5th Sep 2006 07:01
Spectris PLC05 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, announcesinterim 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% StatutoryProfit 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, theseresults are encouraging. We remain confident of continued progress in the secondhalf of 2006." Explanatory notes for reading the interim announcement 1. Spectris uses adjusted figures as key performance measures. Adjustedfigures are stated before amortisation of acquisition-related intangible assets,goodwill charges, profits or losses on termination or disposal of businesses ormajor fixed assets, unrealised changes in the fair value of financialinstruments, related tax effects and other tax items which do not form part ofthe underlying tax rate. The differences between the adjusted and unadjustedmeasures are reconciled in Note 2. 2. The narrative that follows is based on the adjusted measures of operatingprofit, profit before tax and earnings per share. Unless otherwise stated, allsales and operating profit figures exclude the Arcom business which was divestedin the first quarter. CHAIRMAN'S STATEMENT Overview As indicated in the trading update in July, sales, profits and earnings pershare all increased in the first half of 2006 compared with the correspondingperiod in 2005. Sales in the first half increased by 8% from £299.7 million to £323.4 millionand 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 involume but also as a result of the continuation of management actions to improvemargins, 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 intocash. Net debt was £95.2 million at the half year compared with £119.9 millionat the prior year end. Interest costs were £5.1 million, giving an annualisedinterest cover of 7.0 times. The Board proposes to pay an interim dividend of 5.0p (2005: 4.6p), an increaseof 9%. The dividend will be paid on 17 November 2006 to shareholders on theregister at 20 October 2006. Board changes I am pleased to welcome Clive Watson, who will join the Board on 1 October asGroup Finance Director to replace Steve Hare. Clive was previously ChiefFinancial Officer and Executive Vice President for Business Support at Borealis,a leading provider of plastics solutions, and brings with him considerableinternational financial experience. I should like to take this opportunity tothank Steve for his contribution to Spectris. Non-executive directors MartinLamb and Professor Leo Murray retired from the Board in May and I should alsolike to thank them for their contribution to the development of the company. Iam pleased to welcome Peter Chambre, who joined the Board in August, as anon-executive director. Outlook Order intake in the first half exceeded sales. The backlog, together withcurrent order trends, gives confidence of continued progress in the second halfof 2006. Cost containment, together with cash generation, continues to receivemanagement attention. These actions represent another step in improving marginsto provide a sound base for the further development of the group. John PoulterChairman CHIEF EXECUTIVE'S REVIEW Spectris' results for the first six months of the year represent encouragingprogress 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 increasein North America, with sales up by 12% following strong growth across severalindustry sectors and an overall appreciation of the US dollar. Sales in SouthAmerica were up by 36% over the prior period, demonstrating the opportunities inthis emerging market. Sales in Europe increased by 1% and although the UK wasdisappointing 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 profitgrowth, with sales up by 13% from £141.5 million to £160.0 million and profit upby 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 strongactivity in the environmental noise management market, and profits improvedsignificantly. Malvern performed well. In April, Malvern was awarded the Queen'sAward for Enterprise, in recognition of the company's export sales, which haveincreased by 76% over the past six years. At the end of the second quarter,Malvern acquired the business and assets of Spectral Dimensions Inc. ThisUS-based business is a leader in infrared-based chemical imaginginstrumentation, 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 grewsales and profits, largely as a result of increased market presence in thepharmaceutical industry. PANalytical saw good growth in sales and profits,particularly in North America, with the electronics and semiconductor industriesproving particularly attractive, and in Asia, where the company acquired itsdistributor in Korea to provide a direct sales and support operation in thisimportant market. In-line Instrumentation achieved sales growth of 3% from £95.5 million to £98.1million with profit growing by 8% from £8.0 million to £8.6 million. Operatingmargins improved from 8.4% to 8.8%. BTG's Duroblade product range had a strongfirst half, driven by higher sales as paper manufacturers strive to improveproductivity and reduce downtime. However, a continued lack of investment incapital equipment had an impact on sales in the paper instrumentation business.As part of the strategic change at Bruel & Kjaer Vibro towards a systems-basedbusiness, the company launched its new offering, the VibroControl 6000 safetymonitoring system, designed for continuous on-line safety and fault preventionmonitoring. Profitability was affected by a one-off cost associated withrestructuring the business in Europe to reflect this change in strategy. Saleswere flat at Beta LaserMike, but profitability improved due to tight control ofoverheads. Gross margins improved significantly at Spectrum Inspection Systemson the elimination of lower margin business. As a result, profitability and cashflow also improved. Ircon improved its sales coverage and performed well. NDCgrew sales in its key North American market, which benefited from renewedcapital expenditure in the web industry, and China also continued to performstrongly. Servomex saw strong demand in North America as refinery andpetrochemical plant customers invested in operations following damage tofacilities 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. Thedecrease in profits in this sector was due to lower profitability at HBM, wheresales were flat but profits were affected by continued product rationalisationand one-off costs relating to the next phase of the transfer of load cellmanufacturing to China. Red Lion Controls benefited from buoyant demand in NorthAmerica 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 hadon the results of the group. The commentary that follows relates to the totalgroup results including the Arcom business. Overall sales in the first half increased by 7% from £307.2 million to £327.3million and adjusted operating profit increased by 18% from £27.8 million to£32.7 million. Aside from the impact from sales growth, operating profitsbenefited from the continuing actions taken to improve margins. The overalleffect of exchange rates was to increase sales by 2%, or £6.6 million, of whichthe positive contribution to profit was approximately £1.4 million. However thiswas more than offset by restructuring and other one-off charges. The impact ofbolt-on acquisitions on the first half result was modest. Unadjusted operatingprofits, after including acquisition-related intangible asset amortisationcharges 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 £24.7million. Adjusted profits before tax increased by 30% from £21.1 million to£27.5 million. After also including acquisition-related intangible assetamortisation charges, £9.5 million profit on disposal of the Arcom business,unrealised gains on the group's cross-currency interest rate swaps of £0.6million (2005: unrealised loss of £4.5 million including a loss relating toaverage rate options), and £0.4 million of other financial income in the prioryear 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 halfyear was 29% (2005: 27%), reflecting our longer-term expectation of a movetowards the weighted average statutory tax rate. Adjusted earnings per share increased by 24% from 12.7p to 15.7p as the combinedeffects of higher operating profits and lower interest charges were offsetslightly by the higher tax rate. Basic earnings per share increased by 251% from5.9p to 20.7p. In addition to the factors above, this increase primarilyreflects the profit realised on disposal of the Arcom business, unrealised gainsand losses on the group's cross-currency interest rate swaps and average rateoptions, and inclusion of exceptional tax charges on dividends from EUsubsidiaries 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% targetincluded reduced working capital levels as a percentage of sales, capitalexpenditure below the level of depreciation and some charges for restructuringwhich 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 cashgenerated by the group in the first half of the year, has driven net debt downby £24.7 million to £95.2 million, compared with £119.9 million at the start ofthe year. In July the group repaid its $100 million US Private Placement loannote borrowings, taken out in 1996, as scheduled. This repayment was fundedsubstantially through the use of surplus cash resources with a small proportionborrowed from existing committed facilities. Operational priorities The launch of several new products and applications in the second half willenable our businesses to maintain their leading market positions and grow marketshare. Actions to reduce costs, including headcount constraints, increasing thesourcing of components from lower-cost regions and reducing inventory, continueto be a priority for management and will deliver further benefits in the future. John O'HigginsChief Executive - ENDS - A table of results is attached. The company will broadcast the meeting with analysts in a live webcastcommencing 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 atStation Road, Egham, Surrey TW20 9NP, and on the company's website atwww.spectris.com. CONSOLIDATED INCOME STATEMENTFor the half year to 30 June 2006 2006 2005 2005 Half year Half year Full year £m £m £mNotes 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 64.92 Operating profit4 Profit on disposal of business 9.5 - -5 Financial income 4.1 2.4 6.65 Finance costs (8.7) (13.2) (20.7) Profit before tax 36.9 16.5 50.86 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 28.8p7 Diluted earnings per share 20.7p 5.9p 28.8p8 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 thosereported under IFRS. Adjusted figures are stated before amortisation ofacquisition-related intangible assets, goodwill charges, profits or losses ontermination or disposal of businesses or major fixed assets, unrealised changesin the fair value of financial instruments, related tax effects and other taxitems which do not form part of the underlying tax rate. Reconciliations showing how the adjusted performance measures are derived fromthose reported under IFRS are set out in Note 2. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor 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 contractsDeferred tax on changes in fair value of forward exchange (0.5) - 0.4contractsNet gain/(loss) on changes in fair value of effective 3.3 2.7 (1.9)portion of net investment hedgeActuarial 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) 1.3schemesForeign exchange translation differences (5.2) (11.4) -Current tax on foreign exchange differences - - 0.4Net expense recognised in equity in respect (0.5) (9.4) (5.2)of yearProfit for the period 25.7 7.2 35.2 Total recognised income and expense for the period 25.2 (2.2) 30.0attributable to equity shareholders Change in accounting policy: adoption of IAS 39, FinancialInstruments: Recognition and Measurement as at 1 January 2005Hedging reserve:Fair value of forward exchange contracts - 0.8 0.8Deferred 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 1.7Deferred tax on the above - 1.8 1.8 - (3.5) (3.5) 25.2 (5.7) 26.5 CONSOLIDATED BALANCE SHEETAt 30 June 2006 2006 2005 2005 Half year Half year Full yearNotes £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 STATEMENTFor the half year to 30 June 2006 2006 2005 2005Notes 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 2005Notes 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 UnitedKingdom under the Companies Act 1985, whose shares are publicly traded on theLondon Stock Exchange. The condensed consolidated interim financial statements of the company for thesix months ended 30 June 2006 comprise the company and its subsidiaries,together referred to as the group. These condensed consolidated interimfinancial statements are presented in pounds sterling. The consolidatedfinancial statements of the group for the year ended 31 December 2005 areavailable upon request from the company's registered office at Station Road,Egham, Surrey TW20 9NP. These condensed consolidated financial statements are drawn up in accordancewith International Accounting Standards (IAS) and International FinancialReporting Standards (IFRS) as issued by the International Accounting StandardsBoard, with the exception of IAS 34 Interim Financial Reporting which has notbeen applied in these interim condensed consolidated financial statements. Theydo not include all of the information required for full annual financialstatements, and should be read in conjunction with the consolidated financialstatements of the group for the year ended 31 December 2005. The accounting policies applied by the group in these condensed consolidatedfinancial statements are the same as those applied by the group in itsconsolidated financial statements for the year ended 31 December 2005. The interim results are unaudited. The audit report on the 2005 Annual Reportwas unqualified and has been filed with the Registrar of Companies. The 2005Annual Report did not contain a statement under Section 237 (2) or (3) of theCompanies Act 1985. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amount of assets and liabilities, income and expense.Actual results may differ from these estimates. In preparing these condensedconsolidated interim financial statements, the significant judgements made bymanagement in applying the group's accounting policies and the key sources ofestimation uncertainty were the same as those that applied to the consolidatedstatements for the year ended 31 December 2005. The group's financial risk management objectives and policies are consistentwith that disclosed in the consolidated financial statements for the year ended31 December 2005. These condensed consolidated interim financial statements were approved by theBoard of Directors on 5 September 2006. 2. ADJUSTED PERFORMANCE MEASURES Spectris uses adjusted figures as key performance measures in addition to thosereported under IFRS. Adjusted figures are stated before amortisation ofacquisition-related intangible assets, goodwill charges, profits or losses ontermination or disposal of businesses or major fixed assets, unrealised changesin the fair value of financial instruments, related tax effects and other taxitems which do not form part of the underlying tax rate (see Note 6). The adjusted performance measures are derived from the reported figures underIFRS as follows: 2006 2005 2005 Half year Half year Full yearAdjusted operating profit £m £m £mOperating profit as reported under IFRS 32.0 27.3 64.9Amortisation of acquisition-related intangible assets 0.7 0.5 1.2Goodwill impairment charge - - 7.4Adjusted 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 £mSegment result under IFRS 16.1 8.6 7.3 32.0Amortisation of acquisition-related intangible assets 0.7 - - 0.7Adjusted 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 £mSegment result under IFRS 10.5 8.0 8.8 27.3Amortisation of acquisition-related intangible assets 0.5 - - 0.5Adjusted operating profit 11.0 8.0 8.8 27.8 Adjusted operating profit by segment - December Process In-line Electronic 20052005 technology instrumentation controls Full year Total £mSegment result under IFRS 31.2 15.5 18.2 64.9Amortisation of acquisition-related intangible assets 1.2 - - 1.2Goodwill impairment charge - 7.4 - 7.4Adjusted operating profit 32.4 22.9 18.2 73.5 2006 2005 2005 Half year Half year Full yearAdjusted profit before tax £m £m £mProfit before tax as reported under IFRS 36.9 16.5 50.8Amortisation of acquisition-related intangible assets 0.7 0.5 1.2Goodwill impairment charge - - 7.4Profit on disposal of business (9.5) - -Unrealised (gain)/loss on change in fair value (0.6) 2.7 1.1of cross-currency interest rate swapsUnrealised loss on change in fair value of - 1.8 1.7average rate optionsOther financial income - (0.4) (1.7)Adjusted profit before tax 27.5 21.1 60.5 2006 2005 2005 Half year Half year Full yearOperating cash flow £m £m £mNet cash from operating activities under IFRS 29.4 21.5 74.8Corporation tax paid 12.3 6.6 15.8Purchase of property, plant & equipment (4.9) (5.9) (12.3)Proceeds from sale of property, plant & equipment 0.1 - 0.1Operating cash flow for management purposes 36.9 22.2 78.4 2006 2005 2005Adjusted earnings per share Half year Half year Full year £m £m £mProfit after tax as reported under IFRS 25.7 7.2 35.2Adjusted for:Amortisation of acquisition-related intangible assets 0.7 0.5 1.2Goodwill impairment charge - - 7.4Profit on disposal of business (9.5) - -Unrealised change in fair value of cross-currency (0.6) 2.7 1.1interest rate swapsUnrealised change in fair value of average rate - 1.8 1.7optionsOther 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 0.8tax rateAdjusted earnings 19.5 15.4 44.2Weighted 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 yearAnalysis of net debt for management purposes £m £m £mShort-term borrowings 58.5 10.5 59.4Medium and long-term borrowings 114.7 172.6 121.6Derivative financial statements - currency portion of 23.4 17.8 16.0cross-currency interest rate swapsTotal borrowings 196.6 200.9 197.0Cash balances (101.4) (42.3) (77.1)Net debt 95.2 158.6 119.9 Additional adjusted performance measures presented following disposal of Arcombusiness: 2006 2005 2005 Half year Half year Full yearAnalysis of turnover by geographical destination - £m £m £mexcluding Arcom businessUK 16.6 18.8 37.7Continental Europe 118.4 115.3 238.0North America 84.1 75.1 160.7Japan 26.5 25.0 54.0China 24.9 19.6 45.6Rest of Asia Pacific 36.1 31.8 69.0Rest of the world 16.8 14.1 34.8Total excluding Arcom business 323.4 299.7 639.8Arcom 3.9 7.5 16.1Group total 327.3 307.2 655.9 2006 2005 2005 Half year Half year Full yearAdjusted group operating profit - excluding Arcom £m £m £mbusinessOperating profit as reported under IFRS - excluding 31.7 26.9 63.2Arcom businessAmortisation of acquisition-related intangible assets 0.7 0.5 1.2Goodwill impairment charge - - 7.4Adjusted operating profit - excluding Arcom business 32.4 27.4 71.8 Excluding the Arcom business, external customer revenue for the Electroniccontrols 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 Electroniccontrols 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 secondaryformat 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 £mProcess technology 160.0 141.5 310.1 16.1 10.5 31.2In-line instrumentation 98.1 95.5 202.3 8.6 8.0 15.5Electronic controls 69.2 70.2 143.5 7.3 8.8 18.2Total 327.3 307.2 655.9 32.0 27.3 64.9Profit on disposal of business 9.5 - -Financial income 4.1 2.4 6.6Finance costs (8.7) (13.2) (20.7)Profit before tax 36.9 16.5 50.8Tax (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, MalvernInstruments, PANalytical, Particle Measuring Systems. In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, NDCInfrared 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 geographicallocations 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 £mUK 17.7 20.4 41.4Continental Europe 118.6 116.6 240.1North America 86.6 78.6 169.6Japan 26.5 25.0 54.0China 24.9 19.6 45.6Rest of Asia Pacific 36.1 32.8 70.4Rest of the world 16.9 14.2 34.8Total 327.3 307.2 655.9 4. DISPOSAL OF BUSINESS During the period, the group disposed of the Arcom business, which waspreviously included in the Electronic controls segment. This business wasclassified as held for sale at the most recent year end. The total considerationwas £15.1m before associated transaction costs. The disposal gave rise to aprofit of £9.5m. 5. FINANCIAL COSTS AND FINANCIAL INCOME 2006 2005 2005 Half year Half year Full yearFinancial income £m £m £mBank interest receivable 1.4 0.1 1.0Dividend income - - 0.1Unrealised gain in fair value of cross-currency 0.6 - -interest rate swapsExpected return on pension scheme assets 2.1 1.9 3.8Other 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'sremaining interest in Luxtron Corporation. 2006 2005 2005 Half year Half year Full yearFinance costs £m £m £mInterest payable on bank loans and overdrafts 0.1 0.4 0.9Interest payable on other loans 6.4 6.2 12.8Total interest payable 6.5 6.6 13.7Unrealised loss in fair value of cross-currency - 2.7 1.1interest rate swapsUnrealised loss in fair value of average rate options - 1.8 1.7Interest 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 agreater or lesser extent, both transactional and translational foreign currencyexposure. This gave rise to the unrealised loss on the change in fair value ofaverage rate options in 2005. The last such derivative instrument expired on 31December 2005 and the group has no current intention of using average rateoptions as a hedging instrument in future. The group manages its transactional exposures to foreign currency risks throughthe use of forward exchange contracts. Forward exchange contracts are typicallyused to hedge highly probable forecast sale transactions which can be forecastto 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 estimateof the effective rate of taxation for the current year. The effective rate oftaxation applied to adjusted profits before tax for the half year is 29% (30June 2005: 27%; 31 December 2005: 27%). A reconciliation of the tax charge onadjusted profits to the actual tax charge is presented below: 2006 2005 2005 Half year Half year Full year £m £m £mThe tax charge is analysed as follows:Tax charge on adjusted profit before tax 8.0 5.7 16.3Tax credit on amortisation of intangible assets and (0.2) - (1.2)goodwill impairment chargeTax charge/(credit) on unrealised loss on change in 0.2 - (0.8)fair value of financial instrumentsTax charge on other financial income - 0.1 0.5Material transfers from unrecognised tax assets - 0.7 (2.5)Material changes in deferred tax rates - - 0.5Tax charge on dividends received from EU subsidiaries - 2.8 2.8Tax 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 yearBasic earnings per shareProfit after tax (£m) 25.7 7.2 35.2Weighted 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 theyear attributable to ordinary equity shareholders of the parent by the weightedaverage number of ordinary shares outstanding during the year. The calculation of diluted earnings per share of 20.7p (30 June 2005: 5.9p; 31December 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 of5p 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 ofbusiness 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 £mAt 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 transactionswith shareholders: Dividends paid - - (13.9) - - - - (13.9) Share-based payments - - 0.3 - - - - 0.3 Share options exercised by issue of - 1.3 (0.3) - - - - 1.0share capital Share options exercised from shares - - 2.7 - - - - 2.7held by Employee Benefit Trust Sale of own shares by Employee - - 0.9 - - - - 0.9Benefit 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 noteswere repaid on 15 July 2006. The repayment was funded predominantly fromexisting cash resources with the balance funded from available borrowingfacilities. Following this repayment, the group's principal borrowings relateto its 2000 and 2003 US Private Placement loan notes which have been swappedinto euro denominated borrowings using cross-currency interest rate swaps. Inorder to readdress the balance between the group's US dollar and eurodenominated borrowings, given the group's relative investments in euro and USdollar denominated assets, the group has cancelled the cross-currency interestrate swap attached to the $75m 2000 US Private Placement loan note borrowingssuch that they revert to being US dollar denominated borrowings. There is nocharge to the income statement arising from the cancellation of thiscross-currency swap since the cost of doing so was fully provided for in thebalance sheet at 30 June 2006. Full details of the group's 2000 and 2003 USPrivate Placement loan note borrowings are set out in Note 20 of the group's2005 Annual Report. 11. INTERIM REPORT Copies of the interim report, which will be posted to shareholders on 8September 2006, may be obtained from the registered office at Station Road,Egham, Surrey TW20 9NP. The report will also be available on the company'swebsite at www.spectris.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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