Spectris PLC

LSE:SXS

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to Spectris trading update call. I will now pass the call to Mr. Andrew Heath.

[Andrew Heath, CEO & Executive Director]

Thank you very much, and good morning, and welcome, everyone, to this -- the Spectris Q3 trading update. I really do hope that you are all keeping safe and well at this time. I'm joined today by Derek Harding, our CFO, to discuss our performance in the third quarter. And what we will discuss today is very consistent with the view that we presented at our H1 results back in August. Before I start, I'd just like to say that we continue to take a balanced, socially responsible approach to managing our business at this time, in line with our culture and our values, very much supporting our people and delivering for our customers. And I'd again just like to start by thanking our people for their commitments and support through what has been some very difficult times. So let's move on to the update itself. So I'll start with our performance. We are seeing positive progress in a number of our end markets, and I'm very pleased that our like-for-like sales decline has improved from 18% in quarter 2 to just 9% in quarter 3. So year-to-date, like-for-like sales were 12% lower. In all regions, there was improvements, most notably in North America. And in Asia, the improvement was driven by a rebound in activity in China, where like-for-like sales rose 6% in the period. So now just turning to our businesses in turn. In Malvern Panalytical, we had a much improved performance compared with H1, with only a 4% decline in like-for-like sales. Now this reflects a resumption in CapEx-oriented spend from its customers and some revenue from the completion of installations of systems, which were delayed from the first half of the year due to customer access restrictions. There was also good growth at pharmaceutical and food customers, which was offset by lower like-for-like sales into academic research institutes, where demand continues to be weak, which really reflects the ongoing closures there. And going into quarter 4, we expect sales to be sequentially higher, though the like-for-like sales performance is not expected to be as strong as in quarter 3. At HBK, Q3 performance was similar to that what we saw in Q2, with like-for-like sales 13% lower given its later cycle exposure. And there was strong performance in North America with growth there driven by strong sales in aerospace and defense customers, reflecting a number of large project sales as well as sales into machine manufacturing. Q4 is expected to see like-for-like sales lower, which reflects the later cycle nature of the HBK business. At Omega, like-for-like sales were 16% lower, which was better than quarter 2 but still reflects continuing weak demand in its main market in North America. For Q4, we expect to see the like-for-like sales performance improving, although no growth is expected in North America until the beginning of '21. In Industrial Solutions, we saw a notable sequential improvement in Q3 with a much improved like-for-like sales decline of just 9%. There was growth into the pharmaceutical and food industries, while those businesses exposed to automotive and upstream oil and gas saw the weakest performance. And here, we expect fourth quarter to continue to show a progressive improvement in like-for-like sales. Moving on to the balance sheet. During the pandemic, maintaining a strong balance sheet and cash position has been a key priority for us. We remain highly cash generative and at the end of the quarter had net cash of GBP 60.2 million. And this is after paying GBP 50.2 million additional interim dividend, which was in lieu of the 2019 final dividend and before the interim dividend of GBP 26.5 million. The strength of our balance sheet has put us in a good position to pursue acquisition opportunities that may emerge. With the resumption of activity in the M&A market, we continue to work on our acquisition opportunity pipeline and have also reinitiated our sale program to deliver our portfolio optimization. As discussed at the H1 results, we've been managing the impact of COVID-19 in 3 phases: React, Respond and Reset. We are now firmly in the Reset phase, while we continue to support our employees and customers through these times. For our people, we've reinstated salaries and also full-time working wherever possible as part of the reset to a sustainable business model. We continue to support our employees with the provision of practical guidance and also mental health support and to focus on staying connected with those people, especially who are working remotely. For example, in Europe, we have partnered with the Wellbeing Project to offer resilience coaching for our employees, and both Derek and I recently participated in workshops on this. And for our customers, despite the challenges of restrictions and remote working, we have continued to launch new products which enhance our offering to them. For example, HBK have introduced a complete power meter solution for testing and monitoring solutions around electric drive systems, power supplies and eGrids. And VI-grade has recently launched its new product line of cable-driven simulators, the DiM400. In Malvern Panalytical, we launched 3 new products: the Zetasizer Advance range, the 1Der detectors and the Empyrean XRD platform as well as our OmniTrust suite of software tools. And Servomex developed in record time, in just 14 weeks, a variant of the Paracube sensor called the Mercury, which is designed and approved to work in critical care ventilators. We also continue to extend our digital offering with a wider emphasis on online sales, virtual engagement, digital workshops and webinars and remote installations and servicing support. Given the benefits to both ourselves and our customers, we will continue to enhance our digital offering, and that will be a key focus going forward. As also disclosed at our H1 results, we launched a restructuring program to further reduce our cost base over the last few months. Work has progressed at each operating company, which confirms the expected benefits of GBP 20 million to come through in 2021. These permanent reductions in our cost base will come from a variety of sources, including footprint rationalization, reduction in discretionary costs including more productive ways of working digitally as well as headcount reduction. So as a result, we anticipate our overhead costs in 2020 to be around GBP 50 million lower than in 2019, and that would consist of GBP 20 million of permanent cost savings which was delivered from our profit improvement program but also the GBP 30 million of temporary savings that we talked about at the half year. And of those GBP 30 million of temporary savings, we expect GBP 20 million of that to turn into permanent savings in 2021. And for this program, there will be a GBP 5 million of restructuring costs this year in addition to the GBP 25 million for the profit improvement program and an additional GBP 30 million of costs in 2021. So in summary, I am really pleased with our improving performance in the third quarter and the sales momentum going into the fourth quarter. Our order book provides confidence in us meeting our full year revenue expectations, although this is subject to no major effects clearly from COVID-related restrictions, which may impact our ability to access customer sites for in-site product installation and commissioning. We've also been clear that we remain committed to recognizing the sacrifice and dedication of our people during this challenging period. Therefore, any delivery in excess of our expectation will be considered to recognize this sacrifice and commitment. Our cash generation continues to be a strength, and our balance sheet remains robust. As we implement the restructuring, we will emerge in this crisis a stronger and even more resilient business. Our strategic objectives of organic growth and margin expansion remain as well as optimizing our portfolio and making acquisitions to deliver long-term value to our shareholders. And with that, I'll happily open up to questions.

[Operator]

[Operator Instructions] The first caller we have is from Mark Davies Jones.

[Mark Davies Jones, Associate]

A couple of questions, if I may. Omega looked a little disappointing given what you were saying overall in terms of momentum in the U.S. Can you give us some background on what's happening there and when you see the benefit of some of the investments you've put in there? And then the second question, maybe for Derek is, obviously, today's update is focused on the top line. But in terms of conversion, are you still looking at the sort of drop-throughs that you were flagging at the half year, i.e., higher drop-through in the second half, 40%, 50% versus the 32% in the first half?

[Andrew Heath, CEO & Executive Director]

Great. Thanks for your question, Mark. So just in terms of Omega's performance, I mean, it really is tracking against sort of North American IP, industrial production. The business correlates very strongly to that, so we track the statistics quite closely, and Omega's performance has been pretty much tracking in line with that over the last few months. So I think relative to its sort of core market in North America, which is 70% of this business, we are seeing it sort of track against that. I mean during the sort of the height of the lockdown in North America, we definitely saw the -- its digital online business holding up well, and that held up better than sort of the direct selling side of the business. So that gives us confidence in our online model. But in terms of your question around sort of timing of the benefits coming through from the investments we made, clearly, we are very much focused on driving scale in that business now, having made that investment. Omega has done a good job over the last 2, 3 years of really sort of leaning its operations out, making itself more efficient not just on the shop floor but also in all their sort of offices and transaction processing in the business. And we've reduced -- they've reduced their headcount there by about 25% over the last 2, 3 years. But having -- at the same time, we also clearly made the investments in the e-commerce platform. And that sort of added to the fixed cost, which we talked about at the half year. And we saw that come through in the -- effect in the negative gearing we've seen impacting the margin. So going forward, we've brought in a new President, Amit, who's joined us from Thermo Fisher, with a great background, a lot of relevant experience, not least through his time running Cole-Parmer. And Amit is very much sort of [indiscernible] and enthused to go and basically turbocharge the top line growth in Omega, and that's really where would be the focus.

[Derek Harding, CFO & Executive Director]

And Mark, on the question of drop-through, the guidance that we gave at the half year hasn't changed. And just as a reminder, that was a full year answer, if you like. So depending on where you place your assumptions on the top line, there was a range between 40% to 50% of drop-through from sort of the best top line view to the worst top line view. And that -- there's nothing new in this statement in relation to that.

[Operator]

Next, we have Mr. Jonathan from Barclays.

[Jonathan Hurn, Research Analyst]

Just -- sorry, I should say a few questions from me. Firstly, just in terms of that sort of 9% decline that you saw in Q3, can you just give us a little feel of the transition through Q3 just in terms of the sort of performance in July, August and September? That was the first one, please.

[Andrew Heath, CEO & Executive Director]

Jonathan, good to hear you. So I think we -- at the half year, we've obviously talked about sort of June performance being a 12% decline, which is really a step change from the sort of 20% decline range we saw back in sort of the March, April, May time frames and really sort of over the last sort of 3 months or quarter 3, typically have seen a similar level of activity. Some months have been better, some months a little bit worse. But as we sort of put in our announcements, I think given the order intake that we've seen, which has fared even better, that gives us the confidence going into Q4 that we've got momentum and sufficient order cover to meet our expectations revenue-wise over the next 3 months.

[Jonathan Hurn, Research Analyst]

Okay. So again, I was just trying to sort of maybe just sort of focus on September, just get a sort of feel for some of the exit rate for the business overall, that was all. I don't know if you can just give us a little bit more color maybe just on September.

[Andrew Heath, CEO & Executive Director]

Yes. Yes, Jonathan, I mean, it's always dangerous, I think, to sort of point to a specific month. But clearly, sort of July and August are the sort of the heavier holiday months within the Northern Hemisphere at least. So we were pleased with what we saw in July and August, and September was better. But that's, to some extent, people coming back into work, so we shouldn't draw too many conclusions about that other than the -- certainly the trend over the last sort of 4 months, we feel that we have good momentum going into the final quarter.

[Jonathan Hurn, Research Analyst]

Great. The second one was just on M&A. Obviously, you talked about that in the statement, both sort of acquisitions and disposals. Just on the acquisition side, can you just sort of remind us of how the structures that could be, I mean, just in terms of the levels of net debt, EBITDA that you may go up to? Is it purely all going to be debt? Are you still considering other sources of funding? Just sort of a feel for that, please, that would be helpful.

[Andrew Heath, CEO & Executive Director]

Yes. So clearly, the M&A market has come back strongly overall. It clearly went into a period of crisis through the height of lockdowns. As we said at the half year, we initiated our disposal program. So we are actively on with that at the moment. But on the buy side, to your question, in terms of looking at the landscape and the opportunities, the current situation has clearly created some new opportunities, shall we say, in terms of what we were looking at previously. And that varies from sort of relatively small bolt-ons all the way through to acquisitions of potential size of some of our platforms or indeed even larger than that. But as we put in our notes, we will absolutely remain disciplined around capital decisions. We've previously guided that a sort of debt range of 1 to 2x is sort of the zone that we would be comfortable operating in. And for the right acquisition, we would go above 2x. Now in the current context, we will be more conservative than that. And therefore, we will look at the appropriate structure of debt and equity to suit the size of the transaction and also the opportunities that we see beyond that transaction as well. So there's a number of factors clearly that we have to consider.

[Jonathan Hurn, Research Analyst]

Great. That's very helpful. And the last one was just on the auto end market. Obviously, in your commentary, it's one of the weakest, if not the weakest, end markets. I mean I think the general sort of performance in Q3 for auto has been better. Obviously, you guys are late cycle. When do you feel that the auto market will start to turn for you and improve?

[Andrew Heath, CEO & Executive Director]

Yes. So I mean I think up until, I think, sort of going into more sort of Q3, I mean, the auto sales particularly in North America have held up quite well for us. But as we've always said, look at HBK, it's later cycle, but we've definitely seen that come through. I mean a lot of the customers that we're talking to are certainly trying to sustain or maintain a lot more of their R&D programs particularly around electric vehicles, hybrid vehicles, battery developments, the whole drive for electrification. And hence, probably one of the new product ranges that I talked about from HBK around that sort e-power grid solutions, that is getting good traction. So I think going into Q4, personally, I wouldn't expect for us to see much improvement in automotive because we went into it later. But it's -- relative to some of the other markets, it will take a little bit longer to come out given the production has been being quite a long way down in the last few months. So that inevitably will wash through in terms of some of the auto OEM customer sentiment in terms of CapEx spending.

[Operator]

Next, we have Mr. Andrew Douglas.

[Andrew Douglas, Equity Analyst]

Three questions, please, if I may. Can we just talk Malvern? Clearly, a strong performance with a bit of catch-up from the first half, but still academic research markets are still weak. Do you have any indications from customers when they might be kind of opening up, and we can kind of get back to a full run rate? Secondly, on cash, I'm just wondering, Derek, if you can give us a bit of a feel for how your -- how cash flow is. I appreciate you've got GBP 60 million net cash pre-dividend in November, but just in terms of the working part -- the moving parts there, working capital, et cetera.And then just for the avoidance of any doubt, can you just help us on a bridge for profit as we go into next year? We've got some costs coming in, costs coming out. My working assumption is that we've got kind of GBP 20 million of costs out, but we got GBP 30 million of costs coming back in. So is that right? And then depending on how the analysts think about their operational gearing, that's how we should be modeling next year?

[Andrew Heath, CEO & Executive Director]

Okay. Andy, thanks for the question. I'll take the first question, and then I'll let Derek pick up your other 2. So just on Malvern Panalytical, I mean, clearly, we're delighted to see how strongly the business has come back in Malvern Panalytical over the last 3 months. A lot of that has been helped by a strong pickup in demand from the sort of pharma, food, life sciences side of the business. So from a -- the orders there have been picking up consistently, and so whether that's a -- so that's just pent-up demand in cash back we will see clearly over the next few months, but certainly, it's come back with a vengeance. And I think there was quite a lot of disruption in the early days around their own laboratories, research institutes when lockdown restrictions were imposed, where the OEMs ended up shutting their own facilities, which really didn't help, which feed through to the argument that quite a bit was pent-up demand. But equally, there was a lot of investment going into vaccine development. And on the sort of production quality control side of pharmaceutical, that's an area that Malvern Panalytical is quite strong in. And as such, we anticipate that trend to continue. I think if we look at some of the other areas of sort of some of the fine chemicals, semi, electronics, that's definitely been coming back to Malvern Panalytical. And whilst sort of minerals, mining was tough, we saw a more positive trend in Q3. So all that's helpful. But to your point on the sort of research academia side of things, that has been a pretty tough spot for the business. Although September, I think we saw maybe the first sort of green shoots of activity levels starting to come back, which may well sort of tie into the fact that sort of a lot of universities effectively sort of recommenced operations again in September. So again, 1 month doesn't make a trend but is certainly another positive sign. So yes, I would -- as we said, we expect the momentum to build, albeit they've got a tough comp in Q4 compared to last year. So we don't expect the like-for-like position to be as good as it was in Q3 and Q4, but momentum is all the same.

[Derek Harding, CFO & Executive Director]

And then on your cash question, to start with, Andy, obviously, we had a very strong cash performance in the first half, partly a function of the slowing top line and the fact that the first half is always a stronger period for us for cash. So I wouldn't expect the same level of cash conversion in H2 as we saw in H1. And indeed, we see that in the third quarter and again in the fourth quarter. But notwithstanding that, we still expect to have a very strong cash year overall. And when we look at that sort of cash conversion metric, likely to be a little bit higher than what we normally achieve given the shape of this year and particularly the sort of the reduction in sales. From a CapEx perspective, we're still guiding towards the GBP 50 million, 5-0 million, for this year. And that will be similar for next year as well. And working capital, again, because of the reduction in sales, if you look at working capital as a percentage of sales, we'll probably be near the top end of our range. And the range that I've said that we're kind of comfortable with is 11% to 15%, and we'll be near the top end of that. But I'm not expecting us to be outside of the range when you look at the components of working capital. And then in terms of the cost bridge, so your assumption is right, and it's kind of -- it all depends where your starting point is. So if you start off on the 2019 cost base, then we are confident and still looking towards that GBP 50 million reduction for 2020 compared to 2019. Then of that GBP 50 million, as we've said before, GBP 30 million is temporary and will reverse. And therefore, if we took no action in 2021, the cost base would increase by GBP 30 million compared to 2020. But we are taking actions which will create another GBP 20 million of permanent, and therefore, the cost base only increases by GBP 10 million from 2020 to 2021 on a like-for-like basis. So that's how that bridge works through. Clearly, then there's inflation and activity that comes through in 2021, but the sort of core cost base moves in the way I've just described.

[Andrew Douglas, Equity Analyst]

Okay. And then just one follow-up, if I may. Just going on back to your comment, Andrew, on Omega and your new appointment, I'm working on the assumption that this is now all about him driving growth, that there's nothing else kind of on his kind of bucket list or agenda that he needs to kind of fix before growth can come through. It's all about growth and a bit more growth. Is that fair?

[Andrew Heath, CEO & Executive Director]

Yes, absolutely, Andy. It's his #1, 2, 3 priority, how do we grow the business from here, scale, we really do need to scale that business up to turn its financial performance all around. There's been further work done this year in terms of making further enhancements to the additional offering in terms of improving searchability, product findability, user interface, just continue to refine the platform. So we don't foresee the need to do much more beyond what we've put in place this year other than just ongoing refinements. So it's very much now about how do we turbocharge the top line. And that's the reason that Amit has been -- is coming into the business.

[Operator]

Next, we have Mr. George from Bank of America.

[George Featherstone, Research Analyst & Associate]

On the orders like-for-like performance in Q3, how should we think about how that will relate to like-for-like sales performance in Q4? Is it a case where you expect to do better than that given the commentary?

[Andrew Heath, CEO & Executive Director]

Well, I think we've sort of tried to sort of describe what's going on within each of the businesses, George, to try and sort of give that sense of how we can see things progressing. Now clearly, sort of a -- Q3 was, in absolute terms, an 11% improvement over Q2. So that momentum, following through into Q4, we expect to continue. We're not sort of giving any guidance in terms of what that quantum of that is going to be. We clearly -- we see a quarter-over-quarter absolute improvement. The like-for-likes, if we look across each of the businesses that we described, I think you'd get a reasonable sense of being able to model what that then entails in terms of sort of revenue expectation. And I think if you look at consensus that's out there, the top end, the sales that some people have got, I'd say, is a bit choppy, in our view. But clearly, we are seeing good momentum going into the next 3 months. With -- absence further restrictions, as I said, in my opening comments, coming back from lockdowns, with COVID-related social distancing measures, our order book certainly supports that. That's the momentum. But obviously, we still got to deliver and get product to customers. And for a number of our businesses, we have to install and commission before we can actually recognize the revenue. So there are some risks there as well as some obviously balance on the appetite as well.

[George Featherstone, Research Analyst & Associate]

Okay. So maybe just for clarity then, the 8% like-for-like decline in orders, that -- you shouldn't necessarily read that as being representative of the Q4 performance potential? And then maybe just drilling into the orders a little bit, are there any particular end markets that have driven -- have kind of exceeded expectations or driven the better performance perhaps than maybe was expected in the order book?

[Andrew Heath, CEO & Executive Director]

Yes. Okay. So I think -- so your comment on the orders, I mean the orders this year, I think consistent with what we've said on all our sort of trading updates, is that the order book has held up better than sales all the way through the year. And what we have seen is that the orders have been longer dated so -- than we've typically seen against the history. And that's still the case. So it's clearly reassuring that the orders are coming through and great that our salespeople are being able to go out there, reach customers and enact business. The orders typically are sort of longer out in time than we'd ordinarily see. So it gives us confidence in terms of that momentum going into Q4, but you shouldn't read that being just an 8% decline in orders would translate to 8% decline in the revenue in the next 3 months. And then I think the other question was about sort of which market is a surprise on the upside. I mean clearly sort of -- it's great to see the sort of the pharma, life sciences, food business is coming back strongly, albeit I think we always have -- we always anticipated that the sort of the impact that we saw, the quite negative decline we saw fairly early on with the pandemic in pharma was going to be a temporary phenomenon, and that's proved to be the case. Even so, it's good to see that coming back. Certainly in the food, food research, food analysis and also food production, with people like in HBK provided a lot of sort of sensors, weighing sensors, measurement sensors into the food industry. I mean that stuff proved to be very resilient and continues to grow actually this year. So that side of the business has been so good and good to see it come back. Yes, on the flip side, we talked sort of automotive. That was, to some extent, expected being a longer cycle for us. And clearly, the oil and gas, sort of those businesses that are exposed, particularly upstream oil and gas have been particularly impacted. But again, that's not a surprise in the current environment.

[Operator]

Next, we have Mr. Mike Tyndall.

[Michael J. Tyndall, UK MidCap Equity Analyst]

Just a couple from me, if I can. Just thinking about -- sticking on the orders for a moment. In terms of visibility, how much of Q4 do you have covered as we sit today? Or is it still a case of based on the actual inflow that we're seeing, we think we can get where we need to get to for the quarter? And you mentioned about the orders being a bit more long dated. What's happening in terms of ordering behavior? Are we seeing that stabilize? Or is it continuing to change because I guess, the uncertainty you're seeing or your customers are seeing as well?And then the second question for me is, North America was relatively strong, but Omega was weak. Am I right in assuming that, that was Mal Pan that really kind of bridged the difference there? And how much of that is potentially catch-up on those delayed installations?

[Andrew Heath, CEO & Executive Director]

Okay. Great. So let's talk about the orders. As I said, they have been typically longer dated than we've historically seen through this year. That trend continues. I mean our concern going back a few months was whether customers were just placing orders maybe speculatively, holding a capacity slot, if you like, and would decide nearer the time whether they'll actually take the order or not. But the very encouraging sort of news is that we have seen very few cancellations. We have seen some customers delaying taking receipt, and part of that is because they haven't got the people in the right place at the right time to be able to take the receipt. But we haven't seen much cancellations at all, certainly nothing material. So while the orders have been longer dated, they've been coming through, which is hugely reassuring. And I think your point in terms of order cover, it clearly depends by business. But again, I don't want to get too specific. The level of order cover that we have in place because of that, the state of the order book, we are feeling sufficiently confident that we can certainly meet our expectations around our Q4 revenue. And that's based on history and how much of the book and turn we would expect to see -- I mean, book and turn of the business during the sort of -- in the period in Q4 that we expect to see historically. Now it is always dangerous I think in this current time to sort of compare this year to previous years because this year is a totally different year with different buying behaviors and patterns. But relative to what we see in the order book and what we expect and what we understand from our customers and their intentions, I'd say, gives us confidence to meet our sales expectations over the next few months. And then your final point about North America being stronger, yes, I mean North America has certainly been strong for Malvern Panalytical. They performed well in North America particularly in the last quarter. We've seen them actually go into positive growth territory there. HBK has also done well in North America. The automotive has been a bit more resilient for HBK in North America. And again, in the last sort of 2 months, their sales in North American HBK have been positive. And similarly, sort of within Industrial Solutions, we've seen a sort of improving trend there as well. To your point around Omega is really the sort of -- Omega's really exposed to sort of the industrial production particularly in sort of the process industries. And that isn't -- that has not seen performance to the same extent as the pharma, food, life sciences, also, certainly, the aerospace defense activity for HBK and some of the sort of medical sensor activity that we supply out of ISD. So I think that really explains what -- the difference. I fully appreciate on the face of it, it does look a bit anomalous. But hopefully, that explains why there's a difference.

[Operator]

Next, we have Mr. Andy Wilson from JPMorgan.

[Andrew J. Wilson, Analyst]

Just a couple of quick, I guess, specific ones. Just thinking about the academia sales, which obviously have been under pressure this year for, I guess, obvious reasons. But just thinking about the potential for that to either sort of catch up or bounce back, just trying to get understanding of these sort of sales that are kind of onetime cycle sales which won't come back or won't sort of be -- there won't be a catch-up effect or can withstand to actually have quite a good sort of 12 to 18 months when things settle down.And I guess, secondly, just on the oil and gas exposure, and I appreciate that it's kind of different in different parts of the business, but just any indication from the customers in terms of kind of improving trends, we've seen sort of some better news maybe in oil and gas at least in some patches? So just interested on those 2 specifically.

[Andrew Heath, CEO & Executive Director]

Yes. So I think on the academia, Andy, it's too early to tell. But I think there has to be a lot of, effectively, pent-up demand because we've seen months of pretty low order intake out of that sector. It will clearly depend on the level of government stimulus money that goes in over the next -- over the coming months and, equally, which areas governments may put in and how much they can afford to put in. But we would anticipate that academia will recover from here going forward. I mean if you look at the number of sort of research institutes serving the pharma area, it's one of the stats that we track. I mean at the height of lockdown, half of the world's sort of pharma labs, research labs, both in terms of not just research institutes but also the OEMs were shut. And that stat now is down to, I think, about 9%. So there's been a much broader reopening of laboratories and research institution in the pharma, life science area over the last weeks and in the last months. So that's a positive trend. As I said, we've seen sales in September certainly took a tick upwards. It's still down, but the level of decline was much, much lower. So our expectation is that things will start to build from here. We see some green shoots. It's early days, but yes, that's our expectation. I mean on the oil and gas, really on the upstream side, we relatively -- have relatively little exposure on the upstream It's really our ESG business in Canada that does sort of microseismic analysis for fracking in North America. So it's a good chunk of its sales. So clearly, that's been weighed down. But the sort of more sort of downstream, petrochemical refining activities has picked up again. And we're again starting to see some signs certainly in sensor sales of things picking up.

[Operator]

Next, we have Mr. Danny Lu from UBS.So next, we have Mr. Tom Fraine.

[Tom Fraine, Research Analyst]

This is regards to -- it was mentioned in the previous update actually, regarding the working remotely from employees. Just an update on how this is going so far and if you see this as something that's likely to increase across the group in future years or whether it's likely to be more temporary for large portions of employees. And how is it working for -- if at all, for engineers and employees that are working on installing products on sites and whether this is having any impact on the service they're delivering and potential cross-selling opportunities and new wins? And then the second question on the cost savings. So some of these potentially included the remote working-related cost savings. Why weren't some of these identified in the profit improvement program? And do you see them as having a bit of an impact potentially on the top line at all?

[Andrew Heath, CEO & Executive Director]

Okay. So -- well, let me take the first half of that question. I'll pass you over to Derek about the cost savings, and I'll come back and wrap up at the end if there's anything needed on that. But on the working remotely, I mean we have, I guess, been really pleasantly pleased on the upside of just how well all of our staff have been able to work remotely, work from home, work flexibly. We -- in terms of our office occupancy, I mean none of our offices anywhere around the world are back to 100% occupancy to where it was pre-pandemic. We -- as part of the profit improvement program, we were fortunate, but it's part of our drive there to reduce costs. We had upgraded our sort of digital tools for internal working last year. And that clearly put us in a very strong position, as it sort of turned out, when the pandemic unfolded. So we were able to quickly move everybody within days to remote working, including the engineers that you touched on. And that's allowed us to -- it's not just sort of operating in the Microsoft Office systems remotely, which people have been doing for years. So in terms of our R&D systems, cash systems, modeling systems, software-writing capability, we've got our engineers working very effectively from home at the moment. And I think in terms of that as a trend, well, I don't think it's going to increase because we have the majority of our people doing that at the moment. But in terms of our intentions going forward, absolutely that we will maintain remote working, maybe not to the full extent it is today, but we will certainly be providing people the flexibility to be able to work from home or remotely as well as in our offices. Because all the surveys that we've done points to the fact that employees, whilst I don't think anybody necessarily wants to -- very few people want to work from home 5 days a week, people recognize that actually working from office 5 days a week isn't the most effective either, so they can be more productive in the way that we're working now. And in terms of our productivity, we were concerned particularly around the engineers in the early days, that this is going to be really difficult. But feedback from our engineering staff, consistent with others, is that actually, people feel -- like 60%, I think, is the latest response we did from the survey, where 60% of the people feel they are significantly or certainly more productive than they were working 5 days a week in the office. So that's something that we are embracing and building into the cost saves going forward. Your point around sort of the installation, commissioning, service support to customers, I mean clearly, that was a bit more challenging in the early days. But again, we've moved very quickly. We've been creative, ingenious, using various tools to actually provide customers online support in terms of installation, servicing. That's both in terms of having a service engineer's application that is available online to sort of walk them through it, also providing creative videos, et cetera. But also, we are -- we accelerated some of the self-install capabilities in some of our instruments as well that we were working on already. We have accelerated that so that we can make it easier for customers to self-install rather than having to have one of our service engineers necessarily on-site to do that. And then on top of that, things I just talked about, our digital webinars and things, it's a great opportunity actually to reach out to customers and develop new leads, marketing leads, sales leads. And we're typically getting much higher levels of attendance from customers on those digital channels now than we ever have in the past. And we are pivoting very much now to sort of doing online trade shows, online product launches, online product demos as the way -- the standard way of working. Derek, do you want to pick up just on the cost saves?

[Derek Harding, CFO & Executive Director]

Yes. So on the profit improvement plan point, Tom, I guess there's a couple of things. When you think about our original profit improvement program that we were working through in 2019 and completing in 2020, we were operating, in part, in a different world. It was the pre-COVID world. And there were, as Andrew said, plans to have more people working remotely, and that would result in us being able to reduce our physical footprint. But I think it's -- and we've made the IT investment to facilitate that. But I think it's fair to say that the last 6 months has educated us all that those plans could go further. And therefore, ideas of reducing our physical footprint that we had a year ago and in certain pockets where we were not sure whether it was possible or not, the events of COVID have proven that it absolutely is possible, and therefore, we can push much further on those additional costs. None of the costs that we're taking out or have taken out in the first wave of the profit improvement plan or indeed the ones that we're trying to make permanent into 2021 are related to growth. And I think the important thing here is always kind of keeping a balance between taking cost out of activity that you can do in a smarter way and more wisely, having learned from the experiences of the last 6 months, versus kind of cutting into the bone and in any way damaging the prospects of the group. So that's the balance that we're trying to drive. And that's the reason for the incremental cost saves that we've identified now as opposed to the ones that we identified 18 months ago, where the world was a very different place.

[Tom Fraine, Research Analyst]

Okay. Just quickly, maybe back to Andrew's point on the flexibility of workers working remotely. Will they still have this flexibility though if you're actually looking to shut down a number of facilities?

[Andrew Heath, CEO & Executive Director]

So yes, because the example that I would use is that where, for example, we might have a city that had 2 offices or 3 offices in that city for our various different platform businesses and those offices were fully occupied at all times, where you have a remote working setup with people, some people at home, some people in the office, you can take a more varied, flexible approach and have a smaller physical footprint and still facilitate that collaborative working when necessary, have people in the office, have people away from the office. And I guess that's the sort of thinking that's been going on in many industries for many years. And I think the COVID examples demonstrated that all industries can do that. And that's the type of thing that we'll be looking at doing over the coming 12 months.

[Operator]

We have Mr. Danny Lu back on the line.

[Xingzhou Lu, Analyst]

This is Xingzhou from UBS. Can you hear me?

[Andrew Heath, CEO & Executive Director]

Yes, we can. Yes.

[Xingzhou Lu, Analyst]

I'm not sure where the name Danny came from, which is why I was a bit confused earlier. But yes, Andrew, Derek, a few quick questions from my side. Firstly, just on Omega, it appeared to be underperforming IP from a magnitude and recovery perspective. I was just wondering if there's any issues with the new website and customer transfer, which was taking a bit longer than before. Or is that kind of already smoothing out?

[Andrew Heath, CEO & Executive Director]

Yes. Xing, thanks for your question. I'll go back to what I said earlier. Certainly the stats that we look at relative to sort of -- the sort of process engineering, industrial production space in North America, we feel we are tracking pretty -- very much in line with the overall market and don't feel that it's not our proposition or offering that is wrong. Clearly, the market is down. There were issues that we were quite public about last year around the transition to the new website and the transition of customers to the website, et cetera. We feel that the offering has -- we've addressed the issues there. Certainly, the customer surveys we've done suggest a lot of that has now been fixed. But clearly, we have brought in a new President to that business, Amit, that I talked about. And he's very much focused on really coming in and assessing the business and making sure that it is really truly fit for purpose to drive the growth that we're looking for in that business. So having a new set of eyes in the business will be, I'm sure, invaluable to us to either confirm what is working, what's -- the strengths of the business and equally identifying if there are areas that need further work. We don't know if we've got those, but a new leader coming in with his experience will be invaluable to help either confirm or otherwise our proposition and our offering.

[Xingzhou Lu, Analyst]

Got it. And the second question, on the M&A market and particularly on your disposals, I guess, maybe could you elaborate a bit about any progress there as the activity kind of comes back?

[Andrew Heath, CEO & Executive Director]

Well, on the disposals, I mean we've been clear, which we've always said historically, that we won't disclose which businesses that we are in process. But as I said earlier, we are active. The portfolio rationalization, optimizing our assets is a key plank to our strategy. We've identified those businesses where we have the strongest growth prospects and, likewise, where we don't and where we don't think it's sensible to -- for us to invest and we won't be the best owner. My view is that having made that determination, we should push on and tidy up the portfolio sooner rather than later. Clearly, we've got one eye firmly on value and timing around the disposal program. But we do have some high-quality assets that are of interest to others. But even in the current environment, it makes sense to be having some discussions, so we will push on with those and obviously update you on -- as and when we got something to say.

[Xingzhou Lu, Analyst]

Yes. And my last question is just on your outlook. I think you mentioned that you are expecting to meet your full year revenue expectations. I think before, you only mentioned that you expect 3Q to be better than 2Q, so maybe -- could you maybe help us a little bit there in terms of what exactly you expect for full year revenues, if you have discussed that before?

[Andrew Heath, CEO & Executive Director]

I guess I'll refer you back to what I said in response to George's question earlier, really. We've clearly got momentum from -- going from Q2 into Q3. The like-for-like decline is significantly better than it was, the 3 months to the previous 3 months. We expect that momentum to carry on into Q4. And the order book gives us that confidence that we can certainly meet our expectations. And I would just refer back to that stated comment around, if you look at the consensus that's out there, I think there are some -- a few that we would say are a bit [ choppy ] on the upside. But you can see that with the momentum that we've got in the business, really, you can, I'm sure, get a more -- how you can see the next 3 months panning out.

[Operator]

Next, we have Mr. Robert from Morgan Stanley.

[Robert John Davies, Equity Analyst]

The first one was just on some of the regional trends. I just wondered, within Europe, I think it was down 13%, you put in your release this morning. Just maybe if you could flesh out some of the end-market trends specifically within Europe, where you're seeing that weakness, and then also in terms of regional trends. The rest of the world moved quite a lot. I know it's a sort of smaller segment, but I think they went from sort of down 30% to down 14%. Perhaps you could give us a little bit color there in terms of what sort of changed.The other questions I had, one was just on pricing dynamics, just be quite interested to see what you're seeing in terms of pricing. And then the final one was around Malvern. I saw you put in a comment about improvement in sequential growth partly being down to CapEx resumption within certain sort of markets versus a sort of catch-up of system installation from 2Q that hadn't happened. Just wondering if you can kind of disaggregate those 2 and just particularly, I guess, with a focus around which bits of the sort of CapEx pie have particularly got better.

[Andrew Heath, CEO & Executive Director]

Okay. Right. So a number of things there, Robert. Let me just take Malvern Panalytical, your last question first. I think the cash-back in terms of installations that were delayed from Q2 versus the increase in CapEx spend, I mean it is biased much towards the increase in CapEx spend, and that's the bigger part of the delta. Pricing typically is consistent with what we've said actually in the last few updates in that we are not seeing any real significant downward pressure on prices. I think there's been sort of generally sort of an amnesty in the market almost. The focus has been more on surety of supply, and yes, that still remains. Clearly, we'll see how that develops. But certainly, the pricing increases that we put in as part of our matter of course business at the start of the year, we've been able to hold right across all our businesses. So that's positive. And then maybe just -- I mean on your sort of point on sort of geography, end markets, maybe I'll just give you just maybe a little bit of a quick sort of gamble through each of the -- by group, by business, by geography. But clearly, as a group, North America and Asia are performing the best. We really do see China come back strongly in Q3. I mean Europe went down quite significantly at the start of lockdown, but it's been sort of in that sort of 12% to 14% down over the last 3, 4 months. Malvern Panalytical is particularly strong in China in Q3 but also in North America. HBK is stronger in North America. China is improving, and we certainly saw some positive trends in August to September in the Americas and September in China. Europe is tougher for it, especially given the sort of European automotive. Omega, we've talked about. It's very much tracking. That's the process engineering, industrial production space against the market in North America, but it has seen some positive signs in Asia. We're up in Asia mainly driven by semicon demand being up, which is helpful. And then Industrial Solutions, again, China has been positive over the last 2 months, and North America is improving. So I hope that gives you a little bit of a flavor for how things are developing.

[Operator]

Thank you very much. Since there is no further question, I would like to pass the call back to Mr. Andrew.

[Andrew Heath, CEO & Executive Director]

Okay. Thank you very much. And apologies, we seemed to have a few sort of technical wrinkles there in sort of getting some of your -- when asking a question, so apologies for that. But thank you for all your questions. So with that, let me just sort of wrap up. I guess, in summary, I'm very pleased, as I said at the outset, with the improving performance that we are seeing. Clearly, uncertainties do remain, but we believe that we're taking the right steps to weather this period. We're very much focusing on what we can control, which I think has been very much part of what Spectris has been about since I arrived over the last 2 years, and we've demonstrated that through our profit improvement program. We clearly entered this crisis with a net cash on the balance sheet and good liquidity. And since then, we've continued to generate cash and take further cost actions. And it's pleasing to see that we're well on track to deliver our GBP 50 million of overhead reduction this year. And also, we've commenced our restructuring program to deliver sustainable incremental benefits of GBP 20 million next year on top of the GBP 20 million permanent this year, so a GBP 40 million reduction in 2021 versus 2019, which then positions us well, I think, to be able to take advantage of the recovery markets coming through in 2021. As we implement that restructuring, get our cost base at the right place, with the market coming back, with our balance sheet, I'm confident that we will emerge from this crisis an even stronger and more resilient business. So thank you, again, for participating in the call today. And I just do hope and trust that you and your families continue to stay safe and well. I look forward to talking to you again in the near future. So thanks very much.

[Operator]

Ladies and gentlemen, with that, we have come to the end of Spectris trading update call. Thank you for your participation, and have a pleasant day ahead.