Final Results
Spectris PLC
07 March 2006
Date: Embargoed until 7.00am, Tuesday 7 March, 2006
Contact: John Poulter, Chairman, Spectris plc Tel: 020 7269 7291
John O'Higgins, Chief Executive, Spectris plc Tel: 020 7269 7291
Steve Hare, Finance Director, Spectris plc Tel: 020 7269 7291
Richard Mountain, Financial Dynamics Tel: 020 7269 7291
2005 PRELIMINARY RESULTS
Spectris plc, the precision instrumentation and controls company, announces
preliminary results for the year ended 31 December 2005.
2005 2004* Change
Sales (£m) 655.9 614.1 +7%
Adjusted operating profit (£m)* 73.5 64.6 +14%
Adjusted profit before tax (£m)* 60.5 50.5 +20%
Profit before tax (£m) 50.8 35.9 +42%
Adjusted earnings per share (pence)* 36.2 31.6 +15%
Basic earnings per share (pence) 28.8 19.5 +48%
Dividend (pence) 15.8 14.5 +9%
* See explanatory notes on page 2
Highlights:
• Increased sales and operating profit in all three sectors
• Operating margins increased from 10.5% to 11.2%
• 107% cash conversion of operating profit
• Significant reduction in net debt from £158.9 million to £119.9 million
Commenting on the results, John Poulter, Chairman, said:
'The company achieved good progress in 2005, with sales, operating profit and
margins all ahead. Actions to restrain overheads, restore profitability in
under-performing businesses, improve margins and generate cash were all
positive. Levels of demand in the first two months of the year provide
encouragement that the company will show further good progress in 2006.'
Explanatory notes for reading the preliminary announcement
1. The results for the year ended 31 December 2005 represent the group's first
preliminary accounts prepared in accordance with its accounting policies under
International Financial Reporting Standards (IFRS). The 2004 comparative results
have been restated.
2. Spectris uses adjusted figures as key performance measures. Adjusted
figures are stated before amortisation of acquisition-related intangible assets,
goodwill charges, profits or losses on termination or disposal of businesses or
major fixed assets, unrealised changes in the fair value of financial
instruments, related tax effects and other tax items which do not form part of
the underlying tax rate. The differences between the adjusted and unadjusted
measures are reconciled in Note 2.
3. The narrative that follows is based on the adjusted measures of operating
profit, profit before tax and earnings per share.
Chairman's statement
Overview
As indicated in the trading update in January, sales in 2005 increased by 7%,
with all three sectors reporting growth over the previous year and orders in
excess of sales. Profits, earnings per share and cash conversion also moved
ahead strongly. Growth in Asia, in particular, continued to be vigorous.
Actions taken to improve margins, involving overhead containment, reflected in
an unchanged year end headcount, and the elimination of some lower margin sales,
began to show benefits. Operating margins improved from 10.5% to 11.2%.
Sales increased by 7% to £655.9 million (2004: £614.1 million). Operating profit
increased by 14% to £73.5 million (2004: £64.6 million). Earnings per share
increased from 31.6p to 36.2p on a tax rate of 27% (2004: 24%).
The effects of changes in exchange rates were negligible. Cash conversion was
excellent with 107% of operating profit converted into cash, as actions to
generate cash on a more consistent basis took effect. Net debt at the year end
was £119.9 million compared with £158.9 million twelve months earlier. Interest
costs were £12.6 million, giving an annualised interest cover of 5.8 times.
The Board proposes to pay a final dividend of 11.2p which, combined with the
interim dividend, gives a total of 15.8p (2004: 14.5p), an increase of 9%. The
dividend will be paid on 23 June 2006 to shareholders on the register at 2 June
2006.
Board changes
I am pleased to welcome John O'Higgins, who joined the Board in January 2006, as
Chief Executive. John was previously with Honeywell Inc, the US aerospace and
technology products multinational, latterly as President of Honeywell Automation
and Control Solutions based in Shanghai. John's educational qualifications,
track record within the instrumentation and controls industry and business
experience, equip him well to lead the company and drive its development. I am
also pleased to welcome John Warren, who joins the Board today as a
non-executive director. Non-executive directors Martin Lamb and Professor Leo
Murray will be standing down at the AGM and I should like to thank them for
their guidance and contribution to the development of the company in recent
years.
John Poulter, Chairman
Chairman's and Chief Executive's review
The following paragraphs describe the operational performance of the group's
business segments.
Sector performance
Electronic Controls achieved sales growth of 3% from £139.7 million in 2004 to
£143.5 million, with profit up 6% from £17.2 million to £18.2 million. Operating
margins improved from 12.3% to 12.7%. Microscan launched two new barcode readers
during the year which made a positive contribution to a good growth performance.
Red Lion Controls enjoyed particular success, with human/machine interface
products increasing sales in the US by more than 40% compared with the prior
year. At HBM, sales in the second half were attenuated both by a lack of large
projects and the elimination of some low margin business, largely for Chinese
customers, however profitability improved. A conditional agreement for the
disposal of Arcom was signed in February 2006 for a total consideration of US$26
million. This business is being divested as it is not core to Spectris' strategy
and will have greater opportunities as part of a specialist embedded computer
technology company.
In-line Instrumentation achieved sales growth of 2% from £198.4 million to
£202.3 million with profit growing by 11% from £20.6 million to £22.9 million.
Operating margins improved from 10.4% to 11.3%. Sales of BTG's Duroblade product
recovered in the second half with the ending of the lock-out at paper mills in
Finland. However, delayed capital spending by paper manufacturers in the light
of increases in energy and transport costs, caused sales at the instrumentation
side of BTG's business to be subdued. Servomex reported record sales and
operating profits, with strong demand in the second half for gas analysis
systems on the back of increased spending by companies in the hydrocarbon
industries.
Operating profits were up at Bruel & Kjaer Vibro on relatively flat sales due
primarily to an improved product mix. The company is expected to benefit as oil
refiners invest in new capacity, with increased demand for safety and condition
monitoring systems. At Ircon trading margins and profits moved ahead. NDC made
good progress, particularly with the sales of sensors for measuring equipment,
with strong growth in Asia. Although the Chinese plastics market suffered from
the high oil price and overcapacity, greater penetration of other industries,
such as non-wovens, compensated. Beta LaserMike made good progress with its
restructuring and returned to trading profitability in the year. The
restructuring at Loma and Cintex returned the business to profitability in the
second half, as management focused on product margins and the benefits of the
move to a manufacturing unit in the Czech Republic were realised. The company
has been renamed Spectrum Inspection Systems.
Process Technology achieved sales growth of 12% from £276.0 million to £310.1
million with profit growing by 21% from £26.8 million to £32.4 million.
Operating margins improved from 9.7% to 10.4%. In a year in which semiconductor
equipment investment was flat, Particle Measuring Systems did well, primarily
due to market share gains in the flat panel display, optical display and
pharmaceutical industries. Continued investment by the automotive and
electronics industries in Japan benefited Fusion UV Systems, particularly in
flat panel displays, where demand for UV-coated functionalised film products is
strong, with Asia expected to satisfy around 90% of world demand. Malvern
produced a good performance both from the laboratory business, where
nanomaterial and biotechnology research markets are attractive, and in the
process business globally. Malvern's newly-opened applications laboratory in
China underpinned a strong Asian performance.
Sales at Bruel & Kjaer Sound & Vibration increased. The company won strategic
environmental contracts in China for both Beijing city and airport, giving Bruel
& Kjaer a strong position in the growing Chinese environmental noise management
market. Underlying profits increased but were impacted by a one-off cost for
centralising back-office functions. PANalytical enjoyed double-digit growth in
both sales and operating profit, with particular success in Asia. The European
directives on restricting hazardous substances and waste electrical and
electronic equipment have already been beneficial. The measurement of traces of
heavy metals in foods and asbestos in waste presents good opportunities.
PANalytical also entered into an agreement with Lafarge, making it the preferred
supplier of X-ray analysis systems for the entire cement division, comprising
150 plants worldwide.
Outlook
Levels of demand in the first two months of the year provide encouragement that
the company will show further good progress in 2006. Spectris has a strong
business portfolio, with market-leading brands and good technology positions,
exposure to a number of attractive end-user industries, and high calibre people.
Continued focus on the emerging markets of Asia Pacific, Eastern Europe and
Latin America, together with growing emphasis by customers on the value of
after-sales service, present good opportunities for the company. Several of our
operations are well positioned to take advantage of increasing investment in
petrochemical, mining and metals industries as a consequence of high oil and
commodity demand.
Our priority going forward is to continue to pursue the strategy of managing
cost, pricing and overheads tightly. Actions such as transferring component
sourcing, manufacturing and assembly to lower-cost regions, productivity and
process improvements, and a maintained focus on cash generation, reinforce our
ability to deliver improved profitability and operating margins. In addition we
will continue to drive organic sales growth and to strengthen our portfolio of
businesses by considering external opportunities for growth where appropriate.
John Poulter, Chairman
John O'Higgins, Chief Executive
Financial review
Introduction
During 2005, Spectris adopted International Financial Reporting Standards (IFRS)
in common with other companies that are listed in the European Union. This has
required a restatement of the 2004 results reported previously under UK GAAP. In
certain respects, IFRS has introduced more complexity to Spectris' financial
statements through the use of fair value accounting rules.
Spectris uses adjusted figures as key performance measures in addition to those
reported under IFRS. Adjusted figures are stated before amortisation of
acquisition-related intangible assets, goodwill charges, profits or losses on
the termination or disposal of businesses or major fixed assets, unrealised
changes in the fair value of financial instruments, related tax effects and
other tax items which do not form part of the underlying tax rate. Unless
otherwise stated all profit and earnings figures referred to below are adjusted
measures.
Operating performance
2005 2004
Turnover (£m) 655.9 614.1
Operating profit (£m) 73.5 64.6
Operating margin (%) 11.2 10.5
Sales increased by 7% overall, driven largely by increased demand from customers
in Asia.
Adjusted operating profit rose by 14% overall with the operating margin
improving from 10.5% to 11.2%. Aside from the impact of sales growth, operating
profits benefited from the constraint exercised on overheads and the return to
profitability of the Beta LaserMike and Spectrum businesses.
Interest costs, including IAS 19 pension charges, reduced from £14.1 million to
£13.0 million, reflecting both the consistent reduction in the level of net debt
during the year and more efficient use of surplus cash balances. After taking
account of lower interest costs, adjusted profits before tax increased by 20%
from £50.5 million to £60.5 million.
Bolt-on acquisitions and currency movements had a broadly neutral overall effect
on the profits for the year.
Operating profits, after including goodwill charges of £7.4 million (2004: £12.2
million) and acquisition-related intangible asset amortisation of £1.2 million
(2004: £1.2 million), increased by 27% from £51.2 million to £64.9 million.
Unadjusted profits before tax increased by 42% from £35.9 million to £50.8
million. In addition to goodwill charges and acquisition-related intangible
asset amortisation charges, the 2005 result includes a £1.7 million profit on
the disposal of the group's remaining interest in the Luxtron business. This
result also includes unrealised losses of £2.8 million on the group's
cross-currency interest rate swaps and average rate options as a consequence of
the adoption of IAS 39 with effect from 1 January 2005.
Acquisitions and disposals
During the year, one small bolt-on acquisition was made for which the total
consideration, including acquisition expenses and debt acquired, was £2.5
million.
In February 2006, Spectris entered into an option agreement to sell the Arcom
business to Eurotech S.p.A. Since the year end, Eurotech has paid US$2 million
to Spectris in consideration for the option which gives Eurotech 60 days to
acquire Arcom on a cash and debt free basis. Should the acquisition complete,
the total consideration will be US$26 million (including the US$2 million option
payment already received). As a consequence of this agreement, the Arcom
business' assets and liabilities are presented separately in the group balance
sheet as 'held for sale'.
Taxation
The effective tax rate on profits was 26.9% (2004: 24.4%). The effective tax
rate continues to be below the weighted average statutory tax rate of 32.8%
(2004: 32.6%) as a consequence of the utilisation of unrecognised tax losses in
Germany, tax-efficient financing, and prior year tax credits. As anticipated,
the increase in the tax rate in 2005 was due to a reduction in the effect of tax
planning and brought forward loss utilisation. The underlying tax charge is
expected to increase further towards the weighted average statutory tax rate
over the next few years.
Earnings per share
Adjusted earnings per share increased by 15% from 31.6p to 36.2p. This increase
is lower than the growth in profit before tax due to a higher effective tax
rate.
Basic earnings per share increased by 48% from 19.5p to 28.8p. The differences
between the two measures are shown in the table below.
2005 2004
Pence Pence
Basic earnings per share 28.8 19.5
Goodwill charges and acquisition-related intangible asset
amortisation 7.0 11.1
Loss on termination of businesses - 1.0
Income from disposal of Luxtron (1.4) -
Unrealised changes in fair value of financial instruments 2.3 -
Tax effect of the above and other tax items that do not form part
of the underlying tax rate (0.5) -
Adjusted earnings per share 36.2 31.6
The weighted average number of shares outstanding during the year increased from
120.9 million to 122.1 million. This increase arose principally as result of the
disposal of a proportion of the own shares held by the Spectris Employee Benefit
Trust for cash proceeds of £10.7 million.
Cash flow
2005 2004
Operating cash flow £m £m
Adjusted operating profit 73.5 64.6
Add back: depreciation 12.6 13.4
Working capital movement/other 4.5 (13.7)
Net cash flow from operating activities before capex 90.6 64.3
Capex (12.2) (15.6)
Operating cash flow 78.4 48.7
Cash conversion 107% 75%
Non-operating cash flow
Tax paid (15.8) (7.7)
Interest paid (12.7) (13.9)
Dividends paid (18.1) (16.3)
Acquisitions (3.0) (10.5)
Shares issued 1.3 0.7
Sale of own shares by Employee Benefit Trust 10.7 -
Financial income 1.8 0.1
Finance leases (0.5) -
Exchange/other (3.1) 3.4
Total non-operating cash flow (39.4) (44.2)
Operating cash flow 78.4 48.7
Movement in net debt 39.0 4.5
Cash conversion of operating profit to operating cash was 107% (2004: 75%). The
improvement in cash conversion was chiefly due to a turnaround of £18.2 million
in the working capital movements which improved from a cash outflow in 2004 of
£13.7 million to a cash inflow of £4.5 million in 2005. Inventory turns improved
from 2.9 times at December 2004 to 3.3 times at the end of 2005. Debtor days
outstanding increased very slightly, rising from 59 days at December 2004 to 60
days at the end of 2005. Over the same period, trade working capital expressed
as a percentage of sales remained constant at 16%.
Capital expenditure reduced during the year and equated to 1.9% of sales and, at
£12.2 million, was 97% of depreciation.
The level of tax paid in 2005 was higher than in 2004 due primarily to the
acceleration of payments on account in Germany and an increase in the current
tax on profits.
Overall, net debt fell by £39.0 million. Interest cost, excluding the financing
charge arising from IAS 19, was covered by operating profits 5.8 times (2004:
4.7 times), providing headroom over the banking covenants which require a
minimum of 3 times cover.
Financing and treasury
The group finances its operations from both retained earnings and third party
borrowings, the majority of which are currently at fixed rates of interest.
During 2004, no significant new loan borrowings were taken out and the majority
of third party borrowings continue to be comprised of US dollar private
placement loans which have been partly swapped into Euros to provide a hedge
against Euro denominated net assets in the group's balance sheet.
30% of debt is due to mature within one year (2004: 0%), 29% of debt is due to
mature in between one and five years (2004: 27%) and the remaining 41% in more
than five years (2004: 73%). During July 2006, the $100 million 1996 Private
Placement loan notes will become due for repayment. New committed facilities
have already been negotiated which, together with the free cash flow generated
by the group, will provide sufficient funds to repay these loans.
Currency
The group has both translational and transactional currency exposures.
Translational exposures arise on the consolidation of overseas company results
into sterling. Transactional exposures arise where the currency of sale or
purchase invoices differs from the functional currency in which each company
prepares its local accounts. The transactional exposures include situations
where foreign currency denominated trade debtor, trade creditor and cash
balances are held.
The largest transactional exposures are to the US dollar and, to a lesser
extent, the Japanese Yen. The largest translational exposures are to the US
dollar and Euro (and also the Danish Krone which has tended to track the Euro
quite closely). The table below shows the average exchange rates during 2004 and
2005 which are quite similar and there was therefore a modest currency effect on
the results when compared year-on-year.
The key exchange rates were as follows:
2004 2005 2005
(average) (average) (year-end rate)
US$ 1.83 1.82 1.72
Euro 1.47 1.46 1.45
Yen 197 200 203
In the past, the group's currency exposures have been hedged using zero cost
average rate options. The group's US dollar, Euro and Japanese Yen exposures
were hedged in 2004 through zero cost average rate options which, in aggregate,
generated net gains of £3.2 million. In 2005, whilst the group had zero cost
average rate options in place, no gain or loss arose. Going forward, the group
does not intend to use zero cost average rate options to hedge currency
exposures and no options were outstanding as at 31 December 2005.
Translational currency exposures are not hedged. Forward exchange contracts are
used to hedge forecast sale transactions where there is reasonable certainty of
an exposure.
Defined benefit pension schemes
Operating profit includes a defined benefit pension scheme current service
charge of £0.7 million (2004: £0.8 million). The net pension liability in the
balance sheet (before taking account of the related deferred tax asset) has
increased to £22.6 million (2004: £20.7 million), largely as a consequence of a
reduced discount rate. During 2005, the group increased its cash contributions
into the defined benefit pension schemes to £3.2 million (2004: £1.5 million).
Steve Hare, Group Finance Director
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in a live webcast
commencing at 8.15 AM on the company's website at www.spectris.com.
Copies of this notice are available to the public from the registered office at
Station Road, Egham, Surrey TW20 9NP, and on the company's website at
www.spectris.com.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2005
Notes 2005 2004
£m £m
Continuing operations
3 Revenue 655.9 614.1
Cost of sales (278.6) (262.5)
Gross profit 377.3 351.6
Indirect production and engineering expenses (62.8) (57.8)
Sales and marketing expenses (173.5) (168.2)
Administrative expenses (76.1) (74.4)
64.9 51.2
2 Operating profit
Loss on termination of businesses - (1.2)
4 Financial income 6.6 4.0
4 Finance costs (20.7) (18.1)
Profit before tax 50.8
35.9
5 Taxation - UK (0.5) (9.5)
5 Taxation - Overseas (15.1) (2.8)
Profit after tax for the year from continuing operations 35.2 23.6
attributable to equity shareholders
7 Basic earnings per share 28.8p 19.5p
7 Diluted earnings per share 28.8p 19.5p
6 Dividends per share 15.8p 14.5p
6 Dividends paid during the year (per share) 14.85p 13.55p
Spectris uses adjusted figures as key performance measures in addition to those
reported under IFRS. Adjusted figures are stated before amortisation of
acquisition-related intangible assets, goodwill charges, profits or losses on
termination or disposal of businesses or major fixed assets, unrealised changes
in the fair value of financial instruments, related tax effects and other tax
items which do not form part of the underlying tax rate.
Reconciliations showing how the adjusted performance measures are derived from
those reported under IFRS are set out in Note 2.
Consolidated statement OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 December 2005
2005 2004
£m £m
Net loss on effective portion of changes in fair value of forward (1.3) -
exchange contracts
Deferred tax on changes in fair value of forward exchange contracts 0.4 -
Net gain on changes in fair value of effective portion of net (1.9) -
investment hedge
Actuarial loss arising on pension scheme (4.1) (3.4)
Current and deferred tax on actuarial loss on pension schemes 1.3 1.1
Foreign exchange difference on translation of overseas operations - (0.9)
Current tax on foreign exchange differences 0.4 -
Net income recognised in equity in respect of year (5.2) (3.2)
Profit for the year 35.2 23.6
Total recognised income and expense for the year attributable to 30.0 20.4
equity shareholders
Changes in accounting policy: adoption of IAS 39 Financial
Instruments: Recognition and Measurement as at 1 January 2005
Hedging reserve
Fair value of forward exchange contracts 0.8 -
Deferred tax on forward exchange contracts (0.2) -
Retained earnings
Fair value of cross-currency interest rate swaps (7.6) -
Fair value of average rate options 1.7 -
Deferred tax on the above 1.8 -
(3.5) -
26.5 20.4
CONSOLIDATED BALANCE SHEET
At 31 December 2005
2005 2004
£m £m
Assets
Non-current assets
Goodwill 209.5 219.0
Other intangible assets 4.1 5.2
Property, plant & equipment 92.8 93.7
Deferred tax asset 44.6 40.2
351.0 358.1
Current assets
Inventories 88.2 94.0
Taxation recoverable 0.9 1.9
Trade and other receivables 150.4 145.8
Cash and cash equivalents 77.1 34.4
Assets held for sale 5.9 -
322.5 276.1
Total assets 673.5 634.2
Liabilities
Current liabilities
Short-term borrowings (59.4) (0.3)
Derivative financial instruments (0.6) -
Trade and other payables (132.4) (134.5)
Current tax liabilities (32.4) (34.1)
Provisions (12.3) (7.0)
Liabilities held for sale (3.7) -
(240.8) (175.9)
Net current assets 81.7 100.2
Non-current liabilities
Medium and long-term borrowings (121.6) (193.0)
Derivative financial instruments (24.7) -
Other payables (6.7) (5.4)
Retirement benefit obligations (22.6) (20.7)
Provisions (0.6) (2.5)
Deferred tax liability (1.0) (1.9)
(177.2) (223.5)
Total liabilities (418.0) (399.4)
Net assets 255.5 234.8
Equity
Issued share capital 6.2 6.2
Share premium 229.1 227.8
Retained earnings 20.1 (1.7)
Translation reserve (2.8) (0.9)
Hedging reserve (0.5) -
Merger reserve 3.1 3.1
Capital redemption reserve 0.3 0.3
Equity shareholders' funds 255.5 234.8
Total equity and liabilities 673.5 634.2
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2005
2005 2004
Notes £m £m
Cash flows from operating activities
Profit after tax 35.2 23.6
Adjustments for:
5 Tax 15.6 12.3
Loss on termination of businesses - 1.2
4 Finance costs 20.7 18.1
4 Financial income (6.6) (4.0)
Depreciation 12.6 13.4
Amortisation of intangible assets 1.3 1.3
Goodwill impairment charge 7.4 -
Goodwill reduction - 12.2
Loss on sale of property, plant & equipment 0.3 0.4
Equity settled share-based payment expenses 0.3 0.4
Operating profit before changes in working capital 86.8 78.9
and provisions
Increase in trade and other receivables (4.5) (15.0)
Decrease / (increase) in inventories 6.2 (9.3)
Increase in trade and other payables 2.8 12.1
Decrease in provisions and employee benefits (0.7) (2.4)
Corporation tax paid (15.8) (7.7)
Net cash from operating activities 74.8 56.6
Cash flows from investing activities
Purchase of property, plant & equipment (12.3) (16.5)
Proceeds from sale of property, plant & equipment 0.1 0.7
Purchase of intangible assets - (2.2)
Acquisition of subsidiary, net of cash acquired (2.3) (8.3)
Interest received 1.1 0.4
4 Dividend income 0.1 0.1
Other financial income 1.7 -
Net cash flows used in investing activities (11.6) (25.8)
Cash flows from financing activities
Interest paid (13.8) (14.3)
Dividends paid to equity holders of the parent (18.1) (16.3)
Proceeds from issue of share capital 1.3 0.7
Sale of own shares by Employee Benefit Trust 10.7 0.2
Repayment of borrowings (0.2) (1.1)
New borrowings - 2.3
Net cash flows from / (used in) financing (20.1) (28.5)
activities
Net increase in cash and cash equivalents 43.1 2.3
Cash and cash equivalents at beginning of year 34.1 31.7
Effect of foreign exchange rate changes (1.1) 0.1
Cash and cash equivalents at end of year 76.1 34.1
2005 2004
£m £m
Reconciliation of changes in cash and cash
equivalents to movements in net debt
Net increase in cash and cash equivalents 43.1 2.3
Net decrease / (increase) in loans 0.2 (1.2)
Increase in finance lease liabilities (0.5) -
Borrowings acquired on acquisitions (0.7) -
Effect of foreign exchange rate changes (3.1) 3.4
Movement in net debt 39.0 4.5
Net debt at start of year (158.9) (163.4)
Net debt at end of year (119.9) (158.9)
RECONCILIATION OF MOVEMENT IN CAPITAL AND RESERVES
For the year ended 31 December 2005
Share Share Retained Translation Hedging Merger Capital Total
capital premium earnings reserve reserve reserve redemption equity
reserve
£m £m £m £m £m £m £m £m
Equity as at 31 December 2003 under UK 6.2 227.1 (47.3) - - 3.1 0.3 189.4
GAAP
Adjustment on adoption of IFRS - - 40.1 - - - - 40.1
At 1 January 2004 6.2 227.1 (7.2) - - 3.1 0.3 229.5
Gains and losses - year ended 31
December 2004
Total recognised income and expense - - 21.3 (0.9) - - - 20.4
Total gains and losses 6.2 227.1 14.1 (0.9) - 3.1 0.3 249.9
Distributions to and transactions with
shareholders
Equity dividends paid - - (16.3) - - - - (16.3)
Share-based payments - - 0.4 - - - - 0.4
Sale of own shares by Employee Benefit - - 0.1 - - - - 0.1
Trust
Exercise of equity share options - 0.7 - - - - - 0.7
Equity as at 31 December 2004 6.2 227.8 (1.7) (0.9) - 3.1 0.3 234.8
Change in accounting policy: adoption of
IAS 39 Financial Instruments: - - (4.3) - 0.8 - - (3.5)
Recognition and Measurement
Equity as at 1 January 2005 6.2 227.8 (6.0) (0.9) 0.8 3.1 0.3 231.3
Gains and losses - year ended 31 December
2005
Total recognised income and expense - - 33.2 (1.9) (1.3) - - 30.0
Total gains and losses 6.2 227.8 27.2 (2.8) (0.5) 3.1 0.3 261.3
Distributions to and transactions with
shareholders
Equity dividends paid - - (18.1) - - - - (18.1)
Share-based payments - - 0.3 - - - - 0.3
Sale of own shares by Employee Benefit - - 10.7 - - - - 10.7
Trust
Exercise of equity share options - 1.3 - - - - - 1.3
Equity as at 31 December 2005 6.2 229.1 20.1 (2.8) (0.5) 3.1 0.3 255.5
NOTES TO THE ACCOUNTS
1. PRINCIPAL ACCOUNTING POLICIES AND BASIS OF PREPARATION
Spectris plc is a limited company incorporated and domiciled in the United
Kingdom under the Companies Act 1985, whose shares are publicly traded on the
London Stock Exchange.
The group's financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as
adopted by the EU ('IFRS').
The accounting policies are set out in full in the Annual Report, and have been
applied consistently to all periods presented in these financial statements
except where the policy is indicated as relating to the implementation of IAS32
or IAS39 which were adopted from 1 January 2005, or to the implementation of
IFRS 5, Non-current assets held for sale and discontinued operations, which was
also adopted from 1 January 2005. The accounting policies have been applied
consistently by group entities.
The financial statements were authorised for issue by the directors on 7 March
2006.
2. ADJUSTED PERFORMANCE MEASURES
Spectris uses adjusted figures as key performance measures in addition to those
reported under IFRS. Adjusted figures are stated before amortisation of
acquisition-related intangible assets, goodwill charges, profits or losses on
termination or disposal of businesses or major fixed assets, unrealised changes
in the fair value of financial instruments, related tax effects and other tax
items which do not form part of the underlying tax rate (see Note 5).
The adjusted performance measures are derived from the reported figures under
IFRS as follows:
Adjusted operating profit 2005 2004
£m £m
Operating profit as reported under IFRS 64.9 51.2
Amortisation of acquisition-related intangible 1.2 1.2
assets
Goodwill impairment charge 7.4 -
Goodwill reduction - 12.2
Adjusted operating profit 73.5 64.6
Adjusted operating profit by segment - 2005 Electronic In-line Process Total
controls instrument- technology
ation
£m £m £m £m
Segment result under IFRS 18.2 15.5 31.2 64.9
Amortisation of acquisition-related intangible - - 1.2 1.2
assets
Goodwill impairment charge - 7.4 - 7.4
Adjusted operating profit - 2005 18.2 22.9 32.4 73.5
Adjusted operating profit by segment - 2004 Electronic In-line Process Total
controls Instrument-ation technology
£m £m £m £m
Segment result under IFRS 17.2 20.6 13.4 51.2
Amortisation of acquisition-related intangible - - 1.2 1.2
assets
Goodwill reduction - - 12.2 12.2
Adjusted operating profit - 2004 17.2 20.6 26.8 64.6
Adjusted profit before tax 2005 2004
£m £m
Profit before tax as reported under 50.8 35.9
IFRS
Amortisation of acquisition-related intangible 1.2 1.2
assets
Goodwill impairment charges 7.4 -
Goodwill reduction - 12.2
Loss on termination of businesses - 1.2
Unrealised change in fair value of cross-currency interest rate swaps 1.1 -
Unrealised change in fair value of average rate options 1.7 -
Other financial income (1.7) -
Adjusted profit before tax 60.5 50.5
Operating cash flow 2005 2004
£m £m
Net cash from operating activities under IFRS 74.8 56.6
Corporation tax paid 15.8 7.7
Purchase of property, plant and (12.3) (16.5)
equipment
Proceeds from sale of property, plant & equipment 0.1 0.7
Sale of own shares by Employee Benefit Trust - 0.2
Operating cash flow for management purposes 78.4 48.7
Adjusted earnings per share 2005 2004
£m £m
Profit after tax as reported under IFRS 35.2 23.6
Adjusted for:
Amortisation of acquisition-related intangible 1.2 1.2
assets
Goodwill impairment charge 7.4 -
Goodwill reduction - 12.2
Loss on termination of businesses - 1.2
Unrealised change in fair value of cross-currency interest rate swaps 1.1 -
Unrealised change in fair value of average rate options 1.7 -
Other financial income (1.7) -
Tax effect of the above (1.5) (0.2)
Other tax items not forming part of the underlying tax rate 0.8 0.2
Adjusted earnings 44.2 38.2
Weighted average number of shares outstanding (millions) 122.1 120.9
Adjusted earnings per share (pence) 36.2 31.6
Adjusted diluted earnings per share 2005 2004
Adjusted earnings (as above) 44.2 38.2
Diluted weighted average number of shares outstanding (millions) 122.4 121.1
Adjusted diluted earnings per share (pence) 36.1 31.5
3. SEGMENTAL INFORMATION
The group's primary reporting format is business segments and its secondary
format is geographical segments.
Segment revenue Inter-segment External customer Segment result
revenue revenue
2005 2004 2005 2004 2005 2004 2005 2004
£m £m £m £m £m £m £m £m
Electronic controls 143.6 139.9 (0.1) (0.2) 143.5 139.7 18.2 17.2
In-line instrumentation 202.8 199.0 (0.5) (0.6) 202.3 198.4 15.5 20.6
Process technology 311.6 277.4 (1.5) (1.4) 310.1 276.0 31.2 13.4
Eliminate inter-segment (2.1) (2.2) 2.1 2.2 - -
sales - -
Total continuing operations 655.9 614.1 - - 655.9 614.1 64.9 51.2
Loss on termination of - (1.2)
businesses
Financial income 6.6 4.0
Finance costs (20.7) (18.1)
Profit before tax 50.8 35.9
Tax (15.6) (12.3)
Profit after tax 35.2 23.6
Inter-segment pricing is done on an arm's length basis. Segments are presented
on the basis of actual inter-segment charges made. Loss on termination of
businesses of £1.2m in 2004 relates to the Electronic controls sector (£0.6m)
and corporate activities (£0.6m).
Geographical segments
The group's business operations are each located in several geographical
locations, and sell on to external customers in all parts of the world.
The following is an analysis of revenue by geographical destination:
2005 2004
£m £m
UK 41.4 39.4
Continental Europe 240.1 242.1
North America 169.6 157.3
Japan 54.0 46.2
China 45.6 40.3
Rest of Asia Pacific 70.4 59.1
Rest of the world 34.8 29.7
655.9 614.1
4. FINANCE COSTS AND FINANCIAL INCOME
2005 2004
Financial income £m £m
Bank interest receivable 1.0 0.2
Dividend income 0.1 0.1
Expected return on pension scheme assets 3.8 3.7
Other financial income 1.7 -
6.6 4.0
Other financial income represents a gain made on disposal of the group's
remaining interest in Luxtron Corporation. In 2002, the group disposed of 80.1%
of its interest in Luxtron Corporation in exchange for $6m 5% preference shares
and continued to hold its 19.9% equity interest. The group's preference shares
and equity interest were deemed to be impaired and have since been carried in
the group balance sheet at a nil value. During 2005, £0.4m of preference shares
were redeemed and the group has disposed of its remaining interest in Luxtron
for a further £1.3m, generating a gain on disposal of £1.7m. This gain is
presented as financial income in the income statement. In addition the group has
received dividend income amounting to £0.1m
(2004: £0.1m).
2005 2004
Finance costs £m £m
Interest payable on bank loans and 0.9 1.5
overdrafts
Interest payable on other loans 12.8 12.6
Total interest payable 13.7 14.1
Unrealised change in fair value of cross-currency interest rate swaps 1.1 -
Unrealised change in fair value of average rate 1.7 -
options
Interest cost on pension scheme liabilities 4.2 4.0
20.7 18.1
Interest costs of £12.6m (2004: £13.8m) for the purposes of the calculation of
interest cover comprise of bank interest receivable of £1.0m (2004: £0.2m),
dividend income of £0.1m (2004: £0.1m), and interest payable on bank and other
loans and overdrafts of £13.7m (2004: £14.1m).
5. TAXATION
2005 2004
Reconciliation of total tax charge on IFRS basis to adjusted tax charge £m £m
Total tax charge on IFRS basis 15.6 12.3
Tax credit on items of income and expense that are excluded from the 1.5 0.2
group's adjusted profits before tax
Other tax items not forming part of the underlying tax rate (0.8) (0.2)
Adjusted tax charge 16.3 12.3
Adjusted profits before tax 60.5 50.5
Adjusted effective tax rate 26.9% 24.4%
6. DIVIDENDS
2005 2004
Amounts recognised and paid as distributions to equity holders in £m £m
the year:
Final dividend for the year ended 31 December 2004 of 10.25p 12.4 11.2
(2003: 9.3p) per share
Interim dividend for the year ended 31 December 2005 of 4.6p 5.7 5.1
(2004: 4.25p) per share
18.1 16.3
Amounts arising in respect of the year:
Interim dividend for the year ended 31 December 2005 of 5.7 5.1
4.6p (2004: 4.25p)
Proposed final dividend for the year ended 31 December 2005 of 11.2p 13.8 12.4
(2004: 10.25p) per share
19.5 17.5
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.
7. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity shareholders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year but adjusted for the effects of dilutive
options.
Basic earnings per share
2005 2004
Profit after tax (£m) 35.2 23.6
Weighted average number of shares outstanding (millions) 122.1 120.9
Basic earnings per share (pence) 28.8 19.5
Diluted earnings per share
2005 2004
Profit after tax per income statement (£m) 35.2 23.6
Basic weighted average number of shares outstanding (millions) 122.1 120.9
Weighted average number of dilutive 5p ordinary shares under option 1.5 0.7
(millions)
Weighted average number of 5p ordinary shares that would have been (1.2) (0.5)
issued at average market value from proceeds of dilutive share options
(millions)
Diluted weighted average number of shares outstanding (millions) 122.4 121.1
Diluted earnings per share (pence) 28.8 19.5
8. COMPANY INFORMATION
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2005 or 2004 but is derived
from those accounts. Statutory accounts for 2004 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 2005 will be delivered
following the company's annual general meeting.
9. ANNUAL REPORT
Copies of the annual report, which will be posted to shareholders on 11 April
2006, 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 at
www.spectris.com.
This information is provided by RNS
The company news service from the London Stock Exchange
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