24th Aug 2007 07:00
Spectris PLC24 August 2007 Embargoed until 07.00, Friday 24 August 2007 2007 INTERIM RESULTS Spectris plc, the precision instrumentation and controls company, announcesinterim results for the six months ended 30 June 2007. 2007 2006 Half year Half year Change Sales from continuing businesses (£m)# 308.7 303.6 +1.7%Adjusted operating profit from continuing businesses (£m)# * 39.4 31.3 +26%Adjusted operating profit (£m)# * 39.9 32.7 +22%Adjusted profit before tax (£m)* 36.8 27.5 +34%Adjusted earnings per share (pence)* 20.8 15.7 +32%Dividend (pence) 5.75 5.0 +15% StatutorySales (£m) 317.3 327.3 -3%Profit before tax (£m) 56.4 36.9 +53%Basic earnings per share (pence) 33.4 20.7 +61%# Continuing businesses exclude businesses divested * For explanation of adjusted figures see Note 2 Highlights • Sales from continuing businesses up 7.6% at constant exchange rates• Operating margins improved by 2.5 percentage points to 12.8%• Strong cash conversion contributing to further reduction in net debt by £9.6 million to £62.1 million• Share buy-back: 3.5 million shares purchased for £32.5 million• Dividend increased by 15% Commenting on the results, John O'Higgins, Chief Executive, said: "With sales, profits and operating margins all increasing compared with theprior year, Spectris has made good progress towards meeting its objectives. Weremain confident of continued improvement consistent with expectations for theyear." Chairman's statement Overview Spectris delivered increased sales, profits and earnings per share in the firsthalf of 2007 compared with the corresponding period in 2006, after adjusting fordisposals and acquisitions. Total group sales in the first half were £317.3million compared with £327.3 million in the prior year. Sales from continuingbusinesses increased by 1.7% to £308.7 million (2006: £303.6 million)*. However,taking into account the weakness of the US dollar and the Japanese yen againststerling, at constant currencies sales increased by 7.6%. Sales in localcurrencies increased across all geographies, reflecting the on-going strongdemand from the global industries which the group serves. Despite the currency disadvantage, adjusted operating profit increased by 26% to£39.4 million (2006: £31.3 million). The increase in operating margins by 2.5percentage points, from 10.3% to 12.8%, is encouraging and evidence of theBoard's determination to restore margins to a level commensurate with the highquality of the group's businesses. Profit before tax increased by 34% to £36.8 million (2006: £27.5 million) andearnings per share increased by 32% from 15.7p to 20.8p. Cash conversion was strong with 93% of operating profit converted to operatingcash. Net proceeds from the disposal of the Ircon and Spectrum businesses were£30.4 million. Whilst the buy-back of 3.5 million shares absorbed £32.5 million,net debt at the end of the period was £62.1 million, compared with £71.7 millionat the end of December 2006. Interest costs were £3.1 million, giving anannualised cover of 13.1 times. The Board proposes to pay an interim dividend of 5.75p, an increase of 15%. Thedividend will be paid on 16 November 2007 to shareholders on the register at 26October 2007. Board changes Andrew Given retired from the Board at the AGM in May, having completed his twothree-year terms, and I re-iterate my thanks to him expressed earlier in theyear. I should like to welcome John Hughes, who joined the Board as anon-executive director in June. Outlook The order backlog, together with current order levels and increasing margins,provides confidence that the group will show continued improvement consistentwith expectations for the year. John PoulterChairman *Unless otherwise stated, all sales and operating profit figures are on acontinuing businesses basis and exclude the businesses divested. Figures foroperating profit, profit before tax and earnings per share are adjusted measures- for explanation of adjusted figures see Note 2. Chief Executive's review Introduction Spectris made good progress in the first half of 2007, with sales, profits andoperating margins all improving compared with the corresponding period in theprior year. At constant currencies, sales increased by 7.6%, including 1.2% frombolt-on acquisitions, and operating profit increased by 43%. Sales at actualexchange rates increased by 1.7% to £308.7 million. This reflects the strengthof sterling, which has increased by 10% against the US dollar and 14% againstthe Japanese yen compared with the same period last year. Operating profit atactual exchange rates increased by 26% to £39.4 million. Margins improved to12.8% (2006: 10.3%), reflecting the benefits from the increase in volume and therestructuring actions taken in 2006. Geographically, sales in Europe increased by 9% at constant currencies. Organicsales in North America grew by 6% at constant currencies. Asia grew by 4% atconstant currencies, with good growth in China and Japan offset by fewer largeprojects in other parts of the region. Sales in the rest of the world increasedby 15%. Cash generation continues to be a focus and remained strong in the first halfwith 93% of operating profit converted to operating cash. The previouslyannounced disposal programme was concluded in the first half, with the sale ofthe Ircon business to Fluke Electronics Corporation on 15 June. This followedthe sale of Spectrum Inspection Systems to Illinois Tool Works Inc on 28February. Sector performance Sales, profits and operating margins showed good improvement in all threesectors. A more detailed analysis of individual sector performance follows. Process Technology Sales increased by 2% to £163.4 million, and by 9% at constant currencies.Operating profit increased by 16% to £19.2 million and operating marginsimproved by 1.4 percentage points to 11.8%. Restructuring charges in the firsthalf of 2007 were £nil (2006: £0.6 million). Demand from the pharmaceutical industry continued to be strong for Malvern,PANalytical and Particle Measuring Systems in Europe and, increasingly, in Asiaas the globalisation of pharmaceutical markets continues. India and China aregrowing in importance as key countries for multinational pharmaceuticalcompanies to carry out manufacturing and research activities. There is evidenceof some slowdown in demand in North America as the pharmaceutical industryrestructures in response to the increase in the use of generic prescriptiondrugs and the growth in emerging markets. In March Malvern signed an agreementwith Farfield Scientific Limited, giving the company exclusive distributionrights in North, Central and South America for Farfield's unique range ofanalytical instruments which are used to analyse the structure and behaviour ofproteins and nano-materials in the life sciences industry. PANalytical continued to see good demand for its X-ray analysis systems from thesemiconductor industry to facilitate research and development of new materialsand processes. Fusion saw continued growth from the sale of its UV curingsystems into Asia for the production of flat panel displays. However, there issome evidence of a slowdown in the semiconductor and some electronics sectors inNorth America. Demand from the automotive and aerospace industries was strong for Bruel & KjaerSound & Vibration, as its noise testing systems were chosen by leadingmanufacturers for new model development programmes. The recently releasedautomotive noise vibration harshness (NVH) vehicle simulator, which enables thenoise and vibration from vehicle components to be simulated at the design stagebefore a physical prototype has been built, has already been ordered by a numberof major automotive customers. In March Bruel & Kjaer received the "Company ofthe year" award from Automotive Testing Technology Magazine based on, amongstother factors, its work in the field of NVH simulation. In the aerospace marketBruel & Kjaer had success with its jet engine noise monitoring applications.These systems, based on the PULSE analyser platform, are used by major aeroengine manufacturers for noise certification in accordance with regulations onengine noise emissions. The mining and minerals sector continued to see growth, particularly in India,where there are increasing opportunities in infrastructure projects.PANalytical's Axios XRF systems saw strong demand in a wide range of processingindustries, particularly in China. In April PANalytical entered into apartnership agreement with OBLF GmbH, which brings optical atomic emissionspectrometers to complement PANalytical's X-ray fluorescence (XRF) spectrometersfor the analysis of metals. Malvern's SyNIRgi near infrared chemical imagingsystem, based on the platform which Malvern acquired from Spectral Dimensionslast year, won an Innovation Award for materials analysis and characterisationat the Powtech/ Technopharm congress. In-line Instrumentation Sales in the In-line Instrumentation sector increased by 1% to £78.7 million,and by 6% at constant currencies. Operating profit grew by 39% to £10.7 million,with operating margins improving by 3.8 percentage points to 13.6%, reflectingmanagement actions and the benefits of the restructuring spend. Restructuringcharges in the first half of 2007 were £0.4 million (2006: £1.5 million). In the pulp and paper industry a number of new paper mills have come on stream,particularly in Asia and South America, as investment increases to meet risingdemand created by firmer pulp prices, which is starting to benefit BTG'sinstrumentation business. At the same time, less efficient mills are beingdecommissioned in other parts of the world. BTG's Duroblade business performedwell. The IPI business acquired in 2006 has shown good growth, benefiting fromDuroblade's worldwide sales network, and a number of new high performance bladeshave been launched based on the latest materials technology. Bruel & Kjaer Vibro's V6000 safety monitoring system has been well received bythe energy and petrochemical markets with a large number of systems alreadyinstalled and operating. Servomex won two major orders for analysers andsampling systems for a new liquefied natural gas (LNG) terminal and refinery inNorth America being built to meet the increasing demand for natural gas. Strong demand in the rubber market in Asia, particularly China, helped drivesales of NDC's scanning systems. Demand from the converting market in NorthAmerica continued to be good as investment in new production lines continued andinvestment in flexible packaging and label production recovered. There was gooddemand for the company's sensors from the food industry where they are used tomeasure, amongst other things, moisture and oil content in snack foods. Beta LaserMike saw good growth in sales to China, with particularly strongdemand for its LaserSpeed family of products. These are used in the productionof steel, wire, cable and other continuously manufactured products, where theirgreater accuracy compared with conventional methods results in significantmaterial savings for customers. Electronic Controls Sales in the Electronic Controls sector increased by 2% to £66.6 million, and by7% at constant currencies. Operating profit grew by 36% to £9.5 million andoperating margins increased by 3.6 percentage points to 14.3%. Profitability improved at HBM as the continuing focus on higher value products,together with overhead efficiency, showed benefits. The company launched anoptical strain gauge-based measurement system which is particularly suitable forstress analysis of composite materials. This is increasingly used in theaerospace industry and in other applications, for example wind turbine blades. Microscan continued to extend its highly successful range of Quadrus bar codescanning products into a broad spread of industries, with the recently launchedQuadrus MINI 3 providing the highest resolution currently available for datatracking. With the ability to decode high density codes of less than 3millimetres square, it is designed for use in industries such as printed circuitboard assembly and semiconductor manufacturing. Red Lion Controls has been building additional distribution channels and is nowrepresented in multiple catalogues in Europe and North America, where sales ofits high volume products are showing strong growth. Red Lion's networkcommunication products saw good growth, particularly in Europe, and its humanmachine interface (HMI) products performed well in North America. A new range ofdisplays was launched during the first half. Financial review During the first half of 2007, the group divested the Spectrum and Irconbusinesses on 28 February 2007 and 15 June 2007 respectively. In the first halfof 2006 the group divested the Arcom business on 31 March 2006. These threebusinesses are not sufficiently material to be presented as discontinuedoperations under IFRS, however Note 2 of these interim financial statements setsout the impact that this has had on the results of the group. Reported group sales in the first half decreased by 3% from £327.3 million to£317.3 million driven by the divestments noted above; sales in continuingbusinesses increased by 1.7%. Movements in foreign currency exchange rates hadan adverse effect on sales in continuing businesses of approximately 5.9% andbolt-on acquisitions contributed approximately 1.2% of growth. Reported unadjusted operating profit, after including acquisition-relatedintangible asset amortisation charges of £1.0 million (2006: £0.7 million),increased from £32.0 million to £38.9 million. Operating profit in continuingbusinesses increased by 26% from £31.3 million to £39.4 million. Adversemovements in foreign currency exchange rates had an effect on operating profitof approximately £5.5 million and bolt-on acquisitions contributed approximately£0.5 million to the result. Aside from the effect from sales growth, operatingprofit benefited from the actions taken to improve margins and a reduction incharges from restructuring activities from £2.1 million in the first half of2006 million to £0.4 million in the first half of 2007. Interest charges, including IAS 19 pension charges, reduced from £5.2 million to£3.1 million, reflecting the reduction in net debt. Profit before tax increasedby 34% from £27.5 million to £36.8 million. After also includingacquisition-related intangible asset amortisation charges, £19.4 million profiton disposal of the Spectrum and Ircon businesses (2006: £9.5 million profit ondisposal of the Arcom business), unrealised gains on the group's cross-currencyinterest rate swaps of £1.2 million (2006: £0.6 million), the group's unadjustedprofit before tax increased by 53% from £36.9 million to £56.4 million. Based on the forecast for the full year, the underlying tax rate for the halfyear was 30% (2006: 29%), reflecting the move towards the weighted averagestatutory tax rate as previously communicated. Earnings per share increased by 32% from 15.7p to 20.8p as the combined effectsof higher operating profits and lower interest charges were offset slightly bythe higher tax rate. Basic earnings per share increased by 61% from 20.7p to33.4p. In addition to the factors above, this increase primarily reflects theprofit realised on disposal of the Spectrum and Ircon businesses. As announced earlier this year, the Spectrum Inspection Systems and Irconbusinesses were divested during the first half of the year. The Spectrumbusiness was sold to Illinois Tool Works Inc on 28 February 2007. After takingaccount of transaction costs, net proceeds were £14.3 million. The Irconbusiness was sold on 15 June 2007. After taking account of transaction costsincurred to date, the net proceeds received in the first half of the year amountto £16.1 million. It is expected that adjustments to the net proceeds in thesecond half of the year to take account of final transaction costs and a workingcapital adjustment mechanism will not exceed £0.5 million. The share buy-back announced in February is continuing, with 3.5 million sharespurchased up to the end of June at a cost of £32.5 million. Cash conversion was 93% (2006: 113%), in line with our stated target of 90-100%,reflecting the differences in timing of charges and cash outflow fromrestructuring activities. The cash generated by the group in the first half ofthe year resulted in the reduction of net debt by £9.6 million to £62.1 million,compared with £71.7 million at the start of the year. The share buy-back of 3.5million shares cost £32.5 million, whilst net proceeds from the disposal ofbusinesses were £30.4 million. John O'HigginsChief Executive - ENDS - Contact: John O'Higgins, Chief Executive, Spectris plc Tel: 01784 470470 Clive Watson, Group Finance Director, Spectris plc Tel: 01784 470470 Richard Mountain, Financial Dynamics Tel: 020 7269 7291 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 2007 2007 2006 2006 Half year Half year Full year £m £m £m Note Continuing operations 2, 3 Revenue 317.3 327.3 684.5 Cost of sales (136.9) (138.7) (288.7) Gross profit 180.4 188.6 395.8 Net operating expenses (141.5) (156.6) (313.1) 2, 3 Operating profit 38.9 32.0 82.74 Profit on disposal of businesses 19.4 9.5 9.55 Financial income 4.6 4.1 9.05 Finance costs (6.5) (8.7) (15.6) Profit before tax 56.4 36.9 85.66 Taxation - UK (0.6) (0.6) (0.5)6 Taxation - Overseas (14.3) (10.6) (23.7) Profit after tax for the period from continuing operations attributable to equity shareholders 41.5 25.7 61.4 7 Basic earnings per share 33.4p 20.7p 49.4p7 Diluted earnings per share 33.2p 20.7p 49.2p8 Dividends arising in respect of the period (per share) 5.75p 5.0p 17.5p Dividends paid during the period (per share) 12.5p 11.2p 16.2p 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 2007 2007 2006 2006 Half year Half year Full year £m £m £m Net (loss)/gain on effective portion of changes in fair value of forward exchange contracts (0.1) 1.6 1.7Deferred tax on changes in fair value of forward exchange contracts - (0.5) (0.5)Net gain on changes in fair value of effective portion of net investment hedge 1.0 3.3 7.6Actuarial gain arising on pension schemes 4.8 0.4 1.8Exchange differences on pension schemes - - 0.4Adjustment to prior year deferred tax on pension schemes (1.8) - -Current and deferred tax on actuarial gain and losses on pension schemes (1.5) (0.1) (0.6)Foreign exchange difference on translation of overseas operations (2.7) (5.2) (19.9)Current tax on foreign exchange differences (0.3) - (0.1)Deferred tax on share options 0.2 - -Net expense recognised in equity in respect of year (0.4) (0.5) (9.6)Profit for the period 41.5 25.7 61.4 Total recognised income and expense for the period attributable to equity shareholders 41.1 25.2 51.8 CONSOLIDATED BALANCE SHEETAt 30 June 2007 2007 2006 2006 Half year Half year Full yearNote £m £m £m Non-current assets Goodwill 209.1 209.6 207.4 Other intangible assets 5.4 5.1 8.0 Property, plant & equipment 82.1 90.1 83.2 Deferred tax asset 30.2 39.4 37.6 326.8 344.2 336.2 Current assets Inventories 87.6 88.3 81.6 Derivative financial instruments 1.2 1.3 1.3 Taxation recoverable 0.2 - 0.5 Trade and other receivables 128.3 137.2 145.4 Cash and cash equivalents 56.7 101.4 51.0 Assets held for sale - - 17.3 274.0 328.2 297.1 Total assets 600.8 672.4 633.3 Current liabilities Short-term borrowings (2.0) (58.5) (4.3) Derivative financial instruments - (18.1) - Trade and other payables (111.8) (121.7) (124.2) Current tax liabilities (35.2) (27.6) (32.9) Provisions (21.4) (15.8) (21.8) Liabilities held for sale - - (6.0) (170.4) (241.7) (189.2) Net current assets 103.6 86.5 107.9 Non-current liabilities Medium and long-term borrowings (105.7) (114.7) (108.6) Derivative financial instruments (13.0) (13.6) (12.8) Other payables (8.4) (6.4) (8.8) Retirement benefit obligations (12.9) (21.6) (18.8) Provisions - (1.6) - Deferred tax liabilities (1.0) (1.1) (1.0) (141.0) (159.0) (150.0) Total liabilities (311.4) (400.7) (339.2) Net assets 289.4 271.7 294.1 Equity9 Issued share capital 6.2 6.2 6.29 Share premium 231.4 230.4 231.19 Retained earnings 64.1 35.3 67.39 Translation reserve (16.8) (4.7) (15.1)9 Hedging reserve 1.1 1.1 1.29 Merger reserve 3.1 3.1 3.19 Capital redemption reserve 0.3 0.3 0.3 Equity shareholders' funds 289.4 271.7 294.1 Total equity and liabilities 600.8 672.4 633.3 CONSOLIDATED CASH FLOW STATEMENTFor the half year to 30 June 2007 2007 2006 2006Note Half year Half year Full year £m £m £m Cash flows from operating activities Profit after tax 41.5 25.7 61.4 Adjustments for: Tax 14.9 11.2 24.2 Profit on disposal of businesses (19.4) (9.5) (9.5) Finance costs 6.5 8.7 15.6 Financial income (4.6) (4.1) (9.0) Depreciation 6.3 6.8 13.2 Amortisation of intangible assets 1.0 0.7 1.9 Goodwill reduction - - 1.2 Loss on sale of property, plant & equipment 0.3 0.1 0.5 Equity settled share-based payment expense 0.4 0.3 0.6 Operating profit before changes in working capital and provisions 46.9 39.9 100.1 Decrease/(increase) in trade and other receivables 15.3 10.4 (8.9) Increase in inventories (7.1) (2.0) (1.0) (Decrease)/increase in trade and other payables (10.8) (9.2) 4.4 (Decrease)/increase in provisions and employee benefits (2.5) 2.6 7.4 Corporation tax paid (8.5) (12.3) (21.5)2 Net cash from operating activities 33.3 29.4 80.5 Cash flows from investing activities Purchase of property, plant & equipment (4.9) (4.9) (10.5) Proceeds from sale of property, plant & equipment 0.1 0.1 - Acquisition of businesses, net of cash acquired (0.5) (1.7) (13.6) Proceeds from disposal of businesses, net of cash disposed 30.4 13.5 13.3 Interest received 1.0 1.3 2.0 Net cash from investing activities 26.1 8.3 (8.8) Cash flows from financing activities Interest paid (4.1) (6.5) (13.2) Dividends paid to equity holders of the parent (15.4) (13.9) (20.2) Share options exercised by issue of share capital 0.1 1.0 1.5 Share options exercised from shares held by Employee Benefit Trust 0.9 2.7 3.8 Share options exercised from treasury shares 2.0 - - Purchase/sale of own shares by Employee Benefit Trust (1.5) 0.9 0.9 Purchase of own shares - treasury shares (32.5) - - Cancellation of cross-currency swap - - (2.9) Repayment of borrowings - - (65.9) Decrease in finance lease liabilities (0.1) - (0.4) Net cash from financing activities (50.6) (15.8) (96.4) Net increase/(decrease) in cash and cash equivalents 8.8 21.9 (24.7) Cash and cash equivalents at beginning of period 47.0 76.1 76.1 Effect of foreign exchange rate changes (0.6) (1.1) (4.4) Cash and cash equivalents at end of period 55.2 96.9 47.0 2007 2006 2006Note Half year Half year Full year £m £m £m Reconciliation of changes in cash and cash equivalents to movements in net debt: Net increase/(decrease) in cash and cash equivalents 8.8 21.9 (24.7) Repayment of borrowings - - 65.9 Net decrease in finance lease liabilities 0.1 - 0.4 Effect of foreign exchange rate changes 0.7 2.8 6.6 Movement in net debt 9.6 24.7 48.2 Net debt at start of period (71.7) (119.9) (119.9)2 Net debt at end of period (62.1) (95.2) (71.7) NOTES TO THE 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 2007 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 2006 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 2006. 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 2006. The interim results are unaudited. The audit report on the 2006 Annual Reportwas unqualified and has been filed with the Registrar of Companies. The 2006Annual 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. Except as described below, inpreparing these condensed consolidated interim financial statements, thesignificant judgements made by management in applying the group's accountingpolicies and the key sources of estimation uncertainty were the same as thosethat applied to the consolidated statements for the year ended 31 December 2006. The group's financial risk management objectives and policies are consistentwith those disclosed in the consolidated financial statements for the year ended31 December 2006. These condensed consolidated interim financial statements were approved by theBoard of Directors on 24 August 2007. 2. ADJUSTED PERFORMANCE MEASURES Spectris uses adjusted figures as key performance measures in addition to thosereported under adopted 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 underadopted IFRS as follows: 2007 2006 2006Note Half year Half year Full year Adjusted sales £m £m £m 3 Sales as reported under adopted IFRS 317.3 327.3 684.5 Divested businesses (8.6) (23.7) (41.9) Adjusted sales for continuing businesses 308.7 303.6 642.6 Note Process In-line Electronic 2007 Technology Instrumentation Controls Half year Total Adjusted sales by segment - June 2007 £m £m £m £m3 Sales as reported under adopted IFRS 163.4 87.3 66.6 317.3 Divested businesses - (8.6) - (8.6) Adjusted sales for continuing businesses 163.4 78.7 66.6 308.7 Note Process In-line Electronic 2006 Technology Instrumentation Controls Half year Total Adjusted sales by segment - June 2006 £m £m £m £m3 Sales as reported under adopted IFRS 160.0 98.1 69.2 327.3 Divested businesses - (19.8) (3.9) (23.7) Adjusted sales for continuing businesses 160.0 78.3 65.3 303.6 Note Process In-line Electronic 2006 Technology Instrumentation Controls Full year Total Adjusted sales by segment - December 2006 £m £m £m £m3 Sales as reported under adopted IFRS 343.6 202.2 138.7 684.5 Divested businesses - (38.0) (3.9) (41.9) Adjusted sales for continuing businesses 343.6 164.2 134.8 642.6 2007 2006 2006Note Half year Half year Full year Adjusted operating profit £m £m £m3 Operating profit as reported under adopted IFRS 38.9 32.0 82.7 Amortisation of acquisition-related intangible assets 1.0 0.7 1.8 Goodwill reduction - - 1.2 Adjusted operating profit 39.9 32.7 85.7 Divested businesses (0.5) (1.4) (2.5) Adjusted operating profit for continuing businesses 39.4 31.3 83.2 Restructuring charges for continuing businesses 0.4 2.1 7.7 Adjusted operating profit for continuing businesses before restructuring charges 39.8 33.4 90.9 Note Process In-line Electronic 2007 Technology Instrumentation Controls Half year Total Adjusted operating profit by segment - June 2007 £m £m £m £m3 Segment result under adopted IFRS 18.4 11.0 9.5 38.9 Amortisation of acquisition-related intangible assets 0.8 0.2 - 1.0 Goodwill impairment charge - - - - Adjusted operating profit 19.2 11.2 9.5 39.9 Divested businesses - (0.5) - (0.5) Corporate cost reallocation* - - - - Adjusted operating profit for continuing businesses 19.2 10.7 9.5 39.4 Restructuring charges for continuing businesses - 0.4 - 0.4 Adjusted operating profit for continuing businesses before restructuring charges 19.2 11.1 9.5 39.8 Note Process In-line Electronic 2006 Technology Instrumentation Controls Half year Total Adjusted operating profit by segment - June 2006 £m £m £m £m3 Segment result under adopted IFRS 16.1 8.6 7.3 32.0 Amortisation of acquisition-related intangible assets 0.7 - - 0.7 Goodwill impairment charge - - - - Adjusted operating profit 16.8 8.6 7.3 32.7 Divested businesses - (1.1) (0.3) (1.4) Corporate cost reallocation* (0.2) 0.2 - - Adjusted operating profit for continuing businesses 16.6 7.7 7.0 31.3 Restructuring charges for continuing businesses 0.6 1.5 - 2.1 Adjusted operating profit for continuing businesses before restructuring charges 17.2 9.2 7.0 33.4 Note Process In-line Electronic 2006 Technology Instrumentation Controls Full year Total Adjusted operating profit by segment - £m £m £m £m December 20063 Segment result under adopted IFRS 42.6 22.9 17.2 82.7 Amortisation of acquisition-related intangible assets 1.7 0.1 - 1.8 Goodwill impairment charge 1.2 - - 1.2 Adjusted operating profit 45.5 23.0 17.2 85.7 Divested businesses - (2.3) (0.2) (2.5) Corporate cost reallocation* (0.3) 0.4 (0.1) - Adjusted operating profit for continuing businesses 45.2 21.1 16.9 83.2 Restructuring charges for continuing businesses 1.9 5.1 0.7 7.7 Adjusted operating profit for continuing businesses before restructuring charges 47.1 26.2 17.6 90.9 * The adjustment for corporate cost reallocation is a consequence of theadjustment for divested businesses and reallocates all corporate costs to thecontinuing businesses. 2007 2006 2006Note Half year Half year Full year Adjusted profit before tax £m £m £m Profit before tax as reported under adopted IFRS 56.4 36.9 85.6 Amortisation of acquisition-related intangible assets 1.0 0.7 1.8 Goodwill reduction - - 1.24 Profit on disposal of businesses (19.4) (9.5) (9.5)5 Unrealised change in fair value of cross-currency interest rate swaps (1.2) (0.6) (2.8) Adjusted profit before tax 36.8 27.5 76.3 2007 2006 2006 Half year Half year Full year Operating cash flow £m £m £m Net cash from operating activities under adopted IFRS 33.3 29.4 80.5 Corporation tax paid 8.5 12.3 21.5 Purchase of property, plant & equipment (4.9) (4.9) (10.5) Proceeds from sale of property, plant & equipment 0.1 0.1 - Operating cash flow for management purposes 37.0 36.9 91.5 Divested businesses (0.8) (1.9) (3.1) Operating cash flow for management purposes for continuing businesses 36.2 35.0 88.4 2007 2006 2006Note Half year Half year Full year Adjusted earnings per share £m £m £m Profit after tax as reported under adopted IFRS 41.5 25.7 61.4 Adjusted for: Amortisation of acquisition-related intangible assets 1.0 0.7 1.8 Goodwill reduction - - 1.24 Profit on disposal of businesses (19.4) (9.5) (9.5)5 Unrealised change in fair value of (1.2) (0.6) (2.8) cross-currency interest rate swaps6 Tax effect of the above 3.9 3.2 3.46 Other tax items not forming part of the underlying tax - - (1.2) rate Adjusted earnings 25.8 19.5 54.3 Weighted average number of shares outstanding (millions) 124.3 124.0 124.3 Adjusted earnings per share (pence) 20.8p 15.7p 43.7p 2007 2006 2006 Half year Half year Full year Adjusted diluted earnings per share Adjusted earnings (as above) (£m) 25.8 19.5 54.3 Diluted weighted average number of shares outstanding (millions) 124.9 124.4 124.7 Adjusted diluted earnings per share (pence) 20.7p 15.7p 43.5p 2007 2006 2006 Half year Half year Full yearAnalysis of net debt for management purposes £m £m £mBank overdrafts 1.5 4.5 4.0Bank loans - secured 2.5 2.4 2.7Unsecured loan notes 103.7 166.1 106.1Cross-currency interest rate swaps - currency portion 11.1 23.4 9.8Finance lease liabilities - 0.2 0.1Total borrowings 118.8 196.6 122.7Cash balances (56.7) (101.4) (51.0)Net debt 62.1 95.2 71.7 2007 2006 2006 Half year Half year Full yearAnalysis of revenue by geographical destination for £m £m £mcontinuing businessesUK 13.8 13.3 28.6Continental Europe 121.3 113.6 244.5North America 73.9 75.3 157.0Japan 25.1 26.4 55.5China 25.0 24.5 49.0Rest of Asia Pacific 32.4 34.6 74.7Rest of the world 17.2 15.9 33.3Total continuing businesses 308.7 303.6 642.6Divested businesses 8.6 23.7 41.9Group total 317.3 327.3 684.5 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 2007 2006 2006 2007 2006 2006 Half year Half year Full year Half year Half year Full year £m £m £m £m £m £mProcess Technology 163.4 160.0 343.6 18.4 16.1 42.6In-line Instrumentation 87.3 98.1 202.2 11.0 8.6 22.9Electronic Controls 66.6 69.2 138.7 9.5 7.3 17.2Total 317.3 327.3 684.5 38.9 32.0 82.7Profit on disposal of businesses 19.4 9.5 9.5Financial income 4.6 4.1 9.0Finance costs (6.5) (8.7) (15.6)Profit before tax 56.4 36.9 85.6Tax (14.9) (11.2) (24.2)Profit after tax 41.5 25.7 61.4 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 Ircon and Spectrum businesses were divested in thefirst half of 2007. The Arcom business was divested in the first half of 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: 2007 2006 2006 Half year Half year Full year £m £m £mUK 15.0 17.7 36.3Continental Europe 123.3 118.6 253.5North America 78.1 86.6 176.4Japan 25.2 26.5 55.8China 25.2 24.9 50.1Rest of Asia Pacific 32.9 36.1 76.9Rest of the world 17.6 16.9 35.5Total 317.3 327.3 684.5 4. DISPOSAL OF BUSINESSES During the period, the group divested the Ircon and Spectrum businesses, whichwere previously included in the In-line Instrumentation segment. The Spectrumbusiness was divested on 28 February 2007 and the Ircon business was divested on15 June 2007. These businesses were classified as held for sale at the mostrecent year end. The total consideration was £30.4m net of transaction expenses.The disposals gave rise to a profit of £19.4m. The effect of the disposals on individual assets and liabilities of the group isas follows: £mGoodwill 2.9Property, plant & equipment 2.4Inventories 3.7Trade and other receivables 5.6Cash and cash equivalents 0.1Taxation 1.1Trade and other payables (5.2)Provisions (0.7)Net assets disposed 9.9 Consideration received, satisfied in cash 33.4Overdraft disposed of 0.1Transaction expenses (3.1)Net cash inflow 30.4 Cash received, net of transaction expenses and cash 30.4disposed ofNet assets disposed of (9.9)Accruals and provisions (1.1)Profit on disposal of businesses 19.4 5. FINANCE COSTS AND FINANCIAL INCOME 2007 2006 2006 Half year Half year Full yearFinancial income £m £m £mBank interest receivable 1.0 1.4 2.0Unrealised gain in fair value of cross-currency 1.2 0.6 2.8interest rate swapsExpected return on pension scheme assets 2.4 2.1 4.2 4.6 4.1 9.0 2007 2006 2006 Half year Half year Full yearFinance costs £m £m £mInterest payable on bank loans and overdrafts 0.1 0.1 0.5Interest payable on other loans 4.0 6.4 10.6Total interest payable 4.1 6.5 11.1Interest cost on pension scheme liabilities 2.4 2.2 4.5 6.5 8.7 15.6 6. TAX ON PROFIT ON ORDINARY ACTIVITIES The taxation charge for the six months to 30 June 2007 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 30% (30 June2006: 29%; year ended 31 December 2006: 29%). A reconciliation of the tax chargeon adjusted profit to the actual tax charge is presented below: 2007 2006 2006 Half year Half year Full yearThe tax charge is analysed as follows: £m £m £mTax charge on adjusted profit before tax at effective rate 11.0 8.0 22.0Tax credit on amortisation of intangible assets (0.3) (0.2) (0.6)Tax charge on unrealised loss on change in fair value of financial instruments 0.4 0.2 0.8Material transfers from unrecognised tax assets - - (1.2)Tax charge on profit on disposal of businesses 3.8 3.2 3.2Total 14.9 11.2 24.2 7. EARNINGS PER SHARE Earnings per share is calculated as follows: 2007 2006 2006 Half year Half year Full yearBasic earnings per shareProfit after tax (£m) 41.5 25.7 61.4Weighted average number of shares outstanding (millions) 124.3 124.0 124.3Basic earnings per share (pence) 33.4 20.7 49.4 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 33.2p (30 June 2006: 20.7p; 31December 2006: 49.2p) is based on the group profit of £41.5m (30 June 2006:£25.7m; 31 December 2006: £61.4m) and on the diluted weighted average number of5p ordinary shares in issue during the year of 124.9 million (30 June 2006:124.4 million, 31 December 2006: 124.7 million). 8. DIVIDENDS The interim dividend of 5.75p per share (2006 interim dividend: 5.0p) will bepayable on 16 November 2007 to ordinary shareholders on the register at theclose of business on 26 October 2007. 9. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the half year to 30 June 2007 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 2007 6.2 231.1 67.3 (15.1) 1.2 3.1 0.3 294.1 Gains and losses - period ended 30June 2007Total recognised income/(expense) - - 42.9 (1.7) (0.1) - - 41.1 Distributions to and transactionswith shareholders:Dividends paid - - (15.4) - - - - (15.4)Own shares (treasury) purchased - - (32.5) - - - - (32.5)Own shares (EBT) purchased - - (1.5) - - - - (1.5)Share-based payments - - 0.4 - - - - 0.4Share options exercised from own shares (treasury) purchased - - 2.0 - - - - 2.0Share options exercised by issue of share capital - 0.3 - - - - - 0.3Share options exercised from shares held by Employee Benefit Trust - - 0.9 - - - - 0.9 At 30 June 2007 6.2 231.4 64.1 (16.8) 1.1 3.1 0.3 289.4 10. TREASURY SHARES During the year the group repurchased 3.5 million shares (2006: nil) for aconsideration of £32.5m (2006: £nil). 0.4 million of these shares were issued tosatisfy options exercised by employees which were granted under the group'sshare scheme. No shares were cancelled during the year (2006: nil). 11. INTERIM REPORT Copies of the interim report, which will be posted to shareholders at the end ofAugust, 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 atwww.spectris.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spectris