TIDMSXS
RNS Number : 6407H
Spectris PLC
31 July 2023
Spectris plc - 2023 half year results
31 July 2023 - Spectris plc (SXS: LSE), the expert in providing
insight through precision measurement, announces half year results
for the six months ended 30 June 2023.
Strong first half performance and upgrade to full year
guidance
-- Strong financial performance driven by continued execution of our strategy
o Sales up 23% (LFL(1) : 19%) from volume growth, market share
gains and pricing
o Adjusted operating margin increased 180bps to 14.5% (2022:
12.7%)
o Record adjusted operating profit for the half year up 41% to
GBP102.1 million (2022: GBP72.3 million)
o Adjusted earnings per share increased by 55% to 77.2p (2022:
49.8p)
o Strong order book with book to bill of c.1x with order intake
normalising as anticipated
o Strong cash performance with adjusted cash conversion of 117%
(2022: 39%)
o Dividend per share increase of 5%
-- Great businesses delivering market share gains in structural growth markets
o Spectris Scientific: sales up 21% (LFL: 22%); adj. operating
margin 17.5% (2022: 16.2%)
o Spectris Dynamics: sales up 23% (LFL: 13%); adj. operating
margin 13.5% (2022: 12.7%)
o Other: sales up 33% (LFL: 27%); adj. operating margin 19.6%
(2022: 11.0%)
-- Investing in organic growth and targeted M&A supported by a strong balance sheet
o New product launches in all businesses underpinned by
investment in R&D
o In Spectris Dynamics, agreement to acquire MicroStrain Sensing
Systems Business
o Strong balance sheet with net cash of GBP214.3 million (2022:
net debt of GBP98.3 million) and active M&A pipeline
o Continuation of share buyback with GBP83 million of GBP300
million programme remaining at 30 June 2023
o Return on Gross Capital Employed ('ROGCE') increased to 16.7%
(2022: 13.8%)
-- Upgrade to guidance for the full year
o As a result of our strong first half performance, we now
expect organic sales growth for the full year to be ahead of our
previous guidance of 6-7%
o We continue to expect strong progress on margins and expect
full year adjusted operating profit to be in the range of GBP250
million to GBP265 million, representing strong double-digit year on
year growth
Continuing operations H1 2023 H1 2022 Change Like-for-like change (1)
-------------------------------------- -------- -------- ------- -------------------------
Adjusted (1)
Sales (GBPm) 702.5 570.2 23% 19%
Operating profit (GBPm) 102.1 72.3 41% 35%
Operating margin (%) 14.5% 12.7% 180bps 170bps
Profit before tax (GBPm) 103.4 70.3 47%
Earnings per share (pence) 77.2p 49.8p 55%
Adjusted cash flow conversion (%) 117% 39% 78pp
Return on gross capital employed (%) 16.7% 13.8% 290bps
Statutory
Sales (GBPm) 702.5 570.2 23%
Operating profit (GBPm) 70.5 54.3 30%
Operating margin (%) 10.0% 9.5% 50bps
Profit before tax (GBPm) 68.5 41.8 64%
Cash generated from operations 108.9 43.4 151%
Basic earnings per share (pence) 50.0p 26.5p 89%
Dividend per share (pence) 25.3p 24.1p 5%
--------------------------------------- -------- -------- ------- -------------------------
1. Alternative performance measures ('APMs') are used
consistently throughout this press release and are referred to as
'adjusted' or 'like-for-like' ('LFL'). These are defined in full
and reconciled to the reported statutory measures in the
appendix.
Commenting on the results, Andrew Heath, Chief Executive, said
:
"We have good momentum in the business and I am delighted to see
the progress we are making with our Strategy for Sustainable
growth. The strong financial performance in the first half reflects
continued strategic execution and the brilliant contribution of my
colleagues across the Group.
In Spectris Dynamics and Spectris Scientific, we have two great
premium precision measurement businesses on attractive growth
trajectories, more aligned than ever to markets with a strong
sustainability focus. Demand for our solutions is being amplified
by new products and services addressing these trends. Having
repositioned Spectris over the past three years, we are now a
higher quality, more customer-focused and resilient business.
While we remain vigilant and alert to the broader macro
environment, the strong first half performance and strength of our
order book means we are upgrading our guidance for the full year.
We continue to drive operational excellence to reduce emissions,
improve productivity and efficiency in-line with our ambition to be
a leading sustainable, compound-growth business. "
Contacts:
Spectris plc
Andrew Heath, Chief Executive Officer
Derek Harding, Chief Financial Officer
Mathew Wootton, Director of Investor Relations
Teneo
Martin Robinson / Giles Kernick
+44 20 7353 4200
Conference call
A webcast of the presentation will begin at 08:30hrs BST,
followed by a conference call for analysts and investors hosted by
Andrew Heath, Chief Executive, and Derek Harding, Chief Financial
Officer to discuss this statement.
Please register via this link
https://www.investis-live.com/spectris/649ad940383e901300144a3c/hdyr
to join the presentation and use the following dial-in details to
access the Q&A conference call: +44 20 4587 0498 - Pin code:
641903. For replay, please dial +44 (0) 20 3936 3001 - Pin code:
342648. Copies of this press release are available to the public
from the registered office at Melbourne House, 44-46 Aldwych,
London, WC2B 4LL and on the Company's website at www.spectris.com
.
About Spectris
Spectris combines precision with purpose, delivering progress
for a more sustainable world. We provide critical insights to our
customers through premium precision measurement solutions combined
with technical expertise and deep domain knowledge. Precision is at
the heart of what we do - our leading, high-tech instruments and
software equip our customers to solve some of their greatest
challenges to make the world cleaner, healthier and more
productive. We are focused on two key Divisions - Spectris
Scientific and Spectris Dynamics, which are placed in
technology-driven end markets, with strong fundamentals and
attractive growth trajectories. We have leading market positions in
premium segments and employ 7,300 people located in more than 30
countries, all united behind our purpose to deliver value beyond
measure for all our stakeholders. For more information, visit
www.spectris.com .
Chief Executive's review
A strong performance in the first half and continued execution
of our strategy
We have made excellent progress during the first half
underpinned by the continued strong execution of our strategy and
demonstrating our credentials as a leading sustainable, compound
growth business. We have maintained strong sales growth momentum,
delivering growth well ahead of our markets and record
profitability. I would like to thank all my colleagues across
Spectris for their support and the high-performance culture we are
collectively building.
Our performance in the period is consistent with the medium-term
targets laid out at our Capital Markets Day last October as part of
our new Strategy for Sustainable Growth. We continue to improve the
quality and resilience of our business, giving us confidence in our
strategy to compound growth through the cycle, while continuing to
expand operating margins.
During the first half, reported sales grew 23%, 19% on a LFL
basis, reflecting the strong conversion of our order book,
supported by easing supply chains. Reported growth includes 250 bps
contribution from acquisitions consistent with our strategy of
compounding growth through M&A. LFL sales growth of 19%
comprises 11% volume and 8% price consistent with our growth
profile in 2022.
Our order book at the end of June remains strong. Despite the
strong sales growth in the first half, the order book is equivalent
in size to the position at the end of December (after adjusting for
foreign exchange), with our book-to-bill c.1x. We continue to
expect the order book to settle at around 4-5 months of cover over
the medium-term.
As expected, against a strong comparative in 2022 where LFL
orders grew by 20%, demand has continued to normalise as supply
chains have eased and lead times reduced. Consequently, order
intake was down slightly in the first half by 2% (down 5% LFL). On
a LFL basis, North America was up 1%, Europe down 5% and Asia down
11%.
We continue to deliver higher quality, more profitable growth
reflecting the work we have done to strengthen the business, our
focus on operational efficiency and tight cost control. Strong
sales growth, alongside positive net pricing, resulted in 140bps
increase in adjusted gross margins. Adjusted operating margin of
14.5%, was 180 bps higher than the comparative period (2022: 12.7%)
resulting in adjusted operating profit of GBP102.1 million (2022:
GBP72.3 million) an increase of 41% (35% on a LFL basis).
Adjusted earnings per share grew by 55% to 77.2 pence. Statutory
operating profit of GBP70.5 million (H1 2022: GBP54.3 million)
increased by 30%. This gave a 10.0% statutory operating margin,
50bps higher than 9.5% reported at June 2022.
We continue to generate strong cash flow, with cash conversion
of 117% on an adjusted basis in the first half, enabling us to
maintain a very strong balance sheet and providing the Group with
significant flexibility.
The Spectris Business System ('SBS') is central in improving
productivity, with LFL adjusted overheads 30bps lower as a
percentage of LFL sales. These savings have contributed to the
Group delivering an increased operating margin for the period and
we expect to deliver further progress on margins in the second
half.
Our performance in the first half demonstrates continued
momentum and provides us confidence in delivering our raised
guidance for the full year.
Strategy for Sustainable Growth
Our Strategy for Sustainable Growth is delivering compound
growth and increased profitability, along with strong cash flow and
strong, consistent returns on invested capital. This is reflected
in our medium-term performance framework for the Group, to deliver
organic sales growth of 6-7% through the cycle and adjusted
operating margin of 20%+. The Group's strategy and business model
is aligned to delivering this framework, through six key
elements:
1. Great businesses
Asset-light, high-quality businesses focused on premium,
precision measurement solutions and industry-leading domain
expertise, aligned with our Purpose.
2. Structural growth markets
Aligned with attractive, sustainable, structural growth markets
with high barriers to entry.
3. Customer centricity
Solving our customers' challenges with leading, differentiated
solutions, equipping them to make the world cleaner, healthier and
more productive.
4. Investing in growth
Disciplined capital allocation for the benefit of all
stakeholders - investment in growth through R&D and
M&A.
5. Operational excellence
Leveraging the Spectris Business System improvement projects,
process simplification and our high-performance culture.
6. Leading sustainable business
Sustainability is at the heart of our Purpose to deliver Value
Beyond Measure for all our stakeholders.
Great businesses focused on premium, precision measurement
solutions
Spectris is built around Spectris Scientific and Spectris
Dynamics, two world class, asset-light businesses focused on
premium, precision measurement solutions with industry-leading
domain expertise which together, represented 85% of Group revenue
in the first half.
Spectris Scientific is focused on the high growth end markets of
life sciences & pharmaceutical, metals, minerals, mining,
semiconductors, and academic research. We are well positioned in
high value areas where our domain expertise and analytics are
valued by customers throughout the workflow. Our customers need the
best measurement, and can't, and won't, compromise.
In the first half, the Division delivered very strong growth in
both sales and adjusted operating profit, up 22% and 30% on a LFL
basis respectively, with 130bps improvement in adjusted operating
margins.
Spectris Dynamics is focused on four premium product lines
(Virtual Test, Software, Data Acquisition and high-precision
Sensors) with high growth prospects, where we have leading
positions. The products are complementary for customers and combine
to offer the broadest test and measurement solutions in the market.
Spectris Dynamics supports customers in the growth markets of
automotive (including electric vehicles), aerospace and defence,
machine manufacturing and personal audio. These end markets require
greater test and measurement functionality and fidelity to
accelerate the time to market for new products and manage
increasingly sophisticated measurements for automated manufacturing
and in-process applications.
During the period, sales were up 23%, 13% on a LFL basis, with
an expansion in adjusted operating margins of 80bps generating
strong growth in operating profit of 31% and 20%, on an adjusted
and LFL basis respectively.
Aligned with attractive, sustainable, structural growth
markets
We are more a resilient business today resulting from our focus
on attractive markets with strong fundamentals and selectively
targeting those segments that are delivering above market growth
with leading, differentiated offerings.
In the first half, LFL sales exceeded the expected medium-term
market growth rates in each of our major end markets with the
exception of Life sciences/Pharmaceutical, where sales grew by 1%.
This reflects the earlier normalisation of demand after strong
growth in 2022.
Growth across our other major end markets is set out in the
table below: Technology-led industrials was up 15%; Automotive up
10%; Electronics and semiconductor up 15%; Metals, minerals, mining
up 29%; and Academic research up 45%.
Industry Sales Sales LFL sales Expected medium-term market growth
H1 2023 H1 2023 Growth
(GBPm) % of total Group
Life sciences / pharmaceutical 139 20% 1% 5-7%
---------- ------------------- ----------- ------------------------------------
Technology-led industrials 103 15% 15% 5-7%
---------- ------------------- ----------- ------------------------------------
Automotive 81 12% 10% 4-6%
---------- ------------------- ----------- ------------------------------------
Electronics and semiconductor 74 11% 15% 6-8%
---------- ------------------- ----------- ------------------------------------
Metals, minerals, mining 66 9% 29% 5-6%
---------- ------------------- ----------- ------------------------------------
Academic research 67 9% 45% 5-6%
---------- ------------------- ----------- ------------------------------------
Customer centricity: leading solutions to make the world
cleaner, healthier and more productive
During the half year, we continued to collaborate closely with
our customers helping them solve some of their most difficult
challenges.
In Spectris Scientific we have seen good demand for our X-ray
systems, particularly in the areas of green metals, green mining
and green construction. For instance, in the first half, we
received a large order from a major global cement manufacturer in
Asia for over 20 of our Zetium XRF and Aeris XRD systems to detect
both the elemental and structural composition to ensure the
integrity of the finished product. The customer will utilise our
instruments to evaluate raw materials and final product as well as
enable the transition to more sustainable manufacturing.
We are also strengthening customer relationships and broadening
our aftermarket offering through the introduction of SMART Manager.
SMART Manager enables connection to customers' instruments in the
field, facilitating early diagnosis, allowing us to service the
instruments remotely or equip our engineers with better information
thereby improving repair times and customer uptime. We are also
exploring how we develop SMART Manager to include different levels
of aftermarket service such as customer dashboards. While we are
very much at the early stages, we are encouraged by the initial
response from customers, with c.1,500 instruments already
connected, and excited about its future potential including
proactive monitoring, diagnosis and service.
In May, Spectris Dynamics hosted their Zero Prototypes Summit at
our virtual test centre of excellence in Udine, Italy attracting
over 280 engineering managers and design engineers from automotive
OEMs, suppliers, motorsport teams, universities and research
centres. The event provided attendees with valuable insights into
how major players in the automotive industry use our simulation,
driving simulators and Hardware-in-the-Loop technologies to
accelerate new vehicle development at lower cost and risk.
The Automotive Testing EXPO in Stuttgart in June provided
Spectris Dynamics with the opportunity to showcase our combined
solution for automotive customers. We continue to generate strong
interest in our overall automotive offering, as we support the
customers' drive to virtual innovation and the transition of their
fleets to electric. We continue to see strong demand for our
electric power testing solutions, software and for our premium data
acquisition systems alongside our virtual test and in-process
solutions. The combined portfolio of solutions demonstrates how
both our virtual and physical test and measurement domain expertise
is supporting our customers' need to innovate through the multiple
stages of their product lifecycle.
Investing in growth through R&D
We invested GBP52 million in R&D (2022: GBP47.6 million)
representing 7.4% of sales in line with our stated guidance. We
continue to see strong take up from customers and are having
significant success in commercialising our technology with a number
of new product launches in the period Spectris Scientific, launched
the NanoSight Pro for measuring the size and concentration of
nanomaterials. Powered by machine learning, the NanoSight Pro
automates customer workflows, reducing human error and enabling
users to generate robust, high-quality nanomaterial
characterisation data up to three times faster than previous
versions. The instrument is designed to be used primarily in
rapidly growing biopharmaceutical applications, providing insight
to enable the development of vaccines, cell and gene therapies, and
drug delivery systems.
Also during the period, Spectris Scientific launched the
FORJ(TM) fusion sample preparation instrument. Delivering robust
and superior quality fused samples for X-ray fluorescence analysis,
FORJ(TM) is the fastest on the market, boosting productivity by up
to 25%. Suitable for full-lab integration, it is easy to install
and provides a safe and user-friendly interface.
In Spectris Dynamics, we expanded our simulator offering in
virtual test with the launch of the COMPACT Full-Spectrum Simulator
(FSS). The FSS provides highly accurate motion, vibration and sound
effects in a small footprint enabling Human-in-the-Loop simulation
allowing test drivers and engineers to closely replicate the
experience of driving a real car. In addition, we implemented a
number of upgrades to our leading product portfolio across Physical
Test and In-Process including multiple software releases and
enhanced functionality. We also delivered a significant number of
prototypes to our global OEM sensor customers and continued to
build the pipeline of growth opportunities in applying precision
sensing to customers' hardware.
We expect R&D spend to be at around 8% of sales for the full
year, with all our R&D investments expected to return an IRR of
at least 15%. In 2022, we introduced our vitality index for the
first time. This measures current year revenue from products
released over the previous five years as a percentage of total
revenue in the current period. The index was 25% by the end of 2022
and we expect this to increase further over the next five years to
over a third of total sales.
Investing in growth through M&A
We maintain an active pipeline of potential acquisition targets
from early-stage technologies to bolt-on acquisitions of varying
sizes, through to larger-scale opportunities. This is an important
component of our strategy to compound growth.
In June, we signed an agreement to acquire MicroStrain Sensing
Systems Business (MicroStrain), a leading developer of inertial and
wireless sensing systems, serving the industrial and aerospace
sensing systems market. When the deal completes, MicroStrain will
be integrated into Spectris Dynamics, which has a long-established
position in high-precision sensing solutions and where it will
benefit from leveraging Spectris Dynamics' global sales and service
network. The acquisition strengthens our overall sensor offering,
particularly in inertial sensors, helping further penetration into
the rapidly growing automation and smart manufacturing markets,
while also Increasing our North American presence.
The integration of Dytran, which we acquired in September 2022,
continues to progress well. The acquisition has strengthened our
piezo-electric sensor offering and our position in the US space,
aerospace, defence and automotive industries.
In March, we sold the remaining part of Concept Life Sciences
(CLS), a business acquired in January 2018, that was part of the
Spectris Scientific Division (CLS contributed GBP11.8 million of
sales and GBP0.2 million of profit in H1 2022).
The Group will continue to review divestment opportunities where
appropriate and where such activity is aligned to the Group's
strategy.
At the end of June we had completed just over GBP215 million of
the GBP300 million share buyback programme and had net cash of
GBP214.3 million. This strong financial position provides the Group
with significant flexibility and headroom to pursue further
acquisitions.
Operational excellence: Spectris Business System driving
productivity and competitiveness
Following the supply chain challenges experienced across many
industries in 2022 and significant growth in customer demand, our
focus during the first half has been to continue to meet our
commitments to customers with increased production levelling and
strong forecast to plan execution. This has meant expanding our
capacity efficiently, to convert our strong order book into sales,
while at the same time reducing costs and lead times. The
improvements delivered have also driven customer satisfaction
higher and improved competitiveness.
During the first half, the businesses have continued to further
strengthen the deployment of the Spectris Business System (SBS) to
deliver this result. Some of the highlights include:
-- Significant improvement in productivity and throughput, in
excess of 50% in some cases, by: eliminating bottlenecks; improved
workflow management to eliminate material shortages; capacity
expansion; and daily management by our self-directed work
teams;
-- A project to extend the life of a key component in one of our
instruments has delivered just under GBP300k of benefits so far
this year;
-- Improved cleanroom capacity and layout at one of our sites
has delivered close to GBP500k (year-to-date) of benefits by
increasing productivity; and
-- In Suzhou, we are deploying automation across multiple
processes improving labour productivity and at the same site, we
have delivered a nearly 30% reduction in lead-time as well as
labour and inventory cost savings for a key product family.
The main objectives of SBS are to remove waste, drive efficiency
and strengthen competitiveness as we grow the business and enhance
margins. I am very pleased with how all the businesses are actively
driving our SBS 'Bronze, Silver, Gold' certification programme,
with a number of sites preparing for their Bronze certification by
the end of the year. In H1 2023, the Group reduced LFL overheads by
30bps as a percentage of LFL sales, supporting our medium-term
operating margin target of over 20%.
In addition to SBS, we are also making good progress with the
implementation of our new SAP S/4HANA installation which is on
track to go-live during the course of 2024. The new system will
replace a number of legacy ERP systems and help standardise,
simplify and automate processes to enhance our operations, enabling
our businesses to become more efficient and scalable.
The reorganisation of Spectris Dynamics at the start of the year
around three end-market verticals: Virtual Test, Physical Test and
In-Process, to leverage growth and customer intimacy from our
domain expertise has gone well. This has been made possible by the
commitment of our people, a high-performance culture and our focus
on making Spectris Dynamics a great place to work. The construction
of our new manufacturing facility in Porto is well underway. This
new site, which will be operational in 2024, will help balance our
manufacturing footprint between Asia and Europe and strengthen the
level of local production for our European customer base.
Leading sustainable business
Sustainability is at the heart of our Purpose to deliver Value
Beyond Measure for all our stakeholders. We have a clear ambition
to create a positive and lasting impact, for both the
sustainability of our operations and for our opportunity to harness
the power of precision measurement to make the world cleaner,
healthier and more productive.
During the period we continued to make strong progress towards
our ambition to become Net Zero across our Scope 1 and 2 emissions
by 2030 and across our Scope 3 emissions by 2040 through our SBTi
validated targets. We are making very good progress on meeting our
Scope 1 and 2 targets and we continue to accelerate our adoption of
EcoVadis to firstly understand and then reduce the carbon impact
and wider ESG risk in our supply chain.
In April 2023, we worked with Young Professionals to deliver our
second virtual STEM work experience event attended by over 700
school students from a range of diverse backgrounds. Students
provided great feedback on the event, especially around the
opportunity to learn more about the breadth of various STEM-related
careers.
We remain a proud sponsor of International Women in Engineering
Day which took place in June. This year the day was celebrated in
conjunction with The Spectris Foundation, Young Professionals and
Techgirlz involving over 275 young women from across the UK and the
US exploring different career paths in technology and engineering.
Attendees enjoyed an exploration of digital design and heard from
colleagues across the Spectris Group who gave inspiring
presentations on their personal experiences working in technology
and engineering, as well as practical advice and expertise in their
fields.
In support of our colleagues with family and friends in Turkey
and Syria following the devasting earthquake in February, we made a
donation of GBP100,000 to Care International as part of the
Disasters Emergency Committee appeal and we also matched employee
donations of over GBP2,000 to help provide humanitarian aid.
Investing in our people
We are making great progress building a values-based, healthy,
high-performance culture across the Group.
We continue to invest in the development of our people. In the
first half we graduated the first cohort of our new leadership
development programme, called Ascend. Participant feedback has been
extremely positive with 360(0) feedback noting an improvement in
leadership capabilities as a result of the training.
I am also delighted to report an increase in our engagement
scores, with our annual Gallup engagement survey showing positive
results in all areas and continuing the upward trend over the last
three years. The overall average engagement score rose to 3.92 (out
of 5.00), up from 3.86 last year and 3.72 in 2021 with strong
levels of participation in the survey at 80% of the global
population. While we still have work to do on our engagement
journey, I am greatly encouraged that we are heading in the right
direction.
Summary and outlook for the full year
I am delighted by our strong financial performance in the first
half, reflecting the continued execution of our strategy,
conversion of our strong order book and the continued support of my
colleagues across the Group.
While we remain vigilant and alert to the broader macro
environment, the strong first half performance and strength of our
order book means we are upgrading our guidance for the full year.
We continue to drive operational excellence to reduce emissions,
improve productivity and efficiency in-line with our ambition to be
a leading sustainable, compound-growth business.
Andrew Heath
Chief Executive
Financial review
Financial performance
H1 2023 H1 2022
Continuing operations GBPm GBPm
------------------------------------ ------- -------
Sales 702.5 570.2
Cost of sales (302.0) (253.0)
------------------------------------- ------- -------
Gross profit 400.5 317.2
------------------------------------- ------- -------
Indirect production and engineering
expenses (63.0) (53.7)
Sales and marketing expenses (129.0) (110.4)
Administrative expenses (138.0) (98.8)
------------------------------------- ------- -------
Operating profit 70.5 54.3
------------------------------------- ------- -------
Sales increased by 23% or GBP132.3 million to GBP702.5 million
(2022: GBP570.2 million) on a continuing basis. LFL sales increased
by GBP108.0 million (19%), with the impact of acquisitions, net of
disposals, increasing sales by GBP8.1 million (1%) and foreign
exchange movements increasing sales by GBP16.2 million (3%).
Gross profit increased by GBP83.3 million primarily driven by
higher volumes and price increases that were predominantly
implemented in Q4 2022 more than offsetting input cost inflation.
LFL adjusted gross margins increased by 140bps to 57.1%.
SG&A expenses increased by GBP67.1 million reflecting the
additional sales volume and GBP15.5 million of additional
configuration and customisation costs carried out by third parties
on material SaaS projects.
LFL adjusted overheads were 30bps lower as a percentage of LFL
sales. Compared with the first half last year, LFL adjusted
overheads increased by 18% resulting from higher salary and other
costs (e.g. travel) as volumes have increased, alongside a slight
increase in R&D spend. Headcount increased by 2.6% vs the same
time last year to support growth with a number of open positions
now filled particularly in the US. Investment in R&D (reported
in net overheads) amounted to GBP52.2 million representing 7.4% of
sales (H1 2022: GBP47.6 million or 8.4% of sales).
Statutory operating profit was GBP70.5 million, an increase of
GBP16.2 million (H1 2022: GBP54.3 million).
Statutory operating margin of 10.0% was 50bps higher than H1
2022 (9.5%).
H1 2023 H1 2022
Continuing operations GBPm GBPm
---------------------------------------------------------------------------------------------- -------- --------
Statutory operating profit 70.5 54.3
Net transaction-related costs and fair value adjustments 4.0 6.8
Depreciation of acquisition-related fair value adjustments to property, plant and equipment - 0.1
Configuration and customisation costs carried out by third parties on material SaaS projects 17.8 2.3
Amortisation of acquisition-related intangible assets 9.8 8.8
---------------------------------------------------------------------------------------------- -------- --------
Adjusted operating profit 102.1 72.3
---------------------------------------------------------------------------------------------- -------- --------
Net transaction-related costs and fair value adjustments were
GBP4.0 million (H1 2022: GBP6.8 million) primarily relating to the
acquisitions completed during the prior year and the acquisition of
MicroStrain, which is anticipated to close in the second half of
2023.
Implementation of the latest SAP cloud-based systems to enable a
programme of process redesign and improvement across the Divisions
is underway. The Group has completed the initial design phase and
has commenced user-testing incurring costs of GBP17.8 million in
the period (H1 2022: GBP2.3 million). Consistent with the prior
period, these material SaaS projects are excluded from adjusted
operating profit.
Adjusted operating profit increased by 41% or GBP29.8 million to
GBP102.1 million (H1 2022: GBP72.3 million). LFL adjusted operating
profit increased by GBP25.3 million (35%), with the impact of
acquisitions, net of disposals, increasing adjusted operating
profit by GBP1.8 million (2%), and foreign exchange movements
increasing adjusted operating profit by GBP2.7 million (4%).
Adjusted operating margins increased by 180bps (170bps on a LFL
basis) compared to H1 2022, reflecting the increase in gross
margins which more than offset the increase in adjusted
overheads.
Statutory profit before tax for the period of GBP68.5 million
(H1 2022: GBP41.8 million) is calculated after net finance income
of GBP8.2 million (H1 2022: GBP12.8 million costs) and GBP11.0
million loss on disposal, predominantly related to the divestment
of CLS (H1 2022: GBP0.2 million profit).
The GBP21 million improvement in net financial income was mainly
due to retranslation of short-term intercompany loan balances that
moved from a GBP10.7 million loss in H1 2022 to a GBP7.0 million
gain in H1 2023. This reflects the strengthening of GBP against
both the EUR and USD over the last six months, compared with H1
2022 where the GBP weakened markedly against both currencies.
Bank interest receivable was GBP3.0 million higher, due to a
higher average cash balance and the significant increase in
Sterling interest rates during the first half of this year. There
have been no drawings against our loan facilities during the
period, with interest payable solely relating to the commitment fee
on the Revolving Credit Facility and the amortisation of
capitalised loan fees relating to this facility.
On 31 March 2023, the Group disposed of the remaining part of
CLS, which formed part of the Spectris Scientific Division. The
consideration received of GBP15.5 million, was settled by GBP15.0
million in cash plus GBP0.5 million relating to an estimation of
the completion accounts true-up. This resulted in a loss on
disposal of GBP9.7 million. Further details are provided in Note
8.
The effective tax rate on adjusted profit before tax for H1 2023
was 22% (H1 2022: 22%). The effective adjusted tax rate for the
full year is also expected to be 22%.
Cash flow
Adjusted cash flow increased by GBP91.8 million to GBP119.7
million compared to H1 2022, resulting in an adjusted cash
conversion rate of 117% (H1 2022: 39%).
H1 2023 H1 2022
Adjusted cash flow from continuing operations GBPm GBPm
---------------------------------------------------------- -------- --------
Adjusted operating profit 102.1 72.3
Adjusted depreciation and software amortisation (1) 19.6 18.8
Working capital and other non-cash movements 9.7 (31.6)
Capital expenditure (11.7) (31.6)
---------------------------------------------------------- -------- --------
Adjusted cash flow from continuing operations 119.7 27.9
---------------------------------------------------------- -------- --------
Adjusted cash flow conversion from continuing operations 117% 39%
---------------------------------------------------------- -------- --------
1. Adjusted depreciation and software amortisation represent
depreciation of property, plant and equipment, software and
internal development amortisation, adjusted for depreciation of
acquisition-related fair value adjustments to property, plant and
equipment.
The Group experienced an increase in adjusted cash flow from
continuing operations generated by the increase in adjusted
operating profit, a decrease in trade and other receivables and the
one-off outflow in H1 2022 of GBP15.3 million relating to the new
manufacturing facility for Particle Measuring Systems ('PMS') in
Colorado, US.
Capital expenditure of GBP11.7 million (H1 2022: GBP31.6
million) equated to 1.7% of sales, compared to 5.5% in the first
half of 2022, which was higher due to the inclusion of the new PMS
facility. Capital expenditure was 60% of adjusted depreciation and
software amortisation (H1 2022: 168%).
H1 2023 H1 2022
Other cash flows and foreign exchange GBPm GBPm
------------------------------------------------- -------- --------
Tax paid (30.0) (20.5)
Net interest paid on cash and borrowings 2.9 (0.3)
Dividends paid (53.7) (53.3)
Share buyback (26.7) (150.8)
Acquisition of businesses, net of cash acquired (2.8) (44.3)
Acquisition of investment in associate - (3.4)
Transaction-related costs paid (1.0) (6.0)
Proceeds/(outflow) from disposal of businesses 9.2 (15.1)
SaaS-related cash expenditure (17.8) (2.3)
Lease payments and associated interest (7.1) (7.6)
Restructuring costs paid (0.8) (2.6)
Net proceeds from exercise of share options 0.4 -
Total other cash flows (127.4) (306.2)
Adjusted cash flow from continuing operations 119.7 27.9
Adjusted cash flow from discontinued operations - 7.3
Foreign exchange (6.0) 4.9
------------------------------------------------- -------- --------
Decrease in net cash (13.7) (266.1)
------------------------------------------------- -------- --------
During the six months ended 30 June 2023, 729,423 ordinary
shares were repurchased and cancelled by the Group as part of the
GBP300 million share buyback programme announced on 19 April 2022,
resulting in a cash outflow of GBP26.7 million, including
transaction fees of GBP0.1 million.
During the six months ended 30 June 2022, 5,068,643 ordinary
shares were repurchased and cancelled by the Group as part of the
GBP300 million share buyback programme announced on 19 April 2022,
resulting in a cash outflow of GBP150.8 million, including
transaction fees of GBP1.0 million.
Financing and treasury
The Group finances its operations from retained earnings and,
where appropriate, from third-party borrowings. Total borrowings as
at 30 June 2023 were nil (H1 2022: GBP228.2 million).
At 30 June 2023, the Group had a cash and cash equivalents
balance of GBP214.3 million. The Group also had various uncommitted
facilities and bank overdraft facilities available but undrawn.
Gross debt was nil, resulting in a net cash position of GBP214.3
million, compared to a net debt position of GBP98.3 million at 30
June 2022, representing a GBP312.6 million year on year increase in
net cash.
As at 30 June 2023, the Group had GBP393.8 million of committed
facilities, consisting entirely of a $500 million multi-currency
revolving credit facility ('RCF') maturing in July 2025. The RCF
was undrawn at 30 June 2023 (H1 2022: GBP220.0 million drawn).
For the twelve months ended 30 June 2023, there was net finance
income for covenant purposes of GBP3.4 million, resulting in the
interest cover ratio being n/a (30 June 2022: 144.7 times, 31
December 2022: n/a). The minimum covenant interest cover
requirement is 3.75 times (covenant defined earnings before
interest, tax and amortisation divided by net finance charges).
Leverage (covenant defined earnings before interest, tax,
depreciation, and amortisation divided by net cash) was less than
zero (30 June 2022: 0.6 times, 31 December 2022: less than zero)
due to the Group's net cash position, against a maximum permitted
leverage of 3.5 times.
The Group has prepared and reviewed cash flow forecasts for the
period to 31 December 2027, which reflect forecasted changes in
revenue across its business and performed a reverse stress test of
the forecasts to determine the extent of downturn which would
result in insufficient liquidity or a breach of banking covenants.
Revenue would have to reduce by 40% over the period under review
for the Group to run out of liquidity headroom. The reverse stress
test does not take into account further mitigating actions which
the Group would implement in the event of a severe and extended
revenue decline, such as cancelling the dividend or reducing
capital expenditure. This assessment indicates that the Group can
operate within the level of its current facilities, as set out
above, without the need to obtain any new facilities for a period
of not less than 12 months from the date of this report.
Following this assessment, the Board of Directors are satisfied
that the Group has sufficient resources to continue in operation
for a period of not less than 12 months from the date of this
report. Accordingly, they continue to adopt the going concern basis
in relation to this conclusion and preparing the Condensed
Consolidated Financial Statements.
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 receivables, trade payables 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 of the remaining forecast net transaction cash
flows where there is reasonable certainty of an exposure. At 30
June 2023, approximately 63% of the estimated transactional
exposures of GBP242.4 million for the next 18 months were hedged
using forward exchange contracts, mainly against the Euro, US
Dollar, Chinese Yuan Renminbi and Japanese Yen.
The largest translational exposures during the year were to the
US Dollar, Euro and Chinese Yuan Renminbi. Translational exposures
are not hedged. The table below shows the average and closing key
exchange rates compared to Sterling.
H1 2023 H1 2022 H1 2023 H1 2022
(average) (average) Change (closing) (closing) Change
----------------------------- ---------- ---------- ------- ---------- ---------- -------
US Dollar (USD) 1.23 1.30 (6%) 1.27 1.22 4%
Euro (EUR) 1.14 1.19 (4%) 1.16 1.17 (1%)
Chinese Yuan Renminbi (CNY) 8.55 8.40 2% 9.22 8.14 13%
----------------------------- ---------- ---------- ------- ---------- ---------- -------
During the period, currency translation effects resulted in
adjusted operating profit being GBP2.8 million higher (H1 2022:
GBP3.8 million higher) than it would have been if calculated using
prior year exchange rates.
Transactional foreign exchange loss of GBP4.6 million (H1 2022:
GBP1.4 million gain) were included in administrative expenses,
whilst sales include a gain of GBP0.9 million (H1 2022: GBP1.5
million loss) arising on forward exchange contracts taken out to
hedge transactional exposures in respect of sales.
Other Non-reportable Operating Segments
The financial and operating performance of the Spectris
Scientific and Spectris Dynamics reportable segments are detailed
on the following pages in accordance with IFRS 8. The Red Lion
Controls and Servomex businesses are reported within the Other
non-reportable operating segments.
On a statutory basis, sales for the segment of GBP103.9 million
increased by 33% compared H1 2022 (H1 2022: GBP78.1 million) with
LFL sales up 27%. Adjusted operating profit for the segment was
GBP20.4 million (H1 2022: GBP8.6 million), an increase of 137%
(123% LFL), with an adjusted operating margin of 19.6%, an increase
of 860bps on H1 2022 (840bps LFL). Statutory operating profit rose
143% to GBP18.2 million (H1 2022: GBP7.5 million), primarily due to
improved gross margins from pricing and volume drop through, with
the statutory operating margin improving 790bps to 17.5%.
Red Lion Controls had a very strong first half with both sales
and profitability benefiting from a combination of volume growth
and revised pricing. Volume growth was driven by easing supply
chains and increased capacity due to operational improvements
leveraging the Spectris Business System, with the latter also
contributing to strong margin improvement.
Servomex also delivered a very good performance with sales
growth driven by higher volumes on the back of increased production
capacity at our factories in the UK and US and improved material
availability. Higher contribution margins due to price increases
and easing material cost inflation drove a strong increase in
profitability.
Financial Summary
Spectris Scientific Spectris Dynamics Other Group Costs Total
------------------ ------------------
H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022 H1 2023 H1 2022
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Sales
(GBPm) 334.1 277.1 264.5 215.0 103.9 78.1 702.5 570.2
LFL sales
growth (%) 22% 13% 27% 19%
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Statutory
operating
profit
(GBPm) 46.7 36.1 18.3 19.3 18.2 7.5 (12.7) (8.6) 70.5 54.3
Statutory
operating
margin (%) 14.0% 13.0% 6.9% 9.0% 17.5% 9.6% 10.0% 9.5%
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Adjusted
operating
profit
(GBPm) 58.6 44.9 35.8 27.4 20.4 8.6 (12.7) (8.6) 102.1 72.3
LFL
adjusted
operating
profit
change (%) 30% 20% 123% 35%
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Adjusted
operating
margin (%) 17.5% 16.2% 13.5% 12.7% 19.6% 11.0% 14.5% 12.7%
LFL
adjusted
operating
margin
change
(bps) 110bps 70bps 840bps 170bps
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Sales % of
Group
sales 48% 49% 38% 38% 14% 13% 100% 100%
------------ ---------- ---------- --------- --------- -------- -------- -------- -------- -------- --------
Spectris Scientific
H1 2023 H1 2022 Change LFL change
------------------------------------- -------- -------- ------- -----------
Statutory sales (GBPm) 334.1 277.1 21% 22%
Adjusted operating profit(1) (GBPm) 58.6 44.9 30% 30%
Adjusted operating margin(1) (%) 17.5% 16.2% 130bps 110bps
Statutory operating profit (GBPm) 46.7 36.1 29%
Statutory operating margin (%) 14.0% 13.0% 100bps
-------------------------------------- -------- -------- ------- -----------
1. This is an alternative performance measure ('APM'). APMs are
defined in full and reconciled to the reported statutory measures
in the Appendix to the Financial Statements.
A strong first half performance
Spectris Scientific delivered an excellent financial performance
in the first half, with sales growth of 21% to GBP334.1 million (H1
2022: GBP277.1 million). LFL sales growth was 22% after taking into
account the GBP6.1 million impact of the CLS disposal (-2%) and
foreign exchange movements of GBP4.7 million (2%).
Orders were slightly up (flat on LFL basis) with strong demand
in Materials Sciences and Academia, offset by the normalisation of
demand in both Life Science and Semiconductor. We saw strong sales
growth across all key end markets, with the exception of Life
Sciences where sales were slightly above the comparative period
reflecting the fact that this market was the first to see the
normalisation in ordering patterns.
Adjusted operating profit increased 30% (30% LFL) to GBP58.6
million (H1 2022: GBP44.9 million) reflecting the strong sales
growth and good operational performance. Adjusted operating margin
improved to 17.5%, a 130bps increase compared to H1 2022 (110bps
LFL).
Statutory operating profit was GBP46.7 million which included
GBP8.6 million of additional costs related to the investment in our
new ERP system, as part of the business transformation project.
Statutory operating margin of 14.0% was in line with the
comparative period.
Strongly positioned in high growth end markets supported by
sustainability trends
Spectris Scientific is focused on high growth end-markets: Life
Sciences, Material Sciences (Primary and Advanced Materials),
Semiconductors and Academia. We are well positioned in high value,
critical-to-quality areas where precision measurement, domain
expertise and analytics are valued by our customers throughout the
workflow.
Life Sciences
LFL sales were slightly ahead of the comparative period, with
growth in Asia and Europe largely offset by North America. As
expected, demand has normalised after strong growth in prior
periods. Growth over the medium-term in Life Sciences is
underpinned by a number of key drivers including ageing
populations, the onshoring of manufacturing and the need to develop
new treatments. We continue to maintain a healthy pipeline of
customer opportunities.
Material Sciences
Primary materials
We saw strong LFL sales growth particularly in Asia and North
America during the first half. We continue to see high levels of
demand for our X-Ray instruments in mining and building materials
applications, as customers seek to make their extraction and
manufacturing processes greener and more sustainable.
Advanced materials
LFL sales in advanced materials also saw grew strongly
especially in the energy and battery segments. The growth was
driven by the transition in energy and mobility, to more
sustainable solutions, where our in-line particle analysers are
used by customers to assess the quality and character of raw
materials.
This performance also reflects our broad solution portfolio,
strong domain knowledge for material characterisation and deep
customer relationships. We are a key facilitator of customer
innovation, supporting opportunities in the functional performance,
sustainability, and recycling of materials.
Semiconductor
Sales into semiconductor and electronics customers grew
strongly, notably in North America, reflecting our leading product
sensitivity and strong order book as we entered the year. Increased
sales were primarily from gas products including our high purity
gas particle counters which are installed in new semiconductor
fabrication plants during the initial stages of their construction.
While the level of order intake has normalised during the first
half against a strong comparator, our pipeline remains robust,
particularly for our high sensitivity 20 nanometer, gas and
microbial air sampler products.
Academia
We are well positioned to take advantage of the academic
research that feeds into our end markets, with a strong brand built
on high precision measurement and scientific credibility. We saw
strong LFL sales growth in the first half including for our XRD
systems, consistent with the trends we are seeing across our other
end markets.
Spectris Dynamics
H1 2023 H1 2022 Change LFL change
------------------------------------- -------- -------- --------- -----------
Statutory sales (GBPm) 264.5 215.0 23% 13%
Adjusted operating profit(1) (GBPm) 35.8 27.4 31% 20%
Adjusted operating margin(1) (%) 13.5% 12.7% 80bps 70bps
Statutory operating profit (GBPm) 18.3 19.3 (5%)
Statutory operating margin (%) 6.9% 9.0% (210bps)
-------------------------------------- -------- -------- --------- -----------
1. This is an alternative performance measure ('APM'). APMs are
defined in full and reconciled to the reported statutory measures
in the Appendix to the Financial Statements.
A very good financial performance in the first half
Spectris Dynamics delivered a very good financial performance in
the first half with double digit sales and operating profit
growth.
Sales increased by 23% to GBP264.5 million (H1 2022: GBP215.0
million). After taking into account GBP12.8 million (6%) sales
growth from the acquisition of Dytran and GBP7.8 million (4%) for
foreign exchange movements, LFL sales grew by 13%.
Orders were 3% lower (10% lower on LFL basis) than the
comparative period with strong demand growth in Aerospace &
Defence and flat demand in Academia more than offset by the
expected softening order intake across Machine Manufacturing and
Automotive. Sales grew across all key end markets, with
particularly strong growth in A&D and Academia.
Adjusted operating profit of GBP35.8 million represented an
increase of 31%, 20% on a LFL basis, with adjusted operating margin
80bps higher at 13.5% (70bps higher on a LFL basis) with good gross
margin progression, reflecting the impact of top line growth and
net pricing, offset by costs relating to organisational
restructuring.
Statutory operating profit reduced by 5% to GBP18.3 million (H1
2022: GBP19.3 million), with statutory operating margin declining
210bps to 6.9%. This reduction primarily reflects GBP9.2 million of
additional costs relating to the investment in our new ERP system
and an increase of GBP1.8 million in amortisation of
acquisition-related intangible assets following the Dytran
acquisition in the second half last year.
Well positioned in attractive markets
We are well positioned in attractive growth markets that are
benefiting from a number of global mega trends:
-- Increased adoption of Virtual Test particularly in automotive
to accelerate the innovation cycle;
-- Digitisation and the increased use of software to design and
test and to process large amounts of more complex data;
-- Electrification and the transformation of mobility and energy; and
-- Automation to enhance productivity in a more connected world.
These four key growth trends are aligned with our Purpose to
Empower the Innovators for a cleaner, healthier, and more
productive world and are supporting higher levels of growth within
our market segments.
Automotive
LFL sales growth was good in the first half, with a strong
performance in Europe partially offset by North America where sales
were down. Sales in Asia were slightly ahead of the comparative
period. We have seen a softening in demand in the period against a
tough comparator reflecting a normalisation in customer ordering
patterns, resulting from a combination of easing supply chains with
shorter lead-times, and the short-term macro-economic outlook.
During the period, in Physical Test, we saw good order intake
for sound and vibration solutions and the renewal of service and
software contracts from several automotive OEMs. For In-Process,
interest and order intake for our end-of-line testing solution for
electric drive systems continued on a similar positive trend as
last year.
Over the medium-term, we continue to expect growing demand for
automotive testing, driven by growth in both R&D and production
budgets, supporting the increasing pace of new EV model launches
and increasing demand for advanced driver assistance systems (ADAS)
capabilities.
Machine manufacturing
LFL sales grew across all regions, driven by customers wanting
to monitor their production processes and deployed assets. In terms
of order intake, as with Automotive, we have seen a softening in
demand during the first half, notably in Europe and Asia which more
than offset growth in North America. We are pleased to have won
significant new orders for our loadcells in Europe and OEM sensors
for agricultural applications in North America.
We believe that over the medium to longer-term, the move towards
greater levels of automation driven by the scarcity of labour and
the need for greater efficiency, will continue to drive demand from
machine manufacturing customers and in turn, our smart and OEM
sensor offering. Sales to this sector continue to be helped by the
focus on selected high value end-markets, which has driven demand
for our weighing technologies, including for smart OEM-type
solutions in medical and healthcare applications, where accurate
and reliable sensors are critical.
Aerospace and defence
We saw good sales growth in Europe and North America driven by
the ongoing recovery in civil aerospace and continued investment in
space and defence spending. We saw strong growth in our virtual
test solutions where our leading real-time computation software
provides critical measurements in applications where pinpoint
accuracy is required. The growth in demand was also supported by a
large order from a major defence customer for a sound and vibration
solution.
We remain well placed to support long-term innovation projects.
OEMs continue to invest in efficiency gaining technologies,
especially weight saving and power improvements. We also see demand
increasing for energy transition related projects, including
electric aircraft and those running on alternative lower-carbon
fuels. Our Sound and Vibration and EPT solutions are well placed to
capture this.
Consumer electronics and telecoms
LFL sales and demand in consumer electronics and telecoms, which
represented 6% of Dynamics sales in the first half, were both
down.
Derek Harding
Chief Financial Officer
Principal Risks and Uncertainties
A number of potential risks and uncertainties exist which could
have a material impact on the Group's performance over the second
half of the financial year and could cause actual results to differ
materially from expected and historical results. The Group has
processes in place for identifying, evaluating and managing the key
risks which could have an impact upon the Group's performance.
The current risks, together with a description of how they
relate to the Group's strategy and the approach to managing them,
are set out on pages 34-38 of the 2022 Annual Report and Accounts
which is available on the Group's website at www.spectris.com . The
Group has conducted a review and concluded that these risks, as
defined in the 2022 Annual Report, will continue to remain relevant
for the second half of the financial year and that our assessment
of the severity of these risks on both a gross and a net basis is
unchanged. The potential impact of these risks on our strategy and
financial performance, together with details of our specific
mitigation actions, are set out in the 2022 Annual Report.
The full list of principal risks relevant as at the half year
comprises:
-- Strategic transformation. Failure to successfully deliver the
Group strategy, including business transformation and key mergers,
acquisitions and divestment activity.
-- Cyber threat. Failure to appropriately protect critical
information and other assets from cyber threats, including external
hacking, cyber fraud, demands for ransom payments and
inadvertent/intentional electronic leakage of critical data.
-- Compliance. Failure to comply with laws and regulations,
leading to reputational damage, substantial fines and potential
market exclusion.
-- Geopolitical. Material adverse changes in the geopolitical
environment putting at risk our ability to execute our strategy.
Includes trade protectionism, punitive tax/regulatory regimes, and
general heightened tension between trading parties or blocs.
-- Market/financial shock. Material adverse changes in market
conditions, such as economic recession, inflation, sudden negative
investor sentiment and currency fluctuation.
-- Talent and capabilities. Failure to attract, retain, and
deploy the necessary talent to deliver Group strategy.
-- Business disruption. Failure to appropriately prepare for and
respond to a crisis or major disruption to key operations either
across the Group, in a key region/location, or via a critical
supplier.
-- Climate change. Failure to respond appropriately, and
sufficiently, to climate change risks or failure to identify the
associated potential opportunities in assisting others manage their
climate agendas.
These risks are subject to Executive oversight and formal
assessment, and we continue to review the effectiveness of existing
controls over those risks and to identify further actions where
appropriate in order to manage our net exposure.
Responsibility statement of the Directors in respect of the
Interim report
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
and their impact during the first six months and description of the
principal risks and uncertainties for the remaining six months of
the year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
By order of the Board
Andrew Heath Derek Harding
Chief Executive Chief Financial Officer
30 July 2023
Independent Review Report to Spectris PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Statement of Cash
Flows, and related notes 1 to 11.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion related to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
30 July 2023
Condensed Consolidated Income Statement
Six months ended 30 June 2023
Six months ended 30 June Year ended 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Continuing operations Note GBPm GBPm GBPm
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Revenue 2 702.5 570.2 1,327.4
Cost of sales (302.0) (253.0) (576.6)
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Gross profit 400.5 317.2 750.8
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Indirect production and engineering expenses (63.0) (53.7) (114.1)
Sales and marketing expenses (129.0) (110.4) (233.0)
Administrative expenses (138.0) (98.8) (231.1)
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Operating profit 2 70.5 54.3 172.6
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Share of results of associate 0.1 0.1 -
Fair value through profit and loss movements on debt
investment 0.7 - (4.1)
(Loss)/profit on disposal of businesses (11.0) 0.2 0.3
Financial income 3 10.3 0.3 1.9
Finance costs 3 (2.1) (13.1) (19.2)
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Profit before tax 68.5 41.8 151.5
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Taxation charge 4 (16.3) (12.6) (36.7)
--------------------------------------------------------- ----- ------------- ------------ -----------------------
Profit for the period from continuing operations 52.2 29.2 114.8
Profit from discontinued operations - 10.2 286.7
Profit for the period from continuing and discontinued
operations attributable to owners
of the Company 52.2 39.4 401.5
Earnings per share
From continuing operations
Basic 6 50.0p 26.5p 106.7p
Diluted 6 49.7p 26.4p 106.0p
From continuing operations and discontinued operations
Basic 6 50.0p 35.8p 373.1p
Diluted 6 49.7p 35.6p 370.7p
Dividends
Interim and final dividends proposed/paid for the period
(per share) 5 25.3p 24.1p 75.4p
Dividends paid during the period (per share) 5 51.3p 48.8p 72.9p
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2023
Six months ended 30 June Year ended 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
------------------------------------------------------------- ------------- ------------ -----------------------
GBPm GBPm GBPm
------------------------------------------------------------- ------------- ------------ -----------------------
Profit for the period attributable to owners of the Company 52.2 39.4 401.5
Other comprehensive income:
Items that will not be reclassified to the Condensed
Consolidated Income Statement:
Re-measurement of net defined benefit obligation (0.4) 10.5 13.1
Fair value (loss)/gain and foreign exchange movements
translation on investment in equity
instruments designated as at fair value through other
comprehensive income (3.0) 4.3 5.0
Tax credit/(charge) on items above 0.1 (3.1) (4.0)
-------------------------------------------------------------- ------------- ------------ -----------------------
(3.3) 11.7 14.1
Items that are or may be reclassified subsequently to the
Condensed Consolidated Income Statement:
Net gain/(loss) on effective portion of changes in fair value
of forward exchange contracts
on cash flow hedges 6.7 (23.8) 0.4
Foreign exchange movements on translation of overseas
operations (52.2) 83.1 105.1
Currency translation differences transferred to profit on
disposal of businesses - - (86.7)
Tax (charge)/credit on items above (1.6) 4.6 -
-------------------------------------------------------------- ------------- ------------ -----------------------
(47.1) 63.9 18.8
------------------------------------------------------------- ------------- ------------ -----------------------
Total other comprehensive (loss)/income (50.4) 75.6 32.9
-------------------------------------------------------------- ------------- ------------ -----------------------
Total comprehensive income for the period attributable to
owners of the Company 1.8 115.0 434.4
-------------------------------------------------------------- ------------- ------------ -----------------------
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2023
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
At 1 January
2023 5.5 231.4 1,113.0 86.0 (3.1) 3.1 1.0 1,436.9
Profit for the
period - - 52.2 - - - - 52.2
Other
comprehensive
(loss)/income - - (2.5) (53.0) 5.1 - - (50.4)
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
Total
comprehensive
income/(loss)
for the period - - 49.7 (53.0) 5.1 - - 1.8
Transactions
with owners
recorded
directly in
equity:
Equity
dividends paid
by the Company
(note 5) - - (53.7) - - - - (53.7)
Own shares
acquired for
share buyback
programme
(note 10) (0.1) - (40.0) - - - 0.1 (40.0)
Share-based
payments, net
of tax - - 10.0 - - - - 10.0
Proceeds from
exercise of
equity-settled
share options - - 0.4 - - - - 0.4
At 30 June 2023
(Unaudited) 5.4 231.4 1,079.4 33.0 2.0 3.1 1.1 1,355.4
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
Six months ended 30 June 2022
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ----------- ---------- ------------ ---------- ----------- ----------- -----------
At 1 January
2022 5.8 231.4 957.6 66.2 (3.5) 3.1 0.7 1,261.3
Profit for the
period - - 39.4 - - - - 39.4
Other
comprehensive
income/(loss) - - 11.3 83.5 (19.2) - - 75.6
--------------- ----------- ----------- ---------- ------------ ---------- ----------- ----------- -----------
Total
comprehensive
income/(loss)
for the
period - - 50.7 83.5 (19.2) - - 115.0
Transactions
with owners
recorded
directly in
equity:
Equity
dividends
paid by the
Company (note
5) - - (53.3) - - - - (53.3)
Own shares
acquired for
share buyback
programme
(note 10) (0.3) - (150.8) - - - 0.3 (150.8)
Share-based
payments, net
of tax - - 4.4 - - - - 4.4
At 30 June
2022
(Unaudited) 5.5 231.4 808.6 149.7 (22.7) 3.1 1.0 1.176.6
--------------- ----------- ----------- ---------- ------------ ---------- ----------- ----------- -----------
Year ended 31 December 2022
Capital
Share Share Retained Translation Hedging Merger redemption Total
capital premium earnings reserve reserve reserve reserve equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
At 1 January
2022 5.8 231.4 957.6 66.2 (3.5) 3.1 0.7 1,261.3
Profit for the
year - - 401.5 - - - - 401.5
Other
comprehensive
income - - 12.7 19.8 0.4 - - 32.9
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
Total
comprehensive
income for the
year - - 414.2 19.8 0.4 - - 434.4
Transactions
with owners
recorded
directly in
equity:
Equity
dividends paid
by the Company
(note 5) - - (78.6) - - - - (78.6)
Own shares
acquired for
share buyback
programme
(note 10) (0.3) - (191.0) - - - 0.3 (191.0)
Share-based
payments, net
of tax - - 10.6 - - - - 10.6
Proceeds from
exercise of
equity-settled
share options - - 0.2 - - - - 0.2
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
At 31 December
2022 (Audited) 5.5 231.4 1,113.0 86.0 (3.1) 3.1 1.0 1,436.9
---------------- ----------- ----------- ---------- ------------ ---------- ---------- ----------- -----------
Condensed Consolidated Statement of Financial Position
As at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
---------------------------------------------------- ------------ ------------ ------------
GBPm GBPm GBPm
---------------------------------------------------- ------------ ------------ ------------
ASSETS
Non-current assets
Goodwill 583.6 571.3 606.1
Other intangible assets 162.3 158.0 184.1
Property, plant and equipment 142.8 157.6 160.7
Right-of-use assets 57.5 60.2 59.7
Investment in equity instruments 26.3 28.6 29.3
Investment in debt instruments 19.6 23.0 18.9
Investment in associate 2.9 3.5 2.9
Derivative financial instruments 0.7 - 0.4
Other receivables 4.4 4.2 4.2
Deferred tax assets 20.1 18.6 16.2
----------------------------------------------------- ------------ ------------ ------------
1,020.2 1,025.0 1,082.5
---------------------------------------------------- ------------ ------------ ------------
Current assets
Inventories 261.4 231.3 263.3
Current tax assets 11.9 3.0 8.6
Trade and other receivables 316.6 331.5 362.5
Derivative financial instruments 6.3 - 1.3
Cash and cash equivalents 214.3 122.2 228.1
Assets held for sale - 219.2 1.7
----------------------------------------------------- ------------ ------------ ------------
810.5 907.2 865.5
Total assets 1,830.7 1,932.2 1,948.0
----------------------------------------------------- ------------ ------------ ------------
LIABILITIES
Current liabilities
Borrowings - (8.0) (0.1)
Derivative financial instruments (0.3) (25.7) (2.3)
Trade and other payables (355.2) (335.4) (373.7)
Lease liabilities (12.1) (16.5) (14.9)
Current tax liabilities (9.3) (9.7) (14.2)
Provisions (12.2) (15.9) (12.8)
Liabilities held for sale - (31.9) -
---------------------------------------------------- ------------ ------------ ------------
(389.1) (443.1) (418.0)
---------------------------------------------------- ------------ ------------ ------------
Net current assets 421.4 464.1 447.5
----------------------------------------------------- ------------ ------------ ------------
Non-current liabilities
Borrowings - (220.2) -
Other payables (13.7) (14.7) (13.8)
Derivative financial instruments - - (0.2)
Lease liabilities (50.3) (48.7) (50.2)
Provisions (3.0) (4.2) (4.4)
Retirement benefit obligations (8.1) (11.3) (8.9)
Deferred tax liabilities (11.1) (13.4) (15.6)
----------------------------------------------------- ------------ ------------ ------------
(86.2) (312.5) (93.1)
---------------------------------------------------- ------------ ------------ ------------
Total liabilities (475.3) (755.6) (511.1)
----------------------------------------------------- ------------ ------------ ------------
Net assets 1,355.4 1,176.6 1,436.9
----------------------------------------------------- ------------ ------------ ------------
EQUITY
Share capital 5.4 5.5 5.5
Share premium 231.4 231.4 231.4
Retained earnings 1,079.4 808.6 1,113.0
Translation reserve 33.0 149.7 86.0
Hedging reserve 2.0 (22.7) (3.1)
Merger reserve 3.1 3.1 3.1
Capital redemption reserve 1.1 1.0 1.0
----------------------------------------------------- ------------ ------------ ------------
Total equity attributable to owners of the Company 1,355.4 1,176.6 1,436.9
----------------------------------------------------- ------------ ------------ ------------
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2023
Year
Six months ended ended
30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
-------------------------------------------- ----- ------------ ------------ -------------
Note GBPm GBPm GBPm
-------------------------------------------- ----- ------------ ------------ -------------
Cash generated from operations 9 108.9 43.4 166.8
Net income taxes paid (30.0) (20.5) (46.8)
-------------------------------------------- ----- ------------ ------------ -------------
Net cash inflow from operating activities 78.9 22.9 120.0
-------------------------------------------- ----- ------------ ------------ -------------
Cash flows from/(used in) investing
activities
Purchase of property, plant and equipment
and intangible assets (11.7) (32.3) (44.9)
Proceeds from disposal of property,
plant and equipment and software 2.9 13.2 13.4
Acquisition of businesses, net of
cash acquired (2.8) (44.3) (114.7)
Acquisition of investment in an associate - (3.4) (2.9)
Inflow/(outflow) from disposal of
businesses, net of tax paid of GBP1.0m
(H1 2022: GBP12.6m and FY 2022: GBP27.9m) 9.2 (15.1) 365.4
Interest received 3.4 0.3 1.9
-------------------------------------------- ----- ------------ ------------ -------------
Net cash flows from/(used in) investing
activities 1.0 (81.6) 218.2
-------------------------------------------- ----- ------------ ------------ -------------
Cash flows (used in)/from financing
activities
Interest paid on borrowings (0.5) (0.6) (1.4)
Interest paid on lease liabilities (1.2) (1.3) (2.5)
Dividends paid 5 (53.7) (53.3) (78.6)
Share buyback purchase of shares 10 (26.7) (150.8) (191.0)
Net proceeds from exercise of share
options 0.4 - 0.2
Payments on principal portion of
lease liabilities (5.9) (6.3) (13.9)
Proceeds from borrowings - 326.1 326.2
Repayment of borrowings (0.1) (98.7) (326.8)
-------------------------------------------- ----- ------------ ------------ -------------
Net cash flows (used in)/from financing
activities (87.7) 15.1 (287.8)
-------------------------------------------- ----- ------------ ------------ -------------
Net (decrease)/increase in cash
and cash equivalents (7.8) (43.6) 50.4
Cash and cash equivalents at beginning
of period 228.1 167.8 167.8
Effect of foreign exchange rate changes (6.0) 5.7 9.9
-------------------------------------------- ----- ------------ ------------ -------------
Cash and cash equivalents at end
of period (1) 214.3 129.9 228.1
-------------------------------------------- ----- ------------ ------------ -------------
1. Cash and cash equivalents in the Condensed Consolidated
Statement of Cash Flows at 30 June 2023 and 31 December 2022
consisted solely of cash and cash equivalents included in current
assets. Cash and cash equivalents in the Condensed Consolidated
Statement of Cash Flows at 30 June 2022 consisted of GBP122.2
million of cash and cash equivalents included in current assets and
GBP7.7 million of cash and cash equivalents included in assets held
for sale.
Notes to the condensed set of financial statements
Six months ended 30 June 2023
1. Basis of preparation and accounting policies
a) Basis of accounting
The Condensed Consolidated Interim Financial Statements of the
Company for the six months ended 30 June 2023 comprise the Company
and its subsidiaries, together referred to as the 'Group'. These
Condensed Consolidated Interim Financial Statements are presented
in millions of Sterling rounded to the nearest one decimal place,
which is the Group's presentational currency. The Consolidated
Financial Statements of the Group for the year ended 31 December
2022 are available upon request from the Company's registered
office at Melbourne House, 44-46 Aldwych, London, WC2B 4LL, and on
the Company's website at www.spectris.com .
These Condensed Consolidated Interim Financial Statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and with IAS 34, 'Interim
Financial Reporting', as adopted by the United Kingdom. They do not
include all of the information required for full annual financial
statements and should be read in conjunction with the Consolidated
Financial Statements of the Group for the year ended 31 December
2022.
The Condensed Consolidated Financial Statements have been
prepared using consistent accounting policies with those of the
previous financial year except for the adoption of new accounting
standards and interpretations noted below.
The Condensed Consolidated Interim Financial Statements for the
six-month period ended 30 June 2023 are unaudited but have been
subject to an independent review by the auditor. They do not
constitute statutory financial statements as defined in section 434
of the Companies Act 2006. The comparative figures for the
financial year ended 31 December 2022 are derived from the
Company's statutory accounts for that financial year. Those
accounts have been reported on by the Company's auditor and
delivered to the Registrar of Companies. The Report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498(2) or 498(3) of the Companies Act
2006.
The Group's financial risk management objectives and policies
are consistent with those disclosed in the Consolidated Financial
Statements of the Group for the year ended 31 December 2022. These
Condensed Consolidated Interim Financial Statements were approved
by the Board of Directors on 30 July 2023.
New standards and interpretations applied for the first time
There were no standards, amendments or interpretations applied
for the first time that had a material impact for the Group.
New standards and interpretations not yet applied
There were no new or revised IFRSs, amendments or
interpretations in issue but not yet effective that are potentially
material for the Group and which have not yet been applied.
b) Going concern
The Group finances its operations from retained earnings and,
where appropriate, from third-party borrowings. Total borrowings as
at 30 June 2023 was GBPnil (H1 2022: GBP228.2 million; FY 2022:
GBP0.1 million).
In determining the basis of preparation for the Condensed
Consolidated Financial Statements, the Directors have considered
the Group's available resources, current business activities and
factors likely to impact on its future development and performance,
including the impact of economic factors such as rising interest
rates and inflation as well as climate change on the Group, which
are described in the Chief Executive's Review, Financial Review and
Operating Review.
As at 30 June 2023, the Group had GBP393.8 million of committed
facilities, consisting entirely of a $500 million multi-currency
revolving credit facility ('RCF') maturing in July 2025. The RCF
was undrawn at 30 June 2023 (H1 2022: GBP220 million drawn).
At 30 June 2023, there was net finance income for covenant
purposes of GBP3.4 million, resulting in the interest cover ratio
being n/a (30 June 2022: 144.7 times, 31 December 2022: n/a). The
minimum covenant interest cover requirement is 3.75 times (covenant
defined earnings before interest, tax and amortisation divided by
net finance charges). Leverage (covenant defined earnings before
interest, tax, depreciation, and amortisation divided by net cash)
was less than zero (30 June 2022: 0.6 times, 31 December 2022: less
than zero) due to the Group's net cash position, against a maximum
permitted leverage of 3.5 times.
At 30 June 2023, the Group had a cash and cash equivalents
balance of GBP214.3 million. The Group also had various uncommitted
facilities and bank overdraft facilities available.
The Group has prepared and reviewed cash flow forecasts for the
period to 31 December 2027, which reflect forecasted changes in
revenue across its business and compared these to a reverse stress
test of the forecasts to determine the extent of downturn which
would result in a breach of covenants. The reverse stress test does
not take into account any mitigating actions which the Group would
implement in the event of a severe and extended revenue decline,
which would increase the headroom further. This assessment
indicates that the Group can operate within the level of its
current facilities, as set out above, without the need to obtain
any new facilities for a period of not less than 12 months from the
date of this report.
Following this assessment, the Board of Directors are satisfied
that the Group has sufficient resources to continue in operation
for the foreseeable future, a period of not less than 12 months
from the date of this report. Accordingly, they continue to adopt
the going concern basis in relation to this conclusion and
preparing the Condensed Consolidated Financial Statements.
c) Seasonality
The Group's financial results and cash flows have, historically,
been subject to seasonal trends between the first and second half
of the financial year. Historically, the second half of the
financial year sees higher revenue and profitability. There is no
assurance that this trend will continue in the future.
d) Critical accounting judgments and key sources of estimation uncertainty update
In determining and applying accounting policies, judgement is
often required where the choice of specific policy, assumption or
accounting estimate to be followed could materially affect the
reported amounts of assets, liabilities, income and expenses,
should it be determined that a different choice be more
appropriate. Estimates and assumptions are reviewed on an ongoing
basis and are based on historical experience and various other
factors that are believed to be reasonable under the
circumstances.
The Group's critical accounting judgments and other key sources
of estimation uncertainty remain the same as those as set out in
the Group's Consolidated Financial Statements for the year ended 31
December 2022.
2. Operating segments
The Group's reportable segments are described below. In the
second half of 2022, the Group's reportable operating segments
changed following the reorganisation of the Group's businesses
announced at the Capital Markets Day in October 2022. The new
segmental platform structure reflects the current internal
reporting provided to the Chief Operating Decision Maker
(considered to be the Board) on a regular basis to assist in making
decisions on capital allocated to each segment and to assess
performance. The tables below show restated comparative figures for
the reportable operating segments for the six months ended 30 June
2022, reflecting the impact of changes the Group made to its
operating segments during the year ended 31 December 2022. The
segment results include an allocation of head office expenses,
where the costs are attributable to a segment. Costs of running the
PLC are reported separately as Group costs.
The following summarises the operations in each of the Group's
reportable segments:
-- Spectris Scientific provides advanced measurement and
materials characterisation, accelerating innovation and efficiency
in R&D and manufacturing. The operating companies in this
segment are Malvern Panalytical and Particle Measuring Systems;
-- Spectris Dynamics provides differentiated sensing, data
acquisition, analysis modelling and simulation solutions to help
customers accelerate product development and enhance product
performance;
-- The Other non-reportable segments are a portfolio of high
value precision in-line sensing and monitoring businesses. The
operating companies in this segment are Red Lion Controls and
Servomex.
-- Group costs consist of the cost of running the PLC.
Information about reportable segments
Spectris Scientific Spectris Dynamics Other Group costs Total
Six months ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
Segment revenues 334.3 264.5 103.9 - 702.7
Inter-segment revenue (0.2) - - - (0.2)
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
External revenue 334.1 264.5 103.9 - 702.5
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
Operating profit 46.7 18.3 18.2 (12.7) 70.5
Share of results of associate - 0.1 - - 0.1
Fair value through profit and loss movements
on debt investments(1) 0.7
Loss on disposal of businesses(1) (11.0)
Financial income(1) 10.3
Finance costs(1) (2.1)
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
Profit before tax(1) 68.5
Taxation charge(1) (16.3)
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
Profit after tax(1) 52.2
--------------------------------------------- -------------------- ------------------ ------ ------------ -------
1. Not allocated to reportable segments
Spectris Scientific Spectris Dynamics Other Group costs Total
Six months ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------------------- ------------------ ------ ------------ -------
Segment revenues 277.0 215.0 78.2 - 570.2
Inter-segment revenue 0.1 - (0.1) - -
------------------------------------- -------------------- ------------------ ------ ------------ -------
External revenue 277.1 215.0 78.1 - 570.2
------------------------------------- -------------------- ------------------ ------ ------------ -------
Operating profit 36.1 19.3 7.5 (8.6) 54.3
Share of results of associate - 0.1 - - 0.1
Profit on disposal of businesses(1) 0.2
Financial income(1) 0.3
Finance costs(1) (13.1)
------------------------------------- -------------------- ------------------ ------ ------------ -------
Profit before tax(1) 41.8
Taxation charge(1) (12.6)
------------------------------------- -------------------- ------------------ ------ ------------ -------
Profit after tax(1) 29.2
------------------------------------- -------------------- ------------------ ------ ------------ -------
1. Not allocated to reportable segments
Spectris Scientific Spectris Dynamics Other Group costs Total
Year ended 31 December 2022 GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
Segment revenues 658.0 492.4 177.4 - 1,327.8
Inter-segment revenue (0.2) (0.2) - - (0.4)
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
External revenue 657.8 492.2 177.4 - 1,327.4
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
Operating profit 118.3 46.5 26.2 (18.4) 172.6
Fair value through profit and loss
movements on debt investments(1) (4.1)
Profit on disposal of businesses(1) 0.3
Financial income(1) 1.9
Finance costs(1) (19.2)
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
Profit before tax(1) 151.5
Taxation charge(1) (36.7)
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
Profit after tax(1) 114.8
-------------------------------------------- -------------------- ------------------ ------ ------------ --------
1. Not allocated to reportable segments
Geographical segments
The Group's operating segments are each located in several
geographical locations and sell to external customers in all parts
of the world. No individual country amounts to more than 3% of
revenue by location of customer, other than those noted below. The
following is an analysis of revenue from continuing operations by
geographical destination.
Six months ended 30 June Year ended 31 December
2023 2022 2022
GBPm GBPm GBPm
----------------------- ---------------- --------- -----------------------
UK 28.9 26.0 51.2
Germany 70.8 53.6 123.4
France 23.1 19.3 44.8
Rest of Europe 93.8 77.7 172.4
USA 188.0 151.2 359.9
Rest of North America 19.2 14.0 30.0
Japan 39.8 31.8 69.5
China 116.8 96.8 233.6
South Korea 23.9 26.0 58.4
Rest of Asia 65.5 49.6 125.5
Rest of the world 32.7 24.2 58.7
------------------------ ---------------- --------- -----------------------
702.5 570.2 1,327.4
----------------------- ---------------- --------- -----------------------
3. Financial income and finance costs
Six months ended 30 June Year ended 31 December
2023 2022 2022
Financial income from continuing operations GBPm GBPm GBPm
------------------------------------------------------------- -------------- ----------- -----------------------
Interest receivable (3.3) (0.3) (1.9)
Net gain on retranslation of short-term inter-company loan
balances (7.0) - -
------------------------------------------------------------- -------------- ----------- -----------------------
(10.3) (0.3) (1.9)
------------------------------------------------------------- -------------- ----------- -----------------------
Six months ended 30 June Year ended 31 December
2023 2022 2022
Finance costs from continuing operations GBPm GBPm GBPm
------------------------------------------------------------- -------------- ----------- -----------------------
Interest payable on loans and overdrafts 0.7 1.1 1.8
Net loss on retranslation of short-term inter-company loan
balances - 10.7 14.6
Unwinding of discount factor on lease liabilities 1.2 1.2 2.5
Net interest cost on pension plan obligations 0.2 0.1 0.3
-------------------------------------------------------------- -------------- ----------- -----------------------
2.1 13.1 19.2
------------------------------------------------------------- -------------- ----------- -----------------------
Net finance (credit)/costs from continuing operations (8.2) 12.8 17.3
-------------------------------------------------------------- -------------- ----------- -----------------------
4. Taxation
The tax charge for the six months to 30 June 2023 has been
calculated using the effective tax rate which is expected to apply
to the Group for the full year, using tax rates substantively
enacted at 30 June 2023. The effective tax rate applied to adjusted
profit before tax for the half year is 22.0% (H1 2022: 22.0%; FY
2022: 21.7%). The effective tax rate has been estimated using full
year projections of adjusted profit before tax by territory and the
tax rates applying in those territories. The tax rates applied to
adjusting items are established on an individual basis for each
adjusting item.
A reconciliation of the tax charge on adjusted profit to the
actual tax charge is presented below:
Six months ended 30 June Year ended 31 December
2023 2022 2022
GBPm GBPm GBPm
---------------------------------------------------------------- ------------- ------------ -----------------------
Tax charge on adjusted profit before tax 22.7 15.5 47.7
Tax credit on amortisation of acquisition-related intangible
assets (2.4) (2.1) (4.6)
Tax credit on net transaction-related costs and fair value
adjustments (0.4) (0.9) (0.5)
Tax (credit)/charge on (loss)/profit on disposal of businesses (0.1) 0.1 -
Tax charge on retranslation of short-term inter-company loan
balances 0.5 0.5 0.6
Tax credit on configuration and customisation costs carried out
by third parties on material
SaaS projects (4.2) (0.5) (5.1)
Tax charge/(credit) on fair value through profit and loss
movements on equity investments 0.2 - (1.4)
---------------------------------------------------------------- ------------- ------------ -----------------------
Total tax charge 16.3 12.6 36.7
---------------------------------------------------------------- ------------- ------------ -----------------------
The UK legislation to implement the OECD BEPS 'Pillar Two' or
'GloBE' minimum tax rules was substantively enacted in June 2023.
We anticipate that these legislative changes could give rise to
limited upward pressure on the Group's adjusted effective tax rate
from FY24, but we do not currently expect that this impact will be
material. The impact is expected to primarily arise due to the
Group receiving tax incentives for innovation under local laws in
certain countries which in limited circumstances can reduce
effective tax rates below 15%.
The Group has adopted the mandatory temporary exception included
in IAS 12 Income Taxes from recording deferred tax arising from the
implementation of 'Pillar Two'. This mandatory temporary exception
was included in the narrow scope amendments to IAS 12 published by
the International Accounting Standards Board in May 2023.
5. Dividends
Six months ended 30 June Year ended 31 December
2023 2022 2022
Amounts recognised and paid as distributions to owners of the
Company in the period GBPm GBPm GBPm
---------------------------------------------------------------- ------------- ------------ -----------------------
Final dividend for the year ended 31 December 2022 of 51.3p per
share 53.7 - -
Final dividend for the year ended 31 December 2021 of 48.8p per
share - 53.3 53.3
Interim dividend for the year ended 31 December 2022 of 24.1p
per share - - 25.3
53.7 53.3 78.6
---------------------------------------------------------------- ------------- ------------ -----------------------
An interim 2023 dividend of 25.3p per share has been declared
and will be payable on 10 November 2023 to ordinary shareholders on
the register at the close of business on 5 October 2023.
6. Earnings per share
Basic earnings per share amounts are calculated by dividing net
profit for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period (excluding treasury shares).
Diluted profit per share amounts are calculated by dividing the
net profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period but
adjusted for the effects of dilutive options. This additional
adjustment is not made when there is a net loss attributable to
ordinary shareholders.
Six months ended 30 June Year ended 31 December
Basic earnings per share from continuing operations 2023 2022 2022
------------------------------------------------------------- ------------- ------------ -----------------------
Profit after tax from continuing operations (GBPm) 52.2 29.2 114.8
Weighted average number of shares outstanding (millions) 104.5 110.0 107.6
-------------------------------------------------------------- ------------- ------------ -----------------------
Basic earnings per share from continuing operations (pence) 50.0 26.5 106.7
-------------------------------------------------------------- ------------- ------------ -----------------------
Six months ended 30 June Year ended 31 December
Diluted earnings per share from continuing operations 2023 2022 2022
------------------------------------------------------------- ------------- ------------ -----------------------
Profit after tax from continuing operations (GBPm) 52.2 29.2 114.8
-------------------------------------------------------------- ------------- ------------ -----------------------
Basic weighted average number of shares outstanding
(millions) 104.5 110.0 107.6
Weighted average number of dilutive 5p ordinary shares under
option (millions) 0.7 1.4 0.9
Weighted average number of 5p ordinary shares that would have
been issued at average market
value from proceeds of dilutive share options (millions) (0.2) (0.6) (0.2)
-------------------------------------------------------------- ------------- ------------ -----------------------
Diluted weighted average number of shares outstanding
(millions) 105.0 110.8 108.3
-------------------------------------------------------------- ------------- ------------ -----------------------
Diluted earnings per share from continuing operations (pence) 49.7 26.4 106.0
-------------------------------------------------------------- ------------- ------------ -----------------------
Six months ended 30 June Year ended 31 December
Basic earnings per share from discontinued operations 2023 2022 2022
------------------------------------------------------------- ------------- ------------ -----------------------
Profit after tax from discontinued operations (GBPm) - 10.2 286.7
Weighted average number of shares outstanding (millions) 104.5 110.0 107.6
-------------------------------------------------------------- ------------- ------------ -----------------------
Basic earnings per share from discontinued operations (pence) - 9.3 266.4
-------------------------------------------------------------- ------------- ------------ -----------------------
Six months ended 30 June Year ended 31 December
Diluted earnings per share from discontinued operations 2023 2022 2022
------------------------------------------------------------- ------------- ------------ -----------------------
Profit after tax from discontinued operations (GBPm) - 10.2 286.7
-------------------------------------------------------------- ------------- ------------ -----------------------
Diluted weighted average number of shares outstanding
(millions) 105.0 110.8 108.3
-------------------------------------------------------------- ------------- ------------ -----------------------
Diluted earnings per share from discontinued operations
(pence) - 9.2 264.7
-------------------------------------------------------------- ------------- ------------ -----------------------
The denominators used for diluted earnings per share from
discontinued operations are the same as those used for diluted
earnings per share from continuing operations.
7. Acquisitions
On 19 June 2023, the Group announced it has signed a purchase
agreement to acquire MicroStrain Sensing Systems Business for a
headline consideration of $37.6 million (GBP29.4 million). This
amount is subject to potential adjustment through a completion
accounts process. The transaction is in line with Spectris'
strategy to make synergistic acquisitions to enhance and grow its
platform and potential platform businesses. MicroStrain will be
integrated into Spectris Dynamics Division.
The initial accounting for the business combination is
incomplete due to the transaction being subject to regulatory
approval and is anticipated to close in the third quarter after the
interim financial statements being authorised for issue, and the
Group is therefore not yet able to provide the disclosure
requirements of IFRS 3 paragraph B64, which includes information on
the major classes of assets acquired, liabilities assumed and
details of transaction-related costs.
8. Business disposals
On 31 March 2023, the Group disposed of 100% of the remaining
part of its Concept Life Sciences business, which formed part of
the Spectris Scientific Division. The consideration was GBP15.5
million, settled by GBP15.0 million cash received plus a GBP0.5
million estimated completion accounts true-up.
The loss on disposal of the Concept Life Sciences reportable
segment was calculated as follows:
30 June
2023
GBPm
---------------------------------------------------------------------------------- -------------------------------
Goodwill 3.5
Other intangible assets 4.1
Property, plant and equipment - owned and right of use assets 14.6
Inventories 0.6
Trade and other receivables 6.1
Cash and cash equivalents 1.9
Trade and other payables (3.0)
Lease liabilities (3.6)
Current and deferred tax liabilities (0.6)
----------------------------------------------------------------------------------- -------------------------------
Net assets of disposed businesses 23.6
----------------------------------------------------------------------------------- -------------------------------
Consideration received
Settled in cash 15.0
Estimated completion accounts receivable 0.5
----------------------------------------------------------------------------------- -------------------------------
Total consideration received 15.5
Transaction expenses booked to profit on disposal of business (1.6)
----------------------------------------------------------------------------------- -------------------------------
Net consideration from disposal of business 13.9
Net assets disposed of (including cash and cash equivalents held by disposal
group) (23.6)
----------------------------------------------------------------------------------- -------------------------------
Loss on disposal of business (9.7)
----------------------------------------------------------------------------------- -------------------------------
Net proceeds recognised in the Consolidated Statement of Cash Flows
Consideration received settled in cash 15.0
Cash and cash equivalents held by disposed business (1.9)
Transaction fees paid (1.0)
----------------------------------------------------------------------------------- -------------------------------
Net proceeds recognised in the Consolidated Statement of Cash Flows 12.1
----------------------------------------------------------------------------------- -------------------------------
9. Cash generated from operations
Six months
ended 30 June Year ended 31 December
2023 2022 2022
Note GBPm GBPm GBPm
---------------------------------------------- ----- -------- ------- -----------------------
Cash flows from operating activities
Profit after tax 52.2 39.4 401.5
Adjustments for:
Taxation charge 16.3 15.3 56.8
Loss/(profit) on disposal of businesses 11.0 (0.2) (294.2)
Share of results of associate (0.1) (0.1) -
Finance costs 3 2.1 13.2 19.2
Financial income 3 (10.3) (0.3) (1.9)
Depreciation and impairment of property,
plant and equipment 16.6 16.9 34.8
Amortisation, impairment and other non-cash
adjustments made of intangible assets 12.8 12.6 26.3
Transaction-related fair value adjustments 1.7 0.2 1.0
Fair value through profit and loss movements
on debt investments (0.7) - 4.1
(Profit)/loss on disposal and re-measurement
of property, plant and equipment and
associated lease liabilities (0.7) (2.1) (1.5)
Equity-settled share-based payment expense 7.4 5.0 10.4
---------------------------------------------- ----- -------- ------- -----------------------
Operating cash flow before changes in
working capital and provisions 108.3 99.9 256.5
Decrease/(increase) in trade and other
receivables 24.9 (12.8) (47.9)
Increase in inventories (9.5) (51.7) (75.6)
(Decrease)/increase in trade and other
payables (12.1) 10.3 40.9
Decrease in provisions and retirement
benefits (2.7) (2.3) (7.1)
---------------------------------------------- ----- -------- ------- -----------------------
Cash generated from operations 108.9 43.4 166.8
---------------------------------------------- ----- -------- ------- -----------------------
10. Share buyback, treasury shares and employee benefit trust
shares
During the six months ended 30 June 2023, 729,423 ordinary
shares were repurchased and cancelled by the Group as part of the
GBP300 million share buyback programme announced on 19 April 2022,
resulting in a cash outflow of GBP26.7 million, including
transaction fees of GBP0.1 million. The remaining amount of the
tranche completed during July 2023.
During the six months ended 30 June 2022, 5,068,643 ordinary
shares were repurchased and cancelled by the Group as part of the
GBP300 million share buyback programme announced on 19 April 2022,
resulting in a cash outflow of GBP150.8 million, including
transaction fees of GBP1.0 million. At 31 December 2022 6,439,493
shares were repurchased and cancelled, resulting in a cash outflow
of GBP191.0 million, including transaction fees of GBP1.2
million.
At 30 June 2023, the Group held 4,205,234 treasury shares (H1
2022: 4,664,727; FY 2022: 4,596,698). During the period, 390,662
(H1 2022: 102,379; FY 2022: 170,408) of these shares were issued to
satisfy options exercised by, and SIP Matching Shares awarded to,
employees which were granted under the Group's share schemes.
11. Financial instruments
The following tables show the fair value measurement of
financial instruments by level following the fair value
hierarchy:
-- Level 1: quoted listed stock exchange prices (unadjusted) in
active markets for identical assets;
-- Level 2: inputs other than quoted prices within level 1 that
are observable for the asset or liability, either directly (i.e.,
as prices) or indirectly (i.e. derived from prices); and
-- Level 3: inputs for assets and liabilities derived from
valuation techniques that include inputs for the assets or
liability that are not based on observable market data.
Level 1 fair value Level 2 fair value Level 3 fair value Carrying amount
Six months ended 30 June 2023 GBPm GBPm GBPm GBPm
------------------------------------- ------------------- ------------------- ------------------- ----------------
Fair value hierarchy categorisation
of financial instruments measured at
fair value
Deferred and contingent
consideration payable on
acquisitions - - (2.2) (2.2)
Investment in equity instruments
designated at initial recognition
at fair value through other
comprehensive income 0.5 - 25.8 26.3
Investment in debt instruments - - 19.6 19.6
Cash and cash equivalents - 214.3 - 214.3
Forward exchange contract assets - 7.0 - 7.0
Forward exchange contract
liabilities - (0.3) - (0.3)
------------------------------------- ------------------- ------------------- ------------------- ----------------
264.7
------------------------------------- ------------------- ------------------- ------------------- ----------------
There were no movements between the different levels of the fair
value hierarchy during the period.
The fair value of deferred and contingent consideration is
determined by considering the performance expectations of the
acquired entity or the likelihood of non-financial integration
milestones whilst applying the entity-specific discount rates. The
unobservable inputs are the projected forecast measures that are
assessed on a periodic basis. Changes in the fair value of deferred
and contingent consideration relating to updated projected forecast
performance measures are recognised in the Consolidated Income
Statement within administrative expenses in the Consolidated Income
Statement in the period that the change occurs.
The level 1 investments in equity instruments is calculated
using quoted market prices in an active market at the balance sheet
date. The level 3 investment in equity instruments is measured at
fair value, using the income approach, with the key input being a
discounted cash flow.
The level 3 investment in debt instruments is measured at fair
value by establishing an appropriate market yield. The key inputs
used were synthetic credit ratings and market interest rates.
The fair value of cash and cash equivalents (including cash and
cash equivalents included in assets held for sale) approximates to
the carrying amount because of the short maturity of these
instruments.
The fair value of floating rate borrowings and bank overdrafts
approximates to the carrying amount because interest rates are at
floating rates where payments are reset to market rates at
intervals of less than one year.
The fair value of forward exchange contracts is determined using
discounted cash flow techniques based on readily available market
data.
The fair value measurement methodology of all financial
instruments remains consistent with the approach disclosed in the
Consolidated Financial Statements for the financial year ended 31
December 2022.
Level 1 fair value Level 2 fair value Level 3 fair value Carrying amount
Six months ended 30 June 2022 GBPm GBPm GBPm GBPm
------------------------------------- ------------------- ------------------- ------------------- ----------------
Fair value hierarchy categorisation
of financial instruments measured at
fair value
Deferred and contingent
consideration payable on
acquisitions - - (2.9) (2.9)
Investment in equity instruments
designated at initial recognition
at fair value through other
comprehensive income 0.9 - 27.7 28.6
Investment in debt instruments - - 23.0 23.0
Financial instruments included in
assets held for sale - 7.7 - 7.7
Cash and cash equivalents (excluding
GBP7.7 million classified as assets
held for sale) - 122.2 - 122.2
Floating rate borrowings and bank
overdrafts - (228.2) - (228.2)
Forward exchange contract
liabilities - (25.7) - (25.7)
------------------------------------- ------------------- ------------------- ------------------- ----------------
(75.3)
------------------------------------- ------------------- ------------------- ------------------- ----------------
Level 1 fair value Level 2 fair value Level 3 fair value Carrying amount
Year ended 31 December 2022 GBPm GBPm GBPm GBPm
------------------------------------- ------------------- ------------------- ------------------- ----------------
Fair value hierarchy categorisation
of financial instruments measured at
fair value
Deferred and contingent
consideration payable on
acquisitions - - (3.3) (3.3)
Investment in equity instruments
designated at initial recognition
at fair value through other
comprehensive income 0.7 - 28.6 29.3
Investment in debt instruments - - 18.9 18.9
Cash and cash equivalents - 228.1 - 228.1
Forward exchange contract assets - 1.7 - 1.7
Forward exchange contract
liabilities - (2.5) - (2.5)
------------------------------------- ------------------- ------------------- ------------------- ----------------
272.2
------------------------------------- ------------------- ------------------- ------------------- ----------------
Six months ended 30 June Year ended 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------------------- -------------- ----------- -----------------------
Reconciliation of level 3 fair value for investment in
equity instruments
At 1 January 28.6 23.1 23.1
Fair value (loss)/gain (2.0) 4.1 4.1
Foreign exchange difference (0.8) 0.5 1.4
-------------------------------------------------------------- -------------- ----------- -----------------------
At end of period 25.8 27.7 28.6
-------------------------------------------------------------- -------------- ----------- -----------------------
Six months ended 30 June Year ended 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------------------- ------------- ------------ -----------------------
Reconciliation of level 3 fair value for investment in debt
instruments
At 1 January 18.9 23.0 23.0
Fair value movement on level 3 investment in debt instruments 0.7 - (4.1)
-------------------------------------------------------------- ------------- ------------ -----------------------
At end of period 19.6 23.0 18.9
-------------------------------------------------------------- ------------- ------------ -----------------------
Six months ended 30 June Year ended 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------------------- ------------- ------------ -----------------------
Reconciliation of level 3 fair value for deferred and
contingent consideration payable on
acquisitions
At 1 January (3.3) (1.5) (1.5)
Deferred and contingent consideration arising from current
period acquisitions payable in
future periods - (2.2) (2.2)
Deferred and contingent consideration paid in the current
period relating to previous periods'
acquisitions 2.8 0.8 1.6
Costs charged to the Condensed Consolidated Income
Statement:
Subsequent adjustment on acquisitions and disposals (1.7) (0.2) (1.0)
Foreign exchange difference - 0.2 (0.2)
-------------------------------------------------------------- ------------- ------------ -----------------------
At end of period (2.2) (2.9) (3.3)
-------------------------------------------------------------- ------------- ------------ -----------------------
Appendix - Alternative performance measures
Policy
Spectris uses adjusted figures as key performance measures in
addition to those reported under IFRS, as management believe these
measures enable management and stakeholders to assess the
underlying trading performance of the businesses as they exclude
certain items that are considered to be significant in nature
and/or quantum, foreign exchange movements and the impact of
acquisitions and disposals.
The alternative performance measures ('APMs') are consistent
with how the businesses' performance is planned and reported within
the internal management reporting to the Board and Operating
Committees. Some of these measures are used for the purpose of
setting remuneration targets. The key APMs that the Group uses
include like-for-like ('LFL') organic performance measures and
adjusted measures for the income statement together with adjusted
financial position and cash flow measures. Explanations of how they
are calculated and how they are reconciled to an IFRS statutory
measure are set out below.
Adjusted measures
The Group's policy is to exclude items that are considered to be
significant in nature and/or quantum and where treatment as an
adjusted item provides stakeholders with additional useful
information to assess the period-on-period trading performance of
the Group. The Group excludes such items which management have
defined for 2023 and 2022 as:
-- amortisation of acquisition-related intangible assets;
-- depreciation of acquisition-related fair value adjustments to
property, plant and equipment;
-- transaction-related costs, deferred and contingent consideration fair value adjustments;
-- configuration and customisation costs carried out by third
parties on material SaaS projects;
-- profits or losses on termination or disposal of businesses;
-- unrealised changes in the fair value of financial instruments;
-- fair value through profit and loss movements on debt investments;
-- gains or losses on retranslation of short-term inter-company loan balances; and
-- related tax effects on the above and other tax items which do
not form part of the underlying tax rate (see note 4).
LFL measures
Reference is made to LFL and organic measures throughout this
document. LFL and organic have the same definition, as set out
below.
The Board reviews and compares current and prior period
segmental sales and adjusted operating profit at constant exchange
rates and excludes the impact of acquisitions and disposals during
the period.
The constant exchange rate comparison uses the current period
segmental information, stated in each entity's functional currency,
and translates the results into its presentation currency using the
prior period's monthly exchange rates, irrespective of the
underlying transactional currency.
The incremental impact of business acquisitions is excluded for
the first twelve months of ownership from the month of purchase.
For business disposals, comparative figures for segmental sales and
adjusted operating profit are adjusted to reflect the comparable
periods of ownership.
The tables on the following pages show restated comparative
figures for the reportable operating segments for the six months
ended 30 June 2022, reflecting the impact of changes the Group made
to its reportable operating segments during the year ended 31
December 2022 (see note 2) and the classification of the Omega
business as a discontinued operation.
On 31 March 2023, the Concept Life Sciences business was
disposed of and, as a result, the segmental LFL adjusted sales and
adjusted operating profit for the Spectris Scientific segments for
2022 exclude the trading results of the Concept Life Sciences
business for the three month period from April 2022 to June
2022.
The LFL measure is presented as a means of eliminating the
effects of exchange rate fluctuations on the period-on-period
statutory results as well as allowing the Board to assess the
underlying trading performance of the businesses on a LFL basis for
both sales and operating profit.
Based on the above policy, the adjusted performance measures are
derived from the statutory figures as follows:
Income statement measures
a) LFL adjusted sales by segment
H1 2023 LFL adjusted sales versus H1 2022 LFL adjusted sales
Spectris Scientific Spectris Dynamics Other H1 2023 Total
Six months ended 30 June 2023 sales by segment GBPm GBPm GBPm GBPm
------------------------------------------------- -------------------- ------------------ ------ --------------
Sales 334.1 264.5 103.9 702.5
Constant exchange rate adjustment to H1 2022
exchange rates (4.7) (7.8) (3.7) (16.2)
Acquisitions - (12.8) (1.4) (14.2)
LFL adjusted sales 329.4 243.9 98.8 672.1
-------------------------------------------------- -------------------- ------------------ ------ --------------
Spectris Scientific Spectris Dynamics Other H1 2022 Total
Six months ended 30 June 2022 sales by segment GBPm GBPm GBPm GBPm
------------------------------------------------- -------------------- ------------------ ------ --------------
Sales 277.1 215.0 78.1 570.2
Disposal of businesses (6.1) - - (6.1)
-------------------------------------------------- -------------------- ------------------ ------ --------------
LFL adjusted sales 271.0 215.0 78.1 564.1
-------------------------------------------------- -------------------- ------------------ ------ --------------
b) Adjusted operating profit and adjusted operating margin
Spectris Scientific Spectris Dynamics Other Group costs H1 2023 Total
--------------------------------------
Six months ended 30 June 2023
adjusted operating profit GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Statutory operating profit 46.7 18.3 18.2 (12.7) 70.5
Net transaction-related costs and
fair value adjustments 0.6 1.6 1.8 - 4.0
Configuration and customisation costs
carried out by third parties on
material SaaS projects 8.6 9.2 - - 17.8
Amortisation of acquisition-related
intangible assets 2.7 6.7 0.4 - 9.8
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Adjusted operating profit 58.6 35.8 20.4 (12.7) 102.1
Constant exchange rate adjustment to
H1 2022 exchange rates (1.2) (0.7) (0.9) 0.1 (2.7)
Acquisitions - (2.3) (0.3) - (2.6)
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
LFL adjusted operating profit 57.4 32.8 19.2 (12.6) 96.8
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Spectris Scientific Spectris Dynamics Other Group costs H1 2022 Total
--------------------------------------
Six months ended 30 June 2022
adjusted operating profit GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Statutory operating profit 36.1 19.3 7.5 (8.6) 54.3
Net transaction-related costs and
fair value adjustments 3.9 2.0 0.9 - 6.8
Depreciation of acquisition-related
fair value adjustments to property,
plant and equipment 0.1 - - - 0.1
Configuration and customisation costs
carried out by third parties on
material SaaS projects 1.1 1.2 - - 2.3
Amortisation of acquisition-related
intangible assets 3.7 4.9 0.2 - 8.8
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Adjusted operating profit 44.9 27.4 8.6 (8.6) 72.3
Disposal of businesses (0.8) - - - (0.8)
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
LFL adjusted operating profit 44.1 27.4 8.6 (8.6) 71.5
-------------------------------------- -------------------- ------------------ ------ ------------ --------------
Spectris Scientific Spectris Dynamics Other Group costs 2022 Total
-----------------------------------------
Year ended 31 December 2022 adjusted
operating profit GBPm GBPm GBPm GBPm GBPm
----------------------------------------- -------------------- ------------------ ------ ------------ -----------
Statutory operating profit 118.3 46.5 26.2 (18.4) 172.6
Net transaction-related costs and fair
value adjustments 5.1 2.8 0.4 - 8.3
Depreciation of acquisition-related fair
value adjustments to property, plant
and equipment 0.2 - - - 0.2
Configuration and customisation costs
carried out by third parties on
material SaaS projects 8.7 13.0 - - 21.7
Amortisation of acquisition-related
intangible assets 7.7 11.3 0.6 - 19.6
----------------------------------------- -------------------- ------------------ ------ ------------ -----------
Adjusted operating profit 140.0 73.6 27.2 (18.4) 222.4
----------------------------------------- -------------------- ------------------ ------ ------------ -----------
Spectris Scientific Spectris Dynamics Others H1 2023 Total
------------------------------------------------ -------------------- ------------------ ------- --------------
Six months ended 30 June 2023 operating margin % % % %
------------------------------------------------ -------------------- ------------------ ------- --------------
Statutory operating margin (1) 14.0 6.9 17.5 10.0
------------------------------------------------- -------------------- ------------------ ------- --------------
Adjusted operating margin (2) 17.5 13.5 19.6 14.5
------------------------------------------------- -------------------- ------------------ ------- --------------
LFL adjusted operating margin (3) 17.4 13.4 19.4 14.4
------------------------------------------------- -------------------- ------------------ ------- --------------
Spectris Scientific Spectris Dynamics Others H1 2022 Total
------------------------------------------------ -------------------- ------------------ ------- --------------
Six months ended 30 June 2022 operating margin % % % %
------------------------------------------------ -------------------- ------------------ ------- --------------
Statutory operating margin (1) 13.0 9.0 9.6 9.5
------------------------------------------------- -------------------- ------------------ ------- --------------
Adjusted operating margin (2) 16.2 12.7 11.0 12.7
------------------------------------------------- -------------------- ------------------ ------- --------------
LFL adjusted operating margin (3) 16.3 12.7 11.0 12.7
------------------------------------------------- -------------------- ------------------ ------- --------------
Spectris Scientific Spectris Dynamics Others 2022 Total
---------------------------------------------- -------------------- ------------------ ------- -----------
Year ended 31 December 2022 operating margin % % % %
---------------------------------------------- -------------------- ------------------ ------- -----------
Statutory operating margin (1) 18.0 9.4 14.8 13.0
----------------------------------------------- -------------------- ------------------ ------- -----------
Adjusted operating margin (2) 21.3 15.0 15.3 16.8
----------------------------------------------- -------------------- ------------------ ------- -----------
1. Statutory operating margin is calculated as statutory operating profit divided by sales
2. Adjusted operating margin is calculated as adjusted operating profit divided by sales
3. LFL adjusted operating margin is calculated as LFL adjusted
operating profit divided by LFL adjusted sales. Refer to the tables
above for a reconciliation of the nearest GAAP measure
(sales/operating profit respectively) to LFL adjusted sales/LFL
adjusted operating profit.
c) Adjusted gross profit and adjusted gross margin
H1 2023 LFL adjusted gross profit versus H1 2022 LFL adjusted
gross profit
H1 2023
Total
Six months ended 30 June 2023 adjusted gross profit GBPm
------------------------------------------------------------- --------
Statutory gross profit 400.5
Constant exchange rate adjustment to H1 2022 exchange rates (10.5)
Acquisitions (6.1)
LFL adjusted gross profit 383.9
-------------------------------------------------------------- --------
H1 2022
Total
Six months ended 30 June 2022 LFL adjusted gross profit GBPm
------------------------------------------------------------- --------
Statutory gross profit 317.2
Disposal of businesses (3.0)
-------------------------------------------------------------- --------
LFL adjusted gross profit 314.2
-------------------------------------------------------------- --------
H1 2023
Total
-------------------------------------------- --------
Six months ended 30 June 2023 gross margin %
-------------------------------------------- --------
Statutory gross margin (1) 57.0
--------------------------------------------- --------
LFL adjusted gross margin (2) 57.1
--------------------------------------------- --------
H1 2022
Total
-------------------------------------------- --------
Six months ended 30 June 2022 gross margin %
-------------------------------------------- --------
Statutory gross margin (1) 55.6
--------------------------------------------- --------
LFL adjusted gross margin (2) 55.7
--------------------------------------------- --------
1. Statutory gross margin is calculated as statutory gross profit divided by sales
2. LFL adjusted gross margin is calculated as LFL adjusted gross
profit divided by LFL adjusted sales. Refer to the tables above for
a reconciliation of the nearest GAAP measure (sales/gross profit
respectively) to LFL adjusted sales/LFL adjusted gross profit.
d) LFL Adjusted overheads
H1 2023 Total
Six months ended 30 June 2023 LFL adjusted overheads GBPm
---------------------------------------------------------------------------------------------- --------------
Statutory indirect production and engineering expenses (63.0)
Statutory sales and marketing expenses (129.0)
Statutory administrative expenses (138.0)
----------------------------------------------------------------------------------------------- --------------
Total overheads (330.0)
Net transaction-related costs and fair value adjustments 4.0
Configuration and customisation costs carried out by third parties on material SaaS projects 17.8
Amortisation of acquisition-related intangible assets 9.8
Constant exchange rate adjustment to H2 2022 exchange rates 7.8
Acquisitions 3.5
----------------------------------------------------------------------------------------------- --------------
LFL adjusted overheads (287.1)
----------------------------------------------------------------------------------------------- --------------
H1 2022 Total
Six months ended 30 June 2022 LFL adjusted overheads GBPm
---------------------------------------------------------------------------------------------- --------------
Statutory indirect production and engineering expenses (53.7)
Statutory sales and marketing expenses (110.4)
Statutory administrative expenses (98.8)
----------------------------------------------------------------------------------------------- --------------
Total overheads (262.9)
Net transaction-related costs and fair value adjustments 6.8
Depreciation of acquisition-related fair value adjustments to property, plant and equipment 0.1
Configuration and customisation costs carried out by third parties on material SaaS projects 2.3
Amortisation of acquisition-related intangible assets 8.8
Disposal of businesses 2.2
----------------------------------------------------------------------------------------------- --------------
LFL adjusted overheads (242.7)
----------------------------------------------------------------------------------------------- --------------
H1 2023 Total
------------------------------------------------------------------------------- --------------
Six months ended 30 June 2023 LFL adjusted overheads as a percentage of sales %
------------------------------------------------------------------------------- --------------
LFL adjusted overheads as a percentage of sales (1) 42.7
-------------------------------------------------------------------------------- --------------
H1 2022 Total
------------------------------------------------------------------------------- --------------
Six months ended 30 June 2022 LFL adjusted overheads as a percentage of sales %
------------------------------------------------------------------------------- --------------
LFL adjusted overheads as a percentage of sales (1) 43.0
-------------------------------------------------------------------------------- --------------
1. LFL overheads as a percentage of sales is calculated as LFL
adjusted overheads divided by LFL adjusted sales. Refer to the
tables above for a reconciliation of the nearest GAAP measure
(sales/total overheads respectively) to LFL adjusted sales/LFL
adjusted overheads.
e) Adjusted net finance costs
Six months ended Year ended
30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------ -------- --------- -------------
Statutory net finance credit/(cost) 8.2 (12.8) (17.3)
Net (gain)/loss on retranslation of short-term
inter-company loan balances (7.0) 10.7 14.6
Adjusted net finance credit/(costs) 1.2 (2.1) (2.7)
------------------------------------------------- -------- --------- -------------
f) Adjusted profit before taxation
Six months
ended 30 Year ended
June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------- ------ ------ -------------
Adjusted operating profit 102.1 72.3 222.4
Share of results of associate 0.1 0.1 -
Adjusted net finance credit/(costs) 1.2 (2.1) (2.7)
-------------------------------------- ------ ------ -------------
Adjusted profit before taxation 103.4 70.3 219.7
-------------------------------------- ------ ------ -------------
g) Adjusted earnings per share from continuing operations
Six months ended Year ended
30 June 31 December
2023 2022 2022
Adjusted earnings GBPm GBPm GBPm
------------------------------------------------- --------- -------- -------------
Statutory profit after tax from continuing
operations 52.2 29.2 114.8
Adjusted for:
Net transaction-related costs and fair
value adjustments 4.0 6.8 8.3
Depreciation of acquisition-related fair
value adjustments to property, plant and
equipment - 0.1 0.2
Configuration and customisation costs
carried out by third parties on material
SaaS projects 17.8 2.3 21.7
Amortisation of acquisition-related intangible
assets 9.8 8.8 19.6
Fair value through profit and loss movements
on debt investments (0.7) - 4.1
Loss/(profit) on disposal of businesses 11.0 (0.2) (0.3)
Net (gain)/loss on retranslation of short-term
inter-company loan balances (7.0) 10.7 14.6
Tax effect of the above and other non-recurring
items (6.4) (2.9) (11.0)
-------------------------------------------------- --------- -------- -------------
Adjusted earnings 80.7 54.8 172.0
-------------------------------------------------- --------- -------- -------------
Year
Six months ended
ended 30 June 31 December
2023 2022 2022
Adjusted earnings per share from continuing
operations GBPm GBPm GBPm
----------------------------------------------- -------- ------- -------------
Weighted average number of shares outstanding
(millions) 104.5 110.0 107.6
------------------------------------------------ -------- ------- -------------
Adjusted earnings per share (pence) 77.2 49.8 159.9
------------------------------------------------ -------- ------- -------------
Basic earnings per share in accordance with IAS 33 'Earnings Per
Share' are disclosed in note 6.
Financial position measures
h) Net cash/(debt)
Year
Six months ended
ended 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
--------------------------------------- ------- -------- -------------
Bank overdrafts - (8.0) (0.1)
Bank loans unsecured - (220.2) -
---------------------------------------- ------- -------- -------------
Total borrowings - (228.2) (0.1)
Cash and cash equivalents included in
assets held for sale - 7.7 -
Cash and cash equivalents included in
current assets 214.3 122.2 228.1
---------------------------------------- ------- -------- -------------
Net cash/(debt) 214.3 (98.3) 228.0
---------------------------------------- ------- -------- -------------
Net cash excludes lease liabilities arising under IFRS 16 as
this aligns with the definition of net cash under the Group's bank
covenants.
Six months ended Year ended
30 June 31 December
2023 2022 2022
---------------------------------------------------
Reconciliation of changes in cash and
cash equivalents to movements in net cash/(debt) GBPm GBPm GBPm
--------------------------------------------------- -------- --------- -------------
Net (decrease)/increase in cash and cash
equivalents (7.8) (43.6) 50.4
Proceeds from borrowings - (326.1) (326.2)
Repayment of borrowings 0.1 98.7 326.8
Effect of foreign exchange rate changes (6.0) 4.9 9.2
---------------------------------------------------- -------- --------- -------------
Movement in net (debt)/cash (13.7) (266.1) 60.2
Net cash at beginning of year 228.0 167.8 167.8
---------------------------------------------------- -------- --------- -------------
Net cash/(debt) at end of period 214.3 (98.3) 228.0
---------------------------------------------------- -------- --------- -------------
Cash flow measures
i) Adjusted cash flow
Six months Year ended
ended 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------------------- -------- ------- -------------
Cash generated from operations (from continuing
and discontinued operations) 108.9 43.4 166.8
Net income taxes paid (30.0) (20.5) (46.8)
-------------------------------------------------- -------- ------- -------------
Net cash inflow from operating activities 78.9 22.9 120.0
Transaction-related costs paid 1.0 6.0 6.5
Restructuring cash outflow 0.8 2.6 7.6
Net income taxes paid 30.0 20.5 46.8
Purchase of property, plant and equipment
and intangible assets (from continuing
and discontinued operations) (11.7) (32.3) (44.9)
SaaS-related cash expenditure 17.8 2.3 21.7
Proceeds from disposal of property, plant
and equipment and software 2.9 13.2 13.4
Adjusted cash flow from discontinued operations - (7.3) (7.3)
-------------------------------------------------- -------- ------- -------------
Adjusted cash flow from continuing operations 119.7 27.9 163.8
-------------------------------------------------- -------- ------- -------------
Adjusted cash flow conversion(1) 117% 39% 74%
-------------------------------------------------- -------- ------- -------------
1. Adjusted cash flow conversion is calculated as adjusted cash
flow as a proportion of adjusted operating profit.
Other measures
j) Return on gross capital employed ('ROGCE')
The return on gross capital employed is calculated as adjusted
operating profit from continuing and discontinued operations for
the last 12 months divided by the average of opening and closing
gross capital employed. Gross capital employed is calculated as net
assets excluding net (cash)/debt and excluding accumulated
amortisation and impairment of acquisition-related intangible
assets including goodwill.
30 June 2023 30 June 2022 31 December 2022
GBPm GBPm GBPm
--------------------------------------------------------------------- ------------- ------------- -----------------
Net (cash)/debt (see APM h) (214.3) 98.3 (228.0)
Accumulated impairment losses on goodwill including items
transferred to assets held for sale 40.1 167.0 76.2
Accumulated amortisation and impairment of acquisition-related
intangible assets including
items transferred to assets held for sale 140.5 253.1 185.7
Shareholders equity 1,355.4 1,176.6 1,436.9
--------------------------------------------------------------------- ------------- ------------- -----------------
Gross capital employed 1,321.7 1,695.0 1,470.8
--------------------------------------------------------------------- ------------- ------------- -----------------
Average gross capital employed (current and prior period) (1) 1,508.4 1,582.9
--------------------------------------------------------------------- ------------- -------------
Adjusted operating profit from continuing and discontinued
operations for six months to June
2023 and 2022 102.1 86.3
Adjusted operating profit from continuing and discontinued
operations for six months to December
2022 and 2021 150.1 132.6
--------------------------------------------------------------------- ------------- -------------
Total adjusted operating profit for last 12 months 252.2 218.9
--------------------------------------------------------------------- ------------- -------------
Return on gross capital employed 16.7% 13.8%
--------------------------------------------------------------------- ------------- -------------
1. Average gross capital employed is calculated as current
period gross capital employed divided by comparative period gross
capital employed.
k) Net transaction-related costs and fair value adjustments
Net transaction-related costs and fair value adjustments
comprise transaction costs of GBP2.3 million
(H1 2022: GBP6.6 million; FY 2022: GBP7.3 million) that have
been recognised in the continuing Condensed Consolidated Income
Statement under IFRS 3 (Revised) 'Business Combinations' and other
fair value adjustments relating to deferred and contingent
consideration comprising a charge of GBP1.7 million (H1 2022:
charge of GBP0.2 million; FY 2022: charge of GBP1.0 million).
Net transaction-related costs and fair value adjustments are
included within administrative expenses. Transaction-related costs
have been excluded from the adjusted operating profit and
transaction costs paid of GBP1.0 million (H1 2022: GBP6.0 million;
FY 2022: GBP6.5 million) have been excluded from the adjusted cash
flow.
l) Order intake, order book and book-to-bill
Order intake is defined as the monetary value of contractual
commitments towards future product fulfilment recorded within the
financial period. The order book is defined as the volume of
outstanding contractual commitments for future product fulfilment
measured at period end. Book-to-bill is defined as the ratio of
order intake to sales within the financial period. These measures
cannot be reconciled because they do not derive from the
Consolidated Financial Statements, and are presented because they
are indicative of potential future revenues.
m) Vitality index
Vitality index measures current year revenue from products
released over the previous five years as a percentage of total
revenue in the current period. This measure cannot be reconciled
because it cannot be derived from the Consolidated Financial
Statements and represents the effectiveness of the Group's research
& development expenditure.
Dividend timetable - H1 2023 interim dividend
Event Date - 2023
----------------- ------------
Ex-dividend date 5 October
Record date 6 October
Payment date 10 November
----------------- ------------
Cautionary statement
This press release may contain forward-looking statements. These
statements can be identified by the fact that they do not relate
only to historical or current facts. Without limitation,
forward-looking statements often use words such as anticipate,
target, expect, estimate, intend, plan, goal, believe, will, may,
should, would, could or other words of similar meaning. These
statements may (without limitation) relate to the Company's
financial position, business strategy, plans for future operations
or market trends. No assurance can be given that any particular
expectation will be met or proved accurate and shareholders are
cautioned not to place undue reliance on such statements because,
by their very nature, they may be affected by a number of known and
unknown risks, uncertainties and other important factors which
could cause actual results to differ materially from those
currently anticipated. Any forward-looking statement is made on the
basis of information available to Spectris plc as of the date of
the preparation of this press release. All forward-looking
statements contained in this press release are qualified by the
cautionary statements
contained in this section. Other than in accordance with its
legal and regulatory obligations, Spectris plc disclaims any
obligation to update or revise any forward-looking statement
contained in this press release to reflect any change in
circumstances or its expectations.
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END
IR WPUUGMUPWGMU
(END) Dow Jones Newswires
July 31, 2023 02:00 ET (06:00 GMT)
Spectris (LSE:SXS)
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