Final Results
Spectris PLC
15 March 2005
Date: Embargoed until 7.00am, Tuesday 15 March 2005
Contact: Hans Nilsson, Chief Executive, Spectris plc Tel: 020 7269 7291
Richard Mountain, Financial Dynamics Tel: 020 7269 7291
2004 PRELIMINARY RESULTS
Spectris plc, the precision instrumentation and controls company, announces
preliminary results for the year ended 31 December 2004.
£m 2004 2003 Change
Turnover 614.2 568.0 +8%
Operating profit * 65.2 59.8 +9%
Profit before tax * 51.1 48.9 +4%
Profit after tax 24.7 26.0 -5%
Earnings per share * 32.1p 32.1p
Basic earnings per share 20.4p 21.6p -6%
Dividend 14.50p 13.35p +9%
* before exceptional items and goodwill amortisation
Highlights:
• Sales up 8%, operating profit up 9% driven by:
* Increased demand in Asia
* Successful new product introductions
• Gross margins of 57%
• At constant currencies:
* 11% organic growth in sales
* 25% organic growth in operating profit
* 0.8 percentage point improvement in operating margins
• Asia now accounts for 24% of group sales
• Dividend up 9%
Organic growth at constant currencies represents the growth (in sales or profits
before exceptional items and goodwill amortisation) excluding acquisitions and
disposals, at constant exchange rates
Commenting on the results, Hans Nilsson, Chief Executive, said:
'The most significant feature of 2004 was the strong underlying operating
company performance. Going forward, current levels of demand support another
year of healthy organic growth and we anticipate a more even split between the
first and second half. Whilst the US dollar continues to have an impact, given
the positive trend in underlying operating margins, we are confident of
encouraging progress in 2005.'
Chairman's statement
Spectris delivered a strong performance in 2004. Sales increased by 8% to £614.2
million (2003: £568.0 million), as recovery in many of our markets was
accompanied by the results of the company's own management efforts. Operating
profit (excluding exceptional items and goodwill amortisation) increased by 9%
to £65.2 million (£59.8 million), despite a £7.8 million adverse effect from
currency movements. Profit before tax (excluding exceptional items and goodwill
amortisation) was £51.1 million, an increase of 4% over 2003 (£48.9 million).
Earnings per share were maintained at 32.1p despite an increased tax rate of 24%
(21%).
The strong underlying operational performance reflected well-placed and focused
investment over the past few years. Organic growth in sales of 11% at constant
currencies was a result of successful new product introductions as well as an
increase in customer-facing personnel in Asia. The operating margin improvement
at constant currencies of approximately 0.8 percentage points was absorbed by
the adverse currency movements, but underscores the continuing emphasis on
improving operating margins.
Operating cash conversion was lower than usual at 75%, reflecting the sales
growth and a one-off 'safety stock' build. Working capital remained at 16% of
sales. Debt was £158.9 million at the year end (2003: £163.4 million) with
interest cover of 4.7 times (2003: 5.6 times).
A final dividend of 10.25p (2003: 9.3p), making a total of 14.5p (2003: 13.35p),
an increase of 9%, is proposed by the Board, reflecting the Board's confidence
in the business prospects, providing a healthy dividend cover of 2.2 times (on
adjusted eps). The final dividend will be paid on 10 June 2005 to shareholders
on the register on 20 May 2005.
IFRS
The company will make a full announcement and presentation in respect of the
effect of the new IFRS accounting standards, including a new sector breakdown,
on 15 June. However, with the potential exception of IAS 39, goodwill and share
options, it is anticipated that the standards will have only a modest effect.
Board changes
I am pleased to welcome Steve Hare, who joined the Board in December as Group
Finance Director. Graham Zacharias, Group Finance Director, and Paul Boughton,
Business Development Director, resigned from the Board during the year. On
behalf of the Board, I should like to thank them both for their considerable
contribution to the development of the company.
Outlook
Demand in the first few weeks of 2005 supports another year of healthy organic
sales growth. This expectation is, as always, subject to the limited visibility
arising from short delivery cycles and order books. It is anticipated that the
split between the first and second half will be more evenly balanced. Spectris
is well positioned to take advantage of growing market opportunities whilst at
the same time remaining focused on further improvements to operating margins in
2005 and beyond. Whilst the US dollar continues to have an impact, we are
confident of encouraging progress in 2005.
Chief Executive's Review
The sales growth in 2004 of 8%, or 11% organic growth at constant currencies,
was a result of new products and applications, increased sales coverage in Asia
and recovery in many of our markets. Gross margins were maintained at 57% as a
result of the strong underlying operating performance. Operating profits grew by
9%, or 25% organic growth at constant currencies. However, with higher interest
costs the resulting growth in profit before tax was 4%.
Earnings per share at 32.1p (2003: 32.1p) were affected by the increased tax
rate of 24% in 2004 compared with 21% in 2003. The increase was the result of
improved performance in the US and the recognition of a deferred tax asset of
£12 million in Denmark. The underlying tax charge is expected to increase
gradually towards the weighted average tax rate (currently 31.6%) over the next
three years.
Asia continued to experience high growth in sales, up 16% compared with the
prior year, or 23% at constant currencies, with another good year in China. Asia
now represents 24% of total sales, compared with 12% in 1999. North America
enjoyed a recovery with healthy growth of 12% at constant currencies although
translated into sterling this resulted in an increase of only 1%. European sales
grew by 9% compared with the prior year and by 11% at constant currencies.
The weakened US dollar has been a major feature for Spectris over the past three
years. At 2002 average rates (£1 = $1.5), operating margins in 2004 would have
improved by approximately two percentage points compared with 2002. Good
geographical sales coverage at European businesses such as PANalytical, Bruel &
Kjaer Sound & Vibration, BTG and Malvern, gave rise to a greater exposure to the
dollar in 2004.
Operational improvements yielding results
On a day-to-day basis Spectris companies operate in a relatively autonomous way.
Nevertheless, they have common strategic themes and share best practice across
the group. 2004 was another productive year in this regard, with the following
areas delivering further results:
Re-alignment of customer-facing personnel. There has been a further increase in
the proportion of customer-facing personnel from 31% of total employees in 2003
to 32% in 2004. This increase, compared with a figure of 26% in 1999, reflects a
higher degree of outsourcing and the shift in staff mix to focus on sales and
marketing, with the primary emphasis on continuing to extend coverage in Asia.
Continuous improvement in the quality of business. In spite of currency
pressures and some material cost inflation gross margins improved, reflecting
management actions to improve the product mix.
Efficiency and effectiveness in sales, marketing and supply. Strong organic
sales growth for the second year running was achieved with only a marginal
increase in headcount, excluding additions from bolt-on acquisitions. The result
is sales growth and expanding underlying operating margins.
R&D and innovation leading to new business and increased competitiveness.
2004 was a productive year in terms of new product introductions and penetration
of new applications into high quality business areas. Examples include a
proprietary small, flat microphone for acoustic measurement in automotive and
aerospace applications; a hand-held scanner for reading 2D bar codes for parts
tracking, particularly in the electronics industry; a portable gas analyser for
measuring oxygen, targeted at the oil and gas and medical industries; and a
remote wind turbine monitoring solution for the power industry. Expenditure on
new product development in 2004 totalled £35 million.
Sector performance
Electronic controls reported sales growth of 6% from £132.1 million to £139.7
million with operating profits up 9% from £15.8 million to £17.2 million. At
constant currencies, sales grew by 12% and operating profit by 16%. Operating
margins increased to 12.3% from 12.0% in 2003. All four companies increased
sales and profits at constant currencies and performance improvements were
particularly notable at Microscan and HBM. Microscan has steadily improved its
market position and 2004 was no exception. HBM's progressive transfer of load
cell production to China is expected to be completed in 2005. An impressive list
of new products was introduced, including new human-machine interface controls
from Red Lion and a range of force transducers from HBM.
In-line instrumentation achieved sales growth of 9% from £182.0 million to
£198.4 million whilst operating profit declined by 7% from £22.3 million to
£20.8 million. Operating margins were 10.5% compared with 12.3% in 2003. The
decline in operating profit resulted from a significant adverse currency effect
and the year-on-year impact of a bolt-on acquisition for Loma which added £10
million in sales but incurred restructuring and integration costs of £1.1
million. At constant currencies, sales grew by 15% and operating profit grew by
4%. BTG made good progress despite mixed conditions in the pulp and paper
market, which accounts for nearly all of its business. Ircon, NDC and Servomex
delivered solid performances. Beta LaserMike still suffers from weakness in the
wire and cable markets, a reflection of the continuing low levels of investment
in telecommunications infrastructure, but made progress in the year. New
products were introduced by all the companies in this sector, and in particular
at Bruel & Kjaer Vibro, where the launch of new remote condition monitoring
equipment opened up new opportunities in the power market.
Process technology reported sales growth of 9% from £253.9 million to £276.1
million. Operating profit grew by 25% from £21.7 million to £27.2 million and
operating margins increased from 8.5% to 9.9%. All five companies grew sales,
profits and margins. The impact of exchange rates was absorbed, with sales, at
constant currencies, increasing by 15% and operating profit by 44%. The supplier
issues experienced in the second quarter did not impede shipments in the second
half. Bolt-on acquisitions for Particle Measuring Systems, Bruel & Kjaer Sound &
Vibration and Malvern contributed £10.5 million of sales. Innovation featured
strongly, typified by a new environmental acoustics analyser from Bruel & Kjaer
Sound & Vibration and a new range of X-ray analysers from PANalytical making
specific inroads in the minerals and materials market. The pharmaceuticals and
materials research markets, such as nanomaterials, continue to be potential
growth areas for PANalytical, Malvern and Particle Measuring Systems.
Organic growth and margin improvements
2005 will benefit from actions taken in 2004 to improve margins and operational
gearing will continue to be a factor. Material cost increases are expected to
have only a marginal effect. In addition, management has already taken further
actions in the European operations to reduce operating costs and, as a
consequence, to improve the level of natural hedging. HBM, for example, is
moving standard load cell production to its facility in China and Servomex will
start final assembly there. Further sales coverage in Asia is another major
factor, as is the healthy pipeline of new products and applications. Management
actions to improve the product mix will provide further margin support. A
continued focus on cash generation and new treasury processes will help to
improve return on net operating assets as well as reducing interest costs.
In summary, the key priorities going forward are to maintain organic sales
growth momentum, deliver high levels of cash and build on existing margin
improvement trends in 2005 and beyond.
- ENDS -
A table of results is attached.
The meeting with analysts will be broadcast in a live Webcast commencing at 08:
15 GMT on the company's website at www.spectris.com
Copies of this notice are available to the public from the registered office:
Station Road, Egham, Surrey TW20 9NP and on the company's website at
www.spectris.com
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2004
Notes 2004 2003
£m £m
1 Turnover 614.2 568.0
Cost of sales (262.4) (246.2)
Gross profit 351.8 321.8
Operating costs (299.6) (274.4)
52.2 47.4
Operating profit
Loss on sale or termination of businesses (1.2) (0.4)
1 Profit on ordinary activities before interest 51.0 47.0
Other finance costs (0.3) (0.2)
Net interest payable (13.8) (10.7)
Profit on ordinary activities before taxation 36.9 36.1
2 Taxation (including net exceptional items of £nil (2003: £nil)) (12.2) (10.1)
Profit for the financial year 24.7 26.0
Dividends - equity (17.5) (16.1)
Retained profit 7.2 9.9
Basic earnings per share (p) 20.4 21.6
3 Diluted earnings per share (p) 20.4 21.6
3 Dividends per ordinary equity share (p) 14.50 13.35
Profit on ordinary activities before exceptional items,
goodwill amortisation and taxation £51.1m £48.9m
Basic earnings per share before exceptional items and
goodwill amortisation 32.1p 32.1p
The results in the profit and loss account above relate entirely to continuing
operations. Results from acquisitions in the year are not sufficiently material
to be presented on the face of the profit and loss account. There is no material
difference between the reported profit and historical cost profit.
2004 2003
£m £m
Operating profit 52.2 47.4
Goodwill amortisation 13.0 12.4
Operating profit before goodwill amortisation 65.2 59.8
Profit on ordinary activities before taxation 36.9 36.1
Loss on sale or termination of businesses 1.2 0.4
Goodwill amortisation 13.0 12.4
Profit on ordinary activities before exceptional items, 51.1 48.9
goodwill amortisation and taxation
CONsolidated statement of total recognised gains and losses
For the year ended 31 December 2004
2004 2003
£m £m
Profit for the financial year 24.7 26.0
Foreign exchange adjustments 0.9 8.6
Tax attributable to foreign exchange adjustments - (0.5)
Actuarial loss arising on pension schemes (3.4) (4.5)
Tax attributable to actuarial loss 1.1 1.4
Total recognised gains and losses relating to the financial year 23.3 31.0
GROUP BALANCE SHEET
As at 31 December 2004
2004 2003
(restated)
£m £m
Fixed assets
Intangible assets 224.1 227.0
Tangible fixed assets 93.7 92.4
Other investments - 0.6
317.8 320.0
Current assets
Stocks 94.3 83.8
171.5 151.9
Debtors falling due within one year
Debtors falling due after one year 12.1 2.4
183.6 154.3
Cash at bank 34.4 31.7
312.3 269.8
Creditors: due within one year
Short-term borrowing (0.3) (0.8)
Other creditors (196.7) (160.3)
(197.0) (161.1)
Net current assets 115.3 108.7
Total assets less current liabilities 433.1 428.7
Creditors: due after more than one year
Medium- and long-term borrowing (193.0) (194.3)
Other creditors (1.1) (1.9)
(194.1) (196.2)
Provisions for liabilities and charges (29.0) (31.1)
Net assets excluding pension liabilities 210.0 201.4
Pension liabilities (14.0) (12.0)
Net assets 196.0 189.4
Capital and reserves
Called up share capital 6.2 6.2
Share premium account 227.8 227.1
Merger reserve 3.1 3.1
Capital redemption reserve 0.3 0.3
Profit and loss account (41.4) (47.3)
Equity shareholders' funds 196.0 189.4
The comparative balance sheet at 31 December 2003 has been restated to reflect
the adoption of UITF 38, Accounting for ESOP Trusts. This has had the effect of
presenting the shares held by the Spectris plc Employee Benefit Trust within
reserves rather than fixed asset investments. The comparative balance sheet has
also been restated to present a tax debtor of £0.9m within debtors falling due
within one year rather than creditors falling due after one year.
Consolidated cash flow statement
For the year ended 31 December 2004
Notes 2004 2003
£m £m
4 Net cash inflow from operating activities 64.3 64.8
Returns on investments and servicing of finance
Interest received 0.4 0.5
Interest paid (14.2) (9.4)
(13.8) (8.9)
Taxation (7.7) (2.5)
Capital expenditure and financial investment
Purchase of tangible fixed assets (16.5) (15.7)
Sale of tangible fixed assets 0.7 1.3
Sale of shares held by Employee Benefit Trust 0.2 0.3
(15.6) (14.1)
Acquisitions and disposals
Acquisition of subsidiary undertakings (10.4) (7.8)
Bank overdraft acquired with subsidiary undertakings - (0.4)
Purchase of intangible assets (0.1) -
(10.5) (8.2)
Equity dividends paid (16.3) (15.5)
Cash inflow before financing 0.4 15.6
Financing
Issue of shares 0.7 0.8
Repayment of loans (0.8) (162.2)
New loans 2.3 140.2
2.2 (21.2)
5 Increase/(decrease) in cash in the year 2.6 (5.6)
NOTES TO THE ACCOUNTS
1. Segmental analysEs
a) Analysis by class of business
Profit before interest and
Turnover tax Net assets
2004 2003 2004 2003 2004 2003
(restated)
£m £m £m £m £m £m
Ongoing operations:
Electronic controls 139.7 132.1 17.2 15.8 43.2 42.1
In-line instrumentation 198.4 182.0 20.8 22.3 51.3 45.0
Process technology 276.1 253.9 27.2 21.7 70.0 67.6
Total continuing operations 614.2 568.0 65.2 59.8 164.5 154.7
Goodwill amortisation (13.0) (12.4)
Loss on sale or termination of
businesses (1.2) (0.4)
Net debt (158.9) (163.4)
Intangible assets 224.1 227.0
Net pension liability (14.0) (12.0)
Dividends (12.4) (11.2)
Other (7.3) (5.7)
Total 614.2 568.0 51.0 47.0 196.0 189.4
The operating businesses are grouped as follows:
Electronic controls: Arcom Control Systems, HBM, Microscan, Red Lion Controls.
In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, Loma
Systems, NDC Infrared Engineering, Servomex.
Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, Malvern
Instruments, Particle Measuring Systems, PANalytical.
Goodwill amortisation of £1.9m (2003: £1.9m) relates to the Electonic controls
sector, £4.3m (2003: £4.1m) relates to the In-line instrumentation sector and
the remaining £6.8m (2003: £6.4m) relates to the Process technology sector.
Intangible assets of £31.4m (2003: £33.5m) relates to the Electronic controls
sector, £70.0m (2003: £69.8m) relates to the In-line instrumentation sector and
the remaining £122.7m (2003: £123.7m) relates to the Process technology sector.
Loss on sale or termination of businesses of £1.2m relates to the Electronic
controls sector (£0.6m) and corporate activities (£0.6m) (2003: £0.4m relating
to Electronic controls).
b) Analysis of turnover by geographical destination
2004 2003
£m £m
UK 39.4 36.1
Continental Europe 242.5 223.5
North America 157.5 156.1
Japan 45.9 40.7
China 40.3 36.0
Rest of Asia Pacific 59.0 48.6
Rest of the world 29.6 27.0
614.2 568.0
2. TAXATION
The effective tax rate, excluding loss on sale or termination of businesses and
goodwill amortisation, was 24.1% (2003: 21.1%).
3. Earnings per share
The calculation of basic earnings per share of 20.4p (2003: 21.6p) is based on the group profit of
£24.7m (2003: £26.0m) and on the weighted average number of ordinary shares in issue during the
year of 120.9 million (2003: 120.5 million).
Earnings per share before exceptional items and goodwill amortisation is calculated as follows:
Earnings Earnings per share
2004 2003 2004 2003
£m £m pence pence
Basic earnings and earnings per share 24.7 26.0 20.4 21.6
Basic earnings per share attributable to:
Goodwill amortisation 13.0 12.4 10.7 10.3
Loss on sale or termination of businesses 1.2 0.4 1.0 0.4
Tax credit on goodwill amortisation (0.1) (0.2) - (0.2)
Exceptional tax credit arising from recognition of (9.8) - (8.1) -
deferred tax assets
Exceptional tax charge arising on intra-group 9.8 - 8.1 -
dividends
Earnings and earnings per share before exceptional 38.8 38.6 32.1 32.1
items and goodwill amortisation
Earnings per share before exceptional items and goodwill amortisation is presented to show more
clearly the underlying performance of the group.
The calculation of diluted earnings per share of 20.4p (2003: 21.6p) is based on the group profit
of £24.7m (2003: £26.0m) and on the diluted weighted average number of 5p ordinary shares in issue
during the year of 121.1 million (2003: 120.5 million).
The basic weighted average number of ordinary shares in issue is reconciled to the diluted weighted
average number of shares in issue in the following table:
Weighted average
number of 5p ordinary
shares
2004 2003
millions millions
Basic weighted average number of 5p ordinary shares in issue 120.9 120.5
Weighted average number of dilutive 5p ordinary shares under option 0.7 0.6
Weighted average number of 5p ordinary shares that would have
been issued at average market value from proceeds of dilutive share options (0.5) (0.6)
121.1 120.5
4. Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£m £m
Operating profit 52.2 47.4
Depreciation 13.4 13.0
Goodwill amortisation 13.0 12.4
Patent amortisation 0.1 -
Loss/(profit) on sale of tangible fixed assets 0.4 (0.3)
Increase in stocks (9.3) (2.1)
Increase in debtors (15.0) (4.8)
Increase in creditors 11.9 3.0
Decrease in provisions (2.4) (3.8)
Net cash inflow from operating activities 64.3 64.8
Net cash inflow from operating activities 64.3 64.8
Cash outflow from capital expenditure and financial investment (15.6) (14.1)
Operating cash flow for cash conversion purposes 48.7 50.7
Cash conversion based on operating profit before goodwill 75% 85%
amortisation
5. Reconciliation of net cash flow to movement in net debt
2004 2003
£m £m
Increase/(decrease) in cash in the year 2.6 (5.6)
(Increase)/decrease in loans (1.5) 22.0
Change in net debt resulting from cash flows 1.1 16.4
Other non-cash items:
Exchange movements 3.4 (2.3)
Movement in net debt in the year 4.5 14.1
Net debt as at 1 January (163.4) (177.5)
Net debt as at 31 December (158.9) (163.4)
6. ANALYSIS OF CHANGES IN NET DEBT
Cash at bank Short-term Long- term Total
loans and loans
overdraft
£m £m £m £m
As at 1 January 2004 31.7 (0.8) (194.3) (163.4)
Cash flow 2.6 0.5 (2.0) 1.1
Other non-cash movements:
Exchange movements 0.1 - 3.3 3.4
As at 31 December 2004 34.4 (0.3) (193.0) (158.9)
7. Company Information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2004 or 2003 but is derived
from those accounts. Statutory accounts for 2003 have been delivered to the
Registrar of Companies. The auditors have reported on those accounts; their
report was unqualified and did not contain statements under section 237(2) or
(3) of the Companies Act 1985. The statutory accounts for 2004 will be delivered
following the company's annual general meeting.
8. Annual report
Copies of the annual report, which will be posted to shareholders on 7 April
2005, may be obtained from the registered office at Station Road, Egham, Surrey
TW20 9NP.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
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