Interim Results
Spectris PLC
09 September 2002
Date: Embargoed until 7.00am, Monday 9 September 2002
Contact: Hans Nilsson, Chief Executive Tel: 020 7269 7291(am)
Spectris plc Tel: 01784 470470
Richard Mountain
Financial Dynamics Tel: 020 7269 7291
SPECTRIS plc
2002 INTERIM RESULTS
Spectris plc, the precision instrumentation and controls company, announces its
interim results for the six months to 29 June 2002.
£m H1 2002 H1 2001
Sales 223.2 276.9
Operating Profit* 18.5 31.2
Profit before Tax* 14.2 25.1
Earnings per share* 9.3p 15.1p
Dividend 3.9p 3.75p
*before exceptional items and goodwill amortisation
2001 figures have been restated following adoption of FRS 19
Highlights:
• Respectable second quarter after weak first quarter
• Management actions:
• Efficiency programmes delivering substantial savings
• Gross margins maintained
• Presence enhanced in developing manufacturing economies
• Strong cash generation - 90% conversion of operating profit
• Acquisition of Philips Analytical will provide immediate
earnings-enhancing contribution
• Dividend increased by 4%
Commenting on the results, Hans Nilsson, Chief Executive, said:
'We delivered a respectable second quarter after a weak first quarter as demand
improved. Our focus on customers, together with continued emphasis on
operational efficiencies, combined with the benefits from the Philips Analytical
acquisition, provide a sound platform for the second half and beyond.'
Chairman's statement
As anticipated in statements earlier in the year, the performance of the company
in the first half fell short of that in the same period of the previous year. A
weak first quarter was followed by a respectable, though hardly ebullient,
second quarter as the soft industrial demand of the previous nine months showed
signs of recovery.
Sales in existing businesses on a like for like basis were down 14% at £219.1m
(£255.3m). Profit before tax and goodwill amortisation, excluding profits and
losses on sale of businesses, fell by 29% from £23.2m in the previous year to
£16.5m. Cash generation was characteristically strong and 90% of operating
profit was converted into cash. Earnings per share were 9.3p (15.1p). Operating
exceptional items of £2.3m represent the release of excess fair value provisions
and compensation received from the settlement of the patent infringement case
for which an exceptional charge was taken in the 2001 accounts.
The board proposes to pay an interim dividend of 3.9p. The dividend will be paid
on 15 November to shareholders on the register on 18 October 2002.
Disappointing though these results are, shareholders will be aware of the
unpredictable conditions prevailing in the world's economies which has resulted
in a lack of confidence industrially and anaemic demand for products such as
those supplied by Spectris. In these circumstances the management challenge is
the maintenance of marketing and technology investments at a time when trading
results are under pressure. Management has been vigorous in eliminating cost
while seeking to strengthen market positions against less favourably positioned
competitors.
Shortly after the first half, the company announced that it had agreed to
acquire the analytical instrumentation business from Royal Philips Electronics -
to be renamed PANalytical - for €150 million, subject to a share placing and
regulatory requirements. The share placing raised £40.2m, with the balance
financed from existing resources. Good progress has been made towards completion
of the transaction which is expected in the current month.
One change to the board also occurred shortly after the end of the first half
year. James Otter, who had been a Business Group Director responsible for
several of our European companies, resigned from the Board on 9 July.
Much external attention has been directed of late to issues surrounding pension
schemes and share options. In the case of Spectris, both have been the subject
of full disclosure in notes to the Accounts, but more direct comments may be
helpful to shareholders.
The company has two UK defined benefit pension schemes. Both are closed to new
entrants, the larger scheme with effect from 1996 and the other, inherited with
Servomex, in 1999. The FRS17 accounting standard was adopted early and fully
applied in 2001, resulting in a modest surplus of assets (£63.0m) over
liabilities (£62.2m) beneficially affecting the company's results. The fall in
financial markets in 2002 is unlikely to have changed this position
substantially, particularly as a significant proportion of the schemes' assets
is invested in bonds. The level of the company's forward contributions, which
have, in the case of the main fund, been low historically, may need to increase.
However, the funds are quite small relative to the company's market
capitalisation and any increase in contributions will have a negligible impact
on the company's performance.
The company's policy on share options for some time has been, with only minor
exceptions, to authorise market purchase of shares, equivalent in quantity to
those over which options have been granted, by a trust specifically created for
the purpose. The financing cost is borne by the company. Consequently, option
exercises do not require the issue of dilutive new shares nor any further charge
on profits. Options outstanding amount to less than 3% of the shares in issue.
Outlook
Looking to the future, it seems that industrial confidence remains fragile.
However, provided that a degree of stability prevails in the wider economy, we
expect trading in the remainder of the year to follow its historical seasonal
pattern. Our expectations for both the existing Spectris companies and
PANalytical therefore remain unchanged.
Chief Executive's review
Although demand in most of the businesses was poor in the first quarter,
improvements were seen in the second quarter. Activity levels in terms of leads,
prospects and quotations increased. However, customer confidence appears to
have improved only slightly and larger investments continue to be deferred. The
management actions taken to focus on operational efficiency, whilst continuing
to support our customers both in terms of coverage and new products, served us
well. These efforts have continued and were paramount in delivering a
respectable second quarter which will provide a sound platform for the second
half and beyond.
The company's exposure to a broad range of markets and customers continued to
prove beneficial. As no sector accounts for more than 15% of sales, the impact
of difficult trading conditions in any one sector is limited. Demand in the
first half varied greatly, with pharmaceuticals and pulp and paper showing solid
growth but semiconductors and telecoms continuing to be very weak.
Geographically there was no significant change, with sales in China strong,
whereas in North America, Japan and Europe conditions improved only gradually
during the period.
New product and application expenditure has been maintained and sales coverage
has been improved in developing manufacturing economies such as China. Headcount
in the first half has been reduced by a further 2% across the businesses,
excluding China, where it increased due to the continuing transfer of HBM's
volume production activities from Germany.
Sector performance
As indicated last year, the operating businesses are now organised into three
new sectors. These are: electronic controls, in-line instrumentation and process
technology. A list of the individual companies comprising each sector is given
in Note 3.
Electronic controls
Demand improved as the period progressed, with the result that sales declined
only slightly from £58.6m to £57.0m compared with the equivalent period in the
prior year. Operating profit fell from £6.8m to £5.6m. All four operating
businesses introduced new products during the period. The commencement of the
next phase of HBM's manufacturing facility in China will complete the transfer
of high volume, but also highly-skilled, manufacturing activities from Germany.
In-line instrumentation
In-line instrumentation faced difficult markets. Sales were down from £95.6m to
£87.2m with operating profit down from £11.2m to £8.8m. The single most
important factor was significantly weaker demand for Beta LaserMike's products
from manufacturers of telecommunications cable compared with the prior year.
However, the impact was mitigated in part by cost reduction measures and the
maintaining of gross margins. BTG performed particularly well with solid gains
in the pulp and paper industry. Demand in the other business units improved
gradually as the first half progressed. Sales initiatives to align resources to
best match opportunities will further improve positions.
Process technology
The decline in the telecommunications equipment and semiconductor industries
continued to affect this sector, with sales down from £101.1m to £74.9m and
operating profit down from £11.4m to £4.4m. Cost control measures in the sector
included headcount reductions of 12% compared with a year ago. A positive factor
was the growing demand in the pharmaceutical industry for products from Malvern
Instruments and Particle Measuring Systems, supported by the launch of new
products and applications aimed at this sector. Bruel & Kjaer Sound & Vibration
and Fusion UV Systems introduced new versions of existing products, providing
all the benefits of the technology but designed for specific applications.
Performance improvements at the Bruel & Kjaer Sound & Vibration business are
progressing satisfactorily.
Other operations
Disposal of Fairey Industrial Ceramics and the BTG coating systems product line
was completed during the first half of the year. Luxtron is still to be sold.
Acquisition of Philips Analytical
On 17 July, the company announced that it had agreed terms to acquire Philips
Analytical, the analytical business of Royal Philips Electronics, for €150
million. The business is to be renamed PANalytical. PANalytical is a world
leader in analytical x-ray systems, utilising both x-ray diffraction (XRD) and
x-ray fluorescence (XRF) technologies. PANalytical employs 850 staff in sales,
service and technical support operations around the world and had sales in 2001
of €148.5 million, earnings before interest and tax of €18.4 million and was
cash generative. The acquisition is in line with the Spectris strategy to
focus on niche businesses with good growth prospects and market-leading
positions, supplying high margin products developed using proprietary
technology, and is a logical addition to the existing Spectris instrumentation
businesses. Completion of the transaction is expected during September.
Management focus
Management continues to focus on operational improvements, in particular to
enhance sales coverage in developing manufacturing economies. Planning for the
integration of the PANalytical business is progressing well. This acquisition
will increase the average size of our companies, a factor which is key to
increasing sales coverage. Our businesses are typically market leaders and
continued investment in new product development and product line acquisitions
will further enhance our competitive advantage. Margin improvement is a priority
and operational gearing will serve us well when demand improves.
- ENDS -
A table of results is attached.
The company will broadcast the meeting with analysts in London in a live Webcast
commencing at 09:30 AM on the company's website at www.spectris.com.
Copies of this notice are available to the public from the registered office:
Station Road, Egham, Surrey TW20 9NP and on the company's website at
www.spectris.com
Group Results
For the half year to 29 June 2002
2002 2001 2001
Notes Half year Half year Full year
(restated) (restated)
£m £m £m
Turnover
Existing businesses 219.1 255.3 509.6
Operations disposed or to be disposed 4.1 21.6 33.5
______ ______ ______
Continuing operations 3 223.2 276.9 543.1
______ ______ ______
Operating profit before goodwill amortisation
and exceptional items
Existing businesses 18.8 29.4 57.7
Operations disposed or to be disposed (0.3) 1.8 3.0
______ ______ ______
Continuing operations 3 18.5 31.2 60.7
Goodwill amortisation (3.7) (2.9) (6.1)
Operating exceptional items 4 2.3 (1.9) (13.2)
______ ______ ______
Operating profit 17.1 26.4 41.4
(Loss)/profit on sale of business 5 (1.1) 20.7 19.8
______ ______ ______
Profit before interest and taxation 16.0 47.1 61.2
Net interest payable (4.3) (6.1) (10.3)
______ ______ ______
Profit before taxation 11.7 41.0 50.9
Taxation on operating profit 6 (4.0) (8.6) (16.4)
Exceptional taxation (charge)/credit 6 - (3.8) 4.1
______ ______ ______
Profit after taxation 7.7 28.6 38.6
Dividends (4.7) (4.1) (13.3)
______ ______ ______
Retained profit 3.0 24.5 25.3
Average number of shares in issue (millions) 109.3 109.5 109.4
Earnings per ordinary share 7 7.0p 26.1p 35.3p
Diluted earnings per share 7 7.0p 25.8p 35.0p
Earnings per share before goodwill amortisation 7 9.3p 15.1p 31.1p
and exceptional items
Dividends per ordinary share 3.9p 3.75p 12.25p
______ ______ ______
Operating profit before goodwill amortisation 18.5 31.2 60.7
and exceptional items, continuing operations
Net interest payable (4.3) (6.1) (10.3)
______ ______ ______
Profit before taxation and before goodwill 14.2 25.1 50.4
amortisation and exceptional items
______ ______ ______
Balance Sheet Summary
2002 2001 2001
29 June 30 June 31 December
(restated) (restated)
£m £m £m
Intangible assets 139.4 109.7 136.6
Tangible fixed assets 84.4 81.0 83.2
Fixed asset investments 14.8 11.4 13.8
Working capital 97.9 102.3 89.1
Taxation (17.4) (22.0) (12.3)
Dividends payable (4.7) (4.1) (9.2)
Provisions (36.3) (17.7) (39.2)
Net pension assets 0.9 - 0.9
_______ _______ _______
279.0 260.6 262.9
Net borrowing (135.9) (139.9) (131.5)
_______ _______ _______
Net assets 143.1 120.7 131.4
_______ _______ _______
Share capital 5.6 5.6 5.6
Reserves 137.5 115.1 125.8
_______ _______ _______
Equity shareholders' funds 143.1 120.7 131.4
_______ _______ _______
Reconciliation of movements in shareholders' funds
Retained profit 3.0 24.5 25.3
Foreign exchange adjustments 6.4 (3.9) 1.6
New share capital subscribed 2.0 0.1 0.4
Actuarial revaluation of pension funds - - (4.2)
Goodwill realised 0.3 - -
_______ _______ _______
Net increase 11.7 20.7 23.1
Opening shareholders' funds (originally £111.5m for half
year 2001 and £119.8 for year to 31 December 2001,
before adjusted for the effects of FRS 19) 131.4 100.0 108.3
_______ _______ _______
Closing shareholders' funds 143.1 120.7 131.4
_______ _______ _______
Cash Flow Summary
2002 2001 2001
Half year Half year Full year
(restated) (restated)
£m £m £m
Cash inflow from operating activities 12.5 15.8 58.0
Net capital expenditure * (5.8) (13.1) (28.4)
Net interest paid (4.0) (6.1) (11.4)
Tax recovered/(paid) 0.2 (8.6) (12.8)
_______ _______ _______
Free cash flow 2.9 (12.0) 5.4
Dividends paid (9.3) (8.9) (11.5)
Share issues 2.0 0.1 0.4
Purchase of fixed asset investments (1.0) (2.4) (4.3)
Purchase of subsidiaries - (3.0) (5.5)
Sale of subsidiaries 2.0 42.8 36.6
Exchange adjustment (1.0) (3.0) 0.9
_______ _______ _______
Movement in net debt in the period (4.4) 13.6 22.0
Net debt at the beginning of the period (131.5) (153.5) (153.5)
_______ _______ _______
Net debt at the end of the period (135.9) (139.9) (131.5)
_______ _______ _______
Reconciliation of operating profit to cash inflow from operating activities
Operating profit 16.9 26.2 41.4
Adjustment to pension costs 0.2 0.2 0.5
Depreciation 5.8 6.7 13.6
Goodwill amortisation 3.7 2.9 6.1
(Profit)/loss on sale of tangible fixed assets (0.7) - 0.4
Increase in working capital (6.6) (14.8) (10.2)
(Utilisation)/increase in provisions (6.8) (5.4) 6.2
_______ _______ _______
Cash inflow from operating activities ** 12.5 15.8 58.0
_______ _______ _______
* Including abnormal capital expenditure of 2.0 9.2 11.2
** Including exceptional cash outflows of 7.8 5.4 9.9
Notes to the Accounts
1. Principal accounting policies and basis of preparation
The interim report has been prepared on the basis of the accounting policies set
out in the Group's 2001 statutory accounts and approved by the Board on 9
September 2002. This report does not constitute statutory accounts for the
company. The interim figures for 29 June 2002 and 30 June 2001 are unaudited.
The results for 2001 are not the statutory accounts but an abridged version of
the full accounts which have received an unqualified report by the auditors and
have been filed with the Registrar of Companies. The interim figures for 30 June
2001 and the full year results for 2001 have been restated taking into
consideration the effects of FRS 19, Deferred Taxation.
2. Adoption of FRS 19, Deferred taxation
Deferred taxation is now stated on a full liability basis in accordance with FRS
19 and comparative data has been restated accordingly. The impact on the profit
and loss account for the six months to 30 June 2001 is to decrease the profit
after taxation by £1.1 million and for the year ended 31 December 2001 to
decrease the profit after taxation by £2.7 million. As a result of the increase
in the deferred tax charge, shareholders' funds at 30 June 2001 have been
reduced by £12.6 million and at 31 December 2001 by £14.2 million.
3. Segmental analysis
a) Analysis by class of business
2002 2001 2001
Half year Half year Full year
£m £m £m
Turnover
Electronic controls 57.0 58.6 119.8
In-line instrumentation 87.2 95.6 193.8
Process technology 74.9 101.1 196.0
_______ _______ _______
Existing businesses 219.1 255.3 509.6
Operations disposed or to be disposed 4.1 21.6 33.5
_______ _______ _______
Total continuing operations 223.2 276.9 543.1
_______ _______ _______
Operating profit
Electronic controls 5.6 6.8 13.7
In-line instrumentation 8.8 11.2 21.1
Process technology 4.4 11.4 22.9
_______ _______ _______
Existing businesses 18.8 29.4 57.7
Operations disposed or to be disposed (0.3) 1.8 3.0
_______ _______ _______
Total continuing operations 18.5 31.2 60.7
Goodwill amortisation (3.7) (2.9) (6.1)
Operating exceptional items 2.3 (1.9) (13.2)
_______ _______ _______
Operating profit 17.1 26.4 41.4
_______ _______ _______
As of 1 January 2002, the reporting sectors changed. The operating businesses
are now grouped as follows:
Electronic controls: Arcom Control Systems, HBM, Microscan, Red Lion Controls
In-line instrumentation: Beta LaserMike, Bruel & Kjaer Vibro, BTG, Ircon, Loma
Systems, NDC Infrared Engineering, Servomex
Process technology: Bruel & Kjaer Sound & Vibration, Fusion UV Systems, Malvern
Instruments, Particle Measuring Systems.
b) Analysis of turnover by geographical destination
2002 2001 2001
Half year Half year Full year
£m £m £m
Turnover
UK 13.6 19.8 36.3
Continental Europe 80.7 90.8 190.3
North America 74.3 86.0 172.1
Japan 14.2 18.2 36.8
China 10.6 n/a 26.1
Rest of Asia Pacific 17.5 31.6 30.2
Rest of the world 8.2 8.9 17.9
Discontinued 4.1 21.6 33.4
_______ _______ _______
Total 223.2 276.9 543.1
4. Operating exceptional items
The operating exceptional items comprise the release of excess fair value
provisions and compensation receivable from the settlement of a patent
infringement case.
5. Loss on disposal of businesses
A shortfall to net assets of £0.8m arose following the disposal of Fairey
Industrial Ceramics Limited and the BTG coating systems product line. Goodwill
of £0.3m was realised on the disposal of Fairey Industrial Ceramics Limited.
6. Tax on profit on ordinary activities
The taxation charge for the six months to 29 June 2002 is based on an estimate
of the effective rate of taxation for the current year (excluding exceptional
items and goodwill amortisation) of 28%. The tax charge for the year 2001 has
been restated taking into consideration the effects of FRS 19, deferred
taxation. The restated effective rate of tax for the year to 31 December 2001 is
32.5% (effective rate prior to restatement for the year 31 December 2001 was
27.1%).
The tax charge/(credit) is analysed as follows:
2002 2001
(restated)
£m £m
UK - 0.7
Overseas 4.0 7.9
4.0 8.6
Tax credit on operating exceptional items - (0.2)
Tax charge on sale of businesses - 4.0
4.0 12.4
7. Earnings per share
Earnings Earnings per share
2002 2001 2002 2001
Half year Half year Half year Half year
(restated) (restated)
£m £m pence pence
Basic earnings and earnings per share 7.7 28.6 7.0 26.1
Basic earnings and earnings per share attributable to:
Operating exceptional items (2.3) 1.9 (2.0) 1.7
Goodwill amortisation 3.7 2.9 3.3 2.7
Loss/(profit) on sale of businesses 1.1 (20.7) 1.0 (18.9)
Tax credit on operating exceptional items - (0.2) - (0.2)
Tax charge on profit on sale of business - 4.0 - 3.7
Earnings and earnings per share 10.2 16.5 9.3 15.1
The weighted average number of 5p ordinary shares in issue during the period was
109.3 million (2001: 109.5 million).
The figures for the half year 2001 have been restated taking into consideration
the effects of FRS 19, deferred taxation.
The calculation of diluted earnings per share is based upon the group profit of
£7.7 million and on the diluted weighted average number of shares in issue
during the period of 109.8 million.
8. Interim report
Copies of the interim report, which will be posted to shareholders on 12
September, may be obtained from the registered office at Station Road, Egham,
Surrey TW20 9NP. The interim report will also be available on the company's
website at www.spectris.com.
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