Spectris uses adjusted figures as key performance measures in addition to those reported under IFRS. Adjusted figures exclude certain non-operational items which management has defined as amortisation of acquisition-related intangible assets, goodwill impairment charges, profits or losses on the termination or disposal of businesses or major fixed assets, unrealised changes in the fair value of financial instruments, foreign exchange gains and losses from short-term financing activities, related tax effects and other tax items which do not form part of the underlying tax rate. Unless otherwise stated, all profit and earnings figures referred to below are adjusted measures – for explanation of adjusted figures and reconciliation to the statutory reported figures see Note 2.
Two businesses were divested in the first half of 2007. In order to aid understanding of the results for the ongoing business, references below to the sales and operating profit results in the 2007 comparatives exclude the results of these two businesses.
Total group sales in the first half increased by 16% from £308.7 million to £358.5 million. Favourable movements in foreign currency exchange rates had an effect on sales of approximately 8% and acquisitions contributed approximately 2% of growth.
Operating profit increased by 18% from £39.4 million to £46.4 million. Movements in foreign currency exchange rates had a positive effect on operating profit of approximately £1.2 million and acquisitions contributed approximately £1.0 million to the result. Aside from the effect from sales growth, operating profit benefited from cost reductions arising from the actions taken in previous years, including benefits achieved from restructuring programmes.
Unadjusted operating profit, after including acquisition-related intangible asset amortisation charges of £1.7 million (2007: £1.0 million), increased from £38.9 million to £44.7 million.
Net interest costs, including IAS 19 pension charges, increased from £3.1 million to £3.8 million, reflecting the increase in average net debt arising principally from the share buy-back programme which commenced in February 2007. Profit before tax increased by 16% from £36.8 million to £42.6 million.
Based on the forecast for the full year, the underlying tax rate for the half year was 28% (2007: 30%). The reduction in the underlying tax rate is due to a statutory rate reduction in several countries, principally Germany.
The combined effects of higher operating profits, a lower tax rate and a reduction in the average number of shares in issue resulted in earnings per share increasing by 28% from 20.8 pence to 26.6 pence.
The share buy-back programme was completed in February 2008. 1.4 million shares were purchased in the first half of the year at a cost of £9.3 million.
Cash conversion was 89% (2007: 93%), with an increase in capital expenditure to £11.3 million (2007: £4.9 million), whilst depreciation remained largely unchanged at £6.5 million (2007: £6.3 million). In addition, the group invested £7.7 million in acquisitions and £9.3 million in the share buy-back, with the result that net debt increased by £13.2 million to £90.5 million, still providing flexibility for future growth opportunities.
Principal risks and uncertainties
The group has identified the key potential strategic, operational and financial risks and uncertainties which could have a material impact on the group’s long-term performance. These potential risks, and the actions to manage and mitigate them, are described in detail on pages 21-23 of the 2007 report and accounts. There has been no change in the status of these risks since the date of the report and accounts. In particular, there has been no change in the approach to financial risk management, nor material impairments or fair value losses. The directors do not foresee any further specific risks in the second half of the year.
Clive Watson
Group Finance Director
Statement of Directors' responsibilities in respect of the interim report
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.
The directors of Spectris plc are listed in the 2007 report and accounts, with the exception of the following changes in the period: on 16 May 2008 John Poulter retired from the Board and John Hughes was appointed Chairman. A list of current directors is available for inspection at the company's registered office located at Station Road, Egham, Surrey TW20 9NP.
By order of the Board
John O'Higgins
Chief Executive