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Results
Sales increased by 69%. The acquired businesses generated sales
of £113.7m. On a like for like basis the continuing businesses,
excluding Filtration Systems, generated sales growth of 7%. Currency
effects were helpful but small. Gross margins were maintained.
Operating profit before exceptional items and goodwill amortisation
increased by 51% although underlying organic profit growth of 2%
was essentially a function of the different fortunes of businesses
exposed to the telecommunications and semiconductor collapse on
the one hand and units exposed to the wider international economy
on the other. Geographically, sales were weaker in the US with better
performances from other territories.
Capital expenditure amounted to £16m, of which £9m was due to non-recurring
items inherited with the Spectris AG acquisition. Adjusting for
these items, conversion of operating profit to operating cash was
54%. This was comparable with the first half of the previous year
and we expect the historical pattern of improved cash generation
to repeat itself at the year end. In the second half, capital expenditure,
excluding the non-recurring items referred to above, is likely to
return to past levels and to be close to depreciation.
The working capital to sales ratio improved slightly compared with
the prior year end, but there are opportunities to improve performance,
particularly in some of the new companies.
Net borrowings at the half year were £140m compared with £153.5m
at year end. Disposals raised £42.8m and acquisitions consumed £3m.
The Board intends to pay an interim dividend of 3.75p, a 6% increase
on the previous year. The dividend will be paid on 16 November 2001
to shareholders on the register at 19 October 2001.
Operating Review
Electronic Controls
As foreshadowed at the AGM, the electronic controls segment, with
significant exposure to the telecommunications equipment and electronics
industries, experienced a contraction in sales. This, allied with
margin pressures and measures to reduce costs, saw a near halving
of operating profits. Although an early improvement in demand appears
unlikely, the position has not further deteriorated.
Process Instrumentation
Process instrumentation performed well with sales and profit growth
of nearly 14% and 19% respectively compared with the equivalent
period of the prior year. However there was considerable variation
in the performance of the individual units. The two businesses dependent
upon the semiconductor industry - Luxtron and Particle Measuring
Systems - broke even in the period. Profit recovery will, in the
short term, depend more on the benefits of cost reduction measures,
which have already been implemented, than on improved demand.
A good performance was achieved at Fusion UV Systems, where the
positive developments are expected to continue, albeit attenuated
by the likely near term reduction of orders from the optical fibre
industry. Servomex benefited from improved demand as confidence
returned to the oil and gas industry after the consolidation of
recent years and from the advantage of improved prices for oil and
petrochemicals. The actions taken since acquisition to revamp the
product portfolio and streamline operating processes are beginning
to deliver better results.
Elsewhere in our instrumentation businesses the diversity of markets
served and the inherent strength in providing products which deliver
productivity benefits to customers proved their worth and produced
a flat, but creditable, result.
Spectris AG
The Spectris AG units enjoyed strong order intake. There were particularly
encouraging results at BTG, and at HBM where the manufacturing activities
in China are being expanded. The companies collectively delivered
an operating profit contribution of £11.4m on £113.7m of sales.
The Brüel & Kjær, Schenck Condition Monitoring Systems unit made
major progress following rationalisation of two previously separate
activities. The larger Brüel & Kjær Sound & Vibration business has
taken longer to integrate, but the elimination of the sales matrix
under which the businesses previously operated is close to completion.
Given the seasonality referred to in earlier reports, the progress
towards operating margins in the mid-teens is, subject to reasonable
continuity of demand, on track.
Filtration Systems
Disposals of our filtration businesses proceeded according to plan,
with a total realisation of £30.5m in the period. One business remains
to be sold and the process is well advanced. The nuclear fuel canister
business will be closed on the completion of customer commitments
shortly after the year end. The closure will not impact profitability.
The Board
Shareholders will be aware that I succeeded Sir Robin Biggam as
non-executive Chairman after the AGM in May. Ron Williams retired
in August after completing six years as a non-executive director
and Chairman of the Audit Committee. To both of them I offer my
personal thanks, as well as those of the Board, for their help and
support over six eventful years, during which the company progressed
decisively towards its goal of making the transition from a mechanical
engineering group to the strategically focused instrumentation and
controls business that it is today. Their contributions have been
invaluable.
Andrew Given, appointed to the Board in June, has replaced Ron Williams
as Chairman of the Audit Committee. He is Finance Director of Logica
plc and has much experience in technology-based industry in the
UK and North America.
Hans Nilsson succeeded me as Chief Executive and, following that
move, James Otter was appointed to the Board in June as a Business
Group Director and a member of the executive team. A natural sciences
graduate and MBA, he has experience of managing businesses in chemicals
and instrumentation in several European countries.
I welcome both new members to the Board.
Outlook
The overall economic situation will be the main ingredient in shaping
the second half results. The first quarter slow-down in activity
in the technology and electronic sectors has continued and has negatively
influenced investment in US industry generally. Although North American
orders in recent months have been dull, they appear to be stable
whereas the position elsewhere is more uncertain. Spectris, with
short lead times and order books, is no stranger to managing in
circumstances of poor visibility of demand and operationally, management
is focused on cost containment and the realisation of further benefits
from the Spectris AG acquisition.
Taking all these factors into account, the Board's current view
is that the company will deliver an improved performance for the
year as a whole.
John Poulter, Chairman
10 September 2001
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