2014 Half Year Results

RNS Number : 2855N

Spectris PLC

25 July 2014

 



Spectris plc

2014 HALF YEAR RESULTS

25 July 2014 - Spectris plc, (SXS: LSE) the productivity-enhancing instrumentation and controls company, announces half year results for the six months ended 30 June 2014.

	H1 2014	H1    2013*	Change	Change at CER**	Like-for-like change***
Sales £m*	539.8	566.2	-5%	2%	1%
Operating profit £m*	70.1	80.1	-12%	-7%	-8%
Profit before tax £m*	67.3	75.0	-10%
Earnings per share*	43.4p	48.4p	-10%
Return on sales*	13.0%	14.1%	-1.1pp
Dividend	16.0p	14.75p	+8%
Statutory
Sales £m	539.8	570.4	-5%
Operating profit £m	58.2	65.9	-12%
Profit before tax £m	58.6	154.8	-62%
Basic earnings per share	39.4p	90.9p	-57%
*     The adjusted performance measures represent the statutory results excluding certain non-operational items. The 2013 comparatives have been restated to exclude the trading results and impact of the disposal of the Fusion UV business on 31 January 2013. **   At constant exchange rates (CER) *** At constant exchange rates and excluding acquisitions

Highlights

·     Solidperformance from Test and Measurement, In-line Instrumentation and Industrial Controls, with combined like-for-like (LFL)  sales growth of 4%

·     Weaker than expected performance in the metals, minerals, mining and academic research sectors resulted in a LFL sales decline of 5% in the Materials Analysis segment

·     LFL sales growth of 1%, adversely impacted by weaker shipments in Q2

·     Adverse currency translation impacted sales and operating profit by 6pp and 5pp respectively

·     Acquisition of La Corporation Scientifique Claisse in H1, with two additional bolt-on acquisitions completed in July

·     Robust cash conversion of 86%

Commenting on the results, John O'Higgins, Chief Executive, said: "In the first half, we saw a solid contribution from three of our four segments. However, this was impacted by weaker than expected performance during the second quarter. The second half will benefit from investments incurred in the first half for new product launches, regional growth initiatives and recent acquisitions. The businesses are strategically well positioned and the Board of Spectris believes that it will deliver second half performance in line with expectations."

Contacts:

Spectris plc
John O'Higgins, Chief Executive	[phone]
Clive Watson, Group Finance Director	[phone]
Cléa Rosenfeld, Head of Corporate Affairs	[phone]
FTI Consulting
Richard Mountain / Susanne Yule	[phone]

The meeting with analysts will be available as a live webcast on the company's website at www.spectris.com, commencing at 9.00 am BST, and a recording will be posted on the website shortly after the meeting.

Copies of this notice are available to the public from the registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the company's website at www.spectris.com

About Spectris

Spectris plc is a leading supplier of productivity-enhancing instrumentation and controls. The Company's products and technologies help customers to improve product quality and performance, improve core manufacturing processes, reduce downtime and wastage and reduce time to market. Its global customer base spans a diverse range of end user markets. Spectris operates across four business segments which reflect the applications and industries it serves: Materials Analysis, Test and Measurement, In-line Instrumentation and Industrial Controls. Headquartered in Egham, Surrey, England, the Company employs approximately 7,900 people located in more than 30 countries.

For more information, visit www.spectris.com

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Results overview

In the first half, sales grew by 1% on a like-for-like (LFL) basis, adversely impacted by a weaker trading environment in the second quarter. Demand from customers in the metals, minerals and mining industries and academic research sector was weak, resulting in a 5% LFL sales decline in Materials Analysis compared to the same period last year. However, we saw a solid performance from our Test and Measurement, In-line Instrumentation and Industrial Controls segments, which combined, posted LFL sales increases of 4%.  

Across the Group, we maintained investment in our key strategic organic growth initiatives, including an accelerated R&D programme in the Materials Analysis segment, aimed at capturing growth opportunities in the biopharmaceutical and material science sectors. We continued our geographical expansion of the Omega Engineering business, establishing a presence in Japan earlier this year. In addition, we merged two operating companies in the In-line Instrumentation segment, NDC Infrared Engineering and Beta LaserMike, to enhance our competitive positioning in the converting, web and packaging industries. This will result in both enhanced sales channel and cost benefits. In addition to these organic growth initiatives, we added a small bolt-on acquisition, La Corporation Scientifique Claisse, in the first half of this year and we have recently completed the acquisition of MicroCal from GE Healthcare as well as the acquisition of the trade and other assets from Affinity Biosensors LLC, positioning the Materials Analysis segment well for future growth.

Reported sales declined by 5% to £539.8 million (H1 2013: £566.2 million), adversely impacted by 6% foreign currency exchange movements but slightly moderated by a 0.6% contribution from acquisitions. As a result, on an organic constant currency LFL basis, sales for the first half of 2014 were up 1% over the same period last year. On a reported basis, adjusted operating profit declined by 12% to £70.1 million (H1 2013: £80.1 million) and operating margins declined by 1.1 percentage points to 13.0%. On a LFL basis, operating profit decreased by 8% as a consequence of the 1% LFL sales growth being insufficient to offset overhead cost inflationary increases and the costs of our strategic growth initiatives. Net finance costs at £2.8 million were £2.3 million lower than the same period last year. This was a result of average net debt being some £49 million lower and a reduced average interest rate arising from the refinancing of the high margin US private placement debt in October 2013. Adjusted profit before tax decreased by 10% from £75.0 million to £67.3 million.

Sales to North America grew 5% on a LFL basis, whilst sales to Europe and Asia were broadly flat compared to last year. In the case of Asia, we saw weakness in the metals, minerals and mining industries, whilst in Europe sales were affected by weak performance in the academic research sector. More detail on the contribution made by each of the strategic segments can be found in the operating review which follows.

Financial position and dividend

Operating cash flow was robust with 86% of our operating profit being converted into cash which, combined with normal dividend and tax outflows and the costs of acquiring the trade and assets of La Corporation Scientifique Claisse, resulted in net debt increasing by £3.3 million. At the end of June 2014, net debt stood at £107.4 million, just under 0.5 times the 12-month trailing EBITDA of £226.1 million.

The Board is proposing to pay an interim dividend of 16.0 pence per share, an increase of 8% over the same period last year (H1 2013: 14.75 pence per share). The dividend is covered 2.7 times. This is consistent with our policy of making progressive dividend payments based upon affordability and sustainability. The dividend will be paid on 12 November 2014 to shareholders on the register at the close of business on 17 October 2014.

Strategy

We have a clearly defined strategy and made good progress against our objectives during the first half of this year. We made three strategic bolt-on acquisitions, two of which closed in July 2014, enhancing our product and technology offerings within the Materials Analysis segment. We sustained our investment in new product development, increasing our LFL R&D spend by 1% to £43.2 million and launching new products across all segments, further strengthening our market positions.

In January 2014, we completed the initial phase of the Omega Asian expansion programme with the inauguration of a Japanese office. We have further plans to expand the call centres and footprint for Omega during the remainder of 2014 and beyond.  

Management and Board

After more than 20 years at Spectris, Jim Webster retired on 30 June from his role as Business Group Director. Eoghan O'Lionaird, who joined Spectris' Executive Committee on 3 February 2014, has assumed Jim's responsibilities for the Materials Analysis and Test and Measurement segments. Jo Hallas joined Spectris' Executive Committee on 16 May, following Steve Blair's departure on 25 February, and she has assumed responsibility for the In-line Instrumentation and Industrial Controls segments.

On 25 April, we announced that Lisa Davis had joined the Board of Spectris as Non-Executive Director. Lisa is currently Executive Vice President Strategy, Portfolio and Alternate Energy at Shell International Petroleum Company; she has worked within the oil industry over the last 28 years in a wide range of roles including upstream production, refining operations, supply, and sales and marketing. Lisa brings a wealth of international and industry experience to the Spectris Board.

Summary and outlook

In the first half, we saw a solid contribution from three of our four segments. However, this was impacted by weaker than expected performance during the second quarter. The second half will benefit from investments incurred in the first half for new product launches, regional growth initiatives and recent acquisitions. The businesses are strategically well positioned and the Board of Spectris believes that it will deliver second half performance in line with expectations.

Unless otherwise stated, figures quoted for operating profit, net interest, profit before tax, tax, earnings per share and operating cash flows are adjusted measures. In addition, all income statement and operating cash flow figures for 2013 exclude the trading results and impact of the disposal of the Fusion UV business which was sold on 31 January 2013. For an explanation of adjusted figures and a reconciliation to the statutory reported figures, see note 2.

OPERATING REVIEW

	Materials Analysis		Test and Measurement		In-line Instrumentation		Industrial Controls		Total
	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013
Sales (£m)	150.7	166.5	159.8	162.1	122.7	126.4	106.6	111.2	539.8	566.2
LFL growth	-5%	-3%	5%	-3%	3%	-3%	4%	-2%	1%	-3%
Adj. operating profit (£m)	13.2	20.6	19.4	17.0	17.3	21.0	20.2	21.5	70.1	80.1
% ROS	8.7%	12.4%	12.1%	10.5%	14.1%	16.6%	19.0%	19.4%	13.0%	14.1%
% Total  Group sales	28%	29%	29%	29%	23%	22%	20%	20%
% After sales	32%	30%	20%	23%	44%	45%	1%	2%	25%	26%

MATERIALS ANALYSIS

Materials Analysis provides products that enable customers to determine structure, composition, quantity and quality of particles and materials, during their research and product development processes, when assessing materials before production, or during the manufacturing process. Our products help customers to improve accuracy and speed of materials analysis in the laboratory. We see a growing demand for the application of our solutions in quality and process control. Our key customers in this segment are leaders in the metals, minerals, mining, and pharmaceutical industries and academic research institutes. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems.

Segment performance

	H1 2014	H1 2013	change	like-for-like change
Sales (£m)	150.7	166.5	-9%	-5%
Operating profit (£m)	13.2	20.6	-36%	-36%
Return on sales (%)	8.7	12.4	-3.7pp	-4.0pp
% of total Group sales	28	29	-1pp
After sales (%)	32	30	+2pp

Reported sales decreased by 9%, including a 2 percentage point contribution from acquisitions and a 6 percentage point adverse impact from foreign currency exchange movements. Therefore, like-for-like (LFL) sales for Materials Analysis were down by 5% in the first half, primarily due to greater than expected declines in sales to metals, minerals, mining and academic research customers compared to the same period last year. This was partially offset by sales growth to pharmaceutical and semiconductor customers. Operating profit and operating margins declined by 36% and 4.0 percentage points respectively on a LFL basis, due to the lower sales volume and costs incurred in relation to new product launches. 

Performance in the metals, minerals and mining sectors was weaker than previously expected due to a combination of lower demand for commodity materials, slowing economic growth in China and a decrease in large capital expenditure projects. We are maintaining our R&D programme to develop new products and applications for this market. In February, we launched the upgraded X-Ray Fluorescence ("XRF") benchtop system, the Epsilon 3^x. This highly flexible analytical tool is suitable for applications in a wide range of industries such as cement production, mineral analysis and polymer production and provides customers with fast and accurate quality control analysis. On 16 June, we acquired the trade and other assets of La Corporation Scientifique Claisse ("Claisse"), a Canadian company engaged in the design, manufacturing and selling of consumables and instruments used for sample preparation of materials primarily in mining, pharmaceutical and industrial applications. This acquisition enhances our presence within the sample preparation market whilst increasing our resilient revenues in this segment.

Sales to academic research institutes declined as we saw government cut backs and spending delays, notably in Continental Europe and North America. LFL sales to Asia were marginally higher compared to 2013 with strong sales growth in China being offset by weakness in India as a result of the political uncertainty caused by the elections.

Sales to the pharmaceutical sector grew with strong performances in North America and Asia helped by growing demand from biopharmaceutical and generic drug manufacturers. Our investment in the development of solutions focused on the biopharmaceutical industry continued to yield results. Following the successful launch of the Viscosizer 200 in late 2013, we launched another product, the Zetasizer Helix, which can be used to characterise protein size and structure. We completed the acquisition of MicroCal™ from GE Healthcare Life Sciences on 22 July 2014. MicroCal is a leading provider of microcalorimetry instruments for material research with particular applications in biomolecular applications. On 23 July we completed the acquisition of the trade and other assets of Affinity Biosensors LLC, including the Archimedes™, an instrument which accurately measures the density of individual particles, molecules or cells, using a resounding micro-electronic technique. This is critical to drug safety, efficacy and bioavailability as formulation instability can result in the alteration of the physical and chemical characterisation of the drug. Combined with the acquisition of NanoSight in September 2013, these additions to the Materials Analysis segment complement our existing technologies and further expand our portfolio of solutions across the life science market. 

Segment outlook

The metals, minerals and mining sector remains weak and while the pace of decline has slowed, the timing of recovery is uncertain. We expect the downward pressure on academic research spending to continue due to budget constraints as well as the slower than expected release of government funding. We should see further progress in the pharmaceutical sector, albeit partly offset by slower growth in China as regulatory compliance with new manufacturing regulations has now been implemented.  For the remainder of this year, we will continue with our investments in R&D in order to capture further growth opportunities in the life and material science sectors. The acquisitions of Claisse, Microcal and Affinity Biosensors, combined with the acquisition of Nanosight in 2013, strengthen our exposure to life sciences and provide a platform for future growth. In the near term the three recent acquisitions are expected to contribute at least 4 percentage points of sales growth in the segment in the second half of 2014. 

TEST AND MEASUREMENT

Test and Measurement supplies test, measurement, and analysis equipment and software for product design optimisation, manufacturing control, and environmental monitoring systems. Markets are principally the aerospace, automotive and consumer electronics industries. For customers in the automotive and aerospace industries, our products and applications help them to design and test new products whilst reducing time to market. In consumer electronics, our equipment and software enable customers to refine the performance and accuracy of their products and to test them in the production process. In the environmental monitoring market, the desire for higher standards of community comfort is creating additional demand. The operating companies in this segment are Brüel & Kjær Sound & Vibration and HBM.

Segment performance

	H1 2014	H1 2013	change	like-for-like change
Sales (£m)	159.8	162.1	-1%	5%
Operating profit (£m)	19.4	17.0	14%	20%
Return on sales (%)	12.1	10.5	+1.6pp	+1.4pp
% of total Group sales	29	29	-
After sales (%)	20	23	-3pp

Reported sales in Test and Measurement decreased by 1%, impacted by adverse foreign currency exchange movements of 6 percentage points, resulting in LFL sales growth of 5% for the period. LFL operating profit was up 20% to £19.4 million and operating margins increased to 12.1%. These results were due to higher sales growth in all geographic regions and all major key markets as well as good cost control.

We saw good growth in the automotive sector, with particularly strong performance in Japan and China, continuing the recovery seen at the end of 2013. In Europe, car manufacturers continue to invest in hybrid and full electric vehicles and we launched a new Quantum X module which measures the high voltages associated with electric car batteries. This now enables customers to combine both mechanical and electrical performance test results for the first time.

Sales to the aerospace industry were up with strong performances in North America and Asia. In North America, we secured a significant order for structural testing of regional commercial and executive aircraft. In Asia, we booked two sizeable orders, including a one-year service contract, from two large South Korean aerospace companies.  As aerospace companies continue to focus on designing the next generation of lighter and more fuel efficient aircraft, we recently launched new modules for our data analysis software which enable fatigue testing of new carbon fibre composite materials. 

Sales to the consumer electronics market were strong, benefiting from large projects in North America and China as consumers are demanding enhanced audio quality from their electronic products.

LFL recurring revenue from services in the environmental noise monitoring sector grew in the first half. In this period, a new service called Noise Sentinel on Demand (NSOD) was launched, offering customers flexibility through cloud-based data management. NSOD is delivered through a new low cost sales and delivery model; our clients buy and can configure instruments online, thereby allowing them to focus on data interpretation and providing advice to their own customers. In addition, we renewed and also won a number of new contracts including London's Stansted and Heathrow airports in the UK, Denver airport in the US, Schiphol airport in The Netherlands, and the city monitoring system in Madrid, Spain. In addition, we secured a large multi-year contract covering Australia's nine international airports.

Segment outlook

Demand from automotive manufacturers continues to grow and we see increased opportunities for software applications to support manufacturers' innovation in vehicle design and engine technologies. In addition, we also expect growth in demand for measurement equipment to test new composite materials used in automotive and aircraft frames. Our environmental noise monitoring systems business will contribute to an increased proportion of recurring service business in this segment. Although consumer electronics has been prone to spikes in demand associated with the launch of new products, the market remains very attractive and we see good opportunities for our sound quality testing applications.

IN-LINE INSTRUMENTATION

In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls for both primary processing and the converting industries. Our products and applications provide precision measurement in challenging operating environments, ensuring process quality, asset uptime, safety, and improved yield. Our key customers are in the electronics, petrochemicals, oil and gas, pulp and paper, energy, manufacturing, automotive, and medical industries. The operating companies in this segment are Brüel & Kjær Vibro, BTG Group, NDC Technologies, and Servomex.

Segment performance

	H1 2014	H1 2013	change	like-for-like change
Sales (£m)	122.7	126.4	-3%	3%
Operating profit (£m)	17.3	21.0	-17%	-14%
Return on sales (%)	14.1	16.6	-2.5pp	-2.8pp
% of total Group sales	23	22	+1pp
After sales (%)	44	45	-1pp

Reported sales for the half year were down by 3% compared to H1 2013 and were adversely impacted by foreign currency exchange movements of 6 percentage points, resulting in LFL sales growth of 3% for the period. Operating margins for the period were down by 2.8 percentage points on a LFL basis primarily as a consequence of an adverse mix in our pulp and paper and industrial gas businesses. 

Earlier this year we decided to merge NDC Infrared Engineering and Beta LaserMike in order to enhance our competitive positioning in the converting, web and packaging industries. With combined specialised know-how, the newly-formed company, renamed NDC Technologies, will provide customers with broader product offerings with state-of-the-art technologies and will increase sales penetration to a number of markets. Although this will result in net costs this year, we expect to see net benefits arising towards the end of 2015.

Overall, sales to the pulp and paper markets were flat compared to H1 2013 as we saw softer demand in Europe and China. Sales of our products for tissue applications continued to grow strongly during the first half of the year, especially in the US. The fibre-line automation instrument, SPK 5500, launched in December 2013 has been well received and in January 2014 we launched the DLT 5500, a new transmitter which is part of the same range. The DLT 5500 is an in-line continuous measurement tool which enables pulp and paper manufacturers to reduce their chemical and energy costs as well as enhance the quality of the end product.

In the energy and utilities market, sales were up for the half year with strong demand in China due to emission reduction measures taken by the local authorities. In India, we benefited from the continued expansion of one of the world's largest petrochemical producers, Reliance Industries, with substantial orders received for our gas analysis products. We received a large order from a new Latin American customer, Grupo Terra, for our vibration monitoring system for wind turbines which includes a 10-year service contract.

Sales to the converting, web and packaging industries (which include plastic, nylon and film) showed strong growth during the period, particularly in Europe and Asia. We delivered two test systems for lithium ion film thickness measurement at a leading Chinese manufacturing facility. During the first half of the year, we also launched several new products for the wire and cable industry which will significantly reduce testing set-up time for data cable.

Segment outlook

We are seeing good opportunities in the tissue industry for our consumable products such as our creping blades as well as for our process control instruments as manufacturers continue to seek to improve their productivity. In China, we see a number of opportunities, although the timing of these remains uncertain. We see good potential in the energy and utilities sector, particularly in Asia. In the converting, web and packaging industries, we will start to see moderate but incremental benefits from the merger of our two operating companies which will combine their capabilities, know-how and product offering for our customers.

INDUSTRIAL CONTROLS

Industrial Controls provides products and solutions that measure, monitor, control, inform, track and trace during the production process. Key customers are active in industrial manufacturing, automotive, electronics, packaging, and life sciences. Sales in this segment are mainly financed through customers' operating expenditure budgets so this segment is the least exposed to the industrial capital expenditure cycle. The operating companies in this segment are Microscan, Omega Engineering and Red Lion Controls.

Segment performance

	H1 2014	H1 2013	change	like-for-like change
Sales (£m)	106.6	111.2	-4%	4%
Operating profit (£m)	20.2	21.5	-6%	2%
Return on sales (%)	19.0	19.4	-0.4pp	-0.4pp
% of total Group sales	20	20	-
After sales (%)	1	2	-1pp

Reported sales were 4% down for the half year, adversely impacted by foreign currency exchange movements of 8 percentage points. Therefore, LFL sales for Industrial Controls were up 4% compared to the same period last year. Operating margins were down 0.4 percentage points on a LFL basis compared to the prior period, as a result of intellectual property related legal costs as well as continued investments in the geographical expansion of the Omega business.

Investment in the internationalisation of the Omega business is starting to show results with good sales performance from Asia.  In January 2014, we successfully inaugurated Omega's new operation in Japan which completes the initial phase of our Asian expansion programme.

During the first half of the year, one of the largest US-based producers of oil and gas placed an important order for our new Graphite™ series of display panels. These provide an interface for truck drivers to communicate oil and water tank pumping activity to a central server. The customer plans to install the Graphite series on all of their tanks as part of their digital oilfield initiative.  A Chinese government initiative to protect water resources resulted in a number of orders for our ethernet networking products for the monitoring of city water treatment facilities. To date, 15 cities have installed our products. We also launched a number of new products strengthening our industrial automation solutions and networking capabilities. These included the SixNet RAM 9000 which is a high performance remote terminal unit for monitoring and controlling remote processes in extreme conditions.

Performance in the electronics contract manufacturing sector was strong during the first half of 2014, particularly in Asia, driven by significant orders from customers in the major consumer electronic markets as they scaled up their facilities and seek to enhance productivity levels. 

Segment outlook

The need for our customers to improve productivity and efficiency is expected to result in increased demand for factory automation and industrial networking products. Whilst the initial phase of opening new independent offices is complete in Asia, we will continue with the geographical expansion of our Omega Engineering business by adding call centres in new countries as well as increasing our digital reach by translating our website in additional local languages. We expect to see further growth in this segment as the benefits of our investments continue to gather pace. 

Financial Review

Introduction

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believes these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined in note 2. Unless stated otherwise, figures quoted for operating profit, net interest, profit before tax, tax, earnings per share and operating cash flow are adjusted measures. In addition, all adjusted income statement and operating cash flow measures quoted for 2013 have been restated to exclude the trading results and impact of the disposal of the Fusion UV business which was disposed of on 31 January 2013. 

Reported sales in the first half decreased by 4.7% from £566.2 million in 2013 to £539.8 million in 2014. The year-on-year contribution to sales from acquisitions was £3.2 million (+0.6%), and adverse foreign exchange movements arising from the strength of Sterling against the major currencies had an impact of £36.2 million (-6.5%), with the result that, on an organic constant currency like-for-like (LFL) basis, sales increased by 1.2% compared to the first half of 2013.

We maintained our key strategic organic growth initiatives: our R&D programme in Materials Analysis, and the expansion of the Omega Engineering business. In addition, we commenced a project to merge two of our operating companies in the In-line Instrumentation segment, NDC Infrared Engineering and Beta LaserMike, to enhance our competitive positioning in the converting, web and packaging industries which will result in sales channel and cost benefits.

The combination of the low level of sales growth, the additional cost of investing in the strategic growth initiatives outlined above and inflationary overhead cost increases, resulted in reported operating profit decreasing by 12% from £80.1 million in 2013 to £70.1 million in 2014. There was a modest profit contribution from acquisitions, and foreign currency exchange movements had an adverse impact of 5% with the result that LFL operating profit declined by 8% for the period. The operating margin decreased by 1.1pp from 14.1% in 2013 to 13.0% on a reported basis in 2014, and decreased by 1.3pp to 12.8% on a LFL basis.

The year-on-year decrease in net finance costs is £2.3 million (from £5.1 million in the first half of 2013 to £2.8 million in 2014). This is primarily due to the average net debt level being approximately £49 million lower than in the same period in 2013 as a result of the continued robust operating cash generation of the Group, and the re-financing on significantly more favourable terms of the higher margin US private placement debt in October 2013.

Profit before tax decreased by 10% from £75.0 million in 2013 to £67.3 million in 2014.

Based on the forecast for the full year, the effective tax rate for the half year is estimated at 23.5% (2013 full year: 23.6% excluding divested businesses), in line with the expected full year geographic mix of profits. 

The combined effect of the lower operating profit and reduced interest charge are the main reasons that earnings per share decreased by 10% from 48.4 pence to 43.4 pence per share. 

Operating cash flow of £60.3 million (H1 2013: £65.1 million) resulted in an operating cash flow conversion rate of 86% (H1 2013: 81%). Net debt increased by £3.3 million (2013: decrease of £97.3 million) from £104.1 million at 31 December 2013 to £107.4 million at 30 June 2014 following the acquisition of the trade and other assets of La Corporation Scientifique Claisse, the payment of the 2013 final dividend and tax cash outflows.

Principal Risks and Uncertainties

The Group has in place processes for identifying, evaluating and managing the key risks which could have an impact upon the Group's performance.

The current risks, together with a description of how they relate to the Group's strategy and the approach to managing them, are set out in the 2013 Annual Report which is available on the Group's website at www.spectris.com.  The Group has reviewed these risks and concluded that they adequately represent the current principal risks and uncertainties of the Company and will continue to remain relevant for the second half of the financial year. They comprise:

-     New product development

-     Intellectual property

-     Political and economic environment

-     Compliance with all relevant laws and regulations

-     Acquisition integration

-     Competitive activity

-     Supply chain dependencies and disruption

-     Fluctuations in exchange rates

-     Information security

The potential impact of these risks on our strategy and financial performance, together with details of our specific mitigation actions, are set out in the 2013 Annual Report.

Clive Watson

Group Finance Director

Responsibility statement of the Directors in respect of the Interim report

We confirm that to the best of our knowledge:

·     the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·     the interim management report includes a fair review of the information required by:

a)          DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)          DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors of Spectris plc are as listed in the 2013 Annual Report and Accounts with the exception of Lisa Davis who joined the Board as a Non-Executive Director on 25 April 2014 and Jim Webster who retired from the Board on 30 June 2014.

By order of the Board

John Hughes

Chairman

25 July 2014

INDEPENDENT REVIEW REPORT TO SPECTRIS PLC 

Introduction 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the Condensed Consolidated Statement of Income, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Cash Flows and the related explanatory notes and the related explanatory notes.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 

Richard Broadbelt

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

25 July 2014

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2014

		2014	2013	2013
		Half year	Half year	Full year
	Note	£m	£m	£m
Continuing operations
Revenue	3	539.8	570.4	1,202.0
Cost of sales		(229.9)	(242.6)	(504.4)
Gross profit		309.9	327.8	697.6
Indirect production and engineering expenses		(46.9)	(49.1)	(96.9)
Sales and marketing expenses		(132.7)	(137.2)	(268.0)
Administrative expenses		(72.1)	(75.6)	(146.8)
Operating profit before acquisition-related items		70.1	80.9	215.5
Net acquisition-related costs and fair value adjustments		(0.8)	(0.2)	(0.7)
Amortisation of acquisition-related intangible assets		(11.1)	(14.8)	(28.9)
Operating profit	2,3	58.2	65.9	185.9
Profit on disposal of businesses	9	-	98.4	98.3
Financial income	4	3.3	0.6	1.2
Finance costs	4	(2.9)	(10.1)	(13.7)
Profit before tax		58.6	154.8	271.7
Taxation - UK	5	(1.4)	(0.9)	(4.2)
Taxation - Overseas	5	(10.4)	(46.8)	(67.5)
Profit after tax for the period from continuing operations attributable to owners of the Parent Company		46.8	107.1	200.0
Basic earnings per share (pence)	6	39.4p	90.9p	169.2p
Diluted earnings per share (pence)	6	39.3p	90.4p	168.5p
Dividends proposed for the period (per share)	7	16.00p	14.75p	42.75p
Dividends paid during the period (per share)	7	28.00p	25.50p	40.25p

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. Reconciliations showing how the adjusted performance measures are derived from those reported under adopted IFRS are set out in note 2.

CONDENSED Consolidated statement OF COMPREHENSIVE INCOME

For the six months ended 30 June 2014

		2014	2013	2013
		Half year	Half year	Full year
		£m	£m	£m
Profit for the period attributable to owners of the Parent Company		46.8	107.1	200.0
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit liability, net of foreign exchange		(0.7)	7.2	3.4
Tax on items above		0.3	(1.8)	(0.9)
		(0.4)	5.4	2.5
Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net (loss)/gain on effective portion of changes in fair value of forward exchange contracts		(2.1)	(1.4)	0.7
Foreign exchange movements on translation of overseas operations		(26.7)	48.7	(8.5)
Currency translation differences transferred to profit on disposal of businesses		-	(1.5)	(1.5)
Net loss on changes in fair value of effective portion of hedges of net investment in overseas operations		-	(8.6)	-
Tax on items above		0.4	0.3	(0.1)
		(28.4)	37.5	(9.4)
Total comprehensive income for the period attributable to owners of the Parent Company		18.0	150.0	193.1

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2014

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2014	6.2	231.4	562.9	40.4	(0.2)	3.1	0.3	844.1
Profit for the period	-	-	46.8	-	-	-	-	46.8
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	(1.7)	-	-	(1.7)
Foreign exchange movements on translation of overseas operations	-	-	-	(26.7)	-	-	-	(26.7)
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	(0.4)	-	-	-	-	(0.4)
Total comprehensive income for the period	-	-	46.4	(26.7)	(1.7)	-	-	18.0
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(33.3)	-	-	-	-	(33.3)
Share-based payments, net of tax	-	-	1.8	-	-	-	-	1.8
Balance at 30 June 2014	6.2	231.4	577.8	13.7	(1.9)	3.1	0.3	830.6

For the six months ended 30 June	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
2013	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2013	6.2	231.4	401.0	50.4	(0.8)	3.1	0.3	691.6
Profit for the period	-	-	107.1	-	-	-	-	107.1
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	(1.1)	-	-	(1.1)
Foreign exchange movements on translation of overseas operations	-	-	-	48.7	-	-	-	48.7
Net loss on changes in fair value of effective portion of hedges of net investment in overseas operations, net of tax	-	-	-	(8.6)	-	-	-	(8.6)
Foreign exchange gain on disposal of businesses taken to income statement	-	-	-	(1.5)	-	-	-	(1.5)
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	5.4	-	-	-	-	5.4
Total comprehensive income for the period	-	-	112.5	38.6	(1.1)	-	-	150.0
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(30.2)	-	-	-	-	(30.2)
Share-based payments, net of tax	-	-	2.1	-	-	-	-	2.1
Share options exercised from own shares (treasury) purchased	-	-	0.1	-	-	-	-	0.1
Balance at 30 June 2013	6.2	231.4	485.5	89.0	(1.9)	3.1	0.3	813.6
For the year ended 31 December	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
2013	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2013	6.2	231.4	401.0	50.4	(0.8)	3.1	0.3	691.6
Profit for the year	-	-	200.0	-	-	-	-	200.0
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	0.6	-	-	0.6
Foreign exchange movements on translation of overseas operations	-	-	-	(8.5)	-	-	-	(8.5)
Foreign exchange gain on disposal of businesses taken to income statement	-	-	-	(1.5)	-	-	-	(1.5)
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	2.5	-	-	-	-	2.5
Total comprehensive income for the year	-	-	202.5	(10.0)	0.6	-	-	193.1
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(47.7)	-	-	-	-	(47.7)
Share-based payments, net of tax	-	-	6.8	-	-	-	-	6.8
Share options exercised from own shares (treasury) purchased	-	-	0.3	-	-	-	-	0.3
Balance at 31 December 2013	6.2	231.4	562.9	40.4	(0.2)	3.1	0.3	844.1

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

		2014	2013	2013
		Half year	Half year	Full year
		£m	£m	£m
ASSETS
Non-current assets
Intangible assets:
Goodwill		509.9	552.7	521.0
Other intangible assets		168.0	189.3	177.5
		677.9	742.0	698.5
Property, plant and equipment		155.2	160.6	159.0
Deferred tax assets		17.0	16.8	17.0
Retirement benefit assets		7.7	11.3	7.2
		857.8	930.7	881.7
Current assets
Inventories		170.4	176.2	162.0
Taxation recoverable		1.9	0.7	1.9
Trade and other receivables		204.4	215.8	215.8
Derivative financial instruments		1.1	1.1	3.6
Cash and cash equivalents		26.5	36.0	43.8
		404.3	429.8	427.1
Total assets		1,262.1	1,360.5	1,308.8
LIABILITIES
Current liabilities
Short-term borrowings		(1.0)	(88.5)	(2.2)
Derivative financial instruments		-	(11.9)	-
Trade and other payables		(185.1)	(207.2)	(194.0)
Current tax liabilities		(27.6)	(51.2)	(32.6)
Provisions		(20.2)	(25.4)	(21.0)
		(233.9)	(384.2)	(249.8)
Net current assets		170.4	45.6	177.3
Non-current liabilities
Medium- and long-term borrowings		(132.9)	(92.7)	(145.7)
Other payables		(13.2)	(20.1)	(14.8)
Retirement benefit obligations		(16.6)	(15.7)	(15.4)
Deferred tax liabilities		(34.9)	(34.2)	(39.0)
		(197.6)	(162.7)	(214.9)
Total liabilities		(431.5)	(546.9)	(464.7)
Net assets		830.6	813.6	844.1
EQUITY
Share capital		6.2	6.2	6.2
Share premium		231.4	231.4	231.4
Retained earnings		577.8	485.5	562.9
Translation reserve		13.7	89.0	40.4
Hedging reserve		(1.9)	(1.9)	(0.2)
Merger reserve		3.1	3.1	3.1
Capital redemption reserve		0.3	0.3	0.3
Total equity attributable to equity holders of the Parent Company		830.6	813.6	844.1
Total equity and liabilities		1,262.1	1,360.5	1,308.8

CONDENSED Consolidated statement OF cash flowS

For the six months ended 30 June 2014

		2014	2013	2013
		Half year	Half year	Full year
	Note	£m	£m	£m
Cash flows from operating activities
Profit after tax		46.8	107.1	200.0
Adjustments for:
Tax	5	11.8	47.7	71.7
Profit on disposal of businesses	9	-	(98.4)	(98.3)
Finance costs	4	2.9	10.1	13.7
Financial income	4	(3.3)	(0.6)	(1.2)
Depreciation		8.9	9.1	18.1
Amortisation of intangible assets		12.8	16.5	32.4
Acquisition-related fair value adjustments		-	-	(0.4)
(Gain)/loss on sale of property, plant and equipment		(0.1)	0.1	0.2
Equity-settled share-based payment transactions		2.1	2.0	2.3
Operating profit before changes in working capital and provisions		81.9	93.6	238.5
Decrease/(increase) in trade and other receivables		7.6	2.8	(6.1)
(Increase)/decrease in inventories		(11.9)	(4.0)	0.7
Decrease in trade and other payables		(4.9)	(9.3)	(11.5)
Decrease in provisions and employee benefits		(0.9)	(2.7)	(5.2)
Net income taxes paid		(20.2)	(28.6)	(64.1)
Net cash flows generated from operating activities		51.6	51.8	152.3
Cash flows from investing activities
Purchase of property, plant and equipment and software		(12.3)	(13.6)	(31.7)
Proceeds from sale of property, plant and equipment		0.1	0.5	1.4
Acquisition of businesses, net of cash acquired	10	(10.6)	(1.2)	(16.9)
Proceeds from disposal of businesses		-	106.1	106.0
Interest received		0.1	0.2	0.3
Net cash flows (used in)/generated from investing activities		(22.7)	92.0	59.1
Cash flows from financing activities
Interest paid		(2.5)	(4.8)	(9.7)
Dividends paid		(33.3)	(30.2)	(47.7)
Proceeds from exercise of share options (treasury shares)		-	0.1	0.3
Proceeds from borrowings		-	-	80.4
Repayment of borrowings		(8.2)	(116.1)	(233.8)
Net cash flows used in financing activities		(44.0)	(151.0)	(210.5)
Net (decrease)/increase in cash and cash equivalents		(15.1)	(7.2)	0.9
Cash and cash equivalents at beginning of period		41.6	39.8	39.8
Effect of foreign exchange rate changes		(1.0)	2.6	0.9
Cash and cash equivalents at end of period		25.5	35.2	41.6

CONDENSED Consolidated statement OF cash flowS continued

		2014	2013	2013
Reconciliation of changes in cash and cash equivalents to movements in net debt:		Half year	Half year	Full year
		£m	£m	£m
Net (decrease)/increase in cash and cash equivalents		(15.1)	(7.2)	0.9
Proceeds from borrowings		-	-	(80.4)
Repayment of borrowings		8.2	116.1	233.8
Effect of foreign exchange rate changes		3.6	(11.6)	(4.3)
Movement in net debt		(3.3)	97.3	150.0
Net debt at start of period		(104.1)	(254.1)	(254.1)
Net debt at end of period		(107.4)	(156.8)	(104.1)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1.  Basis of Preparation and Principal Accounting Policies

a)  Basis of accounting

The Condensed Consolidated Interim Financial Statements of the Company for the six months ended
30 June 2014 comprise the Company and its subsidiaries, together referred to as the 'Group'. These Condensed Consolidated Interim Financial Statements are presented in millions of Sterling rounded to the nearest one decimal place. The Consolidated Financial Statements of the Group for the year ended 31 December 2013 are available upon request from the Company's registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the Company's website at www.spectris.com.

These Condensed Consolidated Interim Financial Statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 December 2013.

The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2014 are unaudited but have been subject to an independent review by the auditor. They do not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2013 are derived from the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The Report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The Group's financial risk management objectives and policies are consistent with those disclosed in the Consolidated Financial Statements for the year ended 31 December 2013.

These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 25 July 2014.

b)  Going concern

Having made enquiries and reviewed the Group's plans and available financial facilities, the Board has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements. There are no key sensitivities identified in relation to this conclusion.

c)  Seasonality of operations

As in prior years, the Group's revenue and operating profits are expected to be weighted towards the second half of the year.

d)  New standards and interpretations not yet adopted

There are a number of new standards, amendments to standards and interpretations that are not yet effective for the period ended 30 June 2014 and have, therefore, not been applied in preparing these Condensed Consolidated Interim Financial Statements.  None of these are anticipated to have a significant impact on the Consolidated Income Statement or Consolidated Statement of Financial Position.

e)  Significant accounting judgements and estimates

The preparation of Interim Financial Statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 31 December 2013.

The Directors have considered the facts and circumstances as at 30 June 2014 and concluded that there are no indicators of impairments that require an impairment review to be undertaken on goodwill at the interim statement of financial position date. The annual impairment review will be undertaken later in 2014 consistent with the timing in previous years.

f)  Principal accounting policies

The accounting policies applied by the Group in these Condensed Consolidated Interim Financial Statements are the same as those applied by the Group in its Consolidated Financial Statements for the year ended 31 December 2013.

2.  Adjusted Performance Measures

Spectris plc uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined as amortisation and impairment of acquisition-related intangible assets, acquisition-related costs and contingent consideration fair value adjustments, acquisition-related fair value adjustments, profits or losses on termination or disposal of businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan balances, related tax effects and other tax items which do not form part of the underlying tax rate.  In addition, all comparative income statement and operating cash flow figures have been restated to exclude the trading results and impact of the disposal of the Fusion UV business which was disposed of on 31 January 2013 (See note 9).

The adjusted performance measures are derived from the reported figures under adopted IFRS as follows:

	2014	2013	2013
	Half year	Half year	Full year
Sales	£m	£m	£m
Sales as reported under adopted IFRS	539.8	570.4	1,202.0
Divested businesses	-	(4.2)	(4.2)
Sales excluding divested businesses	539.8	566.2	1,197.8

					2014
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Sales by segment - June 2014	£m	£m	£m	£m	£m
Sales as reported under adopted IFRS	150.7	159.8	122.7	106.6	539.8

	Materials	Test and	In-line	Industrial	2013
	Analysis	Measurement	Instrumentation	Controls	Half year
Sales by segment - June 2013	£m	£m	£m	£m	£m
Sales as reported under adopted IFRS	166.5	162.1	130.6	111.2	570.4
Divested businesses	-	-	(4.2)	-	(4.2)
Sales excluding divested businesses	166.5	162.1	126.4	111.2	566.2

	Materials	Test and	In-line	Industrial	2013
	Analysis	Measurement	Instrumentation	Controls	Full year
Sales by segment - December 2013	£m	£m	£m	£m	£m
Sales as reported under adopted IFRS	362.4	348.7	269.9	221.0	1,202.0
Divested businesses	-	-	(4.2)	-	(4.2)
Sales excluding divested businesses	362.4	348.7	265.7	221.0	1,197.8

The following is an analysis of revenue by geographical destination:
	2014	2013	2013
	Half year	Half year	Full year
	£m	£m	£m
UK	20.5	18.3	39.9
Germany	54.6	57.4	125.4
France	18.2	21.9	46.3
Rest of Europe	82.4	83.6	177.8
USA	159.4	164.7	336.9
Rest of North America	17.6	17.5	36.3
Japan	27.7	28.1	61.3
China	71.6	73.8	159.5
South Korea	14.7	15.0	33.7
Rest of Asia Pacific	39.3	47.5	100.9
Rest of the world	33.8	38.4	79.8
	539.8	566.2	1,197.8

	2014	2013	2013
	Half year	Half year	Full year
Adjusted operating profit	£m	£m	£m
Operating profit as reported under adopted IFRS	58.2	65.9	185.9
Net acquisition-related costs and fair value adjustments	0.8	0.2	0.7
Amortisation of acquisition-related intangible assets	11.1	14.8	28.9
Adjusted operating profit	70.1	80.9	215.5
Divested businesses	-	(0.8)	(0.8)
Adjusted operating profit excluding divested businesses	70.1	80.1	214.7

					2014
	Materials	Test and	In-line	Industrial	Half year
Adjusted operating profit by segment - June 2014	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	12.1	16.5	16.1	13.5	58.2
Net acquisition-related costs and fair value adjustments	(0.8)	-	-	1.6	0.8
Amortisation of acquisition-related intangible assets	1.9	2.9	1.2	5.1	11.1
Adjusted operating profit: segment result	13.2	19.4	17.3	20.2	70.1

					2013
Adjusted operating profit by segment - June 2013	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	16.6	14.3	20.4	14.6	65.9
Net acquisition-related costs and fair value adjustments	-	-	-	0.2	0.2
Amortisation of acquisition-related intangible assets	4.0	2.7	1.4	6.7	14.8
Adjusted operating profit: segment result	20.6	17.0	21.8	21.5	80.9
Divested businesses	-	-	(0.8)	-	(0.8)
Adjusted operating profit excluding divested businesses: segment result	20.6	17.0	21.0	21.5	80.1

					2013
Adjusted operating profit by segment - December 2013	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	54.7	49.4	49.3	32.5	185.9
Net acquisition-related costs and fair value adjustments	0.3	-	-	0.4	0.7
Amortisation of acquisition-related intangible assets	8.3	5.4	2.7	12.5	28.9
Adjusted operating profit: segment result	63.3	54.8	52.0	45.4	215.5
Divested businesses	-	-	(0.8)	-	(0.8)
Adjusted operating profit excluding divested businesses: segment result	63.3	54.8	51.2	45.4	214.7

Net acquisition-related costs and fair value adjustments comprises of acquisition costs of £0.7m (30 June 2013: £0.2m; 31 December 2013: £1.1m) that have been recognised in the Condensed Consolidated Income Statement under IFRS 3 (Revised) 'Business Combinations', fair value adjustments to inventory of £nil (30 June 2013: £nil: 31 December 2013:£0.1m) and other fair value adjustments of £0.1m (30 June 2013: £nil; 31 December 2013: £(0.5)m credit).  Net acquisition-related costs and fair value adjustments are included within administrative expenses.  Acquisition-related costs have been excluded from the adjusted operating profit and acquisition costs paid of £0.7m (30 June 2013: £0.4m; 31 December 2013: £1.3m) have been excluded from the adjusted operating cash flow.

					2014
	Materials	Test and	In-line	Industrial	Half year
Return on sales by segment - June 2014	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Using operating profit as reported under adopted IFRS	8.0%	10.3%	13.1%	12.7%	10.8%
Using adjusted operating profit	8.7%	12.1%	14.1%	19.0%	13.0%

					2013
Return on sales by segment - June 2013	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Using operating profit as reported under adopted IFRS	10.0%	8.8%	15.6%	13.1%	11.6%
Using adjusted operating profit	12.4%	10.5%	16.7%	19.4%	14.2%
Using adjusted operating profit excluding divested businesses	12.4%	10.5%	16.6%	19.4%	14.1%

					2013
Return on sales by segment - December 2013	Materials	Test and	In-line	Industrial	Full  year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Using operating profit as reported under adopted IFRS	15.1%	14.2%	18.3%	14.7%	15.5%
Using adjusted operating profit	17.5%	15.7%	19.3%	20.6%	17.9%
Using adjusted operating profit excluding divested businesses	17.5%	15.7%	19.3%	20.6%	17.9%

	2014	2013	2013
Reconciliation to adjusted profit before tax and adjusted operating profit	Half year	Half year	Full year
	£m	£m	£m
Profit before tax as reported under adopted IFRS	58.6	154.8	271.7
Add/(deduct):
Net acquisition-related costs and fair value adjustments	0.8	0.2	0.7
Amortisation of acquisition-related intangible assets	11.1	14.8	28.9
Profit on disposal of businesses	-	(98.4)	(98.3)
Increase in fair value of cross-currency interest rate swaps	-	(0.4)	(0.7)
Net (gain)/loss on retranslation of short-term inter-company loan balances	(3.2)	4.8	4.1
Adjusted profit before tax	67.3	75.8	206.4
Divested businesses	-	(0.8)	(0.8)
Adjusted profit before tax excluding divested businesses	67.3	75.0	205.6
Adjusted net finance costs (see below)	2.8	5.1	9.1
Adjusted operating profit excluding divested businesses	70.1	80.1	214.7

	2014	2013	2013
	Half year	Half year	Full year
Adjusted net finance costs	£m	£m	£m
Net finance income/(costs) as reported under adopted IFRS	0.4	(9.5)	(12.5)
Increase in fair value of cross-currency interest rate swaps	-	(0.4)	(0.7)
Net (gain)/loss on retranslation of short-term inter-company loan balances	(3.2)	4.8	4.1
Adjusted net finance costs	(2.8)	(5.1)	(9.1)

	2014	2013	2013
	Half year	Half year	Full year
Adjusted operating cash flow	£m	£m	£m
Net cash from operating activities under adopted IFRS	51.6	51.8	152.3
Acquisition-related costs paid	0.7	0.4	1.3
Net income taxes paid	20.2	28.6	64.1
Purchase of property, plant and equipment and software	(12.3)	(13.6)	(31.7)
Proceeds from sale of property, plant and equipment	0.1	0.5	1.4
Adjusted operating cash flow	60.3	67.7	187.4
Divested businesses	-	(2.6)	(2.6)
Adjusted operating cash flow excluding divested businesses	60.3	65.1	184.8

	2014	2013	2013
	Half year	Half year	Full year
Adjusted earnings per share	£m	£m	£m
Profit after tax as reported under adopted IFRS	46.8	107.1	200.0
Adjusted for:
Net acquisition-related costs and fair value adjustments	0.8	0.2	0.7
Amortisation of acquisition-related intangible assets	11.1	14.8	28.9
Profit on disposal of businesses	-	(98.4)	(98.3)
Increase in fair value of cross-currency interest rate swaps	-	(0.4)	(0.7)
Net (gain)/loss on retranslation of short-term inter-company loan balances	(3.2)	4.8	4.1
Tax effect of the above and other non-recurring items	(4.0)	29.4	22.8
Adjusted earnings	51.5	57.5	157.5
Profit after tax on divested businesses	-	(0.5)	(0.5)
Adjusted earnings excluding divested businesses	51.5	57.0	157.0
Weighted average number of shares outstanding (millions)	118.7	117.8	118.2
Adjusted earnings per share (pence)	43.4	48.8	133.3
Adjusted earnings per share excluding divested businesses (pence)	43.4	48.4	132.9

	2014	2013	2013
Adjusted diluted earnings	Half year	Half year	Full year
per share	£m	£m	£m
Diluted weighted average number of shares outstanding (millions)	119.1	118.5	118.7
Adjusted diluted earnings per share (pence)	43.2	48.5	132.7
Adjusted diluted earnings per share excluding divested businesses (pence)	43.2	48.1	132.3
Basic and diluted earnings per share in accordance with IAS 33 'Earnings Per Share' are disclosed in note 6.

	2014	2013	2013
	Half year	Half year	Full year
Analysis of net debt for management purposes	£m	£m	£m
Bank overdrafts	1.0	0.8	2.2
Bank loans - unsecured	132.9	93.0	145.7
Unsecured loan notes	-	87.4	-
Cross-currency interest rate swaps - currency portion	-	11.6	-
Total borrowings	133.9	192.8	147.9
Cash balances	(26.5)	(36.0)	(43.8)
Net debt	107.4	156.8	104.1

3.  Operating Segments

The Group has four reportable segments, as described below, which are the Group's strategic business units.  These units offer different applications, assist companies at various stages of the production cycle and are focused towards specific industries. These segments reflect the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis and to assist in making decisions on resources to be allocated to each segment and to assess performance.  The segment results include an allocation of head office expenses. The following summary describes the operations in each of the Group's reportable segments.

·     Materials Analysis provides products that enable customers to determine structure, composition, quantity and quality of particles and materials, during their R&D process, when assessing raw materials before production, or during the manufacturing process. Key customers are leaders in metals, minerals, mining, and pharmaceutical industries and academic research institutes.

·     Test and Measurement supplies test, measurement and analysis equipment and software for product design optimisation, manufacturing control, and environmental monitoring systems. Markets are principally the aerospace, automotive and consumer electronics industries.

·     In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls for both primary processing and the converting industries. Key customers are in the electronics, petrochemicals, oil and gas, pulp and paper, energy, manufacturing, automotive and medical industries.

·     Industrial Controls provides products and solutions that measure, monitor, control, inform, track and trace during the production process. Key customers are active in industrial manufacturing, automotive, electronics, packaging, and life sciences.

					2014
	Materials	Test and	In-line	Industrial	Half year
Information about reportable	Analysis	Measurement	Instrumentation	Controls	Total
segments	£m	£m	£m	£m	£m
Segment revenues	150.8	159.9	122.8	106.7	540.2
Inter-segment revenue	(0.1)	(0.1)	(0.1)	(0.1)	(0.4)
External revenue	150.7	159.8	122.7	106.6	539.8
Reportable segment profit for continuing operations	13.2	19.4	17.3	20.2	70.1
Net acquisition-related costs and fair value adjustments	0.8	-	-	(1.6)	(0.8)
Amortisation of acquisition-related intangible assets	(1.9)	(2.9)	(1.2)	(5.1)	(11.1)
Operating profit	12.1	16.5	16.1	13.5	58.2
Financial income*					3.3
Finance costs*					(2.9)
Profit before tax					58.6
Tax*					(11.8)
Profit after tax					46.8

					2013
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Segment revenues	166.6	162.4	130.7	111.5	571.2
Inter-segment revenue	(0.1)	(0.3)	(0.1)	(0.3)	(0.8)
External revenue	166.5	162.1	130.6	111.2	570.4
Reportable segment profit for continuing operations	20.6	17.0	21.8	21.5	80.9
Net acquisition-related costs and fair value adjustments	-	-	-	(0.2)	(0.2)
Amortisation of acquisition-related intangible assets	(4.0)	(2.7)	(1.4)	(6.7)	(14.8)
Operating profit	16.6	14.3	20.4	14.6	65.9
Profit on disposal of businesses*					98.4
Financial income*					0.6
Finance costs*					(10.1)
Profit before tax					154.8
Tax*					(47.7)
Profit after tax					107.1

					2013
	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Segment revenues	362.6	349.2	270.0	221.5	1,203.3
Inter-segment revenue	(0.2)	(0.5)	(0.1)	(0.5)	(1.3)
External revenue	362.4	348.7	269.9	221.0	1,202.0
Reportable segment profit for continuing operations	63.3	54.8	52.0	45.4	215.5
Net acquisition-related costs and fair value adjustments	(0.3)	-	-	(0.4)	(0.7)
Amortisation of acquisition-related intangible assets	(8.3)	(5.4)	(2.7)	(12.5)	(28.9)
Operating profit	54.7	49.4	49.3	32.5	185.9
Profit on disposal of businesses*					98.3
Financial income*					1.2
Finance costs*					(13.7)
Profit before tax					271.7
Tax*					(71.7)
Profit after tax					200.0

* Not allocated to reportable segments.

Reportable segment profit is consistent with that presented to the Chief Operating Decision Maker.  Inter-segment pricing is on an arm's length basis.  Segments are presented on the basis of actual inter-segment charges made.  A table of segmental assets and liabilities is not disclosed as there are no material changes compared to 31 December 2013.

Geographical segments

The Group's operating segments are each located in several geographical locations and sell on to external customers in all parts of the world.

No individual country amounts to more than 3% of turnover, other than those noted below.

The following is an analysis of revenue by geographical destination:

	2014	2013	2013
	Half year	Half year	Full year
	£m	£m	£m
UK	20.5	18.3	39.9
Germany	54.6	57.5	125.5
France	18.2	21.9	46.3
Rest of Europe	82.4	83.6	178.0
USA	159.4	166.1	338.1
Rest of North America	17.6	17.6	36.4
Japan	27.7	29.2	62.4
China	71.6	74.4	160.1
South Korea	14.7	15.2	33.9
Rest of Asia Pacific	39.3	48.2	101.6
Rest of the world	33.8	38.4	79.8
	539.8	570.4	1,202.0

4.  Financial Income and Finance Costs

	2014	2013	2013
	Half year	Half year	Full year
Financial income	£m	£m	£m
Interest receivable	0.1	0.2	0.5
Increase in fair value of cross-currency interest rate swaps	-	0.4	0.7
Net gains on retranslation of short term inter-company loan balances	3.2	-	-
	3.3	0.6	1.2
	2014	2013	2013
	Half year	Half year	Full year
Finance costs	£m	£m	£m
Interest payable on loans and overdrafts	2.9	5.1	9.1
Net losses on retranslation of short term inter-company loan balances	-	4.8	4.1
Net interest cost on pension scheme liabilities	-	0.1	0.2
Other finance costs	-	0.1	0.3
Total interest payable	2.9	10.1	13.7

Net interest costs of £2.8m (30 June 2013: £4.9m; 31 December 2013: £8.6m) for the purposes of the calculation of interest cover comprise of bank interest receivable of £0.1m (30 June 2013: £0.2m;
31 December 2013: £0.5m), and interest payable on loans and overdrafts of £2.9m (30 June 2013: £5.1m; 31 December 2013: £9.1m).

5.  Tax on Profit on Ordinary Activities

The income tax charge for the six months to 30 June 2014 is based on an estimate of the effective rate of taxation for the current year. The effective rate of taxation applied to adjusted profit before tax for the period is 23.5% (30 June 2013: 24.0%; Year ended 31 December 2013: 23.6%, both excluding divested businesses).  A reconciliation of the tax charge on adjusted profit to the actual tax charge is presented below.

	2014	2013	2013
	Half year	Half year	Full year
	£m	£m	£m
The income tax charge is analysed as follows:
Tax charge on adjusted profit before tax at effective rate	15.8	18.3	48.9
Tax credit on amortisation of intangible assets	(3.8)	(4.8)	(9.8)
Tax charge on unrealised gain on change in fair value of cross-currency interest rate swaps	-	0.1	0.2
Tax credit on acquisition-related costs and fair value adjustments	(0.3)	-	(0.1)
Tax charge/(credit) on retranslation of short-term inter-company loan balances	0.1	-	(0.5)
Tax charge on profit on disposal of businesses	-	34.1	33.0
Total	11.8	47.7	71.7
Included in the above:
Tax charge on profit of divested businesses	-	0.3	0.3

6.  Earnings per Share

Earnings per share and diluted earnings per share are calculated as follows:

	2014	2013	2013
	Half year	Half year	Full year
Basic earnings per share	£m	£m	£m
Profit after tax (£m)	46.8	107.1	200.0
Weighted average number of shares outstanding (millions)	118.7	117.8	118.2
Basic earnings per share (pence)	39.4	90.9	169.2

Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period (excluding treasury shares).

The calculation of diluted earnings per share of 39.3p (30 June 2013: 90.4p; 31 December 2013: 168.5p) is based on the Group profit after tax of £46.8m (30 June 2013: £107.1m; 31 December 2013: £200.0m) and on the diluted weighted average number of 5p ordinary shares in issue during the period of 119.1 million (30 June 2013: 118.5 million; 31 December 2013: 118.7 million).

7.  Dividends

The final 2013 dividend of 28.00p per share (2012 final dividend: 25.50p) was paid on 25 June 2014 to ordinary shareholders on the register at the close of business on 30 May 2014.

The interim 2014 dividend of 16.00p per share (2013 interim dividend: 14.75p) will be payable on 12 November 2014 to ordinary shareholders on the register at the close of business on 17 October 2014.

The estimated interim dividend to be paid is £19.0m and has not been recognised in these accounts.

8.  Fair Value of Financial Instruments

		2014		2013		2013
		Half year		Half year		Full year
Fair value and carrying amount of financial instruments	Carrying	Fair	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value	Amount	Value
	£m	£m	£m	£m	£m	£m
Trade and other receivables excluding prepayments	189.8		190.5		201.1
Trade and other payables excluding deferred income	(168.6)		(198.0)		(184.1)
Cash and cash equivalents	26.5		36.0		43.8
Floating rate borrowings	(13.8)		(43.7)		(23.3)
Fixed rate borrowings	(120.1)	(123.0)	(137.5)	(141.6)	(124.6)	(124.8)
Forward exchange contracts	1.1	1.1	1.1	1.1	3.6	3.6
Cross-currency interest rate swaps	-	-	(11.9)	(11.9)	-	-
	(85.1)		(163.5)		(83.5)

There is no difference in the valuation techniques used or the fair value hierarchy under IFRS 7 'Financial Instruments: Disclosures' from that disclosed in the consolidated financial statements for the year ended 31 December 2013.

9.  Disposal of Businesses

On 31 January 2013, the Group disposed of the Fusion UV business, part of the In-line Instrumentation segment, for a final consideration of US$175m.

Effect of disposal on the financial	2013 Full year
position of the Group	£m
Other intangible assets	0.3
Property, plant and equipment	0.9
Deferred tax assets	0.5
Inventory	5.1
Trade and other receivables	8.1
Cash	1.8
Trade and other payables	(5.6)
Current tax liabilities	(0.6)
Provisions	(0.2)
Net assets divested	10.3
Consideration received, satisfied in cash	110.2
Cash disposed of	(1.8)
Transaction expenses	(3.1)
Net cash inflow	105.3
Cash received net of transaction expenses	107.1
Net assets disposed of	(10.3)
Currency translation differences transferred from translation reserve	1.5
Profit on disposal of businesses	98.3

The sale of the Fusion UV business did not meet the definition of a discontinued operation under IFRS 5 'Non-Current Asset Held for Sale and Discontinued Operations' and, therefore, no disclosures in relation to discontinued operations have been made.

The Group has not divested of any businesses during 2014.

Disposal of associate

On 19 February 2013, the Group acquired certain trade and assets that resulted in a deemed disposal of its 31.2% associate investment in Naneum Limited for £0.7m in cash. The Group's share of the associate's results up to the date of disposal and the gain/(loss) on disposal was not considered material.

10.  Acquisitions

On 16 June 2014, the Group acquired certain trade and assets of La Corporation Scientifique Claisse, a company based in Canada, for a total consideration of £10.4m. This extends the Group's capabilities in sample preparation for atomic spectroscopy, including X-ray, analysis. The excess of the fair value of the consideration paid over the fair value of tangible assets acquired is represented by the following intangible assets: customer-related (customer relations), trade name, technology and goodwill of £1.5m, £1.1m, £2.0m and £3.5m. The goodwill arising of £3.5m is considered to represent the value of the acquired workforce and related know-how, including an amount of £0.5m representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is being integrated into the Materials Analysis segment.

The assets and liabilities acquired during the period, together with the aggregate purchase consideration, are summarised below.  The fair values disclosed are provisional, reflecting the timing of the acquisition, and will be finalised within 12 months of the acquisition date.

	Book value	Adjustments	2014 Half year Fair value
Net assets acquired	£m	£m	£m
Intangible fixed assets	-	4.6	4.6
Tangible fixed assets	1.0	0.2	1.2
Inventories	1.7	0.1	1.8
Trade and other receivables	1.0	-	1.0
Trade and other payables	(1.1)	-	(1.1)
Provisions	-	(0.1)	(0.1)
Deferred tax liabilities	-	(0.5)	(0.5)
Net assets acquired	2.6	4.3	6.9
Goodwill			3.5
Total cash paid			10.4
Acquisitions prior to 2014
Deferred and contingent consideration in relation to prior years' acquisitions:
Accrued at 31 December 2013			0.2
Cash paid in 2014 in respect of prior years' acquisitions			0.2
Net cash outflow for the period			10.6

During 2013, the Group acquired the following businesses:

·     On 19 February 2013, the Group acquired certain of the trade and assets of a previously held associate, Naneum Limited, a company based in the UK, which extended the Group's capabilities in aerosol monitoring instruments;

·     On 27 September 2013, the Group acquired 100% of the share capital of NanoSight Limited, a company based in the UK, which extended the Group's capabilities in particle size measurement instrumentation; and

·     In November 2013, the Group acquired the trade and software-related assets of PROdry Technology Inc., a US business with expertise in tissue process consulting.

Full details of these acquisitions are included in the Consolidated Financial Statements for the year ended 31 December 2013. There have been no changes to previously recognised fair values in the period in relation to these acquisitions.

11.  Treasury Shares

At 30 June 2014, the Group held 6,133,017 treasury shares (30 June 2013: 6,493,312; 31 December 2013: 6,344,254). During the period 211,237 of these shares were issued to satisfy options exercised by employees which were granted under the Group's share schemes (30 June 2013: 1,119,067; 31 December 2013: 1,268,125). No shares were repurchased by the Group during the period (30 June 2013: nil; 31 December 2013: nil) and no shares were cancelled during the period (30 June 2013: nil;
31 December 2013: nil).

12.  Related Parties

Key management personnel are defined for the purpose of IAS 24 'Related Party Disclosures' as members of the Board of Directors. It is the Board of Directors who have responsibility for planning, directing and controlling the activities of the Group.  The latest details of Directors' remuneration are included in the Directors' Remuneration Report in the 2013 Annual Reports and Accounts, which is available upon request from the Company's registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the Company's website at www.spectris.com.

13.  Post Balance Sheet Events

On 22 July 2014, the Group completed the acquisition of the trade and other assets of the MicroCal business from GE Healthcare Life Sciences, thereby extending the Group's capabilities in life science analytical solutions.

On 23 July 2014, the Group completed the acquisition of the trade and other assets of Affinity Biosensors LLC, extending the Group's capabilities in particle measurement within life sciences.

The total consideration paid for these acquisitions was £38 million. Both of these acquisitions will be integrated into the Materials Analysis segment.

 

END

 

 

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