Interim Results
Spectris PLC
13 September 2005
Date: Embargoed until 7.00am, Tuesday 13 September 2005
Contact: John Poulter, Chairman, Spectris plc Tel: 020 7269 7291 (am)/
Steve Hare, Finance Director, Spectris plc 01784 470470 (pm)
Richard Mountain, Financial Dynamics Tel: 020 7269 7291
2005 INTERIM RESULTS
Spectris plc, the precision instrumentation and controls company, announces
interim results for the six months ended 30 June 2005.
2005 2004
£m Half year Half year* Change
Sales 307.2 283.6 +8%
Adjusted operating profit * 27.8 21.3 +31%
Adjusted profit before tax * 21.1 14.5 +46%
Profit before tax 16.5 14.1 +17%
Adjusted earnings per share * 12.7p 9.2p +38%
Basic earnings per share 5.9p 8.9p -34%
Dividend 4.6p 4.25p +8%
* See explanatory notes on page 2
Commenting on the results, John Poulter, Chairman, said:
'The first half of 2005 saw a significant improvement compared with the
corresponding weak period in 2004. First half sales growth in all major regions,
together with current levels of demand, gives confidence that the company will
show encouraging progress for the year.'
Explanatory notes for reading the interim announcement
1. The results for the six months ended 30 June 2005 represent the Group's
first interim financial statements prepared in accordance with its accounting
policies under International Financial Reporting Standards (IFRS). The 2004
comparative results have been restated as a result.
2. Spectris uses adjusted figures as key performance measures. Adjusted
figures are stated before amortisation of intangible assets, goodwill charges,
profits or losses on disposal of businesses, gains or losses on revaluation of
financial 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 on page 5 and in Note 4.
3. Basic earnings per share reduced from 8.9p to 5.9p. This decrease
primarily reflects an unrealised loss of £4.5m on the revaluation of financial
instruments including £1.8m attributable to average rate options and £2.7m
attributable to the group's cross-currency interest rate swaps, the latter
reflecting a reduction in Euro bond yields in the first half of the year. The
decrease is also driven by a tax charge of £2.8m on dividends received from
EU-based subsidiaries on the basis of current UK tax law. However hearings
within the European Court of Justice might overturn this law, in which case no
tax will be due.
4. The narrative that follows is based on the adjusted measures of operating
profit, profit before tax and earnings per share.
Chairman's statement
Overview
As indicated in the trading update in July, the first half of 2005 saw a
significant improvement compared with the corresponding period in 2004. Sales
increased and profits, earnings per share and cash conversion also rose
strongly. Orders exceeded sales in all three sectors. The percentage increase in
sales and profit was flattered by a weak first half in 2004, but the underlying
position was positive. Growth in Asia was again strong, with Japan showing a
useful improvement.
Actions have been taken to improve margins, for example overhead containment and
the elimination of some lower margin business and products, from which some
benefit has been derived.
Sales in the first half increased by 8% to £307.2 million (2004: £283.6
million). Operating profit increased by 31% to £27.8 million (£21.3 million). In
response to the continuing potential in Asia, Spectris China relocated to larger
premises in Shanghai during the first half, and now occupies a facility which
provides sales, service and applications engineering for a number of companies
within the Spectris group.
Earnings per share increased from 9.2p to 12.7p on a tax rate of 27% (half year
2004: 23%; full year 2004: 25%). The effects of currency were negligible. Cash
conversion was good with 80% of operating profit converted into cash, as actions
to generate cash on a more consistent basis started to take effect. Net debt was
£158.6 million at the half year compared with £158.9 million at the prior year
end. Interest costs were £6.5 million, giving an annualised interest cover of
5.2 times.
The Board proposes to pay an interim dividend of 4.6p (4.25p), an increase of
8%. The dividend will be paid on 18 November 2005 to shareholders on the
register at 21 October 2005.
Board changes
Hans Nilsson, Chief Executive, resigned from the Board in May. The process of
identification of a successor is progressing and, pending an appointment, the
Board has asked me to assume executive responsibility.
Sector performance
Electronic Controls achieved sales growth of 4% from £67.2 million in 2004 to
£70.2 million with profit up 14% from £7.7 million to £8.8 million. Operating
margins improved from 11.5% to 12.5%. The growth was helped by good performances
from Arcom and Microscan. Red Lion Controls and HBM made steady progress.
In-line Instrumentation achieved sales growth of 2% from £93.9 million to £95.5
million with profit growing by 4% from £7.7 million to £8.0 million. Operating
margins improved from 8.2% to 8.4%. Apart from BTG, all businesses improved
their profit performance. A nationwide lock-out by paper mill workers in
Finland, one of the largest paper producing countries, resulted in sales at BTG
being slightly down on the same period last year. Servomex saw strong demand for
transducers from its medical equipment customers and Beta LaserMike has returned
to profitability in recent months. The restructuring at Loma continued and we
expect this business to return to profitability in the second half.
All businesses in the Process Technology sector saw double-digit sales and
profit growth, with sales up 16% from £122.5 million to £141.5 million. Profit
increased by 86% from £5.9 million to £11.0 million. Operating margins improved
from 4.8% to 7.8%. The sales growth was helped by strong demand in Asia for
products at Malvern Instruments and PANalytical. Both companies now have
application laboratories in Shanghai serving the rest of Asia as well as China.
Malvern signed a multi-year contract to provide instruments for cement
production lines in north and south America, reflecting its strength in the
process business. Particle Measuring Systems grew sales strongly compared with
the prior year, assisted by demand from the flat panel display and
pharmaceutical industries, despite a slowdown in capital equipment expenditure
in the semiconductor industry. Performance at Bruel & Kjaer Sound & Vibration
improved compared with the prior year and the benefits of the acquisition of the
Japanese distributor in 2004 were demonstrated by increased sales in the region,
particularly to the automotive industry. Fusion UV Systems saw steady growth,
particularly in the flat panel display and optical media industries, and
benefited from the improving economic climate in Japan.
Outlook
We anticipate that the normal bias towards the second half will be at more
traditional levels than in 2004. If current exchange rates prevail, the effect
on profitability will be negligible. The effect on sales of higher oil prices
has been mixed, with businesses such as Servomex and Bruel & Kjaer Vibro seeing
increased demand as oil producers and processors invest in new or improved
capacity, whereas customers manufacturing polymer-based products, such as
packaging film, have been adversely affected.
The actions in progress to constrain overheads will show positive results on
margins in the second half. First half sales growth in all major regions,
together with current levels of demand, gives confidence that the company will
show encouraging progress for the year.
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in a live webcast
commencing at 8.30 AM 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 2005
Notes 2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
2 Revenue 307.2 283.6 614.1
Cost of sales (131.0) (122.1) (262.5)
Gross profit 176.2 161.5 351.6
Net operating expenses (148.9) (140.6) (300.4)
2 Operating profit 27.3 20.9 51.2
Loss on sale or termination of businesses - - (1.2)
Financial income 0.4 - -
Net interest payable (6.5) (6.6) (13.8)
6 Loss on revaluation of financial instruments (4.5) - -
Other finance costs (0.2) (0.2) (0.3)
Financial costs (11.2) (6.8) (14.1)
Profit before taxation 16.5 14.1 35.9
3 Taxation - UK (2.8) - (9.5)
3 Taxation - Overseas (6.5) (3.4) (2.8)
Profit after tax attributable to equity 7.2 10.7 23.6
shareholders
4 Basic earnings per share (p) 5.9 8.9 19.5
4 Diluted earnings per share (p) 5.9 8.8 19.5
5 Dividends per share (p)** 4.6 4.25 14.5
4 Average number of shares in issue (millions)** 121.3 120.9 120.9
Reconciliation of adjusted operating profit**:
Operating profit as reported 27.3 20.9 51.2
Amortisation of intangible assets 0.5 0.4 1.2
2 Goodwill reduction - - 12.2
Adjusted operating profit 27.8 21.3 64.6
Reconciliation of adjusted profit before tax**:
Profit before tax as reported 16.5 14.1 35.9
Amortisation of intangible assets 0.5 0.4 1.2
2 Goodwill reduction - - 12.2
Loss on sale or termination of businesses - - 1.2
Financial income (0.4) - -
Loss on revaluation of financial instruments 4.5 - -
Adjusted profit before tax 21.1 14.5 50.5
** This information is not required to be presented by IFRS but is presented
here as additional information.
CONSOLIDATED BALANCE SHEET
At 30 June 2005
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Non-current assets
Goodwill 211.7 221.1 219.0
Other intangible assets 6.2 6.0 5.2
Property, plant & equipment 91.2 90.1 93.7
Financial assets - 0.5 -
Deferred tax asset 30.1 25.8 33.5
339.2 343.5 351.4
Current assets
Inventories 96.9 92.9 94.0
Taxation recoverable 3.4 9.2 16.5
Trade and other receivables 132.2 126.8 145.8
Cash and cash equivalents 42.3 37.5 34.4
274.8 266.4 290.7
Total assets 614.0 609.9 642.1
Current liabilities
Short-term borrowing (10.5) (28.0) (0.3)
Trade and other payables (122.9) (119.4) (138.8)
Current tax liabilities (35.9) (28.7) (48.7)
Provisions (3.9) (7.0) (7.0)
(173.2) (183.1) (194.8)
Net current assets 101.6 83.3 95.9
Non-current liabilities
Medium and long-term borrowings (190.4) (187.0) (193.0)
Other payables (13.5) (0.9) (1.1)
Retirement benefit obligations (13.2) (12.0) (14.0)
Provisions (3.0) (3.9) (2.5)
Deferred tax liability (2.1) (2.1) (1.9)
(222.2) (205.9) (212.5)
Total liabilities (395.4) (389.0) (407.3)
Net assets 218.6 220.9 234.8
Equity
Share capital 6.2 6.2 6.2
Share premium account 228.2 227.3 227.8
Retained earnings (0.7) 6.9 11.1
Treasury shares (9.6) (15.0) (14.2)
Translation reserve (8.2) (7.9) 0.5
Hedging reserve (0.7) - -
Merger reserve 3.1 3.1 3.1
Capital redemption reserve 0.3 0.3 0.3
Total equity attributable to the equity holders of the 218.6 220.9 234.8
parent
Total equity and liabilities (614.0) (609.9) (642.1)
CONSOLIDATED CASH FLOW STATEMENT
For the half year to 30 June 2005
2005 2004 2004
Half year Half year Full year
(restated) (restated)
Notes £m £m £m
Cash flows from operating activities
Profit on ordinary activities before tax 16.5 14.1 35.9
Loss on sale or termination of businesses - - 1.2
Financial income (0.4) - -
Financial costs 11.2 6.8 14.1
Depreciation 6.4 6.4 13.4
Amortisation - other intangibles 0.5 0.4 1.3
Goodwill reduction - - 12.2
Loss on sale of tangible fixed assets 0.4 - 0.4
Equity settled share-based payment expenses 0.1 0.2 0.4
Operating profit before changes in working 34.7 27.9 78.9
capital and provisions
(Increase)/decrease in trade and other 11.0 5.3 (15.0)
receivables
(Increase)/decrease in inventories (2.8) (9.7) (9.3)
Increase/(decrease) in trade and other payables (11.5) (7.0) 12.1
Increase/(decrease) in provisions and employee (3.3) (0.8) (2.4)
benefits
Corporation tax paid (6.6) (3.3) (7.7)
7 Net cash from operating activities 21.5 12.4 56.6
Cash flows from investing activities
Purchase of tangible fixed assets (5.9) (7.2) (16.5)
Proceeds from sale of tangible fixed assets - 0.3 0.7
Purchase of intangible fixed assets - (2.1) (2.2)
Purchase of subsidiary undertakings (net of cash (2.7) (6.7) (8.3)
acquired)
Financial income 0.4 - -
Interest received 0.1 0.1 0.4
Net cash from investing activities (8.1) (15.6) (25.9)
Cash flows from financing activities
Interest paid (6.6) (7.1) (14.2)
Equity dividends paid (12.4) (11.2) (16.3)
Proceeds from issue of share capital 0.4 0.2 0.7
Sale of treasury shares by Employee Benefit 5.1 0.2 0.2
Trust
Repayment of borrowings (0.3) (0.3) (0.8)
New loans 10.6 28.0 2.3
Net cash from financing activities (3.2) 9.8 (28.1)
Net increase in cash and cash equivalents 10.2 6.6 2.6
Cash and cash equivalents at beginning of period 34.4 31.7 31.7
Effect of foreign exchange rate changes (2.3) (0.8) 0.1
Cash and cash equivalents at end of period 42.3 37.5 34.4
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Additional information: Reconciliation of changes in cash and cash equivalents
to movements in net debt:
Net increase in cash and cash equivalents 10.2 6.6 2.6
Net increase in loans (10.3) (27.7) (1.5)
Effect of foreign exchange rate changes 0.4 7.0 3.4
Movement in net debt 0.3 (14.1) 4.5
Net debt at start of period (158.9) (163.4) (163.4)
Net debt at end of period (158.6) (177.5) (158.9)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the half year to 30 June 2005
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Net loss on cash flow hedges (1.3) - -
Actuarial gain/(loss) arising on pension schemes 1.0 - (3.4)
Tax on actuarial gain/(loss) on pension schemes (0.4) - 1.1
Net gain on hedge of net investment in foreign 2.7 - -
subsidiaries
Foreign exchange translation differences (11.4) 0.8 (0.9)
Income and expense recognised directly in equity (9.4) 0.8 (3.2)
Profit for the period 7.2 10.7 23.6
Total recognised income and expense for the period (2.2) 11.5 20.4
attributable to equity shareholders
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the half year to 30 June 2005
Share Share Treasury Retained Translation Hedging Merger Capital Total
capital premium shares earnings reserve reserve reserve redemption equity
reserve
At 31 December 2004 6.2 227.8 (14.2) 11.1 0.5 - 3.1 0.3 234.8
Adjustment on adoption of IAS39 - - - (7.7) - 0.6 - - (7.1)
Fair value of financial instruments
At 1 January 2005 6.2 227.8 (14.2) 3.4 0.5 0.6 3.1 0.3 227.7
Profit for the period - - - 7.2 - - - - 7.2
Dividends paid - - - (12.4) - - - - (12.4)
Net loss on cash flow hedges - - - - - (1.3) - - (1.3)
Sale of treasury shares by Employee - - 4.6 0.5 - - - - 5.1
Benefit Trust
Issue of share capital - 0.4 - - - - - - 0.4
Actuarial gain on pension schemes - - - 1.0 - - - - 1.0
Tax on actuarial gain on pension - - - (0.4) - - - - (0.4)
schemes
Share based payments - - - 0.1 - - - - 0.1
Exchange differences - - - - (8.7) - - - (8.7)
Other - - - (0.1) - - - - (0.1)
At 30 June 2005 6.2 228.2 (9.6) (0.7) (8.2) (0.7) 3.1 0.3 218.6
NOTES TO THE ACCOUNTS
1. PRINCIPAL ACCOUNTING POLICIES AND BASIS OF PREPARATION
In common with other European listed companies, Spectris plc has been required
to adopt International Financial Reporting Standards (IFRS) with effect from 1
January 2005. The results for the six months ended 30 June 2005 represent the
Group's first interim financial statements prepared in accordance with its
accounting policies under IFRS. The Group's first IFRS Annual Report and
Accounts will be for the year ended 31 December 2005.
The interim financial statements have been prepared on the basis of the
accounting policies set out in 'Adoption of International Financial Reporting
Standards', a separate document issued on 15 June 2005 that has been published
on the Spectris website (www.spectris.com) and which is also available on
request. Further disclosure concerning the impact of IFRS on the financial
statements of the group can also be found in that document including the
reconciliations required by IFRS1 'First Time Adoption of International
Financial Reporting Standards'.
The accounting policies are drawn up in accordance with those International
Accounting Standards (IAS) and International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB) that are
expected to be endorsed and applicable when the accounts for the year ending 31
December 2005 are prepared. In particular, these interim financial statements
have been prepared on the basis of the amendment to IAS19 'Employee Benefits',
which is not yet formally endorsed, which allows actuarial gains and losses to
be recognised in full through reserves. Spectris expects to use consistent
accounting policies for the preparation of its results for the year ending 31
December 2005. However, there is a possibility that the accounting policies may
need to be updated because interpretations may be issued by the International
Financial Reporting Interpretations Committee (IFRIC) that will be mandatory,
new standards may yet be issued by the IASB that will be mandatory, or the
interpretation of existing IAS or IFRS may evolve.
The 2004 comparatives included within these interim financial statements are
based on the 2004 financial statement extracts restated for IFRS published on 15
June 2005 in the 'Adoption of International Financial reporting Standards'
document, subject to minor differences in presentation. Additionally, the
restated amount of goodwill as at 31 December 2004 has been increased by £0.5m
to more correctly reflect the impact of exchange differences. This adjustment
does not impact on the income statement.
The interim results are unaudited. The financial information herein does not
amount to full statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (as amended). As described above, the figures for the year
to 31 December 2004 have been extracted from the IFRS restatements included
within the 'Adoption of International Financial Reporting Standards' document,
issued on 15 June 2005, which were themselves based on the 2004 Annual Report
which has been filed with the Registrar of Companies. The audit report on the
2004 Annual Report was unqualified and did not contain a statement under Section
237 (2) or (3) of the Companies Act 1985.
The interim financial statements were authorised for issuance on 13 September
2005.
2. SEGMENTAL ANALYSIS
a) Analysis by class of business
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Revenue
Electronic controls 70.2 67.2 139.7
In-line instrumentation 95.5 93.9 198.4
Process technology 141.5 122.5 276.0
Total revenue 307.2 283.6 614.1
Operating profit
Electronic controls 8.8 7.7 17.2
In-line instrumentation 8.0 7.7 20.6
Process technology 11.0 5.9 26.8
27.8 21.3 64.6
Goodwill reduction - - (12.2)
Amortisation of intangible assets (0.5) (0.4) (1.2)
Operating profit 27.3 20.9 51.2
The goodwill reduction relates to the corresponding recognition of a deferred
tax asset in 2004 required under IAS12. It is attributable to In-line
instrumentation (£0.2m) and Process technology (£12.0m).
Amortisation of intangible assets is all attributable to Process technology.
The operating businesses are grouped as follows:
Electronic controls: Arcom, HBM, Microscan, Red Lion Controls.
In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, Loma
Systems, NDC Infrared Engineering, Servomex.
Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, Malvern
Instruments, Particle Measuring Systems, PANalytical.
b) Analysis of turnover by geographical destination
2005 2004 2004
Half year Half year Full year
(restated)* (restated)
£m £m £m
UK 20.4 20.3 39.4
Continental Europe 116.6 110.2 242.1
North America 78.6 74.6 157.3
Japan 25.0 20.0 46.2
China 19.6 18.5 40.3
Rest of Asia Pacific 32.8 25.9 59.1
Rest of the world 14.2 14.1 29.7
Total 307.2 283.6 614.1
* In addition to the impact of transition to International Financial Reporting
Standards (IFRS), the June 2004 comparatives also include a restated allocation
of sales between China and rest of Asia Pacific.
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
The taxation charge for the six months to 30 June 2005 is based on an estimate
of the effective rate of taxation for the current year. The effective rate of
taxation applied to adjusted profit before tax for the half year is 27% (year
ended 31 December 2004: 25%).
The tax charge is analysed as follows:
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Tax charge on adjusted profit before tax 5.7 3.4 12.4
Tax credit on amortisation of intangible assets - - (0.1)
Tax charge on financial income 0.1 - -
Deferred tax charge/(credit) arising on brought 0.7 - (9.8)
forward losses
Tax charge arising on intra-group dividends 2.8 - 9.8
Total 9.3 3.4 12.3
4. EARNINGS PER SHARE
Earnings per share and adjusted earnings per share are calculated as follows:
Earnings Earnings per share
2005 2004 2004 2005 2004 2004
Half Half year Full year Half year Half year Full year
year
(restated) (restated) (restated) (restated)
£m £m £m pence pence pence
Basic earnings and earnings per share 7.2 10.7 23.6 5.9 8.9 19.5
Basic earnings per share attributable to:
Amortisation of intangible assets 0.5 0.4 1.2 0.4 0.3 1.0
Loss on sale or termination of businesses - - 1.2 - - 1.0
Tax credit on amortisation of intangible - - (0.1) - - -
assets
Goodwill reduction - - 12.2 - - 10.1
Loss on revaluation of financial instruments 4.5 - - 3.7 - -
Financial income (0.4) - - (0.3) - -
Tax charge on financial income 0.1 - - 0.1 - -
Deferred tax charge/(credit) arising on 0.7 - (9.8) 0.6 - (8.1)
brought forward losses
Tax charge arising on intra-group 2.8 - 9.8 2.3 - 8.1
dividends
Adjusted earnings and earnings per share 15.4 11.1 38.1 12.7 9.2 31.6
The weighted average number of shares in issue during the period was 121.3 million (2004: 120.9 million).
The calculation of diluted earnings per share of 5.9p (half year 2004 restated: 8.8p; full year 2004 restated:
19.5p) is based on the group profit of £7.2m (half year 2004 restated: £10.7m; full year 2004 restated:
£23.6m) and on the diluted weighted average number of 5p ordinary shares in issue during the year of 121.5
million (2004: 121.1 million).
5. INTERIM DIVIDEND
The interim dividend of 4.6p per share (2004: 4.25p) will be payable on 18
November 2005 to ordinary shareholders on the register at 21 October 2005.
6. LOSS ON REVALUATION OF FINANCIAL INSTRUMENTS
The loss on revaluation of financial instruments relates to the group's average
rate options (£1.8m) and cross-currency interest rate swaps (£2.7m), the latter
reflecting a reduction in Euro bond yields in the first half of the year. The
swaps have the effect of converting fixed rate US$ private placement borrowings
into fixed rate Euro denominated borrowings, and were taken out in order to
hedge the group's European net asset investments. Under IAS39, the portion of
the swaps that converts variable rate Euro interest payments into fixed rate
payments is considered to be ineffective as a net investment hedge and therefore
changes in the value of this portion of the swap are recognised in the income
statement.
7. ADDITIONAL INFORMATION: RECONCILIATION OF NET CASH FROM OPERATING ACTIVITIES
TO OPERATING CASH FLOW FOR MANAGEMENT PURPOSES
2005 2004 2004
Half year Half year Full year
(restated) (restated)
£m £m £m
Net cash from operating activities 21.5 12.4 56.6
Corporation tax paid 6.6 3.3 7.7
Purchase of tangible fixed assets (5.9) (7.2) (16.5)
Proceeds from sale of tangible fixed assets - 0.3 0.7
Sale of treasury shares by Employee Benefit Trust - 0.2 0.2
Operating cash flow for management purposes 22.2 9.0 48.7
8. INTERIM REPORT
Copies of the interim report, which will be posted to shareholders on 15
September 2005, 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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