’s review sales from both volume and pricing changes, and no restructuring charges in the current than 12.0% reported for 2021. enabled the Group to deliver an increased deliver further, strong progress on margin expansion in 2023. We have delivered this robust margin performance alongside a 24% increase in strengthening our product pipeline, continue to see positive momentum including a strong start to 2023 supported seeing continued improvement in gross Our performance in 2022 demonstrates sustainable business. Underpinned by our Purpose and our people leaders, deep technical experts, innovative and the environment around them. people together behind a common purpose Organic sales growth Adjusted Operating margin expansion Adjusted Cash conversion ROGCE ESG Our Targets (2022 – 2027) 6-7% 20%+ 80-90% Mid-teens % Net zero – Scope 1 and 2 by 2030; Scope 3 by 2040 Engagement – 4.06 by 2025 2022 14% 16.8% 74% 16.0% Scope 1 and 2 – 17,546.0 tCO 2 e year-on-year reduction of 21.9% Engagement improved year-on- year by 0.14 to 3.86 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) Five 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 of all stakeholders – investment in growth through R&D and M&A. 5. Operational excellence Leveraging the Spectris Business System business improvement projects and our high-performance culture. Read more information on our strategy on pages 18 and 19 STRATEGIC REPORT Spectris plc 9 Chief Executive’s review businesses. Strategy for Sustainable Growth continuing to expand operating margins, as a leading sustainable business. the Group, to deliver: • • • • • engagement and business model is aligned to delivering 1. Great businesses precision measurement solutions and 2. Structural growth markets 3. Customer centricity leading, differentiated solutions, equipping and more productive. 4. Investing in growth 5. Operational excellence Great businesses focused on premium, precision measurement solutions measurement techniques for materials business, a global leader in advanced virtual leading brands and the breadth and depth aerospace, electronics and advanced Aligned with attractive, sustainable, structural growth markets fundamentals. healthcare demand; the climate crisis is causing customers to optimise production positions and differentiated products and is focused on the pharmaceutical, metals, minerals, mining, electronics and semiconductors, and measurement, domain expertise and • investment in both small molecule and biologics drug development, on shoring compliance. • investments in batteries, additive manufacturing, responsible resources • semiconductor manufacturing requiring environments. • Spectris Dynamics is focused on four customers and combine to offer the industrial infrastructure and personal audio. • Our virtual test solutions enable customers • measurement. Spectris plc 10 Chief Executive’s review • Our high performance data acquisition and manage vast amounts of test and • intelligence at the point of measurement. Our sensors are being used more and more through acquisitions, on the most attractive differentiated positions and a strong business more than doubled its revenues in Customer centricity: leading solutions to make the world cleaner, healthier and more productive adding value throughout our customers minimises carbon emissions and supporting the drive for sustainable mining operations. leader in delivering photonic innovations, cleanroom for contamination, ensuring the expertise helped them to understand the engineering services provider, in meeting Investing in growth through R&D deliver greater value. enhanced products. response to life sciences development and manufacturing investment, and for the cleanrooms for aseptic pharmaceuticals, semiconductor, and other industries. of 20nm. Customers served 67,000 R&D investment 103.8m Sales, application and service engineers 2,200 Our 2022 Year students and apprentices representing the Young STRATEGIC REPORT 11 Spectris plc Chief Executive’s review refreshing our existing portfolio of data to expand our simulation offerings, electrical supporting enhanced margins. We have revenue from products released over the of total sales. over the medium term, support and enhance Investing in growth through M&A We maintain an active pipeline of potential We have built up a solid team to execute • • • • • strengthen its secure data offering. our portfolio to add further value for Operational excellence: Spectris Business System driving productivity and competitiveness We continue to drive operational excellence from concept to an effective vehicle to deliver ongoing continuous improvement, both at immediate milestone operating margin target of over 20%. engineering apprentice at reached over 21,000 students to support education. 12 Spectris plc Chief Executive’s review on reducing leadtimes to support customer processes to enhance our operations, enabling margin expansion ambitions alongside driving Leading sustainable business future: • • on mental health, and for future talent are innovative pipelines, including partnerships diverse pools of talent. • of living challenges that are impacting • • engineering brighter futures for children nominated causes. provide humanitarian aid. Summary and outlook around the Group. remaining vigilant and alert to signs of strong progress on expanding margins and leading sustainable business. Andrew Heath “Our performance in 2022 programme in 2019.” Andrew Heath STRATEGIC REPORT Spectris plc 13 Customer: Excelitas Customer: 2bind GmbH Monitoring Airborne Molecular Contamination Accelerating drug discovery Challenge One of the most complex technical challenges for clean room manufacturing When this occurs, it can be detrimental to the entire manufacturing processes. Excelitas, the technology leader in delivering photonic innovations, is reliant on dedicated cleanrooms to meet the needs of its global to start monitoring its cleanroom for AMC levels of ambient acids and amines. Finding is of paramount importance. Particle Measuring Systems’ AirSentry II AMC Monitoring family of ion mobility spectrometers, detect small concentrations or changes point-of-use sensors provide fast response, increased detection and repeatable performance. In addition, the AirSentry customers to map different levels of contamination around their cleanrooms. point of use analysers to measure total amines and total concentrations on a 24x7 basis. Challenge Drug discovery has experienced great modern innovation and advancements over recent years. However, it is still challenged and limited by the length of time, high risk and high development costs – making target and highly complex. 2bind is one of the world’s leading service providers of biophysical analytical services. development of drugs, antibodies, proteins, RNA, DNA and aptamers by developing methods and assays. CreoptixAG (a Malvern Panalytical company) and 2bind share the same mission of improving technologies and biophysical partnership to offer customers the highest quality research tools to help them supports 2bind to expand its service portfolio with the innovative Creoptix WAVE product and provides Creoptix with a highly provider and beta-tester for future technology developments. accelerate further drug discovery Customers are at the heart of PMS’ business. Its dedicated team of application engineers also assisted Excelitas with on-site startup and calibration. With PMS’ and specialty equipment, to enable defect- free manufacturing. interactions due to its exceptionally high sensitivity and resolution. Sitting adjacent to the WAVEsystem on the 2bind analytical bench is Malvern Panalytical’s Microcal ITC – both working hand in hand in 2bind’s drug lead generation process, sifting through molecules at a fast and highly sensitive rate. during the lead generation and optimization receive the full picture across a number of service areas including drug discovery, fragment-based drug discovery, protein biophysics, antibody development, aptamer research and RNA-based drug discovery. “We are pleased that our production Deb Casher Case studies Cleaner Healthier More productive Cleaner Healthier More productive Spectris plc 14 Customer: HORIBA MIRA Reducing automotive environmental development impact Case Studies continued Challenge and is increasingly reliant on virtual product the desire and expectation to contribute to a more sustainable future, but is also a result development time and cost is driving engineering teams towards greater use of virtual models into their development and comparison of design proposals and engagement of key suppliers earlier in the process to accelerate development and minimize waste. Leading automotive engineering services provider, HORIBA MIRA has invested heavily in the evolution of its engineering capability and in the development of the MIRA Technology Park, Europe’s leading mobility R&D location for developing the latest automotive technology. To further advance its existing capabilities, HORIBA MIRA’s Vehicle Attribute Development team has added a DiM250 dynamic simulator to its earlier investment in VI-grade simulators to driver-centric and qualitative vehicle attribute engineering. HORIBA MIRA, is guided by its purpose to ‘improve lives by making journeys safer, OEM and key customers with turnkey engineering services – from the initial pre-programme phase through to series production. HORIBA MIRA’s attribute engineering process is focused on the development of its new driver-in-the-loop capability, which incorporates the driver’s subjective assessments at the earlier, virtual stage of the design cycle. reputation as the leading partner of investment further strengthens our Graeme Stewart Cleaner Healthier More productive STRATEGIC REPORT Spectris plc 15 Our Business Model 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. Our business model is driven by our Purpose and built on our Values 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. Purpose-led Great businesses Asset-light businesses focused on premium, precision measurement solutions and industry-leading domain expertise, aligned with our Purpose. Investing in growth Disciplined capital allocation for investment in growth through Structural growth markets Aligned with attractive, sustainable, structural growth markets with high barriers to entry. Operational excellence Leveraging the Spectris Business System (‘SBS’), business improvement projects and our high-performance culture. Customer centricity Solving customer challenges with leading, differentiated solutions, equipping them to make the world cleaner, healthier and more productive. Investing in our People Global team of talented individuals, many of them engineers and scientists, working towards our Purpose. Delivered through our business model Spectris plc Annual Report and Accounts 2022 16 Our Business Model For more information on our approach to sustainable growth, see the Sustainability Report on pages 40 to 59 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 our values and meets the expectations of 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 relationship with us, working together with Our society We are committed to creating a positive legacy in our communities and for the next generation. will enhance and improve our charitable giving to support quality access Our shareholders We work to ensure the long-term success of enhanced shareholder value through our 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 environmental impact. We are also making strong progress in our ambition to become operations by 2030 and across our Value Chain by 2040. Spectris plc Annual Report and Accounts 2022 17 STRATEGIC REPORT GOVERNANCE Our Strategy Our strategy for sustainable growth 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 Organic sales growth 6–7% through the cycle Adjusted operating margin expansion 20%+ Adjusted cash conversion 80–90% Return on Gross Capital Employed (‘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 Spectris plc Annual Report and Accounts 2022 18 Our strategy 01 Great businesses 02 Structural growth markets 03 Customer centricity 04 in growth 05 Operational excellence We are owners of world-class precision measurement businesses with industry- leading domain expertise. Divisions are fully aligned with our purpose to make the world cleaner, healthier and more productive. We are concentrated in structural growth, underpinned by sustainability themes and through the cycle, underpinning our organic growth. Our focus on solutions direct relationship drives customer-backed innovation, informing our research and product development strategy such that we intercept our customers' needs, allowing greater value. We leverage our strong balance sheet to deliver growth. We are driving organic growth through investment in research and development and problem solving with the customer in mind. We are compounding this growth through investment in our portfolio to add value across We are leveraging the Spectris Business System to continuously drive operational excellence to improve productivity. We are investing in new systems to improve processes and we continue model to remove structural margin ambitions. Read more in our Division reviews on pages 22 to 29 Read more about our markets Read more in our customer case studies on pages 14 to 15 Read more in the Chief Executive’s report Read more in our Division reviews on pages 22 to 29 Our progress is underpinned by our investment in Our People Read more about Our People on page 42 Spectris plc Annual Report and Accounts 2022 19 STRATEGIC REPORT GOVERNANCE Key Performance Indicators Measuring our performance We monitor progress against the delivery of Our Strategy for Sustainable Growth is centred on long term performance because they exclude foreign exchange Financial Like-for-like sales growth (%) 2 022 2 021 2 020 2 019 2 018 9.7 13.6 -10.7 0.4 5.2 Like-for-like (‘LFL’) sales growth Performance Link to strategy and objectives We are customer focused and where we are best placed to Link to remuneration 1 (%) 2022 2021 2020 2019 2018 94 74 141 91 59 Cash conversion Performance generated from the increased principally results from an ensure critical component supply to support customer deliveries and spent on the purchase of the new Link to strategy and objectives We have an asset-light business cash generation enables us to reinvest in our businesses and provide capital returns to our Link to remuneration Adjusted operating margin 1 (%) 2 022 2 021 2 020 2 019 2 018 16.8 13.0 16.3 15.8 15.5 Adjusted operating margin Performance the higher sales volumes and a labour and overheads and Link to strategy and objectives Our aim is to deliver strong operational leverage and drive Link to remuneration Growth in adjusted EPS 1 (%) 2022 2021 2020 2019 2018 26 -33 26 2 7 Adjusted earnings per share growth for the year to the weighted average number of ordinary shares Performance the lower share count following Link to strategy and objectives We are focused on improving is to achieve year-on-year growth Link to remuneration Great Businesses Link to Strategy Link to Remuneration Spectris plc 20 Key Performance Indicators Return on gross capital employed 1 (%) 2 022 2 021 2 020 2 019 2 018 9.9 13.2 16.0 13.5 13.7 Return on gross capital employed (‘ROGCE’) is calculated as net assets excluding net cash and excluding accumulated amortisation and impairment of acquisition-related intangible assets Performance Link to strategy and objectives both organically and via Link to remuneration (MWh per £m revenue) 2 022 2 021 2 020 2 019 2 018 92.2 73.7 58.2 72.0 66.5 Performance attributable to the initial impact in place at material operating sites Link to strategy and objectives Our sustainability strategy sets of the sources of energy with the aim of reducing our carbon emissions and improving our Employee engagement (GrandMean) 2 022 2 021 3.86 3.72 Employee engagement Performance global engagement survey with implemented a number of real difference to how our people Link to strategy and objectives engagement is a strategic Link to remuneration Total recordable incident rate 2022 2021 2020 2019 2018 0.27 0.13 0.32 0.24 0.28 Total recordable incident rate Performance to health and safety in each business and the prioritisation Link to strategy and objectives High safety standards protect sustainable growth through details of our approach to health Scope 1 and 2 emissions (tonnes CO 2 e) 2022 2021 2020 2019 2018 17,546.0 43,111.0 31,703.0 52,740.0 82,861.0 Scope 1 and 2 emissions reduction (market-based) Performance Since launching our ambition we emissions through a combination employee-led activities and the transition to renewable energy of our portfolio of businesses and also the impact of our Link to strategy and objectives We are committed to being a the delivery of our own emission Link to remuneration Great Businesses Link to Strategy Link to Remuneration Spectris plc 21 STRATEGIC REPORT Our Businesses Great businesses: leaders in premium, precision measurement Making the invisible... visible Advanced measurement techniques for materials analysis Delivering above market growth with strong sustainable margins Mark Fleiner Spectris plc 22 Our businesses Strongly positioned in high growth end markets supported by sustainability trends Life Sciences demand for our facility environmental Material Sciences – primary materials and service revenue opportunity in this sector Material Sciences – advanced materials for material characterisation and deep Semiconductor Sales into semiconductor and electronics Academia Providing critical material insights and solving customer challenges instruments to meet their contamination Sales by location 1 2 3 4 Sales by end-user market 1 2 3 4 5 6 7 1 2 3 4 1 5 6 7 2 3 4 STRATEGIC REPORT 23 Spectris plc Our businesses Investing for growth: R&D is driving growth and market share gains an immediate response to detected contamination and quickly provides key Investing for growth: compounding growth through M&A Operational Excellence Summary 2022 Statutory sales (£m) 657.8 531.2 24% 18% 1 (£m) 140.0 112.2 25% 24% Adjusted operating margin 1 (%) 21.3% 21.1% 20bps 90bps 118.3 94.2 26% Statutory operating margin (%) 18.0% 17.7% 30bps STRATEGIC REPORT Spectris plc 24 Our businesses Geological Survey of Finland Accelerating the green transition to a carbon-neutral world Challenge composition and environmental conditions. Jouko Nieminen Find out more online For more examples of how we help our customers to make the world cleaner, healthier and more productive visit www.spectris.com 25 Spectris plc STRATEGIC REPORT STRATEGIC REPORT Our businesses the innovators Spectris Dynamics process improvement and Ben Bryson Spectris plc 26 Our businesses Well positioned in attractive markets Automotive innovation and need to accelerate the the virtual test and physical test domains manufacturers of premium electric vehicles for advanced driver assistance systems Industrials and infrastructure their production processes and deployed Aerospace and defence of the current capital investment cycle in civil Consumer electronics and telecoms Investing for growth: R&D is driving growth and market share gains customer intimacy from our domain and measurement requirements as their Investing for growth: compounding growth through M&A Sales by location 1 2 3 4 1 2 3 4 1 2 7 6 3 4 5 Sales by end-user market 1 2 3 4 5 6 7 STRATEGIC REPORT Spectris plc 27 Our businesses in the construction and port equipment open standard functionality and commonality Operational excellence to drive margin expansion Summary Spectris Dynamics 2022 Statutory sales (£m) 492.2 425.5 16% 7% 1 (£m) 73.6 70.3 5% Adjusted operating margin 1 (%) 15.0% 16.5% 46.5 45.6 2% Statutory operating margin (%) 9.4% 10.7% STRATEGIC REPORT Spectris plc 28 Norwegian Geotechnical Institute Ensuring safe and affordable generation of green energy for the future Challenge Our businesses Find out more online For more examples of how we help our customers to make the world cleaner, healthier and more productive visit www.spectris.com 29 Spectris plc STRATEGIC REPORT STRATEGIC REPORT Financial review “We are innovating for growth supported by a strong balance sheet.” Derek Harding Financial performance driven by strategy execution Sales £1, 327.4m (2021: £1,163.0m) Change yoy 14% LFL 1 change yoy 14% £222.4m (2021: £189.6m) Change yoy 17% LFL 1 change yoy 14% Return on Gross Capital Employed 16.0% (2021: 13.2%) Change yoy 280bps Strong sales growth of 14% driven by market share gains and pricing. to £401.5 million and a strengthened order book up 36% year on year. Financial performance Sales increased by 14% or £164.4 million to £1,327.4 million (2021: £1,163.0 million) on a segment, disposed during the year, is treated as a discontinued operation in accordance statement for both 2022 and 2021. LFL sales increased by £149.7 million (14%), with the impact of disposals, net of acquisitions, reducing sales by £38.3 million (-3%) and foreign exchange movements increasing sales by £53.0 million (5%). (2021: £139.9 million). Statutory operating margin of 13% was 100bps higher than 2021 additional volume. acquisitions, reducing adjusted operating exchange movements increasing adjusted In line with expectations, no restructuring costs were incurred in 2022 (2021: £10.2 million). Net transaction-related costs and fair £19.0 million) relating to the three acquisitions completed during the year, plus the costs associated with potential acquisitions which were not completed in the year. of process redesign and improvement enabled by implementing the latest SAP cloud-based systems across the Divisions, incurring costs of £21.7 million in the year (2021: £7.0 million). Consistent with the prior year, these material SaaS projects are amortisation of acquisition-related intangible assets in the year (2021: £13.3 million). Adjusted operating margins increased by 50bps, while LFL adjusted operating margins Spectris plc Annual Report and Accounts 2022 30 Financial review operating cost improvements offsetting a decline in gross margins and increased LFL adjusted gross margins reduced in the year by 160bps to 56.9% as price increases implemented during the year were not during the course of the second half and we expect further progress during 2023. LFL adjusted overheads increased by 9.1% sales, with headcount remaining broadly limited to supporting growth in the full year. overheads, amounted to £103.8 million or 7.8% of sales (2021: £83.8 million or 7.2% of sales). and discontinued operations after tax of £401.5 million (2021: £346.9 million) includes of £286.7 million comprising £10.2 million 2021 included £226.5 million in relation to the Technologies and other disposals, reported as value of the debt instrument investment with charge of £17.3 million (2021: £7.4 million credit) includes £14.6 million of unrealised losses on intercompany loan balances (2021: Dollar and Euro, particularly in the second half Major Acquisitions We will maintain a disciplined approach to with leverage between 1-2x EBITDA through the cycle. In certain circumstances, we would be prepared to borrow more than 2x EBITDA and certain path to de-lever back below this level within a short period of time. consideration of £37.0 million, made up of £37.3 million gross consideration (consisting of £35.1 million of cash paid and £2.2 million of contingent consideration) less £0.3 million of cash acquired. Creoptix has been integrated consideration of £8.7 million, made up of contingent consideration recognised on this into the Red Lion Controls business. 100% of the share capital of Dytran for net consideration of £69.6 million, made up of £70.5 million gross consideration in cash less contingent consideration recognised on this acquisition. Dytran is being integrated into the Spectris Dynamics Division. Disposals was $529 million (£417.9 million equivalent). £293.9 million, which has been included in disposed of any other businesses in the year. Consistent with IFRS 5, the Omega business after tax from the discontinued operations £10.2 million for the six months of ownership (2021: £11.3 million for the twelve months of 2022 £m 2021 £m 172.6 139.9 Restructuring costs – 10.2 Net transaction-related costs and fair value adjustments 8.3 19.0 Depreciation of acquisition-related fair value adjustments to property, plant and equipment 0.2 0.2 on material SaaS projects 21.7 7.0 19.6 13.3 222.4 189.6 GFEDCBA Sales (£m) YoY A 2021 Change B Disposals (6%) C 2021 organic D Currency E LFL 14% F Acquisitions G 2022 14% 1,163.0 1,097.1 1,327.4 (65.9) 53.0 149.7 27.6 1,200 1,100 1,000 900 800 1,400 1,300 HGFEDCBA A 2021 B Disposals C 2021 organic D Currency E F Overheads G H 2022 189.6 184.1 0.2 222.4 (5.5) 12.5 67.5 (41.9) 120 180 300 240 (£m) 2022 £m 2021 £m 222.4 189.6 Adjusted depreciation and software amortisation 1 39.6 34.9 (54.1) (12.9) Capital expenditure, net of grants related to capital expenditure (44.1) (33.5) 163.8 178.1 74% 94% 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. STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 31 Financial review increases were strong across all regions, especially in North America and China, offset by higher material and labour costs. Further details of this disposal are provided to £163.8 million during the year, resulting in (2021: 94%). increase in inventories due to the high order book and safety stocks required to ensure critical component supply into 2023 with increased trade receivables offset by trade capital expenditure by £15.3 million and contributing to the net decline in adjusted Capital expenditure during the year of to 3.3% of revenue (2021: 2.9%) and was 111% of adjusted depreciation and software amortisation (2021: 96%). During the year ended 31 December 2022, 6,439,493 ordinary shares were repurchased £300 million share buyback programme announced on 19 April 2022, resulting in transaction fees of £1.2 million. During the year ended 31 December 2021, 5,596,739 ordinary shares were repurchased £200 million share buyback programme announced on 25 February 2021, resulting transaction fees of £1.3 million. work performed by the Spectris Foundation by supporting the ongoing running costs through additional donations of £0.1 million Financing and treasury retained earnings and, where appropriate, from third-party borrowings. Total borrowings as at 31 December 2022 were £0.1 million (2021: nil). £0.1 million, resulting in a net cash position of from £167.8 million at 31 December 2021. consisting entirely of a $500 million multi- at 31 December 2022 (2021: undrawn). income for covenant purposes of £0.1 million, resulting in the interest cover ratio being n/a covenant interest cover requirement is 3.75 interest, tax and amortisation divided by net earnings before interest, tax, depreciation, and amortisation divided by net cash) was less than zero (31 December 2021: less than zero), revenue across its business and performed determine the extent of downturn which breach of banking covenants. Revenue would have to reduce by 31% over the period under take into account further mitigating actions event of a severe and extended revenue decline, such as cancelling the dividend or the level of its current facilities, as set out above, without the need to obtain any Following this assessment, the Board of for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis the Consolidated Financial Statements. Currency 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 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 reasonable certainty of an exposure. At 2022 £m 2021 £m Tax paid (46.8) (32.2) 0.5 (2.9) Dividends paid (78.6) (79.0) (191.0) (201.3) (114.7) (135.5) (2.9) – Transaction-related costs paid (6.5) (26.5) Proceeds from disposal of equity investments – 38.3 365.4 333.7 (21.7) (5.9) Lease payments and associated interest (16.4) (14.8) Restructuring costs paid (7.6) (11.9) 0.2 0.3 (120.1) (137.7) 163.8 178.1 7.3 22.6 9.2 (1.3) Increase in net cash 60.2 61.7 Spectris plc Annual Report and Accounts 2022 32 Financial review estimated transactional exposures for 2023 exchange contracts, mainly against the Euro, shows the average and closing key exchange rates compared to Sterling. During the year, currency translation effects £12.5 million higher (2021: £10.2 million lower) than it would have been if calculated using prior year exchange rates. Transactional foreign exchange gains of were included in administrative expenses, whilst sales include a loss of £4.3 million exchange contracts taken out to hedge transactional exposures in respect of sales. Pensions 2022 was £8.9 million, a reduction of £13.4 million versus the £22.3 million liability in movements in market discount rates. Other Non-reportable Operating Segments reportable segments are detailed on the following pages in accordance with IFRS 8. businesses are reported within the Other non-reportable operating segments. On a statutory basis, sales for the segment (2021: £206.3 million) due to 2021 disposals increased by 14% resulting from increased volume and strong price discipline. was £27.2 million (2021: £26.2 million), an increase of 4% (16% LFL), with an adjusted operating margin of 15.3%, an increase of from the extra sales drop through, the pricing strategy, a focus on the product portfolio, improved operational performance and strong cost control. and lower transaction-related costs, with 550bps to 14.8%. Red Lion Controls contributed to the sales increase with a combination of volume the volume growth was in North America, has positively contributed to the operating margin in 2022. Servomex had a record year for orders received in 2022, mainly driven by the growth in its leading gas analysis products within the industrial gas and semiconductor markets. growth and pricing and maintained its level 2022 2021 (average) Change 2022 (closing) 2021 (closing) US Dollar (USD) 1.24 1.38 (10%) 1.21 1.35 (10%) Euro (EUR) 1.17 1.16 1% 1.13 1.19 (5%) 8.30 8.87 (6%) 8.31 8.57 (3%) Sustainability at the core “As Group Finance Director I am our net zero commitment. appropriate accounting judgements Derek Harding STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 33 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. which delivers visibility and accountability internal control framework, as described 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 Committee and reviewed by the Audit and Business unit risk management assessment of risk across their markets, processes and operations, including a consolidation of any emerging risks that should be formally evaluated. We operate quarterly, represent a key component of the second line of risk management (see page 35) matters, internal control, risk management, and other areas of compliance. Risk management Our approach with each risk assessed in terms of gross and net impact and likelihood. Key mitigations, owners and are subject to regular operational review as well as independent assurance where appropriate. Group risk management strengthened by the establishment of an is to ensure appropriate management of the Control function enables the risk management consistent with the four lines of risk management model described on the following page. a continuous top-down assessment of risk throughout the year, informed by the approach established at each of the 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 emerging risks on an annual basis. assessed in terms of its gross and net severity, Our risk management approach includes the consideration of emerging risks, whether scope, such as climate change and environmental matters. In recognition of the importance of climate change and our increased understanding of climate change was added as an additional how climate-related risks will be managed on an ongoing basis are described on page 56. During 2022, we have seen an increase in gross risk in a number of areas, including political and market risk, cyber threat and and we continue to review the effectiveness identify further actions where appropriate in In terms of the net risk rating, geopolitical risk has been reassessed from Moderate to High in view of the increased potential for this risk whilst in respect of compliance risk the continued work to strengthen our controls framework and to further embed the Spectris reassessment of the net rating from High to changes to the net risk ratings are required. Spectris plc 34 Risk management risk management model. First line Second line development of a standardised approach application of business processes and activities and for taking a holistic view of risk, to determine which risks are of principal assurance over the effectiveness of the undertaken by Internal Audit on behalf of Fourth line entire risk management framework, holding accountable those responsible for all activities within the three lines of defence. Fourth line oversight Independent assurance policies, processes and controls First line Ownership and control Oversight and independent assurance Board – Audit and Risk Committee – External Audit Executive Risk Committee – Internal Audit/Other Assurance Business Audit and Risk Committees/ Group Corporate Functions Employees and Managers in each business Group Principal Risks Operational Risks STRATEGIC REPORT Spectris plc 35 Principal risks and uncertainties Managing our principal risks Risk appetite • Highly cautious • Cautious • Balanced • Opportunistic • Highly opportunistic Increase Decrease Change in rating Risk assessment scale • • • Moderate • High • likelihood of a risk occurring, net of mitigation activities Strategic transformation Cyber threat demands for ransom payments and inadvertent/intentional electronic leakage of critical data. Link to strategy • • Aligned to structural growth markets • Customer centricity • • Link to strategy • Customer centricity • Risk assessment Moderate Risk assessment High Change in rating Change in rating Risk appetite Balanced Risk appetite Cautious Impact Impact Our day-to-day activities are inherently aligned to the managing some of the more transformative elements of mergers and acquisitions, growth initiatives including capital constantly changing, becoming more sophisticated and unpredictable. With the introduction of data privacy regulatory information security breaches occurring across a wide range cautious approach to safeguarding its information assets. Mitigation Mitigation • the strategy • Deployment of the Spectris Business System • Continued review of acquisition/merger pipeline, integration processes and capability • • • Information security and data privacy policies and controls • Cyber risk assurance undertaken by Internal Audit • • cyber threat • • • Intelligence services to gain a deeper understanding of threat landscape to Spectris Spectris plc 36 Principal risks and uncertainties Compliance Geopolitical Material adverse changes in the geopolitical environment putting heightened tension between trading parties or blocs. Material adverse changes in market conditions, such as economic Link to strategy • Customer centricity • Link to strategy • Aligned to structural growth markets • Customer centricity • Link to strategy • • Aligned to structural growth markets • Customer centricity • Risk assessment Moderate Risk assessment High Risk assessment High Change in rating Change in rating Change in rating Risk appetite Cautious Risk appetite Balanced Risk appetite Balanced Impact Impact Impact We operate in many jurisdictions and, as a consequence, are controls, data privacy, fair competition and anti-bribery and representatives could result in civil or criminal liabilities, leading 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 continually monitor the geopolitical landscape 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 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 Mitigation Mitigation Mitigation • • • procedures and training • Contract review and approval processes • • • Working groups and sub-committees to limit the impact of Committee • Operate in a broad spread of geographical markets and end users • • Maintain a strong balance sheet • • Maintain a strong balance sheet • Operate in a broad spread of geographical markets and end users • • STRATEGIC REPORT Spectris plc 37 Principal risks and uncertainties Talent and capabilities Business disruption Climate change region/location, or via a critical supplier. change risks or failure to identify the associated potential opportunities in assisting others manage their climate agendas. Link to strategy • • Customer centricity • • Link to strategy • Link to strategy • Aligned to structural growth markets • Customer centricity • • Risk assessment Moderate Risk assessment Risk assessment Moderate Change in rating Change in rating Change in rating Risk appetite Balanced Risk appetite Cautious Risk appetite Balanced Impact Impact Impact right people to achieve our operational and strategic targets. delivering our current business requirements and strategic goals, areas of focus are leadership, engineering and entry level roles. businesses provides a degree of natural hedging from importance of proactively ensuring a consistent and effective success of our business through market regulation and 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 • performance and talent management processes • Annual organisation capability review process • Appropriate incentives with benchmarking at all levels • • development of talent pipeline • Common policy and enhanced standard for business • • • • • Strategy built around sustainable growth • • • • Climate physical risks monitored and reported by each business • Aligning strategy with current and emerging sustainability thematics Spectris plc 38 Viability statement Longer-term viability of the Group term prospects and also the viability of the Company over Analysis of business prospects 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 • Alignment with structural, sustainable growth markets with high barriers to entry; • • 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 its business model, future performance, solvency or liquidity. balance sheet and ongoing support from its banking group, the same amount and with the same covenant requirements. As part of their assessment, the Directors have considered instances, the Directors have included mitigation actions as part of the assessment, including cost reduction, reduced from a major disruption. mitigating actions would be undertaken to reduce overheads during the period as sales declined and, on that basis, a fall in assessment period) would be required before such a breach scenario to be remote and further mitigation, such as suspension of dividend payments or a reduction in planned conditions indicated that such an outcome were possible. Viability Statement Based on the outcomes of the viability assessment, the able to withstand the impact of each of these scenarios, in isolation and in a number of plausible combinations, should its obligations and liabilities as they fall due over the period to Scenario modelled Link to Principal Risks Scenario 1: Reduction in sales events that could notably impact planned sales performance, either in disruption events similar to but more severe than the impact of the • Strategic transformation • • • Compliance • Cyber threat • Climate change Scenario 2: increases cannot be passed on to which fails to deliver anticipated privacy laws and regulations. • Strategic transformation • Compliance • • • Cyber threat • • Business disruption • Climate change Scenario 3: Trading disruption/exclusion from market operating companies might be debarred from or otherwise as well as a major disruption in a critical operation caused by, for • Compliance • Cyber threat • STRATEGIC REPORT Spectris plc 39 Sustainability Within Spectris, sustainability has a really simple meaning. It means that in everything we do we are asking ourselves – how are we building our company for the future? By asking this question we create value, not only for stakeholders today, but for the stakeholders of tomorrow. In 2022, we have advanced our ambition to become a leading sustainable business. Building a sustainable future Spectris plc Annual Report and Accounts 2022 40 Total carbon emissions (tonnes CO 2 e) 1 17, 546 (2021: 31,703) Gender diversity in leadership population 20.3% (2021: 18.6%) Ethics: number of helpline reports 44 (2021: 40) Total number of students reached by the Spectris Foundation 21,698 Total use of renewable energy 22.6% (2021: 10.9%) Total recordable incident rate 0.27 (2021: 0.32) Supplier spend rated via EcoVadis 36.5% (2021: not calculated) Total donations agreed by the Spectris Foundation £598,858 Renewable energy in the UK 100% (2021: 95%) Safety observations 8,900 (2021: 5,243) (MWh per £m revenue) 58.2 (2021: 73.7) Access to an employee assistance programme 82.2% (2021: >75%) Find out more about Spectris Foundation online www.spectrisfoundation.com Sustainability Our people development, inclusion and mental health. Our society Our value chain Our planet products and services that reduce our Origional colour way Origional colour way STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 41 Sustainability continued . inspire our people towards that shared Shared Values Our value Be True to Own It Aim High, the collective efforts of our people. Connecting and inspiring our people for a healthy, high-performance culture Spectris plc Annual Report and Accounts 2022 42 Sustainability continued Employee turnover 2022 2021 2020 2019 2018 13.5% 1 15.6% 13.6% 11.4% 14.2% redundancies. Inspire and Engage of our people. Develop Ascend. Based on our leadership model, content.” Ascend attendee Total 0,000 0,000 % of total 00 00 Grand total 0,000 3 2021 2022 3.72 3.86 4 5 Employee engagement (GrandMean) Case study Developing our approach to Talent from our people that our approach out our enhanced approach to talent Our Leadership Model Inspire Strengthen Grow STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 43 Sustainability: Connecting and inspiring our people continued Case study In my shoes Inclusion and Belonging from those differences. A culture of inclusion Employees by gender and role Board Leadership Community 6 3 Total 9 (2021: Men: 7 Women: 3) 48 12 Total 60 (2021: Men: 54 Women: 11) Executive Committee Wider employee population 5 2 Total 7 (2021: Men: 5 Women: 3) 5,013 2,595 Total 7,608 (2021: Men: 5,048 Women: 2,657) Gender pay gap reporting Bonus pay gap: Mean 37.2% (2021: 42.5%) Gender pay gap: Mean 21.7% (2021: 23.2%) Bonus pay gap: Median 31.6% (2021: 19.9%) Gender pay gap: Median 18.6% (2021: 19.0%) Group Inclusion Framework Our Vision Why are we acting now? Our promise Our organisational model Our impact To ensure all voices are heard and included Everyone Executive working group on inclusion (Chaired by CFO) Inclusion Group Managers perspectives Further detail is set out in the Remuneration Report Spectris plc Annual Report and Accounts 2022 44 Sustainability continued Read more about Spectris Foundation STEM: Developing our future talent pipeline the world cleaner, healthier and more productive. such as technical research, communication, and critical were most proud of in their own careers and their advice Young Professionals Developing diversity Underpinned by: Origional colour way Our STEM strategy focuses primarily on A Level and University students and graduates. improve access to a quality STEM education. STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 45 Sustainability continued highest ethical standards Ethics Number of helpline reports received 2022 2021 2020 2019 2018 44 40 37 54 25 and actions we want to see at underpins our values and sets clear Business Ethics was carried out across Speak Up Reports are assessed and appropriate commitment to address all concerns made improvement plan (1 person)) and termination with cause (2 people). Human Rights consistent with the Core Conventions of Find out more online Find out more about Our Code Read more about our policies on Human Rights and Modern Slavery at Spectris plc Annual Report and Accounts 2022 46 Sustainability continued Health and Safety Read our Group Health and Safety policy here Prioritising mental health important that we create an environment mental health is valued, promoted and 8,900 Case study Global deployment of Benchmark database improvements. We are proud of the Case study Our ISO 45001 journey proud of the dedication of the teams who have led the Ben Bryson Total recordable incident rate 2022 2021 2020 2019 2018 0.13 0.32 0.27 0.24 0.28 Read more about our policy and approach to mental health at www.spectris.com/mentalhealth STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 47 Sustainability continued Our ambition: Spectris operations (Scope 1 and 2 emissions) Our value chain (Scope 3 emissions) Reaching Net Zero Our roadmap our current emissions footprint across our value chain and committed a minimum of £3 million per annum to fund 1 and 2 roadmap. With the support of Schneider Electric, we tonnes CO 2 in 2023. Key activity in 2022 • • • • • • Planned activity for 2023 • (Almelo) • • • Mike Proctor, Read our full Net Zero roadmap at www.spectris.com/netzero Our progress against our scope 1 and 2 (market-based) emissions as set out in our roadmap Scope 1 and 2 – Our Roadmap 100% 50% 0% Net Zero 13% 45% 16% 2% 9% 14% 1% * In addition to existing self-generation at Malvern and Eindhoven 100% Where we are now (2020) Self generation at owned sites Renewable energy procurement (PPA/tariff) NeutralisationElectric vehicles Biofuels onsite Natural refrigerant replacement Energy employee engagement S cope 3 – Our Roadmap 6% 1% 1% 22% 26% 1% 100% Where we are now (2020) 43% 0% Net Zero 100% 50% Supply chain engagement plus product circularity Air-freight reduction Business travel policy NeutralisationExternal Waste reduction Product Achieved Planned Outstanding 54.56% 8.97% 36.47% Spectris plc Annual Report and Accounts 2022 48 Sustainability continued VI-grade driving simulator avoided emissions compared to the avoided emissions from production What is a Life Cycle Assessment? end of life. Case study Maximum potential annual avoided emissions: 14,000 tCO 2 e avoided operations Overview and operate the simulator. Methodology production and use. Source data medium sized electric or petrol car. estimate emissions. Key assumptions: • to produce data for a new vehicle model. • • Potential improvements emissions present in our current solution, environmental credentials of our solution. At full reduction, one developed vehicle model could avoid up to 14,000 tCO 2 e Reduced prototypes Save tyresSave hours Avoided prototypes 35 Avoided operational time 2,200 hrs Tyres avoided 3,500 0 300 600 900 1,200 1,500 VI-grade impact Baseline results Full potential 1,474 332 Relative emissions (VI-grade = 100%) Relative emissions -3,500 -3,000 -2,500 -2,000 -1,500 -1,000 -500 0 500 1,000 1,500 Net avoided emissions Prototype operation TyresPrototype production VI-grade 1,232 -2,450 -1,578 -58 -2,855 Emissions (tCO 2 e) Net avoided emissions STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 49 Sustainability Environmental reporting and our transition towards Net Zero. Restatement of comparative environmental data • • • Scope 1 emissions Scope 2 emissions Scope 3 emissions impact of procurement in China than the Streamlined Energy and Carbon Reporting (‘SECR’) costs and provide data to inform the adoption Energy saving opportunities we partnered with Schneider Electric to 2 Environmental performance summary (absolute) Energy consumption (MWh) (MWh per £m revenue) 77,194.3 58.2 (2021: 95,229.9) (2020: 123,205) (2021: 73.7) (2020: 92.2) Greenhouse gas emissions (tonnes CO 2 e) 2 Total carbon emissions (tonnes CO 2 e per £m revenue) 2 17, 546 13.2 (2021: 31,703) (2020: 43,111) (2021: 24.5) (2020: 32.3) Spectris plc Annual Report and Accounts 2022 50 Data assurance and methodology www.spectris.com/environment. Energy consumption (like-for-like) 3,4 Unit of measurement – MWh Change 2022 2021 2020 Electricity (2.0%) 40,147.6 40,965.8 40,621.8 – of which renewable 90.93% 17,479.6 9,154,9 2,706.2 Natural gas (16.5%) 7,500.4 8,986.0 9,505.0 Fuel oil 0.0% 29.2 29.1 28.4 Steam and other imported energy (11.0%) 15,419.9 17, 318.6 13,801.7 Other fuels (14.8%) 332.6 390.5 64.4 Vehicle energy (16.1%) 13,764.7 16,411.8 19,078.6 Total energy (8.2%) 77,194. 3 84,101.9 83,409.4 – of which UK (13.5%) 9,942.8 11,494.5 12,125.6 Energy Intensity per £m revenue (10.66%) 58.2 65.1 62.4 Greenhouse gas emissions (tonnes CO 2 e) (like-for-like) Unit of measurement – tonnes CO 2 e Change 2022 2021 2020 Scope 1 (5.8%) 5,523.5 5,988.4 7,424. 8 Scope 2 – Location based (7.7%) 17.176.6 18,599.9 18,556.4 Scope 2 – Market based (27.0%) 12,022.5 16,470.9 18,181.1 Scope 1 & 2 (Location) total (7.7%) 22,700.1 24,588.3 25,981.3 – of which UK (6.2%) 2 ,297.9 2,449.2 2,826.6 Scope 1 & 2 (Market) total (21.9%) 17,546.0 22,459.3 25,606.0 – of which UK 3.9% 1,303.6 1,254.4 2,802.2 Scope 3 8 (like-for-like) 3 Change 2022 2021 2020 Category 1 – Purchased goods and services 9.16% 213,419.1 195,515.4 162,408.9 Category 2 – Capital goods Category 3 – Fuel & energy related activities (13.3%) 1,834.4 2,115.1 2,277.6 Category 4 – Upstream transportation / distribution (24.7%) 11,822.8 15,707.1 17,050.2 Category 5 – Waste 185.3% 292.2 102.4.0 1,211.0 Category 6 – Business travel 99.2% 4,959.9 2,490.1 3,565.6 Category 7 – Employee commuting (9.2%) 9,924.0 10,930.7 11,093.3 Category 9 – Downstream transportation / distribution Category 11 – Use of sold products 13.9% 263,984.7 231,730.3 210,613.2 Category 12 – End-of-life treatment (6.2%) 51.9 55.3 50.0 Total Scope 3 3 10.0% 506,288.9 458,514.3 408,114.1 Total gross emissions (Market-based) 8.0% 521,449.3 480,973.6 433,720.1 Total (all scopes) carbon emissions per £m revenue Like-for-like 6.0% 394.6 372.3 324.6 Waste data (like-for-like) 2022 2021 2020 Total waste captured (tonnes) 1,720.9 1,127.4 4,930.7 616.9 230.3 3, 527. 3 Waste recycling rate 5 49.0% 61.0% 25.0% Waste diversion rate 6 64.0% 80.0% 28.0% Sustainability Environmental Performance summary (Absolute) 1 Indicator 2022 1 2021 1 2020 1 Energy consumption (absolute) (MWh) 77,194. 3 95,229.9 123,205 58.2 73.7 92.2 Greenhouse gas emissions (tonnes CO 2 e) 2 17,546.0 31,703.0 43,111.0 Total carbon emissions (tonnes CO 2 e per £m revenue) 13.2 24.5 32.3 STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 51 Taskforce on Climate-related Financial Disclosures ‘TCFD’ Governance Oversight of climate-related risks and opportunities of Chapter Zero and in 2021 attended of the Board received updates at scheduled and the assurance of the metrics utilised Key activity during 2022 Strategy Oversight Oversight environmental data included in the 2021 Oversight approval of the Annual Report and Management Corporate Affairs oversaw the inclusion of Management Committee met on three occasions to Management Remuneration Remuneration Committee focused on the Sustainability Spectris plc Annual Report and Accounts 2022 52 Sustainability: TCFD Ownership and control Oversight and independent assurance Planned activity in 2023Oversight Board level Executive level Management level Board • • • Board Audit and Risk Committee • Audit and Risk Committee Executive Committee • Executive Committee Remuneration Committee • Remuneration Committee Executive Risk Committee • Executive Risk Committee Business Risk Committees • software Business Risk Committees Sustainability Steering Group • • Sustainability Steering Group STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 53 Sustainability: TCFD Strategy 1 2 3 4 5 7 8 9 1 Almelo, Netherlands • 4 Zhuhai, China • • Sea level rises • 7 Pennsylvania, US • 2 Darmstadt, Germany • 5 Crowborough, UK • 8 Boulder, US • 3 Suzhou, China • Sea level rises • 6 Malvern, UK • • 9 Virum, Denmark • TCFD online report 6 Key Spectris plc Annual Report and Accounts 2022 54 Sustainability: TCFD Risk or opportunity Drivers Reference frameworks Scenarios Time horizon Ongoing activity Physical Acute Representative Concentration emissions continue scenario) increase from around 2030 onwards. • impacts. • • • standard processes. Chronic 2030 onwards with • • • implemented under our Net Zero roadmap to Transition the transition to a low Policy and Legal the potential for • • • Market and Economic • • We will continue to assess the overall impact of Technology • • Reputation • • suppliers and shareholders. Opportunities Internal innovation and external appetite for change • • • • Key STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 55 Sustainability: TCFD Resilience and Risk Management on the nature and speed at which countries act Resilience relationships with customers and suppliers will support our Risk management Spectris plc Annual Report and Accounts 2022 56 Sustainability: TCFD Metrics and Targets to lower our emissions, we disclose our annual emissions STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 57 Metric Measurement Our Progress Electricity Emissions revenue) (MWh per £m revenue) Waste (tonnes) Supply chain (tonnes CO 2 e) Reduce Scope 3 procurement Freight (tonnes CO 2 e) emissions in 2022. Capital deployment Commitment to spend at least £3 million per annum to deliver Revenue aligned to Net Zero Revenues from products or services that support the Remuneration reduction in Scope 1 and 2 emissions structures with our Net Zero Sustainability: TCFD Metrics and Targets continued PlannedAchieved Outstanding 54.56% 8.97% 36.47% Spectris plc Annual Report and Accounts 2022 58 Rebecca Dunn Reporting requirement Some of our relevant policies and standards Page reference Anti-bribery and corruption Code of Business Ethics Ethics and values standards 46, 72, 73, 81 Culture, integrity and commitment to our values 18 – 19, 44, 72 – 73 Speak Up and Spectris helpline 46 Ethical leadership 46 Principal risk – ‘Compliance’ 36 – 37 Business model Our business model 16 – 17 Environmental matters Environmental policy Environmental management 50 – 51 ISO 14001 Energy performance 50 – 51 Streamlined Energy and Carbon disclosures 50 52 – 58 21 Employees Code of Business Ethics 44 Health and Safety policy Board diversity 75 OHSAS 18001 Employee engagement and Workforce Engagement Director 43 and 71 Gender pay 44 SA 8000 Social Accountability Health, safety and wellbeing at work 47 KPI – Accident incidence rate 21 and 47 Principal risks: – ‘Compliance’ 37 – ‘Talent and capabilities’ 38 Human rights Human Rights policy Legal and regulatory compliance 46 Code of Business Ethics Principal risk – ‘Compliance’ 37 21 and 50 Total recordable incidence rate 21 and 47 Managing our principal risks Risk Management Principal Risks and Uncertainties Viability Statement 34 – 35 36 – 38 52 – 58 39 Social matters Community involvement 45 STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 59 Origional colour way Spectris Foundation QUALITY STEM EDUCATION foundation supports charities and communities which are of importance to productive world. Rebecca Levy Improving access to UN Sustainable development Goals (SDGs) Read our impact report online Total number of small grants given 30 Total impact Total agreed funding £598,858 80% education 20% Split in funding 1 2 Spectris plc Annual Report and Accounts 2022 60 Sustainability: Spectris Foundation Case study India STEM Foundation transformed an unused room into the students have completed an learnt to use a potentiometer. complete an assessment in the Case study Expedition STEM not respond to traditional classroom adventure. adventurer, shares her stories with students. Another current project, involves has supported their annual STEM adventure. Total funding agreed £485,358 Total number of 21,926 Total number of students reached 21,698 Number of volunteering hours 340 Total number of educators supported 228 Total amount donated £113,500 Total number of small grants donated 30 Small grant recipient locations • China • North America • • Brazil • • STEM grants STEM education. Case study Saint Francis Hospice – Organic Garden Project support, end of life care and emotional receives allows them to pass in peace and much to a hospice that helped Alison patient Small grants . STRATEGIC REPORT Spectris plc Annual Report and Accounts 2022 61 Chairman’s introduction Continuing our strategic progress As outlined in my letter on pages 4 and 5, macro-economic events have created new challenges for the Group in 2022. My role, and that of the Board, has been to successfully guide our way through these varied challenges, ensuring our continued strategic progress and the maintenance of focus on long-term value creation in support of all our stakeholders. our other core duties to oversee the Group’s section that follows outlines our key activity during 2022. Board activity oversee the continued delivery of the Group’s strategic objectives and the development of the Group’s Strategy for Sustainable Growth. Ahead of the Group’s Capital Markets Day in October, the Board undertook a deep dive review of the refreshed strategy with the Executive Committee. We were pleased to endorse the strategy, which builds on the Growth and will further build long-term sustainable value for all stakeholders. I have appreciated the opportunity to visit both the HBK site in Darmstadt, Germany and the Malvern Panalytical site in Malvern, UK, meeting directly with employees to see and to better appreciate their perspective on the Group’s purpose and strategy. During the year, the Board and I have also valued several direct interactions with customers, including interactions are supporting considered and well-rounded discussions at the Board to promote our long-term sustainable success. A summary of Board discussions and key stakeholder considerations during the year s.172(1) statement is available on page 5 and further information can be found on pages 68 and 69. Committee focus work of its Committees, with the following notable highlights during the year: • aligns our executive remuneration structure with the Group’s Strategy for Sustainable endorsement from shareholders with over 95% of votes in favour of its approval in December 2022; • to continually challenge and support the work being carried out by management in respect of the development of the Group’s internal control framework in response to expected changes in the requirements for UK Premium Listed Companies; and • Committee on succession planning for the Board and its support of the development of the talent pipeline for Executive and senior management. I would also like to particularly recognise the work undertaken by Kjersti Wiklund, as our Workforce Engagement Director during the year in visiting sites and meeting with employee representatives outside of found the additional insight brought by Kjersti to be very helpful to our discussions. Overseeing the development of the Group’s culture We have taken a keen interest in the development of the Group’s employee engagement activity and the initial impact engagement survey results. Beyond this, wellbeing of our employees at the centre of our decision making and the Board was pleased to approve new Group-wide policies on health and safety and mental health. the actions proposed by management will lead to the meaningful development of the Group’s culture of inclusion and belonging. Alongside this work, the Board has also refreshed its own diversity policy and we towards women comprising 40% of the 2023 Annual General Meeting (AGM) Directors and employees, we have held a hybrid AGM. Our preference has always been to welcome shareholders in person and, for we will hold a physical meeting at Melbourne We did consider the merits of holding a hybrid event again this year but given the extremely low attendance online, we believe that shareholders value the personal interaction of a face-to-face meeting. All current Directors will be standing for re-election at the 2023 AGM, and we look forward to the continued support from “Our direct stakeholder interactions during the year have supported considered and well-rounded discussions at the Board to promote our long-term sustainable success.” Mark Williamson Chairman Spectris plc 62 Chairman’s introduction continued I welcome the opportunity to meet with remind all stakeholders that the Board and I are available throughout the year to answer questions or engage on topics of interest to you. You can contact us via the Company Secretary and I would also encourage you to our webcasts at www.spectris.com Conclusion report helpful in understanding our approach to governance and how we have applied the principles of the UK Corporate Governance Code. We believe that our organisational structure and governance framework enables our businesses to operate effectively and with the agility to continue to deliver value beyond measure for all our stakeholders. with shareholders and welcome your comments on this Corporate Governance Mark Williamson Chairman UK Corporate Governance Code shareholders can evaluate how the Company has applied the principles of the Code and where key content can be found in this report. Board leadership and Company purpose Chairman’s introduction to the Corporate Governance Report 62 – 63 Providing oversight of culture 72 – 73 Board engagement with stakeholders 62, 68 – 69 and 71 – 73 Section 172 statement 5 and 68 – 69 Oversight of strategy 67 Assessing opportunities 67 Assessing risks and viability 67 and 80 – 82 Measurement of strategy 67, 68 and 69 Division of responsibilities Board committees 66 Board attendance 66 Composition, succession and evaluation Board biographies 64 – 65 Board evaluation 70 Nomination Committee report 74 – 75 Audit, risk and internal control Audit and Risk Committee report 77 – 83 Principal risks and risk appetite 34 – 35 and 80 – 82 Monitoring of emerging risks 80 – 82 Remuneration Letter from the Chairman of the Remuneration Committee 84 – 85 Overview of Remuneration Policy 85 – 86 2022 Implementation report 88 – 104 Corporate Governance Code statement of compliance As a UK premium listed Company, Spectris plc is expected to comply or explain any non-compliance with the on its website, www.frc.org.uk. complied fully with the provisions and principles as set out in the Code throughout the year ended 31 December 2022, with the exception of Provision 38. In line with the Code requirements, in instances that are considered not compliant with the provision or principle in the Code, the Company is required to provide an explanation where Provision no. 38 Extract from the Code directors, or payments in lieu, should be aligned with those available to the workforce. Explanation the pension entitlement for Executive Directors was aligned to the wider UK workforce, which is currently 10.5%. GOVERNANCE Spectris plc 63 Mark Williamson Chairman Andrew Heath Chief Executive Derek Harding skillsexperience Our directors provide the Board with a broad range of personal strengths, and experience. Each of their contributions support the Company in driving forward with its Strategy for Sustainable Growth, Purpose and Values. N Board of Directors Appointed: May 2017, Nationality: British Skills and expertise in managing relationships with the investor and non-executive director and chairman of the audit committee of Alent plc until December 2021. Mark was chairman of Imperial Brands plc until 1 January 2020 and was also senior independent director of National Grid plc until December 2021. Other appointments None. Appointed: September 2018, Nationality: British Skills and expertise Andrew joined the Group as Chief Executive in September 2019, bringing a wide range of executive and leadership expertise to Spectris, with proven experience in technology-enabled businesses and previously served as CEO of Imagination Technologies Group plc from 2016 to 2018 and before that was CEO Prior to this, Andrew had a 30-year career with Rolls-Royce where he held a number of international and senior management roles, latterly serving as the President of Energy from 2010 to 2015. Andrew has a BSc in engineering from Imperial College London and an MBA from Loughborough University. Other appointments None. Appointed: March 2019, Nationality: British Skills and expertise leadership and industrial expertise to Spectris. operations worldwide, he also leads the operational management of Group Risk; Group Legal; Investor Relations; Group IT and the Group’s Capital Allocation director at Shop Direct. Derek was CFO at Senior plc from 2013 to 2017 and before that, he was at Wolseley previously held a number of group roles, including and investor relations, and head of mergers and with PwC. Other appointments Derek was appointed as a non-executive director of Committee membership key A N R Disclosure D Executive E Chairman of a committee E D E D Spectris plc 64 Ulf Quellmann Independent Director Board of Directors Alison Henwood Independent Director Cathy Turner Independent Ravi Gopinath Independent Director Appointed: September 2021, Nationality: British Skills and expertise Alison Henwood has broad technical experience in key internal control and audit across regional, divisional and global functional roles. Until 30 June 2022, Alison was energy-trading business in the world. She has held a wide variety of roles across Shell throughout her career, digitisation and Shell’s move towards zero carbon. Other appointments Alison is a member of the supervisory board at Umicore, a global materials technology and recycling group based in Belgium. She is also a non-executive director hydrography, specialising in marine geospatial data Appointed: September 2019, Nationality: British Skills and expertise Cathy Turner is an experienced non-executive director Barclays PLC has included responsibility for strategy, investor relations, HR, corporate affairs, legal, internal audit, brand and marketing. She was previously a non-executive director at Aldermore Group plc. Other appointments Cathy is a non-executive director and chair of the remuneration committee at, Rentokil Initial plc, a non-executive director at Lloyds Banking Group Plc, and is a partner at the senior advisory organisation, Manchester Square Partners. Appointed: June 2021, Nationality: Singaporean Skills and expertise Ravi Gopinath is a highly experienced business leader, with over 25 years of diverse, global engineering and software experience, with a proven track record in setting up, scaling and transforming high-growth and advisor at AVEVA plc, having previously been chief Software Business which was merged with AVEVA operations management and prior to that, was CEO and managing director of Geometric Limited. Other appointments Ravi is a strategic advisor at AVEVA plc and is also Appointed: January 2017, Nationality: Norwegian Skills and expertise a series of senior global roles, including: director, group technology operations at Vodafone; chief operating Digi Telecommunications in Malaysia; and executive (Norway) and Telescience Inc (USA). Other appointments Communications plc, Nordea Bank Apb and Evelyn Partners. Appointed: January 2015, Nationality: American Skills and expertise propulsion systems and special products division and Automotive. Other appointments Bill is senior independent non-executive director and chair of the remuneration committee of Smiths Group plc, lecturer at UCLA Anderson School of Management and director and a member of audit and compliance committee at ICU Medical Inc. Appointed: January 2015, Nationality: German Skills and expertise Ulf Quellmann has broad general management experience and considerable knowledge of the metals, minerals and mining industry, having worked in the sector for more than 20 years. He was chief executive listed on the Toronto and New York Stock Exchanges) until March 2021. Prior to that, he was vice president, strategic projects of the copper and diamonds product president, investor relations and media relations, treasurer, and senior management positions at General Other appointments None. Bill Seeger Senior Independent Director Committee membership key A N R Disclosure D Executive E Chairman of a committee A N N R N RA NA N R A N R Kjersti Wiklund Independent and Workforce Engagement Director GOVERNANCE Spectris plc 65 Board and Executive Committee Board and Executive Committee structure Executive Responsible for the day-to-day management of the Group’s operations with support from Disclosure disclosure of inside information and for ensuring that announcements comply with applicable regulatory requirements Board Committees Management Committees Audit and Risk the Group’s ethics and controls and risk management Nomination succession matters and talent management for the senior management Remuneration Responsible for recommending the policy for the remuneration of the pay and conditions of the wider workforce Board and Committee attendance Board (scheduled) Board (ad hoc) 3 Audit and Risk Committee Nomination Committee Remuneration Committee AGM GM 4 Ravi Gopinath 7/8 1 4/5 2 n/a 3/3 4/4 Y Y Derek Harding 8/8 5/5 n/a n/a n/a Y Y Andrew Heath 8/8 5/5 n/a n/a n/a Y Y Alison Henwood 8/8 5/5 3/3 3/3 n/a Y Y Ulf Quellmann 8/8 5/5 3/3 3/3 4/4 Y Y Bill Seeger 8/8 5/5 3/3 3/3 n/a Y Y Cathy Turner 8/8 5/5 n/a 3/3 4/4 Y Y Kjersti Wiklund 8/8 5/5 3/3 3/3 4/4 Y Y Mark Williamson 8/8 5/5 n/a 3/3 n/a Y Y Spectris plc 66 Board and Executive Committee Topic 2022 Activities Stakeholders considered Strategy • • • • • • • People • Shareholders • Community M&A • • • • together with the termination of the transaction due • People • Customers • Shareholders • Suppliers and partners Operations and risk • • • • • • People • Customers • Shareholders Leadership and people • • • • • • • People • Shareholders Finance • • • • • Shareholders • Community • Suppliers and partners • People Governance and ethics • • • • • People • Shareholders • Community • Suppliers and partners GOVERNANCE Spectris plc 67 Section 172 People operating in an open and ethical Community and sustainable policies which support Customers ensuring that our business practices and Shareholders ensuring that the Group is a sustainable Suppliers and partners Supporting our Section 172(1) statement Building on our understanding • • • • including direct feedback from meetings • feedback from the chairman of the • regular and detailed feedback from the • Considering stakeholders in our meetings and principal decisions Divestment of Omega customers as well as the impact on for focus during the due diligence stage and challenge and support to management Management was in the best interests of Acquisition of Dytran, Creoptix and MB Connect included discussing and ensuring that the acquisition was aligned with the Group’s strategy to make synergistic acquisitions to the acquisition processes and following ways in which stakeholder interests were following each acquisition supported the Supporting employees with the cost of living management’s approach to supporting introduced by management to mitigate the details are set out in the Remuneration Customer engagement between the businesses and the wider Understanding our stakeholders and what matters most to them in about the Spectris plc 68 Section 172 continued simulators operating in a real customer has engaged with its customers can be found Shareholder return details of which are set out on pages 18 and programme (in addition to the interim and importance of capital returns to our shareholders and were pleased to be in a 2022 Capital Markets Day to the content and framing of the strategy understanding of the and the ad hoc shareholder meetings carried out by s172 factor Page reference Relevant section of the report pages 2 – 3 Our Purpose Strategy for Sustainable Growth Business model pages 18 – 19 pages 16 – 17 Employees pages 42 -45 page 59 pages 43 and 71 pages 62 – 63 pages 72 – 73 Sustainability Report Workforce engagement Chairman’s introduction to governance Oversight of the Group’s culture Business relationships – suppliers and customer page 11 pages 14 – 15 Chief Executive’s Review Case studies Community and environment page 13 pages 60 – 61 pages 48 – 49 pages 52 – 58 Chief Executive’s Review Net Zero High standards of business conduct page 46 pages 72 – 73 page 81 pages 52 – 58 Sustainability Report Monitoring the Group’s Culture Audit and Risk Committee Report – Ethics & Compliance Shareholders pages 16 – 17 pages 62 – 63 page 67 Our Business Model Chairman’s introduction to governance Board and Executive Committee 2022 GOVERNANCE Spectris plc 69 Board evaluation and effectiveness Board evaluation annual evaluation 2021 evaluation process and outcomes • • and the wider senior leadership population to • • • • interaction with high potential employees • 2022 Board evaluation process that discussion and that those actions would Informed decision-making responsible for ensuring compliance with appropriate Access to the business the wider leadership team and the opportunity to Training and development other legal and regulatory topics from internal meetings with key customers to better understand Spectris plc 70 Workforce activities meaningful and regular dialogue with the workforce to capture key insights and bring the employee the workforce and is pleased with how the • • • • intended that the channels of communication support further understanding of the topics that impact our people such as ethics and the Group’s ‘speak up’ Boulder site visit meetings with senior management and dinner with team were also a part Darmstadt site visit with a selected group of employees from feedback was that our employees GOVERNANCE Spectris plc 71 2022 Board highlights • • with a detailed progress roadmap • life our Values through the launch of the • • Our and our culture commitments we make to customers in Read more about Our Purpose maintain a culture where our people and connected to their work and colleagues ‘Be true’ is about absolute integrity and how we focus on doing the right things necessary and showing care and respect ‘Own it’ keeping our promises and how we build ‘Aim high’ encourages our people to be Spectris plc 72 continued Culture and the Board Group-wide Gallup employee engagement workstreams and it was reassuring to see employee sentiment on our Values and Read more about the results of the survey monitored culture through a number of associated trends that had arisen during further which included how success would the Group’s planned inclusion and belonging roadmap was discussed prior to its launch in and discussions were held on how progress could be measured and whether targets the Group or considering a career within the Read more about the Group Inclusion Framework and Inclusion and Belonging on page 44 Read more about these visits 78 employees participating in Gallup 3.86 Gallup GrandMean employee engagement score up programme and reporting from the of the remediation actions taken for reports an update on the completion rates of the strategies for how we can continue to meet to ensure the culture within the Group performing business made GOVERNANCE Spectris plc 73 Nomination Committee report Nomination Committee Report During 2022, the Committee held three meetings, the attendance of which can Nomination Committee has been focused on the Board’s composition, succession planning at a Board and Executive level. current Board and identifying areas of recruitment. Recognising the tenure of thought was given to their succession and ensuring that the Board would continue to experience following their planned retirement. More details on the factors the discussions is included in the activities section on this page. In respect of wider succession planning for the Executive and senior management, the Committee continues to receive regular updates from the Chief Executive and the Group HR Director. Good progress has also leadership community within the Group, Leadership Development Programme, leadership development across the Group and recognises the need to continually refresh our talent pipeline and is committed to continuing to support the activities being carried out in this area. recognises the importance of attracting and retaining talent at an early career stage to ensure an active and diverse pipeline of future leaders. Further details of the Group's Diversity and inclusion remains a core provided oversight and challenge to the development of the Group's inclusion and belonging roadmap. We will continue to emphasise the value of inclusivity at all levels of the organisation as we recognise the importance it has to our colleagues, the business and society as a whole. Mark Williamson Chairman of the Nomination Committee 22 February 2023 Role of the Committee considers the importance of diversity, in all its forms, when recruiting new Board members. out across the Group in respect of diversity gender balance of those on the Executive the extension of the Group's diversity metrics to incorporate race data in countries where this is legally permissible. • reviewing the size, structure and composition of the Board; • identifying and nominating and recommending to the Board candidates to be appointed as Directors; • reviewing and refreshing the membership of Board Committees; • Chairman, Executive Directors and senior management; • carrying out the annual review of the independence of Directors; • assessing whether Directors are able to commit enough time to discharge their responsibilities; and • reviewing the induction and training needs of Directors. Full terms of reference for the Committee can be found at www.spectris.com/ corporategovernance. as part of the Board’s external evaluation assessment, which was conducted by Evaluation. Following the review the Committee is considered to be operating effectively. Further details on the evaluation process are set out on page 70. Membership and attendees Committee. Regular attendees at the meetings also include the Chief Executive and the Group HR Director. Other attendees joined for topical discussions, including the Affairs to discuss the Group's approach to the members of the Committee can be found Committee meetings on page 66. Activities of the Committee during 2022 • a deep dive into the talent strategy and priorities being implemented by the Group HR Director as discussed further on page • employee engagement survey; • different jurisdictions in which the Group operates; • a detailed update on the establishment of the Group's inclusion and belonging roadmap; • Engagement Director; • considering the independence of each commitments; • plans, particularly in light of the pending (‘AGM’); • Capabilities Matrix; and • developing a 2022 training programme for Spectris plc Annual Report and Accounts 2022 74 Nomination Committee Report continued Succession planning As part of the development of the Board’s succession pipeline, the Committee began have served nine years on the Board ahead of and capabilities of the Board in addition to the Board's Diversity Policy and use this exercise to guide early discussions with the external recruitment agency, the Lygon Group, in order In line with the requirements of the UK Corporate Governance Code, the further connection between the Lygon Group and the Company or individual Directors. In addition to merit and objective criteria, the Committee is clear that any external search consultancy engaged should also ensure that the selection process followed promotes diversity of gender, social and ethnic strengths of the individuals selected. After considering a shortlist of candidates a recommendation will be put forward to the candidates existing appointments and associated time commitments as well as recommending their appointment to the and experience, with a variety of different lengths of tenures which will provide a good continues as part of the Committee’s regular agenda, including the annual review of the informs the appointment process, but also the training and development programme Board composition, as Board members progress through their tenure, the Committee continues to consider their independence, Workforce engagement that was carried out during 2022. With the return in international travel, Kjersti was able representatives in Darmstadt, Malvern and Crowborough. Key topics discussed at the sustainability and inclusion. In addition to later provided to the Committee. Further out on page 71. Board Diversity Policy During the year, the Board’s Diversity Policy was carefully considered and reviewed in line with the recommendations issued by the increase the overall percentage of women on Independent Director role and/or one woman in the Chief Executive or Finance Director role Following a review of the above recommendations, the Board's Diversity Policy was updated to include the target Read our Board Diversity Policy www.spectris.com/corporategovernance Our diversity goals We are committed to externally set goals on diversity. Beyond this, we recognise the importance of all forms of diversity and are striving for further progress. FTSE Women Leaders Review (%) Target Spectris 40 33 Target: 40% women by 2025 Parker Review Target Spectris 1 1 Target: One Board member from an ethnic minority background by 2024 GOVERNANCE Spectris plc Annual Report and Accounts 2022 75 Nomination Committee Report continued counts as three mandates. Non-executive Directors' tenure in exceptional circumstances (see the chart below). Board tenure 1–3 years 2 3–6 years 1 Gender Nationality of Directors American 1 German 1 Norwegian 1 Overboarding scores 1 1 mandates 1 2 mandates 2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Ulf Quellmann Bill Seeger Kjersti Wiklund Mark Williamson Cathy Turner Ravi Gopinath Alison Henwood External appointments and time commitments appointment and are reviewed at least annually by the Nomination Committee. Any external appointments are considered and approved by the Board following careful consideration of the impact on the individual Director’s ability to meet the of interest are recorded and reviewed together with any evidence of situational Director’s shareholding in the Company. of the Board remains uncompromised Board responsibilities. Details of the Directors external appointments are included in their Director election and re-election In considering the recommendation of the Nomination Committee considers a number • the results of the individual evaluation process; • the tenure and independence of each of the Directors; and • the other external appointments held by the Directors. independence. With the support of the Nomination Committee’s recommendation executive Directors being recommended for Spectris plc Annual Report and Accounts 2022 76 Audit and Risk Committee Report Audit and Risk Committee Report Role of the Committee Membership and attendees During 2022 the Committee was comprised solely of the following independent Non-executive Directors: • Bill Seeger • Kjersti Wiklund • Ulf Quellmann, and • Alison Henwood Bill Seeger is determined by the Committee experience’ as required by the UK Corporate Governance Code 2018 (the ‘Code’). In addition, Alison Henwood, a chartered management accountant, is also determined experience’. All members of the Committee are considered to have competencies that the Board deems relevant to the sectors in which the Company operates. Attendees at meetings normally include the Chairman, the Chief Executive, the CFO, the Head of Internal Audit, the Head of Risk and Control, and the Head of Corporate Affairs. Representatives from the external auditor, Deloitte, and the internal auditor, PwC, also attend meetings. Read more about the current members of the Committee on pages 64 and 65. Details of attendance at Committee meetings is set out on page 66. Role and responsibilities • narrative reporting processes, including advising the Board on the fair, balanced and understandable assessment of the information provided; • reviewing, challenging and approving page 121) proposed by management; • reviewing and monitoring the way in which management ensures and oversees the and internal controls; • the appointment, remuneration, independence and performance of the Group’s external auditor; • the independence and performance of the Group’s internal audit arrangements; • of risk management are appropriately considered and addressed; and, • that additional consideration is given to relevant regulatory developments and emerging best practice. activities of the Audit and Risk Committee Terms of Reference are available at www.spectris.com/ corporategovernance Audit Committee meetings Informal discussions on key topics were also Committee retains time around each meeting to meet separately without management present and invites the Head of Internal Audit , the PwC internal audit co-source partner and representatives from the external auditor to attend for part of this session. the year on a comply or explain basis, that the considered during the year. In 2022, the Committee considers that the most important matters were: • Continuing to support the preparations document, including receiving updates from the Head of Risk and Control and PwC as well as the views of Deloitte as the external auditor on the enhancements for the internal controls framework; activities of the Audit and Risk Committee which have taken place throughout 2022. year has been to support the Board in key internal controls and risk management. reviewing preparations for changes in the Group’s audit and corporate governance internal control regulations for Premium Listed Companies. oversight of the transition to a fully outsourced internal audit function, led by that PwC have carried out alongside the Head of Internal Audit in managing this transfer and is looking forward to developing their relationship with PwC in 2023. Further details are set out on page 82 of this report. person throughout 2022 and Committee members also attended a site visit to HBK offered a valuable opportunity to meet key employees within the HBK business and was consolidated by a detailed update December 2022. Dedicated sessions have also continued to be held at the Board on the Group’s Principal Risks in 2022, including on Talent and Market/Financial Risks. time with the external and internal audit teams at each meeting without management present. I have also continued to meet regularly with members of these teams outside the Committee cycle, as well as receiving regular updates from the CFO on accounting judgements and issues, risk and internal controls, and the progress against the internal audit plans. In 2023, a core focus of the Committee will be the oversight of the impact from the ongoing planned changes and reforms to the governance and audit landscape for Premium Listed Companies and the Group’s approach to disclosure against the Taskforce on Climate Related Financial Disclosures, in addition to the oversight of the Group’s Bill Seeger Chairman of the Audit and Risk Committee 22 February 2023 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2022 77 role in supporting the Board in providing oversight of the Group’s controls and risk management processes. During the year, a particular focus of the Committee was the oversight of enhancements to the Group’s internal controls forward to further supporting management with this and other matters throughout 2023.” Bill Seeger Chairman of the Audit and Risk Committee • Consideration and decisions around the accounting for transactions within the business, including the completion of the Omega divestment in July 2022, as well as the acquisition of Creoptix AG, MB Connect line GmbH and Dytran Instruments, Inc. in 2022; and • Providing oversight to the transition from a co-source internal audit arrangement to a fully outsourced internal audit function led by PwC. During 2022, the Committee’s performance was assessed externally as part of the wider of Independent Board Evaluation. As part individually with each Committee member and key contributors to the Committee including Head of the Internal Audit outsource arrangement and the External Audit partner. During the year, it was considered that the Committee had operated effectively, with further consideration to be given to holding an additional Committee meeting each year, bringing the total scheduled meetings to four. More details on the Board evaluation process can be found Activities of the Committee during 2022 agenda developed from its terms of reference. Standing items are considered at each on which the Committee has chosen to focus. principally split into four key areas: • • Risk management and internal controls; • Internal audit; and • External audit. conjunction with each other given the importance of each element operating cohesively. For clarity of reporting, details of the Committee’s involvement in each of these areas is set out separately below. providing assurance to the Board around the integrity of the half-year and annual Financial and disclosures. During 2022, as part of its statements, the Committee has: • considered the viability assessment and scenarios, liquidity risk and the basis for preparing the half-year and annual Financial Statements on a going concern basis, and reviewed the related disclosures in the Annual Report and Accounts, the provisions of the Code regarding going concern and viability statements and reviewed best practice and investor comment; • reviewed the areas of key judgements such as revenue recognition, the Vendor Loan Note and Eurazeo investment (as part of the consideration for the sale of Millbrook), and other acquisitions and disposals; • reviewed the areas of key judgements in respect of the Omega disposal and the acquisitions of Dytran, MB connect, and Creoptix; • reviewed the overall drafting and review processes to assure the integrity of the Annual Report and Accounts; • reviewed the management representation letter to Deloitte as the external auditor and auditor; • considered the process designed to ensure Deloitte is aware of all ‘relevant audit information’, as required by Sections 418 and 419 of the Companies Act 2006; • assessed the disclosures in the reports in relation to internal controls and the work of the Committee; and • reviewed the proposed update to the Group’s tax strategy. review of the Group’s ongoing litigation matters and associated provisions. Having reviewed and considered these key areas, and following their review of the process undertaken to ensure that the Annual Report and Accounts adhered to relevant legal and regulatory requirements, the Committee was able to recommend to the Board that, when taken as a whole, the Annual Report and Accounts is fair, balanced and understandable and contains all relevant information necessary for shareholders to assess the Company’s position and performance, business model and strategy. Audit and Risk Committee Report continued Annual Report and Accounts 2022 78 Audit and Risk Committee Report continued Key areas of focus in relation to the Financial Statements Revised segmental reporting Alternative performance measures (‘APMs’) Estimation, uncertainty and judgement Capital Markets Day held in October 2022 based on a reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on capital allocated to each segment and reportable operating segment disclosures for the two Panalytical and Particle Measuring Systems, and Spectris remaining businesses (Red Lion Controls and Servomex) of running the PLC will be disclosed as ‘Group costs’. operates and decisions are taken and considered the potential inference to the Group of having ‘Other’ as a sought views from Deloitte. is appropriate and will provide clarity to the understanding comfortable that the new reportable segments were appropriate and presented in accordance with IFRS 8. items included as APMs are adjusting in accordance with in the 2022 Annual Report all added to provide clarity and APM’s added in 2022 are not adjusting existing statutory measures, but are added to provide clarity as these cannot be derived from the reported accounts (adjusted gross order intake, order book and vitality index). movements on debt and equity investments’ to allow use in respect of the revaluation of a debt instrument added in the prior year. APM rewording and revised list of APMs. prominence of statutory measures compared to APMs During the year, the Committee received reports judgements applicable to the Group’s Financial Statements and disclosures. Financial Statements are in relation to the assumptions liabilities (Note 19). that they were not aware of any material or immaterial misstatements made intentionally to achieve a particular presentation. disclosures and sensitivities with respect to the turbulent macro-economic environment particularly around risk factors and their impact on discount rates. management and also questioned Deloitte to understand whether the external auditor had, to the Committee’s Following detailed review, challenging the presentations and reports from management and where necessary, consulting with the external auditor, the Committee is address critical judgements and key estimates (both in respect of the amounts reported and the disclosures). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2022 79 Audit and Risk Committee Report continued Key areas of focus in relation to the Financial Statements continued M&A Activity Principal Risks and Uncertainties Going Concern and Viability business it was determined that the Omega business in the Consolidated Income Statement being restated of Omega being disclosed as discontinued operations comparatives in the 2022 Annual Report and Consolidated Financial Statements. arrangement known as ‘Blueberry’, to accelerate aspects time that such an arrangement has been agreed, and arrangement is designed to ensure that the parties sharing joint control and the liabilities of the arrangement are been determined that the entity will be accounted for as presented for review. for the transactions in question. Opinions were sought Following the Committee’s review of the accounting treatments proposed by management for the acquisitions and disposal that took place within the year, the Committee each transaction. During 2022, management reassessed the appropriateness of the Group’s existing Principal Risks and considered any additional or emerging risks that might need to be included. As a result of this reassessment no changes were proposed to the existing categories of Group Principal Risk 2022 and February 2023 meetings and considered the appropriate disclosure for the Principal Risks and Uncertainties section and Viability Statement within the Annual Report. Group’s Principal Risks, and the respective scenarios considered in the preparation of the Viability Statement. Management presented the Committee with an updated calculation of going concern and an assessment of the revised forecasts including using the 2023 Budget, and the management in respect of the assessment of both going concern and viability and challenged the assumptions made by management in their assessment. provide context and further challenge to the assumptions in the papers. Committee also concluded, based on the outcomes of the viability assessment, that it is reasonable to expect that the Group would be able to continue to operate and meet its obligations and liabilities as they fall due over the period to Annual Report and Accounts 2022 80 Audit and Risk Committee Report continued • monthly steering committee meetings and an agreed project charter, as well as coordination with the platform risk committees to track and monitor progress; • a detailed gap analysis of critical controls and agreed remediation actions; • ongoing work alongside the improvements being undertaken as part of a business- wide transformation project on the IT general controls environment; • compliance tracker to provide clearer ways of tracking, testing and evidencing internal controls; • control and internal audit which will be guidance from the UK Government; • regular updates to the Committee from the Head of Risk and Control as well as routine updates from the platform audit and risk committees; and • a detailed update at each meeting on the progress being made to enhance the internal controls framework. regular updates and engage closely with management on any changes that might internal controls and to ensure compliance with legislation and best practice as they monitored the Group’s internal control and risk management systems and at its meeting effectiveness of these. • Work alongside the business transformation project to embed risk and internal controls within the business systems in place across the Group. • Enhance the risk-based approach taken to considering other controls improvement and compliance controls. • Implement and launch the Group governance, risk and compliance tracker, including the introduction of training in the • considering common control themes subsequent action has been taken to minimise the risk; and • assessing the Group’s responsibilities relating to regulated exposures of the Group. Regular meetings were held between the Head of Internal Audit and the Audit and discussions with the Head of Risk and Control. continued to receive and review risk management updates from the businesses by way of reporting from the operating business audit and risk committee chairmen. Updates on the business audit and risk committees will remain as a standing item respect of risk management and internal controls systems is to review their effectiveness and to make recommendations for possible improvements as appropriate. the Group’s approach to risk management and internal controls is designed to manage, rather than eliminate the risk of failure to achieve business objectives and can therefore not provide absolute assurance against material misstatement or loss. Developments and enhancements have continued to be made to the internal control and risk management processes in 2022, has been largely in response to the proposals set out in the BEIS consultation regarding a strengthened internal-controls reporting reform within the consultation has not yet has been pleased with the enhancements being made to the Group’s internal control has included: use of the tracker and general controls awareness. • control and internal audit and leveraging the Group governance, risk and compliance tracker. formalise and automate controls and making purposes. reports raised through the Group’s the status of associated investigations (further details of the Group’s Speak-Up policy can be reviews the control procedures in place to comply with the Group’s policies on business ethics, anti-bribery, compliance and fraud, including the steps being taken to enhance the Group’s ethics and compliance programme. Viability Statement the 2022 Viability Statement and considered the following factors which could impact the duration over which the Viability Statement • budgeting, forecasting and strategic planning cycles; • the time frame over which are risks are assessed; • the approach taken by our peers; and • proposed changes in corporate reporting requirements regarding long-term resilience. statement made regarding the Company’s viability period continues to be an accurate assessment of the Company’s viability as at can be found on page 39. Risk management and internal controls systems To assist the Board with its responsibilities to effectively determine the nature and extent carries out a robust annual assessment of responsible for monitoring the risk management and internal controls systems which mitigate potential impacts on shareholder investments and the Company’s assets, and for reviewing the effectiveness of and recommendations to the Board, the Committee ensure that its responsibilities as set out in its Terms of Reference (available at www.spectris.com) are adequately met. • evaluating and challenging the results and recommendations of audits undertaken by the internal audit team and the external auditor; • considering the level of alignment between the Company’s Principal Risks and internal audit programme; • control issues to the Group and considering and challenging as necessary the adequacy of management’s response to any matters raised; • has oversight of the governance and risk management framework, including a and principal risk, put in place throughout the Group; • appraising the Group’s response to information security and data protection risks; • considering key emerging risks and management’s approach to the ongoing oversight and management of those risks; • considering the Group’s ethics programme and the anti-bribery and corruption programme; STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2022 81 Audit and Risk Committee Report continued Internal audit planning During 2022, the internal audit team has increasingly been able to return to in-person audits, albeit this remains challenging in arrangement with PwC has supported the businesses in these instances, allowing for remote and guest auditors to support the support the provision of effective assurance during 2022. from the Head of Internal Audit regarding the status of the internal audit plan and the majority of actions raised as part of the 2022 internal audit plan had been implemented to schedule, with the remaining actions clearly owned and progressing with management. also considered the internal audit programme risk-based approach and has taken into consideration the organisational objectives and priorities, as well as possible risks that may prevent the achievement of those objectives. Internal audit will continue to work closely with the risk and control function on the development of the 2023 internal audit the 2023 internal audit plan and was reassured by the integration plan in place to embed PwC as the outsourced internal audit updated at each session on the progress against the plan as well as receiving updates on the outcomes of these audits and how promptly actions have been addressed. As part of its consideration of the effectiveness of the internal audit function, the Committee considered the adequacy of resources and its ability to meet the scope of the internal audit programme. Whilst the Committee recognised the success of the co-source arrangement put in place with PwC and continued this to be effective, the outsourced arrangement were also noted. co-source internal audit function in place throughout 2022 as operating effectively and looks forward to working closely with PwC as part of a fully-outsourced arrangement to continue to develop and improve the assurance provided by a strong internal audit function. In each of its meetings during the year the Committee received an update from one of the businesses in respect of topics discussed by that business’s audit and risk committee. which meet quarterly and are chaired by the business unit CFOs, provide the opportunity for each business to consider actions from internal audit reports, to discuss business risk registers and to receive an ethics and compliance update from the Chief Ethics and informed about the process by which the business audit and risk committees support the existing internal audit and risk management framework and received assurance on the ways in which businesses track and monitor risk within their functions. One of the Committee’s key responsibilities is to manage the relationship with the Group’s external auditor on behalf of the Board. Deloitte LLP was appointed as the Company’s following a competitive tender process, and has now completed its sixth year as auditor. Andrew Bond has held the role of lead audit partner since March 2019. 31 December 2022 has once again, been carried out with a combination of remote and in-person work. Document repository sites have continued to be utilised as an effective way of reviewing documentation to support reports from Deloitte at its meetings and management and the Chairman of the Committee maintain an ongoing dialogue with the external audit team outside of the comfort to the Committee on the steps that have been put in place to ensure that there was no adverse effect on the quality or the timescale for the completion of the audit of has also: • considered and approved the audit approach, the scope of the audit undertaken by Deloitte as external auditor and the fees for the same; • agreed reporting materiality thresholds; • • considered and approved letters of representation issued to Deloitte. Internal audit independent, objective assurance to add value and improve the Group’s operations. Its responsibilities include assessing the key risks of the organisation and examining, evaluating and reporting on the adequacy and effectiveness of the systems of internal control and risk management in place, and the governance processes in operation throughout the Group. During 2022, the Internal Audit function was led by the Head of Internal Audit, and supported through a co-source relationship with PwC, with oversight provided by the provide assurance to the Board on the adequacy of the resourcing and internal monitoring the effectiveness of the internal audit function. During 2022, the co-source arrangement with PwC operated smoothly, with positive progress made with ways of working, external quality assessment (‘EQA’) recommendation activities, risk assurances and subsequent reporting. Due to the success of the programme and to better support the new Spectris Dynamics, the decision was made to fully outsource the internal audit function, with the intention being to better utilise the continuing to embed third-line activities plan and approach will then be tailored to the respective needs of each business. Annual Report and Accounts 2022 Audit and Risk Committee Report continued Following the Committee’s consideration of the effectiveness of Deloitte as the Company’s external auditor, it is proposed that Deloitte be reappointed as auditor of the Company at the next AGM in May 2023 and, if so reappointed, the next general meeting of the Company at which accounts are laid. Further details are set out in the Notice of Meeting, which is available at: www.spectris.com/AnnualGeneralMeeting Deloitte was appointed as the Group’s reappointment was last approved by shareholders at the 2022 AGM. During the year, the Committee reviewed the arrangements with the current external auditor and considered whether it was Committee noted that given the knowledge and standard of services provided by Deloitte that it would be in the best interests of the Company and its stakeholders for Deloitte to continue as auditor. It is the Committee’s present intention to initiate a competitive tender process for the external auditor rotation of the key audit engagement partner and senior management required to rotate external auditor’s report to shareholders is set As detailed above, the Company complied with the Statutory Audit Services Order 2014 throughout 2022. of Deloitte and was comfortable Deloitte Financial Statements. During the year, the Committee carried review process included: • considering the independence of Deloitte; • the Deloitte Audit Quality Inspection Report; • non-audit work undertaken by the external auditor; • feedback from a survey targeted at various stakeholders; and • the Committee’s own assessment. the review and it was concluded that the audit process continued to be effective. Deloitte’s audit of the Group’s 31 December 2021 year end was selected for review by the FRC’s AQR team as part of the 2022/2023 met with the AQRt as part of the process and was kept up to date by Deloitte as the review receiving a minor improvements required, with the Chair of the Audit Committee considered the results of the review, the actions taken by Deloitte to continue to enhance audit quality, and following the Committee’s own assessment of the performance, independence and effectiveness of Deloitte, the Committee is effective in its role as external auditor. Audit and non-audit fees 2022 Financial Statements was reviewed by the Committee, and, in accordance with the authority given to the Committee at the 2022 AGM, the Committee reviewed the proposed considered the proposed auditor’s remuneration to be appropriate. may only be undertaken by the external auditor in limited circumstances. A cumulative annual cap is imposed for non-audit services provided by our external auditor (save for acquisition due diligence), above which all engagements are subject to the Committee’s prior approval. corporategovernance and is used to safeguard Deloitte’s independence and objectivity. Non-audit fees for services provided by Deloitte for the year amounted to previous years, a proportion of these fees were in respect of the half-year review. In addition, non-audit services in the year included the engagement of Deloitte to provide assurance on the data collation and calculations used to meet the requirements to report on the Group’s environmental impacts. Non-audit services in the year also included the reporting accountant role performed by Deloitte in respect of the unsuccessful acquisition of a UK publicly listed company. Deloitte was considered best placed to support the Company in this role as a result independence including non-audit service fee caps for the Group and the UK. Further details are included in Note 4 to the Consolidated Financial Statements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2022 Directors’ Remuneration Report Directors’ Remuneration Report On behalf of the Remuneration Committee (‘the Committee’), I am pleased to present the Directors’ Remuneration Report for the year out the work of the Committee during the year and provides context for the decisions taken. been challenging with the ongoing impact Despite these challenges, the Group has progress against key strategic objectives and communicating ambitious strategic priorities for the coming years. Against this backdrop, the Committee has focused on ensuring that our employees are supported during this challenging time and that their reward has been managed responsibly and fairly. of the structure and scale of our remuneration framework, its alignment with both the Group’s strategy and the wider workforce framework. Additionally, it sets out the decisions made by the Committee for 2022 and the intended arrangements for 2023. 2023 Remuneration Policy We appreciated shareholder support and approval of the Group’s Remuneration Policy (the ‘Policy’) at the General Meeting in December 2022. I would like to thank our 2022 and accelerating the 2023 pay increases for the lowest paid workers. pension parity across our business as part of the 2023 Remuneration Policy. I look forward to continuing the direct conversations with employees during 2023 ensure that appropriate support is directed Executive Director salary increases In 2022, the Committee recommended a increases were to enable his salary to reach market median. We received support for this mitigate concerns around a single large salary increase by implementing the increase across Committee with a point of review before implementing the second increase. initial recommendation and the ongoing sensitivity around material salary increases. Following careful consideration of many factors, both internal and external, we unanimously agreed that implementing the second part of the prior commitment was appropriate and best serves the interests We have considered the Group’s performance under Andrew Heath’s leadership. Andrew has now led the Group as Chief Executive for over four years. In that time, the Group has now has a market capitalisation of £3.1 billion. current salary remains below the median shareholders for engaging with us and 1 January 2023. Policy provides a balance between motivating and challenging our Executive Directors and senior management to deliver our business sustainable success of the Group in the interests of all our stakeholders. 2022 Remuneration Wider employee pay arrangements Following the easing of travel restrictions, at several facilities during the year and hear their thoughts on pay as well as broader to receive, and welcome, regular and detailed updates during the year relating to the Group’s wider pay arrangements and in particular the measures being taken across challenge. Key actions discussed with the Committee included: • • bonuses also introduced for the lowest paid • Panalytical to those UK employees earning against his peer group and continue to feel his vital role in the ongoing transformation of the Group into a more focused, higher quality, supported by a very strong balance sheet. salary of our Executive Directors should be positioned appropriately to secure the continuity of our management team, avoid salary compression below Board level and support long term succession planning. It is Andrew’s salary post this increase will fall Committee discussed and acknowledged this possibility but feel comfortable, notwithstanding this risk, that his total compensation is now well aligned with the market. arrangement at the median of the FTSE Executive’s total remuneration will be to position it just ahead of median vs the same peer group. It is expected that any future salary increase awarded to the Chief Executive would be no higher than those awarded to the wider workforce. arrangements across the Group and the Executive Management team for 2023. Based on this review, the Committee agreed that Derek Harding’s salary is set at a competitive level against external benchmarks and his aligned to the wider employee population. 2022 Annual bonus outcome Remuneration Committee Chairman’s statement 1. As at 31 December 2022. Spectris plc Annual Report and Accounts 2022 84 Directors’ Remuneration Report bonus opportunity for Derek Harding. A number of mechanical adjustments have been made to the annual bonus targets and disposal of companies throughout the year. and ensures the bonus outcome accurately of any outturn from the bonus will be deferred into shares. No discretion has been applied to the 2022 annual bonus outcome. Full details of the 2022 annual bonus performance outcome are set out 2022 LTIP grant In March 2022, the Committee granted Group’s Remuneration Policy. 2020 – 2022 LTIP outcome Both Executive Directors were granted a holding period. EPS and ROGCE performance has been strong over the performance period and this However, based on interim results as at related multiplier did not meet the threshold performance targets for absolute TSR, despite the very strong relative TSR performance against the peer group during the period. demonstrates the high level of stretch that No discretion has been applied to the 2020 details of how the Committee assessed whether windfall gains were in evidence. performance outcome are set out on Review of windfall gains Given the level of market volatility at the start of 2020, the Committee committed to reviewing the vesting outcome of the 2020 include a windfall gain. After meaningful deliberation, the Committee concluded that decision were: • some shareholders as the point at which • of the maximum opportunity is considered moderate in the context of the strong performance of the business over the performance period and does not result participants. operational performance delivered by the leadership team and the wider participants in Taking these factors into consideration, the Committee concluded that the level of vesting and value delivered under the 2020 performance of the business, and value vesting has been deemed appropriate. 2023 Remuneration outlook reviewed by the Committee in February 2023 also reviewed in February 2023 with increases taking effect from 1 April 2023, with further details set out on page 97. A summary of the planned implementation of the Policy in 2023 considerable time deliberating the right balance between policy, performance and that the Policy and the proposed balance and the Committee therefore recommends this report to shareholders. contained in the report, I would be happy to discuss them with you. Cathy Turner Chairman of the Remuneration Committee 22 February 2023 Annual bonus 150% of salary Pension 10.5% of salary for current Executive Directors and new joiners 3 year performance period 2 year holding period Performance measures: EPS, ROGCE, ESG and Absolute TSR (with Relative TSR gateway) 50% deferral of any bonus earned 3 year deferral period Key policy changes: CFO annual bonus set at 150% of salary (from 125%). CFO shareholding requirement increased to 430% of salary (from 405%). Pension aligned with wider workforce. Additional features: Shareholding requirement: 430% of salary for all Executive Directors Two year post cessation shareholding requirement: 200% of salary for all Executive Directors Cash Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Cash Shares Shares Shares Shares LTIP 280% of salary Salary 2023 Remuneration Policy – Our Remuneration Structure remains consistent with the 2020 Policy. Key principles of our remuneration strategy: • Reward delivery of the Group’s strategy in a simple and transparent way that is aligned to shareholder interests. • Attract, retain and motivate senior executives with market competitive reward. • Align performance measures with shareholder returns with stretching targets aligned to long term value creation. • Spectris plc Annual Report and Accounts 2022 85 STRATEGIC REPORT GOVERNANCE Directors’ Remuneration Report Summary of key changes to the Group's Remuneration Policy effective 1 January 2023 Full details of the 2023 Remuneration Policy can be found at www.spectris.com/remuneration Arrangements under 2020 Policy Key changes to 2023 Policy Planned 2023 implementation of 2023 Policy Salary required skills and expertise to deliver the Group’s strategic and performance objectives. No change to Policy. with average increase for UK employees. Further details are set out on page 84. Pension Executive Directors receive an annual cash allowance in lieu of participation in a Spectris pension scheme. Maximum potential payment under Policy of Allowance for Executive Directors and new joiners aligned to the wider UK workforce company Car and fuel allowances, healthcare, life and disability assurance with a maximum total £30,000. No change to Policy. Provided in line with the Remuneration Policy. Executive variable pay Bonus Maximum opportunity based on salary. for three years. Increase in quantum for the CFO (maximum opportunity increasing (maximum opportunity) opportunity) Percentage of total opportunity: Measure weighting Adjusted Cash conversion Operational and strategic measures Percentage of total opportunity: Measure weighting Adjusted Operating Margin Growth Like-for-Like(“LFL”) Sales Growth Adjusted Cash conversion Operational and strategic measures In line with the Remuneration Policy. Annual bonus payout curve: Threshold: Target: Maximum: Performance targets are not disclosed in advance due to their commercial sensitivity. All targets will be disclosed retrospectively following the end of the performance period. No change to Policy. In line with the Remuneration Policy. Arrangements under 2020 Policy Key changes to 2023 Policy Planned 2023 implementation of 2023 Policy Long Term Incentive Plan (‘LTIP’) of salary through multiplier of 1.4x base award with TSR performance conditions. No changes to Policy. In line with Remuneration Policy. Performance measures and weightings underpin): Quantum unchanged with performance measure structure Strategy for Sustainable Growth. Base Award: (equal thirds) • Adjusted Earnings Per Share (“EPS”) Growth • • employee engagement and Scope 1 and 2 emissions reduction. TSR multiplier unchanged. Return on Gross Capital Employed: Employee Engagement (GrandMean): Threshold: 3.94. Target 4.00. Scope 1 and 2 reduction (2022 baseline): Other variable pay to be built up within No change to Policy. CFO shareholding requirement increased due to change in variable pay. Any Executive Director who leaves the Company to retain the lower of: • Actual shareholding at the date of • To be retained by a departing Executive No change to Policy. In line with Remuneration Policy. Malus and Clawback Clawback and malus provisions enable variable remuneration to be reclaimed under the following circumstances: material misstatements of results or breach of our Code of Business Ethics. Standard clawback provisions on bonus end of the relevant performance period. No change to Policy. In line with Remuneration Policy Non-executive fees commitments for the role. Directors is reviewed annually. The fee structure was reviewed in market practice and changes were approved to take effect from 1 April 2023 to maintain fees at close to median level. Senior Independent Director £13,000 (Audit and Risk and Remuneration) Workforce Engagement Director £12,000 Travel supplement Spectris plc Annual Report and Accounts 2022 86 Directors’ Remuneration Report Andrew Heath £2,206,056 2021 £1,404,337 Derek Harding £1, 574,756 2021: £800,940 2022 Remuneration at a Glance Business performance momentum in the business and an order book making further progress in 2023 towards our medium term performance objectives, compounding growth through the cycle, expanding margins and making Spectris a leading sustainable business. Key statistic highlights • • • • Increasing investment in our R&D programmes • Sale of Omega completed in July for £418 million. • £190 million of £300 million share buyback programme completed. • consistent dividend growth. 2022 Annual Bonus Plan Performance dimensions (% weighting) Outcome Adjusted cash conversion (20%) 8.8/20 Strategic and operational (20%) – Andrew Heath Derek Harding 17.0/20 Total Andrew Heath Derek Harding 78.4/100 79.0/100 Annual Bonus Plan outcome Andrew Heath £807, 528 Derek Harding £498,453 2020 Long Term Incentive Plan (‘LTIP’) Performance conditions (% weighting of max award) Outcome (% of maximum award EPS (35.7%) 29.3% ROGCE (35.7%) 35.7% 0.0% (estimated) Total 65.0% LTIP Outcome Estimated vesting value Andrew Heath Derek Harding Performance outcomes Outcomes scenarios Andrew Heath £’000 Derek Harding £’000 100% 38% 38% 24% 22% 18% 25% 27% 51% 21% 25% 50% 61% 4,757 3,251 3,795 841 2,181 Basic Target Maximum Maximum growth Actual 100% 39% 40% 21% 23% 18% 25% 24% 53% 19% 21% 54% 63% 3,349 2,352 2,642 597 1,519 Basic Target Maximum Maximum growth* Actual Key Annual Bonus Each coloured bar shows the percentage of the total comprised by each of the parts Total remuneration 1 2 3 4 1 2 3 4 Andrew Heath 1 2 3 4 Derek Harding 1 2 3 4 2022 dividend per share 75.4p 2022 adjusted cash conversion (bonus outcome) 79 £3,250,430 2021: £2,010,233 £2,352,294 Spectris plc Annual Report and Accounts 2022 87 STRATEGIC REPORT GOVERNANCE Directors’ Remuneration Report of the Report together with the Remuneration Committee Chairman’s Statement, Overview Executive Directors’ remuneration as follows: £’000 A. Base salary B. Taxable C. Pension- related Fixed Pay and (sub-total) D. Annual Bonus 1 E. LTIP 2 F. All- employee share plans Variable remuneration (sub-total) Total Andrew Heath 2022 673 16 135 824 808 1,619 – 2,427 3,251 2021 17 125 925 318 – 1,243 2,010 Derek Harding 2022 501 16 75 592 498 1,261 – 1,759 2,351 2021 17 73 598 248 – 1,422 provisions although no further performance conditions are attached to them. Full details of the nominal cost the deferred element of the Executive Directors’ 2021 bonus entitlement. for 2021 and 2022 can be found on pages 91 and 93. • the total award vested for both Executive Directors. • was no share price appreciation for the 2019 PSP award. A. Salary (audited) expenses insurance (including family cover) and life and disability cover. Executive Director Car and fuel allowances £ Medical/ healthcare cover £ Total £ Andrew Heath 1,311 16,476 Derek Harding 1,311 16,476 of base salary to align with the terms applicable to the majority of the UK wider workforce. Due to the pension lifetime allowance and the maximum annual pension contribution allowance, the Executive Directors are entitled, at their option, to a taxable salary supplement in lieu of some or all of such pension contributions. Both Executive Directors have chosen this option and each receives a cash payment in lieu of participation in a Spectris pension scheme. Remuneration for FY2022 Spectris plc Annual Report and Accounts 2022 88 Directors’ Remuneration Report D. 2022 Annual bonus outcome (audited) used in determining the level of bonus payable. Maximum bonus opportunity (% of salary) Bonus performance conditions (% of maximum bonus opportunity) (% of salary) On-target (% of salary) Maximum (% of salary) Actual Group performance/ assessment of personal objective performance Payout 1 £ Percentage of maximum bonus Andrew Heath (Salary – 150% Adj. Operating 0% 45% 90% 79.7% 547,818 53.2% Adj. Cash Conversion (20%) 0% 15% 30% 13.2% 90,708 8.8% Strategic Objectives (20%) 0% 15% 30% Total 0% 75% 150% 117. 5% 807,528 78.4% Derek Harding (Salary – £505,000) 125% Adj. Operating 0% 37.5% 75% 53.2% Adj. Cash Conversion (20%) 0% 12.5% 25% 11.0% 8.8% Strategic Objectives (20%) 0% 12.5% 25% 21.3% 107,313 17.0% Total 0% 62.5% 125% 98.7% 498,453 79.0% Remuneration Policy. Bonus performance measures Bonus targets 1 (0% of max) Target (50% of max) Maximum (100% of max) Actual £212.9m Cash conversion 70% 80% 90% 78.8% 1. 2022 bonus targets and actual results are prepared and calculated on standard FX rates so that the bonus outturn was not impacted (positively or negatively) by exchange rate movements during the bonus year. the Executive Directors. any items should be excluded because it gives a distorted view of performance. As Dytran Instruments Inc. was acquired in September 2022, the Group’s actual operating support customer demand and production schedules, a decision was taken to forward purchase key components and inventory. While this policy has been successful in supporting our customers, it has resulted in a lower cash conversion result than would have otherwise been the case. change in purchase opportunity. Cash Conversion metrics. Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 89 STRATEGIC REPORT GOVERNANCE cover a range of the Company’s targeted strategic priorities. Each priority is assigned an Directors and performance against them are summarised in the table below. As outlined in last year’s Remuneration report, and in line with the treatment of the wider employee population, the Committee reviewed the Executive Directors’ performance against and operational objectives, considering not only what was achieved, but how it was achieved. Andrew Heath % of salary target Performance summary % bonus awarded • Grow the business 8% Successful refresh of the Group's Strategy with the launch of the Group's Strategy for Sustainable Growth. A strong emphasis on building out the Group’s Purpose, with a broad focus on sustainability, our key growth markets and the investments required to build a world-class business. Communicated compelling strategy at Capital Markets Day with strong positive feedback from shareholders. 8% • Customer 4% On-time delivery improvements budgeted for in 2022 were not achieved due to supply constraints. 2% • Portfolio strategy 5% Successfully executed the divestment of Omega Engineering. Led a compelling bid for Oxford Instruments which was hindered by external events. 3% • Operating leverage 5% Achieved robust operating leverage, but below target. Developed the Group’s organisational design to support the Group’s strategic ambitions. 4% • Employee Engagement and leadership 4% Developed and deployed a robust roadmap to build the Group's approach to inclusion and belonging. Strengthened business leadership in Red Lion and Servomex and made good progress in building succession pipeline. 4% • ESG 4% Delivered a 21.3% reduction in in-year Scope 1 and 2 emissions and developed the Group's Net Zero Roadmap moving from estimated to actual data at Red Lion, PMS and Servomex. 4% Total 30% 25% Derek Harding % of salary target Performance summary % of bonus awarded • Facilitate a detailed understanding of the Group’s target operating model and cost base. To ensure a clear and sustainable path to increased operating margins 7% Achieved and build a new reporting model for the Group. Deployment delayed until early 2023. on target operating model. 4% • Oversee a investment in our IT capability 4% Successfully led the ERP transformation project with appropriate governance and communication structure in place. Group consolidation system to be deployed in 2023. 3% • Strengthen Risk Management & Control 5% Delivered the continued improvement of the Group’s controls environment, including the further development of the Group’s risk management structure and internal controls processes. 5% • Strengthen Investor Relations and the leadership of Audit 5% Delivered a strong Capital Markets Day and strategy and performance targets to underpin the strategy. Effectively managed the outsourcing of the Group’s Internal Audit Function to PwC. 5% • improvement on employee engagement scores in the Finance function 4% Provided effective support and guidance to the development of the Group’s approach to inclusion and belonging, including leading the launch of the inclusion roadmap at the Group’s leadership conference. 4% Total 25% 21% Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 90 E. Long Term Incentive Plan (LTIP')/ Performance Share Plan (‘PSP’) (audited) PSP awards made under the Spectris Performance Share Plan (‘PSP’) to the Executive Directors were structured so that was made in respect of the Group EPS and of grant in respect of the TSR measure) TSR performance condition is measured independently by Aon Hewitt (‘Aon’). A holding period of two years applies to all awards following vesting. F: All-employee share plans (audited) Payments to past Directors (audited) PSP awards vested in March 2022 (audited) Performance condition Weighting (20% vesting) Maximum (100% vesting) 1 Actual Percentage weighted performance condition vested Percentage of total award vested Group EPS One-third CPI + 5% c.p.a. CPI + 11% c.p.a. or above CPI – 1.7% c.p.a. 0.0% 0.0% TSR One-third Median Upper quintile or above Actual – 48.8% 2 Median – 15.5% UQ – 71.3% 25.4% EP One-third £139.8m 0.0% 0.0% Total 25.4% outcome. Executive Director Total number of shares subject to PSP option at date of grant Face value at date of grant 1 Vesting percentage of total award Vested award Reinvested Dividend Shares Total Vested Award Share price on vesting date (7 March 2022) Vesting value Share price appreciation as a % of the total vested award value Andrew Heath 45,710 £1,220,000 25.4% 858 12,466 2,557p £318,175 (4)% 2 Derek Harding 35,593 £949,977 25.4% 9,039 9,707 2,557p £247,756 (4)% 2 Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 91 STRATEGIC REPORT GOVERNANCE Directors’ Remuneration Report Remuneration for FY2022 continued LTIP awards vesting in March 2023 (audited) (‘ROGCE’) performance conditions. A multiplier (up to a maximum of 1.4 times) will apply to the base award vesting level but only on achieving stretching absolute and relative Total Shareholder Return (‘TSR’) targets. • be appropriate. • moderate in the context of the strong performance of the business over the performance • include a windfall gain that resulted in excess value being delivered to the Executive Directors. vesting position for the TSR Multiplier (based on Aon’s interim report as at 31 December 2022) are provided below: Performance condition Award level (% of salary) Maximum Actual Actual/ estimated percentage vesting Actual/ estimated percentage of total vested award EPS 100% 4% p.a. 10% p.a. 1 81.9% 29.3% ROGCE 100% 13.7% (2019 ROGCE +1%) 15.7% (2019 ROGCE+3%) 2 100.0% 35.7% TSR Multiplier 80% (Up to 1.4X multiplier) Multiplier Absolute TSR Relative TSR Gateway Estimated TSR 0.0% (1.0X multiplier) 0.0% 1.0X 8% p.a. or less Median or above Absolute: Relative: Above Upper Quartile 3 1.0X to 1.2X 8% –10% p.a. 1.2X 10% p.a. 1.2X to 1.4X 10% – 15% p.a. Upper Quartile or above 1.4X 15% p.a. Total 280% Estimated total vesting 65.0% • In order to account for material business divestments which occurred with more than one year remaining of the base performance condition and outcomes have been adjusted to remove the impact of the disposed entities. • In order to account for material business divestments which occurred with less than one year remaining divested business. Spectris plc Annual Report and Accounts 2022 92 Directors’ Remuneration Report Remuneration for FY2022 continued As at 31 December 2019 pence As at 31 December 2022 pence Adjusted EPS (reported) 159.9p Adjustments relating to disposals (BTG, EMS, Millbrook, BK Vibro, ESG and NDCT) (27.7p) Adjustments relating to disposal of Omega 20.0p Adjusted EPS (excluding disposals) 140.3p 179.9p Compound annual growth in EPS 8.64% in the 2021 gross capital employed and is not included in the 2022 closing balance gross capital employed due to the disposal. As a result the average gross capital employed is skewed due to Omega. To ensure an equitable approach was agreed by the Committee in December 2021, and is a consistent approach to prior years and prior 31 December 2022 £m Average gross capital employed (reported) 1,473.4 222.4 14.0 236.4 ROGCE 16.0% based on the position as at 31 December 2022. Executive Director Maximum vesting opportunity under LTIP option 1 Face value of maximum LTIP award 2 Estimated vesting % of maximum award Estimated number of shares vesting Estimated reinvested dividend shares 3 Estimated total number of shares vesting Year-end three- month average share price Estimated vesting value Estimated share price appreciation as a % of vested value Andrew Heath £1,707,972 49,555 53,182 3,049.43p 27% Derek Harding 59,395 £1,329,973 38,587 2,824 41,411 3,049.43p 27% sold to meet income tax and national insurance contributions due on exercise, at the Director’s discretion, and the net balance of shares transferred to the individual. Awards lapse if they do not vest on the third anniversary of their award. Deferred Bonus Plan (‘DBP’) awards granted during 2022 (audited) remain subject to continued employment conditions as well as malus and clawback provisions although no further performance conditions apply. Bonus entitlement and calculated according to the average of the closing share price over the Director Exercise price Number of shares under DBP share option Face value of DBP share option at date of grant 1 Andrew Heath 5p 17,4 07 Derek Harding 5p 11,249 £298,998 Spectris plc Annual Report and Accounts 2022 93 STRATEGIC REPORT GOVERNANCE LTIP awards granted during 2022 (audited) are subject to the performance conditions detailed below. Director Exercise price Number of shares under Base award (% of salary) Face value of Base award at date of grant 1 (£) Andrew Heath 5p (200% of salary) £1,259,015 Derek Harding 5p (200% of salary) £980,377 2022 LTIP base award performance conditions Condition 2 % of Base award that vests Performance Metric Performance Period Adjusted EPS Growth (50% of base award) 0% Less than 4% 1 Jan 2022 to 31 Dec 2024 10% 4% 10% to 50% (straight-line pro-rata basis) Between 4% and 10% 50% 10% or more Return on Gross Capital Employed (‘ROGCE’) (50% of base award) 0% Less than 1% above 2021 ROGCE 1 Jan 2022 to 31 Dec 2024 10% 1% above 2021 ROGCE 10% to 50% (straight-line pro-rata basis) Between 1% and 3% above 2021 ROGCE 50% 3% or more above 2021 ROGCE 2. A holding period of two years applies to all awards following vesting. prior to the date of grant. A multiplier (up to a maximum of 1.4 times) will apply to the base award vesting level but only on achieving stretching absolute and relative Total Shareholder Return (‘TSR’) targets. achievement against the growth condition is presented to and approved by the Committee. ROGCE is obtained from the audited Financial Statements and is a comprehensive measure of the effectiveness of all capital deployed by the Group and supports the Group’s key strategic will monitor outcomes for the EPS and ROGCE measures to ensure that they achieve the original objectives and may adjust the vesting accordingly. Any exercise of discretion will be Maximum TSR Multiplier TSR Multiplier 0.4x maximum additional share opportunity (shares) Maximum Opportunity Base award + TSR Multiplier (shares) Face value of Maximum award at date of grant 1 (£) 1.4 X base award (80% of salary) = (280% of salary) 14,753 (80% of salary) (280% of salary) £1,372,511 2022 LTIP TSR Multiplier performance conditions TSR Multiplier Absolute TSR Growth Targets Relative TSR gateway –assessed against FTSE 250 index (excluding investment trusts) Performance Period 1.0 X 8% p.a. or less Median or above 17 March 2022 to 17 March 2025 Between 1.0 X and 1.2 X Between 8% and 10% p.a. 1.2 X 10% p.a. Between 1.2 X and 1.4 X Between 10% and 15% p.a. Upper quartile or above 1.4 X 15% p.a. or more Performance Level EPS Vesting ROGCE Vesting Base award Vesting TSR Multiplier factor Overall Vesting (as % of base award) 10% + 10% = 20% x 1.0 = 20% Maximum 50% + 50% = 100% x 1.4 = 140% Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 94 Total shareholder return performance Historical Chief Executive remuneration year as a percentage of the potential maximum. 2013 2014 2015 2017 2018 2018 2019 2020 2021 2022 John O’Higgins John O’Higgins John O’Higgins John O’Higgins John O’Higgins John O’Higgins Andrew Heath Andrew Heath Andrew Heath Andrew Heath Andrew Heath 2,172 1,122 729 1,388 2,253 2 324 2 1,404 2,010 3 3,251 4 Annual bonus (% of maximum) 20% 18% 0% 1 90% 80% 54% 45% 40% 98% 78% PSP vesting (% of maximum) 100% 28% 0% 0% 10% N/A N/A 31% 25% 3 4 1. Bonus entitlement waived. 50 100 150 200 250 Dec-22Dec-21Dec-20Dec-19Dec-18Dec-17Dec-16Dec-15Dec-14Dec-13Dec-12 Value (£) (rebased) Spectris FTSE 250 (excluding investment trusts) Source: FactSet Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 95 STRATEGIC REPORT GOVERNANCE Percentage change in remuneration of the Directors distortion arising from currency and cost of living differences in other geographies in which Spectris operates. % change 2021–2022 % change 2020–2021 Executive Directors Salary /Fees 1 2 Annual bonus 3 Salary /Fees Annual bonus Andrew Heath 9.1% (3.6%) (12.7%) 3.2% (0.5%) 152.8% Derek Harding 3.0% (3.6%) (16.7%) 3.2% (0.5%) 151.8% Chairman and Non-executive Directors Mark Williamson 3.0% n/a n/a 5.5% n/a n/a Ravi Gopinath 2.4% n/a n/a n/a n/a n/a Alison Henwood 3.0% n/a n/a n/a n/a n/a Ulf Quellmann 2.4% n/a n/a 4.3% n/a n/a Bill Seeger 1.8% n/a n/a 7.8% n/a n/a Cathy Turner 2.4% n/a n/a 10.8% n/a n/a Kjersti Wiklund 2.5% n/a n/a 11.1% n/a n/a Spectris UK-based employees 6.2% 20.5% (4.1%) 7.0% 0.3% 120.3% part was approved by shareholders as part of the implementation vote on the 2022 Remuneration Report. it does for the Executive Directors. CEO pay ratios remuneration of Group UK employees. Financial year Method 25th percentile pay ratio (lower quartile) 50th percentile pay ratio (median) 75th percentile pay ratio (upper quartile) 31 December 2019 Option A 40:1 30:1 21:1 31 December 2020 Option A 47:1 25:1 31 December 2021 1 Option A 45:1 32:1 31 December 2022 Option A 96:1 70:1 49:1 table and notes below. Financial year No. of UK employees Remuneration Chief Executive 25th percentile employee (lower quartile) 50th percentile employee (median) 75th percentile employee (upper quartile) 31 December 2021 1,331 Base salary £30,000 FTE base salary £40,800 FTE base salary £55,378 FTE base salary Total remuneration £3,250,430 STFR £33,712 total FTE total FTE total FTE level as the Chief Executive. Given the complexity of the calculations, such estimated values will not be restated was chosen as it is considered to be the most statistically accurate way to identify the best with our pay, reward and progression policies for UK employees. Roles are regularly benchmarked Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 96 highlights the greater volatility in the Chief Executive’s STFR which has a greater emphasis on with shareholder interests. policies and practices for our workforce and consideration of shareholders and other stakeholder views as part of designing the Remuneration Policy and its operation for the Executive Directors. reward and progression policies across all of the Company’s employees. Relative importance of spend on pay payments between the years ended 31 December 2021 and 31 December 2022. Total employee 2022 £m 2021 £m % change Total employees pay 1 514.0 484.0 Dividends paid during the year 2 78.6 79.0 (0.5%) Share buyback 191.0 201.3 (5.1%) 1,3 219.7 184.7 18.9% announcement and completion of Omega disposal during 2022 in line with the reporting requirements under Capital caused by the share buyback programme. Non-executive Directors’ remuneration Chairman and Non-executive Directors’ fees out below: 2023 2 £’000 2022 £’000 2021 £’000 Chairman (all-inclusive fee) 250 239 232 Non-executive Director basic fee 60 58 Senior Independent Director (‘SID’) fee 13 10 10 Chairman of the Audit and Risk Committee 15 14 14 Chairman of the Remuneration Committee 15 14 14 Workforce Engagement Director 12 12 12 Annual travel supplement to be paid to overseas-based Non-executive Directors 1 15 15 15 Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 97 STRATEGIC REPORT GOVERNANCE year is as follows: Basic fees £’000 Additional fees £’000 Taxable expenses £’000 Total £’000 Mark Williamson 1 Non-executive Chairman 2022 237 – – 237 2021 229 – – 229 Ravi Gopinath 2,3 2022 59 15 – 74 2021 34 1 – 35 Alison Henwood 2 2022 59 – – 59 2021 19 – – 19 Ulf Quellmann 3 2022 59 15 – 74 2021 57 4 – Bill Seeger 4 SID, Chairman – Audit and Risk 2022 59 38 – 97 2021 57 23 – 80 Cathy Turner Chairman – Remuneration 2022 59 14 – 73 2021 57 13 – 70 Kjersti Wiklund Workforce Engagement Director 2022 59 12 – 71 2021 57 11 – 3. Ravi Gopinath, Ulf Quellmann and Bill Seeger (all based overseas) receive an additional annual travel supplement Directors’ shareholdings and share interests (audited) Each Executive Director is, subject to personal circumstances, required to build a retained Both Andrew Heath and Derek Harding (appointed on 3 September 2018 and 1 March 2019 the Company’s shares or not. persons) on 31 December 2022, is: Interest in share plans Director Ordinary shares held on 31 December 2022 LTIP 1 (share options) PSP/ DBP 2 (share options) SIP shares 3 Total Interests in shares on 31 December 2022 Total shares counting towards shareholding requirement 4 Shareholding as a % of base salary on 31 December 2022 5 Shareholding requirement met Andrew Heath 33,397 43,409 345 274,058 249.2% No Derek Harding 11,234 153,328 24,977 189,835 24,932 148.3% No conditions attached to them. forfeiture rules. 4. Based on shareholding plus the net of UK income tax and NI contribution value of share options held without performance conditions (see below): • Andrew Heath’s balance includes 20,183 vested PSP share options that are currently subject to an additional • Directors’ shareholding in the SIP No. of shares held at 1 January 2022 No. of Partnership shares purchased during the year No. of Matching shares awarded during the year Dividend shares Total No. of shares held within the SIP as at 31 December 2022 Andrew Heath 12 8 345 Derek Harding 215 13 7 opportunity to participate in the SIP on the same terms as other Group UK employees. Under the SIP, Partnership shares may be purchased each month at market value using gross salary Partnership shares purchased, the Company will award one free Matching share. All shares are of the date of award. Between 1 January and 22 February 2023, Andrew Heath and Derek Harding purchased 9 and 10 Partnership shares respectively and both received 2 free Matching shares through the Remuneration for FY2022 continued Directors’ Remuneration Report Spectris plc Annual Report and Accounts 2022 98 Directors’ share options (audited) Director Share plan 1 Date granted Performance period end date Expiry date Exercise price (pence) Market value per share at date of award Face value at date of grant (£) No. of shares subject to options at 1 January 2022 Granted during the year Exercised during the year Lapsed during the year No. of shares subject to options at 31 December 2022 Andrew Heath PSP 2,5 Sept 2018 Sept 2021 Sept 2028 5 2,378.4 508,312 7,221 182 7 – – 7,403 Mar 2019 Mar 2022 Mar 2029 5 1,220,000 45,710 1,172 7 – 34,102 12,780 LTIP 3,5 Mar 2020 Mar 2023 Mar 2030 5 2,239.2 1,707,972 – – – Mar 2021 Mar 2024 Mar 2031 5 3,144.4 1,707,975 54,318 – – – 54,318 Mar 2022 Mar 2025 Mar 2032 5 – – – DBP 4 Mar 2021 Mar 2024 Mar 2031 5 3,144.4 182,973 5,819 – – – 5,819 Mar 2022 Mar 2025 Mar 2032 5 – 17,407 – – 17,407 Total 189,344 85,074 – 34,102 240,316 Derek Harding PSP 2,5 Mar 2019 Mar 2022 Mar 2029 5 949,977 35,593 913 7 – 9,952 LTIP 3,5 Mar 2020 Mar 2023 Mar 2030 5 2,239.2 1,329,973 59,395 – – – 59,395 Mar 2021 Mar 2024 Mar 2031 5 3,144.4 1,329,955 – – – Mar 2022 Mar 2025 Mar 2032 5 1,372,511 – – – DBP 4 Mar 2021 Mar 2024 Mar 2031 5 3,144.4 118,733 – – – Mar 2022 Mar 2025 Mar 2032 5 298,998 – 11,249 – – 11,249 Total 141,060 63,799 – 26,554 178,305 Employed (‘ROGCE’) target. A multiplier (up to a maximum of 1.4 times) will apply to the base award vesting level but only on achieving both absolute and relative stretching TSR targets. Each Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 99 STRATEGIC REPORT GOVERNANCE Dilution limits In line with best practice, the use of new or treasury shares to satisfy the vesting of awards Chairman and Non-executive Directors’ interest in shares Company’s incentive schemes nor are they required to build and retain a minimum year ended 31 December 2022. Current Non-executive Director Shares held at 1 January 2022 (or date of joining) Shares held at 31 December 2022 (or date of cessation) Mark Williamson 17,282 17,282 Ravi Gopinath – – Alison Henwood – 947 Ulf Quellmann 2,341 2,398 Bill Seeger 3,000 3,000 Cathy Turner 2,660 Kjersti Wiklund – 1,500 Directors between 1 January 2023 and 22 February 2023. Share price Directors’ service contracts and letters of appointment either party, or to summary notice in the event of serious breach of the Director’s obligations, dishonesty, serious misconduct or other conduct bringing the Company into disrepute. All Governance Code. Date of contract Expiry date Notice period Length of service at 22 February 2023 Executive Director Andrew Heath 3 Sept 2018 Rolling contract with 12 months 4 years 5 months Derek Harding 1 Mar 2019 Rolling contract with 12 months 3 years 11 months Non-executive Director Mark Williamson Renewable at each AGM 5 years 9 months Ravi Gopinath 1 Jun 2021 Renewable at each AGM 1 year 8 months Alison Henwood 1 Sep 2021 Renewable at each AGM 1 year 5 months Ulf Quellmann 1 Jan 2015 Renewable at each AGM 8 years 1 month Bill Seeger 1 Jan 2015 Renewable at each AGM 8 years 1 month Cathy Turner 1 Sep 2019 Renewable at each AGM 3 years 5 months Kjersti Wiklund 19 Jan 2017 Renewable at each AGM Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 100 External appointments – Executive Directors appointments held. Such appointments are normally limited to one per Director at any time Summary of shareholder voting on Directors’ remuneration table below: Votes for Votes against Votes withheld Number % Number % Number 2022 General Meeting 2023 Directors' Remuneration Policy 95.50% 4,077,799 4.50% 38,488 2022 AGM 2021 Directors’ Remuneration Report 97.28% 2.72% Directors’ interest in contracts No Director had, during the year or at the end of the year, any material interest in any contract of Loans to Directors During the year, there were no outstanding loans to any Director. Directors’ Remuneration Report Remuneration for FY2022 continued Spectris plc Annual Report and Accounts 2022 101 STRATEGIC REPORT GOVERNANCE Role of the Remuneration Committee Policy, including the remuneration arrangements for the Chairman, the Executive Directors and members of the Executive Committee, and for the practical operation of the Policy. of remuneration for senior management and takes into account workforce remuneration, of reference for the Remuneration Committee are reviewed annually and are available at www.spectris.com/corporategovernance. Committee members and attendees Committee have the right to attend meetings but other individuals and external advisers During the year, the Committee also invited Andrew Heath (Chief Executive), Derek Harding (CFO), Andrew Harvey (Group Human Resources Director) and Rebecca Dunn (Head of Corporate Affairs) to attend certain meetings to provide advice to the Committee to allow it being discussed. remuneration advice during the year from the external advisers appointed to support Committee activities in 2022 in 2022: January 2022 • relating to the 2021 annual bonus plan. • performance measures and personal objectives relating to the 2022 Annual Bonus Plan. • Review of the outcomes of the Committee’s annual self-evaluation exercise. February 2022 • Review of Executive Director and Executive Committee salaries and Chairman’s fee. • Agreement of Executive Directors’ 2022 bonus arrangements, target performance measures and personal objectives. • Review and approval of incentive outcomes for the 2019 Performance Share Plan (‘PSP’). • Review and approval of 2022 LTIP grant levels and target range for performance measures. • Review and approval of the 2021 Directors’ Remuneration Report. June 2022 • Review of external market practice and investor feedback on current remuneration structure. • Review of potential structures for 2023 Remuneration Policy with the Group's external remuneration adviser. July 2022 • Consideration and approval of interim LTIP awards for new joiners and promotions below Board level. • Agreement for the treatment of share awards granted to Omega employees on the divestment of the Omega business from the Spectris Group. • Review of emerging market practice on remuneration matters, led by the Committee’s external remuneration adviser. • Review of the planned structure of the Group's 2023 Remuneration Policy. December 2022 • A review of the likely formulaic outcomes of the 2022 Bonus and 2020 LTIP awards and a discussion of the need for the Committee to consider any upward or downward discretion in relation to those likely outcomes. • Review of the wider external remuneration landscape, including investor body guidelines on workforce pay and windfall gains. • Review of the Committee’s Terms of Reference. Directors’ Remuneration Report Spectris plc Annual Report and Accounts 2022 102 In line with the requirements of the UK Corporate Governance Code to include explanation of the Company’s approach to investing in and rewarding its workforce, some of the work that Stakeholder Engagement Values and culture in remuneration the foundation for the operational and strategic targets for the Executive Directors and Executive Committee members for 2022. In assessing performance against these targets, the engagement survey was also used to obtain feedback from the workforce on remuneration and this will continue in future surveys. Stakeholder views strategies for supporting employees through the cost of living challenges present in key balanced the interests of all stakeholders. Careful consideration has also been given by the Committee to the guidance issued by investors and investor bodies on the management of Employee share ownership Spectris is a proud advocate of employee share ownership. Due to the Group’s decentralised structure, particular importance is placed on aligning management in our businesses with the business to support the alignment of their interests with shareholders. In the UK, the Group under the SIP, the Company awards one free Matching share. Directors’ Remuneration Report Spectris plc Annual Report and Accounts 2022 103 STRATEGIC REPORT GOVERNANCE Gender pay gap reporting gender pay gap data. However, the Committee considers the issue of gender pay to be Committee elected to use the data collated for the CEO pay ratio to produce a consistent gender pay gap disclosure which allows the Committee to analyse both key metrics from one source of data. for doing the same job and that the imbalance in the number of male and female employees in similar roles, in the composition of the UK workforce, continues to drive our gender pay gap. Committee and there have been early signs of it reducing. For example, the percentage of Non-Management Management Total Median Mean Median Mean Median Mean Gender pay gap 18.4% 41.2% 21.7% Bonus gap 18.8% 53.1% 37.2% Male Female Male Female Male Female % receiving a bonus 97.8% 100.0% 100.0% 97.9% in 2013, 2018 and 2019 and the provisions of the 2018 UK Corporate Governance Code. Advisers to the Committee Russell King, the then Committee Chairman. During 2022, PwC has provided advisory support to the Committee on various aspects of the Directors’ remuneration, including: • advice on emerging external market practice and stakeholder expectations relating to the • • advice on the interpretation of investor body guidelines concerning remuneration outcomes. PwC reports directly to the Committee Chairman. During 2022, PwC also provided certain project advisory and tax services to the Company. on the Company’s share plans and TSR performance calculations in relation to the Company’s Both PwC and Aon are members of the Remuneration Consultants Group and adhere to its Code of Conduct. advice during 2022. Annual performance evaluation regarding the process followed are set out on page 70. Following this review and the feedback received, the Committee considered that it had operated effectively during the year. 2023 Remuneration Committee workplan • • • monitoring of the Group’s Remuneration Policy against the Group’s strategy, market practice, changes in the external governance environment and investor guidance. By order of the Board Cathy Turner Chairman of the Remuneration Committee 22 February 2023 Directors’ Remuneration Report Role of the Remuneration Committee continued Spectris plc Annual Report and Accounts 2022 104 Directors’ Report Directors’ Report Overview of information required to be disclosed Disclosure Reported in Page reference Acquisitions and disposals Strategic Report Page 31 Articles of Association Directors’ Report Page 106 Annual General Meeting Directors’ Report Page 106 Appointment and removal of Directors Governance Page 76 Auditors’ re-appointment and remuneration Directors’ Report Page 83 Authority to allot shares Directors’ Report Page 107 Business model Strategic Report Pages 16 and 17 Branches Directors’ Report Page 106 Change of control Directors’ Report Page 106 Community and charitable giving Strategic Report Pages 60 and 61 Corporate governance Governance Pages 62 to 107 Directors’ Report Page 106 Directors’ details Governance Pages 64 and 65 Directors’ indemnity Directors’ Report Page 106 Directors’ remuneration and interest Directors’ Report Page 106 Disclosure Reported in Page reference Directors’ responsibility statement Directors’ Report Page 108 Disclosure of information to auditor Directors’ Report Page 107 Diversity, equality and inclusion Strategic Report Page 44 Employee engagement Strategic Report Governance Pages 42 to 44 and 71 to 73 Employee equal opportunities Strategic Report Page 44 Employee share plans Directors’ Report Page 106 Employees with disabilities Strategic Report Page 44 Financial instruments Directors’ Report Page 106 Future developments and strategic priorities Chief Executive Review Pages 8 to 13 Going concern Directors’ Report Page 106 Internal control and risk management systems Governance Page 81 Strategic Report Page 59 Ongoing director training and development Governance Page 70 Political donations Directors’ Report Page 106 Post balance sheet events Directors’ Report Page 106 Powers of Directors Directors’ Report Page 106 Principal risks and risk management Strategic Report Pages 36 to 38 Purchase of own shares Directors’ Report Page 107 Research and development activities Strategic Report Page 6 – 7 Results and dividends Directors’ Report Page 106 Rights and obligations attaching to shares including restrictions on transfer of shares and voting rights Directors’ Report Page 107 Section 172 statement Strategic Report Governance Page 5 Pages 68 and 69 Share capital Directors’ Report Page 107 Stakeholder engagement Governance Pages 68 and 69 Streamlined Energy and Carbon disclosures Strategic Report Pages 50 and 51 Substantial share interests Directors’ Report Page 107 Treasury shares Director’s Report Page 107 Viability Statement Strategic Report Page 39 GOVERNANCE Spectris plc 105 Directors’ Report Results and dividends amounts to £222.4 million (2021: £189.6 million). An interim dividend of 24.1 pence per share was paid on 11 November ended 31 December 2022. Together with the interim dividend paid in total dividends for the year ended 31 December 2022 will amount to 75.4 pence per share. Dividend details are given in Note 8 to the Consolidated Financial Statements on page 134. dividend will be paid on 30 June 2023 to those shareholders on the register on 19 May 2023. Articles of Association (‘Articles’) regarding the Company’s powers to borrow money. Powers relating to pre-emptive rights, allotment of shares and purchase of the Company’s own shares are also included in the Articles and such authorities are Articles also give power to the Board to appoint and remove Directors following their appointment and for annual re-election at subsequent website: www.spectris.com. Annual General Meeting (‘AGM’) It is intended that the 2023 AGM will be held at 3:00pm on 26 May 2023 at www.spectris.com/AnnualGeneralMeeting. Auditor’s re-appointment and remuneration auditor and to authorise the Directors, acting through the Audit & Risk Committee, to agree the remuneration of the auditor are to be proposed at the 2023 AGM. Branches branches in a number of different countries in which the business operates. Change of control upon a change of control of the Group following a takeover, such as bank loan agreements and Company share plans. None of these are business of the Group as a whole. It is also possible that funding would need to be enhanced following a change in control if that not have any agreements with any Director that would provide for a takeover bid. Directors Details of the Directors who served during the year are set out on pages 64 – 65 there have been no changes to the Board during the year. Directors’ remuneration and interest Details of Directors’ remuneration and their interest in the Company’s shares are set out in the Directors’ Remuneration Report on pages 84 to 104. Indemnity provisions third-party indemnity, under the Act, which remains in force. Neither the Company’s indemnity nor insurance provides cover in the event that an During the year and at the date of this report, the Company has in place pension plan. Directors’ powers exercise all the powers of the Company subject to the Articles and the Act. Employee share plans Details of employee share plans are set out in Note 22 to the Consolidated Financial Statements on page 148 to 151. Financial instruments Statements on pages 156 to 158. Going concern and Viability Statement the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12 months following the signing of the accounts. For this reason, it continues to adopt the going concern basis in preparing the Group’s accounts. Political donations Post balance sheet events None. Spectris plc 106 Purchase of own shares purchase in the market ordinary shares with a nominal value of 5 pence each up to an amount not exceeding 10% of the Company’s issued share capital, as permitted under the Company’s Articles. During the year ended 31 December 2022, 6,439,493 ordinary shares were repurchased and cancelled by the Group, for an average price of 2,948.00 pence per share, as part of the £300 million share buyback programme announced launched as a result of our enhanced balance sheet, projections for for £150 million was launched pursuant to the authority granted by the Company's shareholders at the 2021 AGM, and the further tranche of £150 million was launched, pursuant to the authority granted by the standard authority is renewable annually and the Directors will seek to renew this authority at the 2023 AGM. Related party transactions Details of related party transactions are set out in Note 31 to the Financial Statements on page 161. Share capital each: each share (with the exception of those held by the Company in Treasury) carries the right to one vote at general meetings of the share capital by special resolution subject to the Articles and applicable with movements in the Company’s issued share capital during the year are shown in Note 21 to the Financial Statements on page 148. Shareholders’ rights and obligations attaching to shares contain provisions governing the ownership and transfer of shares. All shareholders have equal voting rights with one vote per share and no restrictions on the transfer of shares or voting rights (under any agreement or otherwise) beyond those required by applicable law under the Articles or under any applicable share dealing policy. Subject to any special rights or restrictions, every shareholder on the general meeting, will have one vote for every fully-paid share that they hold. Shareholders may cast votes either personally or by proxy, and a proxy need not be a shareholder. Details relating to the appointment of proxies and registration of voting instructions for the 2023 AGM are set out in the Notice of AGM accompanying this Annual Report. Substantial shareholders of the following holdings in its ordinary shares in accordance with DTR 5: Shareholding in Spectris shares Date of Percentage of issued share capital at date 8,682,229 01 Jan 2020 7.48% BlackRock 6,069,049 21 Dec 2020 6.23% UBS 5,954,961 11 Jan 2021 5.12% Massachusetts Financial Services Company 5,178,500 15 Mar 2022 4.67% Between 31 December 2022 and the date of this report, the Company shareholders is set out on page 179. Treasury shares Shares held by the Company in treasury do not have voting rights and are not eligible to receive dividends. Disclosures required under other than in respect of long-term incentive schemes, details of which are set out in the Directors’ Remuneration Report on pages 84 to 104. Disclosure of information • so far as they are each aware, there is no relevant audit information, which would be needed by the Company’s auditor in connection with preparing its audit report, of which the Company’s auditor is unaware; and • each Director has taken all steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Rebecca Dunn GOVERNANCE Spectris plc 107 • • • • • Directors’ responsibility statement • • • Andrew Heath Derek Harding Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements Spectris plc 108 Independent auditor’s report to the members of Spectris plc 1. Opinion In our opinion: • Spectris plc • • • • the Consolidated Income Statement; • the Consolidated Statement of Comprehensive Income; • the Consolidated and Parent Company Statements of Financial Position; • the Consolidated and Parent Company Statements of Changes in Equity; • • the Consolidated Notes 1 to 33 and Parent Company Notes 1 to 14. 2. Basis for opinion or the Parent Company. basis for our opinion. 3. Summary of our audit approach Key audit matters • Revenue recognition continuing operations. • intangible asset arising from the acquisition of Concurrent Real Time as a • Spectris plc 109 4. Conclusions relating to going concern • repayment terms and covenants; • challenging the assumptions used in the forecasts by reference to historical performance, trading run rate, and other supporting evidence, such as business disposal agreements and the current macroeconomic environment; • recalculating and assessing the amount of cash and covenant headroom in the forecasts; and • based on a reduction in revenue and associated margin. going concern basis of accounting. described in the relevant sections of this report. 5. Key audit matters audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. on these matters. predominantly through the provision of goods and services accounted for nature of businesses spanning across numerous countries and industries; understanding the revenue cycles in each business and their respective our planned audit procedures. Note 1 to the Consolidated Financial Statements sets out the Group’s accounting policy for revenue recognition and notes 2 and 3 include details of the Group’s revenue by segment and timing of revenue recognition. • tested the operating effectiveness of these relevant controls; • • timing of revenue recognition and the evidence of the performance • Challenged the appropriateness of accrued income recognised by and • evidence. Spectris plc 110 6. Our application of materiality operations Parent Company materiality Company’s net assets. In the prior materiality. performance measure for management, investors and the important to the users of the portrays the performance of the business and hence its ability to pay a return on investment to the into account the acquisitive nature performance of the business. Consolidated Financial Statements Performance Measures. We consider net assets to be the is to act as a holding company. materiality materiality • • individually material error; and • in previous audits. Spectris plc 111 7. An overview of the scope of our audit • • • Changes in the legal entity structure and local statutory requirements; • • component that govern the general ledger and transaction accounting balances and also tested the general IT controls for some operating entities using our IT specialists. Management determines their response to these observations and continues to monitor their alongside these developments in the internal control environment. posed by climate change, they have assessed that climate change does not create any further Spectris plc 112 component audit closing conference calls and held regular remote meetings to interact on any an effective and consistent approach to component oversight. 8. Other information conclusion thereon. We have nothing to report in this regard. 9. Responsibilities of directors fraud or error. and the Parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the have no realistic alternative but to do so. auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, our auditor’s report. 11. Extent to which the audit was considered capable of detecting irregularities, including fraud • the nature of the industry and sector, control environment and business performance remuneration, bonus levels and performance targets; • • – – actual, suspected or alleged fraud; – regulations; • potential indicators of fraud. Spectris plc 113 • • concerning actual and potential litigation and claims; • • • the normal course of business. regulations throughout the audit. 12. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly • • applicable legal requirements. misstatements in the strategic report or the directors’ report. 13. Corporate Governance Statement • • • the directors’ statement on fair, balanced and understandable set out on page 108; • • management and internal control systems set out on page 81; and • 14. Matters on which we are required to report by exception • • adequate for our audit have not been received from branches not visited by us; or • and returns. We have nothing to report in respect of these matters. Spectris plc 114 of directors’ remuneration have not been made or the part of the directors’ remuneration report We have nothing to report in respect of these matters. 15. Other matters which we are required to address 16. Use of our report assume responsibility to anyone other than the company and the company’s members as a Andrew Bond, FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Spectris plc 115 Consolidated Income Statement For the year ended 31 December 2022 Note 2022 £m (Restated) 1 2021 £m Continuing operations Revenue 2,3 1,327.4 1,1 63 .0 Cost of sales (5 76 .6) (4 8 7. 5) 750. 8 675. 5 Indirect production and engineering expenses (114.1) (92. 6) Sales and marketing expenses (2 33 .0) (222.2) Administrative expenses (2 3 1.1) (220. 8) 2,4 17 2.6 139.9 27 (4 .1) – 24 0.3 2 26. 5 Financial income 6 1.9 12. 8 Finance costs 6 (1 9. 2) (5 .4) 151. 5 373. 8 Taxation charge 7 (3 6 .7) (38. 2) 114 .8 335 .6 24 28 6 .7 11 .3 4 01 . 5 34 6.9 Basic 9 1 0 6 .7p 2 95 . 2p Diluted 9 10 6.0p 294.1p Basic 9 3 7 3.1p 30 5 .1p Diluted 9 3 70 .7p 304.0p (per share) 8 75 .4p 71. 8p 8 7 2.9p 69. 5p Consolidated Statement of Comprehensive Income For the year ended 31 December 2022 Note 2022 £m 2021 £m 4 01. 5 346 .9 19 13 .1 (1 .8) value through other comprehensive income 12 5.0 (1. 8) 7 (4 . 0) 0 .7 14 .1 (2 .9) 0.4 (1.9) Foreign exchange movements on translation of overseas operations 10 5 .1 (2 5.1) 24 (8 6 .7) (4. 8) 7 – 0. 3 18.8 (31 . 5) 32.9 (3 4. 4) 434.4 3 12. 5 Spectris plc 116 Note £m premium £m earnings £m reserve £m reserve £m Merger reserve £m reserve £m £m 5.8 2 31.4 9 5 7. 6 66.2 (3 . 5) 3 .1 0.7 1, 261. 3 – – 401 . 5 – – – – 4 01. 5 Other comprehensive income – – 12 .7 19. 8 0.4 – – 32.9 – – 414 . 2 19. 8 0.4 – – 434.4 8 – – (78 .6) – – – – (78. 6) 21 (0. 3) – (191 .0) – – – 0. 3 (191 .0) 22 – – 10.6 – – – – 10.6 – – 0. 2 – – – – 0. 2 5. 5 23 1.4 1,113.0 86 .0 (3 .1) 3.1 1 .0 1,436.9 Note Share capital £m Share premium £m Retained earnings £m Translation reserve £m Hedging reserve £m Merger reserve £m Capital redemption reserve £m Total £m 6.0 23 1.4 88 2.6 9 8.0 (1. 9) 3 .1 0. 5 1 , 2 1 9.7 – – 346 .9 – – – – 34 6.9 Other comprehensive loss – – (1. 0) (3 1. 8) (1 .6) – – (34 .4) – – 345 .9 (3 1.8) (1 .6) – – 3 12. 5 8 – – (79.0) – – – – (79.0) 21 (0. 2) – (201 . 3) – – – 0.2 (201 . 3) 22 – – 9.1 – – – – 9.1 – – 0. 3 – – – – 0. 3 5.8 2 31.4 9 5 7. 6 66.2 (3 . 5) 3 .1 0 .7 1, 261. 3 Consolidated Statement of Changes in Equity For the year ended 31 December 2022 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 117 Consolidated Statement of Financial Position As at 31 December 2022 Note 2022 £m 2021 £m ASSETS 10 6 0 6.1 631. 5 10 18 4 .1 169 .1 11 16 0 .7 15 0.5 Right-of-use assets 11 5 9.7 60. 5 12 29. 3 24 . 3 27 18.9 2 3.0 Investment in associate 12 2 .9 – 27 0.4 – 14 4.2 – Deferred tax assets 20 16 .2 21.2 1,082 . 5 1,080.1 Current assets Inventories 13 263 . 3 1 8 7. 9 Current tax assets 8.6 5 .7 14 362. 5 315.9 27 1. 3 0. 3 Cash and cash equivalents 15 228 .1 1 6 7. 8 Assets held for sale 24 1 .7 10.4 865. 5 688.0 1,948.0 1 ,76 8 .1 LIABILITIES 16 (0.1) – 27 (2 . 3) (1. 2) 17 (37 3 .7) (33 0. 2) (14. 9) (1 6. 6) (14 . 2) (2 8.1) Provisions 18 (12. 8) (1 7. 6) (41 8 .0) (3 93 .7) 4 4 7. 5 294. 3 Note 2022 £m 2021 £m 17 (13 .8) (13. 8) 27 (0. 2) – (5 0. 2) (4 9. 3) Provisions 18 (4. 4) (4 .7) 19 (8 .9) (2 2. 3) 20 (1 5.6) (2 3 .0) (93 .1) (113 .1) (5 11.1) (50 6. 8) Net assets 1,436.9 1 ,26 1. 3 EQUITY Share capital 21 5.5 5.8 Share premium 23 1.4 231.4 Retained earnings 1,113.0 9 5 7. 6 Translation reserve 21 8 6.0 66. 2 Hedging reserve 21 (3 .1) (3 . 5) Merger reserve 21 3 .1 3.1 Capital redemption reserve 21 1.0 0 .7 1,436.9 1 ,26 1. 3 Derek Harding Spectris plc 118 1. Basis of preparation and summary of significant accounting policies a) Basis of preparation Basis of accounting The Consolidated Financial Statements have been prepared on a historical cost basis except for items that are required by International Financial Reporting Standards (‘IFRS’) to be measured at fair value, principally certain financial instruments. The Consolidated Financial Statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted IFRSs. The Consolidated Financial Statements set out on pages 116 to 166 have been prepared using consistent accounting policies. In the current year there are no new standards and interpretations that have had a material impact on the Group’s Statement of Financial Position. These Consolidated Financial Statements are presented in millions of Sterling rounded to the nearest one decimal place. Basis of consolidation The Consolidated Financial Statements set out the Group’s financial position as at 31 December 2022 and the Group’s financial performance for the year ended 31 December 2022, which incorporate the Financial Statements of Spectris plc and its subsidiaries and include its share of the results of associates using the equity method of accounting. The Group recognises its direct rights to (and its share of) jointly held assets, liabilities, revenues and expenses of joint operations under the appropriate headings in the Consolidated Financial Statements. i. Subsidiaries A subsidiary is an entity that is controlled by another entity, known as the parent or investor (such as the Group). An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The results of subsidiaries acquired or disposed of during the year are consolidated from and up to the date of change of control. Where necessary, accounting policies of subsidiaries have been aligned with the policies adopted by the Group. All intra-group transactions including any gains or losses, balances, income or expenses are eliminated in full on consolidation. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value of the consideration received and the amount of the assets (including goodwill), and liabilities of the subsidiary and any non- controlling interests. All inter-company balances and transactions, including unrealised profits arising from intra- group transactions, have been eliminated. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment. ii. Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Note 2022 £m 2021 £m 25 166. 8 191.6 Net income taxes paid (46.8) (32 .2) 120.0 159.4 (4 4 . 9) (3 5. 3) 13.4 – – 0.1 23 (11 4 .7) (135 . 5) Purchase of investment in associate 12 (2 .9) – 12 – 38. 3 24 36 5.4 333.7 Interest received 1.9 0. 5 218. 2 201. 8 (1 .4) (3 .4) 16 (2. 5) (1. 8) Dividends paid 8 (78. 6) (7 9.0) 21 (1 91.0) (201. 3) Net proceeds from exercise of share options 0. 2 0. 3 16 (13 .9) (13.0) 16 326 . 2 70.0 16 (326 .8) (169. 8) (2 8 7. 8) (398 .0) 50. 4 (36 .8) 1 6 7. 8 210.9 Effect of foreign exchange rate changes 9.9 (6 . 3) 15 2 2 8.1 1 6 7. 8 Consolidated Statement of Cash Flows For the year ended 31 December 2022 Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 119 Going concern In determining the basis of preparation for the Consolidated Financial Statements, the Directors have considered the Group’s available resources, current business activities and factors likely to impact on its future development and performance, including the impact of COVID-19 and Climate Change on the Group, which are described in the Chief Executive’s Review, Financial Review and Operating Review. The Group’s business activities, together with factors likely to affect its future development, performance and financial position, are set out in the Strategic Report on pages 2 to 59. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 30 to 33. In addition, note 26 to the Financial Statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. The Group finances its operations from retained earnings and, where appropriate, from third-party borrowings. Total borrowings as at 31 December 2022 were £0.1 million (2021: £nil). As at 31 December 2022, the Group had £414.9 million of committed facilities, consisting entirely of a $500 million multi-currency revolving credit facility (‘RCF’) maturing in July 2025. The RCF was undrawn at 31 December 2022 (2021: undrawn). The RCF has a leverage (covenant defined net debt/EBITDA) covenant of up to 3.5x. The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants. At 31 December 2022, there was net finance income for covenant purposes of £0.1 million, resulting in the interest cover ratio being n/a (31 December 2021: 67 times). 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 2021: less than zero), due to the Group’s net cash position, against a maximum permitted leverage of 3.5 times. In addition to the above, at 31 December 2022, the Group had a cash and cash equivalents balance of £228.1 million. The Group also had various uncommitted facilities and bank overdraft facilities available. Gross debt was £0.1 million, resulting in a net cash position of £228.0 million, an increase of £60.2 million from £167.8 million at 31 December 2021. The Group has prepared and reviewed cash flow forecasts for the period to 31 December 2027, 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 31% 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 . Under the equity method, an investment in an associate is recognised initially in the Consolidated Statement of Financial Position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group’s Consolidated Financial Statements only to the extent of interests in the associate or joint venture that are not related to the Group. iii. Joint operations Joint arrangements are contractual arrangements which the Group has entered into with one or more parties to undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity and exists only when decisions relating to the relevant activities require the unanimous consent of the parties sharing the control. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. As a result, the Group recognises its interest in the joint operation, including its share of any assets, liabilities, revenue and expenses of the joint operation. The Group accounts for the assets, liabilities, revenue and expenses relating to its interest in a joint operation in accordance with the IFRS Standards applicable to the particular assets, liabilities, revenue and expenses. When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party. Notes to the Accounts Spectris plc 120 Notes to the Accounts 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, they continue to adopt the going concern basis in relation to this conclusion and preparing the Consolidated Financial Statements. There are no key sensitivities identified in relation to this conclusion. Further information on the going concern of the Group can be found on page 39 in the Viability Statement. Climate risks reflected in the Consolidated Financial Statements The Consolidated Financial Statements have been prepared with full consideration of both physical and transition risks resulting from climate change, our journey towards achieving our net zero ambition and in accordance with our Task Force for Climate Change Related Financial Disclosures (‘TCFD’) report. In conjunction with our net zero ambition and TCFD report a review has been performed in the following areas that are deemed most at-risk of being impacted by climate change: Going concern – The Group has reviewed sensitivities to future cash flows and discount rates aligned with our principal risks and uncertainties. The review covered sensitivities with respect to potential loss of revenue, associated profits and cashflows due to Spectris, its customers and/ or its suppliers making different choices in the achievement of net zero objectives, the potential impact that moving to a more sustainable supply chain may have on profits and cashflows, and the cashflows of mitigating potential physical risks, such as potential site moves resulting from increased water levels. Intangible assets –The Group has assessed future economic benefits, predominantly technology related to our product portfolio and the transition risk to our scope 1 and 2 net zero ambitions. This incorporates any known change or potential change from our customers in our scope 3 ambitions. Property, plant & equipment, remeasurement of leases and intangible assets – The Group has reviewed the useful economic life of these non-current assets with respect to the physical risk of our sites resulting from flooding and the transition to carbon neutrality and has validated that all of our property, plant and equipment, lease right of use assets and intangible assets have been checked to ensure that useful economic lives are in line with current and foreseeable transition plans. Inventories and associated provision for obsolescence – The Group has performed reviews taking into account the potential risks and subsequent impact of transitioning our product range to the use of sustainable raw materials and having considered the support to our customers and suppliers in achieving their scope 3 ambitions. For all the aforementioned climate risks, the Group considers that it is too early to foresee any adjustment to carrying value for the year ended 31 December 2022 and that the sensitivities used to test going concern adequately cover foreseeable risks. New standards and interpretations adopted In the current year there are no new standards and interpretations that have had a material impact on the Group’s Statement of Financial Position. New accounting standards and interpretations not yet adopted At the date of authorisation of these Consolidated Financial Statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective: Amendments to IAS 16 Property, plant and equipment – proceeds before intended use Annual Improvements to IFRS Standards 2018-2020 Cycle Amendments to IFRS 1 first-time adoption of international financial reporting standards, IFRS 9 financial instruments, IFRS 16 leases, and IAS 41 agriculture Amendments to IFR S 3 (May 2020) Reference to the conceptual framework Amendments to IAS 3 7 (May 2020) Onerous contracts – costs of fulfilling a contract Amendment to IFRS 16 COVID-19-related rent concessions beyond 30 June 2021 IFRS 17 Insurance contracts Amendments to IFRS 17 IFRS 17 Amendments to IAS 1 Classification of liabilities as current or non-current Amendments to IAS 1 Classification of liabilities as current or non-current — deferral of effective date Amendments to IFRS 4 Extension of the temporary exemption from applying IFRS 9 Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of accounting policies Amendments to IAS 12 Deferred tax related to assets and liabilities arising from a single transaction Amendments to IAS 8 Definition of accounting estimates Amendments to IFRS 17 Initial application of IFRS 17 and IFRS 9 – comparative information Amendments to IFRS 16 Lease liability in a sale and leaseback Amendment to IAS 1 Non-current liabilities with covenants The Directors do not expect that the adoption of the IFRS Standards listed above will have a material impact on the Consolidated Financial Statements of the Group in future periods. Significant accounting judgements and estimates In determining and applying accounting policies, judgement is often required where the choice of specific policy, assumption or accounting estimate to be followed could materially affect the reported amounts of assets, liabilities, income and expenses, should it be determined that a different choice be more appropriate. Estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances, including the impact of COVID-19 and climate change on the Group . Critical accounting judgements There are no critical accounting judgements at 31 December 2022. Key sources of estimation uncertainty Management considers the following to be the sole key source of estimation uncertainty for the Group at the end of the current reporting period due to the risk of causing a material change to the carrying amount of assets and liabilities within the next year. i) Retirement benefit plans Accounting for retirement benefit plans under IAS 19 (revised) requires an assessment of the future benefits payable in accordance with actuarial assumptions. The discount rate and rate of STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 121 Notes to the Accounts The estimate of recoverable amount requires significant assumptions to be made and is based on a number of factors, such as the near-term business outlook for the CGU, including both its operating profit and operating cash flow performance. Where the recoverable amount of the CGU is less than the carrying amount, an impairment loss is recognised in the Consolidated Income Statement. Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained. Intangible assets and amortisation The cost of acquiring software (including associated implementation costs where applicable) that is not specific to an item of property, plant and equipment is classified as an intangible asset. The Group only capitalises costs relating to the configuration and customisation of SaaS arrangements as intangible assets where control of the software exists. Self-funded research and development costs are charged to the Consolidated Income Statement in the year in which they are incurred, unless development expenditure meets certain strict criteria for capitalisation. These criteria include demonstration of the technical feasibility, intent of completing a new intangible asset that is separable, the ability to measure reliably the expenditure attributable to the intangible asset during its development phase and that the asset will generate probable future economic benefits. From the point where expenditure meets the criteria, development costs are capitalised and amortised over the useful economic lives of the assets to which they relate. Intangible assets arising from a business combination that are separable from goodwill are recognised initially at fair value at the date of acquisition. Other acquired intangible assets (including software not specific to an item of property, plant and equipment) are initially recognised at cost (plus any associated implementation costs where applicable). Subsequent expenditure is capitalised only when it increases the future economic benefits, otherwise it is expensed as incurred. Amortisation of intangible assets is charged to administrative expenses in the Consolidated Income Statement on a straight-line basis over the shorter of the estimated useful economic life (determined on an asset-by-asset basis) or underlying contractual life. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The estimated useful lives are as follows: > software – three to seven years; > patents, contractual rights and technology – up to 11 years, dependent upon the nature of the underlying contractual right; and > customer-related and trade names – three to 20 years, dependent upon the underlying contractual arrangements and specific circumstances such as customer retention experience. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal . retail price inflation (‘RPI’) assumptions applied in the calculation of plan liabilities, which are set out in note 19, represent a key source of estimation uncertainty for the Group. Details of the related sensitivities are set out on page 146 and the accounting policies applied in respect of retirement benefit plans are set out on page 126. Climate change is referred to in the Risk Management and Sustainability sections of the Strategic Report. Spectris is well placed to face this global challenge and, although we acknowledge the risks to businesses and trade, we do not consider climate change creates any further key sources of estimation uncertainty at this time. b) Summary of significant accounting policies The accounting policies set out below have been applied consistently by Group entities to all years presented in these Consolidated Financial Statements. Business combinations and goodwill Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group and the liabilities incurred by the Group to the former owners of the acquiree. The identifiable assets acquired, and the liabilities assumed are recognised at their fair value at the acquisition date. Transaction costs on a business combination are expensed as incurred in the Consolidated Income Statement and treated as an adjusting item for the purposes of alternative performance measures (see appendix to the Consolidated Financial Statements) . Goodwill represents the excess of the fair value of the purchase consideration for the interests in subsidiary undertakings over the net fair value to the Group of the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group’s share of identifiable net assets acquired exceeds the fair value of the consideration, the difference is recognised immediately in the Consolidated Income Statement. Contingent consideration is initially recognised as a liability with changes to estimates of contingent consideration reflected in operating profit unless they occur during the 12-month measurement period, in which situation the amount of goodwill recognised on the acquisition is adjusted if they are the result of obtaining additional information about facts and circumstances that existed at the acquisition date. Adjustments to contingent consideration are treated as an adjusting item for the purposes of alternative performance measures (see appendix to the Consolidated Financial Statements). Goodwill arising on the acquisition of a business is tested annually for impairment. Goodwill is not amortised, and any impairment losses are not subsequently reversed. The net book value of goodwill at the date of transition to IFRS has been treated as deemed cost. On the subsequent disposal or discontinuance of a previously acquired business, the relevant goodwill is dealt with in the Consolidated Income Statement except for the goodwill already charged to reserves. Goodwill is allocated on acquisition to cash generating units (‘CGUs’) that are anticipated to benefit from the combination. Goodwill is tested for impairment by assessing the recoverable amount of the CGU to which the goodwill relates and comparing it against the net book value. This estimate of recoverable amount is determined annually and additionally when there is an indication that a CGU may be impaired. The Group’s identified CGUs are equivalent to or smaller than the reportable operating segments in note 2. Spectris plc 122 Property, plant and equipment and depreciation Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost comprises the purchase price paid and any costs directly attributable to bringing it into working condition for its intended use. Tangible assets arising from a business combination are recognised initially at fair value at the date of acquisition. Depreciation is recognised in the Consolidated Income Statement on a straight-line basis to write off the cost, less the estimated residual value (which is reviewed annually) of property, plant and equipment over its estimated useful economic life. Depreciation commences on the date the assets are available for use within the business and the asset carrying values are reviewed for impairment when there is an indication that they may be impaired. The depreciation charge is revised where useful lives are different from those previously estimated, or where technically obsolete assets are required to be written down. Where parts of an item of plant and equipment have separate lives, they are accounted for and depreciated as separate items. Land is not depreciated. Estimated useful lives are as follows: > freehold and long leasehold property – 20 to 40 years; > short leasehold property – over the period of the lease; and > plant and equipment – three to 20 years. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for their intended use are capitalised as part of the cost of the respective asset. Impairment of property, plant and equipment and intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Leases The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: fixed lease payments (including in substance fixed payments), less any lease incentives; variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; the amount expected to be payable by the lessee under residual value guarantees; the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The lease liability is presented as a separate line in the Consolidated Statement of Financial Position. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The right-of-use assets are presented as a separate line in the Consolidated Statement of Financial Position. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate; the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the lease liability is re-measured by discounting the revised lease payments using the initial discount rate; or a lease contract is modified, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate. The interest portion of lease payments is presented under financing activities in the Consolidated Statement of Cash Flows. Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 123 Notes to the Accounts Trade and other payables Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. These are recognised at the amounts expected to be paid to counterparties and subsequently held at amortised cost. Provisions A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources, that can be reliably measured, will be required to settle the obligation. In respect of warranties, a provision is recognised when the underlying products or services are sold. Provisions are recognised at an amount equal to the best estimate of the expenditure required to settle the Group’s liability. A contingent liability is disclosed where the existence of the obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognised but are disclosed where an inflow of economic benefit is probable. Obligations arising from restructuring plans are recognised when detailed formal plans have been established and when there is a valid expectation that such a plan will be carried out. Taxation Tax on the profit or loss for the year comprises both current and deferred tax. Tax is recognised in the Consolidated Income Statement, except to the extent that it relates to items recognised either in other comprehensive income or directly in equity, in which case tax is recognised in the Consolidated Statement of Comprehensive Income or the Consolidated Statement of Changes in Equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the Statement of Financial Position date, and any adjustments to tax payable in respect of prior years. Tax positions are reviewed to assess whether a provision should be made based on prevailing circumstances. Tax provisions are included within current taxation liabilities. Deferred taxation is provided on taxable temporary differences between the carrying amounts of assets and liabilities in the Financial Statements and their corresponding tax bases. No provision is made for deferred tax which would become payable on the distribution of retained profits by overseas subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is measured using the tax rates expected to apply when the asset is realised, or the liability settled based on tax rates enacted or substantively enacted at the Consolidated Statement of Financial Position date. Deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority . Inventories Inventories and work in progress are carried at the lower of cost and net realisable value. Inventory acquired as part of business combinations is valued at fair value less cost to sell. Cost represents direct costs incurred and, where appropriate, production or conversion costs and other costs to bring the inventory to its existing location and condition. In the case of manufacturing inventory and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Inventory is accounted for on a first-in, first-out basis or, in some cases, a weighted-average basis, if deemed more appropriate for the business. Provisions are made to write down slow-moving, excess and obsolete items to net realisable value, based on an assessment of technological and market developments and on an analysis of historical and projected usage with regard to quantities on hand. Trade and other receivables Trade and other receivables are carried at original invoice amount (which is considered a reasonable proxy for fair value) and are subsequently held at amortised cost less provision for impairment. The provision for impairment of receivables is based on lifetime expected credit losses. Lifetime expected credit losses are calculated by assessing historical credit loss experience, adjusted for factors specific to the receivable and operating company. The movement in the provision is recognised in the Consolidated Income Statement. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits held on call or with maturities of less than three months at inception. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash equivalents for the purposes of the Consolidated Statement of Cash Flows. Assets and liabilities held for sale Assets, liabilities and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets, liabilities and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. This condition is regarded as met only when the sale is highly probable, and the asset (or disposal group) is available for immediate sale in its present condition and when management is committed to the sale which is expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. When the Group is committed to a sale plan involving disposal of an investment in an associate or, a portion of an investment in an associate, the investment, or the portion of the investment in the associate, that will be disposed of is classified as held for sale when the criteria described above are met. The Group then ceases to apply the equity method in relation to the portion that is classified as held for sale. Any retained portion of an investment in an associate that has not been classified as held for sale continues to be accounted for using the equity method. Spectris plc 124 Additional income taxes that arise from the distribution of intra-group dividends are recognised at the same time as the liability to pay the related dividend. Foreign currency translation The functional currency for each entity in the Group is determined with reference to the currency of the primary economic environment in which it operates. Transactions in currencies other than the functional currency are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Consolidated Statement of Financial Position date. Exchange gains and losses on settlement of foreign currency transactions are determined using the rate prevailing at the date of the transactions, or the translation of monetary assets and liabilities at period end exchange rates and are charged/credited to the Consolidated Income Statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. On consolidation, the Income Statement items of subsidiaries are translated into Sterling at average rates of exchange. Statement of Financial Position items are translated into Sterling at year-end exchange rates. Exchange differences on the retranslation are taken to the translation reserve within equity. Exchange differences on foreign currency borrowings designated as a hedge of the net investment in a foreign operation are reported in the Consolidated Statement of Comprehensive Income. All other exchange differences are charged or credited to the Consolidated Income Statement in the year in which they arise. On disposal of an overseas subsidiary, any cumulative exchange movements relating to that subsidiary held in the translation reserve are transferred to the Consolidated Income Statement. Derivative financial instruments may be purchased to hedge the Group’s exposure to changes in foreign exchange rates. The accounting policies applied in these circumstances are described below. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at the fair value of consideration received less directly attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective-interest basis. Finance costs and financial income Finance costs comprise the interest payable on borrowings calculated using the effective interest method, the unwinding of discount factor on lease liabilities and the unwinding of the discount factor on deferred or contingent consideration. Financial income comprises interest income on cash and invested funds, together with interest income from the joint venture, and is recognised in the Consolidated Income Statement as it accrues. The net gain or loss on retranslation of short-term inter-company loan balances is also presented within net finance costs. Financial instruments Recognition The Group recognises financial assets and liabilities on its Consolidated Statement of Financial Position when it becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset, and the net amount is reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Measurement When financial assets and liabilities are initially recognised, they are measured at fair value, being the consideration given or received plus directly attributable transaction costs. In determining estimated fair value, investments are valued at quoted bid prices on the trade date. When quoted prices on an active market are not available, fair value is determined by reference to price quotations for similar instruments traded. In determining fair value for deferred contingent consideration, the fair value is determined by reference to best estimates of the likely outcome. Originated loans and receivables are initially recognised in accordance with the policy stated above and subsequently re-measured at amortised cost using the effective-interest method. Allowance for impairment is estimated on a case-by-case basis. The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge risks associated with foreign exchange fluctuations. These are designated as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Consolidated Income Statement. Amounts deferred in equity are reclassified to the Consolidated Income Statement in the periods when the hedged item is recognised in the Consolidated Income Statement, in the same line of the Consolidated Income Statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When hedge accounting is discontinued any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Consolidated Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the Consolidated Income Statement. Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 125 Notes to the Accounts Employee benefits The Group operates defined benefit post-retirement benefit plans and defined contribution pension plans. Defined benefit plans The Group’s net obligation recognised in the Consolidated Statement of Financial Position in respect of defined benefit plans is calculated separately for each plan as the present value of the plan’s liabilities less the fair value of the plan’s assets. The operating and financing costs of defined benefit plans are recognised separately in the Consolidated Income Statement. Operating costs comprise the current service cost, plan administrative expense, any gains or losses on settlement or curtailments, and past service costs where benefits have vested. Finance items comprise the unwinding of the discount on the net asset surplus/deficit. Actuarial gains or losses comprising changes in plans’ liabilities due to experience and changes in actuarial assumptions are recognised in the Consolidated Statement of Comprehensive Income. The amount of any pension fund asset recognised in the Consolidated Statement of Financial Position is limited to any future refunds from the plan or the present value of reductions in future contributions to the plan. Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised in the Consolidated Income Statement in the periods during which services are rendered by employees. In certain countries, the Group participates in industry-wide defined benefit-type pension arrangements. In such circumstances, it is not possible to determine the amount of any surplus or deficit attributable to the Group and the pension costs are accounted for as if the arrangements were defined contribution plans. These are not material to the Group and, accordingly, no additional disclosures are provided. Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Share-based payments Certain employees of the Group receive part of their remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The cost of equity-settled transactions with employees is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting conditions is determined by an external consultant and the fair value at the grant date is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at each Consolidated Statement of Financial Position reporting date up to the vesting date, at which point the estimate is adjusted to reflect the actual outcome of awards which have vested. No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised. Derecognition A financial asset is derecognised when the Group loses control over the contractual rights to the cash flows from the asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. Originated loans and receivables are derecognised on the date they are transferred by the Group. Investments in debt instruments The Group’s investment in debt instruments consists of a Vendor Loan Note Receivable. The Vendor Loan Note Receivable was initially recognised at fair value, being the consideration received. The Vendor Loan Note Receivable is measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. Investments in equity instruments classified as fair value through other comprehensive income On initial recognition, the Group may make an irrevocable election (on an instrument-by- instrument basis) to designate investments in equity instruments as at fair value through other comprehensive income. Designation at fair value through other comprehensive income is not permitted if the equity investment is held for trading or if it is contingent consideration recognised by an acquirer in a business combination. An investment in equity instruments is held for trading if: • it has been acquired principally for the purpose of selling it in the near term; or • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or • it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). Investments in equity instruments at fair value through other comprehensive income are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the retained earnings reserve. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity investments, instead, it is transferred to retained earnings. Dividends from investments in equity instruments designated as at fair value through other comprehensive income are recognised in profit and loss in accordance with IFRS 9 unless the dividends clearly represent a recovery of part of the cost of the investment. Impairment of financial assets The Group assesses at each Consolidated Statement of Financial Position reporting date whether there is any objective evidence that a financial asset, or group of financial assets, is impaired. A financial asset, or group of financial assets, is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. For trade receivables, the Group recognises impairment provisions based on lifetime expected credit losses. Spectris plc 126 Where it is not possible to incentivise managers of the Group’s platforms/operating companies with equity-settled options, they are issued with cash-settled options. A liability is recognised for the services acquired, measured initially at the fair value of the liability. The charge for these awards is adjusted at each reporting date, with any changes in fair value recognised in profit or loss, to reflect the expected and actual levels of options that vest, and the fair value is based on either the share price at date of exercise or the share price at the Consolidated Statement of Financial Position date if sooner. Own shares Own equity instruments which are re-acquired (own shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration paid to acquire such equity instruments is recognised within equity. Dividends Dividends are recognised as a liability in the period in which they are approved by shareholders . Revenue Revenue is measured based on the fair value of the consideration specified in a contract with a customer, net of returns and discounts, and excludes amounts collected on behalf of third parties, value added tax and other sales-related taxes. The Group recognises revenue when it transfers control of a product or service to a customer. The Group’s major revenue streams are the same as its reportable operating segments (Spectris Scientific, Spectris Dynamics, and Other non-reportable segments). The following table provides further details on the nature of each of the major revenue streams. The table shows where each revenue factor forms more than 10% of the reportable operating segment’s total revenue: Revenue stream % of total Group sales 2022 Revenue derived from: Provision of services Sale of goods without installation Sale of goods with simple installation Sale of goods with complex installation Spectris Scientific 50% Spectris Dynamics 37% Other 13% Further details of the nature of each major revenue stream are provided in the following section . Spectris Scientific Revenue from the provision of services, including ongoing support, servicing and maintenance, is recognised in line with the delivery of the service, either at a point in time or, for some ongoing services, over time. Revenue from the sale of goods, where the goods are not required to be installed, is recognised at a point in time when control of the goods has transferred. This may occur, depending on the individual customer terms, when the product is transferred to a freight carrier, or when the customer has received the product. When the sale of goods is combined with installation, revenue recognition depends upon the nature of the installation. Simple installations are those which the customer perceives as a separate performance obligation within the overall contract to deliver goods, whereas complex installations are those for which the installation is an integral part of the delivery of the goods. Revenue is recognised for simple installations separately from the delivery of goods, and only at a point in time when the installation has occurred. For complex installations, revenue is normally deferred until installation is complete. For a small number of complex installations, revenue is recognised before installation when: a) a significant period of time has elapsed since completion of the product; b) an installation date has not been agreed despite multiple attempts to arrange; and c) payment has been received from the customer. Judgement is required for these installations. Revenue from these arrangements represents approximately 2% of the segment’s total sales. Occasionally, the initial contract covers both the supply of goods and ongoing support, servicing and maintenance. For such contracts, revenue is allocated across each of the individual components in line with their relative price and value of the performance obligation and each element is accounted for as described above. Payment is normally due at the point that the performance obligation is completed. For some of the segment’s business, the customer may make partial payment in advance. Such payments are recognised as contract liabilities until the performance obligation has been satisfied. Sales-related warranties associated with the products cannot be purchased separately and they serve as an assurance that the products sold comply with agreed-upon specifications. Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 127 Notes to the Accounts 2. Operating segments The Group’s reportable segments are described below. In 2022, the Group’s reportable operating segments have changed following the reorganisation of the Group’s businesses announced at the Capital Markets Day in October 2022. The new segmental divisional structure reflects the current internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance. The tables in this note show restated comparative figures for the reportable operating segments for the year ended 31 December 2021, reflecting the impact of changes the Group made to its operating segments during the year ended 31 December 2022. The segment results include an allocation of head office expenses, where the costs are attributable to a segment. Costs of running the PLC are reported separately as Group costs. The Omega business, which had previously been disclosed as a reportable segment, has now been classified as a discontinued operation under IFRS 5, following the completion of its disposal on 1 July 2022 and therefore excluded from the segmental analysis. As a result, the financial data for the year ended 31 December 2021 has also been represented to show continuing operations where required to by IFRS 5, including a reclassification of continuing head office expenses that had previously been allocated to the Omega reportable segment to the continuing reportable segments. Further details of discontinued operations are provided in note 24. The following summarises the operations in each of the Group’s reportable segments: • Spectris Scientific provides advanced measurement and materials characterisation, accelerating innovation and efficiency in R&D and manufacturing. The operating companies in this segment are Malvern Panalytical and Particle Measuring Systems; • Spectris Dynamics provides differentiated sensing, data acquisition, analysis modelling and simulation solutions to help customers accelerate product development and enhance product performance; • the Other non-reportable segments are a portfolio of high-value precision in-line sensing and monitoring businesses. The operating companies in this segment in 2022 are Red Lion Controls and Servomex. In 2021 Brüel & Kjær Vibro (disposed 1 March 2021), ESG Solutions (disposed 3 May 2021), Millbrook (disposed 2 February 2021) and NDC Technologies (disposed 1 November 2021) are also included in Other non-reportable segments. • Group costs consist of costs of running the PLC. Spectris Dynamics Revenue from the provision of services, including ongoing support, servicing and maintenance, is recognised in line with the delivery of the service, either at a point in time or, for some ongoing services, over time. Revenue from the sale of goods, where the goods are not required to be installed, is recognised at a point in time when control of the goods has transferred. This may occur, depending on the individual customer terms, when the product is transferred to a freight carrier, or when the customer has received the product. Simple installations are those which the customer perceives as a separate performance obligation within the overall contract to deliver goods. Revenue is recognised for simple installations separately from the delivery of goods, and only at a point in time when the installation has occurred. Occasionally, the initial contract covers both the supply of goods and ongoing support, servicing and maintenance. For such contracts revenue is allocated across each of the individual components in line with their relative price and value of the performance obligation and each element is accounted for as described above. Payment is normally due at the point that the performance obligation is completed. For some of the segment’s business the customer may make partial payment in advance. Such payments are recognised as contract liabilities until the performance obligation has been satisfied. Sales-related warranties associated with the products cannot be purchased separately and they serve as an assurance that the products sold comply with agreed-upon specifications. Other Revenue from the sale of goods, where the goods are not required to be installed, is recognised at a point in time when control of the goods has transferred. This may occur, depending on the individual customer terms, when the product is transferred to a freight carrier, or when the customer has received the product. Occasionally, the initial contract covers both the supply of goods and ongoing support, servicing and maintenance. For such contracts, revenue is allocated across each of the individual components in line with their relative price and value of the performance obligation and each element is accounted for as described above. Payment is normally due at the point that the performance obligation is completed. For some of the segment’s business, the customer may make partial payment in advance. Such payments are recognised as contract liabilities until the performance obligation has been satisfied. Sales-related warranties associated with the products cannot be purchased separately and they serve as an assurance that the products sold comply with agreed-upon specifications. Spectris plc 128 Further details of the nature of these segments and the products and services they provide are contained in the Strategic Report on pages 2 to 59. Information about continuing reportable segments Spectris Scientific £m Spectris Dynamics £m Other £m Group costs 1 £m 2022 Total £m Segment revenues 658.0 492.4 177.4 – 1,327.8 Inter-segment revenue (0.2) (0.2) – – (0.4) External revenue 657.8 492.2 177.4 – 1,327.4 Operating profit 118.3 46.5 26.2 (18.4) 172.6 Fair value through profit and loss movements on debt investments 1 (4.1) Profit on disposal of businesses 1 0.3 Financial income 1 1.9 Finance costs 1 (19.2) Profit before tax 1 151.5 Taxation charge 1 (36.7) Profit after tax from continuing operations 1 114.8 1 Not allocated to reportable segments. Information about continuing reportable segments Spectris Scientific £m Spectris Dynamics £m Other £m Group costs 1 £m 2021 Total £m Segment revenues 531.3 425.7 206.5 – 1,163.5 Inter-segment revenue (0.1) (0.2) (0.2) – (0.5) External revenue 531.2 425.5 206.3 – 1,163.0 Operating profit 94.2 45.6 19.2 (19.1) 139.9 Profit on disposal of businesses 1 226.5 Financial income 1 12.8 Finance costs 1 (5.4) Profit before tax 1 373.8 Taxation charge 1 (38.2) Profit after tax from continuing operations 1 335.6 1. Not allocated to reportable segments. Reportable segment profit is consistent with that presented to the Chief Operating Decision Maker. Inter-segment revenue includes the movements in internal cash flow hedges with inter-segment pricing on an arm’s-length basis. Segments are presented on the basis of actual inter-segment charges made. Carrying amount of segment assets Carrying amount of segment liabilities 2022 £m 2021 £m 2022 £m 2021 £m Spectris Scientific 673.8 530.0 (237.7) (191.3) Spectris Dynamics 766.1 635.9 (193.5) (177.7) Omega – 197.4 – (24.0) Other 202.7 159.9 (31.9) (30.8) Group-related 2.6 2.6 (6.7) (8.4) Total segment assets and liabilities 1,645.2 1,525.8 (469.8) (432.2) Cash and borrowings 228.1 167.8 (0.1) – Derivative financial instruments 1.7 0.3 (2.5) (1.2) Investment in debt instruments 18.9 23.0 – – Investment in equity instruments 29.3 24.3 – – Retirement benefit liabilities – – (8.9) (22.3) Taxation 24.8 26.9 (29.8) (51.1) Consolidated total assets and liabilities 1,948.0 1,768.1 (511.1) (506.8) Segment assets comprise: goodwill, other intangible assets, property, plant and equipment, right of use assets, inventories and trade and other receivables, investments in associates and assets held for sale that are attributable to the reported operating segment. Segment liabilities comprise: trade and other payables, provisions, lease liabilities and other payables which can be reasonably attributed to the reported operating segment. Unallocated items represent all components of net cash, derivative financial instruments, assets held for sale that are not allocable to a segment, investment in debt instruments, investment in equity instruments, retirement benefit liabilities and current and deferred taxation balances. Additions to non-current assets from continuing and non-continuing operations Depreciation, amortisation and impairment from continuing operations 2022 £m 2021 £m 2022 £m 2021 £m Spectris Scientific 68.9 16.2 23.9 20.0 Spectris Dynamics 85.7 200.6 27.9 15.4 Omega 0.7 1.9 – – Others 18.0 13.6 6.9 5.8 Group-related 0.6 0.5 0.6 0.4 Total segments 173.9 232.8 59.3 41.6 Investment in debt instruments – 23.0 Investment in equity instruments – 25.0 Consolidated total 173.9 280.8 59.3 41.6 Notes to the Accounts 2. Operating segments STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 129 Non-current assets 2022 £m 2021 £m UK 239.3 239.3 Germany 86.8 74.1 France 7.0 4.1 Rest of Europe 1 283.4 230.8 USA 406.4 468.5 Rest of North America 16.0 16.1 Japan 5.3 5.6 China 9.7 9.8 South Korea 1.2 0.8 Rest of Asia 8.6 8.1 Rest of the world 2.6 1.7 1,066.3 1,058.9 Deferred tax assets 2 16.2 21.2 Total non-current assets 1,082.5 1,080.1 1. Principally in Switzerland, Netherlands and Denmark (2021: Denmark and Netherlands). 2. Not allocated to reportable geographic area in reporting to the Chief Operating Decision Maker. Geographical segments The Group’s operating segments are each located in several geographical locations and sell on to external customers in all parts of the world. No individual country amounts to more than 3% of revenue, other than those noted below. The following is an analysis of revenue from continuing operations by geographical destination. Spectris Scientific £m Spectris Dynamics £m Other £m 2022 Total £m UK 27.8 18.5 4.9 51.2 Germany 31.5 85.4 6.5 123.4 France 18.2 22.7 3.9 44.8 Rest of Europe 87.8 72.6 12.0 172.4 USA 137.1 133.1 89.7 359.9 Rest of North America 16.6 6.7 6.7 30.0 Japan 36.6 29.9 3.0 69.5 China 132.4 74.8 26.4 233.6 South Korea 42.5 10.6 5.3 58.4 Rest of Asia 85.0 25.8 14.7 125.5 Rest of the world 42.3 12.1 4.3 58.7 657.8 492.2 177.4 1,327.4 Spectris Scientific £m Spectris Dynamics £m Other £m 2021 Total £m UK 25.5 15.3 10.4 51.2 Germany 24.6 78.4 8.2 111.2 France 16.2 21.5 3.7 41.4 Rest of Europe 76.1 70.8 19.9 166.8 USA 106.2 95.8 87.4 289.4 Rest of North America 15.1 5.7 7.8 28.6 Japan 34.2 27.1 4.8 66.1 China 100.2 67. 2 33.3 200.7 South Korea 30.1 9.7 5.4 45.2 Rest of Asia 70.5 19.7 18.2 108.4 Rest of the world 32.5 14.3 7.2 54.0 531.2 425.5 206.3 1,163.0 Notes to the Accounts 2. Operating segments Spectris plc 130 3. Revenue Disaggregation of revenue The Group derives its revenue from the provision of goods and services both at a point in time and over time. Product lines are presented consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 (see note 2). The tables below show restated comparative figures for the year ended 31 December 2021, reflecting the impact of the changes the Group made to its operating segments during the year ended 31 December 2022 (see note 2). IFRS 15, paragraph 114, requires an entity to disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. This disaggregation will depend on the entity’s individual facts and circumstances. The Group has assessed that the disaggregation of revenue by reportable operating segments is appropriate in meeting this disclosure requirement as this is the information regularly reviewed by the Chief Operating Decision Maker in order to evaluate the financial performance of the entity. The Group also believes that presenting a disaggregation of revenue based on the timing of transfer of goods or services provides users of the Financial Statements with useful information as to the nature and timing of revenue from contracts with customers. Timing of revenue recognition from continuing operations 2022 £m 2021 £m At a point in time: Spectris Scientific 577.6 458.8 Spectris Dynamics 432.1 370.9 Others 177.4 204.0 1,187.1 1,033.7 Over time: Spectris Scientific 80.2 72.4 Spectris Dynamics 60.1 54.6 Others – 2.3 140.3 129.3 Revenue from continuing operations 1,327.4 1,163.0 The Group’s material revenue streams have an expected duration of one year or less. The Group has therefore applied the practical expedient in IFRS 15, paragraph 121, to not disclose information about its remaining performance obligations. No individual customer accounted for more than 1% of external revenue in 2022 (2021: 1%). Total revenue for the Group from continuing operations, after including financial income of £1.9m (2021: £12.8m) (see note 6), was £1,329.3m (2021: £1,175.8m). 4. Operating profit Operating profit from continuing operations is stated after charging/(crediting): Note 2022 £m 2021 £m Net foreign exchange (gains)/losses included in operating profit (0.3) 0.3 Research and development expense 102.9 81.8 Amortisation and other non-cash adjustments made to intangible assets 10 25.1 20.9 Depreciation of owned property, plant and equipment 11 20.0 18.8 Reversal of impairment of owned property, plant and equipment 11, 24 – (6.0) Depreciation and impairment of right-of-use assets 11 14.0 11.5 Income from sub-leasing right-of-use assets (0.3) (0.2) Expenses relating to short-term and low-value leases 0.1 – Donations to the Spectris Foundation 0.1 15.0 Cost of inventories recognised as expense 351.9 283.0 (Profit)/loss on disposal and re-measurements of property, plant and equipment and associated lease liabilities (1.5) 0.1 Auditor’s remuneration 2022 £m 2021 £m Fees payable to the Company's auditor for audit of the Company's annual accounts 0.7 0.5 Fees payable to the Company's auditor for the audit of the Company's subsidiaries, pursuant to legislation 1.7 1.8 Total audit-related fees 2.4 2.3 Fees payable to the Company's auditor for other services: – audit-related assurance services 1 0.1 0.1 – other non-audit services 2 0.2 0.1 2.7 2.5 1. Review of the half-year Financial Statements 2. Assurance work over ESG disclosures and the reporting accountant role performed by Deloitte in respect of the unsuccessful acquisition of a UK publicly listed company. Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 131 Notes to the Accounts 6. Financial income and finance costs Financial income from continuing operations 2022 £m 2021 £m Interest receivable (1.9) (0.5) Interest credit on release of provision on settlement of EU dividends tax claim (see note 7) – (5.1) Net gain on retranslation of short-term inter-company loan balances – (7. 2) (1.9) (12.8) Finance costs from continuing operations 2022 £m 2021 £m Interest payable on loans and overdrafts 1.8 3.6 Net loss on retranslation of short-term inter-company loan balances 14.6 – Unwinding of discount factor on lease liabilities 2.5 1.6 Net interest cost on pension plan obligations 0.3 0.2 19.2 5.4 Net finance costs/(credit) from continuing operations 17.3 (7.4) Net interest credit of £0.1m (2021: charge of £3.1m), for the purposes of the calculation of interest cover, comprises interest receivable of £1.9m (2021: £0.5m) and interest payable on loans and overdrafts of £1.8m (2021: £3.6m). The net finance charge of £17.3m (2021: £7.4m credit) includes £14.6m of unrealised losses on intercompany loan balances (2021: gain of £7.2m). This is a consequence of the significant volatility of Sterling against the US Dollar and Euro, particularly in the second half of 2022. 5. Employee costs and other information Employee costs, including Directors’ remuneration, comprise: Continuing operations Total continuing and discontinued operations 2022 £m 2021 £m 2022 £m 2021 £m Wages and salaries 414.4 391.1 433.0 424.8 Social security costs 68.3 67. 3 72.6 74.9 Defined benefit pension plans: – current service cost (see note 19) 0.4 0.7 0.4 0.7 – past service credit (see note 19) (0.1) (0.3) (0.1) (0.3) Defined contribution pension plans 20.0 17.2 20.1 17.3 Equity-settled share-based payment expense 10.1 7.1 10.3 7.8 Cash-settled share-based payment expense 0.9 0.9 0.8 1.2 514.0 484.0 537.1 526.4 Average number of employees Continuing operations Total continuing and discontinued operations 2022 Number 2021 Number 2022 Number 2021 Number Production and engineering 3,642 3,302 3,844 3,682 Sales, marketing and service 2,764 2,906 2,860 3,089 Administrative 870 827 900 888 7,276 7,035 7,604 7,659 Directors’ remuneration 2022 Number 2021 Number Short-term benefits 2.8 2.7 Equity-settled share-based payment expense 1.6 0.9 4.4 3.6 Further details of Directors’ remuneration and share options are given in the Directors’ Remuneration Report on pages 84 to 104. Spectris plc 132 7. Taxation 2022 2021 UK £m Overseas £m Total £m UK £m Overseas £m Total £m Current tax charge/(credit) 4.8 41.2 46.0 (2.4) 45.8 43.4 Adjustments in respect of current tax of prior years (1.4) (1.4) (2.8) (0.6) (0.4) (1.0) Deferred tax – origination and reversal of temporary differences (note 20) (1.3) (5.2) (6.5) (2.8) (1.4) (4.2) Taxation charge from continuing operations 2.1 34.6 36.7 (5.8) 44.0 38.2 The standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the Group’s profits, is 23.8% (2021: 25.4%). The tax charge for the year is higher (2021: lower) than the tax charge using the standard rate of corporation tax for the reasons set out in the following reconciliation: 2022 £m 2021 £m Profit before taxation from continuing operations 151.5 373.8 Corporation tax charge at standard rate of 23.8% (2021: 25.4%) 36.1 94.9 Profit on disposal of business taxed at lower rate (0.1) (46.5) Other non-deductible expenditure 9.1 4.4 Release of provision on settlement of EU dividend claim – (8.0) Tax credits and incentives (7.6) (6.0) Adjustments to prior year current and deferred tax charges (0.8) (0.6) Taxation charge 36.7 38.2 The Group’s standard rate of corporation tax of 23.8% is lower than the prior year rate (25.4%), principally due to profits being made in countries with lower statutory tax rates. ‘Profit on disposal of business taxed at a lower rate’ in the prior year principally refers to the benefit of tax exemptions for the sale of shares in certain countries. ‘Other non-deductible expenditure’ in the current year includes the £3.4m impact of non- deductible foreign exchange losses. In 2021 the impact of non-taxable foreign exchange gains was (£1.1m). ‘Tax credits and incentives’ above, refers principally to research and development tax credits and other reliefs for innovation, such as the UK Patent Box regime and Dutch Innovation Box regime, as well as tax reliefs available for Foreign Derived Intangible Income in the US. Factors that may affect the future tax charge The Group’s tax charge in future years is likely to be affected by the proportion of profits arising, and the effective tax rates, in the various territories in which the Group operates, as well as changes in tax law affecting future periods. Such law changes may affect the future availability or amount of existing tax reliefs or incentives. Furthermore, future tax or other legal cases or investigations may result in a re-assessment of the Group’s tax liabilities in respect of prior years. Tax on items recognised directly in the Consolidated Statement of Comprehensive Income 2022 £m 2021 £m Tax credit on net gain/(loss) on effective portion of changes in fair value of forward exchange contracts – (0.3) Tax charge on investment in equity instruments designated as at fair value through other comprehensive income 0.6 0.2 Tax charge/(credit) on re-measurement of net defined benefit obligations, net of foreign exchange 3.4 (0.9) Aggregate current and deferred tax charge/(credit) relating to items recognised directly in the Consolidated Statement of Comprehensive Income 4.0 (1.0) Tax on items recognised directly in the Consolidated Statement of Changes in Equity 2022 £m 2021 £m Tax credit in relation to share-based payments (0.2) (1.3) Aggregate current and deferred tax credit relating to items recognised directly in the Consolidated Statement of Comprehensive Income (0.2) (1.3) The following tax charges/(credits) relate to items of income and expense that are excluded from the Group’s adjusted performance measures. Tax on items of income and expense that are excluded from the Group’s adjusted profit before tax 2022 £m 2021 £m Tax credit on amortisation of acquisition-related intangible assets (4.6) (2.9) Tax credit on net transaction-related costs and fair value adjustments (0.5) (3.0) Tax charge on retranslation of short-term inter-company loan balances 0.6 0.3 Tax charge on profit on disposal of businesses – 14.2 Tax credit on configuration and customisation costs carried out by third parties on material SaaS projects (5.1) (1.4) Tax credit on release of provision and deferred tax asset on settlement of EU dividends tax claim – (7.0) Tax (credit)/charge on fair value through profit and loss movements on debt and equity investments (1.4) 0.9 Tax credit on restructuring costs – (2.7) Total tax credit (11.0) (1.6) Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 133 Notes to the Accounts 8. Dividends Amounts recognised and paid as distributions to owners of the Company in the year 2022 £m 2021 £m Interim dividend for the year ended 31 December 2022 of 24.1p (2021: 23.0p) per share 25.3 25.4 Final dividend for the year ended 31 December 2021 of 48.8p (2021: 46.5p) per share 53.3 53.6 78.6 79.0 Amounts arising in respect of the year 2022 £m 2021 £m Interim dividend for the year ended 31 December 2022 of 24.1p (2021: 23.0p) per share 25.3 25.4 Proposed final dividend for the year ended 31 December 2022 of 51.3p (2021: 48.8p) per share 53.6 53.3 78.9 78.7 The proposed final dividend is subject to approval by shareholders at the AGM on 26 May 2023 and has not been included as a liability in these Financial Statements. The effective adjusted tax rate for the year was 21.7% (2021: 21.5%) as set out in the reconciliation below. Reconciliation of the statutory taxation charge to the adjusted taxation charge 2022 £m 2021 £m Statutory taxation charge 36.7 38.2 Tax credit on items of income and expense that are excluded from the Group’s adjusted profit before tax 11.0 1.6 Adjusted taxation charge 47.7 39.8 Management judgement is applied to determine the level of provisions required in respect of both direct and indirect taxes. The Group is potentially subject to tax audits in many jurisdictions. By their nature these are often complex and could take a significant period of time to be agreed with the tax authorities. Judgement is therefore applied based on the interpretation of country-specific tax legislation and the likelihood of settlement. The Group estimates and accrues taxes that will ultimately be payable when reviews or audits by tax authorities of tax returns are completed. These estimates include judgements about the position expected to be taken by each tax authority. The Group applies judgement in respect of possible tax audit adjustments primarily in respect of transfer pricing as well as in respect of financing arrangements and tax credits and incentives. In respect of transfer pricing, the level of provision is determined by reference to management judgements of the adjustments that would arise in the event that certain intra-group transactions are successfully challenged as not being at arm’s length. Management estimates of the level of risk arising from tax audit may change in the next year as a result of changes in legislation or tax authority practice or correspondence with tax authorities during a specific tax audit. It is not possible to quantify the impact that such future developments may have on the Group’s tax positions. Actual outcomes and settlements may differ from the estimates recorded in these Consolidated Financial Statements. Judgement is also applied relating to the recognition of deferred tax assets which are dependent on an assessment of the generation of future taxable income in the countries concerned in which temporary differences become deductible or in which tax losses can be utilised. These estimates may change in the next year if there are changes in the forecast profitability of the relevant company. In June 2021, the Group agreed a formal settlement with HMRC to resolve its dispute in relation to the taxation of dividends received from EU based subsidiaries prior to 2009. The outstanding liability agreed with HMRC of £0.3m of tax and £0.2m of interest was paid in June 2021. As a result, £8.0m of provision for current tax liabilities and a deferred tax asset of £1.0m related to accrued interest liabilities were released to the Consolidated Income Statement in the year ending 31 December 2021. In addition, as a result of the dispute resolution, £5.1m of accrued interest liabilities were released to the Consolidated Income Statement in 2021, as disclosed in note 6. 7. Taxation Spectris plc 134 9. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (excluding treasury shares). Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year but adjusted for the effects of dilutive options. The key features of the Company’s share option schemes are described in note 22. Basic earnings per share from continuing operations 2022 2021 Profit after tax from continuing operations (£m) 114.8 335.6 Weighted average number of shares outstanding (millions) 107.6 113.7 Basic earnings per share from continuing operations (pence) 106.7 295.2 Diluted earnings per share from continuing operations 2022 2021 Profit after tax from continuing operations (£m) 114.8 335.6 Basic weighted average number of shares outstanding (millions) 107.6 113.7 Weighted average number of dilutive 5p ordinary shares under option (millions) 0.9 0.5 Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions) (0.2) (0.1) Diluted weighted average number of shares outstanding (millions) 108.3 114.1 Diluted earnings per share (pence) 106.0 294.1 Basic earnings per share from discontinued operations 2022 2021 Profit after tax from discontinued operations (£m) 286.7 11.3 Weighted average number of shares outstanding (millions) 107.6 113.7 Basic earnings per share from discontinued operations (pence) 266.4 9.9 Diluted earnings per share from discontinued operations 2022 2021 Profit after tax from discontinued operations (£m) 286.7 11.3 Diluted weighted average number of shares outstanding (millions) 108.3 114.1 Diluted earnings per share from discontinued operations (pence) 264.7 9.9 The denominators used for diluted earnings per share from discontinued operations are the same as those used for diluted earnings per share from continuing operations. 10. Goodwill and other intangible assets Cost Note Goodwill £m Patents, contractual rights and technology £m Customer- related and trade names £m Software £m Total £m At 1 January 2021 755.6 220.2 261.5 63.4 1,300.7 Additions – separately acquired – – – 2.2 2.2 Additions – internal development – 4.1 – – 4.1 Additions – business combinations 23 66.8 26.8 55.2 – 148.8 Reclassifications – – – 0.5 0.5 Disposals – (72.6) (76.6) (7.4) (156.6) Disposals of business 24 (22.6) (16.4) (13.9) (3.7) (56.6) Foreign exchange difference (10.9) (0.1) 0.6 (0.7) (11.1) At 31 December 2021 788.9 162.0 226.8 54.3 1,232.0 Measurement period adjustments (0.8) – – – (0.8) Additions – separately acquired – – – 1.0 1.0 Additions – internal development – 3.4 – – 3.4 Additions – business combinations 23 49.7 22.9 36.5 – 109.1 Reclassifications – – – 0.3 0.3 Disposals – – – (1.3) (1.3) Disposals of business 24 (213.4) (36.9) (81.4) (8.0) (339.7) Foreign exchange difference 57.9 16.9 20.1 2.6 97.5 At 31 December 2022 682.3 168.3 202.0 48.9 1,101.5 Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 135 Notes to the Accounts Goodwill is not amortised but is tested for impairment annually or whenever there is an indication that the asset may be impaired. As part of the annual impairment review, the carrying amount of goodwill has been assessed with reference to its recoverable amount determined based on value in use. In assessing value in use, the forecast projected cash flows of each cash-generating unit, which are based on actual operating results, the most recent budget for the next financial year as approved by the Board, detailed strategic review projections and an assumed long-term growth rate to perpetuity, are discounted to their present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the cash-generating unit. Key assumptions used in the value in use calculations The calculation of value in use is most sensitive to the following assumptions: • CGU specific operating assumptions on business performance over the forecast period to December 2027 (five years); • discount rates; and • projected growth rates used to extrapolate risk adjusted cash flows beyond the forecast period. CGU specific operating assumptions are applicable to the forecasted cash flows for the forecast period to December 2027 and relate to revenue forecasts, expected project outcomes and forecast operating margins in each of the operating companies. The relative value ascribed to each assumption will vary between CGUs as the forecasts are built up from the underlying operating companies within each CGU group. A long-term rate is applied to these values for the year to December 2028 and onwards. The Group calculates value in use using the strategic plans relevant to each CGU. A long-term growth rate of 2.0% (2021: 2.0%) has been applied consistently across each CGU. Discount rates are based on estimations of the assumptions that market participants operating in similar sectors to Spectris would make, using the Group’s economic profile as a starting point and adjusting appropriately. The Directors do not currently expect any significant change in the present base discount rate of 12.9% (2021: 9.3%). The base discount rate, which is pre-tax and is based on short-term variables, may differ from the Weighted Average Cost of Capital (‘WACC’). Discount rates are adjusted for economic risks that are not already captured in the specific operating assumptions for each CGU group. This results in the impairment testing using discount rates ranging from 13.5% to 15.0% (2021: 9.6% to 11.1%) across the CGU groups. The table below discloses the discount rates and short-term growth rates for each significant CGU, and the average across the non-significant CGUs. The Group defines significant as 10% of the total carrying value of goodwill. Risk Adjusted discount rates Short-term growth rates 2022 % 2021 % 2022 % 2021 % Malvern Panalytical 13.5 9.6 7.6 5.6 Spectris Dynamics 14.1 10.3 8.3 10.0 Omega – 10.9 – 11.6 Non-significant CGUs 15.0 11.1 13.0 13.9 Accumulated amortisation and impairment Note Goodwill £m Patents, contractual rights and technology £m Customer- related and trade names £m Software £m Total £m At 1 January 2021 178.6 174.1 207.3 55.9 615.9 Charge for the year – 13.3 8.2 3.0 24.5 Disposals – (72.6) (76.2) (8.1) (156.9) Disposals of business 24 (19.6) (12.2) (13.9) (3.5) (49.2) Foreign exchange difference (1.5) (0.1) (0.1) (1.1) (2.8) At 31 December 2021 157. 5 102.5 125.3 46.2 431.5 Charge for the year – 15.4 7.7 3.2 26.3 Disposals – – – (1.3) (1.3) Disposals of business 24 (92.1) (36.9) (42.9) (6.6) (178.5) Foreign exchange difference 10.8 10.2 9.9 2.4 33.3 At 31 December 2022 76.2 91.2 100.0 43.9 311.3 Carrying amount At 31 December 2022 606.1 77.1 102.0 5.0 790.2 At 31 December 2021 631.4 59.5 101.5 8.1 800.5 Goodwill is allocated to the cash-generating units that are anticipated to benefit from the acquisition. The Group’s identified cash-generating units total five, smaller than the three reportable segments, being the two operating companies in the Spectris Scientific Division (Malvern Panalytical and Particle Measuring Systems), the Spectris Dynamics Division, and the two operating companies in the Other non-reportable segment (Red Lion Controls and Servomex) as at 31 December 2022 (2021: six, including Omega Engineering, which has been disposed of during 2022). Goodwill arising on a bolt-on acquisition is combined with the goodwill in the existing Group company and is not considered separately for impairment purposes, since such acquisitions are quickly integrated. The most significant amounts of goodwill are as follows: 2022 £m 2021 £m Malvern Panalytical 234.6 205.2 Spectris Dynamics 290.4 246.2 Omega – 109.3 Non-significant CGUs 81.1 70.8 606.1 631.5 Included within ‘Non-significant CGUs’ in 2022 and 2021 are three – Particle Measuring Systems, Red Lion Controls and Servomex cash-generating units, in which none of the goodwill balances are considered to be individually significant. The Group defines significant as 10% of the total carrying value of goodwill. 10. Goodwill and other intangible assets Spectris plc 136 Impairment of goodwill and acquisition-related intangible assets 2022 and 2021 There were no impairments of goodwill and intangible assets recognised in 2022 and 2021. Sensitivity analysis For all cash-generating units with goodwill balances at 31 December 2022 the Directors do not consider that there are any reasonably possible sensitivities for the business that could arise in the next 12 months that could result in an impairment charge being recognised. Other intangible assets Internally generated assets arising from the capitalisation of qualifying development expenditure typically have a finite expected useful life of four to ten years. Capitalised development expenditure is amortised on a straight-line basis. All amortisation charges for the year have been charged against operating profit. The Group has capitalised £3.4m of internally- generated intangible assets from development expenditure in 2022 (2021: £4.1m). Accumulated amortisation on internally-generated intangible assets was £5.5m (2021: £2.8m). The customer-related assets recognised on the acquisition of Concurrent Real Time (‘Concurrent-RT’) in 2021 and Dytran Instruments Inc (‘Dytran’) in 2022, and included within the Spectris Dynamics reportable segment, are considered significant by the Directors as they represent 57% (2021: 54%) and 31% (2021: nil) of the NBV of total customer-related and trade names respectively. The carrying amount of the Concurrent-RT customer-related intangible assets at 31 December 2022 is £54.0m (2021: £50.7m) and is being amortised over 20 years with the remaining amortisation period being 17.5 years. The carrying amount of the Dytran customer-related intangible assets at 31 December 2022 is £26.0m (2021: nil) and is being amortised over 20 years with the remaining amortisation period being 19.75 years. The technology assets recognised on the acquisition of Concurrent-RT in 2021 and Creoptix AG in 2022, and included within the Spectris Dynamics and Spectris Scientific reportable segments respectively, are considered significant by the Directors. Concurrent-RT represents 24% (2021: 32%) of total NBV of patents, contractual rights and technology. The carrying amount of the Concurrent-RT technology intangible assets at 31 December 2022 is £18.5m (2021: £18.8m) and is being amortised over ten years with the remaining amortisation period being seven and a half years. Creoptix AG represents 24% (2021: nil) of total NBV of patents, contractual rights and technology. The carrying amount of the Creoptix AG technology intangible assets at 31 December 2022 is £18.3m (2021: nil) and is being amortised over ten years with the remaining amortisation period being nine years. The trade names asset recognised on the acquisition of Omega Engineering in 2011, and included within the Omega reportable segment, were considered significant by the Directors in 2021 as they represented 35% of total customer-related and trade names. These assets were disposed of as part of the sale of the Omega reportable segment in 2022. The carrying amount of the Omega customer-related and trade name intangible assets at 31 December 2021 was £35.8m and the assets being amortised over 20 years with the remaining amortisation period being ten years. 11. Property, plant and equipment Property, plant and equipment: owned Cost Note Freehold property £m Leasehold property £m Plant and equipment £m Total £m At 1 January 2021 160.7 17.7 203.6 382.0 Additions – separately acquired 3.5 6.4 19.2 29.1 Additions – business combinations – 2.2 0.5 2.7 Reclassifications (0.8) 1.8 6.2 7. 2 Transfer to assets held for sale (20.5) – (0.2) (20.7) Disposals (0.2) (1.7) (12.9) (14.8) Disposal of business (4.5) (1.2) (12.6) (18.3) Foreign exchange difference (7.1) (0.2) (6.2) (13.5) At 31 December 2021 131.1 25.0 197.6 353.7 Additions – separately acquired 19.0 2.5 18.9 40.4 Additions – business combinations 23 1.0 0.6 1.4 3.0 Reclassifications – – (0.3) (0.3) Transfers to assets held for sale 24 (3.3) – – (3.3) Disposals (0.6) (0.7) (6.8) (8.1) Disposal of business 24 (17.3) (1.8) (14.4) (33.5) Foreign exchange difference 9.2 1.6 11.2 22.0 At 31 December 2022 139.1 27.2 207.6 373.9 Accumulated depreciation and impairment At 1 January 2021 69.1 12.3 144.6 226.0 Charge for the year 4.1 1.9 14.4 20.4 Reversal of impairment (6.0) – – (6.0) Reclassifications (0.6) 1.8 6.6 7.8 Transfers to assets held for sale (10.7) – 0.3 (10.4) Disposals (0.1) (1.7) (12.7) (14.5) Disposal of business (1.8) (0.8) (9.0) (11.6) Foreign exchange difference (3.6) (0.4) (4.5) (8.5) At 31 December 2021 50.4 13.1 139.7 203.2 Charge for the year 3.5 2.5 14.6 20.6 Reclassifications – 0.1 – 0.1 Transfers to assets held for sale 24 (1.6) – – (1.6) Disposals – (0.7) (6.0) (6.7) Disposal of business 24 (3.4) (1.2) (10.2) (14.8) Foreign exchange difference 3.2 0.8 8.4 12.4 At 31 December 2022 52.1 14.6 146.5 213.2 Carrying amount At 31 December 2022 87.0 12.6 61.1 160.7 At 31 December 2021 80.7 11.9 57.9 150.5 Notes to the Accounts 10. Goodwill and other intangible assets STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 137 Notes to the Accounts 12. Investments in equity instruments, investment in associate and joint operation Investments in equity instruments 2022 £m 2021 £m Investments in equity instruments designated as at fair value through other comprehensive income 29.3 24.3 Total investment in equity instruments at 31 December 29.3 24.3 At 31 December 2022, the Group’s investments in equity instruments designated to be measured at fair value through other comprehensive income consists of a) 27,752,567 A1 investment units in the EZ Ring FPCI (the fund holding the combined UTAC-Millbrook group), which has a fair value of £28.6m (2021: £23.1m) b) 10,000,000 shares in Envirosuite Ltd, which has a fair value of £0.7m (2021: £1.2m). These investments were not held for trading at initial recognition and were not contingent consideration. Instead, they are held for medium- to long-term strategic purposes. Accordingly, the Group elected to designate these investments in equity instruments as at fair value through other comprehensive income at initial recognition as it believes that recognising short-term fluctuations in these investments’ fair value in profit and loss would not be consistent with the Group’s strategy of holding the investment for long-term purposes and realising its performance potential in the long run. The Group does not consider that it is able to exercise significant influence over any of the above investments as its percentage ownership and voting rights of the businesses is small and it does not have any unusual powers or rights over the businesses. No dividends have been recognised on investments in equity instruments during the year (2021: nil). Investment in associate On 8 April 2022, the Group acquired 19.4% (17.2% fully diluted) of the shares of CM Labs Simulations Inc. (‘CM Labs’) for total consideration of CAD4.3m (£2.6m), settled in cash. CM Labs is a manufacturer of turnkey solutions for operator training simulators in the heavy equipment industries. These simulators are developed using CM Labs’ proprietary Vortex software, which is also commercially available as a machinery virtual prototyping software platform for tasks ranging from product development to creation of custom simulators. Its principal place of business is Montreal, Quebec, Canada. As a result of the rights and powers attached to the Group’s shareholding, the Group has concluded that it has significant influence and, as result, will equity account for its share of CM Labs’ results, as an investment in associate. This investment in associate is not considered individually material to the Group. The investment carrying value at 31 December 2022 is £2.9m, consisting of the initial purchase consideration of £2.6m and transaction costs of £0.3m. The share of profit after taxation was nil. The Group did not receive dividends from its associate in the year (2021: nil). Summarised financial information in respect of the Group’s individually immaterial associate is set out below. The summarised information has been presented in accordance with IFRS (after adjustments by the Group for equity accounting purposes and to comply with the Group’s accounting policies). The amount included in the cost of plant and equipment of assets in the course of construction was £15.4m (2021: £5.9m). No borrowing costs were capitalised during either year. Of the total depreciation charge of £20.6m (2021: £20.4m), the amount attributable to the depreciation on fair value adjustments to acquisition-related property, plant and equipment was £0.2m (2021: £0.2m). There were no additions relating to the receipt of government grants in 2022 (2021: nil). Property, plant and equipment: right-of-use Note Property £m Plant and equipment £m Total £m At 1 January 2021 25.0 6.1 31.1 Additions 36.8 3.7 40.5 Depreciation and impairment (8.2) (3.8) (12.0) Disposals (2.3) (0.4) (2.7) Disposal of business (1.2) (0.3) (1.5) Additions – business combinations 5.4 – 5.4 Re-measurement – 0.7 0.7 Reclassification 0.1 – 0.1 Foreign exchange difference (0.9) (0.2) (1.1) At 31 December 2021 54.7 5.8 60.5 Additions 9.2 3.9 13.1 Depreciation and impairment (10.2) (4.0) (14.2) Disposals (2.2) (0.3) (2.5) Disposal of business 24 (1.8) – (1.8) Additions – business combinations 23 1.0 – 1.0 Re-measurement – 0.2 0.2 Foreign exchange difference 3.1 0.3 3.4 At 31 December 2022 53.8 5.9 59.7 2022 £m 2021 £m Property, plant and equipment: owned 160.7 150.5 Property, plant and equipment: right-of-use 59.7 60.5 220.4 211.0 11. Property, plant and equipment Spectris plc 138 2022 £m 2021 £m Investment in associate – carrying amount of interests accounted for using the equity method 2.9 – Share of associate's profit from continuing operations – – Share of associate's other comprehensive income – – Share of associate's total comprehensive income – – Joint operation The Group’s joint operation has share capital consisting solely of ordinary shares and is indirectly held, and principally operates in Slovenia. The financial and operating activities of the operation are jointly controlled by the participating shareholders and are primarily designed for all but an insignificant amount of the output to be consumed by the shareholders. Name of joint operation Principal activity Country of incorporation or registration Percentage shareholding Blueberry d.o.o. Research and development activities Slovenia 50% Significant judgement made by Group in determining the nature of its interest and the type of joint arrangement Blueberry d.o.o. is a joint arrangement that is primarily designed for the provision of output to the parties sharing joint control; this indicates that the parties have rights to substantially all the economic benefits of the assets. The liabilities of the arrangements are in essence satisfied by cash flows received from both parties; this dependence indicates that the parties in effect have obligations for the liabilities. It is these facts and circumstances that give rise to the classification of this entity as a joint operation. 13. Inventories 2022 £m 2021 £m Raw materials 129.1 76.5 Work in progress 49.0 38.2 Finished goods and goods held for resale 85.2 73.2 263.3 187.9 In the ordinary course of business, the Group makes provision for slow-moving, excess and obsolete inventory to write it down to its net realisable value based on an assessment of technological and market developments specific to the relevant business, and an analysis of historical and projected usage on an individual item or product line basis. Expenses relating to inventories written down during the year totalled £10.5m (2021: £5.2m) for the Group. Finished goods and goods held for resale expected to be utilised after 12 months amounted to £0.2m (2021: £1.4m) . 14. Trade and other receivables Current and non-current 2022 £m (Restated) 1 2021 £m Trade receivables 283.3 240.4 Prepayments 31.1 29.1 VAT and similar taxes receivable 27.2 18.6 Research and development credits recoverable 2.9 3.1 Other receivables 12.0 13.9 Contract assets 10.2 10.8 366.7 315.9 1. The Group has performed an analysis to disaggregate the ‘Other Receivables’. As a result, prior year comparatives have been restated to reflect this realignment. Total trade and other receivables for 2021 remains unchanged. Non-current trade and other receivables total £4.2m (2021: £2.8m), consisting of £2.3m of prepayments and £1.9m of other receivables. Other current and non-current receivables include advances to suppliers of £2.4m and other debtors of £9.6m. Trade receivables are non-interest bearing. Standard credit terms provided to customers differ according to business and country, and are typically between 30 and 60 days. Trade receivables are stated after the provision for impairment of £5.3m (2021: £6.1m). The fair value of trade and other receivables approximates to its carrying amount due to the short-term maturities associated with these items. There is no impairment risk identified with regards to other receivables where no amounts are past due. The maximum exposure to credit risk for trade receivables at 31 December by geographic region was: 2022 £m 2021 £m UK 9.8 16.7 Germany 23.8 17.1 France 16.7 13.7 Rest of Europe 46.1 39.8 USA 77.1 64.4 Rest of North America 9.8 5.5 Japan 15.0 12.4 China 25.0 26.9 South Korea 9.5 7.2 Rest of Asia 37.1 26.4 Rest of the world 13.4 10.3 283.3 240.4 Expected credit losses The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses (‘ECL’). The ECL on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtor, general economic Notes to the Accounts 12. Investments in equity instruments and investment in associate and joint operation STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 139 Notes to the Accounts conditions of the industry in which the debtor operates and an assessment of both the current as well as the forecast direction of conditions at the reporting date. There has been no change in the estimation techniques or significant assumptions made during the current reporting period. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. The ageing of trade receivables and related provisions for impairment at 31 December was: 2022 2021 Gross £m Impairment £m Gross £m Impairment £m Not past due 199.0 – 159.0 – One month past due 36.3 – 35.6 – Two months past due 14.7 – 14.2 – Three months past due 10.5 – 8.8 – Four months past due 5.6 – 4.3 – More than four months past due 22.5 5.3 24.6 6.1 288.6 5.3 246.5 6.1 The movement in the provision for impairment in respect of trade receivables during the year was as follows: 2022 £m 2021 £m At 1 January 6.1 7.6 Provision for impairment of receivables 0.2 0.3 Impairment loss utilised (1.1) (1.0) Disposal of business (0.4) (0.6) Foreign exchange difference 0.5 (0.2) At 31 December 5.3 6.1 All of the above impairment losses relate to receivables arising from contracts with customers. 15. Cash and cash equivalents 2022 £m 2021 £m Cash and cash equivalents 228.1 167.8 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in note 27. 16. Borrowings Current Interest rate Repayable date 2022 £m 2021 £m Bank overdrafts On demand 0.1 – Bank loans unsecured – £45.0m (2021: £50.0m) uncommitted facility Determined on draw down On demand – – Total current borrowings 0.1 – Non-current Interest rate Maturity date 2022 £m 2021 £m Bank loans unsecured – $500.0m revolving credit facilities Relevant RFR/ IBOR +55bps 31 July 2025 – – Total non-current borrowings – – Total current and non-current borrowings 0.1 – Total unsecured borrowings 0.1 – At 31 December 2022, the $500m (£414.9m) revolving credit facilities were undrawn (31 December 2021: the $500m (£370.3m) facilities were undrawn). Movements in total unsecured borrowings are reconciled as follows: 2022 £m 2021 £m At 1 January – 119.8 Notional cash-pooling movements – (15.0) Proceeds from borrowings 326.2 70.0 Repayment of borrowings (326.8) (169.8) Effect of foreign exchange rates 0.7 (5.0) At 31 December 0.1 – 14. Trade and other receivables Spectris plc 140 Changes in liabilities arising from financing arrangements The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s Consolidated Statement of Cash Flows as cash flow from financing activities. £m Note At 31 December 2021 Financing cash flows 1 New leases Acquisitions of businesses Disposal of businesses Other non-cash movement Exchange movement At 31 December 2022 Bank overdrafts (including notional cash-pool related bank overdrafts) – 0.1 – – – – – 0.1 Debt – (0.7) – 0.1 – (0.1) 0.7 – Total borrowings – (0.6) – 0.1 – (0.1) 0.7 0.1 Lease liabilities 65.9 (16.4) 13.2 1.0 (3.2) 0.3 4.3 65.1 Total liabilities from financing arrangements 65.9 (17.0) 13.2 1.1 (3.2) 0.2 5.0 65.2 £m Note At 31 December 2020 Financing cash flows 1 New leases Acquisitions of businesses Disposal of businesses Other non-cash movement Exchange movement At 31 December 2021 Bank overdrafts (including notional cash-pool related bank overdrafts and overdrafts classified as held for sale) 15.3 (15.3) – – – – – – Debt 104.5 (99.5) – – – – (5.0) – Total borrowings 119.8 (114.8) – – – – (5.0) – Lease liabilities (including lease liabilities classified as liabilities held for sale) 2 50.8 (14.8) 40.5 5.4 (15.2) 0.9 (1.7) 65.9 Total liabilities from financing arrangements 170.6 (129.6) 40.5 5.4 (15.2) 0.9 (6.7) 65.9 1. The cash flows from bank overdrafts (including notional cash-pool related bank overdrafts) and debt make up the net amount of proceeds from borrowings, repayment of borrowings and notional cash-pooling movement in the Consolidated Statement of Cash Flows. 2. Lease liabilities at 31 December 2022 includes £nil liabilities classified as held for sale (2021: £nil, 2020: £11.9m). Notes to the Accounts 16. Borrowings STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 141 2021: During 2021, £3.9m of contract liability balances were recognised as part of the acquisition of Concurrent-RT, in the Spectris Dynamics product group. Also, during 2021, £2.3m of contract liability balances were derecognised on the disposal of ESG and NDC Technologies, part of the Other non-reportable segments product group. 18. Provisions Note Reorganisation £m Product warranty £m Legal, contractual and other £m Total £m At 1 January 2022 9.6 6.8 5.9 22.3 Provision during the year 1.3 3.9 2.4 7.6 Disposal of business 24 – (0.2) – (0.2) Utilised during the year (7.9) (3.7) (1.4) (13.0) Released during the year – (0.2) (0.1) (0.3) Foreign exchange difference 0.1 0.4 0.3 0.8 At 31 December 2022 3.1 7.0 7.1 17.2 Reorganisation Reorganisation provisions relate to committed restructuring plans in place within the business. Costs are mostly expected to be incurred within one year and there is little judgement in determining the amount. Product warranty Product warranty provisions reflect commitments made to customers on the sale of goods in the ordinary course of business and included within the Group’s standard terms and conditions. Warranty commitments typically apply for a 12-month period, but can extend to 36 months. These extended warranties are not individually significant. Legal, contractual and other Legal, contractual and other provisions mainly comprise amounts provided against open legal and contractual disputes arising in the normal course of business. The Group has on occasion been required to take legal or other actions to protect its intellectual property rights, to enforce commercial contracts or otherwise and similarly to defend itself against proceedings brought by other parties. Provisions are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, taking into account professional advice received, and represent management’s best estimate of the most likely outcome. The timing of utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and negotiations. Contractual and other provisions represent the Directors’ best estimate of the cost of settling current obligations. No provision is made for proceedings which have been or might be brought by other parties against Group companies unless management, taking into account professional advice received, assesses that it is probable that such proceedings may be successful. Contingent liabilities associated with such proceedings have been identified, but the Directors are of the opinion that any associated claims that might be brought can be defeated successfully and, therefore, the possibility of any material outflow in settlement is assessed as remote. Notes to the Accounts 17. Trade and other payables Current 2022 £m Restated 1 2021 £m Trade payables 62.8 59.7 Accruals 114.0 108.2 Customer advances 48.5 39.9 Contract liabilities 98.4 77.9 Deferred and contingent consideration on acquisitions 3.3 1.1 VAT and similar taxes payable 27.0 17.5 Goods received not invoiced 14.9 14.9 Other payables 4.8 11.0 373.7 330.2 Non-current Contract liabilities 3.9 3.4 Deferred and contingent consideration on acquisitions – 0.4 Accruals 9.9 10.0 13.8 13.8 1. The Group has performed an analysis to disaggregate the ‘Other Payables’. As a result, prior year comparatives have been restated to reflect this realignment. Total trade and other payables for 2021 remains unchanged. The fair value of trade and other payables approximates to their carrying amount due to the short-term maturities associated with these items. Total contract liabilities relate to the following product groups: 2022 £m Restated 2 2021 £m Spectris Scientific 71.5 53.8 Spectris Dynamics 30.6 27.2 Omega – 0.1 Others 0.2 0.2 102.3 81.3 2. The table above shows restated comparative figures for the product groups at 31 December 2021, reflecting the impact of changes the Group made to its operating segments during the year ended 31 December 2022 (see note 2 for further details). Significant changes in contract liabilities during the year 2022: During 2022, £1.4m of contract liability balances were recognised as part of the acquisition of Creoptix, in the Spectris Scientific product group. The remainder of the increase primarily reflects increased systems-related orders in Spectris Scientific. There were no other significant changes in contract liability balances during 2022 . Spectris plc 142 19. Retirement benefit plans Spectris plc operates funded defined benefit and defined contribution pension plans for the Group’s qualifying employees in the UK. At 31 December 2022, 16 overseas subsidiaries (2021: 15) in six overseas countries (2021: six) provided defined benefit plans. Other UK and overseas subsidiaries have their own defined contribution plans invested in independent funds. Defined benefit plans The UK, German, Dutch, Swiss, French, Italian and Japanese plans provide pensions in retirement, death in service and, in some cases, disability benefits to members. The pension benefit is linked to members’ final salary at retirement and their service life. Since 31 December 2009, the UK plan has been closed to all service accruals. The German and Dutch plans are closed to new members. The Italian plan is a mandatory Trattamento di Fine Rapporto (‘TFR’) severance plan. The UK plan is administered by a pension fund, but the Swiss and Dutch plans are held by insurance companies that are legally separate from the Group. The majority of the overseas plan assets are insurance policies. The UK plan is managed by a Board of Trustees that represents both employees and employer, who is required to act in the best interest of the plan’s participants and is responsible for setting certain policies (e.g. investment, contribution and indexation policies) of the various funds. The plans expose the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk. Inflation and interest rate hedges are taken out to mitigate against risks arising on the UK plan and some reinsurance exists in respect of the overseas plans. The overseas plans are funded by the Group’s overseas subsidiaries, and the UK plan has been funded by both the Group’s UK subsidiaries and the Company. The assets of the UK plan are invested in accordance with Section 40 of the Pensions Act 1995. Although the Act permits 5% of the plan’s assets to be invested in ‘employer-related investments’, the Trustee has elected that none of the plan assets are to be invested directly in Spectris plc shares. The Trustee also holds interest rate and inflation swaps to help protect against the impact of changes in prevailing interest rates and price inflation, which in conjunction with the corporate bond portfolio aims to fully hedge against interest and inflation rate risks on the basis used by the Trustee to fund the plan. Trustee investment in derivatives is only made in so far as they contribute to the reduction of investment risks or facilitate efficient portfolio management and are managed such as to avoid excessive risk exposure to a single counterparty or other derivative operations. The Trustee of the UK plan has invested a large proportion of the plan’s assets in a buy and maintain corporate bond portfolio, designed to move in a similar way to the value of the plan’s liabilities. The Trustee has also entered into a swaps strategy which seeks to further mitigate against movement in interest rates and price inflation over time. The funding requirements are based on the individual fund’s actuarial measurement framework set out in the funding policies of the various plans. The Group has determined that, in accordance with the terms and conditions of the defined benefit plans, and in accordance with statutory requirements (including minimum funding requirements) of the plans of the respective jurisdictions, the present value of the refunds or reductions in future contributions is not lower than the balance of the total fair value of the plan assets less the total present value of obligations. This determination has been made on a Notes to the Accounts plan-by-plan basis. As such, no decrease in the defined benefit asset was necessary at 31 December 2022. The last full actuarial valuation for the UK plan was 31 December 2020 and for the overseas plans was 31 December 2022, where available. Where applicable, the valuations were updated to 31 December 2022 for IAS 19 (Revised) ‘Employee Benefits’ purposes by qualified independent actuaries. The Group’s contributions to defined benefit plans during the year ended 31 December 2022 were £2.0m (2021: £1.1m). Contributions for 2023 are expected to be £1.2m for the UK plan and £1.1m for the overseas plans. As a result of the UK plan’s full actuarial valuation at 31 December 2020, it has been agreed that the Group will make past service deficit recovery payments totaling £1.2m a year for a period of six years from 1 January 2022 until 31 December 2027. The contribution rates are subject to review at future valuations and periodic certifications of the schedule of contributions. The assumptions used by the actuary to value the liabilities of the defined benefit plans were: 2022 2021 UK plan % p.a. Overseas plans % p.a. UK plan % p.a. Overseas plans % p.a. Discount rate 4.85 2.15 – 3.80 1.8 0.0 – 1.0 Salary increases n/a 1.50 – 3.00 n/a 1.0 – 3.0 Pension increases in payment 2.30 – 3. 41 0.00 – 2.25 2.35 – 3.55 0.0 – 1.75 Pension increases in deferment 2.55 – 3.02 n/a 2.8 – 3.25 n/a Inflation assumption 2.55 – 3.02 1.25 – 3.50 2.8 – 3.25 1.0 – 2.0 Interest credit rate n/a 1.00 n/a 1.0 The weighted average duration of the defined benefit obligation at 31 December 2022 was approximately 12 years (2021: 14 years) for the UK plan and 14.3 years (2021: 18.3 years) for the overseas plans. Pensioner life expectancy assumed in the 31 December 2022 valuation is based on the following tables: UK plan 103% and 106% of the S3PA tables centred in 2013 for males and females respectively. Future improvements in line with the core CMI_2021 model subject to a long-term improvement rate of 1.25% per annum, an initial addition of 0.2% and weightings of 7.5% on both 2020 and 2021. French plans INSEE 2013 German plans Dr K Heubeck pension tables 2018 G Dutch plans A.G. Prognosetafel 2018 tables Swiss plan BVG 2020 – CMI 1.50% Italian plans SI 2019 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 143 Notes to the Accounts Samples of the ages which pensioners are assumed to live to across the Group’s defined benefit plans are as follows: Male Female Pensioners aged 65 in 2022 84.9– 87.0 88.1–89.7 Pensioners aged 65 in 2042 82.6–88.9 88.4–91.3 Amounts recognised in the Consolidated Income Statement UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m Current service cost – – 0.4 0.7 0.4 0.7 Past service credit – – (0.1) (0.3) (0.1) (0.3) Administrative cost – 0.7 – – – 0.7 Settlement/curtailment – – (0.1) – (0.1) – Net interest cost 0.2 0.1 0.1 0.1 0.3 0.2 0.2 0.8 0.3 0.5 0.5 1.3 The current service cost, past service credit, administrative cost and settlement/curtailment are recognised in administrative expenses in the Consolidated Income Statement. The net interest cost on the net defined benefit obligation is recognised in finance costs in the Consolidated Income Statement. Actuarial gains and losses are recognised in the Consolidated Statement of Comprehensive Income. During the year, insurance premiums for death-in-service benefits amounting to £0.4m (2021: £0.3m) were paid. There was a total return on plan assets in the year of -£32.1m (2021: +£6.7m). Amounts recognised in the Consolidated Statement of Comprehensive Income UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m Actuarial gains/(losses) recognised in the current year 9.8 (2.4) 3.3 0.6 13.1 (1.8) Foreign exchange (losses)/ gains in the current year – – (0.7) 0.8 (0.7) 0.8 Total gains/(losses) recognised in the current year 9.8 (2.4) 2.6 1.4 12.4 (1.0) Amounts recognised in the Consolidated Statement of Financial Position UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m Present value of defined benefit obligations (90.6) (133.2) (22.4) (26.5) (113.0) (159.7) Fair value of plan assets 90.4 122.2 13.7 15.2 104.1 137.4 Net deficit in plans (0.2) (11.0) (8.7) (11.3) (8.9) (22.3) Reconciliation of movement in net deficit UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m At 1 January (11.0) (7.8) (11.3) (12.6) (22.3) (20.4) Balance transferred from other payables – – – (0.2) – (0.2) Current service cost – – (0.4) (0.7) (0.4) (0.7) Net interest cost (0.2) (0.1) (0.1) (0.1) (0.3) (0.2) Plan administrative cost – (0.7) – – – (0.7) Settlement/curtailment – – 0.1 – 0.1 – Acquisitions of businesses – – (0.5) (0.5) (0.5) (0.5) Past service credit – – 0.1 0.3 0.1 0.3 Contributions from sponsoring company and plan members 1.2 – 0.3 0.4 1.5 0.4 Benefits paid – – 0.5 0.7 0.5 0.7 Actuarial gains/(losses) 9.8 (2.4) 3.3 0.6 13.1 (1.8) Foreign exchange difference – – (0.7) 0.8 (0.7) 0.8 At 31 December (0.2) (11.0) (8.7) (11.3) (8.9) (22.3) Spectris plc 144 Analysis of movement in the present value of the defined benefit obligation UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m At 1 January 133.2 130.0 26.5 27. 3 159.7 157. 3 Balance transferred from other payables – – – 0.2 0.0 0.2 Current service cost – – 0.4 0.7 0.4 0.7 Interest cost 2.4 1.8 0.2 0.1 2.6 1.9 Settlement/curtailment – – (0.1) – (0.1) – Acquisitions of businesses – – 2.6 0.5 2.6 0.5 Past service credit – – (0.1) (0.3) (0.1) (0.3) Contributions from plan members – – 0.2 0.2 0.2 0.2 Actuarial (gains)/losses – financial (44.5) (4.0) (7.7) (2.0) (52.2) (6.0) Actuarial (gains)/losses – demographic (1.2) 4.9 – 0.3 (1.2) 5.2 Actuarial (gains)/losses – experience 6.0 7.5 (0.1) 0.1 5.9 7.6 Benefits paid (5.3) (7.0) (1.4) (0.6) (6.7) (7.6) Adjustments and balances transferred to liabilities held for sale – – – 1.7 – 1.7 Foreign exchange difference – – 1.9 (1.7) 1.9 (1.7) At 31 December 90.6 133.2 22.4 26.5 113.0 159.7 Analysed as: Present value of unfunded defined benefit obligation – – 5.0 6.2 5.0 6.2 Present value of funded defined benefit obligation 90.6 133.2 17.4 20.3 108.0 153.5 Reconciliation of movement in fair value of plan assets UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m At 1 January 122.2 122.2 15.2 14.7 137.4 136.9 Interest income on assets 2.2 1.7 0.1 – 2.3 1.7 Plan administration cost – (0.7) – – – (0.7) Acquisitions of businesses – – 2.1 – 2.1 – Contributions from sponsoring company 1.2 – 0.3 0.4 1.5 0.4 Contributions from plan members – – 0.2 0.2 0.2 0.2 Actuarial (losses)/gains (29.9) 6.0 (4.5) (1.0) (34.4) 5.0 Benefits paid (5.3) (7.0) (0.9) 0.1 (6.2) (6.9) Adjustments and balances transferred to liabilities held for sale – – – 1.7 – 1.7 Foreign exchange difference – – 1.2 (0.9) 1.2 (0.9) At 31 December 90.4 122.2 13.7 15.2 104.1 137.4 Fair value of assets UK plan Overseas plans Total 2022 £m 2021 £m 2022 £m 2021 £m 2022 £m 2021 £m Equity instruments 1.7 7.8 – – 1.7 7.8 Corporate bonds 67.1 92.6 – – 67.1 92.6 Government bonds 12.5 20.2 – – 12.5 20.2 Cash and financial derivatives and other (net) 9.0 1.5 – – 9.0 1.5 Insurance policies 0.1 0.1 13.7 15.2 13.8 15.3 90.4 122.2 13.7 15.2 104.1 137.4 Asset class UK plan Overseas plans 2022 £m 2021 £m 2022 £m 2021 £m i. Government Bonds 13.8 17.2 – – ii. Corporate Bonds 74.2 76.1 – – iii. Equity 1.9 5.9 – – iv. Cash 25.0 6.8 – – v. Insurance contracts 0.1 0.1 100.0 100.0 vi. Other (15.0) (6.1) – – 100.0 100.0 100.0 100.0 The UK plan assets are invested in active markets which have a quoted market price. The overseas plan assets are invested in insurance policies. Notes to the Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 145 Notes to the Accounts 20. Deferred tax The movement in the net deferred tax asset/(liability) is shown below. Note 2022 £m 2021 £m At 1 January 1.8 (11.1) Measurement period adjustments (1.4) – Foreign exchange difference 2.0 0.8 Acquisition of subsidiary undertakings 23 2.5 17.0 Disposal of businesses (8.6) 0.6 Deferred tax on changes in fair value of forward exchange contracts recognised in the Consolidated Statement of Comprehensive Income (0.1) (0.2) Deferred tax on re-measurement of net defined benefit liability recognised in the Consolidated Statement of Comprehensive Income 3.4 (0.9) Deferred tax on share-based payments recognised in equity (0.1) (1.1) Deferred tax charge on discontinued operations 6.4 0.9 Credited to the Consolidated Income Statement (6.5) (4.2) At 31 December (0.6) 1.8 Comprising: Deferred tax liabilities 15.6 23.0 Deferred tax assets (16.2) (21.2) (0.6) 1.8 Sensitivity analysis The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions based on a reasonably expected change given current market conditions: Impact on plan liabilities as at 31 December 2022 Change in assumption UK plan Overseas plans Discount rate Increase by 1% Decrease by £9.3m Decrease by £2.5m Rate of price inflation (RPI) Increase by 1% Increase by £5.9m Increase by £1.1m Assumed life expectancy at age 65 Increase by 1 year Increase by £2.4m Increase by £0.5m The sensitivity analysis is approximate and extrapolation beyond the ranges shown may not be appropriate. Defined contribution plans The total cost of the defined contribution plans for the year was £20.1m (2021: £17.3m). There were no outstanding or prepaid contributions to these plans as at the end of the year. Spectris plc 146 The movements in deferred tax assets and liabilities during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and they relate to income taxes levied by the same taxation authority. Net deferred tax (assets)/liabilities Accelerated tax depreciation £m Accruals and provisions £m Tax losses £m Unrealised profit on inter- company transactions £m Pension plans £m Goodwill and other intangible assets £m Other £m 2022 Total £m At 1 January 2022 0.4 (18.2) (0.3) (7.0) (6.0) 36.1 (3.2) 1.8 Measurement period adjustments – – (1.4) – – – – (1.4) Foreign exchange difference – – – – – 2.0 – 2.0 Acquisition of subsidiary undertakings – 0.2 (2.2) – (0.1) 4.6 – 2.5 Disposal of businesses 0.1 0.6 – – – (9.3) – (8.6) Deferred tax on changes in fair value of forward exchange contracts recognised in the Consolidated Statement of Comprehensive Income – – – – – – (0.1) (0.1) Deferred tax on re-measurement of net defined benefit obligation recognised in the Consolidated Statement of Comprehensive Income – – – – 3.4 – – 3.4 Deferred tax on share-based payments recognised in equity – – – – – – (0.1) (0.1) Discontinued Operations deferred tax charge 0.1 0.4 – – – 0.1 5.8 6.4 (Credited)/charged to the Consolidated Income Statement 1.5 (6.4) (0.4) (3.5) – 1.6 0.7 (6.5) At 31 December 2022 2.1 (23.4) (4.3) (10.5) (2.7) 35.1 3.1 (0.6) Net deferred tax (assets)/liabilities Accelerated tax depreciation £m Accruals and provisions £m Tax losses £m Unrealised profit on inter-company transactions £m Pension plans £m Goodwill and other intangible assets £m Other £m 2021 Total £m At 1 January 2021 3.4 (19.7) (0.7) (6.7) (5.7) 18.8 (0.5) (11.1) Foreign exchange difference – – – – – 0.8 – 0.8 Acquisition of subsidiary undertakings – – – – (0.1) 17.1 – 17.0 Disposal of businesses 0.1 0.7 0.4 0.9 0.1 (1.8) 0.2 0.6 Deferred tax on changes in fair value of forward exchange contracts recognised in the Consolidated Statement of Comprehensive Income – – – – – – (0.2) (0.2) Deferred tax on re-measurement of net defined benefit obligation recognised in the Consolidated Statement of Comprehensive Income – – – – (0.9) – – (0.9) Deferred tax on share-based payments recognised in equity – – – – – – (1.1) (1.1) Discontinued Operations deferred tax charge (2.7) 0.3 – – – 3.3 – 0.9 (Credited)/charged to the Consolidated Income Statement (0.4) 0.5 – (1.2) 0.6 (2.1) (1.6) (4.2) At 31 December 2021 0.4 (18.2) (0.3) (7.0) (6.0) 36.1 (3.2) 1.8 Notes to the Accounts 20. Deferred tax STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 147 market during the year (31 December 2021: 44,440). The costs of funding and administering the plan are charged to the Consolidated Income Statement in the period to which they relate. Other reserves Movements in reserves are set out in the Consolidated Statement of Changes in Equity. The retained earnings reserve also includes own shares purchased by the Company and treated as treasury shares. The nature and purpose of other reserves forming part of equity are as follows: Translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign subsidiaries, including gains or losses arising on net investment hedges. Hedging reserve This reserve records the cumulative net change in the fair value of forward exchange contracts where they are designated as effective cash flow hedge relationships. Merger reserve This reserve arose on the acquisition of Servomex Limited in 1999, a purchase satisfied substantially by the issue of share capital and therefore eligible for merger relief under the provisions of Section 612 of the Companies Act 2006. Capital redemption reserve This reserve records the repurchase of the Company’s own shares. During the year, as a result of the share buyback programme, the capital redemption reserve increased by £0.3m (2021: £0.2m), reflecting the nominal value of the cancelled ordinary shares . 22. Share-based payments Spectris Long Term Incentive Plan (‘LTIP’) – awards granted from 2020 onwards with performance conditions attached The LTIP is used to grant share awards with performance conditions attached to senior executives and key employees that are settled in either equity or cash. Both cash and equity-settled LTIP awards are expected to vest, subject to their performance conditions, after three years. Vested equity-settled awards, which are granted in the form of nominal share options, must be exercised within the next seven years, whereas vested conditional share awards and cash-settled awards are paid out on or shortly after the vesting date. All LTIP awards granted to Executive Directors are subject to an additional two-year holding period. The Executive Directors’ LTIP awards vest after five years (three-year performance period plus two-year holding period) and must be exercised within the next five years. Subject to the LTIP awards vesting, participants receive additional dividend shares on the vested shares under the LTIP award. Dividend shares are of equivalent value to the Company’s dividends paid between the date of grant and the vesting date. Spectris Performance Share Plan (‘PSP’) – awards granted prior to 2020 The PSP was used to grant share awards to senior executives and key employees that are settled in either equity or cash, however the only outstanding PSP awards remaining are all settled in equity. Both cash and equity-settled PSP awards are expected to vest, subject to their performance conditions, after three years. Vested equity-settled awards must be exercised within the next Unrecognised temporary differences Deferred tax assets have not been recognised on the following temporary differences due to the degree of uncertainty over both the amount and utilisation of the underlying tax losses and deductions in certain jurisdictions. £2.0m will expire between 2026 and 2030. There is no expiry date associated with the remaining tax losses of £23.1m which mainly comprise of UK capital losses. 2022 £m 2021 £m Tax losses 25.1 29.0 25.1 29.0 It is likely that the unremitted earnings of overseas subsidiaries would qualify for the UK dividend exemption such that no UK tax would be due upon remitting these earnings to the UK. However, £306.6m (2021: £263.7m) of those earnings may still result in a tax liability, principally as a result of the dividend withholding taxes levied by the overseas tax jurisdictions in which those subsidiaries operate. These tax liabilities are not expected to exceed £16.3m (2021: £13.6m), of which only £4.5m (2021: £2.5m) has been provided for as the Group is able to control the timing of the dividends. It is not expected that further amounts will crystallise in the foreseeable future. 21. Share capital and reserves 2022 2021 Number of shares Millions £m Number of shares Millions £m Issued and fully paid (ordinary shares of 5p each): At 1 January and 31 December 109.1 5.5 115.6 5.8 During the year ended 31 December 2022, 6,439,493 ordinary shares were repurchased and cancelled by the Group as part of the £300m share buyback programme announced on 19 April 2022, resulting in a cash outflow of £191.0m, including transaction fees of £1.2m. During the year ended 31 December 2021, 5,596,739 ordinary shares were repurchased and cancelled by the Group as part of the £200m share buyback programme announced on 25 February 2021, resulting in a cash outflow of £201.3m, including transaction fees of £1.3m. No ordinary shares were issued upon exercise under share option schemes during the year (2021: nil). At 31 December 2022, the Group held 4,596,698 treasury shares (2021: 4,767,106). During the year, 170,408 of these shares were issued to satisfy options exercised by, and SIP Matching shares awarded to, employees which were granted under the Group’s share schemes (2021: 167,461). The Group has an employee benefit trust (‘EBT’), which operates the Spectris Share Incentive Plan (‘SIP’) to all eligible UK-based employees. The EBT holds shares in Spectris plc for the purposes of the SIP, further details of which are disclosed in the Directors’ Remuneration Report. At 31 December 2022, the EBT held 55,570 shares which were purchased from the Notes to the Accounts 20. Deferred tax Spectris plc 148 seven years, whereas vested cash-settled awards are paid out on or shortly after the vesting date. Outstanding PSP awards granted to Executive Directors are subject to an additional two-year holding period. The Executive Directors’ PSP awards vest after five years (three-year performance period plus two-year holding period) and must be exercised within the next five years. Subject to the PSP awards vesting, participants receive additional dividend shares on the vested shares under the PSP award. For PSP awards granted in or after 2014, the dividend shares are of equivalent value to the Company’s dividends paid between the date of grant and the vesting date. For PSP awards granted before 2014, dividend shares were of equivalent value to the Company’s dividends paid between the date of grant and the date of exercise. Linked (tax-advantaged) awards Some PSP and LTIP awards granted to UK employees are linked to a grant of market value share options under the terms of HMRC’s tax-advantaged Company Share Option Plan (‘Linked (tax-advantaged) awards’). Linked (tax-advantaged) awards are granted up to an aggregate value of £30,000, which is HMRC’s limit. The Linked (tax-advantaged) awards have the same performance and vesting conditions as the PSP/LTIP awards to which they are linked. When an employee chooses to exercise a PSP/LTIP award which is linked to a Linked (tax- advantaged) award, both parts are also automatically exercised at the same time. Should there be a gain on exercise from the Linked (tax-advantaged) award part, then a proportion of the PSP/LTIP award will lapse to ensure that the overall gross value received from the combined exercise of these awards is no more than would have been delivered from a stand-alone equivalent PSP/LTIP award. Should there be no gain on exercise from the Linked (tax- advantaged) award part, then this part is forfeited and there is no reduction in the remaining PSP/LTIP award. LTIP performance conditions LTIP awards granted to Executive Directors and Executive Committee members are subject to an adjusted earnings per share growth target (‘EPS’) and a return on gross capital employed (‘ROGCE’) target. Any vesting under these performance conditions will then be further assessed against both absolute and relative Total Shareholder Return (‘TSR’) metrics which can potentially increase the vested award via a multiplier (maximum 1.4 times). The performance conditions attached to LTIP awards granted to senior managers are one-third EPS, one-third ROGCE and the remaining one-third solely subject to continuous employment over the three-year vesting period. LTIP Awards below senior management level are subject to EPS (50%) and ROGCE (50%). Normally, LTIP awards granted to participants who leave employment prior to vesting will be forfeited. In the event a participant leaves due to a qualifying reason, they receive a time pro-rated entitlement. PSP performance conditions Outstanding PSP awards granted to Executive Directors were subject to the following performance conditions: one-third EPS; one-third economic profit (‘EP’); and one-third relative TSR. The vesting outcome against the PSP performance conditions have been confirmed and the Executive Directors’ outstanding PSP awards are currently in the additional two-year holding period. Notes to the Accounts 22. Share-based payments co d PSP awards granted to other members of the Executive Committee in 2017 and 2018 are subject to the following performance conditions: one-third subject to EPS; one-third subject to EP; and one-third solely subject to continuous employment over the three-year vesting period. In 2019, the same conditions applied for Head Office Executive Committee roles however the EP target was replaced for an operating company profit target for the Executive Committee members who are Presidents of an operating company. PSP awards granted to other senior head office managers were, until 2016, 50% subject to EPS and 50% subject to TSR. From 2017 onwards, senior head office management have two-thirds of their PSP awards subject to EPS and the remaining one-third solely subject to continuous employment over the three-year vesting period. PSP awards granted to executives and senior managers of the Group’s operating companies until 2016 had two-thirds subject to an operating company profit target and one-third subject to EPS. In 2017 and 2018, the performance conditions have been two-thirds operating company profit targets and one-third continuous employment over the three-year vesting period. In 2019, the performance conditions were one-third operating company profit targets, one-third EPS and one-third continuous employment over the three-year vesting period. Normally, PSP awards granted to participants who leave employment prior to vesting will be forfeited. In the event a participant leaves due to a qualifying reason, they receive a time pro-rated entitlement. Spectris Reward Plan (‘SRP’) – awards granted from 2020 onwards with no performance conditions attached The SRP is used to grant share awards with no performance conditions attached to key employees that are settled in equity or, in limited circumstances, in cash. SRP awards cannot be granted to an Executive Director of Spectris plc. Both cash and equity-settled SRP awards are expected to vest after three years. Vested equity-settled awards, which are granted in the form of nominal share options, must be exercised within the next seven years, whereas vested conditional share awards and cash- settled awards are paid out on or shortly after the vesting date. On vesting, participants receive additional dividend shares on the vested shares under the SRP award. Dividend shares are of equivalent value to the Company’s dividends paid between the date of grant and the vesting date. Spectris Deferred Bonus Plan (‘DBP’) – awards granted from 2021 onwards with no performance conditions attached The DBP is used to grant share awards with no performance conditions attached to Executive Directors and are settled in equity. This represents the 50% of the Executive Directors’ annual bonus that is deferred into shares each year. DBP awards are expected to vest after three years and must be exercised within the next seven years. On vesting, the Executive Directors receive additional dividend shares on the vested shares under the DBP award. Dividend shares are of equivalent value to the Company’s dividends paid between the date of grant and the vesting date. Spectris Share Incentive Plan (‘SIP’) The SIP, a UK tax-advantaged share matching plan, was launched after it was approved by shareholders at the May 2018 AGM. UK employees can invest up to £150 per month to buy ordinary shares in the Company (‘Partnership shares’) tax efficiently and for every five STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 149 Long Term Incentive Plan, Spectris Reward Plan and Performance Share Plan (equity awards) 2022 2021 Number thousands Weighted average exercise price £ Weighted average fair value at grant date £ Number thousands Weighted average exercise price £ Weighted average fair value at grant date £ At 1 January 1,776 0.05 1,599 0.05 Shares granted 711 0.05 21.13 688 0.05 26.44 Addition of reinvested dividends 17 – 10 – Exercised (166) 0.05 (155) 0.05 Forfeited (518) 0.05 (366) 0.05 At 31 December 1,820 0.05 1,776 0.05 Exercisable at 31 December 120 0.05 70 0.05 Long Term Incentive Plan and Performance Share Plan (Linked tax-advantaged) Year of grant 2022 2021 Remaining contractual life of options Number thousands Weighted average Exercise price £ Number thousands Weighted average Exercise price £ 2012 PSP – – – – 17. 31 2017 PSP 5 years 1 26.31 2 26.31 2018 PSP 6 years 1 25.80 2 26.03 2019 PSP 7 years 5 26.69 33 26.53 2020 LTIP 8 years 29 22.72 31 22.69 2021 LTIP 9 years 30 31.95 33 31.91 2022 LTIP 10 years 41 26.76 – – 107 27.11 101 27.05 The weighted average remaining contractual life of the PSP and LTIP (Linked tax-advantaged) awards is 8.93 years (2021: 8.89 years). Long Term Incentive Plan and Performance Share Plan (Linked tax-advantaged) 2022 2021 Number thousands Weighted average exercise price £ Weighted average fair value at grant date £ Number thousands Weighted average exercise price £ Weighted average fair value at grant date £ At 1 January 101 27.05 106 25.17 Shares granted 45 26.74 5.81 35 31.88 6.51 Exercised (6) 25.99 (9) 26.18 Forfeited (33) 26.62 (31) 26.37 At 31 December 107 27.11 101 27.05 Exercisable at 31 December 7 26.76 3 25.57 Partnership shares purchased, the Company will gift one free ordinary share (‘Matching share’). Matching shares need to be held in the SIP Trust for at least three years otherwise these shares are potentially subject to forfeiture. The Company incurs a charge on any Matching shares awarded under the SIP. The charge in 2022 was £0.1m (2021: £0.1m). The number of outstanding share incentives are summarised below: Incentive plan 2022 Number thousands 2021 Number thousands Equity-settled: Long Term Incentive Plan 1,385 1,023 Performance Share Plan 135 522 Long Term Incentive Plan (Linked tax-advantaged) 99 64 Performance Share Plan (Linked tax-advantaged) 8 37 Spectris Reward Plan 262 221 Deferred Bonus Plan 38 10 Total equity-settled 1,927 1,877 Cash-settled: Long Term Incentive Plan Cash 71 43 Spectris Reward Plan Cash 15 12 Performance Share Plan (Phantom allocations) – 12 Total cash-settled 86 67 Total outstanding 2,013 1,944 Share options outstanding at the end of the year (equity settled) Long Term Incentive Plan, Performance Share Plan, Spectris Reward Plan and Deferred Bonus Plan Year of grant 2022 2021 Remaining contractual life of options Number thousands Weighted average Exercise price £ Number thousands Weighted average Exercise price £ 2012 PSP – – – – 0.04 2013 PSP 1 year – – – 0.04 2015 PSP 3 years 1 0.05 1 0.05 2016 PSP 4 years 9 0.05 10 0.05 2017 PSP 5 years 37 0.05 52 0.05 2018 PSP 6 years 26 0.05 38 0.05 2019 PSP 7 years 62 0.05 421 0.05 2020 LTIP/ SRP 8 years 515 0.05 601 0.05 2021 LTIP/ SRP/ DBP 9 years 533 0.05 653 0.05 2022 10 years 637 0.05 – – 1,820 0.05 1,776 0.05 The weighted average remaining contractual life of these LTIP, SRP and PSP equity settled awards is 8.85 years (2021: 8.97 years). Notes to the Accounts 22. Share-based payments Spectris plc 150 Share options outstanding at the end of the year (cash-settled) Long Term Incentive Plan, Spectris Reward Plan and Performance Share Plan (Phantom allocations) Year of grant 2022 2021 Weighted average remaining contractual life of options Number thousands Weighted average Exercise price £ Number thousands Weighted average Exercise price £ 2019 PSP – – – 11 0.05 2020 LTIP/SRP 1 year 28 0.05 28 0.05 2021 LTIP/SRP 1.86 years 27 0.05 28 0.05 2022 LTIP/SRP 3 years 31 0.05 – – 86 0.05 67 0.05 The weighted average remaining contractual life of the cash-settled awards is 1.99 years (2021: 2.18 years). Long Term Incentive Plan, Spectris Reward Plan and Performance Share Plan (Phantom allocations) 2022 2021 Number thousands Exercise price £ Weighted average fair value at grant date £ Number thousands Exercise price £ Weighted average fair value at grant date £ At 1 January 67 0.05 157 0.05 Shares granted 33 0.05 26.93 40 0.05 31.64 Addition of reinvested dividends – – 6 – Exercised (4) 0.05 (92) 0.05 Forfeited (10) 0.05 (44) 0.05 At 31 December 86 0.05 67 0.05 Exercisable at 31 December – – – – Share-based payment expense Share options are valued using the stochastic option pricing model (also known as the Monte Carlo model) in respect of TSR, and the Black-Scholes model for all other options, with support from an independent remuneration consultant. For options granted in 2022 and 2021, the fair value of options granted and the assumptions used in the calculation, are as follows: Equity-settled Cash-settled Share awards LTIP & SRP (Linked tax-advantaged) LTIP & SRP LTIP Cash & SRP Cash 2022 2021 2022 2021 2022 2021 Weighted average share price at date of grant (£) 26.94 31.55 26.97 31.81 26.98 31.69 Weighted average exercise price (£) 0.05 0.05 26.74 31.88 0.05 0.05 Expected volatility 28.41% 29.83% 28.55% 29.38% 28.58% 29.86% Expected life 3.30 yrs 3.12 yrs 3.07 yrs 3 yrs 3 yrs 2.86 yrs Risk-free rate 1.37% 0.22% 1.39% 0.21% 1.39% 0.20% Expected dividends (expressed as a yield) – – – – – – Weighted average fair values at date of grant (£): TSR condition 10.25 19.12 n/a n/a n/a n/a ROGCE condition 20.38 23.99 5.81 6.52 26.91 31.73 EPS condition 20.38 23.99 5.81 6.52 26.91 31.73 Service condition 26.48 31.37 5.84 6.50 26.98 31.54 Weighted average fair values at 31 December (£): ROGCE condition (cash- settled) 29.09 35.41 EPS condition (cash-settled) 29.09 35.70 Profit condition (cash-settled) n/a 36.40 Service condition (cash-settled) 29.12 35.52 The expected volatility is based on historical volatility over the expected term. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero- coupon UK government bonds of a term consistent with the assumed option life. The weighted average share price at the date of exercise for share options exercised in 2022 was £28.27 (2021: £33.11). The weighted average fair value of cash-settled options outstanding at 31 December 2022 is £29.10 (2021: £35.57). The Group recognised a total share-based payment charge from continuing and discontinued operations of £11.1m (2021: £9.0m) in the Consolidated Income Statement, of which £10.4m (2021: £7.8m) related to equity-settled share-based payment transactions. Notes to the Accounts 22. Share-based payments STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 151 In the Consolidated Income Statement for the year ended 31 December 2022, sales of £4.2m and statutory operating profit of £0.5m have been included for the acquisition of MB connect. Group revenue and statutory operating profit from continuing operations for the year ended 31 December 2022 would have been £1,328.6m and £172.6m, respectively, had this acquisition taken place on the first day of the financial year. Where appropriate, a detailed exercise has been undertaken to assess the fair value of assets acquired and liabilities assumed, supported by the use of third-party experts. The valuation of the above intangible and tangible assets requires the use of assumptions and estimates. Intangible asset assumptions consist of future growth rates, expected inflation and attrition rates, discount rates used and useful economic lives. Due to their contractual due dates, the fair value of receivables approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial. There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised). Acquisition-related costs (included in administrative expenses) amount to £0.1m. Dytran On 1 September 2022, the Group acquired 100% of the share capital of Dytran Instruments, Inc (‘Dytran’) for net consideration of £69.6m, made up of £70.5m gross consideration in cash less £0.9m net cash acquired. There was no contingent consideration recognised on this acquisition. Dytran is a leading designer and manufacturer of piezo-electric and MEMS-based accelerometers and sensors for measuring dynamic force, pressure and vibration, with its largest market in North America. The transaction is in line with Spectris’ strategy to make synergistic acquisitions to enhance and grow its businesses. The acquisition strengthens Spectris Dynamics’ piezo electric offering, adds new MEMS capability and expands sales into North America. The acquisition also allows both companies to leverage complementary capabilities and provide enhanced customer offerings and solutions to enable accelerated product development. Dytran will be integrated into the Spectris Dynamics reportable segment and cash generating unit. The excess of the fair value of consideration paid over the fair value of the net tangible assets acquired is represented by the following intangible assets: customer-related relationships, brand, order backlog and goodwill. Goodwill arising is attributable to the assembled workforce, synergies from cross-selling goods and services and cost synergies. In the Consolidated Income Statement for the year ended 31 December 2022, sales of £8.3m and statutory operating profit of £1.3m have been included for the acquisition of Dytran. Group revenue and statutory operating profit from continuing operations for the year ended 31 December 2022 would have been £1,343.5m and £174.3m, respectively, had this acquisition taken place on the first day of the financial year. Where appropriate, a detailed exercise has been undertaken to assess the fair value of assets acquired and liabilities assumed, supported by the use of third-party experts. The valuation of the above intangible and tangible assets requires the use of assumptions and estimates. Intangible asset assumptions consist of future growth rates, expected inflation and attrition rates, discount rates used and useful economic lives. Due to their contractual due dates, the fair value of receivables approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial. There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised). Acquisition-related costs (included in administrative expenses) amount to £1.9m . 23. Acquisitions 2022 Creoptix On 7 January 2022, the Group acquired 100% of the share capital of Creoptix AG (‘Creoptix’) for net consideration of £37.0m, made up of £37.3m of gross consideration (consisting of £35.1m of cash paid and £2.2m of contingent consideration) less £0.3m of cash acquired. Creoptix is a bioanalytical sensor company, which provides solutions to accelerate discovery and development of new pharmaceutical drugs, substances and products. The transaction is in line with Spectris’ strategy to make synergistic acquisitions to enhance and grow its businesses. Creoptix will be integrated into the Spectris Scientific reportable segment and the Malvern Panalytical cash generating unit. The excess of the fair value of consideration paid over the fair value of the net tangible assets acquired is represented by a technology intangible asset and goodwill. Goodwill arising is attributable to the assembled workforce, in process research, expected future customer relationships and synergies from cross-selling goods and services. In the Consolidated Income Statement for the year ended 31 December 2022, sales of £3.9m and statutory operating loss of £4.2m have been included for the acquisition of Creoptix. As Creoptix was acquired near to the start of the current reporting period, Group revenue and statutory operating profit from continuing operations for the year ended 31 December 2022 would be the approximately the same had this acquisition taken place on the first day of the financial period. Where appropriate, a detailed exercise has been undertaken to assess the fair value of assets acquired and liabilities assumed, supported by the use of third-party experts. The valuation of the above intangible and tangible assets requires the use of assumptions and estimates. Intangible asset assumptions consist of future growth rates, expected inflation and attrition rates, discount rates used and useful economic lives. Due to their contractual due dates, the fair value of receivables approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial. There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised). Acquisition-related costs (included in administrative expenses) amount to £2.8m. MB connect line On 31 March 2022, the Group acquired 100% of the share capital of MB connect line GmbH (‘MB connect’) for net consideration of £8.7m, made up of £9.0m gross consideration in cash less £0.3m net cash acquired. There was no contingent consideration recognised on this acquisition. MB connect is a leading provider of secure connections between machines and plants for remote access, data collection, and M2M-communication. The transaction is in line with Spectris’ strategy to make synergistic acquisitions to enhance and grow its businesses. MB connect will be integrated into Other non-reportable segments and the Red Lion Controls cash generating unit. The excess of the fair value of consideration paid over the fair value of the net tangible assets acquired is represented by the following intangible assets: customer-related relationships, technology, brand and goodwill. Goodwill arising is attributable to the assembled workforce, synergies from cross-selling goods and services and cost synergies. Notes to the Accounts Spectris plc 152 2021 Concurrent Real-Time On 9 July 2021, the Group acquired 100% of Concurrent Real-Time (‘Concurrent-RT’) for net consideration of £123.6m, made up of £135.9m gross consideration in cash less £12.3m cash acquired. There was no contingent consideration recognised on this acquisition. The transaction is in line with Spectris’ strategy to make synergistic acquisitions to enhance and grow its division’s businesses. Concurrent-RT will be integrated into the Spectris Dynamics reportable segment and cash generating unit. The excess of the fair value of consideration paid over the fair value of the net tangible assets acquired is represented by the following intangible assets: customer-related relationships, contractual rights, technology and goodwill. Goodwill arising is attributable to the acquired workforce, expected future customer relationships and synergies from cross-selling goods and services. In the Consolidated Income Statement for the year ended 31 December 2021, sales of £15.4m and statutory operating profit of £3.7m have been included for the acquisition of Concurrent- RT. Group revenue and statutory operating profit for the year ended 31 December 2021 would have been £1,308.1m and £158.0m, respectively, had this acquisition taken place on the first day of the financial year. Where appropriate, a detailed exercise has been undertaken to assess the fair value of assets acquired and liabilities assumed, supported by the use of third-party experts. The valuation of the above intangible and tangible assets requires the use of assumptions and estimates. Intangible asset assumptions consist of future growth rates, expected inflation and attrition rates, discount rates used and useful economic lives. Acquisition-related costs (included in administrative expenses) amounted to £2.7m in 2021. Due to their contractual due dates, the fair value of receivables approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial. There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised). Software licence and asset purchase agreement with VIMANA On 24 August 2021, the Group completed a software licence and asset purchase agreement with VIMANA for gross consideration of £10.2m in cash. There was no contingent consideration recognised on this acquisition. The transaction advances HBK’s software strategy by bringing technology to HBK, and will form the basis for a new engineering centre of excellence focused on data management and connectivity. The fair value of net assets acquired was £7.2m, consisting of £7.2m of intangible assets (technology). As a result £3.0m of goodwill was generated, which is attributable to the acquired workforce. There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised). The fair value of the net assets is final. The acquisition is included in the Spectris Dynamics reportable segment and cash generating unit. In the Consolidated Income Statement for the year ended 31 December 2021, statutory operating profit included £0.3m of costs relating to the VIMANA business. Group revenue and statutory operating profit for the year ended 31 December 2021 would have been £1,292.0m and £154.9m, respectively, had this acquisition taken place on the first day of the financial year. Acquisition-related costs (included in administrative expenses) amount to £0.6m in 2021. The fair values included in the table below relate to the acquisition of Creoptix, MB connect and Dytran during the year: Creoptix £m MB connect £m Dytran £m 2022 Total fair value £m Intangible assets 18.5 5.1 35.8 59.4 Property, plant and equipment 0.1 1.2 1.7 3.0 Right of use assets 1.0 – – 1.0 Inventories 0.6 0.3 5.2 6.1 Trade and other receivables 1.6 0.1 2.9 4.6 Cash and cash equivalents 0.3 0.3 0.9 1.5 Borrowings – (0.1) – (0.1) Trade and other payables (1.9) (0.1) (2.3) (4.3) Retirement benefit obligations (0.5) – – (0.5) Lease liabilities (1.0) – – (1.0) Current tax liabilities – (0.1) – (0.1) Deferred tax liabilities (0.9) (1.6) – (2.5) Net assets acquired 17.8 5.1 44.2 67.1 Goodwill 19.5 3.9 26.3 49.7 Gross consideration 37.3 9.0 70.5 116.8 Adjustment for cash acquired (0.3) (0.3) (0.9) (1.5) Net consideration 37.0 8.7 69.6 115.3 Analysis of cash outflow in Consolidated Statement of Cash Flows 2022 £m 2021 £m Gross consideration in respect of acquisitions during the year 116.8 146.1 Adjustment for net cash acquired (1.5) (12.3) Net consideration in respect of acquisitions during the year 115.3 133.8 Deferred and contingent consideration on acquisitions included in net consideration during the year to be paid in future years (2.2) – Cash paid during the year in respect of acquisitions during the year 113.1 133.8 Cash paid in respect of prior years’ acquisitions 1.6 1.7 Net cash outflow relating to acquisitions 114.7 135.5 Notes to the Accounts 23. Acquisitions STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 153 The profit on disposal of the Omega reportable segment was calculated as follows: 2022 Omega £m Goodwill 121.3 Other intangible assets 39.9 Property, plant and equipment – owned and right of use assets 20.5 Current tax assets 0.1 Inventories 20.8 Trade and other receivables 18.0 Cash and cash equivalents 7.7 Trade and other payables (19.9) Lease liabilities (3.2) Current and deferred tax liabilities (8.6) Provisions (0.2) Net assets of disposed businesses 196.4 Consideration received Settled in cash 417.9 Total consideration received 417.9 Transaction expenses booked to profit on disposal of business (14.3) Net consideration from disposal of business 403.6 Net assets disposed of (including cash and cash equivalents held by disposal group) (196.4) Currency translation differences transferred from translation reserve 86.7 Pre-tax profit on disposal of the Omega reportable segment 293.9 Net proceeds recognised in the Consolidated Statement of Cash Flows Consideration received settled in cash 417.9 Cash and cash equivalents held by disposed business (7.7) Transaction fees paid (14.3) Tax paid on current year disposal of business (15.3) Net proceeds recognised in the Consolidated Statement of Cash Flows in respect of current year disposals 380.6 Payments made in respect of prior years’ disposal of businesses (2.6) Tax paid on prior year disposal of businesses (12.6) Net proceeds recognised in the Consolidated Statement of Cash Flows 365.4 The fair values included in the table below relate to the acquisition of Concurrent-RT and VIMANA during 2021: Concurrent-RT £m VIMANA £m 2021 Total fair value £m Intangible assets 74.8 7.2 82.0 Property, plant and equipment 2.7 – 2.7 Right of use assets 5.4 – 5.4 Inventories 1.5 – 1.5 Current tax asset 0.3 – 0.3 Trade and other receivables 5.0 – 5.0 Cash and cash equivalents 12.3 – 12.3 Trade and other payables (6.7) – (6.7) Retirement benefit obligations (0.5) – (0.5) Lease liabilities (5.4) – (5.4) Provisions (0.3) – (0.3) Deferred tax liabilities (17.0) – (17.0) Net assets acquired 72.1 7.2 79.3 Goodwill 63.8 3.0 66.8 Gross consideration 135.9 10.2 146.1 Adjustment for cash acquired (12.3) – (12.3) Net consideration 123.6 10.2 133.8 24. Business disposals and disposal groups held for sale Business disposals 2022 On 1 July 2022, the Group disposed of the Omega reportable segment. The consideration received was £417.9m, settled in cash received. This generated a pre-tax profit on disposal of £293.9m. The divestment was effected to offer a better opportunity to generate returns for shareholders and further enhance Group margins. . Notes to the Accounts 23. Acquisitions Spectris plc 154 The Omega reportable segment has been classified as discontinued operations in the Consolidated Income Statement. The results of these discontinued operations, which have been included in the profit for the year, were as follows: 2022 £m 2021 £m Revenue 73.9 129.0 Expenses included in adjusted operating profit (59.9) (109.2) Adjusted operating profit 14.0 19.8 Other expenses (1.1) (5.0) Profit before tax 12.9 14.8 Attributable tax expense (2.7) (3.5) 10.2 11.3 Profit on disposal of discontinued operations 293.9 – Tax expense attributable to profit on disposal of discontinued operations (17.4) – Profit after tax from discontinued operations for the year attributable to owners of the Company 286.7 11.3 During the year, discontinued operations contributed £6.5m (2021: £23.5m) to the Group’s net cash inflow from operating activities, received £379.8m (2021: £1.8m) in respect of investing activities and paid £0.5m (2021: £0.9m) in respect of financing activities. 2021 On 5 January 2021, the Group disposed of Concept Life Sciences’ legacy food testing business based in Cambridge, which formed part of the Spectris Scientific Division. The consideration received was £6.2m, settled in cash received. This generated a profit on disposal of £1.9m. On 2 February 2021, the Group disposed of 100% of its Millbrook business, which formed part of the Other non-reportable segments. The consideration received was £119.2m, consisting of £71.2m of cash received, €27.5m (£25.0m) of investment units in EZ Ring FPCI (the fund holding the combined UTAC-Millbrook group) and a £23.0m investment in debt instruments. On 1 March 2021, the Group disposed of 100% of its Brüel & Kjær Vibro business, which formed part of the Other non-reportable segments. The consideration received was £154.7m, settled in cash received. On 3 May 2021, the Group disposed of 100% of its ESG business, which formed part of the Other non-reportable segments. The consideration received was £3.4m, settled by cash received. This generated a loss on disposal of £4.8m. On 1 November 2021, the Group disposed of 100% of its NDC Technologies business, which formed part of the Other non-reportable segments. The consideration received was £133.0m, settled by £135.4m cash received less £2.4m estimated completion accounts true-up. Also included in profit on disposal of businesses in 2021 is a £1.2m credit relating to prior year disposals. The total profit on disposal of businesses was £226.5m, calculated as follows: 2021 Brüel & Kjær/ Vibro £m 2021 Millbrook £m 2021 NDC Technologies £m 2021 Other disposals £m 2021 Total £m Goodwill 14.9 – 3.0 1.1 19.0 Other intangible assets 1.0 0.5 4.4 0.0 5.9 Property, plant and equipment – owned and right of use assets 2.8 108.7 4.1 6.2 121.8 Current and deferred tax assets – 1.8 – 1.6 3.4 Inventories 3.4 2.9 9.0 0.5 15.8 Trade and other receivables 8.2 23.9 13.9 2.9 48.9 Cash and cash equivalents 6.2 7.1 5.6 1.7 20.6 Trade and other payables (6.9) (14.0) (15.1) (1.5) (37. 5) Lease liabilities (1.1) (9.8) (3.2) (1.1) (15.2) Current and deferred tax liabilities (0.9) – (0.7) – (1.6) Provisions (0.5) (0.3) (0.6) (0.1) (1.5) Retirement benefit obligations (0.6) – – – (0.6) Net assets of disposed businesses 26.5 120.8 20.4 11.3 179.0 Consideration received Settled in cash 154.7 71.2 135.4 9.6 370.9 Investment in equity instruments – 25.0 – – 25.0 Investment in debt instruments – 23.0 – – 23.0 Estimated completion accounts payable – – (2.4) – (2.4) Total consideration received 154.7 119.2 133.0 9.6 416.5 Transaction expenses booked to profit/ (loss) on disposal of business (7.1) (3.5) (5.0) (0.2) (15.8) Net consideration from disposal of business 147.6 115.7 128.0 9.4 400.7 Net assets disposed of (including cash and cash equivalents held by disposal group) (26.5) (120.8) (20.4) (11.3) (179.0) Currency translation differences transferred from translation reserve 3.3 0.4 0.9 0.2 4.8 Profit/(loss) on disposal of business 124.4 (4.7) 108.5 (1.7) 226.5 Net proceeds recognised in the Consolidated Statement of Cash Flows Consideration received settled in cash 154.7 71.2 135.4 9.6 370.9 Cash and cash equivalents held by disposed businesses (6.2) (7.1) (5.6) (1.7) (20.6) Transaction fees paid (7.1) (3.7) (4.6) (1.2) (16.6) Net proceeds recognised in the Consolidated Statement of Cash Flows 141.4 60.4 125.2 6.7 333.7 Notes to the Accounts 24. Business disposals and disposal groups held for sale STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 155 26. Financial risk management The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed to foreign currency risk, interest rate risk, liquidity risk and credit risk. Financial risk management is an integral part of the way the Group is managed. Financial risk management policies are set by the Board of Directors. These policies are implemented by a central treasury department that has formal procedures to manage foreign exchange risk, interest rate risk and liquidity risk, including, where appropriate, the use of derivative financial instruments. The Group has clearly defined authority and approval limits. The central treasury department operates as a service centre to the Group and not as a profit centre. In accordance with its treasury policy, the Group does not hold or use derivative financial instruments for trading or speculative purposes. Such instruments are only used to manage the risks arising from operating or financial assets or liabilities, or highly probable future transactions. The quantitative analysis of financial risk is included in note 27. Foreign currency risk Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currencies of Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group’s reporting currency of Sterling (translational exposures). The Group has operations around the world which record their results in a variety of different local functional currencies. In countries where the Group does not have operations, it invariably has some customers or suppliers that transact in a foreign currency. The Group is therefore exposed to the changes in foreign currency exchange rates between a number of different currencies, but the Group’s primary exposures relate to the US Dollar, Euro, Chinese Yuan Renminbi and Japanese Yen. Where appropriate, the Group manages its foreign currency exposures using derivative financial instruments. The Group’s translational exposures to foreign currency risks can relate both to the Consolidated Income Statement and net assets of overseas subsidiaries. The Group’s policy is not to hedge the translational exposure that arises on consolidation of the Consolidated Income Statement of overseas subsidiaries. The Group finances overseas company investments partly through the use of foreign currency borrowings in order to provide a natural hedge of foreign currency risk arising on translation of the Group’s foreign currency subsidiaries. The quantitative analysis of foreign currency risk is included in note 27. The Group manages its transactional exposures to foreign currency risks through the use of forward exchange contracts. Forward exchange contracts are used to hedge highly probable transactions which can be forecast to occur typically up to 18 months into the future. For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and the underlying) of the forward exchange contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically change in opposite directions in response to movements in the underlying exchange rates. The main potential source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group’s own credit risk on the fair value of the forward contracts, The disposals in 2021 did not meet the definition of discontinued operations given in IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’ and, therefore, no disclosures in relation to discontinued operations were made. Disposal groups held for sale 2022 Assets classified as held for sale at 31 December 2022 consist of the Group’s former headquarters building in Egham, Surrey, UK. This disposal does not meet the definition of discontinued operations given in IFRS 5. 2021 Assets held for sale at 31 December 2021 consisted of a freehold property with net book value of £10.4m, which forms part of the Spectris Dynamics reportable segment. As a result of the classification as held for sale the impairment of this asset that was recognised in 2020 has resulted in a £6.0m impairment reversal in 2021. This disposal does not meet the definition of discontinued operations given in IFRS 5. 25. Cash generated from operations Note 2022 £m 2021 £m Cash flows from operating activities Profit after tax 401.5 346.9 Adjustments for: Taxation charge 56.8 41.7 Profit on disposal of businesses 24 (294.2) (226.5) Finance costs 6 19.2 5.6 Financial income 6 (1.9) (12.8) Depreciation and impairment of property, plant and equipment 11 34.8 26.4 Amortisation, impairment and other non-cash adjustments made to intangible assets 10 26.3 23.9 Transaction-related fair value adjustments 27 1.0 0.2 Fair value through profit and loss movements on debt investments 27 4.1 – (Profit)/loss on disposal and re-measurements of property, plant and equipment and associated lease liabilities (1.5) 0.1 Equity-settled share-based payment expense 5 10.4 7.8 Operating cash flow before changes in working capital and provisions 256.5 213.3 Increase in trade and other receivables (47.9) (40.2) Increase in inventories (75.6) (30.3) Increase in trade and other payables 40.9 50.3 Decrease in provisions and retirement benefits (7.1) (1.5) Cash generated from operations 166.8 191.6 Notes to the Accounts 24. Business disposals and disposal groups held for sale Spectris plc 156 which is not reflected in the fair value of the hedged item attributable to changes in foreign exchange rates. No other sources of ineffectiveness emerged from these hedging relationships. The following tables detail the foreign currency forward contracts outstanding at the end of the reporting period, as well as information regarding their related hedged items. Foreign currency forward contract assets and liabilities are presented in the line ‘Derivative financial instruments’ (either as assets or liabilities) within the Consolidated Statement of Financial Position. Hedging instruments – outstanding contracts Change in fair value for recognising hedge ineffectiveness Carrying amount of the hedging instruments 2022 £m 2021 £m 2022 £m 2021 £m Cash flow hedges Currency risk – forward exchange contracts Less than 6 months (0.8) (0.3) (0.8) (0.3) 6 to 12 months (0.1) (0.6) (0.1) (0.6) 12 to 18 months 0.1 – 0.1 – (0.8) (0.9) (0.8) (0.9) Hedging instruments – hedged items Change in value used for calculating hedge effectiveness Balance in cash flow hedge reserve/foreign currency translation reserve for continuing hedges 2022 £m 2021 £m 2022 £m 2021 £m Currency risk Forecast sales 0.8 0.9 0.8 0.9 Interest rate risk Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow risk that results from borrowing at variable rates. Where appropriate, interest rate swaps are used to manage the Group’s interest rate profile. Liquidity risk Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages this risk through the use of regularly updated cash flow and covenant compliance forecasts and a liquidity headroom analysis which is used to determine funding requirements. Adequate committed lines of funding are maintained from high-quality investment grade lenders. The facilities committed to the Group as at 31 December 2022 are set out in note 16 . Credit risk Credit risk arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial assets such as cash balances, derivative financial instruments and trade and other receivables. The Group’s credit risk is primarily attributable to its trade receivables. The amounts recognised in the Consolidated Statement of Financial Position are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on whether receivables are past due based on contractual terms, payment history and other available evidence of collectability. Trade receivables are subject to credit limits and control and approval procedures in the operating companies. Due to its large geographical base and number of customers, the Group is not exposed to material concentrations of credit risk on its trade receivables. The quantitative analysis of credit risk relating to receivables is included in note 14. Credit risk associated with cash balances and derivative financial instruments is managed centrally by transacting with existing relationship banks with strong investment grade ratings, with a Moody’s LT Counterparty Risk ratings range of A1(cr) to Baa2(cr). Accordingly, the Group’s associated credit risk is limited. The Group has no significant concentration of credit risk. The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, as shown in note 27 . Capital management The Board considers equity shareholders’ funds, together with undrawn committed debt facilities, as capital for the purposes of funding the Group’s operations. Total managed capital at 31 December is: 2022 £m 2021 £m Equity shareholders’ funds 1,436.9 1,261.3 Undrawn committed debt facilities 414.9 370.3 1,851.8 1,631.6 Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Board of Directors monitors both the geographic spread of shareholders and the level of dividends to ordinary shareholders. The Board encourages employees to hold shares in the Company. This is carried out through the Spectris Share Incentive Plan in the UK, as well as Long Term Incentive, Performance and Restricted Share Plans. Full details of these schemes are given in note 22. The main financial covenants in the Company’s debt facilities are the ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation, and the ratio of finance charges to adjusted earnings before interest, tax, amortisation and impairment. Covenant testing is completed twice a year based on the half-year and year-end Financial Statements. At 31 December 2022, the Company had, and is expected to continue to have, significant headroom under these financial covenant ratios. Notes to the Accounts 26. Financial risk management STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 157 From time to time the Group purchases its own shares in the market; the timing of these purchases depends on market prices. Buy and sell decisions are made on a specific transaction basis by the Board. During the year ended 31 December 2022, 6,439,493 ordinary shares were repurchased and cancelled by the Group as part of the £300m share buyback programme announced on 19 April 2022, resulting in a cash outflow of £191.0m. During the year ended 31 December 2021 5,596,739 shares were repurchased and cancelled by the Group as part of the £200m share buyback programme announced on 25 February 2021, resulting in a cash outflow of £201.3m, including transaction fees of £1.2m (see note 21). There were no changes to the Group’s approach to capital management during 2022 and 2021. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements. 27. Financial instruments The following tables show the fair value measurement of financial instruments by level following the fair value hierarchy: > Level 1: quoted listed stock exchange prices (unadjusted) in active markets for identical assets; > Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and > Level 3: inputs for assets and liabilities derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data. Fair value and carrying amount of financial instruments Level 1 fair value £m Level 2 fair value £m Level 3 fair value £m 2022 Carrying amount £m Trade and other receivables excluding prepayments and contract assets – – – 327. 3 Trade and other payables excluding contract liabilities and customer advances – – (3.3) (236.8) Investments in equity instruments designated at initial recognition at fair value through other comprehensive income (see note 12) 0.7 – 28.6 29.3 Investment in debt instruments – – 18.9 18.9 Forward exchange contract assets – 1.7 – 1.7 Cash and cash equivalents – 228.1 – 228.1 Forward exchange contract liabilities – (2.5) – (2.5) 366.0 Fair value and carrying amount of financial instruments Level 1 fair value £m Level 2 fair value £m Level 3 fair value £m 2021 Carrying amount £m Trade and other receivables excluding prepayments and contract assets – – – 277.0 Trade and other payables excluding contract liabilities and customer advances – – (1.5) (222.7) Investments in equity instruments designated at initial recognition at fair value through other comprehensive income (see note 12) 1.2 – 23.1 24.3 Investment in debt instruments – – 23.0 23.0 Forward exchange contract assets – 0.3 – 0.3 Cash and cash equivalents – 167.8 – 167.8 Forward exchange contract liabilities – (1.2) – (1.2) 268.5 There were no movements between the different levels of the fair value hierarchy in the year. The fair value of cash and cash equivalents, receivables and payables approximates to the carrying amount because of the short maturity of these instruments. The fair value of floating rate borrowings approximates to the carrying amount because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year. The fair value of fixed rate borrowings is estimated by discounting the future contracted cash flow, using appropriate yield curves, to the net present values. The fair value of forward exchange contracts is determined using discounted cash flow techniques based on readily available market data. The fair value of forward exchange contracts outstanding as at 31 December 2022 is a net liability of £0.8m (2021: £0.9m), of which £3.0m has been credited to the hedging reserve (2021: £3.4m) and £3.7m debited from the Consolidated Income Statement (2021: £2.1m credited). These contracts mature over periods typically not exceeding 18 months. A summary of the movements in the hedging reserve during the year is presented below. All of the cash flow hedges in 2022 and 2021 were deemed to be effective. The level 1 £0.7m (2021: £1.2m) of investments in equity instruments is calculated using quoted market prices in an active market at the balance sheet date. The level 3 £28.6m (2021: £23.1m) of investment in equity instruments consists of the investment units in EZ Ring FPCI, the fund holding the combined UTAC-Millbrook group (see note 24). This investment is recognised at fair value, using the income approach, with the key input being a discounted cash flow. The level 3 £18.9m (2021: £23.0m) of investment in debt instruments consists of a vendor loan note receivable received as part of the sales proceeds from the Millbrook business disposal in 2021. This investment is recognised at fair value by establishing an appropriate market yield. The key inputs used were synthetic credit ratings and market interest rates. Notes to the Accounts 26. Financial risk management Spectris plc 158 Analysis of movements in hedging reserve, net of tax 2022 £m 2021 £m At 1 January (3.5) (1.9) Amounts removed from the Consolidated Statement of Changes in Equity and included in the Consolidated Income Statement during the year 3.7 (2.1) Amounts recognised in the Consolidated Statement of Changes in Equity during the year (3.3) 0.5 At 31 December (3.1) (3.5) The amount included in the Consolidated Income Statement is split between revenue and administrative expenses depending on the nature of the hedged item. Reconciliation of level 3 fair value for deferred and contingent consideration payable on acquisitions 2022 £m 2021 £m At 1 January (1.5) (3.1) Deferred and contingent consideration arising from current year acquisitions payable in future years (2.2) – Deferred and contingent consideration paid in the current year relating to previous years' acquisitions 1.6 1.7 Costs charged to the Consolidated Income Statement: Subsequent adjustments on acquisitions and disposals (1.0) (0.2) Foreign exchange difference (0.2) 0.1 At 31 December (3.3) (1.5) Reconciliation of level 3 fair value for investment in equity instruments 2022 £m 2021 £m At 1 January 23.1 – Investment in equity instruments recognised on disposal of business – 25.0 Fair value movement on level 3 investment in equity instruments 4.1 – Foreign exchange difference 1.4 (1.9) At 31 December 28.6 23.1 Reconciliation of level 3 fair value for investment in debt instruments 2022 £m 2021 £m At 1 January 23.0 – Vendor loan note receivable recognised on disposal of business (see note 24) – 23.0 Fair value movement on level 3 investment in debt instruments (4.1) – At 31 December 18.9 23.0 The fair value of deferred and contingent consideration is determined by considering the performance expectations of the acquired or disposed entity or the likelihood of non-financial integration milestones whilst applying the entity-specific discount rates. The unobservable inputs are the projected forecast measures that are assessed on an annual basis. Changes in the fair value of deferred and contingent consideration relating to updated projected forecast performance measures are recognised in the Consolidated Income Statement within administrative expenses in the Consolidated Income Statement in the period that the change occurs. Deferred and contingent consideration relates to financial (2022: £0.7m, 2021: £1.2m) and non-financial (2022: £2.6m, 2021: £0.3m) milestones on current and prior year acquisitions. The financial milestones are mainly sensitive to annual future revenue targets. The following table shows the total outstanding contractual forward exchange contracts hedging designated transactional exposures split by currencies which have been sold back into the functional currency of the underlying business. These contracts typically mature in the next 18 months and, therefore, the cash flows and resulting effect on the Consolidated Income Statement are expected to occur within this time period. Forward exchange contracts at 31 December 2022 2021 Foreign currency sale amount (£m) 117.2 96.1 Percentage of total: US Dollar 36% 38% Chinese Yuan Renminbi 25% 18% Euro 15% 11% Japanese Yen 15% 23% Other 9% 10% Notes to the accounts 27. Financial instruments STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 159 A maturity profile of the gross cash flows related to financial liabilities is: Maturity of financial liabilities 2022 2021 Derivative financial liabilities Overdrafts £m Unsecured loans £m Total £m Derivative financial liabilities Overdrafts £m Unsecured loans £m Total £m Due within one year 2.3 0.1 – 2.4 1.1 – – 1.1 Due between one and two years 0.2 – – 0.2 0.1 – – 0.1 2.5 0.1 – 2.6 1.2 – – 1.2 Trade and other payables (note 17) are substantially due within one year. It is not expected that the cash flows described above could occur significantly earlier or at substantially different amounts. Interest rate exposure of financial assets and liabilities by currency Financial assets Financial liabilities Fixed Rate £m Floating Rate £m Non interest bearing £m Total £m Fixed rate £m Floating rate £m Total £m 2022 Net financial assets £m Sterling 90.2 13.7 8.2 112.1 – – – 112.1 Euro 0.1 0.5 21.9 22.5 – – – 22.5 US Dollar 1.4 5.1 19.6 26.1 (0.1) – (0.1) 26.0 Other 0.2 36.2 31.0 67.4 – – – 67.4 91.9 55.5 80.7 228.1 (0.1) – (0.1) 228.0 Interest rate exposure of financial assets and liabilities by currency Financial assets Financial liabilities Fixed Rate £m Floating Rate £m Non interest bearing £m Total £m Fixed rate £m Floating rate £m Total £m 2021 Net financial assets/ (liabilities) £m Sterling 2.4 60.1 5.0 67.5 – – – 67. 5 Euro 0.3 1.1 16.6 18.0 – – – 18.0 US Dollar 0.3 10.6 20.8 31.7 – – – 31.7 Other 0.1 26.9 23.6 50.6 – – – 50.6 3.1 98.7 66.0 167.8 – – – 167.8 Notes to the Accounts 27. Financial instruments Spectris plc 160 Transactions with key management personnel The remuneration of key management personnel during the year was as follows: 2022 £m 2021 £m Short-term benefits 7.2 8.0 Post-employment benefits 0.1 0.1 Equity-settled share-based payment expense 3.1 1.9 10.4 10.0 In accordance with IAS 24 ‘Related Party Disclosures’, key management personnel are those having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. Key management personnel comprise the Directors and the other members of the Executive Management Committee. Further details of the Executive Directors’ remuneration are included in the Directors’ Remuneration Report on pages 84 to 104. Transactions with associate There were no related party transactions and no balance payables/receivable with the Group’s associate, CM Labs, in 2022 (2021: nil). See note 12 for details of the 19.4% (17.2% fully diluted) shareholding acquired in CM Labs during 2022. There were no other related party transactions in either 2022 or 2021. 32. Subsidiary undertakings The table below lists the Group’s principal subsidiary undertakings at 31 December 2022. They operate mainly in the countries of incorporation. All of the subsidiaries are involved in the manufacture and sale of highly-specialised measuring instruments and controls, together with the provision of services. Spectris plc holds 100% of the ordinary share capital of all the subsidiaries either directly or indirectly through intermediate holding companies. Name Country of incorporation Malvern Panalytical Limited England & Wales Servomex Group Limited England & Wales Hottinger Brüel & Kjær GmbH Germany Particle Measuring Systems, Inc. USA Red Lion Controls Inc USA A full list of subsidiaries is given in note 14 of the Company Financial Statements on pages 175 to 177. 33. Events after the balance sheet date There were no material post balance sheet events. Sensitivity analysis The tables below show the Group’s sensitivity to foreign exchange rates and interest rates. The US Dollar, Euro, Danish Krone and Chinese Yuan Renminbi represent the main foreign exchange translational exposures for the Group. Impact on foreign exchange translational exposures against Sterling 2022 2021 Decrease/ (increase) in equity £m Decrease/ (increase) in profit before tax from continuing operations £m Decrease/ (increase) in equity £m Decrease/ (increase) in profit before tax from continuing operations £m 10% weakening in the US Dollar 130.2 6.9 88.3 5.5 10% weakening in the Euro/Danish Krone 78.0 4.8 67.5 6.4 10% weakening in the Chinese Yuan Renminbi 5.5 3.6 5.3 2.5 Impact of interest rate movements 1pp increase in interest rates (0.6) (0.6) (1.0) (1.0) 28. Contingent liabilities In the normal course of business, Group companies have provided bonds and guarantees through local banking arrangements amounting to £20.4m (2021: £14.1m). Contingent liabilities in respect of taxation are disclosed in note 7 . 29. Lease liabilities Undiscounted lease liability maturity analysis under IFRS 16 2022 2021 Property £m Plant and equipment £m Total £m Property £m Plant and equipment £m Total £m Less than one year 10.8 3.1 13.9 10.8 3.3 14.1 One to five years 25.0 3.9 28.9 24.8 3.4 28.2 More than five years 34.9 0.1 35.0 38.2 – 38.2 Total undiscounted lease liabilities at 31 December 70.7 7.1 77.8 73.8 6.7 80.5 The total cash outflow on lease liabilities made in the year was £16.4m (2021: £14.8m). 30. Capital commitments At 31 December 2022, the Group had entered into contractual commitments for the purchase of property, plant and equipment and software amounting to £1.7m (2021: £6.2m) and nil (2021: £0.4m) respectively which have not been accrued. 31. Related party transactions The Group has related party relationships with its subsidiaries (a list of all related undertakings is shown in note 14 of the Company Financial Statements) on pages 175 to 177, with its associate and with its Executive Directors and members of the Executive Management Committee. Notes to the Accounts 27. Financial instruments STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 161 Appendix – Alternative performance measures • • • • • • • • • • • LFL measures Notes to the Accounts Spectris plc 162 £m £m £m 2022 £m Sales 657.8 492.2 177.4 Constant exchange rate adjustment to 2021 exchange rates Acquisitions LFL adjusted sales 629.4 457.1 160.3 Spectris £m Spectris £m Other £m 2021 Total £m Sales 531.2 425.5 206.3 1,163.0 – – (65.9) (65.9) LFL adjusted sales 531.2 425.5 140.4 1,097.1 £m £m £m Group £m 2022 £m 118.3 46.5 26.2 172.6 Net transaction-related costs and fair value adjustments 5.1 2.8 0.4 8.3 Depreciation of acquisition-related fair equipment 0.2 0.2 projects 8.7 13.0 21.7 Amortisation of acquisition-related 7.7 11.3 0.6 19.6 140.0 73.6 27.2 222.4 Constant exchange rate adjustment to 2021 exchange rates Acquisitions 4.2 138.7 65.4 24.0 209.7 Spectris £m Spectris £m Other £m Group costs £m 2021 Total £m 94.2 45.6 19.2 (19.1) 139.9 Restructuring costs 2.4 4.6 3.2 – 10.2 Net transaction-related costs and fair value adjustments 8.2 7.8 3.0 – 19.0 Depreciation of acquisition-related fair equipment 0.2 – – – 0.2 projects 1.6 4.6 0.8 – 7.0 Amortisation and impairment of 5.6 7.7 – – 13.3 112.2 70.3 26.2 (19.1) 189.6 – – (5.5) – (5.5) 112.2 70.3 20.7 (19.1) 184.1 2022 operating margin % % % 2022 % 1 18.0 9.4 14.8 13.0 Adjusted operating margin 2 21.3 15.0 15.3 16.8 LFL adjusted operating margin 3 22.0 14.3 15.0 16.8 2021 operating margin Spectris % Spectris % Other % 2021 Total % 1 17.7 10.7 9.3 12.0 Adjusted operating margin 2 21.1 16.5 12.7 16.3 LFL adjusted operating margin 3 21.1 16.5 14.7 16.8 2022 £m 750.8 Constant exchange rate adjustment to 2021 exchange rates Acquisitions 710.0 Notes to the Accounts Appendix – Alternative performance measures STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 163 2021 Total £m 675.5 (32.9) 642.6 2022 gross margin 2022 % 1 56.6 LFL adjusted gross margin 2 56.9 2021 gross margin 2021 Total % 1 58.1 LFL adjusted gross margin 2 58.5 2022 £m Total overheads Net transaction-related costs and fair value adjustments 8.3 0.2 21.7 19.6 Constant exchange rate adjustment to 2021 exchange rates 12.1 Acquisitions 16.1 LFL adjusted overheads 2021 LFL adjusted overheads 2021 Total £m (92.6) (222.2) (220.8) Total overheads (535.6) Restructuring costs 10.2 Net transaction-related costs and fair value adjustments 19.0 0.2 7.0 13.3 Acquisitions 27.4 LFL adjusted overheads (458.5) 2022 % LFL adjusted overheads as a percentage of sales 1 40.1 2021 LFL adjusted overheads as a percentage of sales 2021 Total % LFL adjusted overheads as a percentage of sales 1 41.8 Note 2022 £m 2021 £m 6 7.4 6 14.6 (7.2) Interest credit on release of provision on settlement of EU dividends tax claim 6 (5.1) (4.9) Note 2022 £m 2021 £m 222.4 189.6 2c (4.9) 219.7 184.7 Notes to the Accounts Appendix – Alternative performance measures Spectris plc 164 Note 2022 £m 2021 £m 114.8 335.6 Restructuring costs 10.2 Net transaction-related costs and fair value adjustments 8.3 19.0 Depreciation of acquisition-related fair value adjustments to 11 0.2 0.2 on material SaaS projects 21.7 7.0 10 19.6 13.3 27 4.1 – 24 (226.5) Interest credit on release of provision on settlement of EU dividends tax claim 6 (5.1) 6 14.6 (7.2) 7 (1.6) Adjusted earnings from continuing operations 172.0 144.9 2022 2021 9 107.6 113.7 Adjusted earnings per share from continuing operations (pence) 159.9 127.4 h) Net cash Note 2022 £m 2021 £m Bank overdrafts 16 – – Cash and cash equivalents 15 228.1 167.8 Net cash 228.0 167.8 2022 £m 2021 £m 50.4 (36.8) (70.0) 326.8 169.8 Effect of foreign exchange rate changes 9.2 (1.3) Movement in net cash 60.2 61.7 167.8 106.1 228.0 167.8 2022 £m 2021 £m Cash generated from operations (from continuing and discontinued operations) 166.8 191.6 Net income taxes paid (32.2) 120.0 159.4 Transaction-related costs paid 6.5 26.6 7.6 11.9 Net income taxes paid 46.8 32.2 continuing and discontinued operations) (35.3) SaaS-related cash expenditure 21.7 5.9 13.4 – (22.6) 163.8 178.1 1 74% 94% Notes to the Accounts Appendix – Alternative performance measures STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 165 Note 2022 £m 2021 £m ASSETS 4 0.1 0.2 5 0.9 2.2 6 1,126.1 0.6 Deferred tax assets 3.6 5.0 1,133.5 Current assets Current tax assets 13.8 13.5 7 196.6 178.3 3.6 2.3 Cash and cash equivalents 117.9 75.6 Assets held for sale 5 1.7 – 333.6 269.7 1,403.2 LIABILITIES (2.4) 9 (597.4) (599.8) (330.1) – 9 (151.5) 11 (11.0) (162.5) (762.3) Net assets 761.8 640.9 EQUITY Share capital 10 5.5 5.8 Share premium 231.4 231.4 Retained earnings 486.7 365.8 Merger reserve 10 3.1 3.1 Capital redemption reserve 10 1.0 0.7 Special reserve 10 34.1 34.1 761.8 640.9 Derek Harding Notes to the Accounts Spectris plc Statement of Financial Position As at 31 December 2022 2022 £m 2021 £m 2020 £m Net cash (see APM h) (167.8) (104.6) 76.2 157. 5 178.6 Accumulated amortisation and impairment 185.7 225.0 407.6 1,261.3 1,219.7 1,476.0 1,701.3 1 1,588.7 222.4 189.6 operations (see note 24) 14.0 19.8 236.4 209.4 16.0% 13.2% l) Order intake and order book m) Vitality index Spectris plc 166 Note £m £m earnings £m Merger reserve £m reserve £m £m £m 5.8 231.4 365.8 3.1 0.7 34.1 640.9 373.1 373.1 7. 3 7.3 380.4 380.4 10 0.3 13 5.6 5.6 4.3 4.3 0.2 0.2 5.5 231.4 486.7 3.1 1.0 34.1 761.8 Note Share capital £m Share premium £m Retained earnings £m Merger reserve £m Capital redemption reserve £m Special reserve £m Total £m 6.0 231.4 437.2 3.1 0.5 34.1 712.3 – – 202.9 – – – 202.9 – – (1.3) – – – (1.3) – – 201.6 – – – 201.6 – 10 (0.2) – (201.3) – 0.2 – (201.3) 13 – – (79.0) – – – (79.0) – – 5.6 – – – 5.6 – – 1.4 – – – 1.4 – – 0.3 – – – 0.3 5.8 231.4 365.8 3.1 0.7 34.1 640.9 Spectris plc Statement of Changes in Equity For the year ended 31 December 2022 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 167 • • • • • • • • • Intangible assets • Property, plant and equipment Notes to the Company Accounts Spectris plc 168 Notes to the Company Accounts Taxation Foreign currency translation • • • Investments Assets held for sale Trade and other receivables Cash and cash equivalents Trade and other payables Provisions STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 169 Share-based payments Financial instruments Measurement Notes to the Company Accounts Spectris plc 170 Notes to the Company Accounts 4. Intangible assets Cost £m 4.6 4.6 4.4 0.1 4.5 0.1 0.2 Dividends Treasury shares 2. Auditor’s remuneration 3. Employee costs and other information 2022 2021 Administrative 67 67 2022 £m 2021 £m Wages and salaries 11.6 15.2 2.6 3.4 0.7 0.6 4.4 0.9 0.1 0.1 19.4 20.2 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 171 6. Investments in subsidiary undertakings Investment in £m 2.8 7. Other receivables Current 2022 £m 2021 £m 9.0 2.1 44.6 31.4 3.5 2.7 0.7 3.0 57.8 39.2 Non-current 2021 £m 2020 £m 138.0 138.0 0.8 1.1 138.8 139.1 196.6 178.3 5. Property, plant and equipment Cost £m Improvements £m PPE £m £m £m 3.4 0.1 1.5 5.0 Additions 0.3 0.3 0.3 0.9 Transfers to assets held for sale Disposals 0.4 0.3 1.5 2.2 impairment 1.6 1.2 2.8 0.1 0.1 0.1 0.3 Transfers to assets held for sale Disposals 0.1 0.1 1.1 1.3 0.3 0.2 0.4 0.9 1.8 0.1 – 0.3 2.2 Notes to the Company Accounts Spectris plc 172 8. Borrowings Current Interest rate 2022 £m 2021 £m Bank overdrafts on demand – Bank loans unsecured – £45.0m determined on on demand – – Non-current Interest rate 2022 £m 2021 £m – – – 9. Other payables Current 2022 £m 2021 £m 7.3 0.8 547.4 583.1 Accruals 14.4 13.5 569.1 597.4 Non-current 2022 £m 2021 £m 132.4 151.5 10. Share capital and reserves 2022 2021 £m shares millions £m 109.1 5.5 115.6 5.8 Notes to the Company Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 173 12. Contingent liabilities 13. Dividends 2022 £m 2021 £m per share 25.3 25.4 per share 53.3 53.6 78.6 79.0 2022 £m 2021 £m share 25.3 25.4 53.6 53.3 78.9 78.7 Merger reserve Notes to the Company Accounts Spectris plc 174 14. Related undertakings Name Registered address Aquila Biomedical Limited Scotland Hottinger Bruel & Kjaer Poland Sp z.o.o. Poland Slovenia Bruel & Kjaer UK Limited 1 England & Wales Bruel & Kjaer VTS Limited 3 England & Wales England & Wales CAS Clean-Air-Service AG Canada England & Wales England & Wales Concept Life Sciences (Environmental Consulting) Limited England & Wales Concept Life Sciences (Holdings) Limited 3 England & Wales England & Wales Concept Life Sciences (Midco) Limited England & Wales England & Wales Concept Life Sciences Limited England & Wales Concurrent High Performance Solutions Europe S.A. France Concurrent Nippon Corporation Japan Concurrent Real-Time Asia, Inc. 1209 Orange Street, Wilmington, DE 19081 USA Concurrent Real-Time, Inc. 1209 Orange Street, Wilmington, DE 19081 USA England & Wales Creoptix AG Creoptix Inc. USA CXR Biosciences Limited Scotland DYTRAN Instruments, Inc Rua Vasconcelos Costa 277, Moreira, Maia Portugal Hottinger Bruel & Kjaer Solutions LLC2 100 Research Blvd, Starkville, Mississippi USA HBM Prenscia s.p. z.o.o. Poland Hottinger Bruel & Kjaer Inc. USA Hottinger Brüel & Kjær AS Denmark Austria Hottinger Bruel & Kjaer Benelux B.V. Netherlands Hottinger Bruel & Kjaer Co., Ltd China Hottinger Bruel & Kjaer France SAS France Notes to the Company Accounts STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 175 Name Registered address Im Tiefen See 45, Darmstadt, D-64293 Spain Milano (MI), Via Pordenone 8, Milan 20132 Rosenholmveien 25, Trollasen, 1414 Hottinger Bruel & Kjaer UK Limited Rotherham, South Yorkshire, S60 5WG England & Wales 2 5210 E Williams Cir, 2nd Floor, Suite 240, Tucson Arizona 85711 USA 5 Kumitehtaankatu, 5 04260, Kerava, Asianajotoimisto OY Finland Netherlands USA England & Wales Vallongatan 1, 752 28 Uppsala France South Africa Malvern-Aimil Instruments Pvt Limited India Nanosight Limited England & Wales Novisim Limited England & Wales 1 England & Wales Im Tiefen See 45, Darmstadt, D-64293 Via di Grotte Portella, Frascati, Rome, 34-00044 5475 Airport Boulevard, Boulder, Colorado 80301 USA England & Wales Peakdale Inc USA Peakdale Molecular Limited England & Wales RealTime Acquisition Co. 1209 Orange Street, Wilmington, DE19081 USA RealTime Holdco, LLC 2 1209 Orange Street, Wilmington, DE19081 USA Red Lion Controls B.V. Netherlands Red Lion Controls, Inc. 1750 Fifth Avenue, York, PA 17403 USA ReliaSoft India Private Limited India RightHook Inc 45 Jackson Street, San Jose, CA 95112-5102 USA Servomex B.V. Netherlands USA Im Tiefen See 45, Darmstadt, D-64293 Servomex Group Limited England & Wales Servomex Middle East L.L.C.2 Servomex S.A. 23 Rue de Roule, Paris, 75001 France USA 14. Related undertakings Notes to the Company Accounts Spectris plc 176 Name Registered address Australia Spectris Canada Inc. Canada Spectris China Limited Hong Kong Spectris Co., Ltd. Japan Spectris Denmark ApS Denmark Spectris Do Brasil Instrumentos Eletronicos Ltda. Rua Laguna 276, Santo Amaro, CEP 04728-000, Sao Paulo SP Brazil Spectris Funding B.V. Netherlands Im Tiefen See 45, Darmstadt, D-64293 Spectris Group Holdings Limited 1, 4 England & Wales Spectris Holdings Inc. USA Spectris Inc. USA Bldg 9,No. 88, Lane 2888, HuaNing Road, MingHang District, Shanghai, 201108 China Spectris Korea Ltd. Spectris Mexico, S. De R.L. De C.V. Av. Pedro Ramirez Vazquez No. 200–13, Nivel 1, Col. Valle Oriente, San Pedro Garza Garcia, C.P. 66269 Mexico Spectris Netherlands B.V. Netherlands Spectris Netherlands Cooperatief W.A. 1, 2 Netherlands Spectris Pension Trustees Limited 1 England & Wales Spectris Pte Ltd Singapore Spectris Technologies Private Limited India Spectris UK Holdings Limited 3 England & Wales Spectris US Holdings Limited England & Wales Starlight USA Inc United States 75 East Santa Clara St., Suite 900, San Jose, CA 95113 United States VI-grade AG Neustrasse 2, 8590 Romanshorn Im Tiefen See 45, Darmstadt, D-64293 VI-grade Japan Ltd. Japan VI-grade Limited England & Wales VI-grade s.r.l. Via Galileo Galilei 42, 33010 Tavagnacco (Udine) Vintage Star Inc United States Viscotek Europe Limited England & Wales China Notes to the Company Accounts 14. Related undertakings STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 177 Shareholder Information 27 April 2023 Annual General Meeting 9 June 2023 30 June 2023 Company Secretary Auditor Banker Solicitor Brokers Financial PR adviser Registrar Share price information 14. Related undertakings UK registered subsidiaries exempt from audit Name Aquila Biomedical Limited SC393914 Bruel & Kjaer VTS Limited 1539186 Bruel & Kjaer UK Limited 04066051 1522736 12699842 02345676 9046575 Concept Life Sciences (Environmental Consulting) Limited 9046580 Concept Life Sciences (Holdings) Limited 9046553 9046586 Concept Life Sciences (Midco) Limited 9046568 CXR Biosciences Limited SC211745 Hottinger Bruel & Kjaer UK Limited 1589921 Novisim Limited 5269664 Spectris UK Holdings Limited 4451903 Spectris US Holdings Limited 4451883 VI-grade Limited 8245242 Additional Information Notes to the Company Accounts Spectris plc 178 Additional Information Major shareholders as at 31 December 2022 Shareholding in Spectris shares 8,567,102 8.19% BlackRock 7,869,873 7. 53% UBS Asset Management 7,819,357 7.48% Liontrust Asset Management 5,168,632 4.94% Sprucegrove Investment Management 4,972,450 4.76% Vanguard Group 4,966,842 4.75% Wellington Management 3,782,547 3.62% 3,540,706 3.39% Artemis Investment Management 3,360,582 3.21% Evenlode Investment 2,543,648 2.43% Email news service Cautionary statement STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Spectris plc 179 Spectris plc 180 and UPM Fine Offset. 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