Half-year Report

RNS Number : 4525F

Spectris PLC

28 July 2016

SPECTRIS PLC

2016 HALF YEAR RESULTS

28 July 2016 - Spectris plc, (SXS: LSE) the productivity-enhancing instrumentation and controls company, announces half year results for the six months ended 30 June 2016.

	H1 2016	H1 2015	Change	Change at CER**	Like-for-like change***

Sales £m	581.4	563.2	3.2%	-1.7%	-3.4%
Adjusted operating profit £m*	68.9	67.4	2.3%	-3.8%	-6.9%
Adjusted profit before tax £m*	66.5	64.9	2%
Adjusted basic earnings per share*	43.0	42.0p	2%
Dividend	18.0p	17.3p	4%

Statutory
Sales £m	581.4	563.2	3%
Operating profit £m	46.6	49.4	-6%
Profit before tax £m	41.0	49.2	-17%
Basic earnings per share	26.0p	33.9p	-23%
* These adjusted performance measures represent the statutory results excluding certain non-operational items (see Note 2 for an explanation of adjusted figures and a reconciliation to the statutory reported figures). At constant exchange rates (CER) using the prior period's exchange rates. * At constant exchange rates and excluding acquisitions ('LFL').

Highlights

· Reported sales growth of 3%, with acquisitions contributing 2%, foreign currency exchange movements benefitting growth by 5% and like-for-like ('LFL') sales declining by 3%

· Stable adjusted operating profit margin, reflecting good overhead cost control

· Now expect to generate annualised restructuring benefits of around £10 million in 2016

· Three acquisitions completed in H1, with two additional ones completed in July; complementary to the Group's strategy to provide a combination of hardware, software and services

· Robust adjusted operating cash conversion* of 134%

· Dividend per share increased by 4%

Commenting on the results, John O'Higgins, Chief Executive, said: "Trading conditions in the period continued to be challenging, particularly in our In-line Instrumentation and Industrial Controls segments, both of which were impacted by weak global industrial demand.

We continue to make progress transitioning our customer offering from the supply of instruments towards the provision of solutions encompassing hardware, software and services, with the acquisitions of CAS Clean Air Service AG and Capstone Technology Corporation during the period, followed by DISCOM Elektronische Systeme und Komponenten GmbH which we have announced today, enhancing our software and service capabilities and enabling us to create greater value for our customers.

Given the challenging environment, we remain focussed on self-help actions to better align cost growth to sales growth, and have recently commenced a comprehensive group-wide productivity improvement programme to augment the measures previously announced.

Taking into consideration the potential net currency benefits at current exchange rates, the increased macro uncertainty and our limited visibility on trading in the second half, the expected overall outcome for 2016 is unchanged. Our strategic progress, together with our broad end-market and geographic diversification, strong balance sheet and the benefits of our self-help actions, reinforce the Board's view that Spectris is well positioned for the future."

Contacts:

Spectris plc

John O'Higgins, Chief Executive	+44 1784 470 470

Clive Watson, Group Finance Director	+44 1784 470 470

Matt Jones / Siobhán Andrews, Head of Corporate Affairs	+44 1784 470 470

FTI Consulting

Richard Mountain / Susanne Yule	+44 203 727 1340

A meeting with analysts will be held at 9:30am BST today. This will be available as a live webcast on the company's website at www.spectris.com and a recording will be posted on the website after the meeting.

Copies of this press release are available to the public from the registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the company's website at www.spectris.com.

About Spectris

Spectris plc is a leading supplier of productivity-enhancing instrumentation and controls. The Company's products and technologies help customers to improve product quality and performance, improve core manufacturing processes, reduce downtime and wastage and reduce time to market. Its global customer base spans a diverse range of end-user markets. Spectris operates across four business segments which reflect the applications and industries it serves: Materials Analysis, Test and Measurement, In-line Instrumentation and Industrial Controls. Headquartered in Egham, Surrey, England, the Company employs approximately 8,300 people located in more than 30 countries. For more information, visit www.spectris.com.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

Results overview

Reported sales grew by 3% in the first half to £581.4 million (H1 2015: £563.2 million). This reflected a 2% contribution from acquisitions (£9.6 million), a beneficial impact of 5% from foreign exchange currency movements and, consequently, a 3% decline on an organic constant currency (like-for-like, 'LFL') basis ⁽¹⁾.

Regionally, LFL sales to North America declined by 4%, reflecting continuing weak US industrial demand that has been apparent since the sharp fall in energy prices in late 2014. LFL sales grew by 3% in Asia, benefitting from growth of 5% and 8% in China and Japan respectively, although this was against a weak comparator in the first half of 2015 when these countries experienced LFL declines of 4% and 5% respectively. LFL sales in Europe declined by 6%, partly reflecting a challenging comparator after the strong growth in this region in the first half of 2015, whilst a 15% LFL decline in sales to the Rest of the World was largely due to the weak economy in Brazil.

By segment, LFL sales were broadly flat in Materials Analysis and declined by 4%, 6% and 5% in Test and Measurement, In-line Instrumentation and Industrial Controls, respectively. The weakness in In-line Instrumentation reflected a reduction in capital expenditure across many heavy process industries, whilst Industrial Controls continued to be affected by weak US industrial production.

Adjusted operating profit⁽¹⁾ increased by 2% to £68.9 million (H1 2015: £67.4 million) and adjusted operating margins declined by 0.1 percentage point to 11.9%. On a LFL basis, adjusted operating profit decreased by 7%, reflecting the impact of lower sales volumes, adverse mix and overhead cost inflation and benefitting from net one-off items of approximately £5 million, including the gain of £2 million on the sale of a property in Industrial Controls and the release of specific legal risk provisions, as well as £5.4 million of incremental savings from our previously-announced targetted restructuring measures. These cost reduction measures are now expected to generate annualised benefits of around £10 million in 2016, versus previous expectations of £7 million.

Strategic progress

Our strategic objective is to deliver long-term and sustainable shareholder value by providing productivity-enhancing solutions and services for our customers. Our strategy for delivering this objective comprises five key elements and during the period we made good progress on all of these elements:

- Focus on innovative customer solutions. We acquired Capstone Technology Corporation, a leading software provider that will complement our existing instruments, extending our offering to provide solutions for process control and optimisation across our pulp, tissue and packaging markets as well as other process industries. We have also today announced the acquisition of DISCOM Elektronische Systeme und Komponenten GmbH ('DISCOM'), a leading provider of automotive transmission sound and vibration test systems that are used at the end of production lines. This will help meet the growing demand from automotive customers for an integrated production solution.

- Increase our presence in key strategic markets. The acquisition of CAS Clean Air Service AG ('CAS'), a leading cleanroom-services company, will enable us to provide both particle measuring instruments and services to a key strategic market, the life sciences sector.

- Expand business globally. We enhanced our presence in India, acquiring a distributor for one of our businesses in Test and Measurement and expanding facilities in order to support the strong growth being generated in sectors such as pharmaceutical, automotive and aerospace.

- Deploy capital for both platform and bolt-on M&A. During the first half, we invested a total consideration of £25.8 million on three acquisitions, with two additional ones in July. These are complementary to the Group's strategy to provide a combination of hardware, software and services. The M&A pipeline remains healthy.

- Accelerate operational excellence. At the time we announced our full year 2015 results in February this year, we stated an intention to manage costs so that cost growth is better aligned with sales growth. We continued to introduce 'lean manufacturing' techniques to activities such as innovation and sales and marketing across the Group, and held workshops to share best practice. In addition, we initiated a group productivity improvement programme which is explained in further detail below.

Group productivity improvement programme initiated

To ensure that we will continue to manage costs better and improve operational excellence beyond 2016 and, in doing so, free up resources to reinvest in growth initiatives, we have recently initiated a comprehensive group-wide productivity improvement programme, 'Project Uplift'. Over the medium term, this will deliver improvements in productivity, both within and across our operating companies, reducing complexity where appropriate whilst preserving the entrepreneurial, autonomous culture of our businesses. We will also evaluate potential structural improvements that can leverage Spectris' scale and optimise both efficiency and effectiveness. The programme has just begun and it is too early to provide guidance on the potential benefits that will be targetted, the associated costs of implementation or the timescale over which they will be accrued, and we will give more information as our plans crystallise.

Financial position and dividend

Adjusted operating cash flow was strong, with 134% of adjusted operating profit being converted into cash. Cash outflows in respect of dividends, tax, interest and acquisitions, combined with adverse foreign exchange translation, resulted in net debt increasing by £4.9 million during the period to £103.5 million, around 0.5 times the 12-month trailing EBITDA⁽²⁾ of £208.1 million.

The Board has declared an interim dividend of 18.0 pence per share, an increase of 4% over the same period last year (H1 2015: 17.3 pence per share). The dividend is covered 2.4 times by adjusted basic earnings per share. This is consistent with our policy of making progressive dividend payments based upon affordability and sustainability. The dividend will be paid on 11 November 2016 to shareholders on the register at the close of business on 14 October 2016.

Board composition

As previously reported, Lisa Davis retired as a Non-executive Director of Spectris plc immediately following the Annual General Meeting on 20 May 2016. The Board would like to thank Lisa for her valuable contribution during her tenure at Spectris.

Summary and outlook

Trading conditions in the period continued to be challenging, particularly in our In-line Instrumentation and Industrial Controls segments, both of which were impacted by weak global industrial demand.

(1) For an explanation of adjusted figures and a reconciliation to the statutory reported figures, see Note 2 to the financial statements.

(2) EBITDA represents earnings (adjusted operating profit) before interest, tax, depreciation and amortisation.

OPERATING REVIEW

	Materials Analysis		Test and Measurement		In-line Instrumentation		Industrial Controls		Total
	H1 2016	H1 2015	H1 2016	H1 2015	H1 2016	H1 2015	H1 2016	H1 2015	H1 2016	H1 2015
Sales (£m)	175.6	165.7	170.1	164.2	118.7	120.5	117.0	112.8	581.4	563.2
LFL growth	-	4%	-4%	-	-6%	-1%	-5%	-1%	-3%	1%
Adjusted operating profit* (£m)	21.0	14.6	18.5	18.7	10.9	13.8	18.5	20.3	68.9	67.4
Adjusted return on sales* (%)	11.9%	8.8%	10.9%	11.4%	9.2%	11.4%	15.8%	18.0%	11.9%	12.0%
% of Group sales	30%	30%	30%	29%	20%	21%	20%	20%
Aftermarket sales (%)	34%	33%	21%	20%	46%	44%	1%	1%	26%	25%

* These adjusted performance measures represent the statutory results excluding certain non-operational items (see Note 2 to the financial statements for an explanation of adjusted figures and a reconciliation to the statutory reported figures).

MATERIALS ANALYSIS

Our Materials Analysis operating companies provide products and services that enable customers to determine structure, composition, quantity and quality of particles and materials, during their research and product development processes, when assessing materials before production, or during the manufacturing process. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems ('PMS').

Segment performance

	H1 2016	H1 2015	change	like-for-like change
Sales (£m)	175.6	165.7	6%	0%
Adjusted operating profit (£m)	21.0	14.6	43%	36%
Adjusted return on sales (%)	11.9	8.8	+3.1pp	+3.2pp
% of Group sales	30	30
Aftermarket sales (%)	34	33

Reported sales increased by 6%, including a two percentage point contribution from acquisitions and a four percentage point beneficial impact from foreign currency exchange movements. Consequently, LFL sales were flat in the first half. This performance reflected good growth in Asia, driven by China and Japan, and in North America, offset by declines in Europe and the Rest of the World, with the latter largely reflecting the weak trading environment in Brazil. Adjusted operating profit increased by 36% on a LFL basis, reflecting positive mix effects, in part due to a 5% LFL increase in aftermarket sales in this segment, and the benefits of the prior-year restructuring activities.

LFL sales to the pharmaceutical sector grew modestly in the period, despite a strong prior year comparator; in early 2015 there was particularly strong growth in the Indian pharmaceutical industry, as generic drug manufacturers in the country were focussed on achieving the FDA-mandated standards necessary to export to the US and other major pharmaceutical markets. This regulatory compliance driver abated in the first half of 2016, but underlying market conditions for our businesses in the pharmaceutical industry remain healthy and we generated sales growth in the Japanese, American and European pharmaceutical markets. The life sciences industry remains a key strategic market for us, and we were pleased to enhance our offering to this customer base with the acquisition of CAS Clean Air Service AG ('CAS') during the period, a leading Swiss-based cleanroom-services company that will be integrated into PMS. CAS will leverage PMS's technical and application leadership in particle counter manufacturing and offer its Good Manufacturing Practice service knowledge and expertise across PMS's sales network.

After modest growth in 2015, sales to the metals, minerals and mining sectors suffered sizeable declines in the first half of 2016 across all four of our regions. Large systems orders continue to be deferred or cancelled, and the growth within the cement and building materials markets in North America and Europe of recent years has abated. Aftermarket sales remain strong in this sector, as customers prefer to repair and support existing equipment rather than replace or upgrade to a new solution.

Sales to academic research institutes increased, reflecting strong growth in China and India (after both markets had been weak in 2015), whilst there was also growth in demand from academia in North America and Germany. Outside of Germany, European academic research expenditure remained subdued, with significant weakness in the UK.

Demand in the electronics, semiconductor and telecoms sector continued the growth trajectory that began in the second half of 2014, reflecting good acceptance of our new products and of the acquisitions made in late 2014 and early 2015 of distributors in South Korea and Taiwan, both of which have significantly enhanced our position with the major semiconductor manufacturers in these countries.

Segment outlook

We expect sales growth to continue in the second half within the pharmaceutical and electronics and semiconductor sectors. Demand from the metals, minerals and mining sector is expected to remain weak and to be primarily of an aftermarket sales nature. Sales to the academic research sector remain unpredictable as public sector budgets are likely to remain under pressure in many countries. The benefits of the prior-year cost reduction measures, coupled with sales growth, are expected to lead to further improvements in profitability in the second half.

TEST AND MEASUREMENT

Our Test and Measurement operating companies supply test, measurement and analysis equipment, software and services for product design optimisation, manufacturing control, microseismic monitoring and environmental noise monitoring. The operating companies in this segment are Brüel & Kjær Sound & Vibration, ESG Solutions and HBM.

Segment performance

	H1 2016	H1 2015	change	like-for-like change
Sales (£m)	170.1	164.2	4%	-4%
Adjusted operating profit (£m)	18.5	18.7	-1%	-9%
Adjusted return on sales (%)	10.9	11.4	-0.5pp	-0.7pp
% of Group sales	30	29
Aftermarket sales (%)	21	20

Reported sales increased by 4%, comprising a two percentage point contribution from acquisitions and a six percentage point positive impact from foreign currency exchange movements. Consequently, LFL sales declined by 4% in the period, primarily reflecting the difficult market conditions experienced by ESG Solutions in the North American unconventional oil and gas market. Adjusted operating profit was broadly unchanged at £18.5 million although LFL adjusted operating profit was down 9%, with the positive pricing and mix effects in our two largest operating companies in the segment being offset by the impact of negative operating leverage at ESG Solutions. Regionally, there was good sales growth in Asia, driven by China, with sales declines in all other regions.

There was good sales growth to machine manufacturers, a significant portion of which represented sales into the automotive supply chain, although direct sales to the automotive sector were flat in the period. There was good growth from the automotive sector in China and India, but the market in Europe, in particular in the UK and Germany, was weak.

Automotive customers are increasingly demanding the provision of an integrated solution, combining hardware, software and services, and in recent years we have been investing organically and via acquisitions to meet this growing demand. The most recent example of such investment is the acquisition of DISCOM Elektronische Systeme und Komponenten GmbH ('DISCOM'), a leading provider of automotive transmission sound and vibration test systems that are used at the end of production lines. DISCOM offers a fully integrated and web-enabled production test solution that will provide opportunities for cloud-based data analytics whilst leveraging our existing noise, vibration and harshness ('NVH') expertise. We have further bolstered our in-house developed know-how in this area with the acquisition of SoundAnswers Inc. in late 2015 and certain elements of the trade and assets of Sound & Vibration Technology Ltd. ('SVT') in July 2016. Demand for the NVH engineering services offered by both SoundAnswers Inc. and SVT has confirmed that there is opportunity to grow our solutions offering for automotive customers. In addition, engineering software solutions that focus on improving quality, reliability and durability continue to attract significant interest from customers. Following the acquisition of ReliaSoft in early 2015, we have now united it with our existing engineering software business under a single brand, Prenscia, which allows engineers to access all our engineering simulation software solutions via one licensing system.

Sales to the aerospace industry decreased. Following several years of strong growth in Asia, sales to this region fell in the period, despite growth in China and India. There were also lower sales to North American aerospace customers during the period, however sales to European customers increased.

Sales to our electronics and telecoms customers increased in the period; sales to this sector are lumpy, reflecting the scheduling of projects by customers, and the sales growth in the first half of 2016 followed declines in 2015. The underlying business trends in this sector remain healthy, however, as consumers increasingly demand enhanced audio quality from their electronic products, and we see good opportunities to provide additional testing and calibration services in this sector, thereby improving the resilience of our revenue stream.

Sales of our environmental noise monitoring services declined in the first half, primarily due to the non-repeat of a major contract secured in 2015 with the Italian government for exhaust monitoring in vehicle inspection centres. However, underlying market conditions for our environmental noise monitoring services business remain healthy.

Ongoing weakness in the unconventional oil and gas and mining markets led to difficult market conditions for our microseismic monitoring solutions business, particularly in North America. The business continues to develop opportunities in its international markets, and is making progress in this regard in Latin America and Australia, but its near-term focus is on cost control and cash management.

Segment outlook

We expect the automotive and aerospace and defence sectors to remain subdued in the second half, with growth focussed on engineering software and services. The consumer electronics market, which is prone to spikes in demand associated with the launch of new products, is expected to remain attractive, and we see good opportunities for our sound quality testing applications. The microseismic monitoring market is likely to remain challenging through the remainder of 2016, and additional cost reduction measures have therefore been taken. The medium-term growth drivers for this business remain positive given the need for unconventional oil and gas producers to make better use of technology and data analytics to improve productivity and profitability.

IN-LINE INSTRUMENTATION

In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls as well as associated consumables and services for both primary processing and the converting industries. The operating companies in this segment are Brüel & Kjær Vibro, BTG, NDC Technologies and Servomex.

Segment performance

	H1 2016	H1 2015	change	like-for-like change
Sales (£m)	118.7	120.5	-1%	-6%
Adjusted operating profit (£m)	10.9	13.8	-21%	-26%
Adjusted return on sales (%)	9.2	11.4	-2.2pp	-2.4pp
% of Group sales	20	21
Aftermarket sales (%)	46	44

Reported sales decreased by 1%, with a positive foreign currency exchange movement of five percentage points offset by a LFL sales decline of 6%. On a regional basis, sales grew in North America but declined in all other regions. The decline in LFL sales primarily reflected ongoing weakness in capital expenditure across many heavy process industries globally, such as hydrocarbon processing, chemicals, plastics, converting and graphic paper, though certain niche markets remained robust, such as emissions monitoring, healthcare, tissue and pulp, and wind energy. Adjusted operating profit margins for the period were down by 2.4 percentage points on a LFL basis, primarily as a consequence of negative operating leverage and adverse mix in our pulp and paper, industrial gases and web and converting businesses. Overheads remain tightly controlled given the challenging market backdrop faced by many of our operating companies and we continue to focus on opportunities to improve operating efficiency. For example, during the period we closed down one of our coating blade facilities, transferring production to another site.

LFL sales to the pulp and paper markets grew slightly, reflecting the continued good progress we are making diversifying away from our exposure to the graphic paper market, which is in structural decline. We increased sales to the tissue and pulp markets, and our innovation in new solutions is helping to soften the decline in sales to the graphic paper industry. In June, we completed the acquisition of Capstone Technology Corporation ('Capstone'), a leading provider of software solutions for process control optimisation and decision support. The combination of Capstone's software tools with our existing instruments business will enable us to provide market-leading solutions for process control and optimisation across our global pulp, tissue and packaging markets and into other process industries, and is in line with the Group's strategy to provide greater value to customers by offering a combination of hardware, software and services.

Sales to the energy and utilities market declined in the half year. Sales of condition monitoring solutions to the wind energy sector decreased, though this primarily reflected the strong prior year comparator and the project nature of this business as underlying market conditions remain attractive. We continue to secure retrofit contracts in the wind energy market, including multi-year service agreements. There continue to be delays or cancellations of large projects in the hydrocarbon processing sector, particularly in North America and the Middle East, although there is investment in China to improve environmental quality which is leading to increased demand in emissions monitoring systems. There are also good levels of interest for our Vibration Interface Module, a system that enables data and signals from any machine protection system to be processed, stored and analysed on a single condition monitoring system.

Sales to the web and converting industries declined slightly, primarily reflecting a lack of large projects in North America and Europe, with only the packaging and metals industries providing any respite from the significant reductions in capital expenditure being experienced across most process industries.

There was good sales growth to the North American healthcare market. Following the large amount of acquisition activity amongst this customer base last year, which led to many investment decisions being postponed, there is now renewed investment from this sector in our gas sensing technology. During the period, this technology received the Queen's Award for Enterprise for its commercial success and the innovation in the design and manufacture of its sensors for both medical and industrial applications.

Segment outlook

We expect growth in sales to the pulp, packaging and tissue market to continue in the second half, helping to offset the structural challenges in the graphic paper market. Demand from the wind energy sector is also expected to remain healthy. Elsewhere, capital investment in many of the process industries that we serve, such as hydrocarbon processing, chemicals, plastics and web and converting, is likely to remain subdued. In this environment we will continue to invest in innovative customer solutions that create greater value for our customers whilst tightly controlling overheads and accelerating our operational excellence initiatives.

INDUSTRIAL CONTROLS

Industrial Controls provides products and solutions that measure, monitor, control, inform, track and trace during the production process. The operating companies in this segment are Microscan, Omega Engineering ('Omega') and Red Lion Controls.

Segment performance

	H1 2016	H1 2015	change	like-for-like change
Sales (£m)	117.0	112.8	4%	-5%
Adjusted operating profit (£m)	18.5	20.3	-9%	-23%
Adjusted return on sales (%)	15.8	18.0	-2.2pp	-3.3pp
% of Group sales	20	20
Aftermarket sales (%)	1	1

Reported sales increased by 4%, with a favourable impact from foreign currency exchange movements of five percentage points and a four percentage point contribution from acquisitions partially offset by a LFL sales decline of 5%. The LFL sales decline primarily reflected continuing broad-based weakness in US industrial production; all three operating companies in this segment have a high exposure to North America, though our industrial networking business was particularly affected. Adjusted operating profit margins were down 3.3 percentage points on a LFL basis. This reflected negative operating leverage together with adverse sales mix, inventory adjustments and additional resource requirements at Omega which were required during the consolidation of two distribution centres on the US east coast and after the new ERP system revealed the need to enhance certain processes. Partially compensating these adverse impacts, overheads were tightly controlled and the segment benefitted from the £2 million profit realised on the sale of property at one of Omega's distribution centres.

With over 70% of this segment's sales being to customers in North America, the key driver of the LFL sales decrease was the ongoing weakness in US industrial production; indeed, during the period the US manufacturing Purchasing Managers' Index fell to its lowest level since September 2009. Outside of North America the segment performed well, notably in China where there is strong demand for factory automation solutions.

The internationalisation of Omega continues to deliver strong results, with Omega recording good sales growth in all major markets outside of the US. However, Omega still derives the majority of sales from the US and the weak US industrial environment offset the positive momentum in the non-US operations. Having established multiple non-US businesses and installed a common ERP system across the majority of its business, Omega is now focussed on improving the US sales performance by enhancing the customer experience and broadening the product offering, together with increasing profitability.

Whilst our industrial networking business suffered from challenging market conditions, particularly in its core North American market, we believe this primarily reflects short-term cyclical softness and continue to view industrial connectivity as a key strategic market for the Group as factories and facilities need to use industrial networking solutions to improve productivity and efficiency. Our recently established Industrial Internet of Things ('IIoT') Innovation Center in St Louis, USA, is progressing well and during the period we held a productive cross-operating company IIoT workshop to share ideas and expertise on this topic.

The acquisition in mid-2015 of Label Vision Systems ('LVS'), a US-based company whose technology enables companies to comply with US legislation on product identification to improve traceability throughout the manufacturing supply chain, has gone very well, with strong sales growth of LVS's products. There was also good sales growth in our core automatic identification and machine vision solutions business, particularly in China, and we have continued to enhance the features and functionality of the MicroHawk smart camera platform that was launched last year.

Segment outlook

Progress for this segment in the second half will be largely determined by the industrial demand environment in the US, though we expect to see continued good growth in Asia and from our machine vision business. In the coming years, the need for our customers to improve productivity and efficiency is expected to result in increased demand for factory automation and industrial networking products, particularly in China, where there is a drive to improve the return on previous capital investments.

FINANCIAL REVIEW

Introduction

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believes these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined in Note 2.

Reported sales in the first half increased by 3.2% from £563.2 million in 2015 to £581.4 million in 2016. The year-on-year contribution to sales from acquisitions was £9.6 million (+1.7%), and foreign currency exchange movements had a positive impact of £27.7 million (+4.9%). Consequently, on a like-for-like ('LFL') basis, sales decreased by 3.4% compared to the first half of 2015.

Reported gross margins were 0.9 percentage points lower than the prior-year period at 56.0% of sales. Excluding foreign exchange movements and acquisitions, LFL gross margins declined by 1.0 percentage points to 55.9%. The LFL decline primarily reflected lower sales volumes, an adverse sales mix and a reclassification of costs from net overheads to gross margin within the In-line Instrumentation segment, and higher direct labour costs and inventory adjustments within the Industrial Controls segment.

We continued to invest in our R&D programmes, with an R&D expense of £47.3 million or 8.1% of sales, a similar percentage to the first half of 2015.

The net benefit arising during the period from the targetted restructuring programmes undertaken in 2015 amounted to approximately £5.4 million. The annualised benefit for 2016 from these programmes is now anticipated to be approximately £10 million, an increase of £3 million on previous expectations. During the period, the Group also benefitted from net one-off items of approximately £5 million including a one-off profit of £2.0 million arising from the sale of a property in the UK within the Industrial Controls segment and the release of specific legal risk provisions.

Furthermore, we have taken actions across all of the businesses to manage costs so that cost growth is better aligned to sales growth, with a focus on operational excellence initiatives and cost control. Accordingly, as a result of the above factors, adjusted operating profit for the period increased by 2% from £67.4 million to £68.9 million. Acquisitions contributed £2.0 million (+3%) to adjusted operating profit, whilst foreign currency exchange movements had a favourable impact of £4.1 million (+6%), with the result that adjusted operating profit declined by 7% for the period. The adjusted operating margin decreased by 0.1 percentage points from 12.0% to 11.9%, and decreased by 0.5 percentage points to 11.5% on a LFL basis.

The Group has both translational and transactional currency exposures, with a proportion (up to 75%) of net transactional exposures for the next 12 months being hedged. Translational exposures are not hedged. During the period, the translational foreign exchange gain on operating profit of £4.1 million was offset by a transactional foreign exchange loss of £2.0 million.

Adjusted net finance costs decreased by £0.1 million from £2.5 million to £2.4 million, as average net debt levels were £60 million lower than the prior-year period, and there was a benefit from a reduction in the weighted average interest rate on debt following the re-financing of a fixed rate term loan in September 2015.

Adjusted profit before tax increased by 2% from £64.9 million to £66.5 million. Based on the forecast for the full year, the effective adjusted tax rate for the half year is estimated at 23.0%, in line with the prior-year period. The combined effect of the higher adjusted operating profit and lower adjusted net finance costs, offset by the higher tax charge, resulted in adjusted basic earnings per share increasing by 2% from 42.0 pence per share to 43.0 pence per share.

Adjusted operating cash flow of £92.4 million (H1 2015: £57.3 million) represents an adjusted operating cash conversion rate of 134% (H1 2015: 85%). This reflects working capital inflows as a result of the higher cash collection following a strong fourth quarter 2015 sales performance. Net debt increased by £4.9 million (H1 2015: increase of £23.1 million) from £98.6 million at 31 December 2015 to £103.5 million at 30 June 2016 impacted by the acquisitions of CAS Clean Air Service AG, Capstone Technology Corporation and Integrated Process Systems India, the payment of the 2015 final dividend, adverse foreign exchange and tax.

Principal Risks and Uncertainties

The Group has in place processes for identifying, evaluating and managing the key risks which could have an impact upon the Group's performance.

The current risks, together with a description of how they relate to the Group's strategy and the approach to managing them, are set out in the 2015 Annual Report which is available on the Group's website at www.spectris.com. The Group has reviewed these risks and concluded that they will continue to remain relevant for the second half of the financial year. The potential impact of these risks on our strategy and financial performance, together with details of our specific mitigation actions, are set out in the 2015 Annual Report.

They comprise:

- New product development

- Intellectual property

- Laws and regulations

- Political and economic risks

- Acquisitions

- Competitive activity

- Fluctuations in exchange rates

- Supply chain dependencies and disruption

- Information security

- Strategy execution

The Group continues to monitor and control its exposure to those countries where continuing economic uncertainties exist and, in particular, we are evaluating carefully the implications for the Group arising from the result of the recent UK referendum in which the public voted to leave the European Union ('Brexit'). The broad spread of markets in which we operate substantially limits the risk associated with instability in any given territory. As far as potential trading exposures are concerned, exports from the UK into the European Union represent less than 3% of Group sales, whilst imports into the UK from the European Union represent less than 1% of Group sales. Our cost base in the UK is largely Sterling denominated.

Similarly, in respect of potential currency and funding implications for the Group arising from Brexit, we do not see any significant level of exposure. With regard to currency, if Sterling remains weak, this would improve the Group's reported results (income statement and cash flow) and should make our UK exports more competitive, but conversely make imports and overseas supplies more expensive for our UK operations and customers. We believe that the net effect is expected to be broadly neutral to the Group. With regards to funding, the Group currently has limited borrowings and they are predominately Euro denominated.

As a consequence, we believe that Brexit presents only limited short-term direct impact for the Group. The main near-term risk for the Group arising from Brexit stems from broader uncertainty which could inhibit investment and increase market volatility, ultimately hindering growth in the UK and beyond. A Brexit Risk Committee has been established and the Group will continue to monitor carefully any additional exposure arising as the full implications of Brexit become clearer.

Clive Watson

Group Finance Director

Responsibility statement of the Directors in respect of the Interim report

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors of Spectris plc are as listed in the 2015 Annual Report and Accounts with the exception of Lisa Davis who retired as a Non-Executive Director after the Annual General Meeting on 20 May 2016.

By order of the Board

Dr John Hughes CBE

Chairman

28 July 2016

INDEPENDENT REVIEW REPORT TO SPECTRIS PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Richard Broadbelt

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London

E14 5GL

28 July 2016

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2016

		2016	2015	2015
		Half year	Half year	Full year
	Note	£m	£m	£m
Continuing operations

Revenue	3	581.4	563.2	1,190.0
Cost of sales		(255.5)	(243.0)	(506.9)
Gross profit		325.9	320.2	683.1

Indirect production and engineering expenses		(51.7)	(49.7)	(98.6)
Sales and marketing expenses		(148.0)	(140.8)	(274.4)
Administrative expenses		(79.6)	(80.3)	(166.5)
Operating profit before acquisition-related items		68.9	67.4	181.1

Net acquisition-related costs and fair value adjustments	2	(5.7)	(1.4)	(2.9)
Amortisation and impairment of acquisition-related intangible assets	2	(16.6)	(16.6)	(34.6)
Operating profit	2,3	46.6	49.4	143.6

Financial income	4	0.2	2.8	3.3
Finance costs	4	(5.8)	(3.0)	(5.3)
Profit before tax		41.0	49.2	141.6

Taxation - UK	5	(1.6)	(1.1)	(1.3)
Taxation - Overseas	5	(8.4)	(7.7)	(26.5)
Profit after tax for the period from continuing operations attributable to owners of the Parent Company		31.0	40.4	113.8

Basic earnings per share (pence)	7	26.0p	33.9p	95.6p
Diluted earnings per share (pence)	7	26.0p	33.9p	95.4p

Interim dividends paid and final dividends proposed for the period (per share)	6	18.0p	17.3p	49.5p
Dividends paid during the period (per share)	6	32.2p	30.5p	47.8p

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. Reconciliations showing how the adjusted performance measures are derived from those reported under adopted IFRS are set out in Note 2.

CONDENSED Consolidated statement OF COMPREHENSIVE INCOME

For the six months ended 30 June 2016

	2016	2015	2015
	Half year	Half year	Full year
	£m	£m	£m
Profit for the period attributable to owners of the Parent Company	31.0	40.4	113.8
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit liability, net of foreign exchange	(14.1)	(5.5)	(7.9)
Tax on items above	3.5	1.3	1.7
	(10.6)	(4.2)	(6.2)
Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net (loss)/gain on effective portion of changes in fair value of forward exchange contracts	(4.3)	2.7	0.1
Foreign exchange movements on translation of overseas operations	94.7	(36.2)	(1.9)
Tax on items above	1.0	(0.5)	-
	91.4	(34.0)	(1.8)
Total comprehensive income for the period attributable to owners of the Parent Company	111.8	2.2	105.8

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2016

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2016	6.2	231.4	694.9	33.0	(2.9)	3.1	0.3	966.0
Profit for the period	-	-	31.0	-	-	-	-	31.0
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	(3.3)	-	-	(3.3)
Foreign exchange movements on translation of overseas operations	-	-	-	94.7	-	-	-	94.7
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	(10.6)	-	-	-	-	(10.6)
Total comprehensive income for the period	-	-	20.4	94.7	(3.3)	-	-	111.8
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(38.4)	-	-	-	-	(38.4)
Share-based payments, net of tax	-	-	1.4	-	-	-	-	1.4
Share options exercised from own shares (treasury) purchased	-	-	0.2	-	-	-	-	0.2
Balance at 30 June 2016	6.2	231.4	678.5	127.7	(6.2)	3.1	0.3	1,041.0

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
For the six months ended 30 June 2015	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2015	6.2	231.4	643.1	34.9	(3.0)	3.1	0.3	916.0
Profit for the year	-	-	40.4	-	-	-	-	40.4
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	2.2	-	-	2.2
Foreign exchange movements on translation of overseas operations	-	-	-	(36.2)	-	-	-	(36.2)
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	(4.2)	-	-	-	-	(4.2)
Total comprehensive income for the period	-	-	36.2	(36.2)	2.2	-	-	2.2
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(36.3)	-	-	-	-	(36.3)
Share-based payments, net of tax	-	-	2.1	-	-	-	-	2.1
Share options exercised from own shares (treasury) purchased	-	-	0.2	-	-	-	-	0.2
Balance at 30 June 2015	6.2	231.4	645.3	(1.3)	(0.8)	3.1	0.3	884.2

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
For the year ended 31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2015	6.2	231.4	643.1	34.9	(3.0)	3.1	0.3	916.0
Profit for the year	-	-	113.8	-	-	-	-	113.8
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax	-	-	-	-	0.1	-	-	0.1
Foreign exchange movements on translation of overseas operations	-	-	-	(1.9)	-	-	-	(1.9)
Re-measurement of net defined benefit liability, net of foreign exchange and tax	-	-	(6.2)	-	-	-	-	(6.2)
Total comprehensive income for the period	-	-	107.6	(1.9)	0.1	-	-	105.8
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(56.9)	-	-	-	-	(56.9)
Share-based payments, net of tax	-	-	0.8	-	-	-	-	0.8
Share options exercised from own shares (treasury) purchased	-	-	0.3	-	-	-	-	0.3
Balance at 31 December 2015	6.2	231.4	694.9	33.0	(2.9)	3.1	0.3	966.0

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2016

	2016	2015	2015
	Half year	Half year	Full year
	£m	£m	£m
ASSETS
Non-current assets
Intangible assets:
Goodwill	660.3	563.8	584.9
Other intangible assets	217.8	203.5	201.7
	878.1	767.3	786.6
Property, plant and equipment	174.5	157.6	160.8
Deferred tax assets	17.2	18.3	17.2
	1,069.8	943.2	964.6
Current assets
Inventories	203.6	183.0	182.5
Taxation recoverable	0.7	0.8	0.7
Trade and other receivables	239.3	215.3	253.1
Derivative financial instruments	-	2.6	-
Cash and cash equivalents	72.9	32.4	58.2
	516.5	434.1	494.5
Total assets	1,586.3	1,377.3	1,459.1
LIABILITIES
Current liabilities
Short-term borrowings	(2.0)	(77.9)	(1.7)
Derivative financial instruments	(5.3)	-	(0.4)
Trade and other payables	(215.6)	(186.2)	(206.6)
Current tax liabilities	(29.3)	(29.9)	(27.5)
Provisions	(19.3)	(15.6)	(22.2)
	(271.5)	(309.6)	(258.4)
Net current assets	245.0	124.5	236.1
Non-current liabilities
Medium- and long-term borrowings	(174.4)	(103.2)	(155.1)
Other payables	(19.5)	(20.4)	(16.6)
Retirement benefit obligations	(41.6)	(19.9)	(22.1)
Deferred tax liabilities	(38.3)	(40.0)	(40.9)
	(273.8)	(183.5)	(234.7)
Total liabilities	(545.3)	(493.1)	(493.1)
Net assets	1,041.0	884.2	966.0
EQUITY
Share capital	6.2	6.2	6.2
Share premium	231.4	231.4	231.4
Retained earnings	678.5	645.3	694.9
Translation reserve	127.7	(1.3)	33.0
Hedging reserve	(6.2)	(0.8)	(2.9)
Merger reserve	3.1	3.1	3.1
Capital redemption reserve	0.3	0.3	0.3
Total equity attributable to equity holders of the Parent Company	1,041.0	884.2	966.0
Total equity and liabilities	1,586.3	1,377.3	1,459.1

CONDENSED Consolidated statement OF cash flowS

For the six months ended 30 June 2016

		2016	2015	2015
		Half year	Half year	Full year
	Note	£m	£m	£m
Cash flows from operating activities
Profit after tax		31.0	40.4	113.8
Adjustments for:
Taxation	5	10.0	8.8	27.8
Finance costs	4	5.8	3.0	5.3
Financial income	4	(0.2)	(2.8)	(3.3)
Depreciation		10.3	9.7	19.6
Amortisation and impairment of intangible assets		19.3	18.9	39.4
Acquisition-related fair value adjustments		3.5	-	(0.1)
(Profit)/loss on sale of property, plant and equipment		(1.9)	-	0.2
Equity-settled share-based payment transactions		1.4	2.6	0.7
Operating cash flow before changes in working capital and provisions		79.2	80.6	203.4
Decrease/(increase) in trade and other receivables		36.5	12.5	(17.1)
Increase in inventories		(2.0)	(14.6)	(7.6)
(Decrease)/increase in trade and other payables		(14.1)	(9.1)	3.5
(Decrease)/increase in provisions and employee benefits		(4.8)	(2.1)	4.7
Net income taxes paid		(14.7)	(14.4)	(33.5)
Net cash flows generated from operating activities		80.1	52.9	153.4
Cash flows from investing activities
Purchase of property, plant and equipment and software		(10.5)	(11.9)	(26.0)
Proceeds from sale of property, plant and equipment and software		5.0	0.2	0.9
Acquisition of businesses, net of cash acquired	10	(24.2)	(30.4)	(40.1)
Interest received		0.2	0.2	0.2
Net cash flows used in investing activities		(29.5)	(41.9)	(65.0)
Cash flows from financing activities
Interest paid		(2.0)	(2.4)	(4.7)
Dividends paid		(38.4)	(36.3)	(56.9)
Proceeds from exercise of share options (treasury shares)		0.2	0.2	0.3
Proceeds from borrowings		-	19.3	85.0
Repayment of borrowings		-	-	(85.5)
Net cash flows used in financing activities		(40.2)	(19.2)	(61.8)

Net increase/(decrease) in cash and cash equivalents		10.4	(8.2)	26.6
Cash and cash equivalents at beginning of period		56.5	32.3	32.3
Effect of foreign exchange rate changes		4.0	(2.4)	(2.4)
Cash and cash equivalents at end of period		70.9	21.7	56.5

		2016	2015	2015
		Half year	Half year	Full year
Reconciliation of changes in cash and cash equivalents to movements in net debt		£m	£m	£m
Net increase/(decrease) in cash and cash equivalents		10.4	(8.2)	26.6
Proceeds from borrowings		-	(19.3)	(85.0)
Repayment of borrowings		-	-	85.5
Effect of foreign exchange rate changes		(15.3)	4.4	(0.1)
Movement in net debt		(4.9)	(23.1)	27.0
Net debt at start of period		(98.6)	(125.6)	(125.6)
Net debt at end of period		(103.5)	(148.7)	(98.6)

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Basis of Preparation and Principal Accounting Policies

a) Basis of accounting

The Condensed Consolidated Interim Financial Statements of the Company for the six months ended 30 June 2016 comprise the Company and its subsidiaries, together referred to as the 'Group'. These Condensed Consolidated Interim Financial Statements are presented in millions of Sterling rounded to the nearest one decimal place. The Consolidated Financial Statements of the Group for the year ended 31 December 2015 are available upon request from the Company's registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the Company's website at www.spectris.com.

These Condensed Consolidated Interim Financial Statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the Consolidated Financial Statements of the Group for the year ended 31 December 2015.

The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2016 are unaudited, but have been subject to an independent review by the auditor. They do not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2015 are derived from the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The Report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The Group's financial risk management objectives and policies are consistent with those disclosed in the Consolidated Financial Statements for the year ended 31 December 2015.

These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 28 July 2016.

b) Going concern

Having made enquiries and reviewed the Group's plans and available financial facilities, the Board of Directors has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements. There are no key sensitivities identified in relation to this conclusion.

c) Seasonality of operations

As in prior years, the Group's revenue and operating profits are expected to be weighted towards the second half of the year.

d) Significant accounting judgements and estimates

The preparation of Interim Financial Statements in conformity with IFRS as adopted by the European Union ('adopted IFRS') requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 31 December 2015.

The Directors have considered the facts and circumstances as at 30 June 2016 and concluded that there are no indicators of impairments that require an impairment review to be undertaken on goodwill. The annual impairment review will be undertaken later in 2016 consistent with the timing in previous years.

e) Principal accounting policies

The accounting policies applied by the Group in these Condensed Consolidated Interim Financial Statements are the same as those applied by the Group in its Consolidated Financial Statements for the year ended 31 December 2015.

2. Adjusted Performance Measures

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined as amortisation and impairment of acquisition-related intangible assets, acquisition-related costs and contingent consideration fair value adjustments, acquisition-related fair value adjustments, profits or losses on termination or disposal of businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan balances, unwinding of the discount factor on deferred and contingent consideration, related tax effects and other tax items which do not form part of the underlying tax rate.

The adjusted performance measures are derived from the reported figures under adopted IFRS as follows:

	2016	2015	2015
	Half year	Half year	Full year
Adjusted operating profit	£m	£m	£m
Operating profit as reported under adopted IFRS	46.6	49.4	143.6
Net acquisition-related costs and fair value adjustments	5.7	1.4	2.9
Amortisation and impairment of acquisition-related intangible assets	16.6	16.6	34.6
Adjusted operating profit	68.9	67.4	181.1

					2016
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment - June 2016	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	16.2	12.0	9.4	9.0	46.6
Net acquisition-related costs and fair value adjustments	0.4	1.4	0.2	3.7	5.7
Amortisation and impairment of acquisition-related intangible assets	4.4	5.1	1.3	5.8	16.6
Adjusted operating profit	21.0	18.5	10.9	18.5	68.9

					2015
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment - June 2015	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	9.7	12.9	12.5	14.3	49.4
Net acquisition-related costs and fair value adjustments	0.3	0.5	0.1	0.5	1.4
Amortisation of acquisition-related intangible assets	4.6	5.3	1.2	5.5	16.6
Adjusted operating profit	14.6	18.7	13.8	20.3	67.4

					2015
	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
Adjusted operating profit by segment - December 2015	£m	£m	£m	£m	£m
Operating profit as reported under adopted IFRS	42.6	43.6	34.2	23.2	143.6
Net acquisition-related costs and fair value adjustments	0.2	1.5	0.1	1.1	2.9
Amortisation and impairment of acquisition-related intangible assets	10.9	10.2	2.5	11.0	34.6
Adjusted operating profit	53.7	55.3	36.8	35.3	181.1

Net acquisition-related costs and fair value adjustments comprises of acquisition costs of £2.2m (30 June 2015: £1.0m; 31 December 2015: £3.0m) that have been recognised in the Condensed Consolidated Income Statement under IFRS 3 (Revised) 'Business Combinations', fair value adjustments to inventory of £nil (30 June 2015: £0.4m; 31 December 2015: £0.7m) and other fair value adjustments of £3.5m (30 June 2015: £nil; 31 December 2015: credit £0.8m). Net acquisition-related costs and fair value adjustments are included within administrative expenses. Acquisition-related costs have been excluded from the adjusted operating profit and acquisition costs paid of £3.1m (30 June 2015: £1.7m; 31 December 2015: £3.9m) have been excluded from the adjusted operating cash flow.

					2016
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Return on sales by segment - June 2016	%	%	%	%	%
Using operating profit as reported under adopted IFRS	9.2	7.1	7.9	7.7	8.0
Using adjusted operating profit	11.9	10.9	9.2	15.8	11.9

					2015
	Materials	Test and	In-line	Industrial	Half year
	Analysis	Measurement	Instrumentation	Controls	Total
Return on sales by segment - June 2015	%	%	%	%	%
Using operating profit as reported under adopted IFRS	5.9	7.9	10.4	12.7	8.8
Using adjusted operating profit	8.8	11.4	11.4	18.0	12.0

					2015
	Materials	Test and	In-line	Industrial	Full year
	Analysis	Measurement	Instrumentation	Controls	Total
Return on sales by segment - December 2015	%	%	%	%	%
Using operating profit as reported under adopted IFRS	11.7	12.4	13.4	10.6	12.1
Using adjusted operating profit	14.7	15.8	14.4	16.1	15.2

	2016	2015	2015
	Half year	Half year	Full year
Reconciliation to adjusted profit before tax and adjusted operating profit	£m	£m	£m
Profit before tax as reported under adopted IFRS	41.0	49.2	141.6
Add/(deduct):
Net acquisition-related costs and fair value adjustments	5.7	1.4	2.9
Amortisation and impairment of acquisition-related intangible assets	16.6	16.6	34.6
Net loss/(gain) on retranslation of short-term inter-company loan balances	3.2	(2.6)	(3.0)
Unwinding of discount factor on deferred and contingent consideration	-	0.3	0.2
Adjusted profit before tax	66.5	64.9	176.3
Adjusted net finance costs (see below)	2.4	2.5	4.8
Adjusted operating profit	68.9	67.4	181.1

	2016	2015	2015
	Half year	Half year	Full year
Adjusted net finance costs	£m	£m	£m
Net interest costs as reported under adopted IFRS	(5.6)	(0.2)	(2.0)
Net loss/(gain) on retranslation of short-term inter-company loan balances	3.2	(2.6)	(3.0)
Unwinding of discount factor on deferred and contingent consideration	-	0.3	0.2
Adjusted net finance costs	(2.4)	(2.5)	(4.8)

	2016	2015	2015
	Half year	Half year	Full year
Adjusted operating cash flow	£m	£m	£m
Net cash flows generated from operating activities under adopted IFRS	80.1	52.9	153.4
Acquisition-related costs paid	3.1	1.7	3.9
Net income taxes paid	14.7	14.4	33.5
Purchase of property, plant and equipment and software	(10.5)	(11.9)	(26.0)
Proceeds from sale of property, plant and equipment	5.0	0.2	0.9
Adjusted operating cash flow	92.4	57.3	165.7

Adjusted operating profit	68.9	67.4	181.1
Adjusted operating cash conversion	134%	85%	91%

	2016	2015	2015
	Half year	Half year	Full year
Adjusted earnings per share	£m	£m	£m
Profit after tax as reported under adopted IFRS	31.0	40.4	113.8
Adjusted for:
Net acquisition-related costs and fair value adjustments	5.7	1.4	2.9
Amortisation and impairment of acquisition-related intangible assets	16.6	16.6	34.6
Net loss/(gain) on retranslation of short-term inter-company loan balances	3.2	(2.6)	(3.0)
Unwinding of discount factor on deferred and contingent consideration	-	0.3	0.2
Tax effect of the above and other non-recurring items	(5.3)	(6.1)	(12.4)
Adjusted earnings	51.2	50.0	136.1

Weighted average number of shares outstanding (millions)		119.1	119.0	119.0
Adjusted earnings per share (pence)		43.0	42.0	114.3

	2016	2015	2015
	Half year	Half year	Full year
Adjusted diluted earnings per share (pence)	£m	£m	£m
Diluted weighted average number of shares outstanding (millions)	119.3	119.3	119.3
Adjusted diluted earnings per share (pence)	42.9	41.9	114.1

Basic and diluted earnings per share in accordance with IAS 33 'Earnings Per Share' are disclosed in note 7.

	2016	2015	2015
	Half year	Half year	Full year
Analysis of net debt for management purposes	£m	£m	£m
Bank overdrafts	2.0	10.7	1.7
Bank loans - unsecured	174.4	170.4	155.1
Total borrowings	176.4	181.1	156.8
Cash balances	(72.9)	(32.4)	(58.2)
Net debt	103.5	148.7	98.6

3. Operating Segments

The Group has four reportable segments, as described below, which are the Group's strategic business units. These units offer different applications, assist companies at various stages of the production cycle and are focussed towards specific industries. These segments reflect the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance. The segment results include an allocation of head office expenses. The following summary describes the operations in each of the Group's reportable segments:

· Materials Analysis provides products and services that enable customers to determine structure, composition, quantity and quality of particles and materials during their research and product development processes, when assessing materials before production, or during the manufacturing process. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems.

· Test and Measurement supplies test, measurement and analysis equipment, software and services for product design optimisation, manufacturing control, microseismic monitoring and environmental noise monitoring. The operating companies in this segment are Brüel & Kjær Sound & Vibration, ESG Solutions and HBM.

· In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls as well as associated consumables and services for both primary processing and the converting industries. The operating companies in this segment are Brüel & Kjær Vibro, BTG, NDC Technologies and Servomex.

· Industrial Controls provides products and solutions that measure, monitor, control, inform, track and trace during the production process. The operating companies in this segment are Microscan, Omega Engineering and Red Lion Controls.

					2016
	Materials	Test and	In-line	Industrial	Total
	Analysis	Measurement	Instrumentation	Controls	Half year
Information about reportable segments	£m	£m	£m	£m	£m
Segment revenue	175.6	170.2	118.7	117.2	581.7
Inter-segment revenue	-	(0.1)	-	(0.2)	(0.3)
External revenue	175.6	170.1	118.7	117.0	581.4

Reportable segment profit for continuing operations	21.0	18.5	10.9	18.5	68.9
Net acquisition-related costs and fair value adjustments	(0.4)	(1.4)	(0.2)	(3.7)	(5.7)
Amortisation and impairment of acquisition-related intangible assets	(4.4)	(5.1)	(1.3)	(5.8)	(16.6)
Operating profit	16.2	12.0	9.4	9.0	46.6
Financial income*					0.2
Finance costs*					(5.8)
Profit before tax					41.0
Tax*					(10.0)
Profit after tax					31.0

					2015
	Materials	Test and	In-line	Industrial	Total
	Analysis	Measurement	Instrumentation	Controls	Half year
	£m	£m	£m	£m	£m
Segment revenue	165.4	164.3	120.5	112.9	563.1
Inter-segment revenue	0.3	(0.1)	-	(0.1)	0.1
External revenue	165.7	164.2	120.5	112.8	563.2

Reportable segment profit for continuing operations	14.6	18.7	13.8	20.3	67.4
Net acquisition-related costs and fair value adjustments	(0.3)	(0.5)	(0.1)	(0.5)	(1.4)
Amortisation of acquisition-related intangible assets	(4.6)	(5.3)	(1.2)	(5.5)	(16.6)
Operating profit	9.7	12.9	12.5	14.3	49.4
Financial income*					2.8
Finance costs*					(3.0)
Profit before tax					49.2
Tax*					(8.8)
Profit after tax					40.4

					2015
	Materials	Test and	In-line	Industrial	Total
	Analysis	Measurement	Instrumentation	Controls	Full year
	£m	£m	£m	£m	£m
Segment revenue	363.7	351.5	255.0	219.6	1,189.8
Inter-segment revenue	0.7	(0.2)	-	(0.3)	0.2
External revenue	364.4	351.3	255.0	219.3	1,190.0

Reportable segment profit for continuing operations	53.7	55.3	36.8	35.3	181.1
Net acquisition-related costs and fair value adjustments	(0.2)	(1.5)	(0.1)	(1.1)	(2.9)
Amortisation and impairment of acquisition-related intangible assets	(10.9)	(10.2)	(2.5)	(11.0)	(34.6)
Operating profit	42.6	43.6	34.2	23.2	143.6
Financial income*					3.3
Finance costs*					(5.3)
Profit before tax					141.6
Tax*					(27.8)
Profit after tax					113.8

* Not allocated to reportable segments.

Reportable segment profit is consistent with that presented to the Chief Operating Decision Maker. Inter-segment revenue reflects the movements in internal cash flow hedges with inter-segment pricing on an arm's length basis.

	Carrying amount of segment assets			Carrying amount of segment liabilities
	2016	2015	2015	2016	2015	2015
	Half year	Half year	Full year	Half year	Half year	Full year
	£m	£m	£m	£m	£m	£m
Materials Analysis	375.4	340.0	355.5	(97.9)	(85.0)	(93.6)
Test and Measurement	404.1	362.6	378.9	(89.5)	(80.9)	(85.8)
In-line Instrumentation	250.7	209.5	218.4	(42.3)	(35.4)	(41.5)
Industrial Controls	465.3	411.1	430.2	(24.7)	(20.9)	(24.5)
Total segment assets and liabilities	1,495.5	1,323.2	1,383.0	(254.4)	(222.2)	(245.4)
Cash and borrowings	72.9	32.4	58.2	(176.4)	(181.1)	(156.8)
Derivative financial instruments	-	2.6	-	(5.3)	-	(0.4)
Retirement benefit liabilities	-	-	-	(41.6)	(19.9)	(22.1)
Taxation	17.9	19.1	17.9	(67.6)	(69.9)	(68.4)
Consolidated total assets and liabilities	1,586.3	1,377.3	1,459.1	(545.3)	(493.1)	(493.1)

Segment assets comprise: goodwill, other intangible assets, property, plant and equipment, inventories, trade and other receivables. Segment liabilities comprise: trade and other payables, provisions and other payables, which can be reasonably attributed to the reportable operating segments. Unallocated items represent current and deferred taxation balances, defined benefit scheme assets and liabilities, derivative financial instruments and all components of net debt.

Geographical segments

The Group's operating segments are each located in several geographical locations and sell to external customers in all parts of the world.

No individual country amounts to more than 3% of revenue by location to customer, other than those noted below.

The following is an analysis of revenue by geographical destination:

	2016	2015	2015
	Half year	Half year	Full year
	£m	£m	£m
UK	19.9	21.0	44.8
Germany	51.6	50.3	105.8
France	19.3	18.5	38.8
Rest of Europe	83.4	83.4	172.0
USA	186.2	176.8	373.6
Rest of North America	20.4	21.8	42.7
Japan	31.5	25.5	58.3
China	76.9	70.6	153.8
South Korea	15.5	16.7	33.8
Rest of Asia	48.2	45.9	100.6
Rest of the World	28.5	32.7	65.8
	581.4	563.2	1,190.0

4. Financial Income and Finance Costs

	2016	2015	2015
	Half year	Half year	Full year
Financial income	£m	£m	£m
Interest receivable	0.2	0.2	0.3
Net gains on retranslation of short-term inter-company loan balances	-	2.6	3.0
	0.2	2.8	3.3

	2016	2015	2015
	Half year	Half year	Full year
Finance costs	£m	£m	£m
Interest payable on loans and overdrafts	2.4	2.6	4.9
Unwinding of discount factor on deferred and contingent consideration	-	0.3	0.2
Net losses on retranslation of short-term inter-company loan balances	3.2	-	-
Net interest cost on pension scheme liabilities	0.2	0.1	0.1
Other finance costs	-	-	0.1
	5.8	3.0	5.3

Net interest costs of £2.2m (30 June 2015: £2.4m; 31 December 2015: £4.6m) for the purposes of the calculation of interest cover comprise bank interest receivable of £0.2m (30 June 2015: £0.2m; 31 December 2015: £0.3m), and interest payable on loans and overdrafts of £2.4m (30 June 2015: £2.6m; 31 December 2015: £4.9m).

5. Tax on Profit on Ordinary Activities

The income tax charge for the six months to 30 June 2016 is based on an estimate of the effective rate of taxation for the current year. The effective rate of taxation applied to adjusted profit before tax for the period is 23.0% (30 June 2015: 23.0%; year ended 31 December 2015: 22.8%). A reconciliation of the tax charge on adjusted profit to the actual tax charge is presented below.

	2016	2015	2015
	Half year	Half year	Full year
	£m	£m	£m
The income tax charge is analysed as follows:
Tax charge on adjusted profit before tax at effective rate	15.3	14.9	40.2
Tax credit on amortisation and impairment of acquisition-related intangible assets	(5.3)	(5.6)	(11.2)
Tax credit on acquisition-related costs and fair value adjustments	(0.3)	(0.2)	(0.6)
Tax charge/(credit) on retranslation of short-term inter-company loan balances	0.3	(0.3)	(0.5)
Tax credit on unwinding of discount on deferred consideration	-	-	(0.1)
Total	10.0	8.8	27.8

6. Dividends

The final 2015 dividend of 32.2p per share (2014 final dividend: 30.5p) was paid on 24 June 2016 to ordinary shareholders on the register at the close of business on 27 May 2016.

The interim 2016 dividend of 18.0p per share (2015 interim dividend: 17.3p) will be payable on 11 November 2016 to ordinary shareholders on the register at the close of business on 14 October 2016.

The estimated interim dividend to be paid is £21.4m and has not been recognised in these accounts.

7. Earnings per Share

Earnings per share and diluted earnings per share are calculated as follows:

	2016	2015	2015
Basic earnings per share	Half year	Half year	Full year
Profit after tax (£m)	31.0	40.4	113.8
Weighted average number of shares outstanding (millions)	119.1	119.0	119.0
Basic earnings per share (pence)	26.0	33.9	95.6

Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period (excluding treasury shares).

	2016	2015	2015
Diluted earnings per share	Half year	Half year	Full year
Profit after tax (£m)	31.0	40.4	113.8
Basic weighted average number of shares outstanding (millions)	119.1	119.0	119.0
Weighted average number of dilutive 5p ordinary shares under option (millions)	0.3	0.5	0.6
Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions)	(0.1)	(0.2)	(0.3)
Diluted weighted average number of shares outstanding (millions)	119.3	119.3	119.3
Diluted earnings per share (pence)	26.0	33.9	95.4

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 period but adjusted for the effects of dilutive options.

8. Financial Instruments

			2016
			Half year
	Level 2	Level 3	Carrying
	fair value	fair value	amount
Fair value and carrying amount of financial instruments	£m	£m	£m
Trade and other receivables excluding prepayments and accrued income	-	-	217.8
Trade and other payables excluding deferred income	-	(7.7)	(196.8)
Cash and cash equivalents	-	-	72.9
Floating rate borrowings	-	-	(2.0)
Fixed rate borrowings	(186.0)	-	(174.4)
Forward exchange contracts	(5.3)	-	(5.3)
			(87.8)

			2015
			Half year
	Level 2	Level 3	Carrying
	Fair value	Fair value	amount
Fair value and carrying amount of financial instruments	£m	£m	£m
Trade and other receivables excluding prepayments and accrued income	-	-	198.0
Trade and other payables excluding deferred income	-	(11.9)	(174.7)
Cash and cash equivalents	-	-	32.4
Floating rate borrowings	-	-	(65.9)
Fixed rate borrowings	(123.3)	-	(115.2)
Forward exchange contracts	2.6	-	2.6
			(122.8)

			2015
			Full year
	Level 2	Level 3	Carrying
	Fair value	Fair value	amount
Fair value and carrying amount of financial instruments	£m	£m	£m
Trade and other receivables excluding prepayments and accrued income	-	-	235.3
Trade and other payables excluding deferred income	-	(7.0)	(191.4)
Cash and cash equivalents	-	-	58.2
Floating rate borrowings	-	-	(1.7)
Fixed rate borrowings	(162.6)	-	(155.1)
Forward exchange contracts	(0.4)	-	(0.4)
			(55.1)

		2016
		Half year
	Deferred and contingent	Level 3
	consideration	fair value
Reconciliation of level 3 fair values	£m	£m
At 1 January 2016	(7.0)	(7.0)
Deferred and contingent consideration arising from acquisitions	(0.2)	(0.2)
Deferred and contingent consideration paid	0.4	0.4
Foreign exchange difference	(0.9)	(0.9)
	(7.7)	(7.7)

		2015
		Half year
	Deferred and contingent	Level 3
	consideration	fair value
Reconciliation of level 3 fair values	£m	£m
At 1 January 2015	(12.2)	(12.2)
Deferred and contingent consideration arising from acquisitions	(0.4)	(0.4)
Unwinding of discount factor on deferred and contingent consideration (unrealised)	(0.3)	(0.3)
Deferred and contingent consideration paid	0.3	0.3
Foreign exchange difference	0.7	0.7
	(11.9)	(11.9)

		2015
		Full year
	Deferred and contingent	Level 3
	consideration	fair value
Reconciliation of level 3 fair values	£m	£m
At 1 January 2015	(12.2)	(12.2)
Deferred and contingent consideration arising from acquisitions	(3.0)	(3.0)
Unwinding of discount factor on deferred and contingent consideration (unrealised)	(0.2)	(0.2)
Deferred and contingent consideration paid	0.5	0.5
Adjustment to provisional values in the measurement period	7.1	7.1
Adjustments outside of the measurement period	0.8	0.8
	(7.0)	(7.0)

During the period, £nil (30 June 2015: £0.3m, 31 December 2015: £0.2m) was charged to the Condensed Consolidated Income Statement and £0.9m (30 June 2015: £0.7m credit, 31 December 2015: £nil) was charged directly to equity in respect of the level 3 financial instruments.

There is no difference in the valuation techniques used or the fair value hierarchy under IFRS 7 'Financial Instruments: Disclosures' from that disclosed in the consolidated financial statements for the year ended 31 December 2015.

The above tables show the fair value measurement of financial instruments by level following the fair value hierarchy:

§ Level 1- quoted prices (unadjusted) in active markets for identical assets and liabilities; and

§ Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

§ Level 3 - inputs for the assets and liabilities that are not based on observable market data (i.e. unobservable inputs).

There were no movements between the fair value hierarchy in the period.

The fair value of cash and cash equivalents, receivables and payables approximates to the carrying amount because of the short maturity of these instruments.

The fair value of floating rate borrowings approximates to the carrying amount because interest rates are at floating rates where payments are reset to market rates at intervals of less than one year.

The fair value of fixed rate borrowings are estimated by discounting the future contracted cash flow, using appropriate yield curves, to the net present values.

The fair value of forward exchange contracts and the cross-currency interest rate swaps are determined using discounted cash flow techniques based on readily available market data.

9. Treasury Shares

At 30 June 2016, the Group held 5,846,739 treasury shares (30 June 2015: 5,968,471; 31 December 2015: 5,898,908). During the period 52,169 of these shares were issued to satisfy options exercised by employees which were granted under the Group's share schemes (30 June 2015: 86,364; 31 December 2015: 155,927). No shares were repurchased by the Group during the period (30 June 2015: nil; 31 December 2015: nil) and no shares were cancelled during the period (30 June 2015: nil; 31 December 2015: nil).

10. Acquisitions

On 23 February 2016, the Group acquired 100% of the share capital of CAS Clean Air Service AG ('CAS'), a company based in Switzerland, for a total consideration of £12.0m (£10.4m net of cash acquired), including a £0.4m working capital payable. This extends the Group's capabilities in monitoring and calibration services within the life sciences market. The excess of the fair value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets: contractual rights, customer-related (customer relations), technology, trade name and goodwill of £0.6m, £2.4m, £0.1m, £0.3m and £4.9m respectively. The goodwill arising is attributable to the acquired workforce and synergies from leveraging the customer base to optimise the sales potential of CAS and Spectris products. Goodwill includes an amount of £0.3m representing the requirement to recognise a net deferred liability on the fair value adjustments. The business is being integrated into the Material Analysis segment.

On 7 June 2016, the Group acquired the trade and certain assets of Integrated Process Systems ('IPS') India, an Indian agent, for a total consideration of £0.9m including £0.2m deferred consideration. The excess of the fair value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets: customer-related (customer relations) and goodwill of £0.5m and £0.5m respectively. The goodwill arising is attributable to opportunities that will be generated from direct access to the Indian market and benefits arising from improving the productivity of the combined sales and support channels. The business is being integrated into the Test and Measurement segment.

On 17 June 2016, the Group acquired 100% of the share capital of Capstone Technology Corporation, a company based in the USA, for a total consideration of £14.6m (£14.5m net of cash acquired). The company is a provider of software solutions for process control optimisation and decision support, serving multiple industries such as pulp and paper, chemical, utilities, oil and gas and food and beverage. The excess of the fair value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets: customer-related (customer relations), technology, contractual rights and goodwill of £1.9m, £7.2m, £0.4m and £9.4m respectively. The goodwill arising is considered to represent the value of the acquired workforce, broadening of the Group's solution offerings in the pulp and paper market and leveraging of the existing Spectris customer base. Goodwill includes an amount of £3.6m representing the requirement to recognise a net deferred tax liability on the fair value adjustments. The business is being integrated into the In-line Instrumentation segment.

The revenue and operating profit contribution from the acquisitions above to the Group's results for the period were £2.4m and £0.1m, respectively. Group revenue and operating profit would have been £585.7m and £46.6m (adjusted operating profit: £69.9m), respectively, had each of these acquisitions taken place on the first day of the financial year.

The assets and liabilities acquired during the period, together with the aggregate purchase consideration, are summarised below. The fair values disclosed are provisional, reflecting the timing of the acquisition, and will be finalised within 12 months of the acquisition date.

	Book value	Adjustments	2016 Half year Fair value
Net assets acquired	£m	£m	£m
Intangible fixed assets	-	13.4	13.4
Tangible fixed assets	2.4	1.7	4.1
Inventories	0.8	(0.8)	-
Trade and other receivables	3.1	(0.2)	2.9
Trade and other payables	(2.6)	(0.2)	(2.8)
Retirement benefit obligations	-	(2.3)	(2.3)
Current tax	(0.4)	-	(0.4)
Deferred tax liabilities	-	(3.9)	(3.9)
Cash	1.7	-	1.7
Net assets acquired	5.0	7.7	12.7
Goodwill			14.8
Total consideration in respect of 2016 acquisitions			27.5

Total consideration			27.5
Adjustment for cash acquired			(1.7)
Net consideration in respect of 2016 acquisitions			25.8

Analysis of cash outflow in Consolidated Statement of Cash Flows
Total consideration in respect of 2016 acquisitions			27.5
Adjustment for net cash acquired on 2016 acquisitions			(1.7)
Deferred and contingent consideration on 2016 acquisitions to be paid in future years			(0.2)
Working capital adjustment payable			(0.4)
Cash paid in 2016 in respect of 2016 acquisitions			25.2

Acquisitions prior to 2016
Purchase price adjustment relating to prior year acquisitions			(1.4)
Deferred and contingent consideration in relation to prior years' acquisitions:
Accrued at 31 December 2015			0.4
Cash paid in 2016 in respect of prior years' acquisitions			(1.0)
Net cash outflow relating to acquisitions for the period			24.2

During 2015, the Group acquired the following businesses:

· On 22 January 2015, the Group acquired 100% of the share capital of ReliaSoft Corporation, a company based in the USA, which extends the Group's presence in engineering application software.

· On 2 March 2015, the Group acquired the trade and certain assets of Sunway Scientific Corporation, a Taiwanese distributor, increasing opportunities, as a result of direct access, in the Taiwanese market and improving productivity of the combined sales and support channels.

· On 24 August 2015, the Group acquired the trade and certain assets of Label Vision Systems, a US business, which extended the Group's product offering within the track, trace and control business.

· On 13 October 2015, the Group acquired 96% of the share capital of Spectraseis AG, a company based in Switzerland with operations in the USA and Canada, which extends the Group's capabilities in surface-based microseismic sensing equipment for hydraulic fracturing monitoring and induced seismicity monitoring.

· On 18 November 2015, the Group acquired 100% of the share capital of Sound Answers Inc., a company based in the USA, which extends the Group's product offering to the automotive market and expands the Group's consulting and design services.

Full details of these acquisitions are included in the Consolidated Financial Statements for the year ended
31 December 2015.

11. Related Parties

Key management personnel are defined for the purpose of IAS 24 'Related Party Disclosures' as the Executive Directors and members of the Executive Management Team. It is the Executive Directors and members of the Executive Management Team who have responsibility for planning, directing and controlling the activities of the Group. The latest details of Directors' remuneration are included in the Directors' Remuneration Report in the 2015 Annual Reports and Accounts, which is available upon request from the Company's registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, and on the Company's website at www.spectris.com.

12. Post Balance Sheet Events

On 1 July 2016, the Group acquired the trade and certain assets of Sound & Vibration Technology Limited ('SVT'), a UK business, for an initial consideration of £0.3m with an earnout based on future performance.

This extends the Group's engineering services capabilities and offering of integrated solutions, primarily for the automotive market. The business is being integrated into the Test and Measurement segment.

On 26 July 2016, the Group acquired 100% of the share capital of DISCOM Elektronische Systeme und Komponenten GmbH ('DISCOM'), a company based in Germany, for an initial consideration of £13.3m with an earnout based on future performance. The company is a leading provider of acoustical and vibration quality analysis, predominantly for powertrain production-line testing within the automotive industry. The business is being integrated into the Test and Measurement segment.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR PGUBPMUPQGRM

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Spectris (SXS)

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