Spectris PLC

LSE:SXS

Earnings Call Transcript 2021-Q1

[Operator]

Welcome to the Spectris trading update. [Operator Instructions] Just to remind you, this call is being recorded. Today, I am pleased to present Andrew Heath, Chief Executive; and Derek Harding, Chief Financial Officer. Please begin your meeting.

[Andrew Heath, CEO & Executive Director]

Thank you very much, and good morning, everybody, and welcome to the Spectris Q1 trading update. I really do hope that you're all keeping safe and well at this time. I'm joined by Derek Harding, our CFO, to discuss our performance in the first quarter of 2021.While it's pleasing to see many economies and markets recovering during the first quarter, albeit at varying speeds, we're again seeing COVID-19 cases rising and lockdown still prevalent in a number of the countries in which we operate. Therefore, we continue to take a balanced approach to managing our business in line with our culture and values as we did through last year. Our priority remains ensuring we support both our employees and our customers, whilst continuing to progress our strategic initiatives to take advantage of the recovery. And I have to say this approach is working well for us. We have started the year strongly.As you remember at the time of our full year results, we stated that the order intake in the last quarter of 2020 provided good momentum coming into this year and that's certainly been borne out in the first quarter. So I'm very pleased with the group's performance, which is ahead of our expectations at the year-end, with the growth in sales reflecting both the execution of our strategic growth initiatives as well as the recovery in many of our end markets.For the group as a whole, like-for-like sales increased 5% in the first quarter, with a particularly strong performance in March. Like-for-like orders also increased similarly by 5% and if we exclude the businesses divested, i.e., Millbrook and B&K Vibro, the order book was even stronger at 10%.In all regions, the backdrop has improved, although sales in Europe and North America remained lower year-on-year. Like-for-like sales increased 24% in Asia, albeit against an easier comparator, reflecting the earlier impact of COVID there in 2020. In China, growth was notably strong with sales up by more than 50% in the period.Turning now to our businesses. Malvern Panalytical recorded a 20% increase in like-for-like sales in the first quarter, although it was an easier comp, given the high Asia exposure and early impact from COVID last year, there was strong growth across all regions. Sales into pharmaceutical customers were very robust, reflecting the market growth and also the recent product introductions, such as our Zetasizer Advance and Amplify Analytics program in biopharma. Like-for-like sales into academic research remained lower. However, they have started to recover as research institutes open up further around the world.Moving on to HBK and reflecting its later cycle exposure and, therefore, a tougher comparator, like-for-like sales here declined 3%. Machine manufacturing though continued the strong performance in 2020, which reflects good onward demand in our weighing technologies in particular. Sales into the electronics, telecoms and aerospace customers also rose year-on-year. Although automotive like-for-like sales were lower, the rate of decline is easing and we expect good demand for our simulation software and electric power applications here.Despite the lower like-for-like sales, order momentum did improve at HBK through the quarter with key wins, including new VI-grade NVH simulators, sensor orders to the process and aerospace industries, strong software renewals as well as our new eDrive and eGrid solutions with major auto OEMs.At Omega, like-for-like sales were 1% higher, broadly flat in North America, its main market, but with good growth in Asia, particularly China and South Korea. The strong recovery in Asia and the improving trend in North America has led to a good backlog going into the second quarter. Order growth in the quarter exceeded that of sales. In particular, we've seen a robust growth in demand for our temperature products, which should underpin sales growth in Q2.In Industrial Solutions, like-for-like sales here increased 2%, with over one of the retained businesses posting growth in the quarter. Sales were strongest into semiconductor, electronics and pharmaceutical end markets reflecting our order backlog coming into the year, but also market growth and some market share gains. PMS has seen particularly strong demand for its Ultra DI 20 and Ultra Chem 20 instruments with higher agencies for environmental monitoring systems, which is primarily driven by increased demand of vaccines and onshoring of production.Servomex is seeing good gains in Petrochem in China and also semiconductors generally. Red Lion have won notable projects with a new FlexEdge automation platform from entry customers, and this is underpinning.For our balance sheet and M&A, our businesses remain highly cash generative. At the end of March, we had GBP 334.8 million of cash on the balance sheet. We have further added around $52 million or GBP 38 million back in April, with the proceeds from our holding in the U.S. listed company where the merger has now completed. This represents a gain of almost $33 million, and activities to establish the Spectris Foundation using part of this gain are well underway.This week, we have also agreed another divestment that of ESG, our microseismic solutions business. This is the fourth in our portfolio optimization program and although small in scale, ESG has margins lower than the group average. And I'd just like to take this opportunity to thank all of our ESG employees for their contribution to Spectris over the years and to wish them well in the next stage of their journey.We remain on track to complete the acquisition of Concurrent Real-Time during the quarter. I'm delighted that we are adding Concurrent to our HBK platform. Simulation is one of the key strategic growth areas for HBK, and Concurrent's highly complementary technology will strengthen and expand our virtual testing solutions. Their hardware and software solutions are used for testing critical systems to ensure they work correctly within real-time applications and already used by HBK to par its VI-grade simulators.Combining the 2 businesses will create a more complete and compelling offering for our customer base, helping them bring high-quality products to market faster and at lower cost. And we do really look forward to the team joining us post completion.So in summary, I am very pleased with our performance in the first quarter. With our full year results, we said that the order book coming into the year provided good momentum for the first quarter. And in fact, sales came in ahead of our expectations. We are obviously benefiting from the market recovery, but also by executing on our strategic growth initiatives.The numerous recent product launches are certainly driving incremental growth beyond just the market. Expansion in our order book provides confidence that the momentum we are seeing should continue. And with our improved cost base, this creates a strong operating leverage opportunity, and as such, we are well positioned for the continued market recovery in 2021. Our strategic objective of organic growth and marketing expansion remain, and I'm pleased that we have continued to optimize our portfolio and announce our first acquisition. As ever, we remain focused on delivering sustainable long-term value to our shareholders.And with that, I'm very happy to open up to questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Andrew Wilson at JPMorgan.

[Andrew J. Wilson, Analyst]

I've just got 2. I'm interested in any, I guess, color on the conversations you're just having with some of the automotive customers. I think you touched on obviously still some pressure in that market that seems improving. Just interested how broad-based that improvement is? Is it just solely around kind of EV development? Or is it broader? And I guess, any sense on when we might start seeing that turning positive?

[Andrew Heath, CEO & Executive Director]

Okay. So you want to take the questions in turn, Andy. I'd be very happy to hear from you. So I think from an auto perspective, we have certainly seen the recovery coming through sort of regionally, particularly strong in Asia to start with, North America and now progressively into Europe. And we're seeing that certainly in our HBK business. Things are now on the turn and starting to flow through.I think I remember in HBK, I mean, we are sort of 80% exposed to R&D activities within auto. So yes, the new platforms is really what drives the demand. And customers have certainly prioritized the electrification, EVs, hybrid vehicles over more sort of conventional internal combustion engines programs in general. So really we are seeing sort of a disproportionate sort of growth there relative to what we see historically.But I think as we said at the full year results, I mean, that's good news for us because we have a broader exposure to sort of the new technologies within the drive for electrification, whether that's in terms of our simulation offerings, whether that's in terms of our eDrive, eGrid offerings, whether it's our noise measurement capability and the certification of drive by noise. So all of those things are certainly helping to stimulate the recovery for us within auto. I hope that answers your question.

[Andrew J. Wilson, Analyst]

Yes, no, pretty much. So second one is kind of slightly different. It's probably a little bit broader. But kind of hearing a lot around supply chain challenges and also potentially customers kind of prebuying or trying to buy ahead of when they normally would, basically, to avoid shortages and get them on time and reduce those lead times. Just interested if there's kind of any real, I guess, challenges on the supply chain side? And also any sort of indications of customers dragging forward and potentially going forward some of the orders?

[Andrew Heath, CEO & Executive Director]

Yes. So let's just start with the sort of supply chain constraints. I mean we haven't been immune and there's been quite a lot in the media. But certainly, in all my reviews with the businesses, and this is a standing agenda item in our monthly discussions with the businesses. At the moment, we are seeing some disruptions, but the unanimous feedback is that it's manageable.We are seeing some of the sort of semiconductor electronics constraints letting through, but it's more of an irritant at the moment. I mean frequently, there is within semiconductors, electronics is always an obsolescence you have to deal with. So in many ways, this is sort of similar to what we have to -- it's at the level that we're familiar with, if you like.So the feedback from all our businesses is at the moment, it's manageable. And certainly, on the sort of more on the metal side and component side, there we've not seen very much to anything impacting us. So generally speaking, other than the offset of product line, having to sort of -- have some extra engineering work done to it to sort of either redesign a printer, sort of order something, it's pretty small.And then I think sort of on the flip side of all that in terms of sort of inventory build back, I mean, for most of our businesses, that's not really the market that we serve. Most of our orders are discrete requirements rather than general sort of stocking or inventory purposes. I think it's fair to say though that sort of the businesses that are more distribution focused like only the Red Lion, we have seen some of the distribution customers there certainly building back inventory, which is helping -- again also helping Red Lion to some extent.But generally speaking, the demand we're seeing, certainly some pent-up demand from last year still flowing through. But I think generally, it's around new projects, new initiatives that customers are driving that we're looking to provide them with our instruments and test equipment.

[Operator]

Our next question comes from the line of Mark Davies Jones of Stifel.

[Mark Davies Jones, Research Analyst]

Derek, can I ask about what you referenced in the statement, a strong operating leverage opportunity because I think it's been a key issue for a lot of us. As the revenue has come back in, what are you seeing in terms of trends in costs? Are you able -- are you still able to keep a firm need on those OpEx trends even given some rather inflationary pressures in the backdrop globally at the moment? So how are you thinking about the evolution of costs as we go through the next quarter or 2?

[Andrew Heath, CEO & Executive Director]

Well, let me -- Mark, great to hear for me. Thanks for your question. Let me open it up and I'll pass to sort of Derek to maybe pick up on some of the specifics. I mean certainly, it's not that long ago that we had our full year results presentation and we sort of referenced sort of, I think, Slide 16 of that deck in terms of sort of the pro forma businesses and what we were endeavoring to do in terms of operating expense and overhead costs for this year.I think even in a relatively short period of time since then, clearly, we are seeing demand coming back even more strongly than we expected at that point. We are working actively with the businesses in real time, looking at customers' demand, feedback from the market, analyst economists and I think generally seeing a more positive outlook continuing to build. So as such, we are trying to be agile in how we build back the costs to support the growth, whilst at the same time, being very disciplined around our cost base and not allowing cost to creep back in unnecessarily.And I'll let Derek just talk about maybe some of the specifics. But I think the areas that we are watching, I think, certainly, supply input costs, we are starting to see those going up equally in some of the geographies and locations we work. We're starting to see labor costs going up, and some of the labor markets regionally are getting quite hot. So there are pressures on the input costs for sure. But as we said at the full year results, we would expect to be able to pass the majority, if not all, of that through on pricing. But Derek, I don't know if you want to just pick up on anything else?

[Derek Harding, CFO & Executive Director]

Yes. Mark, the only thing I would really add is clearly, it's really the volume-related element. If we find ourselves recovering significantly faster than we might have expected, then we will need to put in a little bit of cost sort of into the gross margin, if you like, in order to get that product out of the door, but that should still contribute to the drop-through that we're aiming for.So from a process perspective, we're almost running kind of quarterly checkbook internally. There's a huge amount of focus on holding the costs in the right place. Having gone through all the work that we've done in the last 2 years of getting cost base right, there's a collective desire amongst all of the teams to keep them in the right place.So on a quarterly basis, we kind of look out and see what we think is coming. If there's a need to make good cost investment, if you like, in order to meet capacity or meet demand, then we're happy to do that. But seeing overheads and general costs floating back up is not something that we're expecting.So the guidance that we gave at the half year -- I'm sorry, the full year was on a pro forma basis. We were at GBP 520 million last year of cost. We thought that GBP 10 million as that was temporary from last year, if you remember, so that would come back. We also thought we had around about GBP 10 million of inflationary costs that would come in. There's probably a little bit more than that, that will come in now driven by volume, but a little bit of that will depend on how the rest of the year goes. But the overarching shape of trying to drive a strong drop-through is still front of mind and top focus. And I guess, we'll give you the actual profit numbers when we come to the half year and be able to kind of update on our success or otherwise on that when we show you the half year numbers.

[Mark Davies Jones, Research Analyst]

Great. And I assume that mix probably helps a bit on that given the strength of Malvern Panalytical as well given the margins there.

[Andrew Heath, CEO & Executive Director]

Yes. And also, as you look at the quality of the businesses that remain, mix continues to help throughout. So obviously, we announced this morning the ESG business, leaving the margins of the ESG are lower than the group average. So that will continue to contribute. We've had a little bit of cost relating to Vibro and Millbrook for the couple of months that we own them, which is not in those pro forma numbers. So if you actually look at the reported numbers, that'd be a little bit higher because of that. But you're right, the remaining businesses in the group now are the higher-margin contributors as well to that, that will also help.

[Mark Davies Jones, Research Analyst]

Great. And one final one for me, if I may. The first time we've had some sort of positive noises on Omega for quite some time. Is that just the market turning? Or is there some sort of sign of the benefits of the changes that you've been making there?

[Andrew Heath, CEO & Executive Director]

Well, it certainly is being helped by the market coming back, Mark, but also I think from both a renewed focus with AMEC coming into the business, simplifying what we're doing, getting the business more focused, prioritizing the key things that need to be done as well as starting to see some of the benefits of the upgrades to the web platform that we made through the second half of '19 and 2020. So it's a combination of the 2. Clearly, we -- as I said at the full year, we're looking for strong progress in this year.

[Operator]

Our next question comes from the line of Jonathan Hurn at Barclays.

[Jonathan Hurn, Research Analyst]

Just a few questions for me, please. Firstly, I just wondered if you could just give us a little bit more color on the order book by division. This essentially which divisions have the greatest order visibility? And maybe just in terms of sort of sizable order books by division, that would be super helpful. That was the first one.

[Andrew Heath, CEO & Executive Director]

I can just give you the color, Jonathan. Derek, sort of maybe just to look at the -- give you some flavor in terms of the quantum. I mean I'll start with Malvern Panalytical. I mean here, we have certainly seen really strong recovery in pharmaceuticals. We are up significantly in the first quarter. We did -- we talked a lot about Malvern Panalytical coming into 2020 with a market headwind of around about 10% down and then COVID hit, and they were sort of early cycle because of their exposure into Asia.So it was a soft comp, but former was up significantly and it's not just in Asia. We're seeing strong growth in North America and strong growth in Europe currently. And that's certainly propelling Malvern Panalytical's prospects currently. But equally, on top of that, metal's been reminding, is well up, driven really by Asia and China. Again, North America and Europe are still in a bit of a catch-up mode. But we're seeing as a sort of economies come back, then the orders are really starting to flow through from the whole mining segment helped by high commodity prices.I guess the other sort of area such with the Malvern Panalytical, as I mentioned earlier, just around sort of academic research, R&D aspects, universities, research institutes, is still lower, but we are seeing quite good growth now coming through in Asia and the decline decreasing generally. So that's sort of Malvern Panalytical.Within HBK, machine manufacturing remains really buoyant. Our weighing technologies, our sensors for that area, we've upgraded a number of those sensors. We launched a number of new sensors over the past 12, 24 months. That's certainly helping. And we're seeing continued strong demand through the first quarter, similar to last year.Also on the flip side, it's still down quite significantly, but is recovering. I think it is quite a tough comp. I mean we were actually up orders in North America in auto in the first quarter of last year. So it's -- we didn't really see the automotive start to dip until sort of the May into June time frame last year.So from a comp perspective, I think it's a bit tougher to compare. But we are -- on a sequential basis, we're seeing automated recovering. And then within aerospace and defense, we're up slightly there. We have less exposure into commercial aerospace, and the defense and space aspects of the end markets are holding up well. And then we're seeing growth in electronics, semi, telecom, in HBK as well.And we also maybe sort of touched on already, sort of repeat myself there. And then with ISD, PMS is performing really well, strong semiconductor order intake last year. That's continuing, which is driving sales up. But also, as I mentioned, strong demand for their environmental monitoring solutions instruments and software into sort of life science, cleanroom labs to support vaccine development, vaccine manufacturing, in particular, and also the onshoring trend there.Servomex, as I mentioned, strong in electronics, their health care side business, the Hummingbird products doing well. And we are seeing sort of from an energy perspective, again, it's more regionally based as economies come back, but again, up in Asia. So I think hopefully, that gives you a bit of a flavor. I mean, Derek, I don't know if you...

[Derek Harding, CFO & Executive Director]

Yes. The only thing I would add is that if you look at the ISD division, excluding the businesses that we've sold and read that through to the group, then the orders are actually up by 10% rather than the 5% in the statement. So the year-on-year like-for-like orders are down in Millbrook and Vibro for the period that we own them. So that kind of skews it. So actually, when you look on sort of pro forma going forward, it's actually a slightly stronger in position than the like-for-like position.

[Jonathan Hurn, Research Analyst]

Okay. Okay. That makes sense. Just in terms of the -- second question, just in terms of that sort of 5% organic growth, is there some pricing within that? So can you just give us a rough feel for maybe how much is volume and how much is pricing, if you could?

[Andrew Heath, CEO & Executive Director]

Yes. I mean, I would say it's predominantly driven by volume. There will be a little bit of pricing in there, Jonathan, but it would predominantly be volume of that sort of scale. I mean we typically try and get a couple of percent pricing to offset the couple of percent cost inflation we would see. Maybe make a little bit of improvement year-on-year in terms of our gross margins.But the bulk of that driver is volume. And obviously, in the case of Malvern Panalytical, in particular, it's against a difficult quarter 1 last year, particularly in Asia. So what you're seeing, I think, with the revenue growth and the orders growth is some lapping of some easier comps, but also actually a good lead indicator in the case of orders of Q2 activity, which is going to be difficult to measure, of course, because the Q2 last year is an even more challenging comp, if you like, or confusing comp given how tough it was. But I think fundamentally, you've just seen volume come through and activity really picking up.

[Jonathan Hurn, Research Analyst]

Okay. Great. And then just maybe the last one. I know you quite limited on what you can say on this. But just in terms of sort of the M&A pipeline and just looking forward, I mean, in terms of the sort of the size of the deals, I mean, are there still some quite big deals within that pipeline? Or are they sort of more in line with the recent one sort of the 100 million to 200 million type size?

[Andrew Heath, CEO & Executive Director]

Yes. I mean we continually look at a wide range of opportunities, everything for the full year from the sort of small bolt-ons, platform-suited businesses, the size equivalent to our current platform businesses or slightly larger, if it were, sensible acquisition. At the moment, I would say it's more the sort of smaller to mid-size of the range is what we're looking at.There's more likely opportunities, but prices remain extremely frothy. So we've looked at the number. Clearly, as we've concluded on Concurrent -- or we signed Concurrent Real-Time, we're excited by that. There are a couple of others we've looked at this year that we declined to participate or pulled out just because the pricing expectations are getting too high. But it's something that we absolutely continue to look at as part of executing on the strategy, but keeping our capital discipline is important.

[Operator]

Our next question comes from the line of Robert Davies at Morgan Stanley.

[Robert John Davies, Equity Analyst]

My first one is just around some of the trends you were seeing in Asia. I know you mentioned I think China was up more than 50%. Just be curious what was the growth comps that, that was bumping against from last year? And then just maybe within Asia, you just give us a little more color on some of the different countries of where you're seeing sort of pockets of strength outside of China? That was my first question.

[Andrew Heath, CEO & Executive Director]

Yes. Robert, good to hear from you. So yes, I mean, China last year was significantly down, mainly as a consequence of being impacted both by sort of Chinese New Year happening in January, then lockdowns through all of sort of February, March and into April. So from a comp perspective, it was easier. But I mean, just as I sort of look at the numbers, I mean, we've more compensated for that in the first quarter of this year. So it's 50% growth in China more than offset what was maybe sort of near a 30% decline last year.

[Robert John Davies, Equity Analyst]

Okay. And then my other question was just sort of a more big picture, I guess, around the portfolio. Has anything over the last 6 months changed your ideas about the type of businesses you could sell or maybe the value you can sell from? You mentioned some of the assets you were looking to buy, you turned down because the price was high. I guess you're in a position where you're also trying to sell assets. Have you sort of seen an upward sort of move in the value of some of the assets you're looking to sell or no significant changes in terms your disposal values, I guess, that you're working on?

[Andrew Heath, CEO & Executive Director]

I mean, I think the market has definitely -- has continued to move towards being much more of a seller's market from a price expectation perspective -- multiple expectation perspective over the last 12, 24 months for sure, which is helpful. But in terms of really the disposal program that we identified back in 2019 is still the program that we are continuing to execute on.We did review all of those decisions last year and confirms that our analysis from '19 still held true in terms of those businesses that we wanted to invest in where we saw we have the best growth prospects, best margin prospects. We make greatest value creation prospects versus those that were exposed to the -- either to industries or end markets where we didn't see the growth coming through or we just didn't see the position of the business to be as attractive.So when we repeated that analysis last year, we came to the same conclusion. So we continue to execute on the same disposal program that we effectively identified at the Capital Markets Day back in '19.

[Robert John Davies, Equity Analyst]

Great. And then my final question is just around Malvern. You obviously called out pharma has been a particular point of strength. Just to be curious, within the trend you're seeing in pharma, is there any way of disaggregating the strength you're seeing in sort of vaccine-related production versus sort of underlying pharma? Or is there any way to sort of give us any color? I guess the question is, how much of the boost is coming from sort of vaccine-related production and response versus everything else if that's even possible to split out?

[Andrew Heath, CEO & Executive Director]

Well, yes, it's not easy or even possible because then I say split it out. I mean it is certainly helping. But we -- I think Malvern Panalytical traditionally has been more focused around the small molecule drug development activities. And clearly, sort of the gene therapies, protein-based drug therapies, the larger molecules, the biologics has been an area of focus for us.So we are getting stronger penetration of our sort of master sizer, Zetasizer products into those areas as well as some of our software solutions like the Amplify Analytics that I spoke about. So really -- certainly sort of the vaccine development, production, viral vector manufacturing, the trend in onshoring is all helping.And there's been a lot of government money that's gone into these mRNA drug development programs as well. And the fact that they've been successful has accelerated that whole activity by -- well, mostly years. So that's stimulating demand in that area as well. So we're seeing -- sort of across the board, really seeing a strong demand, clearly boosted by the whole vaccination program, but equally more generally than us as well.

[Operator]

And our next question comes from the line of George Featherstone at Bank of America.

[George Featherstone, Research Analyst & Associate]

First one would be, can you talk about the investment appetite among your customers in a minute? Are there any regions in the end markets where you'd expect customers to be increasing capacity and investment levels?

[Andrew Heath, CEO & Executive Director]

Well, yes, George, I mean, in terms of investment appetite, I mean, I would just talk about pharma. I mean we're seeing a lot of investment going into that. But equally, semiconductor and electronics, we're seeing significant demand both of the machine tool manufacturing level that certainly helped Omega at the end of last year and through Q1. Omega sales up in Asia, South Korea, in particular.It's been driven by a lot of machine tool manufacturing for semiconductor fabs, but equally our particle measuring systems business and Servomex, we're seeing strong sales into that whole semiconductor sector. I think given the shortage in semiconductors, we've seen the announcements by the likes of TSMC and Samsung and Intel in terms of responding to that both in capacity and then additionally, some onshoring into North America, driving really strong demand. So that's another area that's going well.And then machine manufacturing continues for us to remain very positive. So I'd say that there's sort of the 3 standout areas. And within the sort of R&D academia, automotive markets, they're recovering. And then metals, minerals mining, as I said earlier, it's a bit more regionally based. As we've seen the economies coming back, then we're seeing that whole activity coming back, but it is sort of flowing from region to region, certainly, but very strong currently in sort of Asia, China, in particular, for us.

[George Featherstone, Research Analyst & Associate]

That's great. And then maybe going back to the pricing questions. Is there any potential for you to raise prices again during the year to offset some cost inflation, if that's ahead of expectations? It's just that we've heard from a number of industrial companies that, that might be a possibility.

[Andrew Heath, CEO & Executive Director]

Yes. It's absolutely a possibility, and it's a discussion that we are having with the businesses, in fact. I mean, typically, we put our prices up either at the end of the year or at the end of the first quarter just depending on which business and what they've historically done. But for most of our businesses industries, it's not out of question that you're limited just to one price rise a year. I mean that's very much within our control.You do it carefully with great consideration with an eye to making sure that you're not upsetting your customers. But as I said earlier, we feel that we still retain pricing power. And with the demand we're seeing in all of our end markets, pricing is always a consideration for customers, but it's typically not in there for most of our businesses. It's not in their top 3 or 4 buying criteria.And when demand is high, capacity maybe a bit constrained, then pricing gives us greater pricing power at the back of that. So we -- it's something if we see our input costs going up greater than we anticipate, then that is an arrow in the quiver that we can use this year.

[Operator]

[Operator Instructions] The next question comes from the line of Michael Tyndall at HSBC.

[Michael J. Tyndall, UK MidCap Equity Analyst]

Just a couple from me, if I may. Just you've mentioned new products at Mal Pan and new products at HBK. Is it possible at all to try and split out how much of your performance is potentially market share gains versus the actual overall market recovery, just trying to link the 2 together?And then the second question, and maybe I'm reading too much into this is, if I think about your disposals and your acquisitions, you're acquiring software businesses and disposing off manufacturing or physical assets. Is that a deliberate strategy? Or is that just coincidence in terms of what was available at what time?

[Andrew Heath, CEO & Executive Director]

Okay. Good to hear from you, Mike. Thanks for your questions. So let's start on the new products point. I mean for us to be -- as we completely can raise the sort of high definitive on market share gains, it is not easy. Because typically, we're selling to sort of a broad-based market to many, many customers. We have very low customer concentration really in all our businesses, and that's something that we like and it's part of the business model that we like to see in our businesses.And typically, there aren't any single or any industry analysts out there who are asking all of the suppliers to provide monthly, quarterly data that I can compare to. You can compare to all the competitors and work out who's doing what. So typically, what we do is we sort of correlate against our sort of peers and competitors Q1 or quarterly trading results, and we're not yet there. We'll need to see people reporting.But certainly, in reviews that Derek and I have with the businesses, that was one of the topics that we're always reviewing and certainly on a qualitative basis, the sense in all the businesses is that the product launches that's come up the back of the strategy review and the focus on the end markets, which, we think, have the highest growth, the most attractive where we've launched targeted products and services solutions. We are getting good traction. And things like the Zetasizer Advance in Malvern Panalytical is getting us into some of the biopharma applications that we weren't in before.Clearly, in HBK, the whole eDrive, eGrids drive by noise for electric vehicles in all the new markets, and we've had very tailored products. We feel we're doing -- getting really good penetration there. PMS, I think they're definitely sort of the market leader in terms of the accuracy at which they can measure particles down -- the size of particles they can measure down to and have performed really well.And when we compared ourselves at the end of the year against a lot of the competitor companies' platforms, our sense was that we are taking share. And I can't really be more definitive than that. So we absolutely feel that we're getting a big boost from the market coming back strongly. But on top of that, what's driving our organic growth, if you strip out Millbrook and you strip out B&K Vibro from the Q1 results, I mean, we actually got 6% sales growth rather than the 5% like-for-like that's in the press release. So 10% order growth, 6% sales growth, our sense is that we are growing ahead of the market. So that was your first question.Then on the disposals acquisitions, I think is it software versus manufacturing? Not necessarily. Clearly, we like software. We like simulation with services, but where they -- sort of quite clear, hopefully, at the Capital Markets Day back in '19, we are looking at acquisitions that are highly synergistic to our existing platforms or potential platform businesses. And we're looking at, again, the high-growth parts of their end markets, where, we think, we can deliver best value over time.So obviously, sort of software simulation services typically are high-growth areas. So that is an area that we focus on. But equally, if we see good opportunities to expand our product offering, our instruments, our test equipment, our sensors, then if we think that also makes sense, then we'd be very happy to scale up our businesses that way as well.I think what is being proven out is that -- for us is that where we have premium products with precision and the highest levels, there is a strong demand for that sort of type of equipment. And as we've talked, we have good pricing power as well. So lots of like about it. So to summarize, yes, software services absolutely is part of our sort of acquisition pipeline. But equally, we'd look at scaling up in our sensors, products, test equipment instruments as well.

[Operator]

We've had a couple more questions come through. The next is from the line of Harry Philips.

[Harry Philips, Analyst]

Just a couple of questions from me, 2 maybe, rather difficult ones to answer. But in terms of Industrial Solutions, how sort of aggressive are you in terms of selling the businesses? Are there books out there? Or are you waiting for someone to knock on the door to sort of start a process?And then secondly, obviously, trading in Q1 ahead of expectations. But there's no follow-through in terms of sort of guidance or whatever. So how should we interpret that particular comment?

[Andrew Heath, CEO & Executive Director]

Okay. Harry, so for ISD in terms of how aggressive are we, I mean, we've basically been running a well-organized planned disposal program. So we have done all the preparation work and run the processes accordingly in a phased approach over the last 18 months and that continues.As we indicated previously, we were looking to sell another couple of businesses this year. We've completed ESG or we've signed ESG this week fairly quickly. And we've said, we've got one more business that we're looking to complete disposal of this year. So that is -- that process is running, as we speak. So we basically have a well-run organized activity by our M&A team.And then just in terms of expectations for the year, yes, we haven't provided any particular guidance for the full year, albeit, certainly, the order intake from Q4 absolutely supported Q1. A strong order intake in Q1 underpins growth in Q2. So that recovery is well underway. There's clearly some concerns out there in terms of uncertainty around just how COVID may develop. We're seeing, on a global basis, cases that are all-time high. It doesn't necessarily feel like that's sitting in the U.K. But Brazil, India are really suffering. Canada's got increased levels of restrictions and lockdowns. Certain parts of Europe are doing the same thing.So it's -- there's still some uncertainty out there, new variants. But on the basis of the vaccination programs continue to roll out well and they're successful and the new variant don't cause any issues, then certainly, we see that the recovery continuing, as we sort of say in the statement, see the momentum carry on.And I think the other key point I'd bring out is a comment around strong operating leverage opportunity. We'll reiterate what we said at the full year. As we talked earlier on the call, we're carefully controlling the costs. That's a key consideration in all our decisions as we respond to the market recovery. And we will balance the recovery with our cost growth to make sure we get a good drop-through. So I would hope that gives you sufficient in terms of how we're seeing things and our expectations.

[Operator]

And we've had one final question come through. That's from the line of Xing Lu of UBS.

[Xingzhou Lu, Analyst]

I have a couple, please. And I missed part of the call, so if you've already answered them, my apologies if I'm asking them again. But the first question is on how much of sales visibility actually do you have on current backlog? I mean you mentioned that you have good backlog going into kind of Q2, but if any color on visibility on sales would be great. And also any color by division.Second question is on academic research. Can you maybe elaborate a little bit on how much was it down in the quarter? And any color on the pace of recovery there?And my last question is actually on China. Obviously, really good growth and, I guess, probably good growth across board for both you and your competitors. But generally on the market itself, how do you see competition actually been developing, I guess, in the past, in recent quarters or the recent years? And then also going forward, do you actually see the competition intensifying in this market? That will be my 3 questions.

[Andrew Heath, CEO & Executive Director]

Okay. Xingzhou, it's good to hear from you. So sales visibility, I mean, typically, for Malvern Panalytical, HBK, we have good 3, 4 months of visibility. Likewise, sort of PMS, Servomex, again, typical -- that's a typical level of visibility that we have. Omega and Red Lion being more distribution focused is much shorter term.But equally, if you look at those businesses, we've got good intel from -- through the distribution network that we use and our own sales channels as well. So coming into a quarter, we have a pretty good idea of what the next quarter's prospects are going to be. So what we said at the end of last year, the strong Q4 order intake and what's happened in Q1, the Q4 order intake certainly underpinned the first quarter this year and actually with the book in turn business that we're able to win through Q1 as well.We're going to beat expectations going into Q2 for back of strong order growth and order backlog building through the first quarter of this year underpins Q2. So that -- so beyond that, then we start to use sort of more -- sort of voice of customer, industry reports and our own sort of sales force to determine what we believe then the forecast will be for the rest of the year.In terms of academia and your point in academia, it -- to some extent, it was a -- it's quite a tough comp Q1 to Q1. We saw China turn down, but we didn't get sort of Europe subsequently going to lockdown in March last year, North America more in April. So from a lot of the R&D sales have been pretty strong for us all the way through '19 and coming into the first bit of '20. And then really -- we really saw the impact through sort of April, May, June, July through to sort of November time frame and the things starting to recover from there. Certainly, the sort of Asian economy started to return. So it's an improving trend as we said. We're still about 4% down from where we were, but we're seeing double-digit growth in Asia currently in the academia market.And then in terms of your question on China condition, I'm not really sure I fully understood the question. But I mean, clearly, we are -- while our businesses are performing really well in China and Asia generally at the moment, but we are very conscious of both Western and in particular local competition in China and making sure that we have a compelling offering there.And given the importance of China as a market, we're spending quite a lot the time internally, also considering how best we serve China going forward given certainly some of the ongoing tensions that exist between sort of the U.S. and China and Europe and China, albeit it's been sort of less profile since the change of administration in the U.S. is still something that we have to deal with. So we're actively working on making sure we have a strong route to market within China and also the other markets that China serves from there as well.

[Operator]

[Operator Instructions] It appears there seem to be no further questions coming through. I'll hand back to our speakers for the closing comments.

[Andrew Heath, CEO & Executive Director]

All right. Thank you very much, and thank you, everyone, for your questions, as ever. So to summarize, I'm very pleased with our performance in the first quarter with sales ahead of expectations so far, robust order book that we talked about and our improved cost base. We do believe we're well positioned for the continued market recovery in 2021. And we look forward to updating you on progress at the half year. So thank you very much for participating in the call today, and we look forward to speaking to you in July. I hope you and your families continue to stay safe and well. Take care. Thanks very much.

[Operator]

This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.