15th Mar 2005 07:01
Spectris PLC15 March 2005 Date: Embargoed until 7.00am, Tuesday 15 March 2005 Contact: Hans Nilsson, Chief Executive, Spectris plc Tel: 020 7269 7291 Richard Mountain, Financial Dynamics Tel: 020 7269 7291 2004 PRELIMINARY RESULTS Spectris plc, the precision instrumentation and controls company, announcespreliminary results for the year ended 31 December 2004. £m 2004 2003 Change Turnover 614.2 568.0 +8%Operating profit * 65.2 59.8 +9%Profit before tax * 51.1 48.9 +4%Profit after tax 24.7 26.0 -5%Earnings per share * 32.1p 32.1pBasic earnings per share 20.4p 21.6p -6%Dividend 14.50p 13.35p +9%* before exceptional items and goodwill amortisation Highlights: • Sales up 8%, operating profit up 9% driven by: * Increased demand in Asia * Successful new product introductions • Gross margins of 57% • At constant currencies: * 11% organic growth in sales * 25% organic growth in operating profit * 0.8 percentage point improvement in operating margins • Asia now accounts for 24% of group sales • Dividend up 9% Organic growth at constant currencies represents the growth (in sales or profitsbefore exceptional items and goodwill amortisation) excluding acquisitions anddisposals, at constant exchange rates Commenting on the results, Hans Nilsson, Chief Executive, said: "The most significant feature of 2004 was the strong underlying operatingcompany performance. Going forward, current levels of demand support anotheryear of healthy organic growth and we anticipate a more even split between thefirst and second half. Whilst the US dollar continues to have an impact, giventhe positive trend in underlying operating margins, we are confident ofencouraging progress in 2005." Chairman's statement Spectris delivered a strong performance in 2004. Sales increased by 8% to £614.2million (2003: £568.0 million), as recovery in many of our markets wasaccompanied by the results of the company's own management efforts. Operatingprofit (excluding exceptional items and goodwill amortisation) increased by 9%to £65.2 million (£59.8 million), despite a £7.8 million adverse effect fromcurrency movements. Profit before tax (excluding exceptional items and goodwillamortisation) was £51.1 million, an increase of 4% over 2003 (£48.9 million).Earnings per share were maintained at 32.1p despite an increased tax rate of 24%(21%). The strong underlying operational performance reflected well-placed and focusedinvestment over the past few years. Organic growth in sales of 11% at constantcurrencies was a result of successful new product introductions as well as anincrease in customer-facing personnel in Asia. The operating margin improvementat constant currencies of approximately 0.8 percentage points was absorbed bythe adverse currency movements, but underscores the continuing emphasis onimproving operating margins. Operating cash conversion was lower than usual at 75%, reflecting the salesgrowth and a one-off "safety stock" build. Working capital remained at 16% ofsales. Debt was £158.9 million at the year end (2003: £163.4 million) withinterest cover of 4.7 times (2003: 5.6 times). A final dividend of 10.25p (2003: 9.3p), making a total of 14.5p (2003: 13.35p),an increase of 9%, is proposed by the Board, reflecting the Board's confidencein the business prospects, providing a healthy dividend cover of 2.2 times (onadjusted eps). The final dividend will be paid on 10 June 2005 to shareholderson the register on 20 May 2005. IFRS The company will make a full announcement and presentation in respect of theeffect of the new IFRS accounting standards, including a new sector breakdown,on 15 June. However, with the potential exception of IAS 39, goodwill and shareoptions, it is anticipated that the standards will have only a modest effect. Board changes I am pleased to welcome Steve Hare, who joined the Board in December as GroupFinance Director. Graham Zacharias, Group Finance Director, and Paul Boughton,Business Development Director, resigned from the Board during the year. Onbehalf of the Board, I should like to thank them both for their considerablecontribution to the development of the company. Outlook Demand in the first few weeks of 2005 supports another year of healthy organicsales growth. This expectation is, as always, subject to the limited visibilityarising from short delivery cycles and order books. It is anticipated that thesplit between the first and second half will be more evenly balanced. Spectrisis well positioned to take advantage of growing market opportunities whilst atthe same time remaining focused on further improvements to operating margins in2005 and beyond. Whilst the US dollar continues to have an impact, we areconfident of encouraging progress in 2005. Chief Executive's Review The sales growth in 2004 of 8%, or 11% organic growth at constant currencies,was a result of new products and applications, increased sales coverage in Asiaand recovery in many of our markets. Gross margins were maintained at 57% as aresult of the strong underlying operating performance. Operating profits grew by9%, or 25% organic growth at constant currencies. However, with higher interestcosts the resulting growth in profit before tax was 4%. Earnings per share at 32.1p (2003: 32.1p) were affected by the increased taxrate of 24% in 2004 compared with 21% in 2003. The increase was the result ofimproved performance in the US and the recognition of a deferred tax asset of£12 million in Denmark. The underlying tax charge is expected to increasegradually towards the weighted average tax rate (currently 31.6%) over the nextthree years. Asia continued to experience high growth in sales, up 16% compared with theprior year, or 23% at constant currencies, with another good year in China. Asianow represents 24% of total sales, compared with 12% in 1999. North Americaenjoyed a recovery with healthy growth of 12% at constant currencies althoughtranslated into sterling this resulted in an increase of only 1%. European salesgrew by 9% compared with the prior year and by 11% at constant currencies. The weakened US dollar has been a major feature for Spectris over the past threeyears. At 2002 average rates (£1 = $1.5), operating margins in 2004 would haveimproved by approximately two percentage points compared with 2002. Goodgeographical sales coverage at European businesses such as PANalytical, Bruel &Kjaer Sound & Vibration, BTG and Malvern, gave rise to a greater exposure to thedollar in 2004. Operational improvements yielding results On a day-to-day basis Spectris companies operate in a relatively autonomous way.Nevertheless, they have common strategic themes and share best practice acrossthe group. 2004 was another productive year in this regard, with the followingareas delivering further results: Re-alignment of customer-facing personnel. There has been a further increase inthe proportion of customer-facing personnel from 31% of total employees in 2003to 32% in 2004. This increase, compared with a figure of 26% in 1999, reflects ahigher degree of outsourcing and the shift in staff mix to focus on sales andmarketing, with the primary emphasis on continuing to extend coverage in Asia. Continuous improvement in the quality of business. In spite of currencypressures and some material cost inflation gross margins improved, reflectingmanagement actions to improve the product mix. Efficiency and effectiveness in sales, marketing and supply. Strong organicsales growth for the second year running was achieved with only a marginalincrease in headcount, excluding additions from bolt-on acquisitions. The resultis sales growth and expanding underlying operating margins. R&D and innovation leading to new business and increased competitiveness.2004 was a productive year in terms of new product introductions and penetrationof new applications into high quality business areas. Examples include aproprietary small, flat microphone for acoustic measurement in automotive andaerospace applications; a hand-held scanner for reading 2D bar codes for partstracking, particularly in the electronics industry; a portable gas analyser formeasuring oxygen, targeted at the oil and gas and medical industries; and aremote wind turbine monitoring solution for the power industry. Expenditure onnew product development in 2004 totalled £35 million. Sector performance Electronic controls reported sales growth of 6% from £132.1 million to £139.7million with operating profits up 9% from £15.8 million to £17.2 million. Atconstant currencies, sales grew by 12% and operating profit by 16%. Operatingmargins increased to 12.3% from 12.0% in 2003. All four companies increasedsales and profits at constant currencies and performance improvements wereparticularly notable at Microscan and HBM. Microscan has steadily improved itsmarket position and 2004 was no exception. HBM's progressive transfer of loadcell production to China is expected to be completed in 2005. An impressive listof new products was introduced, including new human-machine interface controlsfrom Red Lion and a range of force transducers from HBM. In-line instrumentation achieved sales growth of 9% from £182.0 million to£198.4 million whilst operating profit declined by 7% from £22.3 million to£20.8 million. Operating margins were 10.5% compared with 12.3% in 2003. Thedecline in operating profit resulted from a significant adverse currency effectand the year-on-year impact of a bolt-on acquisition for Loma which added £10million in sales but incurred restructuring and integration costs of £1.1million. At constant currencies, sales grew by 15% and operating profit grew by4%. BTG made good progress despite mixed conditions in the pulp and papermarket, which accounts for nearly all of its business. Ircon, NDC and Servomexdelivered solid performances. Beta LaserMike still suffers from weakness in thewire and cable markets, a reflection of the continuing low levels of investmentin telecommunications infrastructure, but made progress in the year. Newproducts were introduced by all the companies in this sector, and in particularat Bruel & Kjaer Vibro, where the launch of new remote condition monitoringequipment opened up new opportunities in the power market. Process technology reported sales growth of 9% from £253.9 million to £276.1million. Operating profit grew by 25% from £21.7 million to £27.2 million andoperating margins increased from 8.5% to 9.9%. All five companies grew sales,profits and margins. The impact of exchange rates was absorbed, with sales, atconstant currencies, increasing by 15% and operating profit by 44%. The supplierissues experienced in the second quarter did not impede shipments in the secondhalf. Bolt-on acquisitions for Particle Measuring Systems, Bruel & Kjaer Sound &Vibration and Malvern contributed £10.5 million of sales. Innovation featuredstrongly, typified by a new environmental acoustics analyser from Bruel & KjaerSound & Vibration and a new range of X-ray analysers from PANalytical makingspecific inroads in the minerals and materials market. The pharmaceuticals andmaterials research markets, such as nanomaterials, continue to be potentialgrowth areas for PANalytical, Malvern and Particle Measuring Systems. Organic growth and margin improvements 2005 will benefit from actions taken in 2004 to improve margins and operationalgearing will continue to be a factor. Material cost increases are expected tohave only a marginal effect. In addition, management has already taken furtheractions in the European operations to reduce operating costs and, as aconsequence, to improve the level of natural hedging. HBM, for example, ismoving standard load cell production to its facility in China and Servomex willstart final assembly there. Further sales coverage in Asia is another majorfactor, as is the healthy pipeline of new products and applications. Managementactions to improve the product mix will provide further margin support. Acontinued focus on cash generation and new treasury processes will help toimprove return on net operating assets as well as reducing interest costs. In summary, the key priorities going forward are to maintain organic salesgrowth momentum, deliver high levels of cash and build on existing marginimprovement trends in 2005 and beyond. - ENDS - A table of results is attached. The meeting with analysts will be broadcast in a live Webcast commencing at 08:15 GMT on the company's website at www.spectris.com Copies of this notice are available to the public from the registered office:Station Road, Egham, Surrey TW20 9NP and on the company's website atwww.spectris.com CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2004 Notes 2004 2003 £m £m1 Turnover 614.2 568.0 Cost of sales (262.4) (246.2) Gross profit 351.8 321.8 Operating costs (299.6) (274.4) 52.2 47.4 Operating profit Loss on sale or termination of businesses (1.2) (0.4)1 Profit on ordinary activities before interest 51.0 47.0 Other finance costs (0.3) (0.2) Net interest payable (13.8) (10.7) Profit on ordinary activities before taxation 36.9 36.12 Taxation (including net exceptional items of £nil (2003: £nil)) (12.2) (10.1) Profit for the financial year 24.7 26.0 Dividends - equity (17.5) (16.1) Retained profit 7.2 9.9 Basic earnings per share (p) 20.4 21.6 3 Diluted earnings per share (p) 20.4 21.6 3 Dividends per ordinary equity share (p) 14.50 13.35 Profit on ordinary activities before exceptional items, goodwill amortisation and taxation £51.1m £48.9m Basic earnings per share before exceptional items and goodwill amortisation 32.1p 32.1p The results in the profit and loss account above relate entirely to continuingoperations. Results from acquisitions in the year are not sufficiently materialto be presented on the face of the profit and loss account. There is no materialdifference between the reported profit and historical cost profit. 2004 2003 £m £m Operating profit 52.2 47.4 Goodwill amortisation 13.0 12.4 Operating profit before goodwill amortisation 65.2 59.8 Profit on ordinary activities before taxation 36.9 36.1 Loss on sale or termination of businesses 1.2 0.4 Goodwill amortisation 13.0 12.4 Profit on ordinary activities before exceptional items, 51.1 48.9 goodwill amortisation and taxation CONsolidated statement of total recognised gains and losses For the year ended 31 December 2004 2004 2003 £m £mProfit for the financial year 24.7 26.0Foreign exchange adjustments 0.9 8.6Tax attributable to foreign exchange adjustments - (0.5)Actuarial loss arising on pension schemes (3.4) (4.5)Tax attributable to actuarial loss 1.1 1.4Total recognised gains and losses relating to the financial year 23.3 31.0 GROUP BALANCE SHEET As at 31 December 2004 2004 2003 (restated) £m £mFixed assetsIntangible assets 224.1 227.0Tangible fixed assets 93.7 92.4Other investments - 0.6 317.8 320.0Current assetsStocks 94.3 83.8 171.5 151.9 Debtors falling due within one yearDebtors falling due after one year 12.1 2.4 183.6 154.3Cash at bank 34.4 31.7 312.3 269.8Creditors: due within one yearShort-term borrowing (0.3) (0.8)Other creditors (196.7) (160.3) (197.0) (161.1)Net current assets 115.3 108.7Total assets less current liabilities 433.1 428.7 Creditors: due after more than one yearMedium- and long-term borrowing (193.0) (194.3)Other creditors (1.1) (1.9) (194.1) (196.2)Provisions for liabilities and charges (29.0) (31.1)Net assets excluding pension liabilities 210.0 201.4Pension liabilities (14.0) (12.0)Net assets 196.0 189.4 Capital and reservesCalled up share capital 6.2 6.2Share premium account 227.8 227.1Merger reserve 3.1 3.1Capital redemption reserve 0.3 0.3Profit and loss account (41.4) (47.3)Equity shareholders' funds 196.0 189.4 The comparative balance sheet at 31 December 2003 has been restated to reflectthe adoption of UITF 38, Accounting for ESOP Trusts. This has had the effect ofpresenting the shares held by the Spectris plc Employee Benefit Trust withinreserves rather than fixed asset investments. The comparative balance sheet hasalso been restated to present a tax debtor of £0.9m within debtors falling duewithin one year rather than creditors falling due after one year. Consolidated cash flow statementFor the year ended 31 December 2004 Notes 2004 2003 £m £m 4 Net cash inflow from operating activities 64.3 64.8 Returns on investments and servicing of finance Interest received 0.4 0.5 Interest paid (14.2) (9.4) (13.8) (8.9) Taxation (7.7) (2.5) Capital expenditure and financial investment Purchase of tangible fixed assets (16.5) (15.7) Sale of tangible fixed assets 0.7 1.3 Sale of shares held by Employee Benefit Trust 0.2 0.3 (15.6) (14.1) Acquisitions and disposals Acquisition of subsidiary undertakings (10.4) (7.8) Bank overdraft acquired with subsidiary undertakings - (0.4) Purchase of intangible assets (0.1) - (10.5) (8.2) Equity dividends paid (16.3) (15.5) Cash inflow before financing 0.4 15.6 Financing Issue of shares 0.7 0.8 Repayment of loans (0.8) (162.2) New loans 2.3 140.2 2.2 (21.2) 5 Increase/(decrease) in cash in the year 2.6 (5.6) NOTES TO THE ACCOUNTS 1. Segmental analysEs a) Analysis by class of business Profit before interest and Turnover tax Net assets 2004 2003 2004 2003 2004 2003 (restated) £m £m £m £m £m £mOngoing operations:Electronic controls 139.7 132.1 17.2 15.8 43.2 42.1In-line instrumentation 198.4 182.0 20.8 22.3 51.3 45.0Process technology 276.1 253.9 27.2 21.7 70.0 67.6Total continuing operations 614.2 568.0 65.2 59.8 164.5 154.7Goodwill amortisation (13.0) (12.4)Loss on sale or termination of businesses (1.2) (0.4)Net debt (158.9) (163.4)Intangible assets 224.1 227.0Net pension liability (14.0) (12.0)Dividends (12.4) (11.2)Other (7.3) (5.7)Total 614.2 568.0 51.0 47.0 196.0 189.4 The operating businesses are grouped as follows: Electronic controls: Arcom Control Systems, HBM, Microscan, Red Lion Controls.In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, LomaSystems, NDC Infrared Engineering, Servomex. Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, MalvernInstruments, Particle Measuring Systems, PANalytical. Goodwill amortisation of £1.9m (2003: £1.9m) relates to the Electonic controlssector, £4.3m (2003: £4.1m) relates to the In-line instrumentation sector andthe remaining £6.8m (2003: £6.4m) relates to the Process technology sector. Intangible assets of £31.4m (2003: £33.5m) relates to the Electronic controlssector, £70.0m (2003: £69.8m) relates to the In-line instrumentation sector andthe remaining £122.7m (2003: £123.7m) relates to the Process technology sector. Loss on sale or termination of businesses of £1.2m relates to the Electroniccontrols sector (£0.6m) and corporate activities (£0.6m) (2003: £0.4m relatingto Electronic controls). b) Analysis of turnover by geographical destination 2004 2003 £m £mUK 39.4 36.1Continental Europe 242.5 223.5North America 157.5 156.1Japan 45.9 40.7China 40.3 36.0Rest of Asia Pacific 59.0 48.6Rest of the world 29.6 27.0 614.2 568.0 2. TAXATION The effective tax rate, excluding loss on sale or termination of businesses andgoodwill amortisation, was 24.1% (2003: 21.1%). 3. Earnings per shareThe calculation of basic earnings per share of 20.4p (2003: 21.6p) is based on the group profit of£24.7m (2003: £26.0m) and on the weighted average number of ordinary shares in issue during theyear of 120.9 million (2003: 120.5 million). Earnings per share before exceptional items and goodwill amortisation is calculated as follows: Earnings Earnings per share 2004 2003 2004 2003 £m £m pence penceBasic earnings and earnings per share 24.7 26.0 20.4 21.6Basic earnings per share attributable to:Goodwill amortisation 13.0 12.4 10.7 10.3Loss on sale or termination of businesses 1.2 0.4 1.0 0.4Tax credit on goodwill amortisation (0.1) (0.2) - (0.2)Exceptional tax credit arising from recognition of (9.8) - (8.1) -deferred tax assetsExceptional tax charge arising on intra-group 9.8 - 8.1 -dividendsEarnings and earnings per share before exceptional 38.8 38.6 32.1 32.1items and goodwill amortisation Earnings per share before exceptional items and goodwill amortisation is presented to show moreclearly the underlying performance of the group. The calculation of diluted earnings per share of 20.4p (2003: 21.6p) is based on the group profitof £24.7m (2003: £26.0m) and on the diluted weighted average number of 5p ordinary shares in issueduring the year of 121.1 million (2003: 120.5 million). The basic weighted average number of ordinary shares in issue is reconciled to the diluted weightedaverage number of shares in issue in the following table: Weighted average number of 5p ordinary shares 2004 2003 millions millions Basic weighted average number of 5p ordinary shares in issue 120.9 120.5Weighted average number of dilutive 5p ordinary shares under option 0.7 0.6Weighted average number of 5p ordinary shares that would havebeen issued at average market value from proceeds of dilutive share options (0.5) (0.6) 121.1 120.5 4. Reconciliation of operating profit to net cash inflow from operatingactivities 2004 2003 £m £m Operating profit 52.2 47.4Depreciation 13.4 13.0Goodwill amortisation 13.0 12.4Patent amortisation 0.1 -Loss/(profit) on sale of tangible fixed assets 0.4 (0.3)Increase in stocks (9.3) (2.1)Increase in debtors (15.0) (4.8)Increase in creditors 11.9 3.0Decrease in provisions (2.4) (3.8)Net cash inflow from operating activities 64.3 64.8 Net cash inflow from operating activities 64.3 64.8Cash outflow from capital expenditure and financial investment (15.6) (14.1)Operating cash flow for cash conversion purposes 48.7 50.7Cash conversion based on operating profit before goodwill 75% 85%amortisation 5. Reconciliation of net cash flow to movement in net debt 2004 2003 £m £m Increase/(decrease) in cash in the year 2.6 (5.6)(Increase)/decrease in loans (1.5) 22.0Change in net debt resulting from cash flows 1.1 16.4Other non-cash items:Exchange movements 3.4 (2.3)Movement in net debt in the year 4.5 14.1Net debt as at 1 January (163.4) (177.5)Net debt as at 31 December (158.9) (163.4) 6. ANALYSIS OF CHANGES IN NET DEBT Cash at bank Short-term Long- term Total loans and loans overdraft £m £m £m £m As at 1 January 2004 31.7 (0.8) (194.3) (163.4)Cash flow 2.6 0.5 (2.0) 1.1Other non-cash movements:Exchange movements 0.1 - 3.3 3.4As at 31 December 2004 34.4 (0.3) (193.0) (158.9) 7. Company Information The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 December 2004 or 2003 but is derivedfrom those accounts. Statutory accounts for 2003 have been delivered to theRegistrar of Companies. The auditors have reported on those accounts; theirreport was unqualified and did not contain statements under section 237(2) or(3) of the Companies Act 1985. The statutory accounts for 2004 will be deliveredfollowing the company's annual general meeting. 8. Annual report Copies of the annual report, which will be posted to shareholders on 7 April2005, may be obtained from the registered office at Station Road, Egham, SurreyTW20 9NP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spectris