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Introduction
Spectris made good progress in the first half of 2008, with sales, operating profit and margins all showing increases compared with the corresponding period in the prior year. Our focus on enhancing productivity is beneficial for customers who, at the present time, are increasingly faced with rising energy and raw material costs. Our products also help to improve customers' business in other ways, for example through improving their manufacturing quality, reducing time to market or meeting more stringent environmental and safety requirements.
Strategy
During the first half we achieved good progress against our strategic objectives, which are:
- Strengthening market positions through innovation
- Increasing regional expansion with
the focus on emerging markets - Growing existing businesses through acquisition
- Focusing on operational excellence
- Building our presence in key strategic growth areas,
both organically and through acquisition.
Expenditure on research and development increased by over 20% to £26.4 million (2007: £21.8 million), targeted primarily at speeding up time to market for selective programmes, particularly in the Materials Analysis segment. All business segments launched new products and applications during the period, examples of which are described in the operating review which follows.
Investment in our organisation to improve regional coverage continued to show results, with sales in Asia growing by 11% at constant currencies. China continued to grow strongly, with sales up by 15%. Sales in North America increased by 10% and in Europe by 4%, with Germany up by 18%. Sales in industrialising markets such as Latin America, Russia, the Middle East and Africa increased by 19%, reflecting the growing importance of these regions. As a percentage of total sales, Asia and the other industrialising markets currently comprise 34% of the group. Sales to existing customers continue to comprise the majority of our sales, accounting for over 80% of total revenue. This reflects the value our products and solutions bring to our customers’ processes as well as the trust they place in our ability to support them throughout the product lifecycle. Aftermarket services and consumables accounted for 23% of revenues in the first half.
In January, Malvern Instruments acquired Viscotek Corporation, a leading US-based provider of chromatography solutions for the characterisation of natural and synthetic polymers and proteins. The acquisition enables Malvern to offer complete characterisation solutions to meet the demands of increasingly complex drug delivery systems and stringent environmental requirements in the field of industrial and pharmaceutical polymers. Also in January, HBM acquired its distributors in the Nordic countries. The net consideration for these two acquisitions was £6.5 million. On 11 August, Particle Measuring Systems acquired its distributor in China, building on the acquisition of its Singapore-based distributor in 2007 to enhance its presence in Asia.
On 1 August, HBM acquired nCode, a leading supplier of durability test and analysis software and data acquisition instruments, for an initial consideration of £17.5 million. The company is headquartered in Detroit, USA, with nine international offices in Europe and Asia. The acquisition will increase HBM’s range of solutions for the automotive and aerospace industries and also strengthen its presence in North America and Asia. nCode’s products complement those from HBM, providing customers with the full testing cycle from virtual to physical test. The acquisition also highlights the increasingly important role that software plays as a design tool in new product development. The ability to test structures and analyse the data obtained enables manufacturers to speed up the design phase, thus reducing time to market.
These acquisitions build our position in the key strategic growth areas of Materials Analysis and Test and Measurement. We continue to look at further value-enhancing acquisition opportunities across the portfolio.
The emphasis on operational excellence continued, as evidenced by the further improvement in margins. A number of senior appointments were made in the operating companies, particularly in the area of delivery and customer care. We continued to improve supply chain management in respect of efficiency and product quality and our purchasing activities have been successful in helping to mitigate the impact of material cost inflation.