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RNS Number : 0203G
Spectris PLC
27 February 2015
 

SPECTRIS PLC

2014 YEAR END RESULTS

27 February 2015 - Spectris plc (SXS: LSE), the productivity-enhancing instrumentation and controls company, announces preliminary results for the year ended 31 December 2014.

 

 

2014

2013

Change

Change at

CER**

Like-for-like

change***

Sales, £m*

1,173.7

1,197.8

-2%

+3%

+2%

Operating profit, £m*

198.1

214.7

-8%

-4%

-6%

Profit before tax, £m*

192.5

205.6

-6%

 

 

Earnings per share, pence*

124.4p

132.9p

-6%

 

 

Return on sales, %*

16.9%

17.9%

-1.0pp

 

 

Dividend, pence

46.5p

42.75p

+9%

 

 

Statutory

 

 

 

Sales, £m

1,173.7

1,202.0

-2%

 

 

Operating profit, £m

168.3

185.9

   -9%

 

 

Profit before tax, £m

171.1

271.7

-37%

 

 

Basic earnings per share, pence

113.7p

 169.2p

-33%

 

 

*         The adjusted performance measures represent the statutory results excluding certain non-operational items. 2013 comparatives have been restated to exclude the trading results and impact of the disposal of the Fusion UV business on 31 January 2013.

**      Constant exchange rates (CER).  

***    Constant exchange rates (CER) excluding acquisitions.

 

Highlights

•      Like-for-like (LFL) sales growth of 2%, with improved growth in the second half

•      Good performance from Test and Measurement, In-line Instrumentation and Industrial Controls, with combined LFL sales growth of 4%

•      Materials Analysis LFL sales declined 3% due to weak demand in the metals, minerals and mining industries

•      Six acquisitions completed in 2014

•      Continued strong operating cash conversion of 89%

•      Dividend up by 9%

 

Commenting on the outlook, John O'Higgins, Chief Executive, said: "Trading in 2014 was principally driven by a strong North American performance, partly offset by more challenging conditions in the Eurozone and China. Assuming a similar macroeconomic environment in 2015, we expect to deliver progress as we benefit from our investment in new products and from the acquisitions made during 2014 and the early part of 2015. These investments, together with our broad end-market exposure and  strong financial position, provide the Board of Spectris with confidence that the Company is well-positioned for 2015 and beyond."

Contacts:

Spectris plc

 

John O'Higgins, Chief Executive

+44 1784 470470

Clive Watson, Group Finance Director

+44 1784 470470

Matt Jones, Head of Corporate Affairs

+44 1784 470470

 

 

FTI Consulting

 

Richard Mountain / Susanne Yule

+44 203 727 1374

 

The meeting with analysts will be available as a live webcast on the company's website at www.spectris.com, commencing at 10.00 GMT, and a recording will be posted on the website shortly after the meeting.

Copies of this notice 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, technologies and services enable 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 over 8,000 people, with offices in more than 30 countries. For more information, visit www.spectris.com.

 

CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW

Results overview

Following a good fourth quarter, the Group delivered full-year sales growth of 2% on a constant currency organic (like-for-like, "LFL") basis(1). Reported sales(2) declined by 2% to £1,173.7 million, with a one percentage point contribution from acquisitions being more than offset by  a five percentage point adverse impact from foreign currency exchange movements. There was a good performance from three of our four business segments, with combined sales growth of 4% across the Test and Measurement, In-line Instrumentation and Industrial Controls segments. Sales declined by 3% in the Materials Analysis segment, although it did recover to deliver good growth in the fourth quarter. This segment faced weak demand in the metals, minerals and mining industries, which was only partially offset by sales growth in the pharmaceutical and semiconductor sectors. More detail on the contribution made by each of the four business segments can be found in the Operating Review which follows.

Regionally, sales to North America grew by 6%. Sales to Asia Pacific increased by 1%, with good growth in Japan offset by a flat performance in China and a slight decline elsewhere in the region. In Europe, sales declined by 1%, with strong growth in the UK offset by weakness in Germany and other Eurozone economies, particularly during the second half of the year. Sales to Germany declined by 3% in the year. Sales to the Rest of the world declined by 1%, with good sales growth in Brazil offset by a decline in sales to both Africa and Russia, the latter due to the imposition of economic sanctions early in the year.

On a reported basis, adjusted operating profit(3) declined by 8% to £198.1 million and LFL operating profit decreased by 6%. Sales growth of 2% was insufficient to offset the combined effect of a lower gross margin arising from sales mix, anticipated headcount increases, investments in our strategic growth initiatives and overhead cost inflation. Consequently, operating margins declined by one percentage point on a LFL basis to 16.9%. Net interest charges decreased by £3.5 million to £5.6 million, principally reflecting lower average net debt levels and a reduced average interest rate. The combined effect of the above movements was a decline of 6% in adjusted profit before tax from £205.6 million to £192.5 million.

Financial position and dividend

Operating cash flow continued to be strong, with 89% of our operating profit being converted into cash. Combined with normal dividend and tax outflows and the consideration paid for the six acquisitions made during the year, this resulted in net debt increasing by £21.5 million compared to the end of 2013. At year end, net debt stood at £125.6 million, around 0.6 times the full-year EBITDA of £219.8 million.

The Board is proposing to pay a final dividend of 30.5 pence per share which, combined with the interim dividend of 16.0 pence per share, gives a total of 46.5 pence per share for the year, an increase of 9%. The dividend is covered 2.7 times. This is consistent with our policy of making progressive dividend payments based upon affordability and sustainability. The dividend will be paid on 26 June 2015 to shareholders on the register at the close of business on 29 May 2015.

Strategy

We have a clearly-defined strategy and in 2014 we maintained our focus and investment on our key strategic growth initiatives.

We continued to invest in innovation and new product development, increasing R&D spend broadly in line with sales growth to £86.5 million and launching new products across all segments. R&D expenditure as a percentage of sales remained at 7.4% for the full year. We believe that this investment will further strengthen our market positions and leaves the Group well placed to deliver good growth rates through the cycle.

Our drive to expand Omega Engineering ("Omega") beyond its predominantly US customer base to become a global business continued in 2014. In January 2014, we opened an office in Japan, supplementing previous investments in China, Korea, Singapore, Brazil and Mexico. Since then we have further strengthened Omega's presence in Europe and Asia through additional investment in digital marketing and local operational capabilities in these regions. It is pleasing to see that this investment in the geographic expansion of Omega is starting to show results, with good sales performance in 2014, particularly in Asia. 

We made six acquisitions during 2014, investing a total of £94.1 million, adding a new business within the Test and Measurement segment and boosting the growth prospects of several of our existing businesses. A new strategic growth platform was created in the Test and Measurement segment with the addition of ESG Solutions ("ESG") in December. ESG is a leading supplier of microseismic monitoring equipment and analysis solutions. Its technology enables its customers, who are primarily in the oil and gas and mining sectors, to optimise production and improve their return on investment. We believe that there is a significant opportunity to strengthen ESG's market position, expand internationally and accelerate its growth, both organically and via further acquisitions.

The other five acquisitions (four in the Materials Analysis segment and one in the Test and Measurement segment) all strengthen existing businesses, bringing new technologies and customer access. Two of the acquisitions in Materials Analysis increase our presence in the life science sector, a fast-growing market that we identified as a key growth opportunity in early 2012. Since then we have invested both through in-house product development and strategic bolt-on acquisitions to develop this new business stream. We remain encouraged by the progress we have made to date and the growth prospects for this business in 2015 and beyond.

Since the end of 2014, we have invested a further £28.0 million on another bolt-on acquisition: ReliaSoft, a reliability engineering software business that is being integrated into an existing software business in Test and Measurement. More information on all of these acquisitions can be found within the Operating Review which follows.

Management and Board

There were a number of changes to Spectris' Executive Committee in 2014. Eoghan O'Lionaird joined the committee on 3 February and assumed Jim Webster's responsibilities for the Materials Analysis and Test and Measurement segments. Before joining Spectris, Eoghan was president of the Leica Microsystems division of Danaher Corporation in Germany. Jo Hallas joined on 16 May, taking on responsibility for the In-line Instrumentation and Industrial Controls segments following the departure of Steve Blair. Jo was formerly general manager of Residential Controls at Invensys plc.

There were also a number of changes to the composition of the Board of Spectris during the year. On 25 April, Lisa Davis joined the Board as a Non-executive Director. Lisa is now a member of the Siemens AG managing board and chair of Siemens Corporation in the US. On 19 December, we announced that Bill Seeger and Ulf Quellmann would join the Board as Non-executive Directors with effect from 1 January 2015. In addition, Bill will assume the role of Chairman of the Audit and Risk Committee from John Warren with immediate effect. Bill was previously group finance director of GKN plc up until August 2014, a position he had held for seven years, and prior to that spent over 20 years in senior finance roles within the automotive and aerospace industries. He currently serves as chairman of the audit committee at Smiths Group plc. Ulf is currently global head of treasury at Rio Tinto plc, having worked in the metals, minerals and mining industry for the past 12 years. Prior to that he held a number of senior management roles at General Motors.

After nine years of service, John Warren will retire as a Non-executive Director of Spectris plc immediately following the Annual General Meeting on 24 April 2015. With effect from 1 January 2015, he stood down as Senior Independent Director and Russell King has assumed this role in addition to remaining Chairman of the Remuneration Committee.

Lisa, Bill and Ulf bring significant knowledge and relevant experience in the energy, automotive and aerospace and mining industries respectively, and their expertise will be a valuable addition to the Board. We would like to thank John Warren for the significant contributions he has made to the Spectris Board since his appointment in 2006, and wish him well for the future following his retirement from the Board in April.

Spectris' values

Our values are central to Spectris, guiding our decision-making and ensuring that we always comply with the highest standards, wherever we are in the world. We want to be a company that our people are proud to work for, where they feel valued, motivated and capable of reaching their full potential. We believe that our values are pivotal to our success and growth and this has been demonstrated by the relentless commitment given by all our employees across the world during the year. In October, we conducted our first ethics survey, an independently-run anonymous survey to help us assess our ethical culture and the effectiveness of our ethics programme. The feedback from the survey, which in aggregate was very positive, will help us continue to evolve and improve our programme during the course of 2015 and beyond.

Summary and outlook

Trading in 2014 was principally driven by a strong North American performance, partly offset by more challenging conditions in the Eurozone and China. Assuming a similar macroeconomic environment in 2015, we expect to deliver progress as we benefit from our investment in new products and from the acquisitions made during 2014 and the early part of 2015. These investments, together with our broad end-market exposures and strong financial position, provide the Board of Spectris with confidence that the Company is well positioned for 2015 and beyond.

(1) Unless otherwise stated, references to sales increases/decreases going forward relate to the LFL sales increase/decrease rather than the reported sales increase/decrease.

(2) The numbers stated in this report have been restated to exclude the trading results and impact of the disposal of the Fusion UV business which was sold on 31 January 2013.

(3) Unless otherwise stated, figures quoted for operating profit, net interest, profit before tax, tax, earnings per share and operating cash flow are adjusted measures - for an explanation of adjusted figures and reconciliation to the statutory reported figures see Note 2 to the Financial Statements.

 

OPERATING REVIEW

 

Materials Analysis

Test and Measurement

In-line Instrumentation

Industrial Controls

Total

 

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

Sales (£m)

348.8

362.4

342.9

348.7

261.4

265.7

220.6

221.0

1,173.7

1,197.8

LFL growth

-3%

2%

4%

-1%

3%

-1%

5%

-

2%

-

Adj. operating profit (£m)

53.3

63.3

52.2

54.8

48.0

51.2

44.6

45.4

198.1

214.7

% ROS

15.3%

17.5%

15.2%

15.7%

18.4%

19.3%

20.2%

20.6%

16.9%

17.9%

% Total

group sales

30%

30%

29%

29%

22%

22%

19%

19%

 

 

% After sales *

31%

29%

20%

21%

41%

43%

1%

3%

24%

25%

* After sales comprises service revenues and sales of consumables and spare parts

MATERIALS ANALYSIS

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

Segment performance

 

2014

2013

% change

% change
like-for-like

Sales (£m)

348.8

362.4

-4%

-3%

Operating profit (£m)

53.3

63.3

-16%

-20%

Return on sales (%)

15.3

17.5

-2.2pp

-3.0pp

% of total group sales

30

30

-

 

After sales (%)

31

29

2pp

 

 

Like-for-like ("LFL") sales for Materials Analysis declined by 3% in 2014, whilst reported sales declined by 4%. Acquisitions contributed four percentage points to reported sales growth whilst foreign currency exchange movements adversely impacted reported sales growth by five percentage points. The LFL sales decline primarily reflected weakness in the metals, minerals and mining industries and first-half weakness in the academic research sector, partially offset by sales growth in the pharmaceutical and semiconductor sectors. Operating profit and operating margins declined on a LFL basis, reflecting low sales, adverse product and geographic mix and costs incurred in relation to new product launches in the life science sector. 

Sales to the pharmaceutical sector increased, driven by growing demand from biopharmaceutical and generic drug manufacturers, particularly in North America, though Asia and Europe also grew. There remain significant opportunities in the biopharmaceutical industry, which is already growing strongly and has around 5,000 biotherapeutics drugs in development. During 2014 we continued our investment in the development of solutions focussed on this industry, launching a number of new platforms, including the Zetasizer Helix, which can be used to characterise protein size and structure. Additionally, we completed the acquisitions of MicroCal™ and the trade and assets of Affinity Biosensors. MicroCal is a leading provider of microcalorimetry instruments for material research with particular applications in biomolecular applications, whilst with Affinity Biosensors we obtained the Archimedes™ instrument, which accurately measures the density of individual particles, molecules and cells. Combined with the acquisition of NanoSight in September 2013, these additions to the Materials Analysis segment enhance our existing portfolio of solutions across the life science market. 

The metals, minerals and mining sector was challenging in 2014, notably in China, Australia and Indonesia where there was a significant decline in new commodity-related infrastructure investment as customers focussed on improving their returns on existing investments in the face of slowing global commodity demand. In addition, many large projects in China were postponed or subject to extended tendering processes and other delays. We continued to develop new products and applications for this market, launching the upgraded X-Ray Fluorescence ("XRF") benchtop system, the Epsilon 3x. We have been pleased with the initial customer response to this system, and indeed to our entire portfolio of benchtop systems, particularly within the North American market. In June, we acquired La Corporation Scientifique Claisse, thereby enhancing our presence within the XRF sample preparation market, primarily for mining, pharmaceutical and industrial applications, whilst also increasing our sales of consumables used for sample preparation to customers in this market. The integration of this business is progressing well.

Sales to academic research institutes were broadly flat, as the decline experienced in the first half was offset by good growth in the second half. After a weak first half, sales to Chinese universities grew strongly in the second half, benefitting from environmental projects to improve river water quality and energy storage across China. There was also good growth from the UK academic sector in the second half.

Demand in the semiconductor sector improved as the year progressed, reflecting more favourable market conditions and an increased rate of new product introductions. The acquisition of our distributor in South Korea during the second half of 2014 also contributed to our growth in this sector.

 Segment outlook

After three consecutive quarters of sales decline, this segment returned to growth in the fourth quarter and we expect to show good progress in 2015, boosted by new product launches and the acquisitions made in the past 18 months. Continued investment in new products should deliver progress in the pharmaceutical, life science and semiconductor sectors, albeit we expect slower growth in the Chinese (small molecule) pharmaceutical market as compliance with new regulations, which generated good growth in 2013 and early 2014, has now been achieved. We expect the academic research market to remain subdued given public sector budget constraints. Demand from the metals, minerals and mining sector is expected to remain low in 2015; while there are some early signs that demand is stabilising, the timing of any recovery remains uncertain.

 

TEST AND MEASUREMENT

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

Segment performance

 

2014

2013

% change

% change
like-for-like

Sales (£m)

342.9

348.7

-2%

+4%

Operating profit (£m)

52.2

54.8

-5%

+1%

Return on sales (%)

15.2

15.7

-0.5pp

-0.5pp

% of total group sales

29

29

-

 

After sales (%)

20

21

-1pp

 

 

Like-for-like ("LFL") sales for Test and Measurement increased by 4% in 2014. Reported sales declined by 2% due to a six percentage point adverse impact from foreign currency exchange movements. LFL operating profit improved by 1% and operating margins decreased by 0.5 percentage points to 15.2%, primarily reflecting investments in our engineering software business and IT infrastructure together with higher personnel costs.

There was good growth in the automotive sector, particularly in North America and Japan. Growth is being driven not only by the investment cycles of the large automotive manufacturers but also rising demand from the industry to understand the noise and vibration characteristics of vehicles and engines in order to gain competitive advantages and meet legislative requirements. The industry also continues to invest in hybrid and full electric vehicles, including in China where clean energy is a priority for the government. During 2014, we launched important new products targetted at this market, such as the MX403B amplifier, the latest member of HBM's QuantumX family of systems, which measures the high voltages associated with electric car batteries, and the SomatXR data acquisition system. Both have been well received to date.

Whilst overall demand levels from the aerospace market remain solid, sales declined in 2014 following some particularly large shipments in 2013 and a second-half decline in sales to Russia.  As aerospace companies continue to focus on designing the next generation of lighter and more fuel-efficient aircraft, we launched new modules for our data analysis software which enable fatigue testing of new carbon fibre composite materials. We also purchased an optical sensors business during the fourth quarter, a bolt-on technology acquisition that will allow HBM to accelerate its growth in optical measurement and monitoring solutions for a wide range of applications, including new material development and power systems within the aerospace, automotive and power industries. We saw significant declines in the defence and space market in 2014, particularly in the second half when the imposition of economic sanctions on Russia meant we were unable to export our vibration test systems for communications satellites to this market. In addition, defence budgets have been constrained in most developed markets.

We saw continued strong growth in demand for our engineering software solutions in 2014. Customers are increasingly using software to enhance their productivity by converting engineering and process data into information that enables them to improve the quality, reliability and durability of their products, equipment and processes. In January 2015, we acquired ReliaSoft, a reliability engineering software business that will strengthen and extend our existing software applications offering.

Sales to the consumer electronics market were strong throughout the year, benefitting from large projects in North America and China as customers seek to enhance the audio quality on their electronic devices. We see opportunities to grow in this market by providing calibration services, thereby increasing the resilience of our revenues in a sector where sales patterns are often lumpy, driven by large customer projects.

We continued to develop our environmental noise monitoring business during the year, launching a service called Noise Sentinel on Demand aimed at construction and industrial markets. This service requires no capital outlay and is low cost and simple to use, enabling clients to focus on data interpretation and providing advice to their own customers.

In December, we added a third operating company to this segment following our acquisition of ESG Solutions ("ESG"). ESG is a leader in the niche market for the provision of microseismic monitoring equipment and analysis solutions, and its technology enables oil and gas and mining companies to enhance their productivity and improve their return on investment.

Segment outlook

We expect further progress in 2015, benefitting from our acquisitions and robust market conditions in the automotive, aerospace and consumer electronics sectors. We see increased opportunities for software applications to support innovation in vehicle design and engine technologies, with our new solutions such as PULSE Reflex targetted at these opportunities. We expect growing demand for measurement equipment to test new composite materials used in automotive and aircraft frames. The consumer electronics market remains attractive with good opportunities for our sound quality testing applications, although a repeat of the large projects in 2014 may not materialise. Near-term market conditions in the oil and gas and mining industries are uncertain; however, there are good prospects for the increased adoption of microseismic monitoring solutions in these markets over the coming years. The space market is likely to remain subdued whilst economic sanctions against Russia remain in place, and defence spending will also be constrained by continued pressure on government finances.

IN-LINE INSTRUMENTATION

In-line Instrumentation provides process analytical measurement, asset monitoring and online 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 Group, NDC Technologies and Servomex.

Segment performance

 

2014

2013*

% change

% change
like-for-like

Sales (£m)*

261.4

265.7

-2%

+3%

Operating profit (£m)*

48.0

51.2

-6%

-3%

Return on sales (%)*

18.4

19.3

-0.9pp

-1.2pp

% of total group sales*

22

22

-

 

After sales (%)*

41

43

-2pp

 

*Comparative numbers stated in this segment exclude the trading results and impact of the disposal of the Fusion UV business which was sold on 31 January 2013.

 

Like-for-like ("LFL") sales for In-line Instrumentation increased by 3% in 2014 but, after adjusting for a five percentage point adverse impact from foreign currency exchange movements, reported sales declined by 2%. Operating margins for the year were down by 1.2 percentage points on a LFL basis, reflecting adverse product mix, primarily in our pulp and paper business. 

In the energy and utilities market, sales were up significantly in 2014 with strong demand in China, driven particularly by legislation to reduce emissions, and good growth from the downstream petrochemical markets in North America and the Middle East. We have launched a new laser gas analyser to this sector, announced in the second half of 2014. This product is smaller and lighter than other products in the market, resulting in a significantly easier and lower cost installation for customers. In India, we benefitted from the continued expansion of one of the world's largest petrochemical producers, Reliance Industries, with substantial orders received for our gas analysis products. We also received a major contract from EDP Renewables ("EDPR") North America for the supply and retrofit installation of condition monitoring systems on several hundred wind turbines of different OEM brands in the US, together with the adoption of VibroSuite, our monitoring and surveillance software, into EDPR's systems.

In the first half of 2014, we decided to merge NDC and Beta LaserMike in order to enhance our competitive positioning in the converting, web and packaging industries. With combined specialised know-how, the new company, renamed NDC Technologies, provides customers with a broader product offering with state-of-the-art technologies. We expect that NDC Technologies will be able to increase sales penetration to a number of markets, and the integration of these businesses is progressing well. During 2014, sales to the converting, web and packaging industries showed strong growth, particularly in Europe and Asia, benefitting from new solutions such as the AccuScan 6012 gauge, the industry's first four-axis diameter and ovality gauge for measuring products up to 12mm.

Sales to the pulp and paper markets declined compared to 2013, as market conditions triggered mill closures, curtailments and de-stocking activity. While sales of our products for tissue applications grew strongly during the year, especially in North America, this was insufficient to offset lower demand for graphic coated paper, particularly in China and Europe. Trading conditions in China were also negatively impacted by project delays and increased price competition. Despite these difficult market conditions we are maintaining our focus on innovation to increase our customers' productivity, launching products such as the PROTO UF tungsten carbide coating blade to enhance our market position.

Segment outlook

Overall, we expect further progress from this segment in 2015. Whilst near-term trading conditions in the coated paper market are likely to remain challenging, we see good opportunities in the tissue industry for consumable products such as our creping blades, as well as for our process control instruments, as manufacturers continue to seek to improve their productivity. We see good medium-term growth potential across the energy and utilities sector, albeit the near-term outlook for the energy market is uncertain. We have a strong pipeline of new products and solutions to target this sector in 2015 and beyond. In the converting, web and packaging industries, new food safety regulations in the US provide good growth opportunities, whilst we also expect to see incremental benefits from the creation of the new operating company, NDC Technologies.

 

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 and Red Lion Controls.

Segment performance

 

2014

2013

% change

% change
like-for-like

Sales (£m)

220.6

221.0

-

+5%

Operating profit (£m)

44.6

45.4

-2%

+3%

Return on sales (%)

20.2

20.6

-0.4pp

-0.4pp

% of total group sales

19

19

 

 

After sales (%) 

1

3

 

 

 

Like-for-like ("LFL") sales for Industrial Controls increased by 5% in 2014 but, after adjusting for a five percentage point adverse impact from foreign currency exchange movements, reported sales were flat. LFL operating profit grew by 3% and operating margins remained above 20%, though they were down 0.4 percentage points on a LFL basis as a result of continued investment in the expansion of Omega Engineering ("Omega") and intellectual property-related legal costs.

Investment in the geographic expansion of Omega is starting to show results with good sales performance in 2014, particularly in Asia.  The opening of Omega's Japan office in January 2014 completed the initial phase of our Asian expansion programme. Since then we have further strengthened our presence in Europe and Asia through additional investment in digital marketing, development of sales staff and local operational capabilities in these regions. In the latter part of 2014, we launched a new ERP system across Omega's global organisation. This will greatly enhance Omega's back-office processes and give faster and improved insight into customer daily orders and sales. During 2014, we also increased the number of new product introductions, both through private label products and internal development. For example, in late 2014 a new wireless transmitter and Omega app was released which allows customers to use their smartphones or tablets as a data logger for temperature, pH and humidity.

This segment saw particularly strong growth in 2014 from sales into the supply chain supporting the North American oil and gas sector, where our Graphite™ series of display panels has developed a good position in the fuel distribution market. These displays are rugged and robust and provide an interface for operators to communicate and control fuel tank pumping activity to a central server. We are seeing many customers use the Graphite series on their tanks as part of their digital oilfield initiative and we are expanding our production facilities for this business to increase capacity and take advantage of growing demand. We also launched a number of new products to strengthen our industrial networking and factory automation offerings. These included the N-Tron Gigabit Power over Ethernet Plus injector, which allows factories and other industrial sites to add new technology without disrupting existing networks.

Sales growth for our track, trace and control products improved as the year progressed. This reflected easier comparator figures in the second half, together with increased activity from our major electronics customers and the successful launch in mid-2014 of AutoVISION 3.0, our latest intuitive and easy-to-use machine vision solution that automates tasks such as inspection, gauging and counting, and reads barcodes and optical characters.

Segment outlook

We expect to see further growth in this segment in the coming year and beyond. We will continue to leverage our investment in Omega and increase our emphasis on new product development and innovation. The need for our customers to improve productivity and efficiency is expected to result in increased demand for factory automation and industrial networking products, particularly in China where there is a drive to improve the return on previous capital investments. 

 

FINANCIAL REVIEW

Introduction

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined in Note 2 of the Financial Statements. Unless otherwise stated, figures quoted for operating profit, net interest, profit before tax, tax, earnings per share and operating cash flow are adjusted measures. In addition, all adjusted income statement and operating cash flow measures for 2013 have been restated to exclude the trading results and impact of the disposal of the Fusion UV business which was sold on 31 January 2013.

Operating performance

 

2014

2013

Change

Like-for-like change(1)

Sales (£m)

1,173.7

1,197.8

-2.0%

1.8%

Adjusted operating profit (£m)

198.1

214.7

-7.7%

-5.7%

Operating margin (%)

16.9

17.9

-1.0pp

-1.3pp

Statutory(2)

 

 

 

 

Sales (£m)

1,173.7

1,202.0

-2.4%

 

Operating profit (£m)

168.3

185.9

-9.5%

 

Operating margin (%)

14.3

15.5

-1.2pp

 

(1) At constant exchange rates and excluding acquisitions

(2) The statutory figures include the results of the Fusion UV business which was disposed of on 31 January 2013

 

Reported sales were down 2.0% to £1,173.7 million (2013: £1,197.8 million). The year-on-year contribution to sales from acquisitions was £17.6 million (+1.5%), but this was offset by adverse foreign exchange movements of £63.6 million (-5.3%) arising from the strengthening of Sterling against the major currencies. As a result, on an organic constant currency like-for-like ("LFL") basis, sales increased by 1.8% compared to 2013.

Gross margins were 0.5 percentage points lower than the prior year at 57.6% of sales. Excluding adverse foreign exchange movements (0.2 percentage points) and acquisitions (0.1 percentage points), LFL gross margins declined by 0.8 percentage points. Although our margins benefitted from slightly improved pricing and our on-going procurement initiatives, with 17% (2013: 15%) of our material now sourced from low-cost countries, these only partly mitigated the effects of an adverse sales mix, particularly within the Materials Analysis and In-line Instrumentation segments.

During the year, we continued to invest in our key strategic organic growth initiatives. We increased LFL R&D spend by 1.6%, investing in product development in sectors such as life science, and the geographic expansion of the Omega Engineering business continued. In addition, we merged two of our operating companies in the In-line Instrumentation segment, NDC and Beta LaserMike, into a newly-formed operating company renamed NDC Technologies. We will start to see the benefits from this merger in 2015.

The impact of the lower gross margin, combined with the investment in the strategic growth initiatives outlined above, as well as anticipated headcount increases and overhead cost inflation, all resulted in operating profit decreasing by 7.7% from £214.7 million in 2013 to £198.1 million in 2014. Acquisitions contributed 2.0% to operating profit and foreign currency exchange movements had an adverse impact of 4.0%, with the result that LFL operating profit declined by 5.7% for the year. The operating margin decreased by 1.0 percentage point from 17.9% in 2013 to 16.9% in 2014, and decreased by 1.3 percentage points on a LFL basis.

Net finance costs for the year decreased by £3.5 million to £5.6 million (2013: £9.1 million) as a result of the Group's continued strong operating cash generation (operating cash flow conversion of 89% compared with 86% in 2013), lower average net debt level for 2014 (approximately £27 million lower than in 2013) and lower interest rates. Following the successful re-financing of the higher margin US private placement debt in October 2013, the Group re-financed its main $550 million revolving credit facility in October 2014 on more favourable terms, resulting in a reduction in the Group's weighted average interest rate on debt.

Profit before tax decreased by 6.4% from £205.6 million to £192.5 million.

Statutory operating profit, after including acquisition-related intangible asset amortisation of
£25.9 million (2013: £28.9 million) and net acquisition-related costs and fair value adjustments of £3.9 million (2013: £0.7 million), decreased by 9.5% from £185.9 million to £168.3 million.

Statutory profit before tax decreased by 37% from £271.7 million in 2013 to £171.1 million in 2014, reflecting the profit recognised on the disposal of Fusion of £98.3 million in 2013.

The reconciliation of statutory to adjusted measures is shown in the table below.

 

 

2014

2014

2014

2013

2013

2013

 

IFRS (Statutory) £m

Adjustments
£m

Spectris Adjusted £m

IFRS (Statutory) £m

Adjustments(1)
£m

Spectris Adjusted £m

Sales

1,173.7

-

1,173.7

1,202.0

(4.2)

1,197.8

Gross margin

676.4

-

676.4

697.6

(2.1)

695.5

Operating profit before acquisition-related items

198.1

-

198.1

215.5

(0.8)

214.7

Amortisation of acquisition-related intangibles

(25.9)

25.9

-

(28.9)

28.9

-

Net acquisition-related costs and fair value adjustments

(3.9)

3.9

-

(0.7)

0.7

-

Operating profit

168.3

29.8

198.1

185.9

28.8

214.7

Profit on disposal of businesses

2.4

(2.4)

-

98.3

(98.3)

-

Increase in fair value of cross-currency interest rate swaps

-

-

-

0.7

(0.7)

-

Net gain/(loss) on retranslation of short-term inter-company loan balances

6.0

(6.0)

-

(4.1)

4.1

-

Net bank interest payable

(5.4)

-

(5.4)

(8.6)

-

(8.6)

Net IAS 19 (Revised) finance income

(0.1)

-

(0.1)

(0.2)

-

(0.2)

Other finance costs

(0.1)

-

(0.1)

(0.3)

-

(0.3)

Profit before tax

171.1

21.4

192.5

271.7

(66.1)

205.6

(1) Adjustments to sales, gross margin and operating profit before acquisition-related items represent the results of the Fusion UV business

Acquisitions

The Group completed six acquisitions during 2014, five of which closed in the second half of the year. The total cost of acquisitions in the year was £103.8 million (2013: £17.7 million), including
£0.9 million (2013: £1.8 million) for cash acquired. Included in the total cost of acquisitions is an amount of £11.6 million (2013: £0.5 million) attributable to the fair value of deferred and contingent consideration which is expected to be paid in future years. In addition, a net £0.3 million (2013: £1.5 million) was paid in respect of prior year acquisitions, making the net cash outflow in the year £91.6 million (2013: £16.9 million). Furthermore, an amount of £2.5 million (2013: £1.3 million) was spent on acquisition-related legal and professional fees, which makes the total acquisition-related cash outflow for the year £94.1 million (2013: £18.2 million). Acquisitions contributed £17.6 million (2013: £8.7 million) of incremental sales and £4.4 million (2013: £0.4 million) of incremental operating profit during the year.

Taxation

The effective tax rate on adjusted profit before tax was 23.2% (2013: 23.6%), a decrease of 0.4 percentage points, mainly due to a reduction in the weighted average statutory tax rate on adjusted profits and additional research and development-related tax incentives. On a statutory basis, the effective tax rate of 21.0% (2013: 26.4%, due to the tax paid and profit recognised from the disposal of the Fusion UV business) continues to be below the weighted average statutory tax rate of 28.1% (2013: 30.9%), primarily as a consequence of research and development-related tax incentives and a tax-efficient financing structure.

Earnings per share

Earnings per share decreased by 6.4% from 132.9p to 124.4p, reflecting the net impact of the 6.4% decrease in profit before tax, the reduction in our effective tax rate and the increase in the weighted average number of shares from 118.2 million in 2013 to 118.8 million in 2014.

Statutory basic earnings per share decreased by 32.8% from 169.2p to 113.7p. The difference between the two measures is shown in the table below. 

 

2014

Pence

2013

Pence

Statutory basic earnings per share

113.7

169.2

Amortisation of acquisition-related intangible assets

21.8

24.4

Net acquisition-related costs and fair value adjustments

3.3

0.6

Profit on disposal of businesses

(2.0)

(83.2)

Increase in fair value of cross-currency interest rate swaps

-

(0.6)

Net (gain)/loss on retranslation of short-term                  inter-company loan balances

(5.1)

3.5

Tax effect of the above and other non-recurring items

(7.3)

19.4

Divested businesses

-

(0.4)

Adjusted earnings per share

124.4

132.9

 

 

Cash flow

Operating cash flow

2014

£m

2013

£m

Operating profit

198.1

214.7

Depreciation and software amortisation

21.7

21.6

Working capital and other movements

(16.7)

(17.2)

Capital expenditure

(27.4)

(31.7)

Operating cash flow

175.7

187.4

Operating cash flow conversion

89%

86%

 

Non-operating cash flow

 

 

Tax paid

(43.0)

(64.1)

Net interest paid

(6.3)

(9.4)

Dividends paid

(52.3)

(47.7)

Acquisition of businesses, net of cash

(91.6)

(16.9)

Acquisition-related costs

(2.5)

(1.3)

Disposals

-

106.0

Exercise of share options

0.3

0.3

Foreign exchange

(1.8)

(4.3)

Total non-operating cash flow

(197.2)

(37.4)

Operating cash flow

175.7

187.4

Movement in net debt

(21.5)

150.0

Average trade working capital, expressed as a percentage of sales, increased to 13.3% (2013: 11.5%), a 1.8 percentage point increase. The year-end trade working capital to sales ratio increased to 15.3% from 12.7% in 2013, a 2.6 percentage point increase, of which 0.8 percentage points relates to acquisitions. Excluding acquisitions, the increase in working capital arose primarily within the Materials Analysis segment, due to higher inventory levels for new product launches and service, and the In-line Instrumentation segment, where higher inventory levels were maintained at the end of the year to meet customer demand, together with a higher level of receivables in all segments arising from the phasing of sales.

Capital expenditure during the year equated to 2.3% of sales (2013: 2.6%) and, at £27.4 million (2013: £31.7 million), was 126% of depreciation and software amortisation (2013: 147%), due to on-going investments in infrastructure projects in the Netherlands, and a new ERP system for Omega Engineering.

Overall, net debt increased by £21.5 million (2013: decrease of £150.0 million) from £104.1 million to £125.6 million. Net interest costs, excluding the financing charge arising from IAS 19 (Revised), were covered by operating profit 36.7 times (2013: 25.0 times).

Financing and treasury

The Group finances its operations from both retained earnings and third-party borrowings, with the majority of year-end net debt being at fixed rates of interest.

As at 31 December 2014, the Group had £475 million of committed facilities denominated in different currencies, consisting of a five-year £48 million term loan maturing in September 2015, a five-year £353 million revolving credit facility maturing in October 2019, and a seven-year £74 million term loan maturing in October 2020.  £317 million of the revolving credit facility was undrawn at the year end. In addition, the Group had a cash balance of £35 million and other uncommitted facilities, mainly in the form of overdraft facilities at local operations.

At the year end, the Group's borrowings amounted to £160 million, 76% of which was at fixed interest rates (2013: 84%). The ageing profile at the year end showed that 32% of year-end borrowings are due to mature within one year (2013: 1%), 0% between one and two years (2013: 31%), 22% between two and five years (2013: 14%) and 46% in greater than five years (2013: 54%). 

Currency

The Group has both translational and transactional currency exposures. Translational exposures arise on the consolidation of overseas company results into Sterling. Transactional exposures arise where the currency of sale or purchase invoices differs from the functional currency in which each company prepares its local accounts. The transactional exposures include situations where foreign currency denominated trade debtor, trade creditor and cash balances are held.

After matching the currency of revenue with the currency of costs wherever practical, forward exchange contracts are used to hedge a proportion (up to 75%) of the remaining forecast net transaction flows where there is reasonable certainty of an exposure. At 31 December 2014, approximately 50% of the estimated net Euro, US Dollar and Japanese Yen exposures for 2015 were hedged using forward exchange contracts, mainly against the Swiss Franc, Sterling, the Euro and the Danish Krone.

The largest translational exposures are to the US Dollar, Euro, Japanese Yen, Danish Krone and Swiss Franc.  Translational exposures are not hedged. The table below shows the key average exchange rates compared to Sterling during 2014 and 2013.

 

2014

(average)

2013

(average)

USD

1.65

1.56

EUR

1.24

1.18

JPY

174

153

To demonstrate the transaction and translation currency exposure faced by the Group, the table below shows the differences between the Group's consolidated revenues and costs for each of the major currencies in 2014 before reflecting the effect of transactional hedges taken out in the year.

 

Revenue and cost by major currency:

 

USD(1)

EUR(1)

GBP

JPY

Other

Total

Total sales  (£m)

496

396

75

56

151

1,174

% of sales

42%

34%

6%

5%

13%

100%

Total costs (£m)(2)

(376)

(337)

(78)

(32)

(158)

(981)

Profit before tax by currency (£m)

120

59

(3)

24

(7)

193

% of Profit before tax

62%

31%

(2%)

13%

(4%)

100%

(1) Dollar/Euro categories include tracking currencies

(2) Costs include interest of £3.6m in USD, and £2.0m in EUR

 

The above table is for overall guidance only as the phasing of income and the movement in the monthly average exchange rates during the year can have a significant effect on the impact of foreign exchange.

Defined benefit pension schemes

The Company operates a number of pension schemes throughout the Group. The net pension liability in the balance sheet (before taking account of the related deferred tax asset of £3.8 million) has increased to £14.0 million (2013: £8.2 million). The movement can be summarised as follows:


£m

Net deficit in defined benefit schemes as at 31 December 2013

(8.2)

Actuarial losses

(6.5)

Contributions in excess of current service cost

0.3

Scheme administration costs

(0.3)

Expected return on pension scheme assets net of interest costs on pension scheme liabilities

(0.1)

Exchange difference and other movements

0.8

Net deficit in defined benefit pension schemes as at 31 December 2014

(14.0)



The movement in individual plan deficits is shown in the table below:

£m

UK   

Germany

Netherlands 

Switzerland

Total
overseas

Net total

Surplus/(deficit) as at
1 January 2014

7.2

(7.2)

(1.8)

(6.4)

(15.4)

(8.2)

(Decrease)/increase in surplus/(deficit)

(3.6)

(0.5)

0.1

(1.8)

(2.2)

(5.8)

Surplus/(deficit) as at
31 December 2014

3.6

(7.7)

(1.7)

(8.2)

(17.6)

(14.0)

 

The UK plan surplus of £7.2 million at 31 December 2013 has decreased to £3.6 million at
31 December 2014 due to a reduction in the discount rate, whilst the net deficit for the overseas plans has increased by £2.2 million to £17.6 million. The increase in the net deficit is primarily due to changes in market conditions during the year, in particular a fall in the discount rates used to value the plans' liabilities.

 

PRINCIPAL RISKS AND UNCERTAINTIES

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

The current risks, together with a description of how they relate to the Group's strategy and the approach to managing them, are set out in the 2014 Annual Report which will be available on the Group's website at www.spectris.com from 24 March 2015.

The Group's audit and risk committee conducted its periodic risk review after the year end and concluded that the risks set out on pages 18-21 of the 2013 Annual Report and available at www.spectris.comcontinue to represent the current principal risks and uncertainties of the Company.

The complete list of principal risks and uncertainties contained in the 2014 Annual Report can be summarised as follows:

-     New product development

-     Intellectual property

-     Political and economic risks

-     Laws and regulations

-     Acquisitions

-     Competitive activity

-     Supply chain dependencies and disruption

-     Fluctuations in exchange rates

-     Information security

The potential impact of these risks on our strategy and financial performance and details of our specific mitigation actions are also detailed in the 2014 Annual Report.

 

 

Consolidated Income Statement

For the year ended 31 December 2014 



2014

2013


Note

£m

£m

Continuing operations








Revenue

3

1,173.7

1,202.0

Cost of sales


(497.3)

(504.4)

Gross profit


676.4

697.6





Indirect production and engineering expenses


(93.2)

(96.9)

Sales and marketing expenses


(271.3)

(268.0)

Administrative expenses


(143.6)

(146.8)

Operating profit before acquisition-related items


198.1

215.5





Net acquisition-related costs and fair value adjustments


(3.9)

(0.7)

Amortisation of acquisition-related intangible assets


(25.9)

(28.9)

Operating profit


168.3

185.9





Profit on disposal of businesses

9

2.4

98.3

Financial income

4

6.3

1.2

Finance costs

4

(5.9)

(13.7)

Profit before tax


171.1

271.7





Taxation - UK

5

(2.0)

(4.2)

Taxation - Overseas

5

(34.0)

(67.5)

Profit after tax for the period from continuing operations attributable to owners of the Parent Company


135.1

200.0





Basic earnings per share

7

113.7p

169.2p

Diluted earnings per share

7

113.4p

168.5p





Interim dividends paid and final dividends proposed for the year (per share)

6

46.50p

42.75p

Dividends paid during the year (per share)

6

44.00p

40.25p





 

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

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2014 

 



2014

2013


Note

£m

£m

Profit for the year attributable to owners of the Parent Company


135.1

200.0





Other comprehensive income:




Items that will not be reclassified to the Consolidated Income Statement:




Re-measurement of net defined benefit liability, net of foreign exchange


(5.6)

3.4

Tax on items above

5

1.5

(0.9)



(4.1)

2.5

Items that are or may be reclassified subsequently to the Consolidated Income Statement:




Net (loss)/gain on effective portion of changes in fair value of forward exchange contracts


(3.3)

0.7

Foreign exchange movements on translation of overseas operations


(5.5)

(8.5)

Currency translation differences transferred to profit on disposal of businesses


-

(1.5)

Tax on items above

5

0.5

(0.1)



(8.3)

(9.4)

Total comprehensive income for the year attributable to owners of the Parent Company


122.7

193.1

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2014

 


Share

capital

Share

premium

Retained

earnings

Translation

reserve

Hedging

reserve

Merger

reserve

Capital

Redemption

reserve

Total

equity


£m

£m

£m

£m

£m

£m

£m

£m

 

Balance at 1 January 2014

6.2

231.4

562.9

40.4

(0.2)

3.1

0.3

844.1

 

Profit for the year

-

-

135.1

-

-

-

-

135.1

 










 

Other comprehensive income:









 

Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax

-

-

-

-

(2.8)

-

-

(2.8)

 

Foreign exchange movements on translation of overseas operations

-

-

-

(5.5)

-

-

-

(5.5)

 

Re-measurement of net defined benefit liability, net of foreign exchange and tax

-

-

(4.1)

-

-

-

-

(4.1)

 

Total comprehensive income for the year

-

-

131.0

(5.5)

(2.8)

-

-

122.7

 

Transactions with owners recorded directly in equity:









 

Equity dividends paid by the Company

-

-

(52.3)

-

-

-

-

(52.3)

 

Share-based payments, net of tax

-

-

1.2

-

-

-

-

1.2

 

Share options exercised from own shares (treasury) purchased

-

-

0.3

-

-

-

-

0.3

 

Balance at 31 December 2014

6.2

231.4

643.1

34.9

(3.0)

3.1

0.3

916.0

 










 


Share

capital

Share

premium

Retained

earnings

Translation

reserve

Hedging

reserve

Merger

reserve

Capital

Redemption

reserve

Total

equity

 


 

For the year ended 31 December 2013

£m

£m

£m

£m

£m

£m

£m

£m

 

Balance at 1 January 2013

6.2

231.4

401.0

50.4

(0.8)

3.1

0.3

691.6

 

Profit for the year

-

-

200.0

-

-

-

-

200.0

 










 

Other comprehensive income:









 

Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax

-

-

-

-

0.6

-

-

0.6

 

Foreign exchange movements on translation of overseas operations

-

-

-

(8.5)

-

-

-

(8.5)

 

Foreign exchange gain on disposal of businesses taken to income statement

-

-

-

(1.5)

-

-

-

(1.5)

 

Re-measurement of net defined benefit liability, net of foreign exchange and tax

-

-

2.5

-

-

-

-

2.5

 

Total comprehensive income for the year

-

-

202.5

(10.0)

0.6

-

-

193.1

 

Transactions with owners recorded directly in equity:








 

 

Equity dividends paid by the Company

-

-

(47.7)

-

-

-

-

(47.7)

 

Share-based payments, net of tax

-

-

6.8

-

-

-

-

6.8

 

Share options exercised from own shares (treasury) purchased

-

-

0.3

-

-

-

-

0.3

 

Balance at 31 December 2013

6.2

231.4

562.9

40.4

(0.2)

3.1

0.3

844.1

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2014


2014

2013


£m

£m

ASSETS



Non-current assets



Intangible assets:



Goodwill

569.4

521.0

Other intangible assets

208.5

177.5


777.9

698.5

Property, plant and equipment

162.5

159.0

Deferred tax assets

18.3

17.0

Retirement benefit assets

3.6

7.2


962.3

881.7

Current assets



Inventories

175.7

162.0

Taxation recoverable

1.1

1.9

Trade and other receivables

232.6

215.8

Derivative financial instruments

-

3.6

Cash and cash equivalents

34.8

43.8


444.2

427.1

Total assets

1,406.5

1,308.8

LIABILITIES



Current liabilities



Short-term borrowings

(50.9)

(2.2)

Derivative financial instruments

(0.3)

-

Trade and other payables

(201.0)

(194.0)

Current tax liabilities

(28.8)

(32.6)

Provisions

(17.7)

(21.0)


(298.7)

(249.8)

Net current assets

145.5

177.3

Non-current liabilities



Medium- and long-term borrowings

(109.5)

(145.7)

Other payables

(21.6)

(14.8)

Retirement benefit obligations

(17.6)

(15.4)

Deferred tax liabilities

(43.1)

(39.0)


(191.8)

(214.9)

Total liabilities

(490.5)

(464.7)

Net assets

916.0

844.1

EQUITY



Share capital

6.2

6.2

Share premium

231.4

231.4

Retained earnings

643.1

562.9

Translation reserve

34.9

40.4

Hedging reserve

(3.0)

(0.2)

Merger reserve

3.1

3.1

Capital redemption reserve

0.3

0.3

Total equity attributable to equity holders of the Parent Company

916.0

844.1

Total equity and liabilities

1,406.5

1,308.8

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2014



2014

2013


Note

£m

£m

Cash flows from operating activities




Profit after tax


135.1

200.0

Adjustments for:




Taxation

5

36.0

71.7

Profit on disposal of businesses

9

(2.4)

(98.3)

Finance costs

4

5.9

13.7

Financial income

4

(6.3)

(1.2)

Depreciation


18.2

18.1

Amortisation of intangible assets


29.4

32.4

Acquisition-related fair value adjustments


-

(0.4)

Acquisition costs not yet paid


1.4

-

(Profit)/loss on sale of property, plant and equipment


(0.3)

0.2

Equity-settled share-based payment transactions


2.2

2.3

Operating cash flow before changes in working capital and provisions


219.2

238.5

Increase in trade and other receivables


(16.3)

(6.1)

(Increase)/decrease in inventories


(8.1)

0.7

Increase/(decrease) in trade and other payables


3.9

(11.5)

Decrease in provisions and employee benefits


(0.5)

(5.2)

Net income taxes paid


(43.0)

(64.1)

Net cash flows generated from operating activities


155.2

152.3

Cash flows from investing activities




Purchase of property, plant and equipment and software


(27.4)

(31.7)

Proceeds from sale of property, plant and equipment


2.4

1.4

Acquisition of businesses, net of cash acquired

8

(91.6)

(16.9)

Proceeds from disposal of businesses

9

-

106.0

Interest received


0.3

0.3

Net cash flows (used in)/generated from investing activities


(116.3)

59.1

Cash flows from financing activities




Interest paid


(6.6)

(9.7)

Dividends paid

6

(52.3)

(47.7)

Proceeds from exercise of share options (treasury shares)


0.3

0.3

Proceeds from borrowings


20.8

80.4

Repayment of borrowings


(8.2)

(233.8)

Net cash flows used in financing activities


(46.0)

(210.5)





Net (decrease)/increase in cash and cash equivalents


(7.1)

0.9

Cash and cash equivalents at beginning of year


41.6

39.8

Effect of foreign exchange rate changes


(2.2)

0.9

Cash and cash equivalents at end of year


32.3

41.6

 


2014

2013

Reconciliation of changes in cash and cash equivalents to movements in net debt

£m

£m

Net (decrease)/increase in cash and cash equivalents

(7.1)

0.9

Proceeds from borrowings

(20.8)

(80.4)

Repayment of borrowings

8.2

233.8

Effect of foreign exchange rate changes

(1.8)

(4.3)

Movement in net debt

(21.5)

150.0

Net debt at start of year

(104.1)

(254.1)

Net debt at end of year

(125.6)

(104.1)

 

 

 

Notes to the Accounts

 

1.  Basis of preparation and principal accounting policies

The financial information presented in the preliminary announcement for the year ended 31 December 2014 is based on, and is consistent with, that in the Group's audited Financial Statements for the year ended 31 December 2014.


Basis of accounting

The Consolidated Financial Statements have been prepared on a historical cost basis except for items that are required by IFRS to be measured at fair value, principally certain financial instruments. The Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as adopted by the European Union (adopted IFRS), and in accordance with the provisions of the Companies Act 2006.


The preliminary announcement has been prepared using consistent accounting policies. No revisions to adopted IFRS that became applicable in 2014 had a significant impact on the group's financial statements.


The preliminary announcement is presented in millions of pounds sterling rounded to the nearest one decimal place.


Basis of consolidation

The preliminary announcement sets out the Group's financial position as at 31 December 2014 and the Group's financial performance for the year ended 31 December 2014.


Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.  Associates are accounted for using the equity method of accounting and are recognised at cost.  


All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.  Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.  


Going concern

The Group's net debt balance at 31 December 2014 was £125.6m (2013: £104.1m), with available undrawn committed borrowing facilities of £316.8m (2013: £311.0m).


The Board has reviewed sensitivity analysis on the Group's forecasts to 30 June 2016, the maturity profile of its financial facilities and liabilities and the ability of the Group to refinance these obligations as they fall due. The principal liquidity and solvency risk is mitigated through its financial risk management policies. For the foreseeable future the Board has a high level of confidence that the Group will have the necessary liquid resources to meet its liabilities as they fall due and will be able to sustain its business model, strategy and operations and remain solvent, including the impact of reasonable scenarios. For this reason, it continues to adopt the going concern basis in preparing the Group's accounts. There are no key sensitivities identified in relation to this conclusion.


Significant accounting judgements and estimates       

In preparing the Group's Financial Statements, management has made judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.


Estimates and assumptions are reviewed on an on-going basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

 

Key judgements made in respect of the appropriateness of the group accounting policies relate to:


•      Impairment of goodwill. The carrying amount of goodwill has been tested for impairment by estimating the value in use of the cash-generating units to which it has been allocated;

•      Provisions against inventory. Judgement is applied to assess the level of provisions required to write down slow-moving, excess and obsolete inventory to their net realisable value;

•      Provisions for impairment of trade receivables. Judgement is applied to assess whether a trade receivable is recoverable or not, and whether the level of provision required to write down the value of the receivable to its recoverable amount is appropriate;

•      Provisions and contingent liabilities in relation to determining the risk-adjusted probability, quantum and timing of management's best estimate of future payments;

•      Defined benefit pension obligations. The defined benefit pension obligations are calculated using a number of assumptions, including future inflation, salary increases and mortality, and the obligation is then discounted to its present value using an assumed discount rate;

•      Deferred tax. The recognition of deferred tax assets is dependent on assessments of future taxable income in the relevant countries concerned; and

•      Business combinations in relation to the determination of the provisional fair value of acquired assets and liabilities at the date of acquisition.


The financial statements were approved by the Board of Directors on 27 February 2015.

 

2.  Adjusted performance measures

Spectris plc uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management has defined as amortisation and impairment of acquisition-related intangible assets, acquisition-related costs and contingent consideration fair value adjustments, acquisition-related fair value adjustments, profits or losses on termination or disposal of businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan balances, related tax effects and other tax items which do not form part of the underlying tax rate (see Note 5). In addition, all comparative income statement and operating cash flow figures have been restated to exclude the trading results and impact of the disposal of the Fusion UV business which was disposed of on 31 January 2013.

 

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

 





2014

2013

Sales




£m

£m

Sales as reported under adopted IFRS




1,173.7

1,202.0

Divested businesses




-

(4.2)

Sales excluding divested businesses




1,173.7

1,197.8








Materials

Test and

In-line

Industrial

2014


Analysis

Measurement

Instrumentation

Controls

Total

Sales by segment

£m

£m

£m

£m

£m

Sales as reported under adopted IFRS

348.8

342.9

261.4

220.6

1,173.7








Materials

Test and

In-line

Industrial

2013


Analysis

Measurement

Instrumentation

Controls

Total

Sales by segment

£m

£m

£m

£m

£m

Sales as reported under adopted IFRS

362.4

348.7

269.9

221.0

1,202.0

Divested businesses

-

-

(4.2)

-

(4.2)

Sales excluding divested businesses

362.4

348.7

265.7

221.0

1,197.8

 

The following is an analysis of revenue by geographical destination:




2014

2013


£m

£m

UK

44.4

39.9

Germany

116.7

125.4

France

39.9

46.3

Rest of Europe

171.5

177.8

USA

344.2

336.9

Rest of North America

37.5

36.3

Japan

59.4

61.3

China

153.7

159.5

South Korea

33.6

33.7

Rest of Asia Pacific

96.6

100.9

Rest of the world

76.2

79.8


1,173.7

1,197.8





2014

2013

Adjusted operating profit

£m

£m

Operating profit as reported under adopted IFRS

168.3

185.9

Net acquisition-related costs and fair value adjustments

3.9

0.7

Amortisation of acquisition-related intangible assets

25.9

28.9

Adjusted operating profit

198.1

215.5

Divested businesses

-

(0.8)

Adjusted operating profit excluding divested businesses

198.1

214.7

 







 

 

Materials

Test and

In-line

Industrial

2014


Analysis

Measurement

Instrumentation

Controls

Total

Adjusted operating profit by segment - 2014

£m

£m

£m

£m

£m

Operating profit as reported under adopted IFRS

48.0

45.7

45.6

29.0

168.3

Net acquisition-related costs and fair value adjustments

(2.3)

0.9

-

5.3

3.9

Amortisation of acquisition-related intangible assets

7.6

5.6

2.4

10.3

25.9

Adjusted operating profit: segment result

53.3

52.2

48.0

44.6

198.1








Materials

Test and

In-line

Industrial

2013


Analysis

Measurement

Instrumentation

Controls

Total

Adjusted operating profit by segment - 2013

£m

£m

£m

£m

£m

Operating profit as reported under adopted IFRS

54.7

49.4

49.3

32.5

185.9

Net acquisition-related costs and fair value adjustments

0.3

-

-

0.4

0.7

Amortisation of acquisition-related intangible assets

8.3

5.4

2.7

12.5

28.9

Adjusted operating profit: segment result

63.3

54.8

52.0

45.4

215.5

Divested businesses

-

-

(0.8)

-

(0.8)

Adjusted operating profit excluding divested businesses: segment result

63.3

54.8

51.2

45.4

214.7

 

Net acquisition-related costs and fair value adjustments are comprised of acquisition costs of £3.9m (2013: £1.1m) that have been recognised in the Consolidated Income Statement Under IFRS 3 (Revised) 'Business Combinations', fair value adjustments to inventory of £0.6m (2013: £0.1m) and other fair value adjustments, resulting in a credit of £0.6m (2013: credit £0.5m). 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 £2.5m (2013: £1.3m) have been excluded from adjusted operating cash flow.


Materials

Test and

In-line

Industrial

2014


Analysis

Measurement

Instrumentation

Controls

Total

Return on sales by segment - 2014

£m

£m

£m

£m

£m

Using operating profit as reported under adopted IFRS

13.8%

13.3%

17.4%

13.1%

14.3%

Using adjusted operating profit

15.3%

15.2%

18.4%

20.2%

16.9%








Materials

Test and

In-line

Industrial

2013

Return on sales by segment - 2013

Analysis

Measurement

Instrumentation

Controls

Total

£m

£m

£m

£m

£m

Using operating profit as reported under adopted IFRS

15.1%

14.2%

18.3%

14.7%

15.5%

Using adjusted operating profit

17.5%

15.7%

19.3%

20.6%

17.9%

Using adjusted operating profit excluding divested businesses

17.5%

15.7%

19.3%

20.6%

17.9%

 



2014

2013

Reconciliation to adjusted profit before tax and adjusted operating profit

Note

£m

£m

Profit before tax as reported under adopted IFRS


171.1

271.7

Add/(deduct):




Net acquisition-related costs and fair value adjustments


3.9

0.7

Amortisation of acquisition-related intangible assets


25.9

28.9

Profit on disposal of businesses


(2.4)

(98.3)

Increase in fair value of cross-currency interest rate swaps

4

-

(0.7)

Net (gain)/loss on retranslation of short-term inter-company loan balances

4

(6.0)

4.1

Adjusted profit before tax


192.5

206.4

Divested businesses


-

(0.8)

Adjusted profit before tax excluding divested businesses


192.5

205.6

Adjusted net finance costs (see below)


5.6

9.1

Adjusted operating profit excluding divested businesses


198.1

214.7







2014

2013

Adjusted net finance costs


£m

£m

Net interest income/(costs) as reported under adopted IFRS


0.4

(12.5)

Increase in fair value of cross-currency interest rate swaps


-

(0.7)

Net (gain)/loss on retranslation of short-term inter-company loan balances


(6.0)

4.1

Adjusted net finance costs


(5.6)

(9.1)







2014

2013

Adjusted operating cash flow


£m

£m

Net cash from operating activities under adopted IFRS


152.3

Acquisition-related costs paid


2.5

1.3

Net income taxes paid


43.0

64.1

Purchase of property, plant and equipment and software


(27.4)

(31.7)

Proceeds from sale of property, plant and equipment


2.4

1.4

Adjusted operating cash flow


175.7

187.4

Divested businesses


-

(2.6)

Adjusted operating cash flow excluding divested businesses


175.7

184.8

 


2014

2013

Adjusted earnings per share

£m

£m

Profit after tax as reported under adopted IFRS

135.1

200.0

Adjusted for:



Net acquisition-related costs and fair value adjustments

3.9

0.7

Amortisation of acquisition-related intangible assets

25.9

28.9

Profit on disposal of businesses

(2.4)

(98.3)

Increase in fair value of cross-currency interest rate swaps

-

(0.7)

Net (gain)/loss on retranslation of short-term inter-company loan balances

(6.0)

4.1

Tax effect of the above and other non-recurring items

(8.7)

22.8

Adjusted earnings

147.8

157.5

Profit after tax on divested businesses

-

(0.5)

Adjusted earnings excluding divested businesses

147.8

157.0







Weighted average number of shares outstanding (millions)

118.8

118.2

Adjusted earnings per share (pence)

124.4

133.3

Adjusted earnings per share excluding divested businesses (pence)

124.4

132.9







Adjusted diluted earnings per share

2014

2013

Diluted weighted average number of shares outstanding (millions)

119.1

118.7

Adjusted diluted earnings per share (pence)

124.1

132.7

Adjusted diluted earnings per share excluding divested businesses (pence)

124.1

132.3

 

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


2014

2013

Analysis of net debt for management purposes

£m

£m

Bank overdrafts

2.5

2.2

Bank loans - unsecured

157.9

145.7

Total borrowings

160.4

147.9

Cash balances

(34.8)

(43.8)

Net debt

125.6

104.1

 

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 allocation to each segment and to assess  performance. The segment results include an allocation of head office expenses. The following summary describes the operations in each of the Group's reportable segments:

 

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

 

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

 

-       In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls as well as associated consumables and services for both primary processing and the converting industries.

The operating companies in this segment are Brüel & Kjær Vibro, BTG Group, 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.

 


Materials

Analysis

Test and

Measurement

In-line

Instrumentation

Industrial

Controls

2014

Total

Information about reportable segments

£m

£m

£m

£m

£m

Segment revenues

348.7

343.1

261.7

220.8

1,174.3

Inter-segment revenue

0.1

(0.2)

(0.3)

(0.2)

(0.6)

External revenue

348.8

342.9

261.4

220.6

1,173.7

 

Reportable segment profit for continuing operations

53.3

52.2

48.0

44.6

198.1

Net acquisition-related costs and fair value adjustments

2.3

(0.9)

-

(5.3)

(3.9)

Amortisation of acquisition-related intangibles

(7.6)

(5.6)

(2.4)

(10.3)

(25.9)

Operating profit

48.0

45.7

45.6

29.0

168.3

Profit on disposal of businesses*





2.4

Financial income*





6.3

Finance costs*





(5.9)

Profit before tax





171.1

Tax*





(36.0)

Profit after tax





135.1

 


Materials

Analysis

Test and

Measurement

In-line

Instrumentation

Industrial

Controls

2013

Total


£m

£m

£m

£m

£m

Segment revenues

362.6

349.2

270.0

221.5

1,203.3

Inter-segment revenue

(0.2)

(0.5)

(0.1)

(0.5)

(1.3)

External revenue

362.4

348.7

269.9

221.0

1,202.0







Reportable segment profit for continuing operations

63.3

54.8

52.0

45.4

215.5

Net acquisition-related costs and fair value adjustments

 

(0.3)

 

-

 

-

(0.4)

(0.7)

Amortisation of acquisition-related intangibles

(8.3)

(5.4)

(2.7)

(12.5)

(28.9)

Operating profit

54.7

49.4

49.3

32.5

185.9

Profit on disposal of businesses*





98.3

Financial income*





1.2

Finance costs*





(13.7)

Profit before tax





271.7

Tax*





(71.7)

Profit after tax





200.0

* Not allocated to reportable segments in reporting to the chief operating decision maker.

 

Reportable segment profit is consistent with that presented to the chief operating decision maker. Inter-segment pricing is on an arm's length basis. Segments are presented on the basis of actual inter-segment charges made.

 


Carrying amount of segment assets

Carrying amount of segment liabilities


2014

2013

2014

2013


£m

£m

£m

£m

Materials Analysis

357.7

304.2

(90.9)

(92.2)

Test and Measurement

363.5

321.6

(84.9)

(75.8)

In-line Instrumentation

217.5

214.3

(40.8)

(42.0)

Industrial Controls

410.0

395.2

(23.7)

(19.8)

Total segment assets and liabilities

1,348.7

1,235.3

(240.3)

(229.8)

Cash and borrowings

34.8

43.8

(160.4)

(147.9)

Derivative financial instruments

-

3.6

(0.3)

-

Pension asset/(liability)

3.6

7.2

(17.6)

(15.4)

Taxation

19.4

18.9

(71.9)

(71.6)

Consolidated total assets and liabilities

1,406.5

1,308.8

(490.5)

(464.7)

 

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 reported operating segments. Unallocated items represent current and deferred taxation balances, defined benefit scheme liabilities and all components of net debt.

 


Additions to non-current assets

Depreciation and amortisation


2014

2013

2014

2013


£m

£m

£m

£m

Materials Analysis

59.7

22.2

13.1

13.6

Test and Measurement

57.3

8.1

13.2

13.4

In-line Instrumentation

6.7

8.8

7.6

7.7

Industrial Controls

6.9

6.6

13.7

15.8


130.6

45.7

47.6

50.5

 

Geographical segments

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

 

No individual country amounts to more than 3% of turnover, other than those noted below.

The following is an analysis of revenue by geographical destination.

 


Materials Analysis

Test and Measurement

In-line Instrumentation

Industrial Controls

2014

Total


£m

£m

£m

£m

£m

UK

14.9

14.0

8.1

7.4

44.4

Germany

22.1

60.2

24.4

10.0

116.7

France

11.9

19.0

7.0

2.0

39.9

Rest of Europe

55.3

61.9

44.7

9.6

171.5

USA

67.7

65.4

64.2

146.9

344.2

Rest of North America

10.7

4.6

7.6

14.6

37.5

Japan

23.7

22.8

11.3

1.6

59.4

China

53.1

42.7

45.1

12.8

153.7

South Korea

11.9

11.9

6.3

3.5

33.6

Rest of Asia Pacific

41.5

21.0

25.4

8.7

96.6

Rest of the world

36.0

19.4

17.3

3.5

76.2


348.8

342.9

261.4

220.6

1,173.7

 


Materials Analysis

Test and Measurement

In-line Instrumentation

Industrial Controls

2013

Total


£m

£m

£m

£m

£m

UK

11.8

13.4

7.5

7.2

39.9

Germany

26.1

61.9

26.7

10.8

125.5

France

12.6

22.6

9.0

2.1

46.3

Rest of Europe

60.0

64.0

44.8

9.2

178.0

USA

63.6

59.7

64.9

149.9

338.1

Rest of North America

11.1

4.3

7.5

13.5

36.4

Japan

24.1

22.8

14.2

1.3

62.4

China

57.2

45.0

47.0

10.9

160.1

South Korea

11.8

13.0

5.3

3.8

33.9

Rest of Asia Pacific

48.0

21.4

23.5

8.7

101.6

Rest of the world

36.1

20.6

19.5

3.6

79.8


362.4

348.7

269.9

221.0

1,202.0

 

The following is an analysis of the carrying amount of non-current segment assets, analysed by the geographical area in which the assets are located.

 


Non-current assets


2014

2013


£m

£m

UK

88.6

89.8

Germany

25.9

27.7

France

0.1

0.1

Rest of Europe*

279.8

291.8

USA

443.3

397.5

Rest of North America

57.8

5.3

Japan

0.4

1.4

China

4.1

7.1

South Korea

5.6

0.3

Rest of Asia Pacific

31.2

30.6

Rest of the world

3.6

5.9


940.4

857.5

Retirement benefit assets **

3.6

7.2

Deferred taxation **

18.3

17.0

Total non-current assets

962.3

881.7

*   Principally in Denmark and Switzerland

** Not allocated to reportable geographic area in reporting to the chief operating decision maker

 

4.  Financial income and finance costs


2014

2013

Financial income

£m

£m

Interest receivable

0.3

0.5

Increase in fair value of cross-currency interest rate swaps

-

0.7

Net gains on retranslation of short-term inter-company loan balances

6.0

-


6.3

1.2

 


2014

2013

Finance costs

£m

£m

Interest payable on loans and overdrafts

5.7

9.1

Net losses on retranslation of short-term intercompany loan balances

-

4.1

Net interest cost on pension scheme liabilities

0.1

0.2

Other finance costs

0.1

0.3


5.9

13.7

 

Net interest costs of £5.4m (2013: £8.6m) for the purposes of the calculation of interest cover comprise bank interest receivable of £0.3m (2013: £0.5m), and interest payable on loans and overdrafts of £5.7m (2013: £9.1m).

 

5.  Taxation


 

UK

 

Overseas

2014

Total

 

UK

 

Overseas

2013

Total


£m

£m

£m

£m

£m

£m

Current tax charge

5.3

37.9

43.2

5.4

70.1

75.5

Adjustments in respect of current tax of prior years

(1.8)

(1.5)

(3.3)

(1.3)

(3.0)

(4.3)

Deferred tax - origination and reversal of temporary differences

(1.5)

(2.4)

(3.9)

0.1

0.4

0.5


2.0

34.0

36.0

4.2

67.5

71.7

 

The standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the Group's profits, is 28.1% (2013: 30.9%). The tax charge for the year is lower than the standard rate of corporation tax for the reasons set out in the following reconciliation:


2014

2013


£m

£m

Profit before taxation

171.7

271.7

Corporation tax at standard rate of 28.1% (2013: 30.9%)

48.1

84.0

Non-taxable income and gains

(6.0)

(6.1)

Non-deductible expenditure

0.3

1.0

Movements on unrecognised deferred tax assets

0.1

-

Research and development tax incentives

(4.4)

(3.7)

Change in tax rates

0.1

(0.2)

Other adjustments to prior year current and deferred tax charges

(2.2)

(3.3)

Total taxation

36.0

71.7

 

Factors that may affect the future tax charge:

The Group's tax charge in future years is likely to be affected by the proportion of profits arising, and the effective tax rates, in the various territories in which the group operates.

 

Tax on items recognised directly in the Consolidated Statement of Comprehensive Income

2014

2013

£m

£m

Tax on net gain on effective portion of changes in fair value of forward exchange contracts

(0.5)

0.1

Tax on re-measurement of net defined benefit liability, net of foreign exchange

(1.5)

0.9

Aggregate current and deferred tax charge relating to items recognised directly in the Consolidated Statement of Comprehensive Income

(2.0)

1.0

 

Tax on items recognised directly in the Consolidated Statement of Changes in Equity

2014

2013

£m

£m

Tax charge/(credit) on share-based payments

1.0

(4.5)

Aggregate current and deferred tax charge/(credit) on items recognised directly in the Consolidated Statement of Changes in Equity

1.0

(4.5)

 

The following tax charges relate to items of income and expense that are excluded from the group's adjusted performance measures.

 

Tax on items of income and expense that are excluded from the Group's adjusted profit before tax

2014

2013

£m

£m

Tax charge on unrealised change in fair value of cross-currency interest rate swaps

-

0.2

(8.4)

(9.8)

(0.9)

(0.1)

(0.2)

(0.5)

Tax charges on profit on disposal of businesses

0.8

33.0

Total tax (credit)/charge

(8.7)

22.8

 

The effective adjusted tax rate for the year was 23.2% (2013: 23.6%) as set out in the reconciliation below.

 

Reconciliation of total tax charge on adopted IFRS basis to adjusted tax charge

2014

2013

£m

£m

Total tax charge on adopted IFRS basis

36.0

71.7

Tax credit/(charge) on items of income and expense that are excluded from the Group's adjusted profit before tax

8.7

(22.8)

Adjusted tax charge

44.7

48.9

Divested businesses

-

(0.3)

Adjusted tax charge excluding divested businesses

44.7

48.6




Adjusted profit before tax excluding divested businesses

192.5

205.6

 

6.  Dividends

 

Amounts recognised and paid as distributions to owners of the Parent Company in the year

2014

2013

£m

£m

Final dividend for the year ended 31 December 2013 of 28.00p (2012: 25.50p) per share

33.3

30.2

Interim dividend for the year ended 31 December 2014 of 16.00p (2013: 14.75p) per share

19.0

17.5


52.3

47.7





2014

2013

Amounts arising in respect of the year:

£m

£m

Interim dividend for the year ended 31 December 2014 of 16.00p (2013: 14.75p) per share

19.0

17.5

Proposed final dividend for the year ended 31 December 2014 of 30.50p (2013: 28.00p) per share

 

36.3

33.2


55.3

50.7

 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 24 April 2015 and has not been included as a liability in these Financial Statements.

 

7.  Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (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 year but adjusted for the effects of dilutive options.

 

Basic earnings per share

2014

2013

Profit after tax (£m)

135.1

200.0

Weighted average number of shares outstanding (millions)

118.8

118.2

Basic earnings per share (pence)

113.7

169.2

 

Diluted earnings per share

2014

2013

Profit after tax (£m)

135.1

200.0

Basic weighted average number of shares outstanding (millions)

118.8

118.2

Weighted average number of dilutive 5p ordinary shares under option (millions)

0.7

0.7

Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions)

(0.4)

(0.2)

Diluted weighted average number of shares outstanding (millions)

119.1

118.7

Diluted earnings per share (pence)

113.4

168.5

 

8.  Acquisitions

On 16 June 2014, the Group acquired the trade and certain assets of La Corporation Scientifique Claisse ('Claisse'), a company based in Canada, for a total consideration of £10.4m. This extends the Group's capabilities in sample preparation for atomic spectroscopy, including X-ray analysis. 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), patents and contractual rights, trade name, technology and goodwill of £1.4m, £0.2m, £1.1m, £2.0m and £3.4m respectively. The goodwill arising is attributable to opportunities expected that will be generated from a deepening of the Group's product offering within the sample preparation market, the leveraging of the customer base to optimise the sales potential of Claisse and Spectris' products and benefits arising from improving the productivity of the combined sales and support channels. Goodwill includes an amount of £0.3m representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is being integrated into the Materials Analysis segment.

 

On 22 July 2014, the Group acquired the trade and certain assets of MicroCal, a US business for a total consideration of £28.7m. This extends the Group's capabilities in life science analytical solutions. 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), trade name, technology and goodwill of £2.5m, £3.0m, £6.2m and £14.9m respectively. The goodwill arising is attributable to the acquired workforce, opportunities expected to be generated from enhancing the Group's product portfolio in the large molecule space in life sciences and the ability to leverage the acquired technology into existing applications.  The business is being integrated into the Materials Analysis segment.

 

On 23 July 2014, the Group acquired the trade and certain assets of Affinity Biosensors LLC, a US business for a total consideration of £9.6m, including £0.7m contingent consideration which is based on 3% of sales over a threshold amount over the next six years. This extends the Group's capabilities in particle measurement within life sciences. The excess of the fair value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets: contractual rights, technology and goodwill of £2.5m, £2.4m and £4.7m respectively. The goodwill arising is attributable to the opportunities expected from the commercialisation of the acquired technology within the biopharmaceutical market. The business is being integrated into the Materials Analysis segment.

 

On 4 September 2014, the Group acquired the trade and certain assets of Sudo Premium Engineering Company, a South Korean distributor for a total consideration of £5.9m, including £1.5m contingent consideration which is based on 2.5% of annual sales up to a threshold and 7.5% over this threshold over the next five years. The excess of the fair value of the consideration paid over the net fair value of tangible assets acquired is represented by the following intangible assets: customer related and technology of £5.2m and £0.7m respectively. The business is being integrated into the Materials Analysis segment.

 

On 1 October 2014, the Group acquired 100% of the share capital of Fibersensing - Sistemas Avancados de Monitorizacao S.A., a company based in Portugal, for a total consideration of £5.1m (£6.1m net of debt acquired), including £2.5m contingent consideration which is based on 50% of sales over a threshold amount over the next three years. This extends the Group's capabilities in FBG (Fiber Bragg Grating) measurement and monitoring systems for critical physical assets. 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), patents and contractual rights, technology and goodwill of £2.0m, £0.1m, £1.6m and £3.1m respectively. The goodwill arising is attributable to opportunities expected from the extension of the Group's optical product offering and expertise combined with greater access to the optical sensing market. Goodwill includes an amount of £0.5m representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is being integrated into the Test and Measurement segment.

 

On 10 December 2014, the Group acquired 100% of the share capital of Engineering Seismology Group, a company based in Canada, for a total consideration of £44.1 (£42.2m net of cash acquired), including £6.9m contingent consideration which is based on 50% of the year-on-year sales growth over the next three years above certain thresholds. 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, technology and goodwill of £10.3m, £6.3m and £22.4m respectively. The company is a leading provider of microseismic monitoring equipment and analysis solutions primarily to the oil, gas and mining industries. The goodwill arising is considered to represent the value of the acquired workforce, and the opportunities expected as the business is integrated into the Group where it will benefit from leveraging the Group's wider customer base and sales and marketing channels, together with sharing capabilities and technology in core sensors, software and data analysis with other operating companies. Goodwill includes an amount of £4.5m representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is part of the Test and Measurement segment.

 

 

The assets and liabilities acquired arising from the above acquisitions, together with the aggregate purchase consideration, are summarised in the table below. The revenue and operating profit contribution from the acquisitions in the year to the Group's results for the year were £12.8m and £3.5m, respectively. Group revenue and operating profit would have been £1,206.6m and £171.7m (adjusted operating profit: £204.1m), respectively, had each of these acquisitions taken place on the first day of the financial year.

 

The following fair value tables are provisional, reflecting the timing of the acquisitions, and are expected to be finalised within 12 months of the acquisition date.

 


Book value

Adjustments

2014

Fair value

Net assets acquired under 2014 acquisitions


£m

£m

£m

Intangible fixed assets


1.2

46.3

47.5

Tangible fixed assets


7.1

0.1

7.2

Inventories


7.3

(0.2)

7.1

Trade and other receivables


4.9

(0.1)

4.8

Trade and other payables


(6.2)

0.2

(6.0)

Provisions


-

(0.6)

(0.6)

Retirement benefit obligation


(0.1)

-

(0.1)

Current tax


(0.2)

-

(0.2)

Deferred tax liabilities


-

(5.3)

(5.3)

Net cash


0.9

-

0.9

Net assets acquired


14.9

40.4

55.3

Goodwill




48.5

Total consideration in respect of 2014 acquisitions




103.8






Total consideration




103.8

Adjustment for net cash acquired




(0.9)

Net consideration in respect of 2014 acquisitions



102.9





Analysis of cash outflow in Consolidated Statement of Cash Flows




Total consideration in respect of 2014 acquisitions




103.8

Adjustment for net cash acquired on 2014 acquisitions




(0.9)

Deferred and contingent consideration on 2014 acquisitions to be paid in future years


(11.6)

Cash paid in 2014 in respect of 2014 acquisitions




91.3






Acquisitions prior to 2014





Deferred and contingent consideration in relation to prior years' acquisitions:



- accrued at 31 December 2013




0.3

Cash paid in 2014 in respect of prior years' acquisitions



0.3

2014 net cash outflow relating to acquisitions




91.6

 

Due to their 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.


There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised).

 

Net assets acquired for significant 2014 acquisitions

 


 

Book value

Adjustments

2014

Fair value

Net assets acquired for Engineering Seismology Group

£m

£m

£m

Intangible fixed assets

-

16.6

16.6

Tangible fixed assets

4.7

0.2

4.9

Inventories

0.6

0.2

0.8

Trade and other receivables

3.8

(0.1)

3.7

Trade and other payables

(1.5)

-

(1.5)

Current tax

(0.2)

-

(0.2)

Deferred tax liabilities

-

(4.5)

(4.5)

Cash

1.9

-

1.9

Net assets acquired

9.3

12.4

21.7

Goodwill



22.4

Total consideration



44.1





Total consideration



44.1

Adjustment for cash acquired



(1.9)

Net consideration



42.2





Analysis of cash outflow in Consolidated Statement of Cash Flows




Total consideration



44.1

Adjustment for cash acquired



(1.9)

Deferred and contingent consideration to be paid in future years



(6.9)

Cash paid in 2014



35.3





 

The following tables represent the finalisation of the fair values relating to the 2013 acquisitions:

 


Book value

Adjustments

2013

Fair value

Net assets acquired under 2013 acquisitions

£m

£m

£m

Intangible fixed assets

-

15.0

15.0

Tangible fixed assets

0.1

-

0.1

Deferred tax asset

0.1

-

0.1

Inventories

0.5

0.1

0.6

Trade and other receivables

1.2

-

1.2

Trade and other payables

(1.1)

-

(1.1)

Deferred tax liabilities

-

(3.2)

(3.2)

Cash

1.8

-

1.8

Net assets acquired

2.6

11.9

14.5

Goodwill



3.2

Total consideration in respect of 2013 acquisitions



17.7





Total consideration



17.7

Adjustment for cash acquired



(1.8)

Net consideration in respect of 2013 acquisitions



15.9





Analysis of cash outflow in Consolidated Statement of Cash Flows




Total consideration in respect of 2013 acquisitions



17.7

Adjustment for cash acquired on 2013 acquisitions



(1.8)

Deferred and contingent consideration on 2013 acquisitions to be paid in future years



(0.5)

Cash paid in 2013 in respect of 2013 acquisitions



15.4





Acquisitions prior to 2013




Purchase price adjustment in relation to prior year acquisition



0.1

Deferred and contingent consideration in relation to prior years' acquisitions:




- accrued at 31 December 2012



1.4

Cash paid in 2013 in respect of prior years' acquisitions



1.5

Net cash outflow relating to acquisitions



16.9

 

 

9.  Disposal of businesses

 

On 31 January 2013 the Group disposed of the Fusion UV business, part of the In-line Instrumentation segment, for a final consideration of US$175m.

 


2013

Effect of disposal on the financial position of the Group

£m

Other intangible assets

0.3

Property, plant and equipment

0.9

Deferred tax assets

0.5

Inventory

5.1

Trade and other receivables

8.1

Cash

1.8

Trade and other payables

(5.6)

Current tax liabilities

(0.6)

Provisions

(0.2)

Net assets divested

10.3



Consideration received, satisfied in cash

110.2

Cash disposed of

(1.8)

Transaction expenses

(3.1)

Net cash inflow

105.3

Cash received net of transaction expenses

107.1

Net assets disposed of

(10.3)

Currency translation differences transferred from translation reserve

1.5

Profit on disposal of businesses

98.3

 

The sale of the Fusion UV business did not meet the definition of a discontinued operation given in IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' and, therefore, no disclosures in relation to discontinued operations have been made.

 

During 2014, the Group released a provision of £2.4m relating to exposures under certain indemnities and warranties provided to the buyers of the Fusion UV business which had lapsed. This amount is shown in the Consolidated Income Statement within 'Profit on disposal of businesses'. No businesses were disposed of during 2014.

 

 

Disposal of associate

On 19 February 2013, the Group acquired certain trade and assets that resulted in a deemed disposal of its 31.2% associate investment in Naneum Limited for £0.7m in cash.  The Group's share of the associate's results up to the date of the disposal and the gain/(loss) on disposal was not considered material.

 

10. Post balance sheet events


On 22 January 2015, the Group acquired 100% of the share capital of Reliasoft Corporation Inc, a company based in the US, for a total consideration of £28.0m. The company is a leading provider of reliability engineering software and will be integrated into the Test and Measurement segment.



11. Company information

The financial information included in the preliminary announcement does not constitute statutory accounts of the Company for the years ended 31 December 2014 and 2013. Statutory accounts for the year ended 31 December 2013 have been reported on by the Company's auditor and delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2014 have been audited and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The report of the auditors for both years was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

12.  Annual Report 

The Annual Report will be made available to shareholders on 24 March 2015, either by post or on-line, and will be available to the general public on the Company's website at www.spectris.com or on written request to the registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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