TIDMSXS
RNS Number : 9514L
Spectris PLC
25 July 2017
2017 HALF YEAR RESULTS
25 July 2017 - Spectris plc (SXS: LSE), the
productivity-enhancing instrumentation and controls company,
announces half year results for the six months ended 30 June
2017.
Change Like-for-like
Adjusted* H1 2017 H1 2016 Change at CER* change*
Reported sales, GBPm 710.0 581.4 22% 10% 5%
------------------------------ -------- --------- ------- --------- --------------
Adjusted operating profit
excluding Project Uplift
costs, GBPm 75.3 69.4 8% -1% -3%
Project Uplift net cost,
GBPm (8.8) (0.5)
------------------------------ -------- --------- ------- --------- --------------
Adjusted operating profit,
GBPm 66.5 68.9 -4% -13% -15%
Adjusted profit before tax,
GBPm 63.8 66.5 -4%
Adjusted earnings per share,
pence 42.3p 43.0p -2%
Adjusted return on sales,
% 9.4% 11.9% -2.5pp
Dividend, pence 19.0p 18.0p 6%
Reported
Reported sales, GBPm 710.0 581.4 22%
Reported operating profit,
GBPm 42.1 46.6 -10%
Reported profit before tax,
GBPm 37.6 41.0 -8%
Basic earnings per share,
pence 26.8p 26.0p 3%
Reported return on sales,
% 5.9% 8.0% -2.1pp
* Adjusted performance measures ('APMs') are used consistently throughout
this press release and are referred to as 'adjusted', 'constant exchange
rate' or
'like-for-like'. These are defined in full and reconciled to the
IFRS statutory measures in Note 2.
Highlights
-- Sales of GBP710.0 million, reflecting 5% organic sales growth
and a 5% contribution from acquisitions
-- Adjusted operating profit of GBP75.3 million excluding
Project Uplift costs, a 3% LFL decrease year-on-year
-- Project Uplift costs of GBP8.8 million; Phase 1 activities on
track for expected benefits; shared service centre feasibility
study completed and moving to the next phase
-- Robust adjusted operating cash conversion of 119%
-- Dividend per share increased by 6%
Commenting on the results, John O'Higgins, Chief Executive,
said: "We are pleased to have delivered
5% organic sales growth in the first half of the year, albeit
against a weak prior year comparator.
We continue to focus on customer solutions, in particular the
growth opportunities from the
Malvern PANalytical merger and within the automotive sector, and
building on the acquisitions and capital investments we have made
over the past 12 months in services and software. Our activities
under
Project Uplift are making good progress; we are moving into the
next phase of the shared service centre project and are on track to
deliver the projected benefits for the year. Whilst we will
continue to make further targeted strategic investments to support
our growth ambitions in the second half, overall, our expectations
for the full year remain unchanged."
Contacts:
Spectris plc
John O'Higgins, Chief Executive +44 1784 470 470
Clive Watson, Group Finance Director +44 1784 470 470
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 8:30am BST today at the
offices of FTI Consulting. 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 9,000
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 increased by 22% in the first half to GBP710.0
million (H1 2016: GBP581.4 million). This reflected a
5% increase on an organic constant currency (like-for-like,
'LFL') basis, a 5% contribution from acquisitions and a beneficial
impact of 12% from foreign currency exchange movements.
Regionally, LFL sales to North America increased by 1%, the
first time that this region has shown growth since 2014. LFL sales
grew strongly in Asia, benefiting from growth of 6% and 11% in
China and Japan, respectively.
In Europe, there was a particularly strong contribution from
Germany where LFL sales growth was 11%.
Sales by geography LFL sales change Sales by segment LFL sales change
-------------------- ----------------- ------------------------ -----------------
North America 1% Materials Analysis 3%
-------------------- ----------------- ------------------------ -----------------
Europe 6% Test and Measurement 5%
-------------------- ----------------- ------------------------ -----------------
Asia 10% In-line Instrumentation 11%
-------------------- ----------------- ------------------------ -----------------
Rest of the World 0% Industrial Controls 5%
-------------------- ----------------- ------------------------ -----------------
LFL sales increased across all four segments, with particularly
strong growth in In-line Instrumentation against a weak comparator,
with all key end markets in this segment returning to growth after
the global slowdown in many heavy process industries in 2016.
Reported operating profit declined by 10% to GBP42.1 million and
adjusted operating profit decreased by 4% to GBP66.5 million (H1
2016: GBP68.9 million). Adjusted operating profit includes a net
cost of GBP8.8 million in relation to Project Uplift (H1 2016:
GBP0.5 million). Excluding the Project Uplift costs, adjusted
operating profit increased by 8% to GBP75.3 million and adjusted
operating margins were 10.6%. On a LFL basis, adjusted operating
profit, excluding the Project Uplift costs, decreased by 3%. This
reflected the impact of the higher sales volumes, offset by
overhead cost increases and the performance in In-line
Instrumentation which posted a 21% LFL decline in adjusted
operating profit on its 11% LFL sales growth. This was due to a
number of factors, including adverse mix and variances, and
restructuring activity.
The Group's results reflect restructuring costs of GBP3.8
million, primarily at Omega Engineering and
NDC Technologies, which together with the benefits arising from
restructuring undertaken in 2016 resulted in an incremental net
cost in 2017 of GBP1.9 million. There was also a net benefit from
an insurance settlement of GBP2.9 million (H1 2016: GBP5.0 million
benefit).
Financial position and dividend
Adjusted operating cash flow was strong, with 119% of adjusted
operating profit being converted into cash. Capex in the period was
GBP24.4 million and the Group is on track for its GBP70 million
capex programme for the full year. Cash outflows in respect of
dividends, tax, interest and acquisitions resulted in net debt
increasing by GBP4.6 million since 2016 year end to GBP155.5
million, around 0.7x the 12-month trailing EBITDA of
GBP228.4 million.
The Board has declared an interim dividend of 19.0 pence per
share, an increase of 6% over the same period last year (H1 2016:
18.0 pence per share). This is consistent with our policy of making
progressive dividend payments based upon affordability and
sustainability. The dividend is covered 2.2 times by adjusted basic
earnings per share. The dividend will be paid on 10 November 2017
to shareholders on the register at the close of business on 13
October. The ex-dividend date is 12 October.
Strategic progress
Our business is evolving in support of our strategy, from being
a supplier of products towards the provision of complete solutions
(a combination of hardware, software and services) to our
customers, based on our deep application and technical expertise.
During the year, we continued to transition along this path with a
number of strategic initiatives to ensure we are aligning our
customer offering to their evolving requirements. Our customer
proposition has been enhanced by the contribution from the service
and software acquisitions made over the past 12 months and by our
key account management approach.
Since the start of the year, we have made two bolt-on
acquisitions that further enhance and expand our capabilities. In
May, Brüel & Kjær Vibro acquired the US-based Setpoint, a
leading provider of vibration and condition monitoring solutions to
process industries, primarily the oil and gas and power generation
sectors. Its technology enables customers to improve machinery
availability, productivity and reliability by delivering accurate
condition information and expands our presence in the condition
monitoring market.
In July, Millbrook acquired the CSA Leyland Technical Centre in
Lancashire, UK. This facility provides test services to the
commercial vehicle, automotive and off-highway sectors and its
offering is complementary to Millbrook's activities, allowing the
company to broaden its service offering and customer base. The
acquisition is consistent with Millbrook's strategy to expand its
capacity and capabilities in powertrain, safety and vehicle
testing.
Within our Materials Analysis and Test and Measurement segments,
our customer proposition is being enhanced by the more
collaborative approach we are deploying to extend and complement
our sales into key accounts. At Malvern PANalytical, the recently
merged entity, work is underway to combine the sales and marketing
effort to leverage our key relationships and provide value-add
customer solutions. We have already had a number of successes on
this front by cross-selling our products. The automotive market is
also a key focus for us and a Test and Measurement Business
Solutions Director has recently been appointed whose responsibility
is to coordinate our engagement with key automotive customers and
orchestrate the joint provision of products and services from
Millbrook, HBM and Brüel & Kjær Sound & Vibration.
Within our In-line Instrumentation and Industrial Controls
segments, there are numerous opportunities within the industrial
networking space for the sensing, connectivity and software and
service capability that our businesses have. Combined with our
in-depth understanding of our customers' automation and networking
requirements, we are well positioned to benefit from the increasing
demand here and, during the period, we have had a number of wins
with customers on this front.
The Project Uplift programme is integral to our strategy and we
have made good progress on our activities in the first half of the
year and are on track to deliver in 2017 the expected benefits of
GBP6 million at a one-off cost of GBP20 million for the original
programme. In the first phase, our activities are focused on IT,
procurement and footprint. We have created an IT Shared Service
Organisation and negotiated improved contract terms with certain IT
vendors, taking advantage of the Group's scale. Similarly, in the
procurement workstream, we have also negotiated a number of
contracts for the provision of certain group-wide services and
products on improved terms. For the next phase of Project Uplift,
we have established a number of cross-operating company teams to
develop business process excellence and share best practice in
R&D and sales and marketing to further increase our efficiency
and effectiveness. In addition, we have completed the feasibility
study for the shared service centre project and are now moving into
the detailed design and implementation planning phase to affirm the
potential benefits and costs. This next phase of activities is
already well underway and we expect to provide guidance on the
potential benefits and costs at the 2017 full year results.
Board composition
Dr John Hughes retired as Chairman after the Annual General
Meeting in May. The Board notes with sadness his recent passing
after a short illness. John made a significant contribution to the
Group's overall development and progress during his time in office,
for which the Board is deeply grateful.
Mark Williamson was appointed to the Board as Non-executive
Chairman with effect from the close of the AGM on 26 May and Karim
Bitar was appointed as a Non-executive Director with effect from 1
July.
Summary and outlook
We are pleased to have delivered 5% organic sales growth in the
first half of the year, albeit against a weak prior year
comparator. We continue to focus on customer solutions, in
particular the growth opportunities from the Malvern PANalytical
merger and within the automotive sector, and building on the
acquisitions and capital investments we have made over the past 12
months in services and software. Our activities under
Project Uplift are making good progress; we are moving into the
next phase of the shared service centre project and are on track to
deliver the projected benefits for the year. Whilst we will
continue to make further targeted strategic investments to support
our growth ambitions in the second half, overall, our expectations
for the full year remain unchanged.
OPERATING REVIEW
Materials Test and In-line Industrial
Analysis Measurement Instrumentation Controls Total
------------- ------------------ ------------------- --------------------- ------------------- ------------------
H1 H1 H1 H1
2017 H1 2016 2017 H1 2016 2017 H1 2016 2017 H1 2016 H1 2017 H1 2016
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Reported
sales
(GBPm) 199.5 175.6 223.2 170.1 148.4 118.7 138.9 117.0 710.0 581.4
LFL growth
(%) 3% - 5% -4% 11% -6% 5% -5% 5% -3%
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Adjusted
operating
profit
excl.
Project
Uplift
costs
(GBPm) 22.9 21.2 23.4 18.6 8.9 11.0 20.1 18.6 75.3 69.4
LFL
operating
profit
change
excl.
Project
Uplift cost
(%) 2% 37% 3% -8% -21% -26% -5% -22% -3% -6%
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Project
Uplift net
cost
(GBPm) (2.4) (0.2) (3.0) (0.1) (1.5) (0.1) (1.9) (0.1) (8.8) (0.5)
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Adjusted
operating
profit
(GBPm) 20.5 21.0 20.4 18.5 7.4 10.9 18.2 18.5 66.5 68.9
Reported
operating
profit
(GBPm) 12.1 16.2 12.6 12.0 5.4 9.4 12.0 9.0 42.1 46.6
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Adjusted
return on
sales
(%) 10.3% 11.9% 9.1% 10.9% 4.9% 9.2% 13.1% 15.8% 9.4% 11.9%
Reported
return on
sales
(%) 6.1% 9.2% 5.6% 7.1% 3.6% 7.9% 8.6% 7.7% 5.9% 8.0%
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
% of Group
sales 28% 30% 31% 30% 21% 20% 20% 20% 100% 100%
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
Aftermarket
sales* (%) 38% 34% 27% 21% 44% 46% 1% 1% 29% 26%
------------- ------- --------- ------- ---------- ------- ------------ ------- ---------- -------- --------
* Aftermarket sales comprise service revenues and sales of
consumables and spare parts.
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 two operating companies in this segment are Malvern PANalytical
and Particle Measuring Systems ('PMS').
Segment performance
Like-for-like
H1 2017 H1 2016 Change change
Reported sales (GBPm) 199.5 175.6 14% 3%
Adjusted operating profit
excluding Project Uplift
costs (GBPm) 22.9 21.2 9% 2%
Project Uplift net cost
(GBPm) (2.4) (0.2)
Reported operating profit
(GBPm) 12.1 16.2
Adjusted return on sales
excluding Project Uplift
costs (%) 11.5% 12.0% -0.5pp -0.1pp
Reported return on sales
(%) 6.1% 9.2%
% of Group sales 28% 30%
Aftermarket sales (%) 38% 34%
Reported sales increased by 14%, reflecting a 3% increase in LFL
sales, a 0.5% contribution from acquisitions and an 11% beneficial
impact from foreign currency exchange movements. This performance
reflected strong growth in Asia, a small increase in sales in
Europe and a decline in LFL sales in North America.
Adjusted operating profit excluding Project Uplift costs
increased by 2% on a LFL basis, reflecting the rise in LFL sales, a
four percentage point increase in aftermarket sales and strong
operating leverage at PMS offset by an increase in overheads.
LFL sales to the pharmaceutical sector grew strongly during the
period, with a particularly good performance in Asia. This has been
driven by higher investment within the generics sector (China,
India) as it responds to the desire for healthcare cost reductions
in developed markets (Europe, USA, Japan) and continuing increased
demand for healthcare access in emerging markets. In addition, the
current regulatory focus on data integrity is leading to new
equipment purchases as manufacturers upgrade their
capabilities.
Since the start of the year, the merger of Malvern Instruments
and PANalytical has been in effect. The company has been renamed
Malvern PANalytical, a combined management team is in place and
work is underway to cross train and merge the sales and marketing
teams. The initial focus has been on cross-selling opportunities
and a number of these have already been realised, with new sales of
both Malvern and PANalytical products into existing counterpart
company customers. During the period, the combined business
launched two new products: one aimed at helping customers to meet
regulations in the biopharmaceutical industry, and the other for
the analysis of the elemental composition of liquids, for example
to meet environmental regulations in a number of process
industries, such as petrochemicals.
At PMS, our strategy to add services to our products was
enhanced with the acquisition in 2016 of
CAS Clean Air Service AG, allowing PMS to be able to offer its
Good Manufacturing Practice service knowledge and expertise for
regulatory compliance in the pharmaceutical industry. During 2017,
this has now been extended into other markets in Europe and the
USA, with demand being driven by increasing regulatory scrutiny,
with an increasing emphasis on compliance and particular attention
given to data integrity. Demand for high level consulting services
in areas such as sterility assurance therefore continues to be
robust and PMS has been able to provide this additional service to
existing customers.
In the metals, minerals and mining sectors, LFL sales returned
to growth following the sizeable declines in 2016. Europe delivered
a strong performance, although North America continued to see a
decline. Commodity prices for base metals have shown a slow
recovery since the end of 2016. Investments in new production and
analytical capabilities are still at a low level, although the
number of opportunities has started to increase. Sentiment in the
mining sector has been improving and we have seen an uptick in
Australia in particular. Aftermarket sales remained robust, as
customers continue to repair and support existing equipment.
LFL sales to academic research institutes were down in the first
half of the year, with all regions showing a decline, although
there was good growth in orders in the period. In North America,
the US government has been operating under a continuing resolution
that froze 2017 spending at most agencies at 2016 levels and
generally prevented them from starting new programmes. Similarly,
political uncertainty in parts of Europe has meant that academic
research expenditure has remained subdued in this region. In Asia,
the key positive market was Japan which did see LFL sales
growth.
In the electronics, semiconductor and telecoms sector, LFL sales
rose year-on-year, with the main demand centre of Asia showing
strong growth. Europe also saw LFL sales increase while LFL sales
in North America were lower. There has been strong growth in
semiconductor demand, particularly in China and South Korea, with a
continuation of the favourable market conditions seen in the second
half of 2016. Electronics sales in the period have been lower,
although the order growth was up year-on-year.
Segment outlook
We expect sales growth to continue in the second half in the
pharmaceutical sector, given the order growth seen to date and the
continued expansion of our high level advisory service offering
into new markets, such as China.
Given the improving backdrop in the metals, minerals and mining
sectors, we are encouraged that the increased market activity will
start to feed through to a sustained improvement in sales for
Malvern PANalytical. We expect aftermarket sales to continue to
be robust.
Sales to the academic research sector remain unpredictable as
public sector budgets are likely to remain under pressure in many
countries, although underlying demand remains strong.
In the electronics and semiconductor sectors, we expect to see
continued strong growth in Asian markets, particularly in China and
South Korea.
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, HBM and Millbrook.
Segment performance
Like-for-like
H1 2017 H1 2016 Change change
Reported sales (GBPm) 223.2 170.1 31% 5%
Adjusted operating profit
excluding Project Uplift
costs (GBPm) 23.4 18.6 25% 3%
Project Uplift net cost
(GBPm) (3.0) (0.1)
Reported operating profit
(GBPm) 12.6 12.0
Adjusted return on sales
excluding Project Uplift
costs (%) 10.5% 11.0% -0.5pp -0.2pp
Reported return on sales
(%) 5.6% 7.1%
% of Group sales 31% 30%
Aftermarket sales (%) 27% 21%
Reported sales increased by 31% in the period, comprising a LFL
sales increase of 5%, a 14 percentage point contribution from
acquisitions and a 12 percentage point positive impact from foreign
currency exchange movements. Regionally, there was good sales
growth in Asia, particularly in Japan, and in Europe.
North America saw a small increase in LFL sales.
Adjusted operating profit excluding Project Uplift costs
increased to GBP23.4 million, up 3% on a LFL basis. Positive
pricing and mix effects were partly offset by overhead increases in
support of the strategic growth initiatives, particularly in
relation to the growing automotive market.
Sales to our automotive customers grew strongly in the first
half of the year with all key regions delivering notable growth. At
Millbrook, we have been expanding the capacity of our automotive
testing services.
In May, a new large climatic chamber was opened, to be used for
conducting environmental tests on passenger cars and commercial
vehicles. We expect to see good demand for these services for
testing to manufacturer and industry standards. In July, we added
further capacity as well as complementary customers and services
with the acquisition of a commercial vehicle test facility in
Lancashire in the UK.
The CSA Leyland Technical Centre, now renamed Millbrook,
provides test services to the commercial vehicle, automotive and
off-highway sectors and is an important step in Millbrook's
strategy to expand its capacity and capabilities in powertrain,
safety and vehicle testing. To drive penetration of key automotive
accounts, we have now appointed a Test and Measurement Business
Solutions Director whose responsibility is to coordinate our
engagement with key automotive customers and orchestrate the joint
provision of products and services from Millbrook, HBM and Brüel
& Kjær Sound & Vibration.
There was good LFL sales growth to machine manufacturers in the
period. Although the growth in our sales to this sector was
primarily driven by non-automotive related demand, a significant
portion represents sales into the automotive supply chain and
direct sales to the automotive sector were notably higher in the
period. Machine manufacturing sales were strong in Asia,
particularly in China. In Europe, Germany saw good growth with an
increase in German exports and an increasing desire for automation
and robotics products driving demand for our industrial measurement
solutions.
In aerospace and defence, LFL sales were flat overall with North
America and Europe seeing LFL sales increases, offset by a
reduction in Asia. Key demand drivers remain the search for higher
fuel efficiency with lighter materials and the increased
electrification of aircraft which requires testing.
Sales to our electronics and telecoms customers were down
slightly in the first half of the year. LFL sales to telecoms
customers were down as sales to this sector are lumpy, reflecting
the scheduling of projects by customers. We have continued to see
good traction with Chinese mobile phone operators and have been
working closely with the likes of Huawei, China's largest telecoms
company. Sales to electronics customers increased in both Asia and
Europe, driven by trends in consumer demand for devices such as
audio and communication systems which are safer, more reliable and
offer improved sound quality. We are also seeing continued growth
in the supply of high quality components, such as microphones, for
acoustic testing of smartphones.
In the unconventional oil and gas and mining markets, commodity
prices have settled and there has been an increase in the US rig
count and production. As a result, our hydraulic fracturing
monitoring business has been more buoyant and LFL sales in North
America have increased markedly on 2016. However, mining activity
is more subdued and has been impacted in Asia by the Indonesian
government's restrictions on exports.
Segment outlook
We expect the automotive sector to remain robust through the
remainder of 2017, with automotive customers expanding their
development programmes and our capital investment programme coming
through to generate revenue.
In the aerospace and defence sector, we expect to see a similar
trend to that in the first half, although the pipeline of
opportunities has improved in recent months.
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.
If commodity prices remain settled, we would expect the
improvement in our microseismic monitoring to be sustained through
the remainder of the year. The medium-term growth drivers for this
business remain positive given the need for 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
Like-for-like
H1 2017 H1 2016 Change change
Reported sales (GBPm) 148.4 118.7 25% 11%
Adjusted operating profit
excluding Project Uplift
costs (GBPm) 8.9 11.0 -20% -21%
Project Uplift net cost
(GBPm) (1.5) (0.1)
Reported operating profit
(GBPm) 5.4 9.4
Adjusted return on sales
excluding Project Uplift
costs (%) 6.0% 9.3% -3.3pp -2.7pp
Reported return on sales
(%) 3.6% 7.9%
% of Group sales 21% 20%
Aftermarket sales (%) 44% 46%
Reported sales increased by 25% with a LFL sales increase of
11%, a 3% contribution from acquisitions and a positive foreign
currency exchange movement of 11 percentage points. All regions
posted growth in sales and delivered a marked improvement on the
prior year's weak performance as all key end markets returned to
growth after the global slowdown in many heavy process industries
in 2016.
On a LFL basis, adjusted operating profit excluding Project
Uplift costs declined by 21% and margins for the period fell by 2.7
percentage points. This was attributable to a number of factors,
including adverse mix and variances, restructuring (GBP1.6 million)
and additional costs following the closure of a business centre in
Europe (GBP1.3 million).
Restructuring activities continued in this segment to simplify
business processes, in particular at
NDC Technologies which is consolidating its California
production and administration functions into its Ohio facility,
which has subsequently become the new company headquarters. The
California facility will become the new Web Process Solutions
Technical Centre of Excellence.
LFL sales to the pulp, paper and tissue markets grew in the
first half with all regions in positive territory. Pulp and paper
LFL sales were up slightly whilst our tissue business had a good
start to the year, with particularly strong LFL sales growth in
Asia. In this region, we have been successful in securing new
business with producers of premium grade tissue products as
household incomes rise and consumer demand for tissue products
increases. We have also continued to expand our offering by
providing market-leading solutions for process control and
optimisation, particularly in the chemical pulp segment, with the
Capstone software tools. We received new orders for our dataPARC
analytics in the pulp and paper, chemicals and other industries. In
June, we successfully delivered our first digital solution for
tissue production management with a vibration monitoring system
installed at a Spanish paper and tissue company, whereby important
vibration data is captured and displayed using our new analytics
software, allowing monitoring of the machine's Yankee dryer
performance.
LFL sales to the energy and utilities sector increased in the
first half of 2017. The backdrop for refinery/petrochemical markets
has improved compared to 2016 as energy prices have stabilised and
we have seen a more solid performance in the hydrocarbon processing
sector in the USA with activity in Asia, in particular China, also
picking up. Our wind power business delivered strong growth in
sales from both the turbine OEM companies and our targeted approach
to wind farm owners and operators. For example,
Brüel & Kjær Vibro was selected by EDP Renewables to supply
and retrofit the installation of condition monitoring systems and
monitoring services for seven US wind farms. Brüel & Kjær Vibro
has now sold monitoring systems for more than 15,000 wind turbines
globally. In May, Brüel & Kjær Vibro acquired the US-based
Setpoint, a leading provider of vibration and condition monitoring
solutions to process industries, primarily the oil and gas and
power generation sectors. Its technology enables customers to
improve machinery availability, productivity and reliability by
delivering accurate condition information and expands our presence
in the condition monitoring market.
At Servomex, our customer offering has been broadened by the
launch of the Laser 3 analyser for combustion applications. This
ultra-compact product measures ammonia, oxygen and carbon monoxide
from combustion processes, providing instant benefits to customers
in terms of installation ease and flexibility and ensuring the safe
running of their processes. We are also aiming to streamline our
industrial gases customer offering to a single platform with two
variants (single and multi-gas), a simplified user interface and
digital communications which can be more easily deployed by
customers according to their needs. This platform will have the
ability to integrate our new AquaExact Moisture Sensor which
measures moisture in a range of process applications such as air
separation processes, natural gas processing and
transportation.
After a surge in growth in the prior year, sales to the web and
converting industries moderated, increasing only slightly on a LFL
basis. Growth in sales in Europe and Asia more than offset an
overall decline in
North America, and performance in packaging and in our cable and
tube businesses has been robust as a result of improving market
conditions. During the period, NDC Technologies entered into a
business cooperation with RAM GmbH ('RAM'), a web inspection
company in similar industries, to sell their web inspection systems
in a number of territories not covered by RAM with a reciprocal
arrangement whereby RAM will sell NDC Technologies' gauging systems
to its customers. The combination of the two product lines will
allow the companies to provide customers with better analytics of
the manufacturing process, enabling more informed decisions to be
made on process optimisation. NDC Technologies' focus on customers
has also been enhanced by the launch of the global service cloud
application, MyNDC, in order to provide seamless, round-the-clock
customer service support.
Segment outlook
In the pulp, paper and tissue market, we expect to continue to
see good demand in tissue and packaging, particularly in Asia.
Sales of Capstone software are also expected to drive growth in
both this sector and in other process industries.
In energy and utilities, the current environment is encouraging
with a more stable oil price underpinning cautious investment in
areas such as hydrocarbon processing. Demand from the wind energy
sector is expected to remain healthy as we continue to focus on
wind farm operators and owners.
The North American market has shown signs of improvement in the
first half of 2017, as we see a freeing up of capex and industrial
spend in the process industries that we serve.
We would expect to see the segment's overall growth in LFL sales
to moderate as we go through the second half of the year but, based
on the current order book and the non-recurrence of the adverse
costs we saw in the first half, we expect to see a strong recovery
in gross and operating margins.
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 ('Red
Lion').
Segment performance
Like-for-like
H1 2017 H1 2016 Change change
Reported sales (GBPm) 138.9 117.0 19% 5%
Adjusted operating profit
excluding Project Uplift
costs (GBPm) 20.1 18.6 8% -5%
Project Uplift net cost
(GBPm) (1.9) (0.1)
Reported operating profit
(GBPm) 12.0 9.0
Adjusted return on sales
excluding Project Uplift
costs (%) 14.5% 15.9% -1.4pp -1.4pp
Reported return on sales
(%) 8.6% 7.7%
% of Group sales 20% 20%
Aftermarket sales (%) 1% 1%
Reported sales increased by 19%, reflecting a 5% increase in LFL
sales and a 14 percentage point positive impact from foreign
currency exchange movements. Growth rates were similar across all
four of the regions. With the segment's high exposure to North
America, it was encouraging to see an increase in LFL sales in this
region for the first time since 2014.
Adjusted operating profit was down 5% on a LFL basis. This is a
consequence of a one-off restructuring charge of GBP2.2 million as
we improve the performance of Omega, compared to a GBP2.0 million
one-off gain posted in 2016. Gross margins have improved
year-on-year in line with our previously announced expectations
and, excluding the GBP4.2 million swing in one-off costs, operating
leverage is starting to come through.
The transformation at Omega continues and the plan to improve
the US sales performance is fully on track. The near-term focus of
the new management team is to create a lean supply chain focused
on
on-time delivery, quality, reducing inventory and improving
lead-time to customers. Progress on this has already been reflected
in the on-time delivery metric. Additional restructuring measures
to further enhance performance were announced in June. Electronics
manufacturing, currently performed in California, is to be
outsourced via a strategic partnership with a key existing global
supplier of electronics, and distribution operations for certain
markets will be consolidated. In the period, LFL sales were up in
North America for the first time since 2014, and the
internationalisation programme continued to deliver good sales
growth in all major markets outside of the USA. With its sensor
technology, Omega is well positioned to take advantage of
opportunities in the Industrial Internet of Things ('IIoT') space
and has developed a number of products to capture these
opportunities. For example, its long-range wireless monitoring
systems provide web-based monitoring of temperature, humidity and
barometric pressure. This system can provide data assurance and
security, critical to the protection of high-value assets and we
have worked with a major satellite company to provide such a
solution.
Our industrial networking business also saw a return to sales
growth in its core North American market, particularly within the
Ethernet and Interface product families. Industrial connectivity is
a key strategic market for the Group as factories and facilities
accelerate deployment of automation and industrial networking
solutions to improve productivity and gain insight into the
operational efficiency of assets. During the first half of the
year, we had notable sales on this front at two major automotive
manufacturers, delivering highly reliable and easy to configure
networking solutions for their robotics OEMs and own manufacturing
lines. In May, Red Lion announced an enhancement to its products
which enables more secure communications to IIoT cloud platforms
and remote access applications. This enhancement utilises Distrix
Networks' software-defined networking technology with Red Lion's
RAM range of industrial remote terminal units which results in
industry-leading security with a flexible and scalable
architecture, improving on traditional network communications.
At our automatic identification and machine vision solutions
business, sales of our MicroHawk products have continued to grow
rapidly and, during the period, a new ultra-high density version
was launched that can read very small and difficult-to-read
barcodes, for example on a silicon chip. Customers continue to
recognise the benefits that the product offers as they embed it in
their automated and IIoT solutions.
Segment outlook
Progress for this segment in the second half will be largely
determined by the industrial demand environment in the USA which
has experienced an improving backdrop during the first half. We
expect to see continued good growth in Asia.
As we see customers continue to focus on increasing productivity
and efficiency and the demand for IIoT solutions rises, we expect
to see continued growth in demand for our solutions for factory
automation and industrial networking, sensing and controls.
At Omega, we continue to expect the organisational changes and
restructuring measures we have taken, as well as the continued
focus on lean initiatives and improving the customer experience, to
deliver an improvement in performance and to exit the year with
margins at historic levels.
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 22.1% from
GBP581.4 million in 2016 to GBP710.0 million in 2017. The
year-on-year contribution to sales from acquisitions was GBP29.0
million (+5.0%) and foreign currency exchange movements had a
positive impact of GBP68.4 million (+11.7%), with the result that,
on an organic constant currency (like-for-like, 'LFL') basis, sales
increased by 5.4% compared to the first half of 2016.
Reported gross margins were 0.1 percentage points higher than
the prior-year period at 56.1% of sales. Excluding foreign exchange
movements and acquisitions, LFL gross margins remained at 56.1%.
Excluding one-off items detailed below, LFL overheads increased by
5.8% reflecting normal cost increases as well as selective
investments in strategic growth initiatives.
We continued to invest in our R&D programmes, with R&D
expense of GBP52.8 million or 7.4% of sales,
a reduced percentage compared to 2016 (H1 2016: GBP47.3 million,
8.1%).
The Group's results reflect restructuring costs of GBP3.8
million, primarily at Omega and NDC Technologies, which, together
with the benefits arising from restructuring undertaken in 2016,
resulted in an incremental net cost in 2017 of GBP1.9 million.
There was also a net benefit from an insurance settlement of GBP2.9
million
(H1 2016: GBP5.0 million benefit). In the In-line
Instrumentation segment, one-off items totalled GBP1.3 million
following the closure of a business centre in Europe.
Project Uplift, created to deliver the objectives of reducing
complexity and driving efficiency to stimulate growth, is well
underway with initiatives progressing as planned. The net spend of
GBP8.8 million
(H1 2016: GBP0.5 million) includes Phase 1 activities for IT,
procurement and footprint. We have also completed a shared service
feasibility study and are moving into the detailed design and
implementation planning phase.
Including Project Uplift, adjusted operating profit for the
period decreased by 4% from GBP68.9 million to GBP66.5 million.
Reported operating profit declined to GBP42.1 million (H1 2016:
GBP46.6 million).
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 GBP6.6 million was
partially offset by a transactional foreign exchange loss of GBP1.4
million.
Adjusted net finance costs increased by GBP0.3 million from
GBP2.4 million to GBP2.7 million, as our debt is predominantly Euro
denominated and sterling weakened significantly against the
Euro.
Adjusted profit before tax decreased by 4% from GBP66.5 million
to GBP63.8 million. The effective adjusted tax rate for the half
year is 21.0%, 2pp lower than the prior year. This tax rate
includes the one-off effect of tax audit closures in the half year.
Based on the forecast for the full year, the effective adjusted tax
rate for the full year is estimated at 22%.
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 decreasing by 2% from
43.0 pence per share to 42.3 pence per share.
Adjusted operating cash flow of GBP78.8 million (H1 2016:
GBP92.4 million) represents an adjusted operating cash conversion
rate of 119% (H1 2016: 134%). Net debt increased by GBP4.6 million
(H1 2016: increase of
GBP4.9 million) from GBP150.9 million at 31 December 2016 to
GBP155.5 million at 30 June 2017, impacted by the acquisition of
Setpoint and payment of the 2016 final dividend.
Principal Risks and Uncertainties
A number of potential risks and uncertainties exist which could
have a material impact on the Group's performance over the second
half of the financial year and could cause actual results to differ
materially from expected and historical results.
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 on pages 30-39 of the 2016 Annual Report and Accounts
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 2016 Annual Report.
The full list of risks relevant as at the half year
comprises:
- 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, the implications on the Group of the UK leaving the
European Union ('Brexit'). The broad spread of markets in which we
operate substantially limits the risk associated with instability
in any given territory. The Millbrook acquisition in September 2016
increases our exposure to the UK market and both revenue and costs
are largely Sterling denominated. As a result, sales to the UK will
be approximately 7% of Group sales compared to the 3-4% previously
reported. Of this amount, approximately 6% is sourced in the UK,
and 1% is imported from Europe and the Rest of the World.
Approximately 9% of the Group's global revenue (ex-UK) originates
in the UK, of which 3% is exported to Europe and 6% to the Rest of
the World.
In respect of potential currency and funding implications for
the Group arising from Brexit, we do not see any significant level
of exposure. 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
and US Dollar denominated.
As a consequence, we continue to 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. Our
Brexit Risk Committee continues 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 2016 Annual
Report and Accounts with the exception of
Dr John Hughes who retired as Chairman after the Annual General
Meeting on 26 May 2017,
Mark Williamson who was appointed as Non-executive Chairman from
that date and Karim Bitar who was appointed as a Non-executive
Director with effect from 1 July 2017.
By order of the Board
John O'Higgins Clive Watson
Chief Executive Group Finance Director
25 July 2017
INDEPENT 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 2017 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 numbered 1 to 12. 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
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. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review 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 formed.
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 Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 Interim
Financial Reporting as adopted by the European Union.
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
United Kingdom. A review of interim financial information consists
of making inquiries, 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 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Reading, UK
25 July 2017
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the six months ended 30 June 2017
2017 2016 2016
Half year Half year Full year
Notes GBPm GBPm GBPm
------------------------------------------------------ ------ ---------- ---------- ----------
Continuing operations
Revenue 3 710.0 581.4 1,345.8
Cost of sales (311.9) (255.5) (585.3)
Gross profit 398.1 325.9 760.5
Indirect production and engineering
expenses (57.6) (51.7) (108.9)
Sales and marketing expenses (178.6) (148.0) (320.1)
Administrative expenses (119.8) (79.6) (177.9)
Impairment of goodwill and other acquisition-related
intangible assets - - (115.3)
Operating profit before acquisition-related
items and impairment* 66.5 68.9 200.8
Net acquisition-related costs and fair
value adjustments 2 (1.7) (5.7) (10.1)
Depreciation of acquisition-related
fair value adjustments to tangible assets 2 (0.4) - (0.2)
Amortisation of acquisition-related
intangible assets 2 (22.3) (16.6) (36.9)
Impairment of goodwill and other acquisition-related
intangible assets 2 - - (115.3)
------------------------------------------------------ ------ ---------- ----------
Operating profit 2,3 42.1 46.6 38.3
Financial income 4 0.2 0.2 0.5
Finance costs 4 (4.7) (5.8) (6.9)
Profit before tax 37.6 41.0 31.9
Taxation - UK 5 (0.7) (1.6) (4.4)
Taxation - Overseas 5 (5.0) (8.4) (17.2)
Profit after tax for the period from
continuing operations attributable to
owners of the Parent Company 31.9 31.0 10.3
------------------------------------------------------ ------ ---------- ---------- ----------
Basic earnings per share 7 26.8p 26.0p 8.6p
Diluted earnings per share 7 26.7p 26.0p 8.6p
Interim dividends paid and final dividends
proposed for the period (per share) 6 19.0p 18.0p 52.0p
Dividends paid during the period (per
share) 6 34.0p 32.2p 52.2p
* See Note 2.
CONDENSED Consolidated statement OF COMPREHENSIVE INCOME
(UNAUDITED)
For the six months ended 30 June 2017
2017 2016 2016
Half year Half year Full year
GBPm GBPm GBPm
------------------------------------------- ---------- ---------- ----------
Profit for the period attributable
to owners of the Parent Company 31.9 31.0 10.3
Other comprehensive income:
Items that will not be reclassified
to the Consolidated Income Statement:
Re-measurement of net defined benefit
obligation, net of foreign exchange 4.8 (14.1) (12.6)
Tax on items above (1.0) 3.5 3.0
-------------------------------------------- ---------- ---------- ----------
3.8 (10.6) (9.6)
------------------------------------------- ---------- ---------- ----------
Items that are or may be reclassified
subsequently to the Consolidated
Income Statement:
Net gain/(loss) on effective portion
of changes in fair value of forward
exchange contracts on cash flow hedges 3.8 (4.3) (3.1)
Foreign exchange movements on translation
of overseas operations (20.3) 94.7 160.4
Tax on items above (0.7) 1.0 0.7
(17.2) 91.4 158.0
------------------------------------------- ---------- ---------- ----------
Total comprehensive income for the
period attributable to owners of
the Parent Company 18.5 111.8 158.7
-------------------------------------------- ---------- ---------- ----------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
For the six months ended 30 June 2017
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Balance at 1 January
2017 6.2 231.4 638.3 193.4 (5.3) 3.1 0.3 1,067.4
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Profit for the period - - 31.9 - - - - 31.9
Other comprehensive
income:
Net gain on effective
portion of changes
in fair value of
forward exchange
contracts, net of
tax - - - - 3.1 - - 3.1
Foreign exchange
movements on
translation
of overseas operations - - - (20.3) - - - (20.3)
Re-measurement of
net defined benefit
obligation, net
of foreign exchange
and tax - - 3.8 - - - - 3.8
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Total comprehensive
income for the period - - 35.7 (20.3) 3.1 - - 18.5
Transactions with
owners recorded
directly in equity:
Equity dividends
paid by the Company - - (40.5) - - - - (40.5)
Share-based payments,
net of tax - - 2.2 - - - - 2.2
Share options exercised
from own shares
(treasury) purchased - - 0.1 - - - - 0.1
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Balance at 30 June
2017 6.2 231.4 635.8 173.1 (2.2) 3.1 0.3 1,047.7
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
For the six months ended 30 June 2016
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
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 loss 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
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
For the year ended 31 December 2016
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Balance at 1 January
2016 6.2 231.4 694.9 33.0 (2.9) 3.1 0.3 966.0
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Profit for the year - - 10.3 - - - - 10.3
Other comprehensive
income:
Net loss on effective
portion of changes
in fair value of
forward
exchange contracts,
net of tax - - - - (2.4) - - (2.4)
Foreign exchange
movements
on translation of
overseas operations - - - 160.4 - - - 160.4
Re-measurement of
net defined benefit
liability, net of
foreign exchange and
tax - - (9.6) - - - - (9.6)
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Total comprehensive
income for the year - - 0.7 160.4 (2.4) - - 158.7
Transactions with
owners recorded
directly
in equity:
Equity dividends paid
by the Company - - (59.8) - - - - (59.8)
Share-based payments,
net of tax - - 2.3 - - - - 2.3
Share options exercised
from own shares
(treasury)
purchased - - 0.2 - - - - 0.2
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
Balance at 31 December
2016 6.2 231.4 638.3 193.4 (5.3) 3.1 0.3 1,067.4
------------------------ --------- --------- ---------- ------------ --------- --------- ------------ --------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
As at 30 June 2017
2017 2016 2016
Half year Half year Full year
GBPm GBPm GBPm
------------------------------------- ---------- ---------- ----------
ASSETS
Non-current assets
Intangible assets:
Goodwill 652.5 660.3 654.3
Other intangible assets 218.5 217.8 245.2
-------------------------------------- ---------- ---------- ----------
871.0 878.1 899.5
Property, plant and equipment 250.8 174.5 238.8
Deferred tax assets 13.4 17.2 13.4
1,135.2 1,069.8 1,151.7
------------------------------------- ---------- ---------- ----------
Current assets
Inventories 195.1 203.6 187.8
Income taxation recoverable 2.4 0.7 2.4
Trade and other receivables 274.5 239.3 306.6
Derivative financial instruments 0.4 - -
Cash and cash equivalents 61.2 72.9 83.5
533.6 516.5 580.3
------------------------------------- ---------- ---------- ----------
Total assets 1,668.8 1,586.3 1,732.0
-------------------------------------- ---------- ---------- ----------
LIABILITIES
Current liabilities
Short-term borrowings (31.4) (2.0) (12.3)
Derivative financial instruments - (5.3) (4.2)
Trade and other payables (257.0) (215.6) (259.2)
Income taxation payable (30.0) (29.3) (36.8)
Provisions (22.4) (19.3) (19.5)
(340.8) (271.5) (332.0)
------------------------------------- ---------- ---------- ----------
Net current assets 192.8 245.0 248.3
-------------------------------------- ---------- ---------- ----------
Non-current liabilities
Medium- and long-term borrowings (185.3) (174.4) (222.1)
Other payables (28.6) (19.5) (29.0)
Retirement benefit obligations (36.2) (41.6) (40.3)
Deferred tax liabilities (30.2) (38.3) (41.2)
(280.3) (273.8) (332.6)
------------------------------------- ---------- ---------- ----------
Total liabilities (621.1) (545.3) (664.6)
-------------------------------------- ---------- ---------- ----------
Net assets 1,047.7 1,041.0 1,067.4
-------------------------------------- ---------- ---------- ----------
EQUITY
Share capital 6.2 6.2 6.2
Share premium 231.4 231.4 231.4
Retained earnings 635.8 678.5 638.3
Translation reserve 173.1 127.7 193.4
Hedging reserve (2.2) (6.2) (5.3)
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 1,047.7 1,041.0 1,067.4
-------------------------------------- ---------- ---------- ----------
Total liabilities and equity 1,668.8 1,586.3 1,732.0
-------------------------------------- ---------- ---------- ----------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the six months ended 30 June 2017
2017 2016 2016
Half Full
Half year year year
Notes GBPm GBPm GBPm
------------------------------------------------------ ------ ---------- -------- --------
Cash flows from operating activities
Profit after tax 31.9 31.0 10.3
Adjustments for:
Taxation 5 5.7 10.0 21.6
Finance costs 4 4.7 5.8 6.9
Financial income 4 (0.2) (0.2) (0.5)
Depreciation 12.5 10.3 23.0
Amortisation of intangible assets 25.1 19.3 42.4
Impairment of goodwill and other acquisition-related
intangible assets - - 115.3
Acquisition-related fair value adjustments - 3.5 5.6
Profit on sale of property, plant and
equipment (0.1) (1.9) (1.2)
Equity-settled share-based payment
transactions 1.8 1.4 2.1
------
Operating cash flow before changes
in working capital and provisions 81.4 79.2 225.5
Decrease/(increase) in trade and other
receivables 31.0 36.5 (7.1)
(Increase)/decrease in inventories (10.1) (2.0) 25.4
(Decrease)/increase in trade and other
payables (1.5) (14.1) 8.2
Increase/(decrease) in provisions and
employee benefits 1.3 (4.8) (6.3)
Net income taxes paid (23.1) (14.7) (29.8)
Net cash flows generated from operating
activities 79.0 80.1 215.9
------------------------------------------------------ ------ ---------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment
and software (24.4) (10.5) (28.7)
Proceeds from disposal of property,
plant and equipment and software 0.2 5.0 5.4
Acquisition of businesses, net of cash
acquired 10 (12.6) (24.2) (160.9)
Interest received 0.2 0.2 0.5
Net cash flows used in investing activities (36.6) (29.5) (183.7)
------------------------------------------------------ ------ ---------- -------- --------
Cash flows from financing activities
Interest paid (2.2) (2.0) (4.6)
Dividends paid (40.5) (38.4) (59.8)
Proceeds from exercise of share options
(treasury shares) 0.1 0.2 0.2
Proceeds from borrowings - - 41.0
Repayment of borrowings (41.0) - -
Net cash flows used in financing activities (83.6) (40.2) (23.2)
------------------------------------------------------ ------ ---------- -------- --------
Net (decrease)/increase in cash and
cash equivalents (41.2) 10.4 9.0
Cash and cash equivalents at beginning
of period 71.2 56.5 56.5
Effect of foreign exchange rate changes (0.2) 4.0 5.7
------------------------------------------------------ ------ ---------- -------- --------
Cash and cash equivalents at end of
period 29.8 70.9 71.2
------------------------------------------------------ ------ ---------- -------- --------
2017 2016 2016
Half Full
Half year year year
Reconciliation of changes in cash and
cash equivalents to movements in net
debt GBPm GBPm GBPm
------------------------------------------------------ ------ ---------- -------- --------
Net (decrease)/increase in cash and
cash equivalents (41.2) 10.4 9.0
Proceeds from borrowings - - (41.0)
Repayment of borrowings 41.0 - -
Effect of foreign exchange rate changes (4.4) (15.3) (20.3)
------------------------------------------------------ ------ ---------- -------- --------
Movement in net debt (4.6) (4.9) (52.3)
Net debt at start of period (150.9) (98.6) (98.6)
------------------------------------------------------ ------ ---------- -------- --------
Net debt at end of period (155.5) (103.5) (150.9)
------------------------------------------------------ ------ ---------- -------- --------
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 2017 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 2016 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
2016.
The Condensed Consolidated Interim Financial Statements for the
six-month period ended 30 June 2017 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 2016 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 2016.
These Condensed Consolidated Interim Financial Statements were
approved by the Board of Directors on
25 July 2017.
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 2016.
The Directors have considered the facts and circumstances as at
30 June 2017 and concluded that there are no indicators of
impairments that require an impairment review to be undertaken on
goodwill at the interim statement of financial position date. The
annual impairment review will be undertaken later in 2017
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 2016.
2. Adjusted Performance Measures
Policy
Spectris uses adjusted figures as key performance measures in
addition to those reported under adopted IFRS, as management
believe these measures enable management and stakeholders to assess
the underlying trading performance of the businesses as they
exclude foreign exchange movements and the impact of
acquisitions.
The adjusted performance measures ('APMs') are consistent with
how the business performance is planned and reported within the
internal management reporting to the Board and Operating
Committees. Some of these measures are used for the purpose of
setting remuneration targets. The key APMs that the Group use
include Constant Exchange Rate ('CER') measures, Like-For-Like
('LFL') organic performance measures and adjusted profit measures.
Explanations of how they are calculated and how they are reconciled
to an IFRS statutory measure are set out below. The Group's policy
is to exclude items that are considered to be significant both in
nature and/or quantum and where treatment as an adjusted item
provides stakeholders with additional useful information to assess
the period-on-period trading performance of the Group. On this
basis adjusted figures exclude certain non-operational items that
are predominantly acquisition- or
disposal-related items which management have defined as:
-- Amortisation and impairment of acquisition-related goodwill and other intangible assets;
-- Depreciation of acquisition-related fair value adjustments to tangible assets;
-- Acquisition-related costs and contingent consideration fair value adjustments;
-- Profits or losses on termination or disposal of businesses;
-- Unwinding of the discount factor on deferred and contingent consideration;
-- Unrealised changes in the fair value of financial instruments;
-- Gains or losses on retranslation of short-term inter-company loan balances; and
-- Related tax effects on the above and other tax items which do
not form part of the underlying tax rate (see Note 5).
Constant exchange rate measures
The Board reviews and compares current and prior year segmental
sales and adjusted profit at constant exchange rates. The constant
exchange rate comparison uses the current year reported segmental
information, stated in each entity's functional currency, and
translates the results into its presentation currency using prior
years' monthly exchange rates, irrespective of the underlying
transactional currency.
Within the In-line Instrumentation segment, the BTG Business has
large functional currency mismatches against its underlying
transaction currencies which distort LFL comparison at times of
significant currency movements. Accordingly, we have modified the
basis on which BTG's LFL results are translated into sterling by
using the actual underlying transaction currency mix for
determining transactional gains/losses to provide more accurate and
reliable information on BTG's underlying performance.
This measure is presented as a means of eliminating the effects
of exchange rate fluctuations on the
period-on-period reported results.
Like-for-like organic performance measures
The Board reviews current and prior year segmental sales and
adjusted profit at constant exchange rates excluding the
incremental impact of acquisitions for the first twelve months of
ownership from the month of purchase. By removing the
acquisition-related sales and operating profit, this allows the
Board to assess the underlying trading performance of the
businesses on a LFL basis.
Based on the above policy, the adjusted performance measures are
derived from the reported figures under IFRS as follows:
Income statement measures
a) CER and LFL sales
2017 2016 2016
Half year Half year Full year
GBPm GBPm GBPm
---------------------------- ---------- ---------- ----------
Sales as reported under
adopted IFRS 710.0 581.4 1,345.8
Constant exchange rate
adjustment (68.4) (27.7) (141.1)
Sales at constant exchange
rates 641.6 553.7 1,204.7
Acquisitions (29.0) (9.6) (36.7)
LFL sales 612.6 544.1 1,168.0
------------------------------- ---------- ---------- ----------
b) CER and LFL sales by segment
2017
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Sales by segment- June
2017 GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales as reported under
adopted IFRS 199.5 223.2 148.4 138.9 710.0
Constant exchange rate
adjustment (18.6) (20.5) (13.4) (15.9) (68.4)
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 180.9 202.7 135.0 123.0 641.6
Acquisitions (0.9) (24.6) (3.5) - (29.0)
LFL sales 180.0 178.1 131.5 123.0 612.6
---------------------------- ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Sales by segment- June
2016 GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales as reported under
adopted IFRS 175.6 170.1 118.7 117.0 581.4
Constant exchange rate
adjustment (7.2) (8.9) (5.6) (6.0) (27.7)
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 168.4 161.2 113.1 111.0 553.7
Acquisitions (2.3) (3.0) (0.3) (4.0) (9.6)
---------------------------- ---------- ------------ ---------------- ----------- ----------
LFL sales 166.1 158.2 112.8 107.0 544.1
---------------------------- ---------- ------------ ---------------- ----------- ----------
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Full year
Sales by segment- December
2016 GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales as reported under
adopted IFRS 418.9 404.5 275.6 246.8 1,345.8
Constant exchange rate
adjustment (41.9) (44.9) (27.4) (26.9) (141.1)
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 377.0 359.6 248.2 219.9 1,204.7
Acquisitions (5.4) (21.8) (4.1) (5.4) (36.7)
LFL sales 371.6 337.8 244.1 214.5 1,168.0
---------------------------- ---------- ------------ ---------------- ----------- ----------
c) CER and LFL sales growth
2017
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Sales growth - June 2017 % % % % %
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales as reported under
adopted IFRS 13.6 31.2 25.0 18.7 22.1
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 3.0 19.2 13.7 5.1 10.4
---------------------------- ---------- ------------ ---------------- ----------- ----------
LFL sales 2.5 4.7 10.7 5.1 5.4
---------------------------- ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Sales growth - June 2016 % % % % %
----------------------------
Sales as reported under
adopted IFRS 6.0 3.6 (1.4) 3.6 3.2
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 1.6 (1.8) (6.1) (1.7) (1.7)
---------------------------- ---------- ------------ ---------------- ----------- ----------
LFL sales 0.2 (3.6) (6.3) (5.3) (3.4)
---------------------------- ---------- ------------ ---------------- ----------- ----------
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Full year
Sales growth - December
2016 % % % % %
----------------------------
Sales as reported under
adopted IFRS 15.0 15.1 8.1 12.4 13.1
---------------------------- ---------- ------------ ---------------- ----------- ----------
Sales at constant exchange
rates 3.5 2.4 (2.6) 0.2 1.2
---------------------------- ---------- ------------ ---------------- ----------- ----------
LFL sales 2.0 (3.8) (4.2) (2.3) (1.9)
---------------------------- ---------- ------------ ---------------- ----------- ----------
d) CER, LFL and adjusted operating profit
2017 2016 2016
Half year Half year Full year
Adjusted operating profit GBPm GBPm GBPm
Operating profit as reported under
adopted IFRS 42.1 46.6 38.3
Net acquisition-related costs and
fair value adjustments 1.7 5.7 10.1
Depreciation of acquisition-related
fair value adjustments to tangible
assets 0.4 - 0.2
Amortisation of acquisition-related
intangible assets 22.3 16.6 36.9
Impairment of goodwill and other
acquisition-related intangible assets - - 115.3
---------- ---------- ----------
Adjusted operating profit 66.5 68.9 200.8
Project Uplift 8.8 0.5 3.2
-------------------------------------------- ---------- ---------- ----------
Adjusted operating profit excluding
Project Uplift 75.3 69.4 204.0
Constant exchange rate adjustment (6.6) (4.1) (22.6)
-------------------------------------------- ---------- ---------- ----------
Adjusted operating profit at constant
exchange rates excluding Project
Uplift 68.7 65.3 181.4
Acquisitions (1.6) (2.0) (8.3)
LFL adjusted operating profit excluding
Project Uplift 67.1 63.3 173.1
-------------------------------------------- ---------- ---------- ----------
e) CER, LFL and adjusted operating profit by segment
2017
Materials Test and In-line Industrial Half year
Adjusted operating profit
by segment - Analysis Measurement Instrumentation Controls Total
June 2017 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- ------------ ---------------- ----------- ----------
Operating profit as reported
under adopted IFRS 12.1 12.6 5.4 12.0 42.1
Net acquisition-related
costs and fair value
adjustments 0.8 0.1 0.5 0.3 1.7
Depreciation of acquisition-related
fair value adjustments
to tangible assets - 0.4 - - 0.4
Amortisation of acquisition-related
intangible assets 7.6 7.3 1.5 5.9 22.3
---------- ------------ ---------------- ----------- ----------
Adjusted operating profit 20.5 20.4 7.4 18.2 66.5
Project Uplift 2.4 3.0 1.5 1.9 8.8
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
excluding Project Uplift 22.9 23.4 8.9 20.1 75.3
Constant exchange rate
adjustment (1.4) (2.0) (0.9) (2.3) (6.6)
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
at constant exchange
rates excluding Project
Uplift 21.5 21.4 8.0 17.8 68.7
Acquisitions (0.1) (2.2) 0.7 - (1.6)
LFL adjusted operating
profit excluding Project
Uplift 21.4 19.2 8.7 17.8 67.1
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Half year
Adjusted operating profit
by segment - Analysis Measurement Instrumentation Controls Total
June 2016 GBPm GBPm GBPm GBPm GBPm
---------- ------------ ---------------- ----------- ----------
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 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
Project Uplift 0.2 0.1 0.1 0.1 0.5
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
excluding Profit Uplift 21.2 18.6 11.0 18.6 69.4
Constant exchange rate
adjustment (1.0) (1.3) (0.7) (1.1) (4.1)
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
at constant exchange
rates excluding Project
Uplift 20.2 17.3 10.3 17.5 65.3
Acquisitions (0.1) (0.2) (0.1) (1.6) (2.0)
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
LFL adjusted operating
profit excluding Project
Uplift 20.1 17.1 10.2 15.9 63.3
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Full year
Adjusted operating profit
by segment - Analysis Measurement Instrumentation Controls Total
December 2016 GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- ------------ ---------------- ----------- ----------
Operating profit as reported
under adopted IFRS 66.2 26.7 37.6 (92.2) 38.3
Net acquisition-related
costs and fair value
adjustments 0.2 2.1 0.3 7.5 10.1
Depreciation of acquisition-related
fair value adjustments
to tangible assets - 0.2 - - 0.2
Amortisation of acquisition-related
intangible assets 9.8 11.9 3.3 11.9 36.9
Impairment of goodwill
and other acquisition-related
intangible assets - 20.9 - 94.4 115.3
Adjusted operating profit 76.2 61.8 41.2 21.6 200.8
Project Uplift 0.9 1.2 0.6 0.5 3.2
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
excluding Profit Uplift 77.1 63.0 41.8 22.1 204.0
Constant exchange rate
adjustment (7.7) (7.8) (5.4) (1.7) (22.6)
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
Adjusted operating profit
at constant exchange
rates excluding Project
Uplift 69.4 55.2 36.4 20.4 181.4
Acquisitions (0.3) (5.1) (0.6) (2.3) (8.3)
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
LFL adjusted operating
profit excluding Project
Uplift 69.1 50.1 35.8 18.1 173.1
-------------------------------------- ---------- ------------ ---------------- ----------- ----------
f) CER, LFL and adjusted operating profit growth
2017
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Operating profit growth
- June 2017 % % % % %
---------- ------------ ---------------- ----------- ----------
Operating profit as reported
under adopted IFRS (25.3) 5.0 (42.6) 33.3 (9.7)
Adjusted operating profit (1.9) 10.2 (32.9) (1.9) (3.6)
Adjusted operating profit
excluding Project Uplift 8.7 25.3 (19.7) 8.0 8.5
Adjusted operating profit
at constant exchange rates (8.6) (0.3) (41.2) (14.4) (13.1)
LFL adjusted operating profit (9.1) (12.4) (34.4) (14.4) (15.4)
LFL adjusted operating profit
excluding Project Uplift 1.7 2.9 (21.2) (4.5) (3.3)
------------------------------- ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Operating profit growth
- June 2016 % % % % %
---------- ------------ ---------------- ----------- ----------
Operating profit as reported
under adopted IFRS 67.0 (7.0) (24.8) (37.1) (5.7)
Adjusted operating profit 43.1 (0.8) (20.6) (8.9) 2.3
Adjusted operating profit
excluding Project Uplift 44.1 (0.1) (19.8) (8.5) 3.0
Adjusted operating profit
at constant exchange rates 36.6 (7.9) (25.8) (14.3) (3.8)
LFL adjusted operating
profit 36.2 (9.1) (26.3) (22.6) (6.9)
LFL adjusted operating
profit excluding Project
Uplift 37.2 (8.3) (25.6) (22.2) (6.1)
------------------------------ ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Full year
Analysis Measurement Instrumentation Controls Total
Operating profit growth
- December 2016 % % % % %
---------- ------------ ---------------- ----------- ----------
Operating profit as reported
under adopted IFRS 55.4 (38.8) 9.9 (497.4) (73.3)
Adjusted operating profit 41.8 11.7 11.9 (38.9) 10.9
Adjusted operating profit
excluding Project Uplift 43.5 13.7 13.6 (37.2) 12.6
Adjusted operating profit
at constant exchange rates 27.6 (2.4) (2.9) (43.5) (1.6)
LFL adjusted operating
profit 27.0 (11.6) (4.4) (50.2) (6.2)
LFL adjusted operating
profit excluding Project
Uplift 28.8 (9.5) (2.8) (48.7) (4.4)
------------------------------ ---------- ------------ ---------------- ----------- ----------
g) CER, LFL and adjusted return on sales
2017
Materials Test and In-line Industrial Half year
Analysis Measurement Instrumentation Controls Total
Return on sales by segment
- June 2017 % % % % %
Using operating profit
as reported under adopted
IFRS 6.1 5.6 3.6 8.6 5.9
Using adjusted operating
profit 10.3 9.1 4.9 13.1 9.4
Using adjusted operating
profit excluding Project
Uplift 11.5 10.5 6.0 14.5 10.6
Using adjusted operating
profit at constant exchange
rates 10.6 9.1 4.8 12.9 9.3
Using adjusted LFL operating
profit 10.6 9.1 5.5 12.9 9.5
Using adjusted LFL operating
profit excluding Project
Uplift 11.9 10.8 6.6 14.5 11.0
------------------------------ ---------- ------------ ---------------- ----------- ----------
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
Using adjusted operating
profit excluding Project
Uplift 12.0 11.0 9.3 15.9 11.9
Using adjusted operating
profit at constant exchange
rates 11.9 10.7 9.0 15.7 11.7
Using adjusted LFL operating
profit 12.0 10.7 9.0 14.7 11.5
Using adjusted LFL operating
profit excluding Project
Uplift 12.1 10.8 9.1 14.8 11.6
------------------------------ ---------- ------------ ---------------- ----------- ----------
2016
Materials Test and In-line Industrial Full year
Analysis Measurement Instrumentation Controls Total
Return on sales by segment
- December 2016 % % % % %
Using operating profit as
reported under adopted IFRS 15.8 6.6 13.6 (37.4) 2.8
Using adjusted operating
profit 18.2 15.3 15.0 8.7 14.9
Using adjusted operating
profit excluding Project
Uplift 18.4 15.6 15.2 9.0 15.2
Using adjusted operating
profit at constant exchange
rates 18.2 15.0 14.4 9.0 14.8
Using adjusted LFL operating
profit 18.4 14.5 14.4 8.2 14.5
Using adjusted LFL operating
profit excluding Project
Uplift 18.6 14.8 14.7 8.4 14.8
------------------------------ ---------- ------------ ---------------- ----------- ----------
h) Adjusted net finance costs
2017 2016 2016
Half
year Half year Full year
Adjusted net finance costs GBPm GBPm GBPm
------------------------------------------ ------ ---------- ----------
Net interest costs as reported under
adopted IFRS (4.5) (5.6) (6.4)
Net loss on retranslation of short-term
inter-company loan balances 1.4 3.2 0.8
Unwinding of discount factor on deferred
and contingent consideration 0.4 - 0.6
Adjusted net finance costs (2.7) (2.4) (5.0)
-------------------------------------------- ------ ---------- ----------
i) Adjusted profit before tax
2017 2016 2016
Half
year Half year Full year
Adjusted profit before tax GBPm GBPm GBPm
----------------------------------------- ------ ---------- ----------
Adjusted operating profit (see Note 2d) 66.5 68.9 200.8
Adjusted net finance costs (see Note
2h) (2.7) (2.4) (5.0)
------------------------------------------- ------ ---------- ----------
Adjusted profit before tax 63.8 66.5 195.8
------------------------------------------- ------ ---------- ----------
j) Adjusted earnings per share
2017 2016 2016
Half
year Half year Full year
Adjusted earnings per share GBPm GBPm GBPm
------------------------------------------------------ ------ ---------- ----------
Profit after tax as reported under adopted
IFRS 31.9 31.0 10.3
Adjusted for:
Net acquisition-related costs and fair
value adjustments 1.7 5.7 10.1
Depreciation of acquisition-related fair
value adjustments to tangible assets 0.4 - 0.2
Amortisation of acquisition-related intangible
assets 22.3 16.6 36.9
Impairment of goodwill and other acquisition-related
intangible assets - - 115.3
Net loss on retranslation of short-term
inter-company loan balances 1.4 3.2 0.8
Unwinding of discount factor on deferred
and contingent consideration 0.4 - 0.6
Tax effect of the above and other non-recurring
items (7.7) (5.3) (22.3)
Adjusted earnings 50.4 51.2 151.9
-------------------------------------------------------- ------ ---------- ----------
Weighted average number of shares outstanding
(millions) 119.2 119.1 119.1
------------------------------------------------- ------ ------ ------
Adjusted earnings per share (pence) 42.3 43.0 127.5
------------------------------------------------- ------ ------ ------
2017 2016 2016
Half
year Half year Full year
Adjusted diluted earnings per share (pence) GBPm GBPm GBPm
--------------------------------------------- ------ ---------- ----------
Diluted weighted average number of shares
outstanding (millions) 119.7 119.3 119.6
----------------------------------------------- ------ ---------- ----------
Adjusted diluted earnings per share (pence) 42.1 42.9 127.0
----------------------------------------------- ------ ---------- ----------
Basic and diluted earnings per share in accordance with IAS 33
'Earnings Per Share' are disclosed in Note 7.
Financial position measures
k) Net debt
2017 2016 2016
Half
year Half year Full year
Analysis of net debt GBPm GBPm GBPm
------------------------ ------- ---------- ----------
Bank overdrafts 31.4 2.0 12.3
Bank loans - unsecured 185.3 174.4 222.1
-------------------------- ------- ---------- ----------
Total borrowings 216.7 176.4 234.4
Cash balances (61.2) (72.9) (83.5)
--------------------------
Net debt 155.5 103.5 150.9
-------------------------- ------- ---------- ----------
Cash flow measures
l) Adjusted operating cash flow
2017 2016 2016
Half
year Half year Full year
Adjusted operating cash flow GBPm GBPm GBPm
Net cash flows generated from operating
activities under adopted IFRS 79.0 80.1 215.9
Acquisition-related costs paid 0.9 3.1 5.4
Net income taxes paid 23.1 14.7 29.8
Purchase of property, plant and equipment
and software (24.4) (10.5) (28.7)
Proceeds from sale of property, plant
and equipment 0.2 5.0 5.4
Adjusted operating cash flow 78.8 92.4 227.8
--------------------------------------------- ------- ---------- ----------
Adjusted operating cash flow conversion 119% 134% 113%
--------------------------------------------- ------- ---------- ----------
Net acquisition-related costs and fair value adjustments
comprises acquisition costs of GBP1.7m (30 June 2016: GBP2.2m; 31
December 2016: GBP4.5m) that have been recognised in the Condensed
Consolidated Income Statement under IFRS 3 (Revised) 'Business
Combinations' and other fair value adjustments resulting in a debit
of GBPnil (30 June 2016: debit of GBP3.5m; 31 December 2016: debit
of GBP5.6m). 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 GBP0.9m (30 June
2016: GBP3.1m; 31 December 2016: GBP5.4m) have been excluded from
the adjusted operating cash flow.
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 focused 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 PANalytical and Particle Measuring
Systems.
-- Test and Measurement supplies test, measurement and analysis
equipment, software and services for product design optimisation
and validation, manufacturing control, microseismic monitoring and
environmental noise monitoring. The operating companies in this
segment are Brüel & Kjær Sound & Vibration, ESG Solutions,
HBM and Millbrook.
-- 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.
2017
Materials Test and In-line Industrial Total
Half
Analysis Measurement Instrumentation Controls year
Information about reportable
segments GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- ------------ ---------------- ----------- -------
Segment revenues 199.9 223.3 148.5 139.4 711.1
Inter-segment revenue (0.4) (0.1) (0.1) (0.5) (1.1)
External revenue 199.5 223.2 148.4 138.9 710.0
------------------------------------- ---------- ------------ ---------------- ----------- -------
Reportable segment adjusted
operating profit for continuing
operations 20.5 20.4 7.4 18.2 66.5
Net acquisition-related costs
and fair value adjustments (0.8) (0.1) (0.5) (0.3) (1.7)
Depreciation of acquisition-related
fair value adjustments to
tangible assets - (0.4) - - (0.4)
Amortisation of acquisition-related
intangible assets (7.6) (7.3) (1.5) (5.9) (22.3)
------------------------------------- ---------- ------------ ---------------- ----------- -------
Operating profit 12.1 12.6 5.4 12.0 42.1
Financial income* 0.2
Finance costs* (4.7)
------------------------------------- ---------- ------------ ---------------- ----------- -------
Profit before tax 37.6
Tax* (5.7)
------------------------------------- ---------- ------------ ---------------- ----------- -------
Profit after tax 31.9
------------------------------------- ---------- ------------ ---------------- ----------- -------
2016
Materials Test and In-line Industrial Total
Half
Analysis Measurement Instrumentation Controls year
GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------
Segment revenues 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 adjusted
operating 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 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
------------------------------------- ---------- ------------ ---------------- ----------- -------
2016
Materials Test and In-line Industrial Total
Full
Analysis Measurement Instrumentation Controls year
GBPm GBPm GBPm GBPm GBPm
-------------------------------------
Segment revenues 419.0 404.7 275.6 247.5 1,346.8
Inter-segment revenue (0.1) (0.2) - (0.7) (1.0)
------------------------------------- ---------- ------------ ---------------- ----------- --------
External revenue 418.9 404.5 275.6 246.8 1,345.8
------------------------------------- ---------- ------------ ---------------- ----------- --------
Reportable segment adjusted
operating profit for continuing
operations 76.2 61.8 41.2 21.6 200.8
Net acquisition-related
costs and fair value adjustments (0.2) (2.1) (0.3) (7.5) (10.1)
Depreciation of acquisition-related
fair value adjustments
to tangible assets - (0.2) - - (0.2)
Amortisation of acquisition-related
intangible assets (9.8) (11.9) (3.3) (11.9) (36.9)
Impairment of goodwill
and other acquisition-related
intangible assets - (20.9) - (94.4) (115.3)
------------------------------------- ---------- ------------ ---------------- ----------- --------
Operating profit 66.2 26.7 37.6 (92.2) 38.3
Financial income* 0.5
Finance costs* (6.9)
------------------------------------- ---------- ------------ ---------------- ----------- --------
Profit before tax 31.9
Tax* (21.6)
------------------------------------- ---------- ------------ ---------------- ----------- --------
Profit after tax 10.3
------------------------------------- ---------- ------------ ---------------- ----------- --------
* 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.
Segments are presented on the basis of actual inter-segment charges
made.
Carrying amount of Carrying amount of segment
segment assets liabilities
------------------------------ -------------------------------
2017 2016 2016 2017 2016 2016
Half Half Half Full
year year Full year year Half year year
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- -------- ---------- --------- ---------- --------
Materials Analysis 386.3 375.4 400.6 (105.9) (97.9) (118.2)
Test and Measurement 579.5 404.1 581.7 (119.3) (89.5) (104.5)
In-line Instrumentation 270.9 250.7 271.5 (49.7) (42.3) (53.4)
Industrial Controls 354.7 465.3 378.9 (33.1) (24.7) (31.6)
-------------------------------- -------- -------- ---------- --------- ---------- --------
Total segment assets
and liabilities 1,591.4 1,495.5 1,632.7 (308.0) (254.4) (307.7)
Cash and borrowings 61.2 72.9 83.5 (216.7) (176.4) (234.4)
Derivative financial
instruments 0.4 - - - (5.3) (4.2)
Retirement benefit liabilities - - - (36.2) (41.6) (40.3)
Taxation 15.8 17.9 15.8 (60.2) (67.6) (78.0)
Consolidated total assets
and liabilities 1,668.8 1,586.3 1,732.0 (621.1) (545.3) (664.6)
-------------------------------- -------- -------- ---------- --------- ---------- --------
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 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:
2017 2016 2016
Half Half Full
year year year
GBPm GBPm GBPm
----------------------- ------ ------ --------
UK 39.2 19.9 55.4
Germany 67.7 51.6 125.8
France 21.6 19.3 43.4
Rest of Europe 97.4 83.4 186.9
USA 217.8 186.2 409.8
Rest of North America 23.6 20.4 46.0
Japan 39.6 31.5 73.6
China 88.6 76.9 176.3
South Korea 23.2 15.5 43.4
Rest of Asia 59.1 48.2 113.7
Rest of the World 32.2 28.5 71.5
------------------------- ------ ------ --------
710.0 581.4 1,345.8
----------------------- ------ ------ --------
4. Financial Income and Finance Costs
2017 2016 2016
Half Half Full
year year year
Financial income GBPm GBPm GBPm
--------------------- ------ ------ ------
Interest receivable 0.2 0.2 0.5
----------------------- ------ ------ ------
2017 2016 2016
Half Half Full
year year year
Finance costs GBPm GBPm GBPm
------------------------------------------------- ------ ------ ------
Interest payable on loans and overdrafts 2.6 2.4 5.1
Unwinding of discount factor on deferred
and contingent consideration 0.4 - 0.6
Net losses on retranslation of short-term
inter-company loan balances 1.4 3.2 0.8
Net interest cost on pension scheme obligations 0.3 0.2 0.3
Other finance costs - - 0.1
--------------------------------------------------- ------ ------ ------
4.7 5.8 6.9
------------------------------------------------- ------ ------ ------
Net interest costs of GBP2.4m (30 June 2016: GBP2.2m; 31
December 2016: GBP4.6m) for the purposes of the calculation of
interest cover comprise bank interest receivable of GBP0.2m (30
June 2016: GBP0.2m;
31 December 2016: GBP0.5m), and interest payable on loans and
overdrafts of GBP2.6m (30 June 2016: GBP2.4m;
31 December 2016: GBP5.1m).
5. Tax on Profit on Ordinary Activities
The income tax charge for the six months to 30 June 2017 is
based on an estimate of the effective rate of taxation for the full
year after taking into account discrete items arising in the
period. Including the impact of discrete items, the effective rate
of taxation applied to adjusted profit before tax for the half year
is 21.0% (30 June 2016: 23.0%; year ended 31 December 2016: 22.4%).
A reconciliation of the tax charge on adjusted profit to the actual
tax charge is presented below.
2017 2016 2016
Half Half Full
year year year
GBPm GBPm GBPm
---------------------------------------------------- ------ ------ -------
The income tax charge is analysed as follows:
Tax charge on adjusted profit before tax 13.4 15.3 43.9
Tax credit on net acquisition-related costs
and fair value adjustments (0.5) (0.3) (1.7)
Tax credit on depreciation of acquisition-related
fair value adjustments to tangible assets (0.1) - -
Tax credit on amortisation of acquisition-related
intangible assets (6.9) (5.3) (12.3)
Tax credit on impairment of goodwill and other
acquisition-related intangible assets - - (5.1)
Tax charge/(credit) on retranslation of short-term
inter-company loan balances (0.1) 0.3 0.2
Tax credit on unwinding of discount factor
on deferred and contingent consideration (0.1) - (0.3)
Tax credit relating to prior year acquisitions - - (3.1)
Total 5.7 10.0 21.6
------------------------------------------------------ ------ ------ -------
6. Dividends
The final 2016 dividend of 34.0p per share (2015 final dividend:
32.2p) was paid on 30 June 2017 to ordinary shareholders on the
register at the close of business on 26 May 2017.
The interim 2017 dividend of 19.0p per share (2016 interim
dividend: 18.0p) will be payable on
10 November 2017 to ordinary shareholders on the register at the
close of business on 13 October 2017. The ex-dividend date is 12
October 2017.
The estimated interim dividend to be paid is GBP22.6m and has
not been recognised in these accounts.
7. Earnings per Share
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).
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.
2017 2016 2016
Half Half Full
Basic earnings per share year year year
----------------------------------------------- ------ ------ ------
Profit after tax (GBPm) 31.9 31.0 10.3
Weighted average number of shares outstanding
(millions) 119.2 119.1 119.1
------------------------------------------------ ------ ------ ------
Basic earnings per share (pence) 26.8 26.0 8.6
------------------------------------------------ ------ ------ ------
2017 2016 2016
Half Half Full
Diluted earnings per share year year year
------ ------ ------
Profit after tax (GBPm) 31.9 31.0 10.3
Basic weighted average number of shares
outstanding (millions) 119.2 119.1 119.1
Weighted average number of dilutive 5p ordinary
shares under option (millions) 0.8 0.3 0.8
Weighted average number of 5p ordinary shares
that would have been issued at average market
value from proceeds of dilutive share options
(millions) (0.3) (0.1) (0.3)
------
Diluted weighted average number of shares
outstanding (millions) 119.7 119.3 119.6
-------------------------------------------------- ------ ------ ------
Diluted earnings per share (pence) 26.7 26.0 8.6
-------------------------------------------------- ------ ------ ------
8. Financial Instruments
2017
Half
year
Level Level
2 3 Carrying
fair value fair value amount
Fair value and carrying amount of financial
instruments GBPm GBPm GBPm
--------------------------------------------------- ----------- ----------- ---------
Trade and other receivables excluding prepayments
and accrued income - - 249.5
Trade and other payables excluding deferred
income - (14.8) (236.5)
Cash and cash equivalents - - 61.2
Floating rate borrowings - - (31.4)
Fixed rate borrowings (192.6) - (185.3)
Forward exchange contracts 0.4 - 0.4
(142.1)
--------------------------------------------------- ----------- ----------- ---------
2016
Half
year
Level Level
2 3 Carrying
Fair Fair
value value amount
Fair value and carrying amount of financial
instruments GBPm GBPm GBPm
--------------------------------------------------- -------- ------- ---------
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)
--------------------------------------------------- -------- ------- ---------
2016
Full
year
Level Level
2 3 Carrying
Fair Fair
value value amount
Fair value and carrying amount of financial
instruments GBPm GBPm GBPm
--------------------------------------------------- -------- ------- ---------
Trade and other receivables excluding prepayments
and accrued income - - 280.2
Trade and other payables excluding deferred
income - (16.2) (246.5)
Cash and cash equivalents - - 83.5
Floating rate borrowings - - (53.3)
Fixed rate borrowings (189.9) - (181.1)
Forward exchange contracts (4.2) - (4.2)
(121.4)
--------------------------------------------------- -------- ------- ---------
2017
Half
year
Deferred Level
and contingent 3
fair
consideration value
Reconciliation of level 3 fair values GBPm GBPm
----------------------------------------------------- ---------------- -------
At 1 January 2017 (16.2) (16.2)
Deferred and contingent consideration paid 1.8 1.8
Costs charged to the Consolidated Income Statement:
Unwinding of discount factor on deferred and
contingent consideration (unrealised) (0.4) (0.4)
Balance at 30 June 2017 (14.8) (14.8)
------------------------------------------------------ ---------------- -------
2016
Half
year
Deferred Level
and contingent 3
fair
consideration value
Reconciliation of level 3 fair values GBPm GBPm
------------------------------------------------ ---------------- -------
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
Loss recognised in Other Comprehensive Income:
Foreign exchange difference (0.9) (0.9)
Balance at 30 June 2016 (7.7) (7.7)
------------------------------------------------- ---------------- -------
2016
Full
year
Deferred Level
and contingent 3
fair
consideration value
Reconciliation of level 3 fair values GBPm GBPm
----------------------------------------------------- ---------------- -------
At 1 January 2016 (7.0) (7.0)
Deferred and contingent consideration arising
from acquisitions (7.6) (7.6)
Deferred and contingent consideration paid 2.6 2.6
Costs charged to the Consolidated Income Statement:
Adjustments outside of the measurement period (2.1) (2.1)
Unwinding of discount factor on deferred and
contingent consideration (unrealised) (0.6) (0.6)
Loss recognised in Other Comprehensive Income:
Foreign exchange difference (1.5) (1.5)
Balance at 31 December 2016 (16.2) (16.2)
------------------------------------------------------ ---------------- -------
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 2016.
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;
-- Level 2 - inputs other than quoted prices include within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- 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 cross-currency
interest rate swaps are determined using the discounted cash flow
techniques based on readily available market data.
9. Treasury Shares
At 30 June 2017, the Group held 5,787,411 treasury shares (30
June 2016: 5,846,739; 31 December 2016: 5,840,513). During the
period 53,102 of these shares were issued to satisfy options
exercised by employees which were granted under the Group's share
schemes (30 June 2016: 52,169; 31 December 2016: 58,395). No shares
were repurchased by the Group during the period (30 June 2016: nil;
31 December 2016: nil) and no shares were cancelled during the
period (30 June 2016: nil; 31 December 2016: nil).
10. Acquisitions
On 6 February 2017, the Group acquired 99% of the share capital
of Pixirad Imaging Counters S.r.l. (Pixirad), a supplier based in
Italy, for a total consideration of GBP2.8m. The company develops
and distributes high performance X-ray detectors. 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: technology and goodwill of GBP1.1m and GBP1.7m,
respectively. The goodwill arising is attributable to the acquired
workforce and synergies from leveraging the customer base to
optimise the sales potential of Pixirad's and Spectris products.
Goodwill includes an amount of GBP0.3m representing the requirement
to recognise a net deferred tax liability on the fair value
adjustments. The business is being integrated into the Materials
Analysis segment. The remaining 1% of share capital will shortly be
purchased. The non-controlling interest has not been disclosed as
it is not significant.
On 15 May 2017, the Group acquired the trade and certain assets
of Setpoint, a US business, for a total consideration of GBP8.0m.
This extends the Group's capabilities in the condition monitoring
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: customer-related (customer
relations), technology and goodwill of GBP0.3m, GBP2.4m and
GBP4.6m, respectively. The goodwill arising is attributable to the
acquired workforce, opportunities expected from the extension of
the Group's product offerings leveraging its stronger position in
the vibration and condition monitoring solutions, and sharing
capabilities and technologies in value-added solutions. The
business is being integrated into the In-line Instrumentation.
The revenue and operating profit contribution from the
acquisitions above to the Group's results for the period were
GBP29.0m and GBP1.6m, respectively. Group revenue and operating
profit would have been GBP711.0m and GBP41.8m (adjusted operating
profit: GBP65.8m), 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.
2017
Book Half year
value Adjustments Fair value
Net assets acquired GBPm GBPm GBPm
------------------------------------------------ ---------- ----------- -----------
Intangible fixed assets 0.1 3.7 3.8
Inventories 0.2 (0.1) 0.1
Trade and other receivables 1.0 - 1.0
Trade and other payables (0.1) - (0.1)
Deferred tax liabilities - (0.3) (0.3)
Net assets acquired 1.2 3.3 4.5
Goodwill 6.3
-------------------------------------------------- ---------- ----------- -----------
Total cash paid 10.8
-------------------------------------------------- ---------- ----------- -----------
Acquisitions prior to 2017
-------------------------------------------------------------- ----------- -----------
Deferred and contingent consideration in relation
to prior years' acquisitions:
Accrued at 31 December 2016 1.8
Cash paid in 2017 in respect of prior years' acquisitions 1.8
-------------------------------------------------------------- ----------- -----------
Net cash outflow relating to acquisitions for the
period 12.6
-------------------------------------------------------------- ----------- -----------
Due to the contractual due dates, the fair value of receivables
acquired approximates to the gross contractual amounts receivable.
The amount of gross contractual receivables not expected to be
recovered is immaterial.
GBP4.6m (30 June 2016: GBP0.5m; 31 December 2016: GBP0.5m) of
the goodwill arising on acquisitions in the period is expected to
be amortised and deductible for tax purposes.
During 2016, the Group acquired the following businesses:
-- On 23 February 2016, the Group acquired 100% of the share
capital of CAS Clean Air Service AG ('CAS'), a company based in
Switzerland, which extends the Group's capabilities in monitoring
and calibration services within the life sciences market.
-- On 7 June 2016, the Group acquired the trade and certain
assets of Integrated Process Systems ('IPS') India, an Indian
agent.
-- On 17 June 2016, the Group acquired 100% of the share capital
of Capstone Technology Corporation, a company based in the USA,
which broadens the Group's solutions offering in the pulp and paper
market.
-- On 1 July 2016, the Group acquired the trade and certain
assets of Sound and Vibration Technology Limited, a UK business,
expanding the Group's software solutions offering to the automotive
market.
-- On 26 July 2016, the Group acquired 100% of the share capital
of DISCOM - Elektronische Systeme und Komponenten GmbH, a company
based in Germany, which extends the Group's integrated solutions
combining hardware and software to enhance production quality and
identify potential problems in manufacturing processes.
-- On 1 September 2016, the Group acquired 100% of the share capital of Millbrook Group Limited ('Millbrook'), a company based in the UK with operations in Finland, which extends the Group's capabilities to provide test, validation and engineering services to the automotive, transport and tyre, petrochemical, defence and securities industries, utilising its proving grounds in the UK and Finland.
Full details of these acquisitions are included in the
Consolidated Financial Statements for the year ended
31 December 2016.
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 2016 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 2017, the Group acquired the trade and certain assets
of CSA Leyland Technical Centre, a company based in the UK, which
extends the Group's automotive testing facilities. 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 LLFEADEISFID
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