Final Results

RNS Number : 2412Y

Spectris PLC

20 February 2013

 



SPECTRIS PLC

2012 YEAR END RESULTS

20 February 2013 - Spectris plc, (SXS: LSE) the productivity-enhancing instrumentation and controls company, announces preliminary results for the year ended 31 December 2012.

Key operational indicators  (£m)	2012	2011	Change	Change at CER**	Organic change at CER***
Sales	1,230.8	1,106.2	+11%	+13%	+3%
Adjusted operating profit*	228.9	201.5	+14%	+16%	+6%
Adjusted profit before tax*	217.3	191.6	+13%
Adjusted earnings per share*	137.5p	124.1p	+11%
Adjusted return on sales*	18.6%	18.2%	+0.4pp
Dividend	39.0p	33.6p	+16%
Statutory
Operating profit	196.5	175.8	+12%
Profit before tax	186.7	166.0	+12%
Basic earnings per share	120.7p	108.7p	+11%
*             Adjusted figures exclude certain non-operational items, as defined in Note 2 **                At constant exchange rates    ***             At constant exchange rates excluding acquisitions

Highlights

•      Strong operating performance despite challenging environment

•      Good growth in Asia and North America

•      Recent acquisitions increase resilience through greater exposure to Operational Expenditure

•      Increased R&D investment in new products, technologies and applications

•      Return on Sales increased to 18.6%

•      Continued strong cash conversion of 93%

•      Dividend up by 16%

Commenting on the results, John O'Higgins, Chief Executive, said:

"This strong result was achieved through the progress we made on all aspects of our strategy.  We will continue to invest in new products and applications which enhance our customers' productivity, seek further geographic growth opportunities across the group, and improve the resilience of the business through organic and acquisition activities. The Board is confident that Spectris continues to be strategically well-positioned for 2013 and beyond."

Contacts:

Spectris plc

John O'Higgins, Chief Executive                                               [phone]

Clive Watson, Group Finance Director                                   [phone]

Cléa Rosenfeld, Head of Corporate Affairs                           [phone]

FTI Consulting

Richard Mountain / Susanne Yule                                          [phone]

The meeting with analysts will be available as a live webcast on the company's website at www.spectris.com, commencing at 08.30, and a recording will be posted on the website shortly after the meeting.

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

About Spectris

Spectris plc is a leading supplier of productivity-enhancing instrumentation and controls. The Company's products and technologies help customers to improve product quality and performance, improve core manufacturing processes, reduce downtime and wastage and reduce time to market. Its global customer base spans a diverse range of end user markets. Spectris operates across four business segments which reflect the applications and industries it serves: Materials Analysis, Test and Measurement, In-line Instrumentation and Industrial Controls. Headquartered in Egham, Surrey, England, the Company employs approximately 7,600 people located in more than 30 countries.

For more information, visit www.spectris.com

CHAIRMAN STATEMENT

Introduction

We are pleased with the performance and the resilience shown by the group during 2012, which proved to be a challenging year in certain markets and regions. We reported double digit growth in the group's sales, with contributions from the 2011 acquisitions supplementing our organic growth. Profitability increased, driven mainly by new product introductions, value based pricing and better cost management through improved supply chain excellence across the group. This result was achieved notwithstanding higher investments in the development of new products and applications.

Reported sales increased by 11% to £1,230.8 million (2011: £1,106.2 million) and adjusted operating profit* grew by 14% to £228.9 million (2011: £201.5 million). Acquisitions contributed 10% to sales growth, offset by a negative currency impact of 2%. Thus on a constant currency organic (like-for-like) basis, sales grew by 3%. Operating margins increased by 0.4 percentage points to 18.6%. Profit before tax increased by 13% to £217.3 million (2011: £191.6 million) and earnings per share increased by 11% from 124.1 pence to 137.5 pence.

We reduced our net debt by £102 million thanks to strong cash flow conversion, with 93% of our operating profit being converted into operating cash flow due to good working capital management. At the end of December 2012, our net debt stood at £254 million, just over 1.0x our EBITDA of £249 million. On 18 December 2012, we signed an agreement to sell Fusion UV to Heraeus Holding GmbH for a total consideration of $172 million. This transaction completed on 31 January 2013.

The Board is proposing to pay a final dividend of 25.5 pence which, combined with the interim dividend of 13.5 pence, gives a total for the year of 39.0 pence (2011: 33.6 pence), an increase of 16%. The dividend is covered 3.5 times. This is consistent with our policy of making progressive dividend payments based upon affordability and sustainability. The dividend will be paid on 26 June 2013 to shareholders on the register at the close of business on 31 May 2013

Corporate governance

As a Board, we are responsible to the company's shareholders for delivering shareholder value sustainably over the long term through effective management and good governance. My role as Chairman is to provide leadership to enable the Board to perform effectively. We believe that a robust discussion focused on the critical strategic issues and risks is key to achieving our aims and we are fortunate to have directors with extensive industry and international experience who can actively contribute to this debate.

We have strengthened the Board with the addition of two new members: In June 2012, we welcomed Martha B. Wyrsch, as a non-executive director. Martha's extensive experience and knowledge of the energy industry and of the US market generally, is a valuable addition to our Board.

In November 2012, we announced that Steve Blair was appointed as an executive director of the Board, effective January 2013. Steve heads the In-line Instrumentation and Industrial Controls business segments and has significant international experience in the industrial controls sector.

The Board also seeks to develop and maintain a good understanding of the company's operations and we hold site visits at key locations each year in addition to inviting our presidents and managing directors to present at other meetings.   

Summary and outlook

This strong result was achieved through the progress we made on all aspects of our strategy.  We will continue to invest in new products and applications which enhance our customers' productivity, seek further geographic growth opportunities across the group, and improve the resilience of the business through organic and acquisition activities. The Board is confident that Spectris continues to be strategically well-positioned for 2013 and beyond. 

*Unless stated otherwise, figures quoted for operating profit, net interest, profit before tax, tax, earnings per share and operating cash flow are adjusted measures - for explanation of adjusted figures and reconciliation to the statutory reported figures see Note 2.

CHIEF EXECUTIVE REVIEW

Introduction

The continued progress in the execution of our strategy helped us deliver strong 2012 operating performance despite a challenging macro-economic environment.  Sales growth on a reported basis was 11%, including 10% from acquisitions and reflecting a 2% adverse impact from foreign exchange movements. Therefore, on a constant currency, organic (like-for-like) basis, sales increased by 3%. The contribution made by each one of our strategic segments is described in some detail in the Operating Review which follows. Regionally, the growth was led by Asia Pacific which was up 6%, followed by North America which grew 5% whilst Europe declined 1%.

We further reduced our exposure to the capital cycle by increasing the proportion of revenues derived from our customers' operating expenditure budgets; we now estimate that approximately 40% of our sales are exposed to operating budgets, 24% of which come from after-market service and consumables. This increased exposure is mainly attributable to the full year effect of the 2011 acquisitions in our Industrial Controls segment. Operating profit was £228.9 million (2011: £201.5 million), giving an increased operating margin of 18.6% (2011: 18.2%). The improvement in our underlying, like-for-like, gross margin was driven by a combination of new product introductions, value based pricing and better cost management. 

Our operating cash conversion continued to be strong, with 93% of operating profit converted into operating cash, leaving us at year end with a net debt to EBITDA ratio of 1.0x.

Strategy

Our strategy comprises five core elements and we made good progress on each of these during the year:

Strengthening market positions through innovation

We increased our investment in research and development ("R&D"), with expenditure of £85.5 million, representing 7% of total sales. This was an increase of 13% over the 2011 level or 11% on a like-for-like basis. Specifically, R&D spending in the Materials Analysis segment increased by around 20% on the previous year (like-for-like), focusing on some promising growth opportunities in pharmaceutical and material science research. This increased spending level is expected to be maintained through 2013 with the benefits materialising in 2014 and beyond. Throughout the year we launched a number of new products, technologies and applications strengthening our positions in the markets in which we compete.

Increasing regional expansion with a focus on emerging markets

We strengthened our position in emerging markets. Despite a challenging first half comparison, China achieved 7% growth for the full year. Growth in 2012 there was supported by the pharmaceuticals, electronics, metals and R&D sectors. We continue to see good opportunities in China across all of the businesses, particularly within the pharmaceuticals and discrete manufacturing segments. We also saw good demand from other important markets such as Brazil, where demand grew in the automotive, minerals and mining sectors. 

Building our presence in key strategic growth areas, both organically and through acquisition

We have made good progress integrating the Omega Engineering business during the year with significant investments made in strengthening the international sales channels and in ramping up new product introduction spending. Following the 2011 acquisitions of Omega and Sixnet, turnover in the Industrial Controls segment has almost doubled in size over the past two years. In addition to the benefits of scale afforded by these acquisitions, their sales depend on customers' operating budgets, thereby reducing our exposure to the capital cycle.

Growing existing businesses through acquisition

We made three bolt-on acquisitions during 2012: DCM for In-line Instrumentation, strengthening our  application expertise in the metals and cable markets and providing expansion opportunities outside of the core US domestic market; NoViSim, in the Test & Measurement segment, a developer of noise and vibration simulation software for automotive applications; and Analytical Spectral Devices Inc., a leading manufacturer of Near-Infrared ("NIR") measurement products, extending our position within the Materials Analysis segment. Analytical Spectral Devices' successful NIR solutions for remote sensing, mining and other industrial markets complement our market leading X-ray instruments for exploration and refining in the mining and materials sector. 

Focusing on operational excellence

Our commitment to operational excellence gathered further momentum throughout 2012 through on-going implementation of Lean / Six Sigma principles across our operations. These initiatives provide lasting benefits across the group in the management of operations focusing on sustainability, waste elimination and greater efficiencies in all areas. We obtained positive results from these initiatives directly impacting on gross margins.

During 2012 we continued to embed and refresh our Values and code of Business Ethics across the group, underpinning the way we work. We currently have around 7,600 employees based in over 30 countries with five shared values which drive our business decisions and company culture. This helps to ensure that the way we conduct ourselves, throughout the group, matches the high quality of our products and services.

We benefited from our on-going low cost sourcing initiatives from suppliers principally located in the Asian and Eastern European regions, resulting in similar levels of total cost of goods spend as 2011. In addition, actions have been taken to negotiate new service agreements with common suppliers which will yield further significant savings.

Operating Review 

	Materials Analysis		Test and Measurement		In-line instrumentation		Industrial controls		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
Sales (£m)	348.1	337.5	345.4	346.9	320.1	308.9	217.2	112.9	1,230.8	1,106.2
LFL growth	5%	21%	3%	16%	4%	8%	-	18%	3%	15%
Adj. operating profit (£m)	63.1	60.9	55.6	54.7	63.9	63.8	46.3	22.1	228.9	201.5
% ROS         Reported  LFL	18.1% 17.9%	18.1% 18.1%	16.1% 16.4%	15.8% 15.8%	20.0% 21.0%	20.6% 20.6%	21.3% 21.1%	19.6% 19.6%	18.6% 18.6%	18.2% 18.2%
% Total Group Sales	28%	31%	28%	31%	26%	28%	18%	10%
% After Sales	29%	28%	19%	19%	39%	41%	1%	1%	24%	26%

MATERIALS ANALYSIS

Materials Analysis provides products that enable customers to assess structure, composition, quantity and quality of particles and materials, during their R&D process, when assessing raw materials before production, or during the manufacturing process. Our products help customers to improve accuracy and speed of materials analysis in the laboratory and in process quality control. Our key customers here are leaders in the mining, cement, pharmaceutical, chemicals, and electronics industries. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems.

Segment performance

	2012	2011	% change	% change like-for-like
Sales (£m)	348.1	337.5	+3%	+5%
Operating Profit (£m)	63.1	60.9	+4%	+4%
Return on sales (%)	18.1	18.1	-	-0.2pp
% of total group sales	28	31	-3pp

Materials Analysis was our fastest growing segment during 2012. It was a good year with strong growth in Asia, especially in Japan, Australia, India and South East Asia. Brazil also performed strongly, recording double digit growth. Although we saw some slowing in the mineral & mining and R&D markets, this was more than compensated for by strong growth both in the pharmaceuticals and electronics markets.

We increased our R&D spend in this segment by 16% on a reported basis (+20% like-for-like) to 7.1% of sales compared to 6.3% in 2011. Products and applications under development are in life science and new material research applications, where, for example, we are focusing on more efficient systems to analyse protein-based molecules to facilitate the development of exciting new therapies for the future. We expect a number of new product launches resulting from these investments from 2014.

In December, we acquired Analytical Spectral Devices Inc., which extends our presence in the growing market segments for portable field and benchtop instruments used in the mining and materials sector. In the case of mining companies, for example, such equipment is used extensively in the preliminary analysis of material carried out at the exploration site, thus avoiding the need to transport multiple samples back to a central laboratory.

In 2012, we opened a new demonstration laboratory in São Paulo, Brazil, offering customers the ability to run tests using our equipment for their specific applications before purchasing.

Segment outlook

We expect the growth in life sciences to continue. During 2012, the US Food and Drug Administration approved 39 new drugs, the most in 16 years and, according to research, an average of 35 new medicines will reach the market each year until 2016 bringing good opportunities for our instrumentation. The mining sector slowed down in the later part of 2012, as anticipated, and we expect that this trend will continue during the first half of 2013. We also see potential in the emerging nano-materials sector, creating demand from academic research institutions, as well as in-house R&D laboratories in the pharmaceutical and advanced materials sectors.

TEST AND MEASUREMENT

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

Segment performance

	2012	2011	% change	% change like-for-like
Sales (£m)	345.4	346.9	-	+3%
Operating Profit (£m)	55.6	54.7	+2%	+7%
Return on sales (%)	16.1	15.8	+0.3pp	+0.6pp
% of total group sales	28	31	-3pp

This segment made good progress during the year, helped by strong demand from the electronics and telecoms markets and continued growth in automotive. We also made important in-roads in the aerospace and defence market where our water-cooled vibration test platform is firmly established as the standard for satellite qualifications testing.

On a regional basis, we saw strong growth in North America in the automotive and telecoms test equipment sectors and also saw good growth in China and Russia. Profitability in this segment increased to 16.1% return on sales, absorbing the adverse translational impact of a weaker Euro. Gross margins also expanded in this segment.

We recently introduced the PMX System for industrial process measurement and control which has already won a number of awards. This innovative system is designed for data acquisition and control in production control and industrial test benches. It enables precise acquisition of force, torque, vibration, pressure, strain, temperature, voltage, current and other parameters. With real-time communication via Industrial Ethernet, the product is ideally suited for modern production plants.  

We continue to develop and offer products designed to make the R&D process more efficient, as well as products that continuously monitor performance.  We see significant new opportunities for our data acquisition system, QuantumX. This product can now serve a wider range of end-markets covering several different applications. Sales of QuantumX grew 71% in 2012 and the new ESA (experimental stress analysis) module had some important project wins in aerospace applications. 

In August we acquired NoViSim. This company has expertise in noise and vibration simulation software for the car industry. NoViSim's products allow customers to optimise the noise and vibration performance of vehicles by the use of simulation during the design phase. More importantly, the customer can thus understand the impact of drivetrain and vehicle design changes immediately without the need for prototyping and road testing.

Segment outlook

Electronics and telecoms remained strong during the year and we anticipate that this trend will continue with the growth in demand for portable computing, communications and personal entertainment devices. The automotive sector is also expected to show good growth especially in Japan and Korea where research programmes for further development and investment in hybrid and electric cars continue. On-going aerospace programmes provide additional opportunities for growth. We believe that our innovative products and applications for test and measurement will remain in demand as programmes are being deployed in these industries.  

IN-LINE INSTRUMENTATION

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

Segment performance

	2012	2011	% change	% change like-for-like
Sales (£m)	320.1	308.9	+4%	+4%
Operating Profit (£m)	63.9	63.8	-	+5%
Return on sales (%)	20.0	20.6	-0.6pp	+0.4pp
% of total group sales	26	28	-2pp

This segment performed well overall for the year with like-for-like growth in sales and profitability. Regionally, we experienced good demand from Asia Pacific, Japan and China in particular. Brazil was also strong throughout the year. By end-market, the electronics and telecoms sectors as well as the energy and utilities market were strongest. System sales in the on-line gauging systems solutions were particularly good in the first part of 2012, which contributed to this segment's revenue growth.

The pulp and paper sector recovered in the second half, mainly driven by a stronger performance in China and following a weak performance at the start of the year. The tissue segment in this market continues to perform well globally and our market leading high performance creping blades, in-line instrumentation and application services are providing tissue manufacturers with the means to enhance their productivity while increasing their yield and tissue uniformity.  

Process gas analysis solutions for Industrial Gas production and Hydrocarbon Processing continue to show good growth globally. Additionally, with air quality improvement set to become a primary investment catalyst in developing economies, we are placing significant resources in combustion efficiency and emissions analysis. During the year we received an order in Brazil for a large medical gas pharmacopeia compliance system for one of the top three global Industrial Gas suppliers, and also a first time order in India with Reliance for a Vinyl Chloride Monomer (VCM) system.  Amongst other successful product launches during 2012 our SERVOPRO MultiExact with TruRef Thermo-Conductivity Detector (TCD) was well received. This product is designed to ensure product purity and process control excellence in industrial gas production.

Our business specialising in the supply of products and services for machine vibration analysis, had another record year. In 2012, we launched the new VIBROPORT 80 platform, a powerful portable analyser and balancer instrument. We also enjoyed good performance within the hydro-electric generation sector and made significant headway into the growing Latin America hydro market. In the wind turbine industry, we delivered a record number of monitoring systems to the market, surpassing 5,000 cumulative monitoring system orders in August 2012. Simultaneously, our market leading remote wind turbine diagnostic service hubs were expanded to include Shanghai and Houston, thereby providing true 24x7 coverage in conjunction with our centre of excellence in Copenhagen.

On a reported basis, operating profit was flat on last year, unfavourably impacted by currency and the results of its bolt-on acquisitions, IRM and DCM. DCM's results are down partly due to slower than expected market conditions but are primarily attributable to the costs of integrating the business. IRM's results are a direct consequence of its exposure to the metals' sector which experienced a sudden and sharp slowdown in the global steel market. This was severe and has acted as a catalyst to accelerate our integration plans and develop the business which remains strategically relevant and well positioned to benefit when markets recover.

Our UV systems business performed strongly throughout the year however, consistent with our approach to actively manage our portfolio of products and companies, we announced in December 2012 that we had signed an agreement to sell Fusion UV to Heraeus Holding GmbH for a total cash consideration of US$172 million. This transaction was completed on 31 January 2013.

Segment outlook

Conditions continue to improve in this segment's end markets driven by good progress in the Middle East and Asia and steady growth across the oil and gas, petrochemicals and power sectors. Despite a sharp downturn in the steel segment we expect to see signs of recovery during 2013. Flat panel display investment is expected to remain solid in Asia due to strong global demand. The hydro-electric power sector is an important market for our condition monitoring systems, especially in Latin America and Asia. We also see some potential in North America where demand will increase with future growth in shale gas extraction. An increased focus on building resilient revenues underpins this segment's high profitability and we anticipate that this will continue.

INDUSTRIAL CONTROLS

Industrial Controls provides products and solutions that measure, monitor, control, inform, track, and trace during the production process. Our key customers here include industrial manufacturing, automotive, electronics, packaging, and life sciences. Sales, in this segment, are mainly financed through customers' operating expenditure budgets and therefore cyclicality associated with exposure to capital expenditure is limited. The operating companies in this segment are Microscan, Omega Engineering and Red Lion Controls.

Segment performance

	2012	2011	% change	% change like-for-like
Sales (£m)	217.2	112.9	+93%	-
Operating Profit (£m)	46.3	22.1	+ 109%	+7%
Return on sales (%)	21.3	19.6	+1.7pp	+1.5pp
% of total group sales	18	10	+8pp

This segment has almost doubled in size as a result of the Omega and Sixnet acquisitions. North America sales were up 3% (like-for-like) despite a challenging industrial climate, offset by declines in Europe and Asia. Profit was strong, rising 7% on a like-for-like basis helped by improvements in the gross margin and operational efficiencies.

In 2012, we focused on investing for future growth and international expansion in our Omega business, in keeping with the original strategic rationale for the acquisition. Within twelve months under our ownership, we opened a completely new facility in Shanghai, offering a full product range and technical support via a local customer call centre and on-line web-based sales channel. On a global basis, Omega's on-line sales continue to outgrow the traditional channels and now comprise approximately 35% of their sales by volume and 25% by value. 

The programme to fully integrate both our industrial networking acquisitions, N-Tron and Sixnet, into our Red Lion Controls business was largely completed by year end. The launch of the combined entity was well received by our customers who now have access to a complete product range from machine display to local and remote rugged Ethernet networks. The products are now harmonised under a single brand facilitating cross-selling opportunities and the manufacturing centres have been consolidated bringing cost savings and operational efficiencies to the segment.

Our Automatic Identification and Machine Vision business launched a significant update of its market leading Machine Vision application software. AutoVISION 2.0, provides powerful new features building on the success of the previous release. This software combines a simplified user interface with an expanded toolset for inspection, error proofing, and identification applications. AutoVISION 2.0 is both flexible and scalable should application requirements change over time, protecting the customer's investment.

Segment outlook

2012 was a year of consolidation in this segment. Looking ahead, we expect to start realising the benefits of Omega's global expansion where, specifically, China looks set to become a significant market for the future, whilst the core North American market shows good signs of continued momentum. We will also benefit from our expanded industrial networking business resulting from the successful integration of Sixnet and N-Tron into the Red Lion business. Demand for improved factory automation including vision applications will continue to grow on a worldwide basis.

FINANCIAL REVIEW

Introduction

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined in Note 2. Unless otherwise stated, all profit, earnings and operating cash flow figures referred to below are adjusted measures.

Operating performance

	2012	2011	Increase	Like-for-like increase
Sales (£m)	1,230.8	1,106.2	11.3%	3.3%
Adjusted operating profit (£m)	228.9	201.5	13.6%	5.6%
Operating margin	18.6%	18.2%	0.4pp	0.4pp
Statutory
Sales (£m)	1,230.8	1,106.2	11.3%
Operating profit (£m)	196.5	175.8	11.8%
Operating margin	16.0%	15.9%	0.1pp

Reported sales were up 11.3% at £1,230.8 million (2011: £1,106.2 million). Acquisitions contributed approximately £106.7 million (9.6%) partly offset by the impact of unfavourable foreign exchange movements which reduced sales by approximately £18.6 million (1.6%). Therefore, on an organic constant currency (like-for-like) basis, sales increased by 3.3% year-on-year.

Operating profit increased by £27.4m (+13.6%) to £228.9 million (2011: £201.5 million) with £21.2m (+10.5%) coming from acquisitions, reduced by the impact of foreign exchange movements negatively impacting operating profit by £5.2m (-2.5%). Like-for-like operating profit, therefore, increased by £11.4 million (+5.6%) from a combination of like-for-like sales growth and improved underlying operating margins. Although, reported gross margins decreased to 57.9% of sales (-0.7pp), this was caused by the negative effects of foreign exchange (0.5pp) and the dilutive effects of acquisitions (0.6pp). On a like-for-like basis gross margins increased by 0.4pp thanks to new product introductions, value based pricing, procurement initiatives and other operational efficiencies more than offsetting inflationary cost increases. Reported overheads reduced to 39.3% (-1.1pp) of sales, with foreign exchange contributing 0.3pp and acquisitions 0.8pp, resulting in a like-for-like overheads to sales ratio in line with that reported for 2011. Reported and like-for-like operating margins increased by 0.4pp from 18.2% to 18.6%.

The year-on-year increase in net finance costs was £1.7 million (from £9.9 million to £11.6 million). This is due to a net increase of £2.3 million in financing charges offset by a reduction in net pension-related and other finance costs of £0.6 million. The £2.3 million increase in financing charges is the net result of an increase in charges arising from higher average net debt from 2011 acquisitions mitigated by a reduction in average interest rates.

Profit before tax increased by 13% from £191.6 million to £217.3 million.

Statutory operating profit, after including acquisition-related intangible asset amortisation of £27.0 million (2011: £21.8 million), acquisition-related costs and contingent consideration fair value adjustments of £0.9 million (2011: £1.8 million) and acquisition-related fair value adjustments to inventory of £4.5 million (2011: £2.1 million), increased by 12% from £175.8 million to £196.5 million.

Statutory profit before tax increased by 12% from £166.0 million to £186.7 million.

The reconciliation of statutory and adjusted measures is shown in the table below.

	2012	2012	2012	2011	2011	2011
	IFRS (Statutory) £m	Adjust-ments £m	Spectris Adjusted £m	IFRS (Statutory) £m	Adjust-ments £m	Spectris Adjusted £m
Sales	1,230.8	-	1,230.8	1,106.2	-	1,106.2
Gross margin	712.8	-	712.8	648.7	-	648.7
Operating profit before acquisition-related items	228.9	-	228.9	201.5	-	201.5
Amortisation of acquisition-related intangibles	(27.0)	27.0	-	(21.8)	21.8	-
Net acquisition-related costs and contingent consideration fair value adjustments	(0.9)	0.9	-	(1.8)	1.8	-
Acquisition-related fair value adjustments to inventory	(4.5)	4.5	-	(2.1)	2.1	-
Operating profit	196.5	32.4	228.9	175.8	25.7	201.5
Profit on disposal of businesses	-	-	-	0.1	(0.1)	-
Unrealised changes in fair value of financial instruments	0.9	(0.9)	-	(0.4)	0.4	-
Net gains on retranslation of short-term inter-company loan balances	0.9	(0.9)	-	0.4	(0.4)	-
Net bank interest payable	(12.1)	-	(12.1)	(9.8)	-	(9.8)
Net IAS19 finance income	0.5	-	0.5	0.1	-	0.1
Other finance costs	-	-	-	(0.2)	-	(0.2)
Profit before tax	186.7	30.6	217.3	166.0	25.6	191.6

Acquisitions

The total cost of acquisitions in the year was £19.3 million (2011: £377.0 million), including £0.5 million (2011: £18.6 million) for cash acquired. Included in the total cost of acquisitions is an amount of £8.7 million (2011: net receivable of £2.7 million) attributable to the fair value of deferred and contingent consideration expected to be paid in future years. In addition, a further net £5.4 million (2011: £7.9 million) was paid in respect of prior year acquisitions, making the net cash outflow in the year £15.5 million (2011: £369.0 million). An amount of £0.7 million (2011: £3.1 million) was spent on related costs (mainly professional fees), which makes the total acquisition-related cash outflow in 2012 £16.2 million (2011: £372.1 million). Acquisitions contributed £106.7 million (2011: £65.1 million) of incremental sales and £21.2 million (2011: £13.6 million) of operating profit.

Divestments

On 18 December 2012, an agreement was signed to sell the Fusion UV Business ('Fusion') to Heraeus Holding GmbH for a total cash consideration of US $172 million on a debt and cash-free basis, subject to a working capital adjustment. Accordingly, the assets and liabilities of this business are reported as held for sale. The sales and operating profit contributed by Fusion in 2012 amounted to £53.6 million (2011: £41.8 million) and £11.5 million (2011: £8.3 million) respectively.

The transaction closed on 31 January 2013 for a total consideration of US$174m including an estimated working capital adjustment which is expected to be finalised during 2013.

Taxation

The effective tax rate on adjusted profits was 25.9% (2011: 24.8%), an increase of 1.1pp, mainly due to a higher proportion of the group's profits being earned in the more highly taxed USA. On a statutory basis, the effective tax rate of 24.3% (2011: 23.9%) continues to be below the weighted average statutory tax rate of 29.4% (2011: 28.5%), primarily as a consequence of research and development tax incentives and a tax-efficient financing structure.

Earnings per share

Earnings per share increased by 11% from 124.1p to 137.5p, reflecting the net impact of a 13% increase in profit before tax slightly offset by the increase in the weighted average number of shares from 116.2 million in 2011 to 117.1 million in 2012 and the increase in the tax rate to 25.9% (2011: 24.8%).

Statutory basic earnings per share increased by 11% from 108.7p to 120.7p. The difference between the two measures is shown in the table below. 

	2012 Pence	2011 Pence
Statutory basic earnings per share	120.7	108.7
Amortisation of acquisition-related intangible assets	23.0	18.8
Acquisition-related costs and contingent consideration fair value adjustments	0.8	1.6
Acquisition-related adjustments to inventory	3.8	1.8
Profit on disposal of businesses	-	(0.1)
(Increase) / Decrease in fair value of cross-currency interest rate swaps	(0.8)	0.3
Net gains on retranslation of short-term inter-company loan balances	(0.8)	(0.3)
Tax effect of the above and other non-recurring items	(9.2)	(6.7)
Earnings per share	137.5	124.1

The weighted average number of shares outstanding during the year was 117.1 million
(2011: 116.2 million).

Cash flow

Operating cash flow	2012 £m	2011 £m
Operating profit	228.9	201.5
Add back: depreciation and software amortisation	20.6	18.0
Working capital and other movement	(6.8)	(11.2)
Capital expenditure	(28.8)	(29.2)
Operating cash flow	213.9	179.1
Operating cash flow conversion*	93%	89%
Non-operating cash flow
Tax paid	(52.6)	(35.1)
Net interest paid	(11.5)	(12.1)
Dividends paid	(45.6)	(33.8)
Acquisition of businesses net of cash	(15.5)	(369.0)
Acquisition-related costs	(0.7)	(3.1)
Disposals	-	0.1
Exercise of share options	0.5	0.5
Exchange	13.6	3.4
Total non-operating cash flow	(111.8)	(449.1)
Operating cash flow	213.9	179.1
Movement in net debt	102.1	(270.0)

* Operating cash flow as a % of operating profit

The year-end trade working capital to sales ratio was 11.5% (2011: 12.3%). Average trade working capital, expressed as a percentage of sales, increased to 11.2% (2011: 9.0%) a 2.2pp increase, of which 1.2pp arose from acquisitions and 1.0pp arose from growth in core working capital requirements, bringing the ratio back to more sustainable levels.

Capital expenditure during the year equated to 2.3% of sales (2011: 2.6%) and, at
£28.8 million (2011: £29.2 million), was 140% of depreciation and software amortisation
(2011: 162%).

Overall, net debt decreased by £102.1 million (2011: increase of £270.0 million) from £356.2 million to £254.1 million. Interest cost, excluding the financing charge arising from IAS19, was covered by operating profit 18.9 times (2011: 20.2 times).

Financing and Treasury

The group finances its operations from both retained earnings and third-party borrowings, the majority of which are currently at floating rates of interest.

As at 31 December 2012, the group had £479 million of committed facilities denominated in different currencies, consisting of £94 million of private placements maturing in October 2013, a five-year £47 million term loan maturing in September 2015 and a five-year £338 million revolving credit facility maturing in August 2016.  £185 million of the revolving credit facility was undrawn at the year end. In addition, the group had a cash balance of £41 million and other uncommitted facilities, mainly in the form of overdraft facilities at local operations.

At the year end, the group's borrowings amounted to £295 million, 48% of which were at fixed interest rates (2011: 37%). The ageing profile at the year-end showed that 32% of the year end borrowing is due to mature within one year (2011: 1%), 0% between one and two years (2011: 24%) and 68% between two and five years (2011: 75%). 

Currency

The group has both translational and transactional currency exposures. Translational exposures arise on the consolidation of overseas company results into sterling. Transactional exposures arise where the currency of sale or purchase invoices differs from the functional currency in which each company prepares its local accounts. The transactional exposures include situations where foreign currency denominated trade debtor, trade creditor and cash balances are held.

After matching currency of revenue with currency of costs wherever practical, forward exchange contracts are used to hedge a proportion (up to 75%) of the remaining forecast net transaction flows where there is reasonable certainty of an exposure. At 31 December 2012, approximately 49% of the estimated net euro, US dollar and Japanese yen exposures for 2013 were hedged using forward exchange contracts mainly against the Swiss franc, sterling, the euro and the Danish krone.

The largest translational exposures are to the US dollar, euro, Danish krone and Swiss franc.  Translational exposures are not hedged. The table below shows the key average exchange rates compared to sterling during 2012 and 2011.

	2012 (average)	2011 (average)
USD	1.58	1.60
EUR	1.23	1.15
JPY	126	128

To demonstrate the transaction and translation currency exposure faced by the group, the table below shows the differences between the group's consolidated revenues and costs for each of the major currencies in 2012 before reflecting the effect of transactional hedges taken out in the year.

Revenue and cost by major currency:

	USD*	EUR*	GBP	JPY	Other	Total
Total sales  (£m)	517	407	72	91	144	1,231
% of sales	42%	33%	6%	7%	12%
Total costs (£m)**	(391)	(326)	(86)	(65)	(146)	(1,014)
PBT by currency (£m)	126	81	(14)	26	(2)	217
% of PBT	58%	37%	(6%)	12%	(1%)	100%

* Dollar/euro categories include tracking currencies

** Costs include interest of £6.7m in USD, £5.3m in EUR and £(0.4)m in GBP

The above table is for overall guidance only as the phasing of income and the movement in the monthly average exchange rates during the year can have a significant effect on the impact of foreign exchange.

Defined benefit pension schemes

The company operates a number of pension schemes throughout the group. The net pension liability in the balance sheet (before taking account of the related deferred tax asset of £3.5 million) has decreased to £12.0 million (2011: £13.1 million). The movement can be summarised as follows:

	£m
Net deficit in defined benefit pension schemes at 1 January 2012	(13.1)
Actuarial losses	(0.7)
Contributions in excess of current service cost	2.1
Past service costs in UK	(1.1)
Expected return on pension scheme assets net of interest costs on pension scheme liabilities	0.5
Exchange difference and other movements	0.3
Net deficit in defined benefit pension schemes at 31 December 2012	(12.0)

The movement in individual plan deficits is shown in the table below:

	UK	Germany	Netherlands	Switzerland	Total O/Seas	Net Total
Deficit as at 1 January 2012   (£million)	(1.3)	(6.3)	(0.4)	(5.1)	(11.8)	(13.1)
Decrease / (increase) in deficit (£million)	5.2	(1.1)	(1.1)	(1.9)	(4.1)	1.1
Deficit as at 31 December 2012 (£million)	3.9	(7.4)	(1.5)	(7.0)	(15.9)	(12.0)

The UK plan deficit of £1.3 million at 31 December 2011 has become a surplus of £3.9 million at 31 December 2012. This is primarily due to favourable asset valuations since 31 December 2011, contributions paid by the Company up to 30 June 2012 (£1.6 million) and also arises from a difference in the plan's membership compared to the mortality assumptions made.

The Company ceased the deficit recovery contributions from 1 July 2012.

The UK past service costs of £1.1m is in respect of future pension increases granted to Servomex members for pre 1 July 1995 service.

Clive Watson

Group Finance Director

Principal risks and uncertainties

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

The current risks, together with a description of how they relate to the group's strategy and the approach to managing them, are set out in the 2012 Annual Report which will be available on the group's website at www.spectris.com from 20 March 2013.

The group's audit and risk committee conducted its periodic risk review after the year end and concluded that risks set out on pages 14-15 of the 2011 Annual Report and available at www.spectris.com continue to represent the current principal risks and uncertainties of the company. In addition, one further risk has been added to that list concerning information security. This refers to the risk of losing competitively sensitive data (trade secrets, design details, customer and pricing data, source codes, etc.), or being subject to a malicious attack causing system failure, data corruption or loss, or theft of critical and / or sensitive data. In response to this risk, the group has in place a number of measures to minimize both the likelihood and impact of this risk materializing.

The complete list of principal risks and uncertainties contained in the 2012 Annual Report can now be summarised as follows:

-     Acquisition integration

-     New product development

-     Competitive activity

-     Supply chain disruption

-     Fluctuations in exchange rates

-     Intellectual property

-     Political and economic environment

-     Compliance with all relevant laws and regulations

-     Information security

The potential impact of these risks on our strategy and financial performance and details of our specific mitigation actions are also detailed in the 2012 Annual Report.

Clive Watson

Finance Director

 "Spectris" is a trademark of Spectris plc and is protected by registration in the United Kingdom and other jurisdictions. Other product names referred to in this preliminary results announcement are registered or unregistered trademarks or registered names of Spectris plc or its subsidiary companies and are similarly protected.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2012    

	Note		2012	2011
			£m	£m
Continuing operations
Revenue	3		1,230.8	1,106.2
Cost of sales			(518.0)	(457.5)
Gross profit			712.8	648.7
Indirect production and engineering expenses			(95.4)	(88.0)
Sales and marketing expenses			(265.3)	(238.9)
Administrative expenses			(155.6)	(146.0)
Operating profit before acquisition-related items			228.9	201.5
Net acquisition-related costs and contingent consideration fair value adjustments			(0.9)	(1.8)
Acquisition-related fair value adjustments to inventory			(4.5)	(2.1)
Amortisation of acquisition-related intangible assets			(27.0)	(21.8)
Operating profit			196.5	175.8
Profit on disposal of businesses			-	0.1
Financial income		4	8.5	7.2
Finance costs		4	(18.3)	(17.1)
Profit before tax			186.7	166.0
Taxation - UK		5	(4.4)	(2.6)
Taxation - Overseas		5	(41.0)	(37.1)
Profit after tax for the year from continuing operations attributable to owners of the parent company			141.3	126.3
Basic earnings per share		7	120.7p	108.7p
Diluted earnings per share		7	119.2p	106.9p
Interim dividends paid and final dividends proposed for the year (per share)		6	39.0p	33.6p
Dividends paid during the year (per share)		6	38.9p	29.1p

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

Consolidated statement OF COMPREHENSIVE INCOME 

For the year ended 31 December 2012 

	2012	2011
	£m	£m
Profit for the year attributable to owners of the parent company	141.3	126.3
Other comprehensive income:
Net gain/(loss) on effective portion of changes in fair value of forward exchange contracts	3.8	(3.8)
Foreign exchange movements on translation of overseas operations	(26.3)	(5.5)
Net gain on changes in fair value of effective portion of hedges of net investment in overseas operations	4.9	2.0
Actuarial loss arising on pension schemes, net of foreign exchange	(0.4)	(2.6)
Tax on items recognised directly in other comprehensive income	(1.1)	1.1
Total comprehensive income for the year attributable to the owners of the parent company	122.2	117.5

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2012

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2012	6.2	231.4	295.0	71.8	(3.6)	3.1	0.3	604.2
Profit for the year	-	-	141.3	-	-	-	-	141.3
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	2.8	-	-	2.8
Foreign exchange movements on translation of overseas operations	-	-	-	(26.3)	-	-	-	(26.3)
Net gain on changes in fair value of effective portion of hedges of net investment in overseas operations, net of tax	-	-	-	4.9	-	-	-	4.9
Actuarial loss arising on pension schemes, net of foreign exchange and tax	-	-	(0.5)	-	-	-	-	(0.5)
Total comprehensive income for the year                             -		-	140.8	(21.4)	2.8	-	-	122.2
Distributions to and transactions with owners:
Equity dividends paid	-	-	(45.6)	-	-	-	-	(45.6)
Share-based payments, net of tax	-	-	9.8	-	-	-	-	9.8
Share options exercised from own shares (treasury) purchased	-	-	0.5	-	-	-	-	0.5
Balance at 31 December 2012	6.2	231.4	400.5	50.4	(0.8)	3.1	0.3	691.1

For the year ended 31 December 2011

			Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
		£m		£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2011		6.2		231.4	197.5	75.3	(0.2)	3.1	0.3	513.6
Profit for the year
		-		-	126.3	-	-	-	-	126.3
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax		-		-	-	-	(3.4)	-	-	(3.4)
Foreign exchange movements on translation of overseas operations		-		-	-	(5.5)	-	-	-	(5.5)
Net gain on changes in fair value of effective portion of hedges of net investment in overseas operations, net of tax		-		-	-	2.0	-	-	-	2.0
Actuarial loss arising on pension schemes, net of foreign exchange and tax		-		-	(1.9)	-	-	-	-	(1.9)
Total comprehensive income for the year			-	-	124.4	(3.5)	(3.4)	-	-	117.5
Distributions to and transactions with owners:
Equity dividends paid			-	-	(33.8)	-	-	-	-	(33.8)
Share-based payments, net of tax			-	-	6.4	-	-	-	-	6.4
Share options exercised from own shares (treasury) purchased			-	-	0.5	-	-	-	-	0.5
Balance at 31 December 2011			6.2	231.4	295.0	71.8	(3.6)	3.1	0.3	604.2

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

As at 31 December 2012  

	2012	2011
	£m	£m
Assets
Non-current assets
Intangible assets:
Goodwill	526.7	544.5
Other intangible assets	191.5	205.9
	718.2	750.4
Property, plant and equipment	152.5	152.7
Equity-accounted investments	0.6	0.6
Deferred tax assets	16.9	20.6
Retirement benefit assets	3.9	-
	892.1	924.3
Current assets
Inventories	163.8	171.8
Taxation recoverable	6.2	4.3
Trade and other receivables	208.8	220.8
Derivative financial instruments	2.4	0.1
Cash and cash equivalents	40.8	41.6
	422.0	438.6
Assets held for sale	17.6	-
	439.6	438.6
Total assets	1,331.7	1,362.9
Liabilities
Current liabilities
Short-term borrowings	(82.8)	(2.7)
Derivative financial instruments	(12.5)	(1.7)
Trade and other payables	(207.9)	(227.6)
Current tax liabilities	(29.7)	(40.3)
Provisions	(26.4)	(31.9)
	(359.3)	(304.2)
Liabilities held for sale	(9.2)	-
	(368.5)	(304.2)
Net current assets	71.1	134.4
Non-current liabilities
Medium- and long-term borrowings	(200.3)	(383.9)
Derivative financial instruments	-	(12.8)
Other payables	(19.7)	(11.2)
Retirement benefit obligations	(15.9)	(13.1)
Deferred tax liabilities	(36.2)	(33.5)
	(272.1)	(454.5)
Total liabilities	(640.6)	(758.7)
Net assets	691.1	604.2
Equity
Issued share capital	6.2	6.2
Share premium	231.4	231.4
Retained earnings	400.5	295.0
Translation reserve	50.4	71.8
Hedging reserve	(0.8)	(3.6)
Merger reserve	3.1	3.1
Capital redemption reserve	0.3	0.3
Total equity attributable to equity holders of the parent company	691.1	604.2
Total equity and liabilities	1,331.7	1,362.9

Consolidated statement OF cash flowS

For the year ended 31 December 2012 

			2012	2011
		Note	£m	£m
Cash flows from operating activities
Profit after tax			141.3	126.3
Adjustments for:
Tax	5		45.4	39.7
Profit on disposal of businesses			-	(0.1)
Finance costs	4		18.3	17.1
Financial income	4		(8.5)	(7.2)
Depreciation			17.5	14.9
Amortisation of intangible assets			30.1	24.9
Acquisition-related fair value adjustments to inventory			4.5	2.1
Contingent consideration fair value adjustments			-	(1.3)
Gain on sale of property, plant and equipment			(0.1)	(0.4)
Acquisition costs accrued			0.2	-
Equity-settled share-based payment transactions			6.2	6.4
Operating profit before changes in working capital and provisions			254.9	222.4
Increase in trade and other receivables			(1.2)	(7.3)
Increase in inventories			(1.7)	(24.3)
(Decrease)/increase in trade and other payables			(5.5)	9.6
(Decrease)/increase in provisions and employee benefits			(6.7)	4.0
Income tax paid			(52.6)	(35.1)
Net cash from operating activities			187.2	169.3
Cash flows from investing activities
Purchase of property, plant and equipment and software			(28.8)	(29.2)
Proceeds from sale of property, plant and equipment			2.2	0.8
Acquisition of businesses, net of cash acquired			(15.5)	(369.0)
Proceeds from disposal of businesses			-	0.1
Interest received			0.5	0.7
Net cash flows used in investing activities			(41.6)	(396.6)
Cash flows from financing activities
Interest paid			(12.0)	(12.8)
Dividends paid	6		(45.6)	(33.8)
Proceeds from exercise of share options (treasury shares)			0.5	0.5
Proceeds from borrowings			-	295.0
Repayment of borrowings			(87.1)	(45.8)
Net cash flows (used in)/generated from financing activities			(144.2)	203.1
Net Increase/(decrease) in cash and cash equivalents			1.4	(24.2)
Cash and cash equivalents at beginning of year			40.5	63.3
Effect of foreign exchange rate changes			(2.1)	1.4
Cash and cash equivalents at end of year			39.8	40.5

Reconciliation of changes in cash and cash equivalents to movements in net debt

		2012	2011
		£m	£m
Net increase/(decrease) in cash and cash equivalents		1.4	(24.2)
Proceeds from borrowings		-	(295.0)
Repayment of borrowings		87.1	45.8
Effect of foreign exchange rate changes		13.6	3.4
Movement in net debt		102.1	(270.0)
Net debt at start of year		(356.2)	(86.2)
Net debt at end of year		(254.1)	(356.2)

NOTES TO THE ACCOUNTS

1.  PrincipAL accounting policies and basis of preparation

Spectris plc is a public limited company incorporated and domiciled in the United Kingdom, whose shares are publicly traded on the London Stock Exchange.

The preliminary announcement for the year ended 31 December 2012 has been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (adopted IFRS). The financial statements are presented in millions of pounds sterling rounded to the nearest one decimal place and are prepared on the historical cost basis except that derivative financial instruments are stated at fair value.

There have been no significant changes in accounting policies from those set out in Spectris plc's Annual Report 2011. The annual financial information presented in the preliminary announcement for the year ended 31 December 2012 is based on, and is consistent with, that in the group's audited Financial Statements for the year ended 31 December 2012.

There are a number of new standards, amendments to standards and interpretations that are not yet effective for the year ended 31 December 2012 and have not been applied in preparing financial information in the preliminary announcement.  Except for those below, none of these are anticipated to have any impact on the results or Consolidated Statement of Financial Position reported in the preliminary announcement. The group does not plan to adopt these standards early. 

IAS 1 (Amended) 'Presentation of Financial Statements' amends the presentation of 'other comprehensive income' and is effective from periods commencing on or after 1 July 2012.  The main change from this amendment is to require companies to group items presented in 'other comprehensive income' on the basis of whether they are potentially classifiable to the Consolidated Income Statement subsequently (reclassification adjusted).  The amendment does not address which items are presented in other comprehensive income.

IAS19 (Revised) 'Employee Benefits' is effective from periods commencing on or after 1 January 2013.  The principal change requires the replacement of the expected return on assets and the interest charge on pension scheme liabilities with a net financing cost based on the discount rate. Under IAS 19 (Revised) the additional net finance cost for 2012 would have been approximately £0.9m and for 2013 the net finance cost is expected to be approximately £0.2m. 

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

The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The key judgements made in respect of the appropriateness of the group accounting policies relate to:

·      the timing of revenue recognition where the group has some responsibility for installation activity

·      the classification of financial instruments in relation to hedge accounting

·      the classification of retirement benefit arrangements between defined benefit and defined contribution schemes and

·      the point at which development activity meets the cost capitalisation threshold.

The directors do not consider the practical application of any of these judgements to involve significant subjectivity or uncertainty.

The financial information in the preliminary announcement include the results of the company and all of its subsidiary undertakings and associates (equity-accounted investments).

Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Assets, liabilities and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale and an active programme to locate a buyer and complete the sale must have been initiated. Ordinarily the sale should be expected to qualify for recognition as a completed sale within one year from the date of the classification as held for sale.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at foreign exchange rates ruling at the Consolidated Statement of Financial Position date. The revenues and expenses of foreign operations are translated into sterling at average exchange rates. Foreign exchange differences arising on retranslation are recognised directly in a separate translation reserve within the Consolidated Statement of Changes in Equity.

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the Consolidated Statement of Financial Position date are translated at the exchange rate ruling at that date with any exchange differences arising on retranslation being recognised in the Consolidated Income Statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

The financial statements were approved by the Board of Directors on 20 February 2013.

2.  ADJUSTED PERFORMANCE MEASURES

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined as amortisation and impairment of acquisition-related intangible assets, acquisition-related costs and contingent consideration fair value adjustments, acquisition-related fair value adjustments to inventory, profits or losses on termination or disposal of businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan balances, related tax effects and other tax items which do not form part of the underlying tax rate (see Note 5).

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

				2012	2011
Adjusted operating profit				£m	£m
Operating profit as reported under adopted IFRS				196.5	175.8
Net acquisition-related costs and contingent consideration fair value adjustments				0.9	1.8
Acquisition-related fair value adjustments to inventory				4.5	2.1
Amortisation of acquisition-related intangible assets				27.0	21.8
Adjusted operating profit				228.9	201.5

	Materials Analysis			Test and Measurement	In-line Instrumentation	Industrial Controls	2012 Total
Adjusted operating profit by segment - 2012		£m		£m	£m	£m	£m
Operating profit as reported under adopted IFRS		57.0		50.3	60.7	28.5	196.5
Net acquisition-related costs and contingent consideration fair value adjustments			0.1	0.1	0.3	0.4	0.9
Acquisition-related fair value adjustments to inventory			-	-	0.2	4.3	4.5
Amortisation of acquisition-related intangible assets			6.0	5.2	2.7	13.1	27.0
Adjusted operating profit: segment result		63.1		55.6	63.9	46.3	228.9

	Materials Analysis			Test and Measurement	In-line Instrumentation	Industrial Controls	2011 Total
Adjusted operating profit by segment - 2011		£m		£m	£m	£m	£m
Operating profit as reported under adopted IFRS		56.0		48.5	60.3	11.0	175.8
Net acquisition-related costs and contingent consideration fair value adjustments			-	0.3	(0.9)	2.4	1.8
Acquisition-related fair value adjustments to inventory			-	-	0.2	1.9	2.1
Amortisation of acquisition-related intangible assets			4.9	5.9	4.2	6.8	21.8
Adjusted operating profit: segment result		60.9		54.7	63.8	22.1	201.5

Return on sales by segment - 2012	Materials Analysis			Test and Measurement	In-line Instrumentation	Industrial Controls	2012 Total
Using operating profit as reported under adopted IFRS		16.4%		14.6%	19.0%	13.1%	16.0%
Using adjusted operating profit			18.1%	16.1%	20.0%	21.3%	18.6%

Return on sales by segment - 2011	Materials Analysis			Test and Measurement	In-line Instrumentation	Industrial Controls	2011 Total
Using operating profit as reported under adopted IFRS		16.6%		14.0%	19.5%	9.7%	15.9%
Using adjusted operating profit			18.1%	15.8%	20.6%	19.6%	18.2%

		2012		2011
Reconciliation to adjusted profit before tax and adjusted operating profit	Note	£m		£m
Profit before tax as reported under adopted IFRS		186.7		166.0
Add/(deduct):
Net acquisition-related costs and contingent consideration fair value adjustments		0.9		1.8
Acquisition-related fair value adjustments to inventory		4.5		2.1
Amortisation of acquisition-related intangible assets		27.0		21.8
Net gains on retranslation of short-term inter-company loan balances	4	(0.9)		(0.4)
Profit on disposal of businesses	3	-		(0.1)
(Increase)/decrease in fair value of cross-currency interest rate swaps	4	(0.9)		0.4
Adjusted profit before tax		217.3		191.6
Adjusted net finance costs (see below)		11.6		9.9
Adjusted operating profit		228.9		201.5
		2012		2011
Adjusted net finance costs		£m		£m
Net interest costs as reported under adopted IFRS		(9.8)		(9.9)
(Increase)/decrease in fair value of cross-currency interest rate swaps		(0.9)		0.4
Net gains on retranslation of short-term inter-company loan balances		(0.9)		(0.4)
Adjusted net finance costs		(11.6)		(9.9)
		2012		2011
Adjusted operating cash flow		£m		£m
Net cash from operating activities under adopted IFRS		187.2		169.3
Acquisition-related costs paid			0.7	3.1
Income tax paid			52.6	35.1
Purchase of property, plant and equipment and software			(28.8)	(29.2)
Proceeds from sale of property, plant and equipment		2.2		0.8
Adjusted operating cash flow		213.9		179.1

		2012	2011
Adjusted earnings per share		£m	£m
Profit after tax as reported under adopted IFRS		141.3	126.3
Adjusted for:
Net acquisition-related costs and contingent consideration fair value adjustments		0.9	1.8
Acquisition-related fair value adjustments to inventory		4.5	2.1
Amortisation of acquisition-related intangible assets		27.0	21.8
Profit on disposal of businesses		-	(0.1)
(Increase)/decrease in fair value of cross-currency interest rate swaps		(0.9)	0.4
Net gains on retranslation of short-term inter-company loan balances		(0.9)	(0.4)
Tax effect of the above and other non-recurring items		(10.8)	(7.8)
Adjusted earnings		161.1	144.1
Weighted average number of shares outstanding (millions)	117.1		116.2
Adjusted earnings per share (pence)		137.5	124.1

Adjusted diluted earnings per share		2012	2011
Adjusted earnings (as above) (£m)		161.1	144.1
Diluted weighted average number of shares outstanding (millions)		118.5	118.1
Adjusted diluted earnings per share (pence)		135.9	122.0

Basic and diluted earnings per share in accordance with IAS 33 are disclosed in Note 7.

		2012	2011
Analysis of net debt for management purposes		£m	£m
Bank overdrafts		1.0	1.1
Bank loans - secured		-	1.9
Bank loans - unsecured		200.3	298.3
Unsecured loan notes		81.8	85.3
Cross-currency interest rate swaps - currency portion		11.8	11.2
Total borrowings		294.9	397.8
Cash balances		(40.8)	(41.6)
Net debt		254.1	356.2

3.  OPERATING SegmentS

The group has four reportable segments, as described below, which are the group's strategic business units. These units offer different applications, assist companies at various stages of the production cycle and are focused towards specific industries. These segments reflect the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis. The following summary describes the operations in each of the group's reportable segments:

-     Materials Analysis provides products that enable customers to assess structure, composition, quantity and quality of particles and materials, during their R&D process, when assessing raw materials before production, or during the manufacturing process. Our key customers are in the mining, cement, pharmaceutical, chemicals, and electronics industries.

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

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

-     Industrial Controls provides products and solutions that monitor, control, inform, track, and trace during the production process. Our key customers include industrial manufacturing, automotive, electronics, packaging, and life sciences.

Information about reportable segments

	Segment revenue		Inter-segment revenue		External customer revenue		Reportable segment profit
	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m
Materials Analysis	347.8	337.5	0.3	-	348.1	337.5	63.1	60.9
Test and Measurement	345.8	347. 3	(0.4)	(0.4)	345.4	346.9	55.6	54.7
In-line Instrumentation	320.4	309.2	(0.3)	(0.3)	320.1	308.9	63.9	63.8
Industrial Controls	217.8	113.3	(0.6)	(0.4)	217.2	112.9	46.3	22.1
Eliminate inter-segment sales	(1.0)	(1.1)	1.0	1.1	-	-	-	-
Total continuing operations	1,230.8	1,106.2	-	-	1,230.8	1,106.2	228.9	201.5
Net acquisition-related costs and contingent consideration fair value adjustments							(0.9)	(1.8)
Acquisition-related fair value adjustments to inventory							(4.5)	(2.1)
Amortisation of acquisition-related intangibles							(27.0)	(21.8)
Operating profit							196.5	175.8
Profit on disposal of businesses*							-	0.1
Financial income*							8.5	7.2
Finance costs*							(18.3)	(17.1)
Profit before tax							186.7	166.0
Tax*							(45.4)	(39.7)
Profit after tax							141.3	126.3

Reportable segment profit is consistent with that presented to the Chief Operating Decision Maker.  Inter-segment pricing is on an arm's length basis. Segments are presented on the basis of actual inter-segment charges made.

* Not allocated to reportable segments in reporting to the Chief Operating Decision Maker.

Geographical segments

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

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

The following is an analysis of revenue by geographical destination:

	Materials Analysis	Test and Measurement	In-line Instrumentation	Industrial Controls	2012 Total
	£m	£m	£m	£m	£m
UK	11.5	11.9	8.3	6.9	38.6
Germany	23.1	61.1	24.1	11.1	119.4
France	11.0	20.4	8.5	2.3	42.2
Rest of Europe*	54.3	58.2	50.3	8.7	171.5
USA	62.2	62.6	77.1	147.8	349.7
Rest of North America	13.6	5.5	7.5	13.6	40.2
Japan	29.9	28.8	32.3	1.4	92.4
China	49.1	45.7	58.2	9.6	162.6
South Korea	10.9	12.8	10.0	3.9	37.6
Rest of Asia Pacific	49.0	20.4	22.3	8.5	100.2
Rest of the world	33.5	18.0	21.5	3.4	76.4
	348.1	345.4	320.1	217.2	1,230.8

	Materials Analysis	Test and Measurement	In-line Instrumentation	Industrial Controls	2011 Total
	£m	£m	£m	£m	£m
UK	11.8	13.1	8.4	3.3	36.6
Germany	20.0	65.7	28.1	7.7	121.5
France	14.1	20.2	9.3	1.8	45.4
Rest of Europe*	56.2	62.5	52.3	6.0	177.0
USA	60.6	52.7	76.2	68.1	257.6
Rest of North America	11.7	4.7	7.9	6.8	31.1
Japan	28.5	29.1	29.6	0.7	87.9
China	46.9	43.9	50.0	8.5	149.3
South Korea	13.6	12.9	6.1	2.7	35.3
Rest of Asia Pacific	40.8	21.9	20.8	5.5	89.0
Rest of the world	33.3	20.2	20.2	1.8	75.5
	337.5	346.9	308.9	112.9	1,106.2

*Principally in Denmark and Switzerland

4.  FINANCE COSTS AND FINANCIAL INCOME

				2012	2011
Financial income				£m	£m
Interest receivable				0.5	0.7
Increase in fair value of cross-currency interest rate swaps				0.9	-
Net gains on retranslation of short-term inter-company loan balances				0.9	0.4
Expected return on pension scheme assets				6.2	6.1
				8.5	7.2

					2012	2011
Finance costs					£m	£m
Interest payable on loans and overdrafts					12.6	10.5
Decrease in fair value of cross-currency interest rate swaps					-	0.4
Interest cost on pension scheme liabilities					5.7	6.0
Other finance costs					-	0.2
					18.3	17.1

Net interest costs of £12.1m (2011: £9.8m) for the purposes of the calculation of interest cover comprise of bank interest receivable of £0.5m (2011: £0.7m), and interest payable on loans and overdrafts of £12.6m (2011: £10.5m).

5.  TAXATION

	UK	Overseas	2012 Total	UK	Overseas	2011 Total
	£m	£m	£m	£m	£m	£m
Current tax charge	5.3	44.3	49.6	6.3	41.9	48.2
Adjustments in respect of current tax of prior years	(0.3)	(2.7)	(3.0)	(0.4)	(1.5)	(1.9)
Deferred tax - origination and reversal of temporary differences	(0.6)	(0.6)	(1.2)	(3.3)	(3.3)	(6.6)
	4.4	41.0	45.4	2.6	37.1	39.7

The standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the group's profits, is 29.4% (2011: 28.5%). The tax charge for the year is lower than the standard rate of corporation tax for the reasons set out in the following reconciliation:

		2012	2011
		£m	£m
Profit before taxation		186.7	166.0
Corporation tax at standard rate of 29.4% (2011: 28.5%)		54.9	47.3
Non-taxable income and gains		(5.7)	(3.8)
Non-deductible expenditure		2.0	1.8
Movements on unrecognised deferred tax assets		0.3	0.5
Research and development tax incentives		(3.8)	(3.4)
Other current year tax items		0.4	(0.3)
Change in tax rates		0.1	(0.1)
Other adjustments to prior year current and deferred tax charges		(2.8)	(2.3)
Total taxation		45.4	39.7

Factors that may affect the future tax charge:

The group's tax charge in future years is likely to be affected by the proportion of profits arising, and the effective tax rates, in the various territories in which the group operates.

Tax on items recognised directly in other comprehensive income		2012	2011
		£m	£m
Tax on net gain/(loss) on effective portion of changes in fair value of forward exchange contracts		1.0	(0.4)
Tax on actuarial gain/(loss) arising on pension schemes, net of foreign exchange		0.1	(0.7)
Aggregate current and deferred tax charge/(credit) relating to items that are charged directly to the Consolidated Statement of Comprehensive Income		1.1	(1.1)

Tax on items recognised directly in the Consolidated Statement of Changes in Equity		2012	2011
		£m	£m
Tax on share based payments		(3.6)	(0.1)
Aggregate current and deferred tax credit on items recognised directly in the Consolidated Statement of Changes in Equity		(3.6)	(0.1)

The following tax charges relate to items of income and expense that are excluded from the group's adjusted performance measures.

Tax on items of income and expense that are excluded from the group's adjusted profit before tax			2012	2011
			£m	£m
Tax charge/(credit) on unrealised change in fair value of cross-currency interest rate swaps			0.2	(0.1)
Tax credit on amortisation of intangible assets			(9.1)	(6.5)
Tax credit on acquisition-related costs			(0.1)	(0.4)
Tax credit on acquisition-related fair value adjustments to inventory			(1.6)	(0.8)
Tax credit on retranslation of short-term inter-company loan balances			(0.2)	-
Total tax credit			(10.8)	(7.8)

The effective adjusted tax rate for the year was 25.9% (2011: 24.8%) as set out in the reconciliation below:

Reconciliation of total tax charge on adopted IFRS basis to adjusted tax charge	2012	2011
	£m	£m
Total tax charge on adopted IFRS basis	45.4	39.7
Tax credit on items of income and expense that are excluded from the group's adjusted profit before tax	10.8	7.8
Adjusted tax charge	56.2	47.5
Adjusted profit before tax	217.3	191.6

6.  DIVIDENDS

									2012	2011
Amounts recognised and paid as distributions to owners of the parent company in the year								£m		£m
Final dividend for the year ended 31 December 2011 of 25.4p (2010: 20.9p) per share								29.8		24.3
Interim dividend for the year ended 31 December 2012 of 13.5p (2011: 8.2p) per share								15.8		9.5
									45.6	33.8
									2012	2011
Amounts arising in respect of the year:									£m	£m
Interim dividend for the year ended 31 December 2012 of 13.5p (2011: 8.2p) per share									15.8	9.5
Proposed final dividend for the year ended 31 December 2012 of  25.5p (2011: 25.4p) per share								29.9		29.6
							45.7			39.1

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

7.  Earnings per share

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

Basic earnings per share	2012	2011
Profit after tax (£m)	141.3	126.3
Weighted average number of shares outstanding (millions)	117.1	116.2
Basic earnings per share (pence)	120.7	108.7

Diluted earnings per share	2012	2011
Profit after tax (£m)	141.3	126.3
Basic weighted average number of shares outstanding (millions)	117.1	116.2
Weighted average number of dilutive 5p ordinary shares under option (millions)	2.1	2.6
Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions)	(0.7)	(0.7)
Diluted weighted average number of shares outstanding (millions)	118.5	118.1
Diluted earnings per share (pence)	119.2	106.9

8.  Company Information

The financial information included in the preliminary announcement does not constitute statutory accounts of the Company for the years ended 31 December 2012 and 2011. Statutory accounts for the year ended 31 December 2011 have been reported on by the Company's auditor and delivered to the registrar of companies. Statutory accounts for the year ended 31 December 2012 have been audited and will be delivered to the Registrar of Companies following the company's Annual General Meeting. The report of the auditors for both years was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

9.  annual report 

The annual report will be made available to shareholders on [20] March 2013, either by post or on-line, and will be available to the general public on the company's website at www.spectris.com or on written request to the registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD.

 

END

 

 

FR VKLFFXLFZBBX