Final Results
Spectris PLC
11 March 2002
Date: Embargoed until 7.00am, Monday 11 March 2002
Contact: Hans Nilsson, Chief Executive Tel: 020 7269 7291
Spectris plc
Richard Mountain
Financial Dynamics Tel: 020 7269 7291
2001 PRELIMINARY RESULTS
Spectris plc, the precision instrumentation and controls company, announces
preliminary results for the year ended 31 December 2001.
£m 2001 2000 Change
Sales 543.1 464.0 + 17%
Operating Profit* 60.7 57.8 + 5%
Profit before Tax* 50.4 51.2 - 2%
Normalised e.p.s.* 33.6p 34.7p - 3%
Dividend 12.25p 11.7p + 5%
*before exceptional items and goodwill amortisation
Highlights:
• Sales and operating profit increased, despite challenging conditions
• E.p.s. reduction contained to 3%
• Gross margins maintained
• Management actions:
• Timely reduction of cost base resulted in exceptional restructuring
charges of £12m
• Continued emphasis on new product and market development, with Asia
strong
• Spectris AG businesses met expectations in the first full year
Commenting on the results, Hans Nilsson, Chief Executive said:
'2001 was a difficult year but delivered earnings similar to that of 2000.
Anticipating market demand, timely management actions were taken which, combined
with the strong fundamentals of the business, position us well for the future.'
Chairman's Statement
After an exceptionally strong prior year, 2001 presented Spectris with testing
challenges. The economic climate in the United States, our most important
geographic market, progressively worsened and few of our customer industries
were unaffected.
Sales and operating profit in the year increased by 17% and 5% respectively
which included a full year contribution from the mid-2000 acquisition of
Spectris AG. Sales in the non-AG businesses fell back by nearly 11% and
operating margins at 11.2% were slightly reduced compared with the prior year.
Pre-tax profit was £50.4m and earnings per share were 33.6p compared with a 2000
figure of 34.7p (all before goodwill amortisation). Despite these reduced
headline figures, considerable credit should be given to our management in
adapting to unpredictable and volatile circumstances.
Cash conversion, measured by the proportion of operating profit converted into
operating cash after accounting for net capital expenditure, was 71%. This was
slightly below the company's traditional target, reflecting a higher than normal
level of capital investment, particularly in the newly acquired businesses. Net
indebtedness was £131.5m compared with £153.5m at the previous year end and
interest was covered 5.5 times. It is proposed to pay a final dividend of
8.5p, making a total of 12.25p, an increase of 4.7%. The final dividend will
be paid on 14 June 2002 to shareholders on the register at 17 May 2002.
The sales trend during the year was foreshadowed in our previous reports and
statements. Early in the year the shake out from the technology and
telecommunications collapse impacted our businesses operating in the
semiconductor and electronics manufacturing markets. Other US industrial
markets softened as the year progressed and the second half was,
uncharacteristically, weaker than the first half.
In addition to my assuming the Chairmanship, and Hans Nilsson being appointed
Chief Executive, Andrew Given, Finance Director and now Deputy Chief Executive
of Logica, joined the Board as non-executive Director and Chairman of the Audit
Committee. James Otter, who has experience of managing businesses in chemicals
and instrumentation in several European countries, joined the Board as Business
Group Director. I welcome them both and reiterate my earlier thanks to Sir
Robin Biggam and Ron Williams who retired during the year.
Outlook
Looking forward, some signs of improvement in the US economy as a result of
recent substantial stimuli are to be welcomed. The critical issue for Spectris
is the extent to which, and when, these economic moves produce a recovery in
industrial business confidence. Demand levels are not deteriorating further and
may be improving, but it seems imprudent to draw overly positive conclusions in
an environment where our customers remain cautious. If activity improves as the
year progresses, the company's normal seasonal bias towards the second half of
the year will be more pronounced. Visibility remains low but Spectris is in an
excellent position to benefit from the eventual cyclical upturn.
Chief Executive's Review
During a challenging year of dramatic external events and uncertainty the
company coped well. From a management point of view, the focus on operational
improvements served to accelerate initiatives already under way and several new
restructuring opportunities were undertaken.
Operating review
The Spectris management structure yet again proved its worth as customer focused
business units with clear lines of command and simple control systems speeded up
response times.
The company's focus is on products that involve a relatively small capital
outlay but provide a quick and real payback. However, demand suffers when the
economic situation weakens to the extent that the world, and North America in
particular, experienced in 2001. This was largely due to customers postponing
purchases as their priorities switched towards preserving cash. Demand varied
greatly with pharmaceutical, oil, gas and petrochemicals, and pulp and paper
seeing strong demand whereas demand was weak in electronics and semiconductors.
The company's strategy and exposure to diverse markets and customers, served the
company particularly well. Although data is hard to verify, we believe our
businesses have strengthened their relative positions and materially gained
market share in the year. Asia showed volume increases due to greater market
penetration.
FRS 17, Retirement Benefits, has been adopted early for the 2001 accounts
resulting in a net benefit of £0.4m.
The Spectris AG businesses progressed well and margins achieved the targets for
the end of 2001 set at the time of acquisition. The process of removing the
inefficient sales matrix structure in the Spectris AG businesses was completed
and the result is a streamlined structure with clear ownership by the individual
businesses. Amongst others, this has led to improved control of pricing,
discounts and project management. A number of senior management changes have
been made and the businesses are now operating in line with the Spectris
controls and operating culture.
Management took timely action to contain costs and implemented a number of
initiatives to improve performance. Sales structures were reorganised to take
advantage of simplified trading in Europe, with fully integrated IT systems
resulting in more cost-efficient sales administration functions. Fusion and Red
Lion are examples of companies benefiting from the centralisation of sales
administration. These changes, and the consequent reduction in headcount, were
instituted without materially impacting the sales and marketing process.
Outsourcing initiatives continued to reduce the level of fixed costs and there
remain further opportunities in the Spectris AG companies. Disposal of certain
non-core product lines was also undertaken. Tighter cost controls resulted in a
gradual reduction in headcount across the businesses from the beginning of the
year, with Electronic Controls seeing a reduction in staff of 13%, Process
Instrumentation 10% and the Spectris AG businesses 4%. This excludes China,
where headcount increased as a result of the expansion of HBM's manufacturing
activities. The exceptional restructuring cost of £12.0m is estimated to
generate an incremental saving of £4m in 2002.
Investment in the development of new products and applications was maintained at
the previous year's level and a significant number of new products was launched
during the year. HBM and Malvern most notably made significant competitive
inroads through new products. Over the past five years Spectris has invested
continuously in developing new products, and approximately thirty percent of
sales are from products which are less than three years old. Sales and marketing
initiatives were maintained and resources transferred from administrative
support to direct sales, with particular emphasis placed on growing sales to
countries with developing manufacturing economies such as China and Mexico. In
China, Fusion, Particle Measuring Systems, Microscan and Servomex have converted
to direct sales representation, with the majority of Spectris sales now being
direct. This reflects the increasing requirement for precision instrumentation
and controls in this growing region. The result has been a significant increase
in sales into China in 2001.
Sector performance
Electronic controls performed acceptably in difficult markets. The significant
exposure to the telecommunications equipment and electronics industries, as well
as a disproportionately large exposure to North America, resulted in a
significant drop in demand in the first quarter, which then continued at low
levels throughout the year. Sales declined from £54.7m to £45.8m, with operating
profit down from £9.3m to £4.6m, and margins were 10%. A number of significant
innovative new products were launched during the year. Red Lion, with a broader
spread of markets, was less affected by the adverse market conditions, and sales
of its industrial control products increased. At Arcom, the launch of embedded
hardware and software development kits to cover the major operating systems
means that the company now offers a comprehensive range of solutions.
Microscan's highly successful barcode readers continue to find new applications,
particularly in the light manufacturing sector.
Process instrumentation had a respectable year with sales up 3% at £223.4m
although operating profits were slightly down from £27.3m to £26.9m. Operating
margins were 12% (these figures exclude Luxtron in 2000 and 2001). Malvern and
Servomex enjoyed strong order intake from pharmaceutical and petrochemical
customers respectively. Conditions in the semiconductor industry, which
experienced a sharp downturn in the first half, remained challenging with low
levels of demand throughout the rest of the year. Particle Measuring Systems
responded well and produced a profit but the collapse in demand in equipment for
front-end semiconductor manufacture pushed Luxtron into loss. Luxtron was put
up for disposal in the year and is no longer included in Process
Instrumentation. The anticipated downturn in the optical fibre industry impacted
the performance of Fusion UV Systems and Beta LaserMike in the second half,
although Fusion performed exceptionally well in the year. Elsewhere, the
diversity of markets served helped the remaining process instrumentation
businesses to produce a sound performance.
A number of significant new products and applications were launched during the
year. Malvern and Ircon successfully integrated technologies acquired into their
product range and Fusion introduced its ultraviolet (UV) curing technology into
the area of digital printing. New products were also launched at NDC Infrared
Engineering based on near infrared technology and at Servomex for the
petrochemical and pharmaceutical industries. Particle Measuring Systems had
continued success in adapting their semiconductor products to measure
contamination in pharmaceutical cleanrooms.
Performance of the Spectris AG businesses collectively met expectations, with
sales of £240.4m and operating profits of £26.2m in the first full year of
ownership. Like-for-like sales growth was 4%. Operating margins were 10.9%.
HBM delivered a strong performance, partly as a result of market share gains due
to the launch of a number of new products and applications into its diverse
markets, but also following expansion of its manufacturing activities in China.
The facility, based in Suzhou, produces strain gauges for the weighing industry
in response to increased worldwide demand for these products. BTG, which sells
principally into the pulp and paper industry, had an excellent year. BTG
introduced new products and integrated the Mutek product line. Bruel & Kjaer
Sound & Vibration underperformed, with stable demand for environmental products
such as noise analysis systems counteracted by declining demand from the
electronics and telecommunications equipment industries. The Bruel & Kjaer Vibro
business (formerly Bruel & Kjaer, Schenck Condition Monitoring), delivered a
solid performance from its primary markets of oil and gas and other process
industries and successfully integrated the Bruel & Kjaer and the Vibro units.
Other operations
Disposal of two of the filtration businesses, Fairey Arlon and Fairey
Microfiltrex was completed during the year. Fairey Nuclear was closed in the
fourth quarter following completion of customer commitments. Disposal of the
remaining filtration business, Fairey Industrial Ceramics, BTG's coating systems
division and Luxtron Corporation, is under way.
Strategy
Over the last few years Spectris has been transformed into a company which is
now entirely focused on precision instrumentation and controls, delivering
enhanced productivity for a wide range of manufacturing industries. This
strategy has served us well in both good and more challenging times, and
continues to be appropriate. There is a strong business and cultural platform
from which to exploit the opportunities in our chosen markets.
Although macro-economic conditions deteriorated in 2001, our priorities remain
unchanged: we will continue to invest in developing new products and
applications, in leveraging our sales channels and in considering product line
add-ons or stand-alone acquisitions where these fit our strategic goals.
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in a live Webcast
commencing at 09:30 AM GMT on the company's website at www.spectris.com
Copies of this notice are available to the public from the registered office:
Station Road, Egham, Surrey TW20 9NP and on the company's website at
www.spectris.com
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001
Continuing Operations
Notes Existing Acquisitions Ongoing Businesses sold Total Total
businesses Operations or to be sold
2001 2001 2001 2001 2001 2000
£m £m £m £m £m £m
(restated)
1 Turnover 506.5 3.1 509.6 33.5 543.1 464.0
Cost of sales (211.4) (1.2) (212.6) (21.1) (233.7) (213.0)
Gross profit 295.1 1.9 297.0 12.4 309.4 251.0
Operating costs (257.5) (1.1) (258.6) (9.4) (268.0) (200.8)
Operating profit:
Operating profit 56.9 0.8 57.7 3.0 60.7 57.8
before goodwill
amortisation and
exceptional items
Goodwill (6.1) - (6.1) - (6.1) (3.3)
amortisation
2 Exceptional items (13.2) - (13.2) - (13.2) (4.3)
Operating profit 37.6 0.8 38.4 3.0 41.4 50.2
Profit/(loss) on sale or 19.8 19.8 (2.3)
termination of business
1 Profit on ordinary activities 61.2 47.9
before interest
Net interest payable (11.1) (7.6)
Other finance income 0.8 1.0
Profit on ordinary activities 50.9 41.3
before taxation
3 Taxation (9.6) (13.9)
Profit for the 41.3 27.4
financial year
Dividends (13.3) (12.8)
Retained profit for 28.0 14.6
the financial year
4 Basic earnings per 37.8 26.4
share (p)
4 Fully diluted 37.5 26.2
earnings per share (p)
4 Normalised earnings 33.6 34.7
per share (p)
Dividends per ordinary equity 12.25 11.7
share (p)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 December 2001 2000
£m £m
Profit for the financial year 41.3 27.4
Foreign exchange adjustments 1.6 7.9
Tax attributable to foreign exchange adjustments - (2.3)
Actuarial loss arising on pension schemes (5.9) (4.4)
Tax attributable to actuarial loss 1.7 2.7
Total recognised gains and losses relating to the financial year 38.7 31.3
Prior year adjustment 8.2 -
Total recognised gains and losses since the last annual report 46.9 31.3
The 2000 comparative figures have been restated following the adoption of FRS 17, Retirement Benefits, in 2001.
There is no material difference between the reported profit and historical cost profit.
GROUP BALANCE SHEET AS AT 31 DECEMBER 2001
2001 2000
£m £m
(restated)
Fixed assets
Intangible assets 136.6 104.7
Tangible fixed assets 83.2 77.2
Other investments 13.8 9.5
233.6 191.4
Current assets
Current asset investments - 12.1
Stocks 74.2 74.7
Debtors 119.7 139.5
Cash at bank 36.7 44.5
230.6 270.8
Creditors: due within one year
Short term borrowing (12.3) (42.5)
Other creditors (124.9) (137.7)
(137.2) (180.2)
Net current assets 93.4 90.6
Total assets less current liabilities 327.0 282.0
Creditors: due after more than one year
Medium and long term borrowing (155.9) (155.5)
Other creditors (1.4) (0.1)
(157.3) (155.6)
Provisions for liabilities and charges (25.0) (11.4)
Net assets excluding pension assets/(liabilities) 144.7 115.0
Pension assets 3.0 7.0
Pension liabilities (2.1) (2.2)
Net assets 145.6 119.8
Called up share capital 5.6 5.6
Share premium account 185.4 185.0
Merger reserve 3.1 3.1
Revaluation reserve - 1.2
Capital redemption reserve 0.3 0.3
Special reserve - -
Profit and loss account (48.8) (75.4)
Equity shareholders' funds 145.6 119.8
The 2000 comparative figures have been restated following the adoption of
FRS 17, Retirement Benefits, in 2001.
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December
Notes 2001 2000
£m £m
5 Net cash inflow from operating activities 58.0 53.9
Returns on investments and servicing of finance
Cash generated by company held for resale - 3.8
Interest received 2.6 1.7
Interest paid (14.0) (8.1)
Issue costs incurred on new loans - (0.3)
(11.4) (2.9)
Taxation paid (12.8) (10.8)
Capital expenditure and financial investment
Purchase of tangible fixed assets (29.8) (10.9)
Sale of tangible fixed assets 1.4 5.0
Purchase of fixed asset investments (4.3) (3.3)
(32.7) (9.2)
Acquisitions and disposals
Acquisition of subsidiary undertakings (5.4) (125.1)
Bank overdraft acquired with subsidiary undertakings (0.1) (44.5)
Proceeds from the sale of subsidiary undertakings 28.6 7.0
(Cash)/bank overdraft disposed with subsidiary undertakings (0.2) 2.1
Proceeds from the disposal of investments 8.2 3.2
31.1 (157.3)
Equity dividends paid (11.5) (11.1)
Cash inflow/(outflow) before financing 20.7 (137.4)
Financing
Issue of shares 0.4 55.8
Repayment of loans (28.4) (23.2)
New loans - 78.3
(28.0) 110.9
6 Decrease in cash in the year (7.3) (26.5)
NOTES TO THE ACCOUNTS
1. SEGMENTAL ANALYSIS
Turnover Profit before interest and tax Net assets
2001 2000 2001 2000 2001 2000
£m £m £m £m £m £m
(restated) (restated)
Continuing operations:
Electronic Controls 45.8 54.7 4.6 9.3 7.2 11.0
Process Instrumentation 223.4 216.7 26.9 27.3 76.5 64.0
Spectris AG businesses 240.4 126.8 26.2 13.4 62.4 86.4
Total ongoing operations 509.6 398.2 57.7 50.0 146.1 161.4
Businesses sold or to be sold 33.5 65.8 3.0 7.8 4.6 10.2
Total continuing operations 543.1 464.0 60.7 57.8 150.7 171.6
Goodwill amortisation (6.1) (3.3)
Operating exceptional items (13.2) (4.3)
Profit/(loss) on sale of 19.8 (2.3)
business
Net debt (131.5) (153.5)
Intangible assets 136.6 104.7
Net pension assets 0.9 4.8
Other (11.1) (7.8)
Total 543.1 464.0 61.2 47.9 145.6 119.8
Goodwill amortisation of £1.2m relates to companies acquired within the Process
Instrumentation sector. The remainder relates entirely to the acquisition of
Spectris AG businesses.
A net operating exceptional charge of £5.0m arose in Process Instrumentation and
a charge of £0.6m arose in Electronic Controls. The remaining exceptional
charges of £7.6m arose within the Spectris AG businesses.
The profit on sales of businesses in 2001 arises as follows:
- Loss of £0.6m on sale of Meditrans SAS, which was previously reported in
Electronic Controls.
- Loss of £0.9m on sale of Fusion Aetek Inc, which was previously reported in
Process Instrumentation.
- Profit of £12.3m on sale of Fairey Arlon, which was previously reported in
Filtration Systems.
- Profit of £9.0m on sale of Fairey Microfiltrex Ltd, which was previously
reported in Filtration Systems.
The loss on sale of business in 2000 of £2.3m relates to the disposal of Imaging
Technology Inc, a company previously reported within Electronic Controls.
2. EXCEPTIONAL ITEMS
2001 2000
The operating exceptional items comprise: £m £m
Redundancy and restructuring costs in existing businesses 12.0 6.2
Legal costs 1.2 -
Gain on forward currency contract - (1.9)
13.2 4.3
3. TAXATION
The effective tax rate, excluding operating exceptional items, profit on sale of
businesses and goodwill amortisation, was 27.1% (2000: 29.4%). While a
significant proportion of profits are earned in high tax jurisdictions, such as
the US and Germany, the effect of this has been offset by the tax benefits
arising from the deductibility of goodwill amortisation in the US not chargeable
to the group profit and loss account and tax losses brought forward in Germany
not previously recognised.
4. EARNINGS PER SHARE
The calculation of basic earnings per share of 37.8p (2000 restated: 26.4p) is
based on the Group profit of £41.3m (2000 restated: £27.4m) and on the
weighted average number of 5p ordinary shares in issue during the year of 109.4
million (2000: 103.9 million).
Normalised earnings per share is calculated as follows:
Earnings Earnings per share
2001 2000 2001 2000
£m £m pence pence
(restated) (restated)
Basic earnings and 41.3 27.4 37.8 26.4
earnings per share
Basic earnings and
earnings per share
attributable to:
Goodwill amortisation 6.1 3.3 5.6 3.2
Operating exceptional 13.2 4.3 12.1 4.1
items
(Profit)/loss on sale or (19.8) 2.3 (18.1) 2.1
termination of business
Tax credit on operating (2.9) (1.2) (2.7) (1.1)
exceptional items
Tax release on profit on (1.2) - (1.1) -
sale of businesses
Normalised earnings and 36.7 36.1 33.6 34.7
earnings per share
Normalised earnings per share is presented to show more clearly the underlying
performance of the group.
The calculation of diluted earnings per share of 37.5 p (2000 restated: 26.2p)
is based on the group profit of £ 41.3m (2000 restated: £27.4m) and on the
diluted weighted average number of 5p ordinary shares in issue during the
year of 110.2 million (2000: 104.6 million).
The basic weighted average number of 5p ordinary shares in issue is reconciled
to the diluted weighted average number of shares in issue in the
following table:
Weighted average number of 5p ordinary shares
2001 2000
million million
Basic weighted average number of 5p 109.4 103.9
ordinary shares in issue
Weighted average number of dilutive 3.2 3.0
5p ordinary shares under option
Weighted average number of 5p
ordinary shares that would have
been issued at average market value from proceeds (2.4) (2.3)
of dilutive share options
Diluted weighted average number of 110.2 104.6
5p ordinary shares
5. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
2001 2000
£m £m
(Restated)
Operating profit 41.4 50.2
Adjustment to pension cost 0.5 0.8
Depreciation of tangible fixed assets 13.6 11.0
Amortisation of intangible assets 6.1 3.3
Profit/(loss) on sale of tangible fixed assets 0.4 (0.7)
Increase in stocks (7.7) (3.7)
Decrease/(increase) in debtors 14.7 (1.9)
Decrease in creditors (17.2) (5.3)
Increase in provisions 6.2 0.2
Net cash inflow from continuing operating activities 58.0 53.9
6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2001 2000
£m £m
Decrease in cash in the year (7.3) (26.5)
Cash effect of change in debt 28.4 (55.2)
Change in net debt resulting from cash flows 21.1 (81.7)
Other non-cash items:
Exchange movements 1.0 (7.5)
Amortisation of issue costs (0.1) -
Movement in net debt in the year 22.0 (89.2)
Net debt as at 1 January 2001 (153.5) (64.3)
Net debt as at 31 December 2001 (131.5) (153.5)
7. ANALYSIS OF CHANGES IN NET DEBT
Cash at bank Short term loans and Long term loans Sub-total EBT loan Total
overdraft
£m £m £m £m £m £m
As at 1 January 2001 44.5 (40.4) (155.5) (151.4) (2.1) (153.5)
Cash flow (7.3) 26.3 - 19.0 2.1 21.1
Other non-cash movements - (0.1) - (0.1) - (0.1)
Exchange movements (0.5) 1.9 (0.4) 1.0 - 1.0
As at 31 December 2001 36.7 (12.3) (155.9) (131.5) - (131.5)
8. COMPANY INFORMATION
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2001 or 2000 but is derived
from those accounts. Statutory accounts for 2000 have been delivered to the
Registrar of Companies, and those for 2001 will be delivered following the
company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under section
237(2) or (3) of the Companies Act 1985.
9. ANNUAL REPORT
Copies of the annual report, which will be posted to shareholders on 5
April 2002, may be obtained from the registered office at Station Road, Egham,
Surrey TW20 9NP.
This information is provided by RNS
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