2018 HALF YEAR RESULTS

RNS Number : 5101V

Spectris PLC

24 July 2018

SPECTRIS PLC

24 July 2018 - Spectris plc (SXS: LSE), the productivity-enhancing instrumentation and controls company, announces half year results for the six months ended 30 June 2018.

	H1 2018	H1 2017	Change	Like-for-like change¹
Adjusted¹
Sales (£m)	728.0	710.0	3%	5%
Operating profit before Project Uplift costs of £6.7m (2017: £9.3m) (£m)	77.2	75.8	2%	9%
Operating margin before Project Uplift costs (%)	10.6%	10.7%	(0.1pp)	0.4pp
Operating profit (£m)	70.5	66.5	6%	15%
Profit before tax (£m)	67.4	63.8	6%
Earnings per share (pence)	46.1p	42.3p	9%
Reported
Sales (£m)	728.0	710.0	3%
Operating profit (£m)	45.5	42.1	8%
Operating margin (%)	6.3%	5.9%	0.4pp
Profit before tax (£m)²	96.6	37.6	>100%
Basic earnings per share (pence)²	74.6p	26.8p	>100%
Interim dividend (pence)	20.5p	19.0p	8%

1 Adjusted performance measures ('APMs') are used consistently throughout this press release and are referred to as 'adjusted' or 'like-for-like (LFL)'. See Note 2.

2 The main adjusting item to reported profit before tax in 2018 was a £57.0 million profit on disposal of business, increasing basic earnings per share by 47.9 pence.

Highlights

· Good strategic progress in adding further software, services and testing capability

o Concept Life Sciences integration proceeding well; initial cross-selling opportunities identified

o Revolutionary Engineering brings additional automotive test capabilities and a US presence

o Acquired VI-grade, a leading global provider of vehicle simulation solutions and services

o Joint venture with Macquarie Capital for environmental monitoring business now established

· Project Uplift on track to deliver net benefit of £3 million in 2018; shared service centre validation and design study progressing well

· Sales of £728.0 million reflects a 5% LFL sales increase

· Adjusted operating profit of £70.5 million, 15% LFL increase; reported operating profit £45.5 million

· Dividend per share increase of 8%

Commenting on the results, John O'Higgins, Chief Executive, said: "Our performance in the first half of the year reflects good demand in our end markets, particularly in the automotive and pharmaceutical industries where we have made key strategic moves in the past two years. We are pleased to see 5% organic sales growth although we continue to expect that pace to ease a little in the second half, given the tougher comparator with 2017. Overall, our expectations for the full year remain unchanged.

In line with our strategy, the Group continues to expand its services and software capabilities and know-how. We will continue to target acquisitions to supplement these skills and expertise. In addition, our operating companies are increasingly working closer together and this positions us to continue to deliver enhanced value to our customers."

Contacts

Spectris plc

John O'Higgins, Chief Executive	+44 1784 470470
Clive Watson, Group Finance Director	+44 1784 470470
Siobhán Andrews, Head of Corporate Affairs	+44 1784 485325

FTI Consulting

Richard Mountain / Susanne Yule

+44 203 727 1340

A meeting with analysts will be held at 8:30am BST today at the offices of FTI Consulting. This will be available as a live webcast on the company's website at www.spectris.com and a recording will be posted on the website after the meeting.

Copies of this press release 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, technologies and services 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, United Kingdom, the Company employs approximately 10,000 people located in more than 30 countries. For more information, visit www.spectris.com.

Cautionary statement

This press release may contain forward-looking statements. These statements can be identified by the fact that they do not relate only to historical or current facts. Without limitation, forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning. These statements may (without limitation) relate to the Company's financial position, business strategy, plans for future operations or market trends. No assurance can be given that any particular expectation will be met or proved accurate and shareholders are cautioned not to place undue reliance on such statements because, by their very nature, they may be affected by a number of known and unknown risks, uncertainties and other important factors which could cause actual results to differ materially from those currently anticipated. Any forward-looking statement is made on the basis of information available to Spectris plc as of the date of the preparation of this press release.
All forward-looking statements contained in this press release are qualified by the cautionary statements contained in this section. Other than in accordance with its legal and regulatory obligations, Spectris plc disclaims any obligation to update or revise any forward-looking statement contained in this press release to reflect any change in circumstances or its expectations.

CHIEF EXECUTIVE'S STATEMENT

Summary

Reported sales increased by 3% to £728.0 million (H1 2017: £710.0 million) which reflected a 5% increase on an organic, constant currency (like-for-like, 'LFL')¹ basis, 1% net growth from acquisitions and disposals and a negative impact of 4% from foreign currency exchange movements. During the first half, we continued to make good strategic progress towards broadening our portfolio, adding further to our software and services offering.

1 Adjusted performance measures ('APMs') are used consistently throughout this press release and are referred to as 'adjusted' or 'like for like (LFL)'. These are defined in full and reconciled to the reported statutory measures in Note 2 to the Financial Statements.

We made two acquisitions and announced a further one in July and took the decision to merge two of our Test and Measurement businesses to further strengthen our customer proposition. We also completed the set-up of the joint venture with Macquarie Capital for the EMS Brüel & Kjær ('EMS B&K') environmental monitoring business.

2018 operational performance

	LFL sales change H1 2018		LFL sales change H1 2018
Materials Analysis	11%	North America	5%
Test and Measurement	6%	Europe	6%
In-line Instrumentation	(3%)	Asia	6%
Industrial Controls	4%	Rest of the world	1%
Group	5%	Group	5%

LFL sales increased across all segments, except In-line Instrumentation. In Materials Analysis, strong growth in the pharmaceutical industry, in particular, saw LFL sales increase 11% whilst automotive was the key sector driving the 6% growth in Test and Measurement. For In-line Instrumentation, LFL sales declined 3% against a strong comparator last year and reflecting the high project content in this segment's sales. Industrial Controls continued to benefit from the improved performance at Omega, as well as the recovery in North American industrial spending.

On a regional basis, LFL sales to North America and Europe increased by 5% and 6%, respectively, with the UK being the key contributor to growth in the latter, helped by Millbrook. In Asia, LFL sales rose 6%, with particularly strong growth in China. Sales to the Rest of the world were up 1%.

Adjusted operating profit increased 6% to £70.5 million and reported operating profit was
£45.5 million, compared to £66.5 million and £42.1 million recorded in 2017, respectively. Adjusted operating profit included benefits of £3.2 million relating to Project Uplift. On a LFL basis before Project Uplift costs, adjusted operating profit increased 9%, primarily reflecting the effect of the higher sales volumes, partly offset by the expected overhead cost increase of 5.6%.

Adjusted operating profit includes costs of £6.7 million in relation to Project Uplift. Excluding these costs, adjusted operating margins were 10.6%, broadly flat on 2017 (LFL 0.4pp higher).

Reported profit before tax increased from £37.6 million in the prior period to £96.6 million in 2018, which includes a profit on disposal of the EMS B&K business of £57.0 million. Adjusted profit before tax increased by 6% to £67.4 million.

The Group's adjusted operating cash flow conversion rate was in line with our expectations with 69% of adjusted operating profit being converted into cash. Group capex for the first half was £40.0 million, a 64% increase year-on-year, reflecting spend on the growth-driven capacity expansion programme at Millbrook. After allowing for the proceeds from the EMS B&K joint venture and the Group's share buyback programme, net debt stood at £231.5 million at the end of June, around 0.9 times the last 12 months' adjusted EBITDA.

Under the share buyback programme which was announced in February 2018, the Group purchased
945,982 shares for a total cost of £25.3 million during the period. The Group maintains considerable financial flexibility and will continue to target capital investment and acquisitions in support of its growth strategy.

The Board is proposing to pay an interim dividend of 20.5 pence (H1 2017: 19.0 pence per share), an 8% increase, which is consistent with our policy of making progressive dividend payments based upon affordability and sustainability. The dividend will be paid on 9 November 2018 to shareholders on the register at the close of business on 12 October 2018. The ex-dividend date is 11 October 2018.

Positioning ourselves to deliver our solutions strategy

We continue to focus on developing our customer offering with the addition of software and services to our existing hardware businesses in order to better meet the changing needs of our customers. Across the Group, execution of our strategy requires closer integration within our strategic segments. In addition, Project Uplift seeks to create common processes and delivery platforms for many of our supply chain management and back office activities.

Corporate development

We completed two acquisitions in the first half of 2018 and announced a further one in July. The acquisition of Concept Life Sciences adds a high quality test services offering to our Materials Analysis segment. It provides integrated drug discovery, development, analytical testing and environmental consultancy services, mainly in the pharmaceutical, biotechnology, agrochemical and environmental sectors. Additionally, it carries out development and analytical services for the food, consumer and environmental industries.

In Test and Measurement, the acquisition of Revolutionary Engineering complements the existing test capabilities of Millbrook as well as extending its reach into North America. In addition, we invested
£16.5 million in Millbrook to further expand its testing capacity, including additional indoor cold temperature testing in Finland.

On 20 July, we signed an agreement to acquire the entire share capital of VI-grade Group ('VI-grade'),
a leading global provider of vehicle simulation solutions and services, primarily to automotive customers.
VI-grade helps clients shorten development cycles, enhance innovation and decrease risk by providing
real-time virtual prototype simulation capabilities. VI-grade will be part of the Test and Measurement segment where it is complementary to this segment's sizeable automotive exposure.

Following the merger of Malvern Panalytical last year, numerous cross-selling opportunities are being realised, for example to pharma companies and to integrated cement plant customers, and together with a more value-based approach to providing customer solutions, the combined business has continued to make good progress during the period. In addition, we have already identified several cross-selling opportunities with Concept Life Sciences, for example leveraging our relationships with major global pharmaceutical companies to provide a combination of our high-quality instrumentation, services and expertise.

We announced in April that Brüel & Kjær Sound & Vibration ('BKSV') and HBM, the two largest operating companies within our Test and Measurement segment, will also be merging. This will create a new business, HBK, which leverages the strengths and complementary expertise of BKSV and HBM across the measurement chain to enhance our customer proposition. The new management team, appointed from across both businesses, is now in place and integration preparation activities are underway.

Automotive is a key end-market focus for us and our solutions offering is based on our applications
know-how in four key areas - durability, propulsion, safety and refinement. A key customer programme win in the first half of the year was a project which will involve the installation of 12 battery test cells at Millbrook's proving ground to test battery packs for a leading automotive customer. The project incorporates key control software and test hardware from HBM and BKSV, as well as from Millbrook itself.

In the area of digital-led customer applications, a number of our operating companies have been enhancing their industrial internet of things ('IIoT') focused offerings. For example, Omega has seen continued success for its Enterprise Gateway software, designed to help customers gain optimal control and insight into their processes, and Red Lion's new generation of human machine interface products with enhanced functionality has led to a number of notable orders this year.

In January, we established our new digital solutions brand, Spectris Advance, showcasing our IIoT capabilities in specific end markets. Spectris Advance combines our instrumentation, connectivity and analytics expertise from across the Group with our deep end-market and domain knowledge to offer a greatly extended capability in asset and process monitoring and optimisation. This allows for more
cross-group solutions to serve our customers' needs.

We completed the set-up of the joint venture with Macquarie Capital for the EMS B&K environmental monitoring business. Together with Macquarie's management experience, know-how and ownership in infrastructure and industrial assets, the venture will expand its environmental services offering, building on its
cloud-based remote monitoring platform. The business will also benefit from accelerated investment which will help create additional solutions and services that enable asset owners to monitor and manage their resources more effectively.

Project Uplift

Project Uplift further supports our customer-focused solutions strategy, freeing up resources to facilitate the delivery of our strategy by capitalising on cross-group opportunities and making it easier for our customers to do business with us.

The initiatives are progressing as planned with a number of projects delivered during the first half; for example, we have consolidated some of our common expenditure, transitioning to new suppliers for both indirect procurement such as travel and expense as well as direct spend for a number of key product categories. In the first half of 2018, costs of £4.7 million and gross recurring benefits of £3.2 million for this phase of the project were in line with expectations and we are on track for a net benefit of £3 million for the full year.

Work continues on the detailed validation and design phase for the shared service centre programme, with further detail to be provided in the second half of the year. Costs of £3-4 million related to this work will be incurred during 2018, with £2.0 million recorded in the first half.

Management

In May, it was announced that John O'Higgins had informed the Board of his intention to step down in the course of the next twelve months. John will remain as Chief Executive until a replacement is in place and the process to recruit his successor is underway.

Summary and outlook

Our performance in the first half of the year reflects good demand in our end markets, particularly in the automotive and pharmaceutical industries where we have made key strategic moves in the past two years. We are pleased to see 5% organic sales growth although we continue to expect that pace to ease a little in the second half, given the tougher comparator with 2017. Overall, our expectations for the full year remain unchanged.

In line with our strategy, the Group continues to expand its services and software capabilities and
know-how. We will continue to target acquisitions to supplement these skills and expertise. In addition, our operating companies are increasingly working closer together and this positions us to continue to deliver enhanced value to our customers.

FINANCIAL REVIEW

Introduction

Spectris uses alternative performance measures in addition to those reported under IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Alternative measures exclude certain non-operational items which management has defined in Note 2 to the Condensed Financial Statements. A reconciliation of reported and adjusted measures is provided in
Note 2 to the Condensed Financial Statements.

Operating performance

Reported sales increased by 3% to £728.0 million (H1 2017: £710.0 million) in the first six months. Growth from acquisitions, net of disposals, contributed £6.5 million and LFL sales increased by £35.9 million (5%). Adverse foreign exchange movements reduced sales by £24.4 million.

In the first half of 2018, reported operating profit increased by 8% to £45.5 million from £42.1 million in the comparable period whilst reported operating margins of 6.3% were 0.4pp higher.

Adjusted operating profit increased by £4.0 million (6%) to £70.5 million for the period. This increase was driven by LFL adjusted operating profit before Project Uplift costs increasing by £6.6 million (9%) and a net decrease in Project Uplift costs amounting to £2.6 million; whilst disposals, net of acquisitions, reduced adjusted operating profit by £3.6 million and foreign exchange movements led to a reduction of £1.6 million. One-off Project Uplift costs of £6.7 million were incurred in the first half of 2018.

Adjusted operating margins improved by 0.3pp, with LFL operating margins before Project Uplift costs up by 0.4pp. LFL gross margins increased by 0.5pp to 56.1%, with improvements in gross margin in the Industrial Controls, Materials Analysis and In-line Instrumentation segments, partly offset by a weaker gross margin in the Test and Measurement segment, reflecting adverse product mix. LFL overheads were up 5.6%, reflecting increased headcount and inflation combined with the costs of implementation of strategic initiatives.

Investment in our R&D programmes amounted to an expense of £51.5 million or 7.1% of sales and increased by 3% on a LFL basis (H1 2017: £52.8 million, 7.4% of sales).

Net finance costs increased by £1.4 million to £5.9 million (H1 2017: £4.5 million), with adjusted net finance costs for the period £0.4 million higher at £3.1 million (H1 2017: £2.7 million) due to higher average net debt than the comparable period.

Reported profit before tax increased from £37.6 million in the prior period to £96.6 million in 2018, which includes a profit on disposal of the EMS B&K businesses of £57.0 million. Adjusted profit before tax increased by 6% to £67.4 million. The effective adjusted tax rate for the half year was 18.7%, 2.3pp lower than the prior period. The effective adjusted tax rate for the full year is estimated at 20%.

Adjusted earnings per share increased by 9% from 42.3p to 46.1p, reflecting the net impact of the 6% increase in adjusted profit before tax, the reduction in the effective tax rate and the decrease in the weighted average number of shares from 119.2 million in H1 2017 to 119.0 million in H1 2018. Reported basic earnings per share increased from 26.8p to 74.6p.

Acquisitions

The Group completed two acquisitions during the period. The total cost of acquisitions was £175.9 million, including £2.1 million for cash acquired and £2.0 million attributable to the fair value of deferred and contingent consideration which is expected to be paid in future periods. £1.5 million was paid in respect of prior year acquisitions, making a net cash outflow of £173.3 million in the period. Furthermore, an amount of £1.7 million was spent on acquisition-related legal and professional fees, which makes the total acquisition-related cash outflow for the period £175.0 million.

Disposal and formation of joint venture

On 31 May 2018, the Group completed the disposal of EMS B&K into a joint venture with Macquarie Capital which resulted in a net cash inflow of £43.7 million. The post-tax profit on disposal was £56.6 million.

Cash flow, financing and share buyback

Adjusted operating cash flow of £48.3 million during the period was in line with expectations, with an adjusted operating cash flow conversion rate of 69% (H1 2017: 119%). Capital expenditure (net of grants) on property, plant and equipment during the period was £40.0 million (H1 2017: £24.4 million). During the period, there was a net inflow of working capital of £1.5 million (H1: 2017: net inflow of £21.8 million).

The Group finances its operations from both retained earnings and third-party borrowings, with the majority of the half-year gross debt balance being at fixed rates of interest.

During the period, net debt increased by £181.0 million (H1 2017: increase of £4.6 million) from
£50.5 million to £231.5 million. The increase in net debt in the period primarily reflected the acquisition of Concept Life Sciences in January 2018, the Group's capital expenditure and ongoing spend on the Group's £100 million share buyback programme, partly offset by proceeds from the disposal of the EMS B&K business.

Since commencement of the share buyback programme on 5 March 2018, the Group has bought back 945,982 shares for a total cost of £25.3 million and 921,799 shares were subsequently cancelled during the period.

Currency

The Group has both translational and transactional currency exposures, with a proportion of net transactional exposures for the next 12 months being hedged. Translational exposures arise on the consolidation of overseas company results into Sterling and are not hedged.

The largest translational exposures are to the US Dollar, Euro, Danish Krone, Japanese Yen and Swiss Franc. Translational exposures are not hedged. The table below shows the average and closing key exchange rates compared to Sterling.

	H1 2018 (average)	H1 2017 (average)	Change	H1 2018 (closing)	H1 2017 (closing)	Change
US Dollar	1.38	1.26	9%	1.31	1.30	1%
Euro	1.14	1.16	(2%)	1.13	1.14	(1%)
Japanese Yen	150	142	6%	146	146	0%
Swiss Franc	1.33	1.25	6%	1.31	1.24	5%

During the period, the translational foreign exchange loss on operating profit of £1.6 million
(H1 2017: gain of £6.6 million), arising from the weakness of Sterling, was partly offset by a transactional foreign exchange gain of £0.5 million (H1 2017: loss of £1.4 million).

Dividends

The Board has declared an interim dividend of 20.5 pence per share, an increase of 8% compared to the prior period.

OPERATING REVIEW

	Materials Analysis		Test and Measurement		In-line Instrumentation		Industrial Controls		Total
	H1 2018	H1 2017	H1 2018	H1 2017	H1 2018	H1 2017	H1 2018	H1 2017	H1 2018	H1 2017
Reported sales (£m)	233.9	199.5	239.8	223.2	141.8	148.4	112.5	138.9	728.0	710.0
LFL growth vs prior year (%)	11%		6%		(3%)		4%		5%
Adjusted operating profit before Project Uplift costs (£m)	28.7	23.0	17.2	23.8	11.2	8.9	20.1	20.1	77.2	75.8
LFL adjusted operating profit change before Project Uplift costs (%)	28%		(30%)		25%		30%		9%
Project Uplift costs (£m)	(1.7)	(2.5)	(1.8)	(3.4)	(1.3)	(1.5)	(1.9)	(1.9)	(6.7)	(9.3)
Adjusted operating profit (£m)	27.0	20.5	15.4	20.4	9.9	7.4	18.2	18.2	70.5	66.5
Reported operating profit (£m)	19.6	12.1	7.8	12.6	5.3	5.4	12.8	12.0	45.5	42.1
Adjusted operating margin before Project Uplift costs (%)	12.2%	11.5%	7.2%	10.7%	7.9%	6.0%	17.9%	14.5%	10.6%	10.7%
LFL adjusted operating margin change before Project Uplift costs (pp)	1.8pp		(3.6pp)		1.7pp		3.5pp		0.4pp
Adjusted operating margin (%)	11.5%	10.3%	6.4%	9.1%	7.0%	4.9%	16.2%	13.1%	9.7%	9.4%
Reported operating margin (%)	8.4%	6.1%	3.3%	5.6%	3.7%	3.6%	11.4%	8.6%	6.3%	5.9%
% of Group sales	32%	28%	33%	31%	20%	21%	15%	20%	100%	100%

MATERIALS ANALYSIS

Our Materials Analysis operating companies provide products and services 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. The segment also provides integrated drug discovery, development and analytical services.
The operating companies in this segment are Concept Life Sciences (acquired in January 2018),
Malvern Panalytical and Particle Measuring Systems ('PMS').

Segment performance

	H1 2018	H1 2017	Change	Like-for-like change
Reported sales (£m)	233.9	199.5	17%	11%
Adjusted operating profit before Project Uplift costs of £1.7m (2017: £2.5m) (£m)	28.7	23.0	25%	28%
Adjusted operating margin before Project Uplift costs (%)	12.2%	11.5%	0.7pp	1.8pp
Reported operating profit (£m)	19.6	12.1	62%
Reported operating margin (%)	8.4%	6.1%	2.3pp

Reported sales increased 17%, reflecting an 11% increase in LFL sales, a 10% contribution from the acquisition of Concept Life Sciences and a 4% negative impact from foreign currency exchange movements. Sales growth for the period was driven primarily by demand in North America and Europe.

On a LFL basis, before Project Uplift costs, adjusted operating profit increased 28% and adjusted operating margins increased by 1.8pp, reflecting operational leverage from the higher LFL sales helped by good cost control. Reported operating profit increased to £19.6 million.

In January, we acquired Concept Life Sciences, a UK-based group providing integrated drug discovery, development, analytical testing and environmental consultancy services to an international customer base, mainly in the pharmaceutical, biotechnology, agrochemical and environmental sectors. Additionally, it carries out development and analytical services for the food, consumer and environmental industries. The integration has progressed to plan and the opportunity pipeline has grown significantly since acquisition. This acquisition is a key step forward in our strategy to add services to our Materials Analysis segment where it has strong synergies with Malvern Panalytical.

Sales to the pharmaceuticals and fine chemicals industries rose strongly on a LFL basis, particularly in North America. The pharmaceutical market continues to see good underlying growth from investments in both biologics and generics and from companies in Asia adding capacity in drug development and manufacturing. In Europe, the LFL sales growth has been driven by Germany and Italy with pharmaceutical production in the latter growing notably. At PMS, there has been a continued drive to provide our high-level consulting services to both existing hardware customers and to new ones, particularly in respect of good manufacturing practice regulation and regulatory inspections. For example, customers needing to comply with US FDA regulations have purchased our advisory services to help them with solutions to avoid violations. This can also lead to opportunities for additional product sales to help them comply with such regulations.

The metals, minerals and mining sector continued the positive trajectory which began in 2017, particularly in Asia and in North America, which reversed the decline in the first half of 2017, although metals in this region are still down. The investment climate in the mining industry has improved and this is materialising in steady growth in sales on a LFL basis, with increased market activity as well as demand from a focus on safety and productivity.

After a weak 2017, sales (LFL) to academic research were back in positive territory. The dependence on government funding means that performance in this segment can be quite variable. Europe has seen a recovery, following a weak 2017 when expenditure remained subdued or delayed, and market activity has been increasing. Asia saw LFL sales growth, with good growth in China. The Chinese government has a number of initiatives and investments underway; for example, to help develop the country's technology and pharmaceutical industries, as well as establish world-class universities, and this is driving growth in funding. In North America, LFL sales increased after a weak 2017, benefiting from an increase in universities' internal funding and an improving win-rate.

Sales (LFL) to the semiconductor and electronics industry continued to grow strongly during the first half, particularly in Asia. This continues the trend we saw in 2017 as the expanding digital economy continues to drive strong markets in most locations but particularly the investments in new semiconductor fabrication plants taking place in China, South Korea and Taiwan, with a notable order in the latter from a large dedicated independent semiconductor company.

Segment outlook

The growth in pharmaceutical markets is expected to continue through the year as the key market drivers remain the investment in biopharmaceuticals and the development of generics, as well as rising demand for access to healthcare products and increasing regulatory scrutiny. We also expect to see a continuation in the trend for biopharmaceutical companies to outsource their R&D activities by partnering with contract research organisations during drug discovery to stay competitive and flexible, as well as to access specialised knowledge.

Sales into the mining sector reflected the improving market backdrop and we expect the steady growth here to continue.

We still expect growth in the academic research market to be muted and dependent on funding, although demand in China should benefit from the government initiatives.

The continued growth in semiconductor investment, driven by the growing demand for consumer electronics, IIoT applications and autonomous vehicles, underpinned the strong growth in the first half and we expect this to continue for the rest of the year.

TEST AND MEASUREMENT

Our Test and Measurement operating companies supply test, measurement, analysis and validation equipment, software and services for product design optimisation, manufacturing control and microseismic monitoring. The operating companies in this segment are Brüel & Kjær Sound & Vibration ('BKSV'),
ESG Solutions ('ESG'), HBM, Millbrook and VI-grade which was acquired in July 2018.

Segment performance

	H1 2018	H1 2017	Change	Like-for-like change¹
Reported sales (£m)	239.8	223.2	7%	6%
Adjusted operating profit before Project Uplift costs of £1.8m (2017: £3.4m) (£m)	17.2	23.8	(28%)	(30%)
Adjusted operating margin before Project Uplift costs (%)	7.2%	10.7%	(3.5pp)	(3.6pp)
Reported operating profit (£m)	7.8	12.6	(38%)
Reported operating margin (%)	3.3%	5.6%	(2.3pp)

1 The 2017 reported results reflect the contribution for the six-month period from EMS B&K. LFL results include EMS B&K for 5 months in both periods.

Reported sales increased 7%, including a 3% contribution from acquisitions, net of disposals, and a
2% negative impact from foreign currency exchange movements. LFL sales increased by 6%. By region, the growth was driven by strong demand in Europe, particularly in the UK, and in Asia.

Adjusted operating profit before Project Uplift costs decreased 30% on a LFL basis and LFL operating margins before Project Uplift costs declined by 3.6pp. The higher sales volumes and strong performances at Millbrook and ESG were more than offset by a weaker gross margin, as well as an increase in overheads at the two largest businesses in this segment which outpaced their LFL sales growth, as well as an adverse product mix at one business. The rise in overheads reflected an increase in headcount, higher than expected wage inflation, strategic hires in sales and marketing and R&D, and HBK merger-related costs. Reported operating profit decreased to £7.8 million from £12.6 million in 2017.

In April, we announced that BKSV and HBM, the two largest operating companies within this segment, will be merging their activities, with some one-off merger-related costs being incurred in 2018. This will create a new business, HBK (Hottinger, Brüel & Kjær), which leverages the strengths and complementary expertise of the two companies across the measurement chain to enhance our customer proposition.

At the end of May, we completed the disposal of EMS Brüel & Kjær into a joint venture with
Macquarie Capital for a net cash consideration of £43.7 million. The business will now benefit from accelerated investment which will help create additional solutions and services that enable asset owners to monitor and manage their resources more effectively.

Within the automotive sector, LFL sales increased notably in the first half in both Asia and Europe. Sales grew strongly in China where we continue to benefit from our strength in torque sensors, driven by investment in electrical drivetrains, and in the UK, driven by the expansion of our testing capacity at Millbrook. So far this year, additional indoor testing capacity came into commercial use at Test World in Finland in April, with further facilities expected to be in operation later in 2018. We also expanded our capacity and capability through the acquisition of Revolutionary Engineering, Inc., an automotive test system and service provider headquartered near Detroit, Michigan, in the USA, with a presence in China and Germany. It specialises in driveline test services and solutions and is a recognised leader in the testing of
e-motors and hybrid drivelines, in particular. The acquisition is an important step in Millbrook's strategy to extend its reach into new geographies, and further expands its capacity and capabilities in testing propulsion systems, including the testing of batteries, inverters and e-motors.

In machine manufacturing, a significant portion of which represents sales into the automotive supply chain, LFL sales were up marginally year-on-year. A major demand driver also comes from load cells and OEM sensors, both of which are embedded in customer machines in various applications such as scales and processing equipment.

In the aerospace and defence sector, after a very strong 2017, LFL sales were flat year-on-year, reflecting the lumpier nature of sales in this programme-based industry. There have also been some delays from customers; however, our pipeline remains strong and the reorganised sales team and key account programme is delivering new sales opportunities, particularly for our vibration test systems with spacecraft and satellite customers.

Sales (LFL) to our consumer electronics and telecoms customers decreased slightly in the first half, with sales to telecoms customers up and to electronics customers overall slightly down. China continued to show good growth for both markets as a result of our work with a number of mobile phone manufacturers, who are increasingly focusing on audio quality as smartphones become the main listening device. Demand is being driven by continued growth of devices such as mobile phones, tablets, and speakers, which keep pushing the boundaries of design and must incorporate ever-more impressive capabilities and still deliver the high quality sound that buyers expect.

The healthier environment in the oil and gas and mining markets saw LFL sales increase in these end markets. This has been driven by the increase in hydraulic fracturing activity in North America as well as the fact that completions are becoming more complex and diagnostic tools are therefore becoming more important, with operators now proactively seeking solutions to monitor microseismicity and extract greater insights from it in their operations. ESG continues to work more closely with its customers for
productivity-enhancing solutions. New areas of opportunity include combining its proprietary dynamic parameter analysis with reservoir engineering workflows to offer high resolution diagnostics along the wellbore (FRACMAP® Clarity). In mining, new opportunity areas include providing semi real time rock analysis and reporting to better inform production constraints and improve safety.

Segment outlook

We expect the increase in automotive sales to continue into the second half as the growth in hybrid and electric vehicles continues to drive demand for our market-leading torque and eDrive solutions and test services. Growth will also be driven by the new capacity coming onstream at Millbrook.

In aerospace, overall demand will be driven by new development programmes which means sales are lumpier into this end market and while our pipeline remains strong, the ability to convert these into orders will be key.

The underlying trends in the consumer electronics market will remain healthy in our view, with strong consumer demand for mobile devices, audio quality and innovative features, particularly in China and India.

Demand for our microseismic solutions has benefited from the improving market conditions in the oil and gas industry, and we expect that to continue into the second half.

IN-LINE INSTRUMENTATION

Our In-line Instrumentation operating companies provide process analytical measurement, asset monitoring and on-line controls as well as associated consumables and services for both primary processing and the converting industries. The operating companies in this segment are Brüel & Kjær Vibro, BTG,
NDC Technologies ('NDCT') and Servomex.

Segment performance

	H1 2018	H1 2017	Change	Like-for-like change
Reported sales (£m)	141.8	148.4	(4%)	(3%)
Adjusted operating profit before Project Uplift costs of £1.3m (2017: £1.5m) (£m)	11.2	8.9	26%	25%
Adjusted operating margin before Project Uplift costs (%)	7.9%	6.0%	1.9pp	1.7pp
Reported operating profit (£m)	5.3	5.4	(2%)
Reported operating margin (%)	3.7%	3.6%	0.1pp

Reported sales declined 4%, reflecting a 3% LFL sales decrease, a 3% negative impact from foreign currency exchange movements and a 1% contribution from acquisitions. The LFL sales decline reflected a tough comparator in the first half of 2017 and the prevalence of project sales in this segment which are lumpier in nature. On a regional basis, LFL sales were down in North America and Europe and up in Asia.

Excluding Project Uplift costs, LFL adjusted operating profit increased 25% and LFL adjusted operating margins were 1.7pp higher year-on-year. The decline in sales was offset by an improvement in gross margin and lower overheads, with the 2017 results reflecting certain one-off costs which were not repeated this year. Reported operating profit decreased slightly, from £5.4 million to £5.3 million.

In the pulp, paper and tissue markets, LFL sales increased marginally overall compared with 2017, although grew notably in China. In graphic and coated paper markets, we continue to see mill closures and pressure on price, particularly in Asia with low-cost competitors. As a result, we continue to diversify towards the tissue, pulp and packaging markets, including digital solutions to meet 'mill-of-the-future' needs. We also continue to drive our Process Solutions business unit to capture projects incorporating instruments and advanced process control software to help manufacturers achieve gains in productivity and business performance. In order to partner more closely with our customers, a number of projects are now based on the 'pay from performance' model, whereby gains in business performance are shared with the customer.

In the energy and utilities market, LFL sales increased, with growth in European and Asian sales but a decline in North America. Both the industrial gases business and the hydrocarbon processing sector continue to recover globally and the re-alignment of our sales teams to our key end markets is helping capitalise on this. During the first half, we launched the advanced Servopro 4900 Multigas which delivers
multi-gas monitoring designed specifically for the continuous emissions monitoring of flue gas. This product is ideal for air pollutant and greenhouse gas monitoring as emissions standards become more demanding and we have already secured our first orders from a major multi-national energy company for their refineries and chemical plants in the UK, Europe and Saudi Arabia.

In the wind energy sector, we have seen lower LFL sales due to a tough comparator in the first half of 2017 when we had exceptionally high, non-repeatable sales to a wind turbine manufacturer. In May, we achieved a significant milestone, delivering the 20,000^th condition monitoring system. We have also introduced the next generation of our condition monitoring unit, DDAU3, which has increased functionality, such as IIoT connectivity and improved diagnostic capabilities, plus a 50% smaller footprint than the prior version.
We are expanding our reach to secure other turbine manufacturers and widening our scope to wind farm owners and operators, where we can help them reduce downtime and overall life-cycle costs of their wind turbines, and continue to add new customers in both areas. As part of establishing and leveraging strong relationships and brand loyalty with owner and operator customers, we have succeeded in turning around contracts where the manufacturer would have provided their own solution and will now be providing ours instead. We are also looking to expand our condition monitoring as a service business with additional technologies and extend the average length of contracts to generate a more recurring revenue stream for the business.

In our other end markets, sales (LFL) to web and converting industries were down marginally year-on-year. In the film extrusion and converting segment, we have seen demand softness in all regions outside Asia, in particular in the Americas where we have seen fewer upgrades compared with last year, driven by key customers delaying projects to focus on consolidating production lines. The impact of this market weakness has been partly offset by the benefits from last year's restructuring activities at NDCT where we transferred the manufacturing and administrative functions from California into the Ohio facility and the California facility became the new film extrusion and converting solutions technical centre of excellence, all of which have now been completed.

An important development and opportunity has been our collaborative work on lithium-ion batteries. Strong consumer demand for electronic devices and the growing popularity of electric vehicles has resulted in increasing interest in battery solutions and we had a notable win in this area with a battery manufacturer in Taiwan by developing a differentiated offer that builds on our existing proven measurement solutions for battery production. This includes high-accuracy thickness and profile measurements of the battery electrolyte coating at three distinct stages in the process.

Segment outlook

The mix in our pulp, paper and tissue business is expected to continue to improve during 2018 with our new focus on complete solutions, resulting in growth at modest rates.

With an improved environment in global oil and gas markets, we expect growth from the energy and utilities sector to continue through 2018. We also expect to continue to benefit from increased investment in the wind power industry.

The demand softness we have seen in the film extrusion and converting segment is likely to continue into the second half and we will continue to look at cost containment measures to offset this. In the medium term, however, opportunities in the film extrusion, web converting, cable and tube and food and bulk materials markets are expected to increase as customers develop new products which require advanced
in-line measurement solutions.

INDUSTRIAL CONTROLS

Industrial Controls operating companies provide products and solutions that measure, monitor, control and inform during the production process. The operating companies in this segment are Omega Engineering ('Omega') and Red Lion Controls ('Red Lion'). Microscan was divested in October 2017.

Segment performance

	H1 2018	H1 2017	Change	Like-for-like change¹
Reported sales (£m)	112.5	138.9	(19%)	4%
Adjusted operating profit before Project Uplift costs of £1.9m (2017: £1.9m) (£m)	20.1	20.1	0%	30%
Adjusted operating margin before Project Uplift costs (%)	17.9%	14.5%	3.4pp	3.5pp
Reported operating profit (£m)	12.8	12.0	7%
Reported operating margin (%)	11.4%	8.6%	2.8pp

1 The 2017 reported results reflect the contribution for the six-month period from Microscan. LFL results do not include any trading by Microscan in either period.

Reported sales decreased by 19%, primarily reflecting the disposal of Microscan in 2017. LFL sales increased by 4% and there was a negative impact of 7% from foreign currency exchange movements. This segment has a high exposure to North America (c.70%), and this region saw higher LFL sales, a continuation of the improving trend in the second half of 2017. Elsewhere, Asia recorded particularly strong LFL sales growth, especially at Omega. In Europe, LFL sales were lower.

Adjusted operating profit (LFL) before Project Uplift costs increased by 30% and LFL operating margins before Project Uplift costs improved by 3.5pp, following the improvement in gross margin at Omega as well as the effects of operating leverage. This reflected improved pricing and lower overheads. The results reflect a restructuring charge of £1.0 million at Omega (2017: £2.1 million). Reported operating profit increased 7% to £12.8 million.

At Omega, the better year-on-year results reflect the impact of operational improvements being made and our enhanced digital marketing campaigns. Omega's expansion into markets outside the USA continued and sales growth was particularly strong in China. Significant orders were also received from semiconductor and electronics manufacturers in Japan and Taiwan, reflecting the notable growth in these industries.

A focus on lean manufacturing initiatives continued to drive process and productivity enhancements and we held a Kaizen workshop at Omega in March which has delivered some early benefits. This was attended by representatives from eight operating companies who participated to help drive improvements in orders processing, the assembly and dispatch of orders and in feeder cell processes, as well as take lessons learned back to their businesses. For example, average daily throughput for one product doubled following recommendations on improving product cycle flow and the product cycle time for one product family was reduced by almost 50% with additional steps to further reduce it being identified and now implemented.

The increasing emphasis on industrial connectivity and IIoT from our customers is generating opportunities for both Omega and Red Lion. Omega has seen continued success for its Enterprise Gateway software, designed to help customers gain optimal control and insight into their processes. This software is a bridge between Omega's sensors and other devices, providing seamless integration into the customer's existing infrastructure and enabling data to be logged and monitored in real time from any location via a mobile or tablet. In many environment sensing applications, such as building temperature and humidity monitoring, the Omega Enterprise Gateway is able to provide the real-time monitoring, alarms, notifications, archiving, and analytics that are required in these applications.

Red Lion continued to focus on creating more awareness in the IIoT space and repositioning the company as a global industrial connectivity solution provider in response to demand from customers seeking to gain competitive advantage by connecting multiple devices to improve efficiency across their organisation. Reflecting this, it has been named a 'First Team Supplier' by the readers of Automation World magazine for the seventh consecutive year, with honours in six categories which recognise companies with best-in-class product innovation and superior customer service in industrial automation. Red Lion's IIoT-ready solutions take advantage of visual management, remote monitoring and industrial Ethernet technologies to help customers connect from mobile devices any time anywhere. With more and more organisations deploying critical assets in the field, the ability to remotely monitor data is an important component for effective IIoT implementation.

Red Lion's strategic focus on the key vertical markets of factory automation, water and wastewater, transportation and energy continued to deliver results and orders included further solutions for water plants in China and Saudi Arabia, a factory automation project in China, and an airport perimeter monitoring system in China.

Segment outlook

The performance of this segment will continue to depend on US industrial markets. Order visibility in this segment is lower than in the other segments; however, we expect the positive momentum in the first half to continue throughout the rest of the year.

At Omega, the restructuring activities, organisational changes and enhanced marketing approach are producing better results and we expect this improvement to continue into the second half of 2018, with lean initiatives continuing to drive process efficiencies.

We will continue to implement our Spectris Advance strategy to provide digital monitoring and optimisation solutions. These solutions are applicable across our industrial markets and customers can benefit from our deep applications knowledge as we apply our process, applications and products expertise to address the most challenging industrial optimisation problems.

Principal Risks and Uncertainties

A number of potential risks and uncertainties exist which could have a material impact on the Group's performance over the second half of the financial year and could cause actual results to differ materially from expected and historical results.

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 on pages 33-38 of the 2017 Annual Report and Accounts which is available on the Group's website at www.spectris.com. The Group has reviewed these risks and concluded that they will continue to remain relevant for the second half of the financial year. 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 2017 Annual Report.

The full list of risks relevant as at the half year comprises:

- New product development

- Intellectual property

- Laws and regulations

- Political and economic risks

- Acquisitions

- Competitive activity

- Fluctuations in exchange rates

- Supply chain dependencies and disruption

- Information security

- Strategy execution

- People

The Group continues to monitor and control its exposure to those countries where continuing economic uncertainties exist and, in particular, the implications on the Group of the UK leaving the European Union ('Brexit') as well as the general increase in protectionist sentiment between major economies and trading blocs. The broad spread of markets in which we operate substantially limits the risk associated with instability in any given territory.

Brexit

Despite having acquired another UK-headquartered operating company (Concept Life Sciences) during the first half of 2018, there is no change of note in the Group's exposure to 'Brexit'.

As far as potential trading exposures are concerned, exports from the UK into the European Union continue to represent a relatively modest proportion of Group sales (approximately 3.3%), whilst imports into the UK from the European Union represent less than 1% of Group sales. Our cost base in the UK remains largely Sterling denominated.

In respect of potential currency and funding implications for the Group arising from Brexit, we do not see any significant level of exposure. If Sterling remains weak, this would improve the Group's reported results (income statement and cash flow) and should make our UK exports more competitive, but conversely make imports and overseas supplies more expensive for our UK operations and customers. We believe that the net effect is expected to be broadly neutral to the Group. With regards to funding, the Group currently has limited borrowings and they are predominately Euro denominated.

As a consequence, it is believed that Brexit continues to present only limited short-term direct impact for the Group. The main near-term risk for the Group arising from Brexit stems from broader uncertainty which could inhibit investment and increase market volatility, ultimately hindering growth in the UK and beyond.
A Brexit Risk Committee has been established and an evaluation of the potential costs of moving to World Trade Organization rules has been performed. The impact on the Group is not expected to be significant and there are a number of mitigating actions which can be undertaken. The Group will continue to monitor carefully any additional exposure arising as the full implications of Brexit become clearer.

Protectionist sentiment and increased tariffs

It is recognised that there has been an increase in protectionist sentiment between the major economies and trading blocs and particularly between the US and China.

The Group is monitoring developments closely in order to ensure that we understand and anticipate the potential impact to the Group of any escalation in this area. We are also actively looking at opportunities to mitigate the impact where possible.

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 2017 Annual Report and Accounts.

By order of the Board

John O'Higgins Clive Watson

Chief Executive Group Finance Director

23 July 2018

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 2018 which comprises the Consolidated Income Statement, the Consolidated Statement of Financial Position, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and related notes 1 to 13. 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 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 Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review 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 formed.

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 Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the Annual Financial Statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

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 Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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 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 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

Reading, UK

23 July 2018

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

For the six months ended 30 June 2018

			2018	2017	2017
		Half year		Half year	Full year
Continuing operations	Note	£m		£m	£m

Revenue	3	728.0		710.0	1,525.6
Cost of sales		(319.9)		(311.9)	(658.1)
Gross profit		408.1		398.1	867.5

Indirect production and engineering expenses		(58.0)		(57.6)	(116.8)
Sales and marketing expenses		(175.5)		(178.6)	(336.4)
Administrative expenses		(129.1)		(119.8)	(231.9)
Adjusted operating profit	2	70.5		66.5	223.5
Net acquisition-related costs and fair value adjustments	2	(5.8)		(1.7)	(0.4)
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	2	(0.4)		(0.4)	(0.7)
Amortisation of acquisition-related intangible assets	2	(18.8)		(22.3)	(41.9)
Bargain purchase on acquisition	2	-		-	1.9
Operating profit	2,3	45.5		42.1	182.4

Profit on disposal of business	11	57.0		-	100.5
Financial income	4	0.3		0.2	1.9
Finance costs	4	(6.2)		(4.7)	(6.4)
Profit before tax		96.6		37.6	278.4

Taxation charge	5	(7.8)		(5.7)	(43.6)
Profit after tax for the period from continuing operations attributable to owners of the Parent Company		88.8		31.9	234.8

Basic earnings per share	7	74.6p		26.8p	197.0p
Diluted earnings per share	7	74.2p		26.7p	196.1p

Interim and final dividends paid/proposed for the period (per share)	6	20.5p		19.0p	56.5p
Dividends paid during the period (per share)	6	37.5p		34.0p	53.0p

ConDENSED Consolidated statement OF COMPREHENSIVE INCOME (UNAUDITED)

For the six months ended 30 June 2018

	2018	2017	2017
	Half year	Half year	Full year
	£m	£m	£m
Profit for the period attributable to owners of the Parent Company	88.8	31.9	234.8
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit obligation, net of foreign exchange	(2.3)	4.8	5.9
Tax on items above	0.4	(1.0)	(1.4)
	(1.9)	3.8	4.5
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 on cash flow hedges	(2.2)	3.8	4.0
Foreign exchange movements on translation of overseas operations	7.2	(20.3)	(44.7)
Currency translation differences transferred to profit on disposal of business	(5.1)	-	(4.4)
Tax on items above	0.3	(0.7)	(0.7)
	0.2	(17.2)	(45.8)
Total comprehensive income for the period attributable to owners of the Parent Company	87.1	18.5	193.5

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For the six months ended 30 June 2018

		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
At 1 January 2018	6.2		231.4	820.8	144.3	(2.0)	3.1	0.3	1,204.1
Adoption of IFRS 9 and IFRS 15		-	-	(19.8)	-	-	-	-	(19.8)
At 1 January 2018 (restated)		6.2	231.4	801.0	144.3	(2.0)	3.1	0.3	1,184.3
Profit for the period		-	-	88.8	-	-	-	-	88.8
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax		-	-	-	-	(1.9)	-	-	(1.9)
Foreign exchange movements on translation of overseas operations		-	-	-	7.2	-	-	-	7.2
Foreign exchange gain on disposal of business taken to Consolidated Income Statement		-	-	-	(5.1)	-	-	-	(5.1)
Re-measurement of net defined benefit obligation, net of foreign exchange and tax		-	-	(1.9)	-	-	-	-	(1.9)
Total comprehensive income for the period		-	-	86.9	2.1	(1.9)	-	-	87.1
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company		-	-	(44.5)	-	-	-	-	(44.5)
Share buyback		-	-	(100.0)	-	-	-	-	(100.0)
Share-based payments, net of tax		-	-	4.8	-	-	-	-	4.8
Utilisation of treasury shares		-	-	0.1	-	-	-	-	0.1
At 30 June 2018		6.2	231.4	748.3	146.4	(3.9)	3.1	0.3	1,131.8

For the six months ended 30 June 2017
	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
At 1 January 2017	6.2	231.4	638.3	193.4	(5.3)	3.1	0.3	1,067.4
Profit for the period	-	-	31.9	-	-	-	-	31.9
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	3.1	-	-	3.1
Foreign exchange movements on translation of overseas operations	-	-	-	(20.3)	-	-	-	(20.3)
Re-measurement of net defined benefit obligation, net of foreign exchange and tax	-	-	3.8	-	-	-	-	3.8
Total comprehensive income for the period	-	-	35.7	(20.3)	3.1	-	-	18.5
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(40.5)	-	-	-	-	(40.5)
Share-based payments, net of tax	-	-	2.2	-	-	-	-	2.2
Utilisation of treasury shares	-	-	0.1	-	-	-	-	0.1
At 30 June 2017	6.2	231.4	635.8	173.1	(2.2)	3.1	0.3	1,047.7

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) CONTINUED
For the year ended 31 December 2017
	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
At 1 January 2017	6.2	231.4	638.3	193.4	(5.3)	3.1	0.3	1,067.4
Profit for the year	-	-	234.8	-	-	-	-	234.8
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	3.3	-	-	3.3
Foreign exchange movements on translation of overseas operations	-	-	-	(44.7)	-	-	-	(44.7)
Foreign exchange gain on disposal of business taken to Consolidated Income Statement	-	-	-	(4.4)	-	-	-	(4.4)
Re-measurement of net defined benefit obligation, net of foreign exchange and tax	-	-	4.5	-	-	-	-	4.5
Total comprehensive income for the year	-	-	239.3	(49.1)	3.3	-	-	193.5
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(63.2)	-	-	-	-	(63.2)
Share-based payments, net of tax	-	-	5.9	-	-	-	-	5.9
Utilisation of treasury shares	-	-	0.5	-	-	-	-	0.5
At 31 December 2017	6.2	231.4	820.8	144.3	(2.0)	3.1	0.3	1,204.1

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

At 30 June 2018


	2018	2017	2017
	Half year	Half year	Full year
	£m	£m	£m
ASSETS
Non-current assets
Intangible assets:
Goodwill	742.1	652.5	627.5
Other intangible assets	258.5	218.5	209.9
	1,000.6	871.0	837.4
Property, plant and equipment	308.5	250.8	275.8
Investment in joint venture	6.0	-	-
Other receivable - joint venture	38.4	-	-
Deferred tax assets	10.5	13.4	10.5
	1,364.0	1,135.2	1,123.7
Current assets
Inventories	212.8	195.1	176.0
Current tax assets	3.5	2.4	3.5
Trade and other receivables	311.9	274.5	323.9
Derivative financial instruments	-	0.4	1.4
Cash and cash equivalents	58.0	61.2	137.9
	586.2	533.6	642.7
Assets held for sale	-	-	32.5
Total assets	1,950.2	1,668.8	1,798.9
LIABILITIES
Current liabilities
Borrowings	(30.0)	(31.4)	(1.3)
Derivative financial instruments	(2.0)	-	(0.5)
Trade and other payables	(395.9)	(257.0)	(272.5)
Current tax liabilities	(19.3)	(30.0)	(23.6)
Provisions	(26.9)	(22.4)	(25.2)
	(474.1)	(340.8)	(323.1)
Net current assets	112.1	192.8	319.6
Non-current liabilities
Borrowings	(259.5)	(185.3)	(187.2)
Other payables	(27.1)	(28.6)	(20.7)
Retirement benefit obligations	(36.8)	(36.2)	(34.0)
Deferred tax liabilities	(20.9)	(30.2)	(25.0)
	(344.3)	(280.3)	(266.9)
Liabilities directly associated with the assets held for sale	-	-	(4.8)
Total liabilities	(818.4)	(621.1)	(594.8)
Net assets	1,131.8	1,047.7	1,204.1
EQUITY
Share capital	6.2	6.2	6.2
Share premium	231.4	231.4	231.4
Retained earnings	748.3	635.8	820.8
Translation reserve	146.4	173.1	144.3
Hedging reserve	(3.9)	(2.2)	(2.0)
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	1,131.8	1,047.7	1,204.1

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

For the six months ended 30 June 2018


	2018 Half year		2017 Half year	2017 Full year
	Note	£m	£m	£m
Cash generated from operations	8	82.9	102.1	237.6
Net income taxes paid		(19.9)	(23.1)	(47.0)
Net cash inflow from operating activities		63.0	79.0	190.6
Cash flows from investing activities
Purchase of property, plant and equipment and software		(42.6)	(24.4)	(74.3)
Proceeds from disposal of property, plant and equipment and software		3.7	0.2	0.5
Acquisition of businesses, net of cash acquired		(173.3)	(12.6)	(36.5)
Proceeds from disposal of business, net of tax paid of nil (2017: £19.0m)		43.7	-	91.9
Loan to joint venture		(2.3)	-	-
Proceeds from government grants		2.6	-	1.2
Interest received		0.3	0.2	0.6
Net cash flows used in investing activities		(167.9)	(36.6)	(16.6)
Cash flows from financing activities
Interest paid		(2.7)	(2.2)	(4.7)
Dividends paid		(44.5)	(40.5)	(63.2)
Proceeds from exercise of share options		0.1	0.1	0.5
Share buyback		(25.3)	-	-
Proceeds from borrowings		90.1	-	-
Repayment of borrowings		-	(41.0)	(41.0)
Net cash flows received/(used) in financing activities		17.7	(83.6)	(108.4)

Net (decrease)/increase in cash and cash equivalents		(87.2)	(41.2)	65.6
Cash and cash equivalents at beginning of period		136.7	71.2	71.2
Effect of foreign exchange rate changes		(4.0)	(0.2)	(0.1)
Cash and cash equivalents at end of period		45.5	29.8	136.7



Reconciliation of changes in cash and cash equivalents to movements in net debt		2018 Half year £m	2017 Half year £m	2017 Full year £m
Net (decrease)/increase in cash and cash equivalents		(87.2)	(41.2)	65.6
Proceeds from borrowings		(90.1)	-	-
Repayment of borrowings		-	41.0	41.0
Effect of foreign exchange rate changes		(3.7)	(4.4)	(6.2)
Movement in net debt		(181.0)	(4.6)	100.4
Net debt at start of period		(50.5)	(150.9)	(150.9)
Net debt at end of period		(231.5)	(155.5)	(50.5)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation and accounting policies

a) Basis of accounting

The Condensed Consolidated Interim Financial Statements of the Company for the six months ended
30 June 2018 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 2017 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 2017.

The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2018 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 2017 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 of the Group for the year ended 31 December 2017.

These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on
23 July 2018.

b) Going concern

Having made enquiries and reviewed the Group's plans and available financial resources, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these Condensed Consolidated Interim Financial Statements. There are no key sensitivities in relation to this conclusion.

c) Seasonality of operations

The Group's financial results and cash flows have, historically, been subject to seasonal trends between the first and second half of the financial year. Traditionally, the second half of the financial year sees higher revenue and profitability. There is no assurance that this trend will continue in the future.

d) Principal accounting policies

The accounting policies applied by the Group in these Condensed Interim Financial Statements are the same as those applied by the Group in the Consolidated Financial Statements for the Group for the year ended 31 December 2017, with the exception of the following:

i) Adoption of IFRS 9 'Financial Instruments'

The Group adopted IFRS 9 on 1 January 2018. IFRS 9 provides a new impairment model for financial assets, which requires the recognition of impairment provisions based on expected credit losses rather than incurred credit losses as is the case under IAS 39. The Group has applied the simplified approach and recorded impairment provisions on the basis of lifetime expected losses on all trade receivables. The impact on adoption of IFRS 9 was an increase in retained earnings of £1.8 million, net of tax.

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation and accounting policies (continued)

d) Principal accounting policies (continued)

ii) Adoption of IFRS 15 'Revenue from Contracts with Customers'

The Group adopted IFRS 15 using the modified retrospective approach on 1 January 2018. Comparative information has not been restated. IFRS 15 provides a single, principles-based, five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers, and it replaces the separate model for goods and services of IAS 18 'Revenue'. The impact on adoption of IFRS 15 was a decrease in retained earnings of £21.6 million, net of tax and an increase in deferred income of £40.6 million.

The Group will adopt IFRS 16 'Leases' on 1 January 2019. IFRS 16 provides a single model for leases which recognises a right of use asset and lease liability for all leases which are longer than one year or which are not classified as low value. The most significant impact will be that the Group's land, buildings and car leases will be recognised on the balance sheet. The Group has completed initial impact assessments and anticipates adopting the modified retrospective approach permitted under IFRS 16 with no restatement of comparative information.

2. Alternative performance measures

Policy

Spectris uses adjusted figures as key performance measures in addition to those reported under IFRS, as management believe these measures enable management and stakeholders to assess the underlying trading performance of the businesses as they exclude certain non-operational items, foreign exchange movements and the impact of acquisitions and disposals.

The adjusted performance measures ('APMs') are consistent with how the businesses performance is planned and reported within the internal management reporting to the Board and Operating Committees. Some of these measures are used for the purpose of setting remuneration targets. The key APMs that the Group use include like-for-like ('LFL') organic performance measures and adjusted measures for the income statement together with adjusted financial position and cash flow measures. Explanations of how they are calculated and how they are reconciled to an IFRS statutory measure are set out below.

Adjusted measures

The Group's policy is to exclude items that are considered to be significant in nature and/or quantum and where treatment as an adjusted item provides stakeholders with additional useful information to assess the period-on-period trading performance of the Group. On this basis adjusted figures exclude certain non-operational items that are predominantly acquisition- or disposal-related items which management have defined as:

- Amortisation and impairment of acquisition-related goodwill and other intangible assets;

- Bargain purchase on acquisition;

- Depreciation of acquisition-related fair value adjustments to property, plant and equipment;

- Acquisition-related costs, deferred and contingent consideration fair value adjustments;

- Profits or losses on termination or disposal of businesses;

- Unwinding of the discount factor on deferred and contingent consideration;

- Unrealised changes in the fair value of financial instruments;

- Gains or losses on retranslation of short-term inter-company loan balances; and

- Related tax effects on the above and other tax items which do not form part of the underlying tax rate (see Note 5).

LFL measures

The Board reviews and compares current and prior period segmental sales and adjusted profit at constant exchange rates and excludes the impact of acquisitions and disposals during the period. In addition, Project Uplift programme implementation costs are excluded from adjusted profit to better reflect year-on-year operating performance.

The constant exchange rate comparison uses the current period reported segmental information, stated in each entity's functional currency, and translates the results into its presentation currency using prior periods' monthly exchange rates, irrespective of the underlying transactional currency.

Within the In-line Instrumentation segment, the BTG business has large functional currency mismatches against its underlying transaction currencies which distort LFL comparison at times of significant currency movements. Accordingly, we have modified the basis on which BTG's LFL results are translated into Sterling by using the actual underlying transaction currency mix for determining transactional gains/losses to provide more accurate and reliable information on BTG's underlying performance.

The incremental impact of business acquisitions is excluded for the first twelve months of ownership from the month of purchase. For business disposals, comparative figures for segmental sales and adjusted operating profit are adjusted to reflect the comparable periods of ownership.

The LFL measure is presented as a means of eliminating the effects of exchange rate fluctuations on the period-on-period reported results as well as allowing the Board to assess the underlying trading performance of the businesses on a LFL basis for both sales and operating profit. Based on the above policy, the adjusted performance measures are derived from the reported figures as follows:

Income statement measures

a) LFL and adjusted sales by segment

	Materials Analysis	Test and Measurement	In-line Instrumentation	Industrial Controls	2018 Half year Total
Sales by segment	£m	£m	£m	£m	£m
Reported sales	233.9	239.8	141.8	112.5	728.0
Constant exchange rate adjustment	7.5	3.8	4.5	8.6	24.4
Acquisitions	(19.9)	(9.4)	(1.7)	-	(31.0)
LFL adjusted sales	221.5	234.2	144.6	121.1	721.4

					2017
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Sales by segment	£m	£m	£m	£m	£m
Reported sales	199.5	223.2	148.4	138.9	710.0
Disposal of businesses	-	(2.1)	-	(22.4)	(24.5)
LFL adjusted sales	199.5	221.1	148.4	116.5	685.5

b) LFL and adjusted operating profit by segment and EBITDA

					2018
	Materials	Test and	In-line	Industrial	Half year
Adjusted operating profit by segment	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment	£m	£m	£m	£m	£m
Reported operating profit	19.6	7.8	5.3	12.8	45.5
Net acquisition-related costs and fair value adjustments	0.5	1.7	3.5	0.1	5.8
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.1	0.3	-	-	0.4
Amortisation of acquisition-related intangible assets	6.8	5.6	1.1	5.3	18.8
Adjusted operating profit	27.0	15.4	9.9	18.2	70.5
Project Uplift costs	1.7	1.8	1.3	1.9	6.7
Adjusted operating profit before Project Uplift costs	28.7	17.2	11.2	20.1	77.2
Constant exchange rate adjustment	0.7	(0.5)	(0.3)	1.7	1.6
Acquisitions	0.1	(0.3)	0.3	-	0.1
LFL adjusted operating profit before Project Uplift costs	29.5	16.4	11.2	21.8	78.9

2. Alternative performance measures (continued)

b) LFL and adjusted operating profit by segment and EBITDA					2017
	Materials	Test and	In-line	Industrial	Half year
Adjusted operating profit by segment	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment	£m	£m	£m	£m	£m
Reported operating profit	12.1	12.6	5.4	12.0	42.1
Net acquisition-related costs and fair value adjustments	0.8	0.1	0.5	0.3	1.7
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	-	0.4	-	-	0.4
Amortisation of acquisition-related intangible assets	7.6	7.3	1.5	5.9	22.3
Adjusted operating profit	20.5	20.4	7.4	18.2	66.5
Project Uplift costs	2.5	3.4	1.5	1.9	9.3
Adjusted operating profit before Project Uplift costs	23.0	23.8	8.9	20.1	75.8
Disposals	-	(0.3)	-	(3.2)	(3.5)
LFL adjusted operating profit before Project Uplift costs	23.0	23.5	8.9	16.9	72.3

					2017
	Materials	Test and	In-line	Industrial	Full year
Adjusted operating profit by segment	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment	£m	£m	£m	£m	£m
Reported operating profit	68.6	55.6	29.5	28.7	182.4
Net acquisition-related costs and fair value adjustments	1.8	(0.1)	0.4	(1.7)	0.4
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	-	0.7	-	-	0.7
Amortisation of acquisition-related intangible assets	12.7	14.6	3.3	11.3	41.9
Bargain purchase on acquisition	-	(1.9)	-	-	(1.9)
Adjusted operating profit	83.1	68.9	33.2	38.3	223.5
Project Uplift costs	4.2	5.3	2.8	3.5	15.8
Adjusted operating profit before Project Uplift costs	87.3	74.2	36.0	41.8	239.3

2018

Materials

Test and

In-line

Industrial

Half year

Analysis

Measurement

Instrumentation

Controls

Total

Operating margin

Reported operating profit

8.4

3.3

3.7

11.4

6.3

Adjusted operating profit

11.5

6.4

7.0

16.2

9.7

LFL adjusted operating profit before Project Uplift costs

13.3

7.0

7.7

18.0

10.9

					2017
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Operating margin	%	%	%	%	%
Reported operating profit	6.1	5.6	3.6	8.6	5.9
Adjusted operating profit	10.3	9.1	4.9	13.1	9.4
LFL adjusted operating profit before Project Uplift costs	11.5	10.6	6.0	14.5	10.5

2. Alternative performance measures (continued) b) LFL and adjusted operating profit by segment and EBITDA					2017
	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
Operating margin	%	%	%	%	%
Reported operating profit	14.8	11.4	9.5	10.9	12.0
Adjusted operating profit	17.9	14.1	10.7	14.6	14.7

	2018	2017	2017
	Half year	Half year	Full year
Adjusted EBITDA	£m	£m	£m
Reported operating profit	45.5	42.1	182.4
Depreciation	14.1	12.5	25.6
Amortisation of intangible assets	21.4	25.1	47.5
EBITDA	81.0	79.7	255.5
Net acquisition-related costs and fair value adjustments	5.8	1.7	0.4
Bargain purchase on acquisition	-	-	(1.9)
Adjusted EBITDA	86.8	81.4	254.0

c) Adjusted net finance costs

	2018	2017	2017
	Half year	Half year	Full year
	£m	£m	£m
Reported net finance costs	(5.9)	(4.5)	(4.5)
Net loss/(gain) on retranslation of short-term inter-company loan balances	2.5	1.4	(1.3)
Unwinding of discount factor on deferred and contingent consideration	0.3	0.4	0.7
Adjusted net finance costs	(3.1)	(2.7)	(5.1)

d) Adjusted profit before taxation

	2018	2017	2017
	Half year	Half year	Full year
	£m	£m	£m
Adjusted operating profit	70.5	66.5	223.5
Adjusted net finance costs	(3.1)	(2.7)	(5.1)
Adjusted profit before taxation	67.4	63.8	218.4

2. Alternative performance measures (continued)

e) Adjusted earnings per share

	2018	2017	2017
	Half year	Half year	Full year
Adjusted earnings	£m	£m	£m
Reported profit after tax	88.8	31.9	234.8
Adjusted for:
Net acquisition-related costs and fair value adjustments	5.8	1.7	0.4
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.4	0.4	0.7
Amortisation of acquisition-related intangible assets	18.8	22.3	41.9
Bargain purchase on acquisition	-	-	(1.9)
Profit on disposal of business	(57.0)	-	(100.5)
Net loss/(gain) on retranslation of short-term inter-company loan balances	2.5	1.4	(1.3)
Unwinding of discount factor on deferred and contingent consideration	0.3	0.4	0.7
Tax effect of the above and other non-recurring items	(4.8)	(7.7)	(1.8)
Adjusted earnings	54.8	50.4	173.0


	2018	2017	2017
	Half year	Half year	Full year
Adjusted earnings per share
Weighted average number of shares outstanding (millions)	119.0	119.2	119.2
Adjusted earnings per share (pence)	46.1	42.3	145.1

Adjusted diluted earnings per share
Diluted weighted average number of shares outstanding (millions)	119.7	119.7	119.7
Adjusted diluted earnings per share (pence)	45.8	42.1	144.5

Financial position measures

f) Net debt

		2018	2017	2017
		Half year	Half year	Full year
	£m		£m	£m
Bank overdrafts	12.5		31.4	1.3
Bank loans - unsecured	277.0		185.3	187.2
Total borrowings	289.5		216.7	188.5
Cash and cash equivalents including held for sale	(58.0)		(61.2)	(138.0)
Net debt	231.5		155.5	50.5

Cash flow measures

g) Adjusted operating cash flow

		2018	2017	2017
		Half year	Half year	Full year
	£m		£m	£m
Net cash inflow from operating activities	63.0		79.0	190.6
Acquisition-related costs paid	1.7		0.9	2.8
Net income taxes paid	19.9		23.1	47.0
Purchase of property, plant and equipment and software	(40.0)		(24.4)	(73.1)
Proceeds from disposal of property, plant and equipment and software	3.7		0.2	0.5
Adjusted operating cash flow	48.3		78.8	167.8
Adjusted operating cash flow conversion¹	69%		119%	75%

1 Adjusted operating cash flow conversion is calculated as adjusted operating cash flow as a proportion of adjusted operating profit.

Net acquisition-related costs and fair value adjustments comprise acquisition costs of £5.8m (30 June 2017: £1.7m;
31 December 2017: £3.4m) that have been recognised in the Condensed Consolidated Income Statement under IFRS 3 (Revised) 'Business Combinations' and other fair value adjustments relating to deferred and contingent consideration of nil (30 June 2017: nil; 31 December 2017: credit of £3.0m). 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 £1.7m (30 June 2017: £0.9m; 31 December 2017: £2.8m) have been excluded from the adjusted operating cash flow.

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 on specific industries. These segments reflect the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance. The segment results include an allocation of head office expenses.

					2018
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Information about reportable segments	£m	£m	£m	£m	£m
Segment revenues	234.3	240.0	141.8	112.6	728.7
Inter-segment revenue	(0.4)	(0.2)	-	(0.1)	(0.7)
External revenue	233.9	239.8	141.8	112.5	728.0

Operating profit	19.6	7.8	5.3	12.8	45.5
Profit on disposal of business¹					57.0
Financial income¹					0.3
Finance costs¹					(6.2)
Profit before tax¹					96.6
Tax¹					(7.8)
Profit after tax¹					88.8

1 Not allocated to reportable segments

					2017
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Segment revenues	199.9	223.3	148.5	139.4	711.1
Inter-segment revenue	(0.4)	(0.1)	(0.1)	(0.5)	(1.1)
External revenue	199.5	223.2	148.4	138.9	710.0

Operating profit	12.1	12.6	5.4	12.0	42.1
Financial income¹					0.2
Finance costs¹					(4.7)
Profit before tax¹					37.6
Tax¹					(5.7)
Profit after tax¹					31.9

1 Not allocated to reportable segments

					2017
	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
	£m	£m	£m	£m	£m
Segment revenues	465.2	487.5	311.1	262.9	1,526.7
Inter-segment revenue	(0.3)	(0.2)	(0.2)	(0.4)	(1.1)
External revenue	464.9	487.3	310.9	262.5	1,525.6

Operating profit	68.6	55.6	29.5	28.7	182.4
Profit on disposal of business¹					100.5
Financial income¹					1.9
Finance costs¹					(6.4)
Profit before tax¹					278.4
Tax¹					(43.6)
Profit after tax¹					234.8

1 Not allocated to reportable segments

3. Operating segments (continued)

Geographical segments

The Group's operating segments are each located in several geographical locations and sell to external customers in all parts of the world. No individual country amounts to more than 3% of revenue by location of customer, other than those noted below. The following is an analysis of revenue by geographical destination.

	2018	2017	2017
	Half year	Half year	Full year
	£m	£m	£m
UK	63.3	39.2	91.7
Germany	69.2	67.7	143.9
France	23.0	21.6	46.2
Rest of Europe	100.4	97.4	212.3
USA	206.7	217.8	445.1
Rest of North America	24.8	23.6	51.2
Japan	36.3	39.6	80.7
China	97.5	88.6	201.6
South Korea	20.6	23.2	50.3
Rest of Asia	54.8	59.1	126.2
Rest of the world	31.4	32.2	76.4
	728.0	710.0	1,525.6

4. Financial income and finance costs

		2018	2017	2017
	Half year		Half year	Full year
Financial income	£m		£m	£m
Interest receivable	0.3		0.2	0.6
Net gains on retranslation of short-term inter-company loan balances	-		-	1.3
	0.3		0.2	1.9

	2018	2017	2017
	Half year	Half year	Full year
Finance costs	£m	£m	£m
Interest payable on loans and overdrafts	3.1	2.6	4.9
Unwinding of discount factor on deferred and contingent consideration	0.3	0.4	0.7
Net losses on retranslation of short-term inter-company loan balances	2.5	1.4	-
Net interest cost on pension plan obligations	0.3	0.3	0.7
Other finance costs	-	-	0.1
	6.2	4.7	6.4

Net finance costs	5.9	4.5	4.5

5. Taxation

The tax charge for the six months to 30 June 2018 is based on an estimate of the effective rate of taxation for the full year after taking into account discrete items arising in the period. Including the impact of discrete items, the effective rate of taxation applied to adjusted profit before tax for the half year is 18.7% (30 June 2017: 21.0%; year ended
31 December 2017: 20.8%). A reconciliation of the tax charge on adjusted profit to the total tax charge is presented below.

	2018	2017	2017
	Half year £m	Half year £m	Full year £m
Tax charge on adjusted profit before tax	12.6	13.4	45.4
Tax charge on profit on disposal of business	0.4	-	19.0
Tax credit on net acquisition-related costs and fair value adjustments	(0.3)	(0.5)	(0.1)
Tax credit on amortisation of acquisition-related intangible assets	(4.7)	(6.9)	(12.9)
Tax credit on depreciation of acquisition-related fair value adjustments to property, plant and equipment	(0.1)	(0.1)	(0.1)
Tax credit arising from net impact of US tax reform measures	-	-	(8.0)
Tax (credit)/charge on retranslation of short-term inter-company loan balances	(0.1)	(0.1)	0.3
Tax credit on unwinding of discount factor on deferred and contingent consideration	-	(0.1)	-
Total tax charge	7.8	5.7	43.6

6. Dividends

The interim 2018 dividend of 20.5p per share (2017 interim dividend: 19.0p) will be payable on 9 November 2018 to ordinary shareholders on the register at the close of business on 12 October 2018. The ex-dividend date is 11 October 2018.

The estimated interim dividend to be paid is £24.3 million and has not been recognised in these accounts.

	2018	2017	2017
Amounts recognised and paid as distributions to owners of the Parent Company in the period	Half year £m	Half year £m	Full year £m
Prior year final dividend paid per ordinary share	44.5	40.5	40.5
Current year interim dividend paid per ordinary share	-	-	22.7
	44.5	40.5	63.2

7. Earnings per share

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).

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period but adjusted for the effects of dilutive options.

7. Earnings per share (continued)	2018	2017	2017
Basic earnings per share	Half year	Half year	Full year
Profit after tax (£m)	88.8	31.9	234.8
Weighted average number of shares outstanding (millions)	119.0	119.2	119.2
Basic earnings per share (pence)	74.6	26.8	197.0

	2018	2017	2017
Diluted earnings per share	Half year	Half year	Full year
Profit after tax (£m)	88.8	31.9	234.8
Basic weighted average number of shares outstanding (millions)	119.0	119.2	119.2
Weighted average number of dilutive 5p ordinary shares under option (millions)	1.5	0.8	0.9
Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions)	(0.8)	(0.3)	(0.4)
Diluted weighted average number of shares outstanding (millions)	119.7	119.7	119.7
Diluted earnings per share (pence)	74.2	26.7	196.1

8. Cash generated from operations

		2018	2017	2017
		Half year	Half year	Full year
		£m	£m	£m
Cash flows from operating activities
Profit after tax	88.8		31.9	234.8
Adjustments for:
Taxation charge	7.8		5.7	43.6
Profit on disposal of business	(57.0)		-	(100.5)
Finance costs	6.2		4.7	6.4
Financial income	(0.3)		(0.2)	(1.9)
Depreciation	14.1		12.5	25.6
Amortisation of intangible assets	21.4		25.1	47.5
Bargain purchase on acquisition	-		-	(1.9)
Acquisition-related fair value adjustments	-		-	(3.0)
(Profit)/loss on sale of property, plant and equipment	(0.2)		(0.1)	0.1
Equity-settled share-based payment expense	4.6		1.8	5.4
Operating cash flow before changes in working capital and provisions	85.4		81.4	256.1
Decrease/(increase) in trade and other receivables	30.4		31.0	(34.3)
Increase in inventories	(16.9)		(10.1)	(0.6)
(Decrease)/increase in trade and other payables	(12.8)		(1.5)	17.5
(Decrease)/increase in provisions and retirement benefits	(3.2)		1.3	(1.1)
Cash generated from operations	82.9		102.1	237.6

9. Share capital and treasury shares

At 30 June 2018, the Group held 5,683,891 treasury shares (30 June 2017: 5,787,411; 31 December 2017: 5,747,360). During the period, 63,469 of these shares were issued to satisfy options exercised by employees which were granted under the Group's share schemes (30 June 2017: 53,102; 31 December 2017: 93,153). 945,982 shares were repurchased by the Group during the period (30 June 2017: nil; 31 December 2017: nil) and 921,799 shares were cancelled during the period as part of the share buyback programme announced on 5 March 2018 (30 June 2017: nil; 31 December 2017: nil).

10. Acquisitions

Concept Life Sciences

On 26 January 2018, the Group acquired 100% of Concept Life Sciences (Holdings) Limited for a consideration of
£167.2 million. Concept Life Sciences is a UK-based group providing integrated drug discovery, development, analytical testing and environmental consultancy services mainly in the pharmaceutical, biotechnology, agrochemical and environmental sectors. This acquisition adds to the Group's capabilities in test services in the Materials Analysis segment. The excess of the fair value of consideration paid over the fair value of the net tangible assets acquired is represented by the following intangible assets: customer-related (relationships), technology and goodwill.

The values included in the table below relate to the acquisition of Concept Life Sciences and are provisional, reflecting the timing of the acquisition, and are expected to be finalised within 12 months of the acquisition date:

					2018 Provisional fair value
Net assets acquired					£m
Intangible assets					54.0
Property, plant and equipment					13.0
Inventories					7.0
Trade and other receivables					20.7
Cash and cash equivalents					1.5
Trade and other payables					(24.4)
Deferred tax liabilities					(9.3)
Net assets acquired					62.5
Goodwill					104.7
Consideration					167.2

Consideration					167.2
Adjustment for cash acquired					(1.5)
Total consideration					165.7

There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised).

Other acquisitions

The Group completed the acquisition of 100% of Revolutionary Engineering, Inc. on 3 April 2018 for a cash consideration of £8.7 million. Revolutionary Engineering, Inc. is an automotive test system and service provider based in the USA. This acquisition complements existing test capabilities of Millbrook and is included in the Test and Measurement segment. The provisional fair value of net assets acquired was £5.5 million, which generated provisional goodwill of £3.2 million.

Analysis of total acquisitions in H1 2018

			£m
Net assets acquired (provisional fair value)			68.0
Goodwill (provisional fair value)			107.9
Total consideration in respect of 2018 acquisitions			175.9
Adjustment for net cash acquired on 2018 acquisitions			(2.1)
Deferred and contingent consideration on 2018 acquisitions to be paid in future periods			(2.0)
Cash paid in 2018 in respect of 2018 acquisitions			171.8

Acquisitions prior to 2018
Deferred and contingent consideration in relation to prior years' acquisitions:
Cash paid in 2018 in respect of prior years' acquisitions			1.5
Net cash outflow relating to acquisitions			173.3

In the Condensed Consolidated Income Statement for the six months ended 30 June 2018, sales of £22.9 million and operating profit of £0.2 million have been included for all acquisitions in the period. Full details of acquisitions completed in 2017 are included in the 2017 Annual Report and Accounts. Group revenue and operating profit for the six months ended 30 June 2018 would have been £737.1 million and £46.0 million, respectively had each of these acquisitions taken place on the first day of the financial period.

11. Profit on disposal of business

The Group completed the disposal of 100% its environmental monitoring business, EMS Brüel & Kjær ('EMS B&K') on 31 May 2018 into a joint venture with Macquarie Capital in exchange for cash consideration of £45.1 million and a 45% interest in the joint venture. This generated a profit on disposal of £57.0 million which included £44.4 million arising as a result of measuring to fair value the group's retained 45% interest in the EMS B&K business, transaction expenses of £5.9 million and a contingent deferred payment to Macquarie Capital estimated at £2.9 million which is dependent upon the delivery of certain objectives.

	2018
	£m
Goodwill and other intangible assets	23.4
Property, plant and equipment	1.4
Deferred tax assets	0.4
Inventory	1.7
Trade and other receivables	6.1
Cash and cash equivalents	0.2
Trade and other payables	(4.4)
Net assets disposed	28.8

Consideration received, satisfied in cash	45.1
Consideration received, satisfied in equity in the joint venture	6.0
Consideration received, satisfied in other receivables from the joint venture	38.4
Contingent deferred payment	(2.9)
Transaction costs	(5.9)
Net consideration from disposal of business	80.7
Net assets disposed of	(28.8)
Currency translation differences transferred from translation reserve	5.1
Profit on disposal of business	57.0

In 2017, the disposal of Microscan resulted in a profit on disposal of business of £100.5 million.

12. Related parties

The group's investment in and transactions with the EMS B&K joint venture will be disclosed as related party transactions. Transactions with the EMS B&K joint venture are not expected to materially alter the financial position of the Group.

Key management personnel are defined for the purpose of IAS 24 'Related Party Disclosures' as the Executive Directors and members of the Executive Management Team. It is the Executive Directors and members of the Executive Management Team 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 2017 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. Events after the balance sheet date

On 20 July 2018, we signed an agreement to acquire the entire share capital of VI-grade Group ('VI-grade'), a leading global provider of vehicle simulation solutions and services, primarily to automotive customers. VI-grade will be part of the Test and Measurement segment. VI-grade recorded revenue of €14 million for the year ended 31 December 2017.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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