Spectris plc - Interim Results
Date: Embargoed until 7.00am, Tuesday 9 September 2003
Contact: Hans Nilsson, Chief Executive Tel: 020 7269 7291 (am)
Spectris plc Tel: 01784 470470
Richard Mountain
Financial Dynamics Tel: 020 7269 7291
SPECTRIS plc
2003 INTERIM RESULTS
Spectris plc, the precision instrumentation and controls company, announces its
interim results for the six months to 30 June 2003.
£m H1 2003 H1 2002 % change
Turnover 264.7 223.2 +19%
Operating profit* 22.0 18.5 +19%
Profit before tax* 17.0 14.2 +20%
Earnings per share* 10.4p 9.3p +12%
Dividend 4.05p 3.9p +4%
*before exceptional items of £ nil (2002: £2.3m credit) and goodwill
amortisation of £6.2m (2002: £3.7m)
NB: Unless otherwise stated, all profit and earnings per share figures exclude
exceptional items and goodwill amortisation
Highlights
* Organic order growth of 5%
* Gross margins maintained
* Earnings per share up 12% to 10.4p
* Dividend increased by 4%
Commenting on the results, Hans Nilsson, Chief Executive, said:
'Spectris has again produced a creditable performance against a background of
challenging markets. As a consequence of the growth in earnings in the first
half, organic growth in orders of 5% and in anticipation of a full year's
contribution from PANalytical, we look forward to further progress in the
second half of the year.'
Chairman's statement
The positive start to the year, indicated in our AGM statement in May, has been
maintained. Performance in the first half improved, compared with a weak result
for the same period in the previous year. The company achieved organic growth
in orders of 5%. However, sales lagged, partly as a consequence of the SARS
outbreak in Asia which resulted in travel restrictions leading to delays in
both orders and sales. Sales activities in Asia have now returned to normal
levels.
Turnover (excluding operations disposed) increased by 21% to £264.7m (£219.1m),
largely as a result of the contribution from PANalytical, acquired last
September, which achieved sales of £41m in the first half. Profit before tax
rose from £14.2m to £17.0m, an increase of 20%. Timing issues, which are
expected to reverse in the second half, resulted in cash generation being lower
than is typical, with 40% of operating profit converted into cash. Earnings per
share increased by 12% to 10.4p (9.3p), on a tax rate of 26%.
Currency effects on individual companies differed, with PANalytical being the
most affected. The spread of businesses and customers around the world provides
a degree of operational hedging against exchange rate movements. The weakening
of the pound against the euro was largely offset by the strengthening of the
pound against the dollar, with the net effect of currency movements in the
period being marginally adverse for the group as a whole.
The Board proposes to pay an interim dividend of 4.05p, an increase of 4%. The
dividend will be paid on 14 November to shareholders on the register on 17
October 2003.
Stephen Harris, who previously held senior executive positions at Powell
Duffryn and APV, was appointed Business Group Director and joined the Board in
June.
Outlook
In the current hesitant industrial environment customers remain reluctant to
make commitments. However, Spectris will continue its emphasis on sales and
market penetration, whilst maintaining a tight focus on cost control. The
growth in orders is supported by the investment which the company has made in
sales resources in countries such as China and Mexico which have an expanding
manufacturing base. A full year's contribution from PANalytical, together with
the traditional Spectris bias towards the second half, leads us to reiterate
expectations of progress for the full year.
Chief Executive's
review
Demand in the businesses improved in the first half compared with the prior
year, resulting in organic growth in orders of 5%. The growth in orders was the
result of specific new product initiatives and continued investment in, and
re-allocation of, sales resources rather than to an improvement in market
conditions. Organic sales grew at a more modest 2%. In addition to the SARS
outbreak, the increased lag between orders and sales was also due to the number
of orders from original equipment manufacturers (OEMs) in areas where lead
times are longer than is average for Spectris.
Gross margins were maintained and overhead costs remained under tight control
with the only increase in headcount resulting from added manufacturing capacity
at HBM in China. The lower operating cash conversion was primarily as a result
of inventory build arising from the opening of HBM's factory extension in China
and the timing of certain payments which are not expected to affect full year
cash generation.
After adjusting for currency movements (see Note 3b), the geographical
distribution of sales for the group remained essentially the same as in the
equivalent period of the prior year.
Sector performance
Electronic controls
Sales increased by 9% to £62.2m (£57.0m) and operating profit increased by 23%
to £6.9m (£5.6m) compared with the equivalent period in the prior year. All
four companies improved as a result of sales and marketing initiatives
supported by new product offerings. Many of the orders came from OEM wins (an
area which is more typical of the electronic controls sector than the rest of
Spectris) and, in particular, for HBM's operations in China. Despite a weak
manufacturing environment, Microscan's recently launched new barcode scanners
achieved rapid acceptance by industrial customers worldwide. In addition, both
Arcom and Red Lion won orders from OEMs in new applications.
In-line instrumentation
Sales were essentially flat year-on-year, at £86.8m compared with £87.2m in the
prior year period. Operating profit was similarly comparable at £8.7m (£8.8m).
Demand varied across the businesses, with BTG's growth in sales to pulp and
paper customers offset by weak demand in Beta LaserMike's wire and cable
markets. Beta LaserMike took steps to realign its product portfolio and sales
resources towards markets with better prospects, such as pipe and tubing. The
other companies experienced only slight differences in demand.
Process technology
This sector now includes PANalytical, which accounted for the sales increase to
£115.7m from £74.9m in the prior year period. Similarly, operating profit
increased to £6.4m from £4.4m. Excluding PANalytical, year-on-year sales were
flat and operating profit declined somewhat. The year-on-year decline in the
telecoms markets was compensated by good progress in penetrating other markets
and territories, such as Brüel & Kjær Sound & Vibration and Fusion in
automotive and Particle Measuring Systems and Malvern in pharmaceuticals.
The integration of PANalytical, acquired in September 2002, has been completed.
Demand measured in local currencies was strong and was backed by a pipeline of
new product introductions. The cost reductions identified at the time of the
acquisition are on track and PANalytical's management team are actioning other
initiatives to help mitigate the negative effects of currency movements.
Maintained priorities
Our businesses compete from strong market positions. The focus on sales
coverage continues, in particular in countries with an expanding manufacturing
base, as well as in Japan. Product development resources have been maintained
during the economic downturn. Growth resulting from increased sales coverage
should lead to improved operating margins through operational gearing.
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in London in a live
Webcast commencing at 08:30 AM on the company's website at www.spectris.com.
Copies of this notice are available to the public from the registered office:
Station Road, Egham, Surrey TW20 9NP and on the company's website at
www.spectris.com
Note to Editors
Spectris enhances productivity for customers through precision instrumentation
and controls. The company's focus is on providing niche applications which have
a direct impact on process performance for end user customers. Spectris employs
around 5,800 people worldwide in its 16 business units.
Spectris products help customers to improve product quality and performance,
increase productivity and yield and reduce downtime and waste. Spectris
businesses are all leaders in their specialised markets and can be found in
most industries, with applications ranging from ultraviolet curing of printed
CD coatings to sound level measurement and particle contamination detection.
Spectris companies work with multinational blue-chip customers in diverse
industries, however no customer represents more than 1% of sales and no market
more than 15%.
Over the last three years Spectris has invested around 6% of sales each year in
the research and development of new products and applications. Many of the
company's world-leading technologies are protected by patents and process
know-how.
Visit our website at http://www.spectris.com for more information on the
company's activities.
Group Results
For the half year to 30 June 2003
Notes 2003 2002 2002
Half year Half year Full year
£m £m £m
Turnover
Existing businesses 264.7 219.1 483.6
Operations disposed or to be disposed
- 4.1 6.5
-------- -------- --------
Continuing operations 3 264.7 223.2 490.1
-------- -------- --------
Operating profit before goodwill
amortisation
and exceptional items
Existing businesses 22.0 18.8 51.5
Operations disposed or to be disposed - (0.3) (0.8)
-------- -------- --------
Continuing operations 3 22.0 18.5 50.7
Goodwill amortisation (6.2) (3.7) (8.7)
Operating exceptional items - 2.3 2.3
-------- -------- --------
Operating profit 15.8 17.1 44.3
Loss on sale of business - (1.1) (12.9)
-------- -------- --------
Profit before interest and taxation 15.8 16.0 31.4
Net interest payable (5.0) (4.3) (8.2)
-------- -------- --------
Profit before taxation 10.8 11.7 23.2
Taxation on operating profit 4 (4.4) (4.0) (10.4)
Exceptional taxation 4
- - 2.5
-------- -------- --------
Profit after taxation 6.4 7.7 15.3
Dividends (4.9) (4.7) (15.3)
-------- -------- --------
Retained profit
1.5 3.0 -
-------- -------- --------
Average number of shares in issue (millions) 120.4 109.3 114.4
Earnings per ordinary share 5 5.3p 7.0p 13.4p
Diluted earnings per share 5 5.3p 7.0p 13.3p
Earnings per share before goodwill 5 10.4p 9.3p 28.1p
amortisation
and exceptional items
Dividends per ordinary share 4.05p 3.90p 12.75p
-------- -------- --------
Operating profit before goodwill
amortisation
and exceptional items, continuing operations 22.0 18.5 50.7
Net interest payable (5.0) (4.3) (8.2)
-------- -------- --------
Profit before taxation and before goodwill 17.0 14.2 42.5
amortisation and exceptional items
-------- -------- --------
Balance Sheet Summary
2003 2002 2002
30 June 29 June 31 December
£m £m £m
Intangible assets 222.4 139.4 213.6
Tangible fixed assets 95.1 84.4 89.1
Fixed asset investments 15.8 14.8 15.9
Working capital 102.6 97.9 96.6
Taxation (14.5) (17.4) (11.4)
Dividends payable (4.9) (4.7) (10.6)
Provisions (16.8) (23.9) (18.0)
Net pension assets/(liabilities) (9.0) 0.9 (9.0)
-------- -------- --------
390.7 291.4 366.2
Net borrowing (191.5) (135.9) (177.5)
-------- -------- --------
Net assets 199.2 155.5 188.7
-------- -------- --------
Share capital 6.2 5.6 6.2
Reserves 193.0 149.9 182.5
-------- -------- --------
Equity shareholders' funds 199.2 155.5 188.7
-------- -------- --------
Reconciliation of movements in shareholders' funds
Retained profit 1.5 3.0 -
Foreign exchange adjustments 8.9 6.4 6.4
New share capital subscribed 0.1 2.0 41.5
Actuarial revaluation of pension funds - - (10.5)
Goodwill realised - 0.3 7.5
-------- -------- --------
Net increase 10.5 11.7 44.9
Opening shareholders' funds 188.7 143.8 143.8
-------- -------- --------
Closing shareholders' funds 199.2 155.5 188.7
-------- -------- --------
Cash Flow Summary
2003 2002 2002
Half year Half year Full year
£m £m £m
Cash inflow from operating activities 15.8 12.5 54.4
Net capital expenditure (6.9) (5.8) (15.9)
Net interest paid (5.2) (4.0) (8.7)
Tax (paid)/recovered (1.5) 0.2 (4.5)
-------- -------- --------
Free cash flow 2.2 2.9 25.3
Dividends paid (10.7) (9.3) (14.0)
Share issues 0.1 2.0 41.5
Purchase of fixed asset investments - (1.0) (2.1)
Purchase of subsidiaries 0.5 - (98.7)
Sale of subsidiaries - 2.0 1.6
Exchange adjustment (6.1) (1.0) 0.4
-------- -------- --------
Movement in net debt in the period (14.0) (4.4) (46.0)
Net debt at the beginning of the period (177.5) (131.5) (131.5)
-------- -------- --------
Net debt at the end of the period (191.5) (135.9) (177.5)
-------- -------- --------
Reconciliation of operating profit to cash inflow from operating
activities
Operating profit 15.8 17.1 44.3
Depreciation 6.5 5.8 13.9
Goodwill amortisation 6.2 3.7 8.7
Profit on sale of tangible fixed assets - (0.7) (0.6)
(Increase)/decrease in working capital (10.6) (6.6) 2.7
Utilisation in provisions (2.1) (6.8) (14.6)
-------- -------- --------
Cash inflow from operating activities 15.8 12.5 54.4
-------- -------- --------
Notes to the Accounts
1. Principal accounting policies and basis of preparation
The interim report has been prepared on the basis of the accounting policies
set out in the Group's 2002 statutory accounts and approved by the Board on 9
September 2003. This report does not constitute statutory accounts for the
company. The interim figures for 30 June 2003 and 29 June 2002 are unaudited.
The results for 2002 are not the statutory accounts but an abridged version of
the full accounts which have received an unqualified report by the auditors and
have been filed with the Registrar of Companies.
2. Taxation
Full provision is made for deferred tax assets and liabilities arising from
timing differences that have originated but not reversed by the balance sheet
date, except as otherwise required by FRS 19. Deferred tax assets are
recognised to the extent that it is regarded as more likely than not that they
will be recoverable.
3. Segmental analysis
a) Analysis by class of business
2003 2002 2002
Half year Half year Full year
£m £m £m
Turnover
Electronic controls 62.2 57.0 117.6
In-line instrumentation 86.8 87.2 172.7
Process technology 115.7 74.9 193.3
-------- -------- --------
Existing businesses 264.7 219.1 483.6
Operations disposed or to be disposed - 4.1 6.5
-------- -------- --------
Total continuing operations 264.7 223.2 490.1
-------- -------- --------
Operating profit
Electronic controls 6.9 5.6 13.0
In-line instrumentation 8.7 8.8 18.6
Process technology 6.4 4.4 19.9
-------- -------- --------
Existing businesses 22.0 18.8 51.5
Operations disposed or to be disposed - (0.3) (0.8)
-------- -------- --------
Total continuing operations 22.0 18.5 50.7
Goodwill amortisation (6.2) (3.7) (8.7)
Operating exceptional items - 2.3 2.3
-------- -------- --------
Operating profit 15.8 17.1 44.3
-------- -------- --------
The operating businesses are grouped as follows:
Electronic controls: Arcom Control Systems, HBM, Microscan, Red Lion Controls
In-line instrumentation: Beta LaserMike, Brüel & Kjær Vibro, BTG, Ircon, Loma
Systems, NDC Infrared Engineering, Servomex
Process technology: Brüel & Kjær Sound & Vibration, Fusion UV Systems, Malvern
Instruments, PANalytical, Particle Measuring Systems.
b) Analysis of turnover by geographical destination
2003 2002 2002
Half year Half year Full year
£m £m £m
UK 17.6 13.6 32.3
Continental Europe 106.7 80.7 188.1
North America 73.9 74.3 147.7
Japan 19.1 14.2 31.0
China 14.8 10.6 24.6
Rest of Asia Pacific 22.3 17.5 45.6
Rest of the world 10.3 8.2 14.3
Discontinued - 4.1 6.5
-------- -------- --------
Total 264.7 223.2 490.1
4. Tax on profit on ordinary activities
The taxation charge for the six months to 30 June 2003 is based on an estimate
of the effective rate of taxation for the current year (excluding exceptional
items and goodwill amortisation) of 26%. (For the year to 31 December 2002:
24.4%).
The tax charge is analysed as follows
2003 2002
£m £m
UK 0.8 -
Overseas 3.6 4.0
-------- --------
4.4 4.0
Tax credit on operating exceptional items - -
Tax charge on sale of businesses - -
-------- --------
4.4 4.0
5. Earnings per share
Earnings per share before goodwill amortisation and exceptional items is
calculated as follows:
Earnings Earnings per
share
2003 2002 2003 2002
Half year Half Half year Half year
year
£m £m p p
Earnings and earnings per share 6.4 7.7 5.3 7.0
Earnings and earnings per share attributable to:
Operating exceptional - (2.3) - (2.0)
items
Goodwill amortisation 6.2 3.7 5.1 3.3
Loss/(profit) on sale of - 1.0
business - 1.1
Earnings and earnings per share before 12.6 10.2 10.4 9.3
goodwill amortisation and exceptional
items
The weighted average number of 5p ordinary shares in issue during the period
was 120.4 million (2002: 109.3 million).
The calculation of diluted earnings per share is based upon the group profit of
£6.7 million and on the diluted weighted average number of shares in issue
during the period of 120.4 million.
6. Pension schemes
The net pension liability of the group at 31 December 2002 was £9.0m. The
company's actuaries have estimated that at 30 June 2003 the net pension
liability was £12.0m. The estimated actuarial loss has not been accounted for
in the interim statement.
7. Interim report
Copies of the interim report, which will be posted to shareholders on 12
September, may be obtained from the registered office at Station Road, Egham,
Surrey TW20 9NP. The interim report will also be available on the company's
website at www.spectris.com.
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