Interim Results
Spectris PLC
05 September 2006
Date: Embargoed until 7.00am, Tuesday 5 September 2006
Contact: John O'Higgins, Chief Executive, Spectris plc Tel: 01784 470470
Richard Mountain, Financial Dynamics Tel: 020 7269 7291
2006 INTERIM RESULTS
Spectris plc, the precision instrumentation and controls company, announces
interim results for the six months ended 30 June 2006.
2006 2005
Half year Half year Increase
Sales from continuing businesses # (£m) 323.4 299.7 8%
Adjusted operating profit from continuing 32.4 27.4 18%
businesses # (£m) *
Sales (£m) 327.3 307.2 7%
Adjusted operating profit (£m) * 32.7 27.8 18%
Adjusted profit before tax (£m) * 27.5 21.1 30%
Adjusted earnings per share (pence) * 15.7 12.7 24%
Statutory
Profit before tax (£m) 36.9 16.5 124%
Basic earnings per share (pence) 20.7 5.9 251%
Dividend (pence) 5.0 4.6 9%
# Continuing businesses excludes Arcom Control Systems which was divested in the first quarter
* For adjusted figures see explanatory note on page 2
Highlights
• All divisions showed sales growth from continuing businesses
• Operating margins improved to 10%
• Operating profit to cash conversion rate of 113%
• Net debt reduced by £25 million to £95 million
• Dividend increased by 9%
Commenting on the results, John O'Higgins, Chief Executive, said:
'With sales, profits and earnings per share all well ahead of last year, these
results are encouraging. We remain confident of continued progress in the second
half of 2006.'
Explanatory notes for reading the interim announcement
1. Spectris uses adjusted figures as key performance measures. Adjusted
figures are stated before amortisation of acquisition-related intangible assets,
goodwill charges, profits or losses on termination or disposal of businesses or
major fixed assets, unrealised changes in the fair value of financial
instruments, related tax effects and other tax items which do not form part of
the underlying tax rate. The differences between the adjusted and unadjusted
measures are reconciled in Note 2.
2. The narrative that follows is based on the adjusted measures of operating
profit, profit before tax and earnings per share. Unless otherwise stated, all
sales and operating profit figures exclude the Arcom business which was divested
in the first quarter.
CHAIRMAN'S STATEMENT
Overview
As indicated in the trading update in July, sales, profits and earnings per
share all increased in the first half of 2006 compared with the corresponding
period in 2005.
Sales in the first half increased by 8% from £299.7 million to £323.4 million
and operating profit increased by 18% from £27.4 million to £32.4 million.
Operating margins increased from 9.1% to 10.0%, due partly to the growth in
volume but also as a result of the continuation of management actions to improve
margins, including overhead containment where appropriate.
Earnings per share increased from 12.7p to 15.7p on a tax rate of 29% (2005:
27%). Cash conversion was good with 113% of operating profit converted into
cash. Net debt was £95.2 million at the half year compared with £119.9 million
at the prior year end. Interest costs were £5.1 million, giving an annualised
interest cover of 7.0 times.
The Board proposes to pay an interim dividend of 5.0p (2005: 4.6p), an increase
of 9%. The dividend will be paid on 17 November 2006 to shareholders on the
register at 20 October 2006.
Board changes
I am pleased to welcome Clive Watson, who will join the Board on 1 October as
Group Finance Director to replace Steve Hare. Clive was previously Chief
Financial Officer and Executive Vice President for Business Support at Borealis,
a leading provider of plastics solutions, and brings with him considerable
international financial experience. I should like to take this opportunity to
thank Steve for his contribution to Spectris. Non-executive directors Martin
Lamb and Professor Leo Murray retired from the Board in May and I should also
like to thank them for their contribution to the development of the company. I
am pleased to welcome Peter Chambre, who joined the Board in August, as a
non-executive director.
Outlook
Order intake in the first half exceeded sales. The backlog, together with
current order trends, gives confidence of continued progress in the second half
of 2006. Cost containment, together with cash generation, continues to receive
management attention. These actions represent another step in improving margins
to provide a sound base for the further development of the group.
John Poulter
Chairman
CHIEF EXECUTIVE'S REVIEW
Spectris' results for the first six months of the year represent encouraging
progress towards our objective of improving profitability and operating margins.
All three major geographic regions showed growth on a continuing business basis.
Asia continued to experience good growth, with overall sales up by 15%,
particularly in China where sales were up by 27%. There was a notable increase
in North America, with sales up by 12% following strong growth across several
industry sectors and an overall appreciation of the US dollar. Sales in South
America were up by 36% over the prior period, demonstrating the opportunities in
this emerging market. Sales in Europe increased by 1% and although the UK was
disappointing this was more than offset by strong growth in Germany.
Gross margins were maintained. Operating margins improved from 9.1% to 10.0%,
reflecting the increased volume and a continued focus on overhead containment.
Overall headcount was flat, despite some increases in emerging geographies.
Sector performance
All businesses in the Process Technology sector achieved sales and profit
growth, with sales up by 13% from £141.5 million to £160.0 million and profit up
by 53% from £11.0 million to £16.8 million. Operating margins improved from 7.8%
to 10.5%. Sales at Bruel & Kjaer Sound & Vibration increased, thanks to strong
activity in the environmental noise management market, and profits improved
significantly. Malvern performed well. In April, Malvern was awarded the Queen's
Award for Enterprise, in recognition of the company's export sales, which have
increased by 76% over the past six years. At the end of the second quarter,
Malvern acquired the business and assets of Spectral Dimensions Inc. This
US-based business is a leader in infrared-based chemical imaging
instrumentation, primarily for the pharmaceutical and fine chemical industries.
Fusion UV Systems benefited from the growth in demand for industrial coatings,
with good results in North America and Asia. Particle Measuring Systems grew
sales and profits, largely as a result of increased market presence in the
pharmaceutical industry. PANalytical saw good growth in sales and profits,
particularly in North America, with the electronics and semiconductor industries
proving particularly attractive, and in Asia, where the company acquired its
distributor in Korea to provide a direct sales and support operation in this
important market.
In-line Instrumentation achieved sales growth of 3% from £95.5 million to £98.1
million with profit growing by 8% from £8.0 million to £8.6 million. Operating
margins improved from 8.4% to 8.8%. BTG's Duroblade product range had a strong
first half, driven by higher sales as paper manufacturers strive to improve
productivity and reduce downtime. However, a continued lack of investment in
capital equipment had an impact on sales in the paper instrumentation business.
As part of the strategic change at Bruel & Kjaer Vibro towards a systems-based
business, the company launched its new offering, the VibroControl 6000 safety
monitoring system, designed for continuous on-line safety and fault prevention
monitoring. Profitability was affected by a one-off cost associated with
restructuring the business in Europe to reflect this change in strategy. Sales
were flat at Beta LaserMike, but profitability improved due to tight control of
overheads. Gross margins improved significantly at Spectrum Inspection Systems
on the elimination of lower margin business. As a result, profitability and cash
flow also improved. Ircon improved its sales coverage and performed well. NDC
grew sales in its key North American market, which benefited from renewed
capital expenditure in the web industry, and China also continued to perform
strongly. Servomex saw strong demand in North America as refinery and
petrochemical plant customers invested in operations following damage to
facilities as a result of last year's hurricanes.
Sales in the Electronic Controls sector increased from £62.7 million in 2005 to
£65.3 million and operating profits reduced from £8.4 million to £7.0 million.
Operating margins were 10.7% compared with 13.4% in the prior period. The
decrease in profits in this sector was due to lower profitability at HBM, where
sales were flat but profits were affected by continued product rationalisation
and one-off costs relating to the next phase of the transfer of load cell
manufacturing to China. Red Lion Controls benefited from buoyant demand in North
America and grew market share. Microscan also showed strong growth.
Financial review
At the end of the first quarter of 2006, the group divested the Arcom business.
Note 2 of the interim financial statements sets out the impact that this has had
on the results of the group. The commentary that follows relates to the total
group results including the Arcom business.
Overall sales in the first half increased by 7% from £307.2 million to £327.3
million and adjusted operating profit increased by 18% from £27.8 million to
£32.7 million. Aside from the impact from sales growth, operating profits
benefited from the continuing actions taken to improve margins. The overall
effect of exchange rates was to increase sales by 2%, or £6.6 million, of which
the positive contribution to profit was approximately £1.4 million. However this
was more than offset by restructuring and other one-off charges. The impact of
bolt-on acquisitions on the first half result was modest. Unadjusted operating
profits, after including acquisition-related intangible asset amortisation
charges of £0.7 million (2005: £0.5 million) increased from £27.3 million to
£32.0 million.
Interest charges, including IAS 19 pension charges, reduced from £6.7 million to
£5.2 million, reflecting a reduction in net debt over the period of £24.7
million. Adjusted profits before tax increased by 30% from £21.1 million to
£27.5 million. After also including acquisition-related intangible asset
amortisation charges, £9.5 million profit on disposal of the Arcom business,
unrealised gains on the group's cross-currency interest rate swaps of £0.6
million (2005: unrealised loss of £4.5 million including a loss relating to
average rate options), and £0.4 million of other financial income in the prior
year result, the group's unadjusted profits before tax increased by 124% from
£16.5 million to £36.9 million.
Based on the forecast for the full year, the underlying tax rate for the half
year was 29% (2005: 27%), reflecting our longer-term expectation of a move
towards the weighted average statutory tax rate.
Adjusted earnings per share increased by 24% from 12.7p to 15.7p as the combined
effects of higher operating profits and lower interest charges were offset
slightly by the higher tax rate. Basic earnings per share increased by 251% from
5.9p to 20.7p. In addition to the factors above, this increase primarily
reflects the profit realised on disposal of the Arcom business, unrealised gains
and losses on the group's cross-currency interest rate swaps and average rate
options, and inclusion of exceptional tax charges on dividends from EU
subsidiaries in the prior half year result.
Cash conversion was high, with 113% of operating profits converted into cash.
Factors contributing to the conversion rate in excess of our 100% target
included reduced working capital levels as a percentage of sales, capital
expenditure below the level of depreciation and some charges for restructuring
which have not yet resulted in cash outflows.
Net proceeds from the disposal of Arcom Control Systems were £13.5 million,
after taking account of transaction costs. This, together with the cash
generated by the group in the first half of the year, has driven net debt down
by £24.7 million to £95.2 million, compared with £119.9 million at the start of
the year. In July the group repaid its $100 million US Private Placement loan
note borrowings, taken out in 1996, as scheduled. This repayment was funded
substantially through the use of surplus cash resources with a small proportion
borrowed from existing committed facilities.
Operational priorities
The launch of several new products and applications in the second half will
enable our businesses to maintain their leading market positions and grow market
share. Actions to reduce costs, including headcount constraints, increasing the
sourcing of components from lower-cost regions and reducing inventory, continue
to be a priority for management and will deliver further benefits in the future.
John O'Higgins
Chief Executive
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in a live webcast
commencing at 08.30 on the company's website at www.spectris.com.
Copies of this notice are available to the public from the registered office at
Station Road, Egham, Surrey TW20 9NP, and on the company's website at
www.spectris.com.
CONSOLIDATED INCOME STATEMENT
For the half year to 30 June 2006
2006 2005 2005
Half year Half year Full year
£m £m £m
Notes
Continuing operations
3 Revenue 327.3 307.2 655.9
Cost of sales (138.7) (131.0) (278.6)
Gross profit 188.6 176.2 377.3
Net operating expenses (156.6) (148.9) (312.4)
32.0 27.3 64.9
2 Operating profit
4 Profit on disposal of business 9.5 - -
5 Financial income 4.1 2.4 6.6
5 Finance costs (8.7) (13.2) (20.7)
Profit before tax 36.9 16.5 50.8
6 Taxation - UK (0.6) (2.8) (0.5)
6 Taxation - Overseas (10.6) (6.5) (15.1)
Profit after tax for the period from continuing 25.7 7.2 35.2
operations attributable to equity shareholders
7 Basic earnings per share 20.7p 5.9p 28.8p
7 Diluted earnings per share 20.7p 5.9p 28.8p
8 Interim and final dividends in respect of the 5.0p 4.6p 15.8p
period (per share)
8 Dividends paid during the period (per share) 11.2p 10.25p 14.85p
Spectris uses adjusted figures as key performance measures in addition to those
reported under IFRS. Adjusted figures are stated before amortisation of
acquisition-related intangible assets, goodwill charges, profits or losses on
termination or disposal of businesses or major fixed assets, unrealised changes
in the fair value of financial instruments, related tax effects and other tax
items which do not form part of the underlying tax rate.
Reconciliations showing how the adjusted performance measures are derived from
those reported under IFRS are set out in Note 2.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the half year to 30 June 2006
2006 2005 2005
Half year Half year Full year
£m £m £m
Net gain/(loss) on effective portion of changes in fair 1.6 (1.3) (1.3)
value of forward exchange contracts
Deferred tax on changes in fair value of forward exchange (0.5) - 0.4
contracts
Net gain/(loss) on changes in fair value of effective 3.3 2.7 (1.9)
portion of net investment hedge
Actuarial gain/(loss) arising on pension schemes 0.4 1.0 (4.1)
Current and deferred tax on actuarial gain on pension (0.1) (0.4) 1.3
schemes
Foreign exchange translation differences (5.2) (11.4) -
Current tax on foreign exchange differences - - 0.4
Net expense recognised in equity in respect (0.5) (9.4) (5.2)
of year
Profit for the period 25.7 7.2 35.2
Total recognised income and expense for the period 25.2 (2.2) 30.0
attributable to equity shareholders
Change in accounting policy: adoption of IAS 39, Financial
Instruments: Recognition and Measurement as at 1 January 2005
Hedging reserve:
Fair value of forward exchange contracts - 0.8 0.8
Deferred tax on forward exchange contracts - (0.2) (0.2)
Retained earnings:
Fair value of cross-currency interest rate swaps - (7.6) (7.6)
Fair value of average rate options - 1.7 1.7
Deferred tax on the above - 1.8 1.8
- (3.5) (3.5)
25.2 (5.7) 26.5
CONSOLIDATED BALANCE SHEET
At 30 June 2006
2006 2005 2005
Half year Half year Full year
Notes £m £m £m
Non-current assets
Goodwill 209.6 211.7 209.5
Other intangible assets 5.1 6.2 4.1
Property, plant & equipment 90.1 91.2 92.8
Deferred tax asset 39.4 36.4 44.6
344.2 345.5 351.0
Current assets
Inventories 88.3 96.9 88.2
Derivative financial instruments 1.3 - -
Taxation recoverable - 3.4 0.9
Trade and other receivables 137.2 132.2 150.4
Cash and cash equivalents 101.4 42.3 77.1
4 Assets held for sale - - 5.9
328.2 274.8 322.5
Total assets 672.4 620.3 673.5
Current liabilities
Short-term borrowings (58.5) (10.5) (59.4)
Derivative financial instruments (18.1) (0.7) (0.6)
Trade and other payables (121.7) (122.2) (132.4)
Current tax liabilities (27.6) (35.9) (32.4)
Provisions (15.8) (3.9) (12.3)
4 Liabilities held for sale - - (3.7)
(241.7) (173.2) (240.8)
Net current assets 86.5 101.6 81.7
Non-current liabilities
Medium and long-term borrowings (114.7) (172.6) (121.6)
Derivative financial instruments (13.6) (30.0) (24.7)
Other payables (6.4) (1.3) (6.7)
Retirement benefit obligations (21.6) (19.5) (22.6)
Provisions (1.6) (3.0) (0.6)
Deferred tax liability (1.1) (2.1) (1.0)
(159.0) (228.5) (177.2)
Total liabilities (400.7) (401.7) (418.0)
Net assets 271.7 218.6 255.5
Equity
9 Issued share capital 6.2 6.2 6.2
9 Share premium 230.4 228.2 229.1
9 Retained earnings 35.3 (10.3) 20.1
9 Translation reserve (4.7) (8.2) (2.8)
9 Hedging reserve 1.1 (0.7) (0.5)
9 Merger reserve 3.1 3.1 3.1
9 Capital redemption reserve 0.3 0.3 0.3
Equity shareholders' funds 271.7 218.6 255.5
Total equity and liabilities 672.4 620.3 673.5
CONSOLIDATED CASH FLOW STATEMENT
For the half year to 30 June 2006
2006 2005 2005
Notes Half year Half year Full year
£m £m £m
Cash flows from operating activities
Profit after tax 25.7 7.2 35.2
Adjustments for:
Tax 11.2 9.3 15.6
Profit on disposal of business (9.5) - -
Finance costs 8.7 13.2 20.7
Financial income (4.1) (2.4) (6.6)
Depreciation 6.8 6.4 12.6
Amortisation of intangible assets 0.7 0.5 1.3
Goodwill impairment charge - - 7.4
Loss on sale of property, plant & equipment 0.1 0.4 0.3
Equity settled share-based payment expense 0.3 0.1 0.3
Operating profit before changes in working capital 39.9 34.7 86.8
and provisions
Decrease/(increase) in trade and other receivables 10.4 11.0 (4.5)
(Increase)/decrease in inventories (2.0) (2.8) 6.2
(Decrease)/increase in trade and other payables (9.2) (11.5) 2.8
Increase/(decrease) in provisions and employee 2.6 (3.3) (0.7)
benefits
Corporation tax paid (12.3) (6.6) (15.8)
2 Net cash from operating activities 29.4 21.5 74.8
Cash flows from investing activities
Purchase of property, plant & equipment (4.9) (5.9) (12.3)
Proceeds from sale of property, plant & equipment 0.1 - 0.1
Acquisition of businesses, net of cash acquired (1.7) (2.0) (2.3)
Proceeds from disposal of business 13.5 - -
Interest received 1.3 0.1 1.1
Dividend income - - 0.1
Other financial income - 0.4 1.7
Net cash from investing activities 8.3 (7.4) (11.6)
Cash flows from financing activities
Interest paid (6.5) (6.6) (13.8)
Dividends paid to equity holders of the parent (13.9) (12.4) (18.1)
Share options exercised by issue of share capital 1.0 0.4 1.3
Share options exercised from shares held by Employee 2.7 0.1 1.2
Benefit Trust
Sale of own shares by Employee Benefit Trust 0.9 5.0 9.5
Repayment of borrowings - (0.3) (0.2)
New borrowings - 9.1 -
Net cash from financing activities (15.8) (4.7) (20.1)
Net increase in cash and cash equivalents 21.9 9.4 43.1
Cash and cash equivalents at beginning of period 76.1 34.1 34.1
Effect of foreign exchange rate changes 0.7 (2.7) (1.1)
Cash and cash equivalents at end of period 98.7 40.8 76.1
2006 2005 2005
Notes Half year Half year Full year
£m £m £m
Reconciliation of changes in cash and cash equivalents
to movements in net debt:
Net increase in cash and cash equivalents 21.9 9.4 43.1
Net (increase)/decrease in loans - (8.8) 0.2
Increase in finance lease liabilities - - (0.5)
Borrowings acquired on acquisitions - (0.7) (0.7)
Effect of foreign exchange rate changes 2.8 0.4 (3.1)
Movement in net debt 24.7 0.3 39.0
Net debt at start of period (119.9) (158.9) (158.9)
2 Net debt at end of period (95.2) (158.6) (119.9)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES AND BASIS OF PREPARATION
Spectris plc is a limited company incorporated and domiciled in the United
Kingdom under the Companies Act 1985, whose shares are publicly traded on the
London Stock Exchange.
The condensed consolidated interim financial statements of the company for the
six months ended 30 June 2006 comprise the company and its subsidiaries,
together referred to as the group. These condensed consolidated interim
financial statements are presented in pounds sterling. The consolidated
financial statements of the group for the year ended 31 December 2005 are
available upon request from the company's registered office at Station Road,
Egham, Surrey TW20 9NP.
These condensed consolidated financial statements are drawn up in accordance
with International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards
Board, with the exception of IAS 34 Interim Financial Reporting which has not
been applied in these interim condensed consolidated financial statements. 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 2005.
The accounting policies applied by the group in these condensed consolidated
financial statements are the same as those applied by the group in its
consolidated financial statements for the year ended 31 December 2005.
The interim results are unaudited. The audit report on the 2005 Annual Report
was unqualified and has been filed with the Registrar of Companies. The 2005
Annual Report did not contain a statement under Section 237 (2) or (3) of the
Companies Act 1985.
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amount of assets and liabilities, income and expense.
Actual results may differ from these estimates. In preparing these condensed
consolidated interim financial statements, the significant judgements made by
management in applying the group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the consolidated
statements for the year ended 31 December 2005.
The group's financial risk management objectives and policies are consistent
with that disclosed in the consolidated financial statements for the year ended
31 December 2005.
These condensed consolidated interim financial statements were approved by the
Board of Directors on 5 September 2006.
2. ADJUSTED PERFORMANCE MEASURES
Spectris uses adjusted figures as key performance measures in addition to those
reported under IFRS. Adjusted figures are stated before amortisation of
acquisition-related intangible assets, goodwill charges, profits or losses on
termination or disposal of businesses or major fixed assets, unrealised changes
in the fair value of financial instruments, related tax effects and other tax
items which do not form part of the underlying tax rate (see Note 6).
The adjusted performance measures are derived from the reported figures under
IFRS as follows:
2006 2005 2005
Half year Half year Full year
Adjusted operating profit £m £m £m
Operating profit as reported under IFRS 32.0 27.3 64.9
Amortisation of acquisition-related intangible assets 0.7 0.5 1.2
Goodwill impairment charge - - 7.4
Adjusted operating profit 32.7 27.8 73.5
Adjusted operating profit by segment - June 2006 Process In-line Electronic 2006
technology instrumentation controls Half year
Total
£m
Segment result under IFRS 16.1 8.6 7.3 32.0
Amortisation of acquisition-related intangible assets 0.7 - - 0.7
Adjusted operating profit 16.8 8.6 7.3 32.7
Adjusted operating profit by segment - June 2005 Process In-line Electronic 2005
technology instrumentation controls Half year
Total
£m
Segment result under IFRS 10.5 8.0 8.8 27.3
Amortisation of acquisition-related intangible assets 0.5 - - 0.5
Adjusted operating profit 11.0 8.0 8.8 27.8
Adjusted operating profit by segment - December Process In-line Electronic 2005
2005 technology instrumentation controls Full year
Total
£m
Segment result under IFRS 31.2 15.5 18.2 64.9
Amortisation of acquisition-related intangible assets 1.2 - - 1.2
Goodwill impairment charge - 7.4 - 7.4
Adjusted operating profit 32.4 22.9 18.2 73.5
2006 2005 2005
Half year Half year Full year
Adjusted profit before tax £m £m £m
Profit before tax as reported under IFRS 36.9 16.5 50.8
Amortisation of acquisition-related intangible assets 0.7 0.5 1.2
Goodwill impairment charge - - 7.4
Profit on disposal of business (9.5) - -
Unrealised (gain)/loss on change in fair value (0.6) 2.7 1.1
of cross-currency interest rate swaps
Unrealised loss on change in fair value of - 1.8 1.7
average rate options
Other financial income - (0.4) (1.7)
Adjusted profit before tax 27.5 21.1 60.5
2006 2005 2005
Half year Half year Full year
Operating cash flow £m £m £m
Net cash from operating activities under IFRS 29.4 21.5 74.8
Corporation tax paid 12.3 6.6 15.8
Purchase of property, plant & equipment (4.9) (5.9) (12.3)
Proceeds from sale of property, plant & equipment 0.1 - 0.1
Operating cash flow for management purposes 36.9 22.2 78.4
2006 2005 2005
Adjusted earnings per share Half year Half year Full year
£m £m £m
Profit after tax as reported under IFRS 25.7 7.2 35.2
Adjusted for:
Amortisation of acquisition-related intangible assets 0.7 0.5 1.2
Goodwill impairment charge - - 7.4
Profit on disposal of business (9.5) - -
Unrealised change in fair value of cross-currency (0.6) 2.7 1.1
interest rate swaps
Unrealised change in fair value of average rate - 1.8 1.7
options
Other financial income - (0.4) (1.7)
Tax effect of the above 3.2 0.1 (1.5)
Other tax items not forming part of the underlying - 3.5 0.8
tax rate
Adjusted earnings 19.5 15.4 44.2
Weighted average number of shares outstanding 124.0 121.3 122.1
(millions)
Adjusted earnings per share (pence) 15.7p 12.7p 36.2p
2006 2005 2005
Half year Half year Full year
Analysis of net debt for management purposes £m £m £m
Short-term borrowings 58.5 10.5 59.4
Medium and long-term borrowings 114.7 172.6 121.6
Derivative financial statements - currency portion of 23.4 17.8 16.0
cross-currency interest rate swaps
Total borrowings 196.6 200.9 197.0
Cash balances (101.4) (42.3) (77.1)
Net debt 95.2 158.6 119.9
Additional adjusted performance measures presented following disposal of Arcom
business:
2006 2005 2005
Half year Half year Full year
Analysis of turnover by geographical destination - £m £m £m
excluding Arcom business
UK 16.6 18.8 37.7
Continental Europe 118.4 115.3 238.0
North America 84.1 75.1 160.7
Japan 26.5 25.0 54.0
China 24.9 19.6 45.6
Rest of Asia Pacific 36.1 31.8 69.0
Rest of the world 16.8 14.1 34.8
Total excluding Arcom business 323.4 299.7 639.8
Arcom 3.9 7.5 16.1
Group total 327.3 307.2 655.9
2006 2005 2005
Half year Half year Full year
Adjusted group operating profit - excluding Arcom £m £m £m
business
Operating profit as reported under IFRS - excluding 31.7 26.9 63.2
Arcom business
Amortisation of acquisition-related intangible assets 0.7 0.5 1.2
Goodwill impairment charge - - 7.4
Adjusted operating profit - excluding Arcom business 32.4 27.4 71.8
Excluding the Arcom business, external customer revenue for the Electronic
controls segment was £65.3m in the period to 30 June 2006 (30 June 2005: £62.7m;
31 December 2005: £127.4m).
Excluding the Arcom business, adjusted operating profit for the Electronic
controls segment was £7.0m in the period to 30 June 2006 (30 June 2005: £8.4m;
31 December 2005: £16.5m).
3. SEGMENTAL ANALYSIS
The group's primary reporting format is business segments and its secondary
format is geographical segments.
a) Analysis by business segment
External customer revenue Segment result
2006 2005 2005 2006 2005 2005
Half year Half year Full year Half year Half year Full year
£m £m £m £m £m £m
Process technology 160.0 141.5 310.1 16.1 10.5 31.2
In-line instrumentation 98.1 95.5 202.3 8.6 8.0 15.5
Electronic controls 69.2 70.2 143.5 7.3 8.8 18.2
Total 327.3 307.2 655.9 32.0 27.3 64.9
Profit on disposal of business 9.5 - -
Financial income 4.1 2.4 6.6
Finance costs (8.7) (13.2) (20.7)
Profit before tax 36.9 16.5 50.8
Tax (11.2) (9.3) (15.6)
Profit after tax 25.7 7.2 35.2
The operating businesses are grouped as follows:
Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, Malvern
Instruments, PANalytical, Particle Measuring Systems.
In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, NDC
Infrared Engineering, Servomex, Spectrum Inspection Systems.
Electronic controls: Arcom Control Systems*, HBM, Microscan, Red Lion Controls.
*As described in Note 4, the Arcom business was disposed of on 31 March 2006.
b) Analysis of revenue by geographical segment
The group's business operations are each located in several geographical
locations and sell on to external customers in all parts of the world.
The following is an analysis of revenue by geographical destination:
2006 2005 2005
Half year Half year Full year
£m £m £m
UK 17.7 20.4 41.4
Continental Europe 118.6 116.6 240.1
North America 86.6 78.6 169.6
Japan 26.5 25.0 54.0
China 24.9 19.6 45.6
Rest of Asia Pacific 36.1 32.8 70.4
Rest of the world 16.9 14.2 34.8
Total 327.3 307.2 655.9
4. DISPOSAL OF BUSINESS
During the period, the group disposed of the Arcom business, which was
previously included in the Electronic controls segment. This business was
classified as held for sale at the most recent year end. The total consideration
was £15.1m before associated transaction costs. The disposal gave rise to a
profit of £9.5m.
5. FINANCIAL COSTS AND FINANCIAL INCOME
2006 2005 2005
Half year Half year Full year
Financial income £m £m £m
Bank interest receivable 1.4 0.1 1.0
Dividend income - - 0.1
Unrealised gain in fair value of cross-currency 0.6 - -
interest rate swaps
Expected return on pension scheme assets 2.1 1.9 3.8
Other financial income - 0.4 1.7
4.1 2.4 6.6
Other financial income in 2005 represents a gain made on disposal of the group's
remaining interest in Luxtron Corporation.
2006 2005 2005
Half year Half year Full year
Finance costs £m £m £m
Interest payable on bank loans and overdrafts 0.1 0.4 0.9
Interest payable on other loans 6.4 6.2 12.8
Total interest payable 6.5 6.6 13.7
Unrealised loss in fair value of cross-currency - 2.7 1.1
interest rate swaps
Unrealised loss in fair value of average rate options - 1.8 1.7
Interest cost on pension scheme liabilities 2.2 2.1 4.2
8.7 13.2 20.7
Historically the group has used zero cost average rate options to manage, to a
greater or lesser extent, both transactional and translational foreign currency
exposure. This gave rise to the unrealised loss on the change in fair value of
average rate options in 2005. The last such derivative instrument expired on 31
December 2005 and the group has no current intention of using average rate
options as a hedging instrument in future.
The group manages its transactional exposures to foreign currency risks through
the use of forward exchange contracts. Forward exchange contracts are typically
used to hedge highly probable forecast sale transactions which can be forecast
to occur from anything between 1 and 18 months into the future.
6. TAX ON PROFIT ON ORDINARY ACTIVITIES
The taxation charge for the six months to 30 June 2006 is based on an estimate
of the effective rate of taxation for the current year. The effective rate of
taxation applied to adjusted profits before tax for the half year is 29% (30
June 2005: 27%; 31 December 2005: 27%). A reconciliation of the tax charge on
adjusted profits to the actual tax charge is presented below:
2006 2005 2005
Half year Half year Full year
£m £m £m
The tax charge is analysed as follows:
Tax charge on adjusted profit before tax 8.0 5.7 16.3
Tax credit on amortisation of intangible assets and (0.2) - (1.2)
goodwill impairment charge
Tax charge/(credit) on unrealised loss on change in 0.2 - (0.8)
fair value of financial instruments
Tax charge on other financial income - 0.1 0.5
Material transfers from unrecognised tax assets - 0.7 (2.5)
Material changes in deferred tax rates - - 0.5
Tax charge on dividends received from EU subsidiaries - 2.8 2.8
Tax charge on profit on disposal of business 3.2 - -
Total 11.2 9.3 15.6
7. EARNINGS PER SHARE
Earnings per share and adjusted earnings per share are calculated as follows:
2006 2005 2005
Half year Half year Full year
Basic earnings per share
Profit after tax (£m) 25.7 7.2 35.2
Weighted average number of shares outstanding 124.0 121.3 122.1
(millions)
Basic earnings per share (pence) 20.7 5.9 28.8
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity shareholders of the parent by the weighted
average number of ordinary shares outstanding during the year.
The calculation of diluted earnings per share of 20.7p (30 June 2005: 5.9p; 31
December 2005: 28.8p) is based on the group profit of £25.7m (30 June 2005:
£7.2m; 31 December 2005: £35.2m) and on the diluted weighted average number of
5p ordinary shares in issue during the year of 124.4 million (30 June 2005:
121.5 million, 31 December 2005: 122.4 million).
8. DIVIDENDS
The interim dividend of 5.0p per share (2005 interim dividend: 4.6p per share)
will be payable to ordinary shareholders on the register at the close of
business on 20 October 2006.
9. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the half year to 30 June 2006
Share Share Retained Translation Hedging Merger Capital Total
capital premium earnings reserve reserve reserve redemption equity
reserve
£m £m £m £m £m £m £m £m
At 1 January 2006 6.2 229.1 20.1 (2.8) (0.5) 3.1 0.3 255.5
Gains and losses - period ended
30 June 2006 - - - - - - - -
Total recognised income/(expense) - - 25.5 (1.9) 1.6 - - 25.2
Distributions to and transactions
with shareholders:
Dividends paid - - (13.9) - - - - (13.9)
Share-based payments - - 0.3 - - - - 0.3
Share options exercised by issue of - 1.3 (0.3) - - - - 1.0
share capital
Share options exercised from shares - - 2.7 - - - - 2.7
held by Employee Benefit Trust
Sale of own shares by Employee - - 0.9 - - - - 0.9
Benefit trust
At 30 June 2006 6.2 230.4 35.3 (4.7) 1.1 3.1 0.3 271.7
10. GROUP FUNDING ARRANGEMENTS
Since 30 June 2006, as expected, the $100m 1996 US Private Placement loan notes
were repaid on 15 July 2006. The repayment was funded predominantly from
existing cash resources with the balance funded from available borrowing
facilities. Following this repayment, the group's principal borrowings relate
to its 2000 and 2003 US Private Placement loan notes which have been swapped
into euro denominated borrowings using cross-currency interest rate swaps. In
order to readdress the balance between the group's US dollar and euro
denominated borrowings, given the group's relative investments in euro and US
dollar denominated assets, the group has cancelled the cross-currency interest
rate swap attached to the $75m 2000 US Private Placement loan note borrowings
such that they revert to being US dollar denominated borrowings. There is no
charge to the income statement arising from the cancellation of this
cross-currency swap since the cost of doing so was fully provided for in the
balance sheet at 30 June 2006. Full details of the group's 2000 and 2003 US
Private Placement loan note borrowings are set out in Note 20 of the group's
2005 Annual Report.
11. INTERIM REPORT
Copies of the interim report, which will be posted to shareholders on 8
September 2006, may be obtained from the registered office at Station Road,
Egham, Surrey TW20 9NP. The report will also be available on the company's
website at www.spectris.com.
This information is provided by RNS
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