13th Sep 2005 07:00
Spectris PLC13 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, announcesinterim 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 thecorresponding weak period in 2004. First half sales growth in all major regions,together with current levels of demand, gives confidence that the company willshow 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'sfirst interim financial statements prepared in accordance with its accountingpolicies under International Financial Reporting Standards (IFRS). The 2004comparative results have been restated as a result. 2. Spectris uses adjusted figures as key performance measures. Adjustedfigures are stated before amortisation of intangible assets, goodwill charges,profits or losses on disposal of businesses, gains or losses on revaluation offinancial assets, unrealised changes in the fair value of financial instruments,related tax effects and other tax items which do not form part of the underlyingtax rate. The differences between the adjusted and unadjusted measures arereconciled on page 5 and in Note 4. 3. Basic earnings per share reduced from 8.9p to 5.9p. This decreaseprimarily reflects an unrealised loss of £4.5m on the revaluation of financialinstruments including £1.8m attributable to average rate options and £2.7mattributable to the group's cross-currency interest rate swaps, the latterreflecting a reduction in Euro bond yields in the first half of the year. Thedecrease is also driven by a tax charge of £2.8m on dividends received fromEU-based subsidiaries on the basis of current UK tax law. However hearingswithin the European Court of Justice might overturn this law, in which case notax will be due. 4. The narrative that follows is based on the adjusted measures of operatingprofit, 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 asignificant improvement compared with the corresponding period in 2004. Salesincreased and profits, earnings per share and cash conversion also rosestrongly. Orders exceeded sales in all three sectors. The percentage increase insales and profit was flattered by a weak first half in 2004, but the underlyingposition was positive. Growth in Asia was again strong, with Japan showing auseful improvement. Actions have been taken to improve margins, for example overhead containment andthe elimination of some lower margin business and products, from which somebenefit has been derived. Sales in the first half increased by 8% to £307.2 million (2004: £283.6million). Operating profit increased by 31% to £27.8 million (£21.3 million). Inresponse to the continuing potential in Asia, Spectris China relocated to largerpremises in Shanghai during the first half, and now occupies a facility whichprovides sales, service and applications engineering for a number of companieswithin the Spectris group. Earnings per share increased from 9.2p to 12.7p on a tax rate of 27% (half year2004: 23%; full year 2004: 25%). The effects of currency were negligible. Cashconversion was good with 80% of operating profit converted into cash, as actionsto 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 yearend. Interest costs were £6.5 million, giving an annualised interest cover of5.2 times. The Board proposes to pay an interim dividend of 4.6p (4.25p), an increase of8%. The dividend will be paid on 18 November 2005 to shareholders on theregister at 21 October 2005. Board changes Hans Nilsson, Chief Executive, resigned from the Board in May. The process ofidentification of a successor is progressing and, pending an appointment, theBoard 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. Operatingmargins improved from 11.5% to 12.5%. The growth was helped by good performancesfrom Arcom and Microscan. Red Lion Controls and HBM made steady progress. In-line Instrumentation achieved sales growth of 2% from £93.9 million to £95.5million with profit growing by 4% from £7.7 million to £8.0 million. Operatingmargins improved from 8.2% to 8.4%. Apart from BTG, all businesses improvedtheir profit performance. A nationwide lock-out by paper mill workers inFinland, one of the largest paper producing countries, resulted in sales at BTGbeing slightly down on the same period last year. Servomex saw strong demand fortransducers from its medical equipment customers and Beta LaserMike has returnedto profitability in recent months. The restructuring at Loma continued and weexpect this business to return to profitability in the second half. All businesses in the Process Technology sector saw double-digit sales andprofit growth, with sales up 16% from £122.5 million to £141.5 million. Profitincreased by 86% from £5.9 million to £11.0 million. Operating margins improvedfrom 4.8% to 7.8%. The sales growth was helped by strong demand in Asia forproducts at Malvern Instruments and PANalytical. Both companies now haveapplication laboratories in Shanghai serving the rest of Asia as well as China.Malvern signed a multi-year contract to provide instruments for cementproduction lines in north and south America, reflecting its strength in theprocess business. Particle Measuring Systems grew sales strongly compared withthe prior year, assisted by demand from the flat panel display andpharmaceutical industries, despite a slowdown in capital equipment expenditurein the semiconductor industry. Performance at Bruel & Kjaer Sound & Vibrationimproved compared with the prior year and the benefits of the acquisition of theJapanese 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, andbenefited from the improving economic climate in Japan. Outlook We anticipate that the normal bias towards the second half will be at moretraditional levels than in 2004. If current exchange rates prevail, the effecton profitability will be negligible. The effect on sales of higher oil priceshas been mixed, with businesses such as Servomex and Bruel & Kjaer Vibro seeingincreased demand as oil producers and processors invest in new or improvedcapacity, whereas customers manufacturing polymer-based products, such aspackaging film, have been adversely affected. The actions in progress to constrain overheads will show positive results onmargins in the second half. First half sales growth in all major regions,together with current levels of demand, gives confidence that the company willshow encouraging progress for the year. - ENDS - A table of results is attached. The company will broadcast the meeting with analysts in a live webcastcommencing 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 atStation Road, Egham, Surrey TW20 9NP, and on the company's website atwww.spectris.com. CONSOLIDATED INCOME STATEMENTFor the half year to 30 June 2005 Notes 2005 2004 2004 Half year Half year Full year (restated) (restated) £m £m £m2 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 shareholders4 Basic earnings per share (p) 5.9 8.9 19.54 Diluted earnings per share (p) 5.9 8.8 19.55 Dividends per share (p)** 4.6 4.25 14.54 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 1.22 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 1.22 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 presentedhere as additional information. CONSOLIDATED BALANCE SHEETAt 30 June 2005 2005 2004 2004 Half year Half year Full year (restated) (restated) £m £m £mNon-current assetsGoodwill 211.7 221.1 219.0Other intangible assets 6.2 6.0 5.2Property, plant & equipment 91.2 90.1 93.7Financial assets - 0.5 -Deferred tax asset 30.1 25.8 33.5 339.2 343.5 351.4Current assetsInventories 96.9 92.9 94.0Taxation recoverable 3.4 9.2 16.5Trade and other receivables 132.2 126.8 145.8Cash and cash equivalents 42.3 37.5 34.4 274.8 266.4 290.7Total assets 614.0 609.9 642.1 Current liabilitiesShort-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 liabilitiesMedium 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 EquityShare capital 6.2 6.2 6.2Share premium account 228.2 227.3 227.8Retained earnings (0.7) 6.9 11.1Treasury shares (9.6) (15.0) (14.2)Translation reserve (8.2) (7.9) 0.5Hedging reserve (0.7) - -Merger reserve 3.1 3.1 3.1Capital redemption reserve 0.3 0.3 0.3Total equity attributable to the equity holders of the 218.6 220.9 234.8parentTotal equity and liabilities (614.0) (609.9) (642.1) CONSOLIDATED CASH FLOW STATEMENTFor 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 EXPENSEFor the half year to 30 June 2005 2005 2004 2004 Half year Half year Full year (restated) (restated) £m £m £mNet 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) - 1.1Net gain on hedge of net investment in foreign 2.7 - -subsidiariesForeign 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 20.4attributable to equity shareholders CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor 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 reserveAt 31 December 2004 6.2 227.8 (14.2) 11.1 0.5 - 3.1 0.3 234.8Adjustment on adoption of IAS39 - - - (7.7) - 0.6 - - (7.1) Fair value of financial instrumentsAt 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 - - - - 7.2Dividends 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 - - - - 5.1Benefit TrustIssue of share capital - 0.4 - - - - - - 0.4Actuarial gain on pension schemes - - - 1.0 - - - - 1.0Tax on actuarial gain on pension - - - (0.4) - - - - (0.4)schemesShare based payments - - - 0.1 - - - - 0.1Exchange 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 requiredto adopt International Financial Reporting Standards (IFRS) with effect from 1January 2005. The results for the six months ended 30 June 2005 represent theGroup's first interim financial statements prepared in accordance with itsaccounting policies under IFRS. The Group's first IFRS Annual Report andAccounts will be for the year ended 31 December 2005. The interim financial statements have been prepared on the basis of theaccounting policies set out in "Adoption of International Financial ReportingStandards", a separate document issued on 15 June 2005 that has been publishedon the Spectris website (www.spectris.com) and which is also available onrequest. Further disclosure concerning the impact of IFRS on the financialstatements of the group can also be found in that document including thereconciliations required by IFRS1 "First Time Adoption of InternationalFinancial Reporting Standards". The accounting policies are drawn up in accordance with those InternationalAccounting Standards (IAS) and International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board (IASB) that areexpected to be endorsed and applicable when the accounts for the year ending 31December 2005 are prepared. In particular, these interim financial statementshave been prepared on the basis of the amendment to IAS19 "Employee Benefits",which is not yet formally endorsed, which allows actuarial gains and losses tobe recognised in full through reserves. Spectris expects to use consistentaccounting policies for the preparation of its results for the year ending 31December 2005. However, there is a possibility that the accounting policies mayneed to be updated because interpretations may be issued by the InternationalFinancial Reporting Interpretations Committee (IFRIC) that will be mandatory,new standards may yet be issued by the IASB that will be mandatory, or theinterpretation of existing IAS or IFRS may evolve. The 2004 comparatives included within these interim financial statements arebased on the 2004 financial statement extracts restated for IFRS published on 15June 2005 in the "Adoption of International Financial reporting Standards"document, subject to minor differences in presentation. Additionally, therestated amount of goodwill as at 31 December 2004 has been increased by £0.5mto more correctly reflect the impact of exchange differences. This adjustmentdoes not impact on the income statement. The interim results are unaudited. The financial information herein does notamount to full statutory accounts within the meaning of Section 240 of theCompanies Act 1985 (as amended). As described above, the figures for the yearto 31 December 2004 have been extracted from the IFRS restatements includedwithin the "Adoption of International Financial Reporting Standards" document,issued on 15 June 2005, which were themselves based on the 2004 Annual Reportwhich has been filed with the Registrar of Companies. The audit report on the2004 Annual Report was unqualified and did not contain a statement under Section237 (2) or (3) of the Companies Act 1985. The interim financial statements were authorised for issuance on 13 September2005. 2. SEGMENTAL ANALYSIS a) Analysis by class of business 2005 2004 2004 Half year Half year Full year (restated) (restated) £m £m £mRevenueElectronic controls 70.2 67.2 139.7In-line instrumentation 95.5 93.9 198.4Process technology 141.5 122.5 276.0Total revenue 307.2 283.6 614.1Operating profitElectronic controls 8.8 7.7 17.2In-line instrumentation 8.0 7.7 20.6Process technology 11.0 5.9 26.8 27.8 21.3 64.6Goodwill 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 deferredtax asset in 2004 required under IAS12. It is attributable to In-lineinstrumentation (£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, LomaSystems, NDC Infrared Engineering, Servomex. Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, MalvernInstruments, Particle Measuring Systems, PANalytical. b) Analysis of turnover by geographical destination 2005 2004 2004 Half year Half year Full year (restated)* (restated) £m £m £mUK 20.4 20.3 39.4Continental Europe 116.6 110.2 242.1North America 78.6 74.6 157.3Japan 25.0 20.0 46.2China 19.6 18.5 40.3Rest of Asia Pacific 32.8 25.9 59.1Rest of the world 14.2 14.1 29.7Total 307.2 283.6 614.1 * In addition to the impact of transition to International Financial ReportingStandards (IFRS), the June 2004 comparatives also include a restated allocationof 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 estimateof the effective rate of taxation for the current year. The effective rate oftaxation applied to adjusted profit before tax for the half year is 27% (yearended 31 December 2004: 25%). The tax charge is analysed as follows: 2005 2004 2004 Half year Half year Full year (restated) (restated) £m £m £mTax charge on adjusted profit before tax 5.7 3.4 12.4Tax 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 lossesTax charge arising on intra-group dividends 2.8 - 9.8Total 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 penceBasic earnings and earnings per share 7.2 10.7 23.6 5.9 8.9 19.5Basic earnings per share attributable to:Amortisation of intangible assets 0.5 0.4 1.2 0.4 0.3 1.0Loss on sale or termination of businesses - - 1.2 - - 1.0Tax credit on amortisation of intangible - - (0.1) - - -assetsGoodwill reduction - - 12.2 - - 10.1Loss 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 lossesTax charge arising on intra-group 2.8 - 9.8 2.3 - 8.1 dividendsAdjusted 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 121.5million (2004: 121.1 million). 5. INTERIM DIVIDEND The interim dividend of 4.6p per share (2004: 4.25p) will be payable on 18November 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 averagerate options (£1.8m) and cross-currency interest rate swaps (£2.7m), the latterreflecting a reduction in Euro bond yields in the first half of the year. Theswaps have the effect of converting fixed rate US$ private placement borrowingsinto fixed rate Euro denominated borrowings, and were taken out in order tohedge the group's European net asset investments. Under IAS39, the portion ofthe swaps that converts variable rate Euro interest payments into fixed ratepayments is considered to be ineffective as a net investment hedge and thereforechanges in the value of this portion of the swap are recognised in the incomestatement. 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 £mNet cash from operating activities 21.5 12.4 56.6Corporation tax paid 6.6 3.3 7.7Purchase of tangible fixed assets (5.9) (7.2) (16.5)Proceeds from sale of tangible fixed assets - 0.3 0.7Sale of treasury shares by Employee Benefit Trust - 0.2 0.2Operating 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 15September 2005, 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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