Malvern Panalytical

	Half year 2021	Half year 2020	Half year 2019	Change vs 2020	LFL change vs   2020	LFL change vs   2019
Statutory reported sales (£m)	178.5	151.0	200.2	18%	23%	(3%)
Adjusted operating profit1 (£m)	23.0	8.4	18.5	175%	186%	28%
Adjusted operating margin1 (%)	12.9%	5.6%	9.2%	730bps	730bps	310bps
Statutory operating profit/(loss) (£m)	18.3	4.8	(63.2)
Statutory operating margin (%)	10.3%	3.2%	(31.6%)

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.

Financial performance

Statutory reported sales increased 18% to £178.5 million, with a 23% increase in LFL sales supported by both a strong market recovery and the impact of new products like Zetasizer Advance and OmniTrust launched in 2020.

All regions saw strongly improved LFL sales with Asia seeing the strongest performance, particularly China which was impacted early by the lockdown in 2020. Equally, Malvern Panalytical's orderbook has also seen a strong recovery in demand, particularly in pharmaceutical, growing 30% in the period.

Statutory operating profit increased from £4.8 million to £18.3 million and on a LFL basis, adjusted operating profit increased 186% and adjusted operating margins rose 730bps, predominantly due to cost management, pricing movements and increased service revenues leveraging the installed base. The gross margin improved, reflecting volume impact as well as a positive mix effect and the higher service revenues, with overheads higher given 2020 benefited from government subsidies.

The strong recovery in the first half means that Malvern Panalytical's sales compared with 2019, are only 3% lower on a LFL basis, with LFL adjusted operating profit 28% higher reflecting the strong operating leverage on the back of cost management over the past two years.

Delivering the strategy

During the first half of 2021, Malvern Panalytical continued with its programme of launching new and enhanced product offerings, with software, services and analytics being a key focus area. The strong sales growth in the year to date has been underpinned by orders for the new product ranges, particularly the Zetasizer Advance and Omnitrust, both launched in 2020. The Zetasizer Advance has been well received by pharmaceutical customers for R&D and quality control applications, in particular supporting vaccine development and production. Likewise Omnitrust, the new suite of data integrity and compliance software solutions for regulated environments, has seen good traction in pharmaceutical development and manufacture.

In April, Malvern Panalytical introduced Smart Manager, a cloud based 'control room' that connects and monitors its Zetium and Axios-mAX X-ray fluorescence ('XRF') systems. In one simple web-based dashboard, it provides customers with a clear picture of both the real-time utilisation and health of their instruments, wherever they are located. It also continually analyses the data giving customers better information and deeper insights, to maximise the benefit of their equipment, and improve process and team productivity. We fully expect this new offering to be attractive to customers in the mining, metals, and building materials markets, with a global metals trader and producer already becoming an early adopter.

Following its initial launch in 2017, a newer version of the Aeris compact X-ray diffractometer ('XRD') was introduced in February. This new version contains capabilities previously only seen in much larger systems, enabling a wider range of customers to carry out in-depth materials analysis and optimise their processes.

Similarly, an enhanced version of the Epsilon XRF analyser was launched to meet certain fuel specification standards, being an out-of-the-box solution for the analysis of low sulphur content. It provides a quick, safe and simple method of sample preparation, with higher accuracy and more reproducible data compared to other techniques.

Market trends and outlook

Pharmaceutical and food

LFL sales to the pharmaceutical sector were up strongly, almost 40%, in the first half of 2021, as the market continued the recovery which started in the second half of 2020. Sales are now above 2019 levels, with strong growth in all regions. This is supported by an increase in onshoring in the traditional small molecule area, prompting investment in pharmaceutical facilities as customers look to increase the robustness of supply chains.

Malvern Panalytical is supporting the global effort to develop treatments and vaccines, providing analytical instruments, expert support and services to pharmaceutical companies around the world. For example, a collaboration with Leukocare AG was announced to help improve the availability of vaccines for COVID-19. The collaboration combines Leukocare's pioneering expertise in biopharmaceutical formulation development with Malvern Panalytical's extensive analytical
know-how to understand how the stability of vaccines can be improved, increasing production and simplifying distribution to ensure wider availability.

We continue to see high demand for vaccine and viral vector development and manufacturing solutions. The platforms developed in the response to COVID-19 are now being used for other vaccines and treatments, being highly adaptable and therefore speeding up vaccine development times. The growth rate of the vaccine market is projected to double as a result, with the largest markets being North America, Europe, China and India.

The ongoing demand for vaccines as well as the high-growth biologics/cell and gene therapy space supports a continued strong opportunity pipeline for Malvern Panalytical's life sciences solutions. We see many opportunities for our new Amplify Analytics solutions. Customers are seeking access to additional expertise, to de-risk and accelerate their method development pipelines, and Amplify Analytics helps them rapidly identify those drug candidates that meet bio-availability and processability requirements.

We are starting to see activity levels return within academia, with an increase in growth in the second quarter. We are also working across the industry, including pharmaceutical companies, to develop opportunities in advanced research, in response to increased government funding as part of the response to COVID-19.

LFL sales to the food sector also improved year-on-year. The continued focus on sustainable sourcing and manufacture, food quality and safety, represent opportunities relevant to our solution portfolio, for example, the development of digital solutions for improving yield in agricultural applications.

Primary materials

LFL sales were notably higher year-on-year, with 16% growth. Asia saw the strongest regional performance (+33%) and we also achieved good growth in aftersales revenues. We have booked the first revenues from our new digital, connected instrument solution offering, as a prelude to driving additional service revenues through our extensive installed base.

In the metals and minerals market, which has proven to be more resilient, demand continues to improve, as witnessed by growth in our order book. The continued economic recovery is underpinning a more widespread improvement in demand, beyond the initial regional upswing we saw in a number of countries in late 2020 (India, south-east Asia and Australia).

Amongst oil and chemicals customers, performance has been variable, with growth at North American chemical companies, but slower activity in Europe. Although the oil price has returned to pre-COVID-19 levels and there has been some signs of increased activity and new capex projects, oil and petrochemical companies are generally continuing to keep an eye on cost constraint.

Against this variable backdrop, customers are looking at delivering improved yields, productivity, product quality and lowering cost. As a result, we are seeing the greater use of automation and digital solutions. This plays to Malvern Panalytical's process automation solutions, for example in mining, where we offer fully automated analytical laboratories to help improve quality and yield, while reducing risk and improving safety.

A focus on sustainable practices and environmental matters is also a helpful underpin for Malvern Panalytical's products, services and specialised solutions. For example, a new mine water monitoring solution, Epsilon Xflow, provides real-time information about the quality of process and waste water from mining operations, detecting traces of toxic metals and other elements to enable immediate countermeasures to prevent environmental damage. It was selected by the Geological Survey of Finland for their R&D projects dedicated to waste water treatment, resource recovery and recycling the process water in the mineral processing pilot plant.

 

Advanced materials

LFL sales to advanced materials customers have improved considerably (+29%) year-on-year, as research institutes re-open, after lockdowns have eased. We have seen improvements in sectors such as semiconductor, energy technologies (batteries), and additive manufacturing, where new technology developments continue.

Within the additive manufacturing space, we expect investment to expand. This versatile technology can help with shorter production runs, on-demand solutions and more resilient supply chains, providing customers with greater flexibility, which has been particularly helpful against the backdrop of COVID-19-related disruptions and restrictions.

Demand for emerging battery technologies, electric vehicles and other new applications is supporting investment in new facilities to accelerate development in material analysis and characterisation. Alongside batteries, fuel cells will also be an element of smart energy infrastructure, within the global energy and transportation landscape, providing localised energy generation for both stationary and mobile applications. Our analytical solutions support many of the material advancements in fuel cell development and optimisation. We expect this to further underpin the recovery in demand as we go through the second half of 2021, with Asia being the key driver.

 

HBK

	Half year 2021	Half year 2020	Half year 2019	Change vs 2020	LFL change vs   2020	LFL change vs   2019
Statutory reported sales (£m)	188.0	179.4	193.5	5%	8%	(1%)
Adjusted operating profit1 (£m)	22.5	16.4	16.7	37%	44%	40%
Adjusted operating margin1 (%)	12.0%	9.1%	8.6%	290bps	310bps	350bps
Statutory operating profit (£m)	15.7	10.9	(8.2)
Statutory operating margin (%)	8.4%	6.1%	(4.2%)

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.

Financial performance

Statutory reported sales at HBK increased 5% to £188.0 million, 8% on a LFL basis. 

LFL sales in both Europe and Asia increased, with notable growth in the latter, with North America lower, compared to a resilient second quarter 2020 comparison. In general, markets globally continue to recover with increased customer activity, most pronounced in China and the USA. Machine manufacturing was the strongest end market.

Statutory operating profit has improved by £4.8 million to £15.7 million and adjusted operating profit increased 44% on a LFL basis, while LFL adjusted operating margin increased 310bps. This reflected an improved gross margin, reflecting the higher sales and productivity improvements, partly offset by marginally higher net overheads.

Compared with 2019, HBK sales are broadly flat on a LFL basis and LFL adjusted operating profit is 40% higher, reflecting the operational improvements and merger benefits that continue to be delivered.

Delivering the strategy

The strategic growth objectives at HBK include completing the merger and strengthening the organisation, along with investment in organic growth projects aligned to the strongest market sector growth opportunities, such as electrification, simulation and digitisation. In addition, customers appreciate having the ability to work with a single supplier across a large range of physical and virtual testing needs, as well as sensing requirements.

As part of its ongoing merger initiatives, the new go-to-market model is in place and the new CRM system will be deployed, starting in the second half of the year. The system will enable a full digital buying experience, thereby enhancing the sales and marketing effort to further drive growth and strengthen customer relationships.  

HBK's strategic growth drivers focus on virtual testing and simulation; physical testing (including electric power train development); smart sensors and software. Recent new product offerings, as well as product re-positionings and enhancement, have concentrated on three of these areas, with smart sensor products being launched later in the year.

The acquisition of Concurrent-RT is a major milestone in adding to HBK's virtual test and simulation offering. It is being integrated with the VI-grade real-time simulation business to form HBK's Virtual Test Division to meet the growing demand from customers for more realistic simulation in helping bring ever more sophisticated products to market faster, at lower cost and risk. The acquisition will add industry diversification, especially in aerospace and defence, and integrate driver-in-the-loop and hardware-in-the-loop ('HiL') capabilities into a single simulator offering; an unmet need in the automotive industry today.

Elsewhere in virtual testing, HBK has continued to see strong interest for its simulator solutions. In March, VI-grade released NVH Simulator 2021.0, the latest release of its NVH simulator software, incorporating significant new features and capabilities to enable easier technology use and accessibility. These enable a highly accurate experience of sound and vibration data  and comprise a comprehensive set of solutions including desktop NVH simulators, full-vehicle static NVH simulators, exterior sound simulators, and sound solutions providing accurate sound in concert with any driving simulator. Together these solutions provide automotive product development professionals with the tools they need to accelerate product development across a wide range of automotive applications and - and especially demanding electric vehicle platforms - and all from a single supplier.

In physical testing, HBK have added new technology to their QuantumX line-up of flexible and sophisticated data acquisition systems. The release of the MXFS optical interrogator module provides the opportunity to combine mechanical, electrical and fibre-optic measurements in one system. This significantly simplifies complex measurement solutions in battery electric drive-trains, hydrogen fuel applications  and  structural health monitoring.

HBK has also expanded and streamlined its engineering software offering. Following the launch in 2020 of Tescia®, a one-of-a-kind data acquisition software for repetitive testing and real-time noise measurement analysis, HBK released the latest version of its Tescia® Repetitive Testing system. The software features enable faster testing, improved product quality, and time to market. With its origin in the aerospace and defence industry, a key win has been with Air France in the performance testing of its aircraft engines. The test processes and uses, common to A&D customers, are also relevant in other industries, such that the product has applicability to large complex machinery, as well as those with simpler measurement needs.

HBK's highly regarded fatigue and durability engineering software solutions have also been upgraded. The release of nCode 2021 sees key improvements in functionality and performance, including new capabilities to aid the post-processing of large amounts of measured electric motor test data, with enhanced analytics functions, speeding up the optimisation cycles for electric drive-trains.

Market trends and outlook

Automotive

Within automotive, LFL sales were 9% lower year-on-year, with an easing in the rate of decline through the first half, and growth in Asia. This reflected the continued slowdown in the overall automotive sector, and some delays to VI-grade simulator installations given continued COVID-19-related customer access restrictions. The decline also reflected some larger, one-off orders in early 2020.

Overall, while the picture is mixed, we are seeing a positive trend and an improving outlook.  With many automotive OEMs committing to increased development and production of electric vehicles,  and newcomers continuing to enter this market, R&D budgets in this area remain resilient. Orders for VI-grade's simulators during the first half demonstrates how we can help companies enhance and shorten their development phases. For example, Aston Martin Lagonda ('AML') adopted Vi-grade's compact simulator to meet increasingly complex vehicle targets allowing AML to move to a more virtual environment, saving cost and resources in the development of new vehicles. Politecnico di Milano also saw the first commercial installation of VI-grade's new (and largest yet) DiM400 driving simulator.

The DiM400, along with the majority of HBK solutions sold to the automotive market, are instrumental for customers to design and realise new environmentally friendly vehicles. Our solutions are being used to develop components and complete structures with innovative materials, optimising fuel consumption, reducing noise profiles and verifying advanced driver-assistance systems and applications for autonomous driving, to create cleaner and safer solutions in transportation.

Machine manufacturing

LFL sales to the machine manufacturing sector rose strongly, over 40%, during the first half of the year, and were particularly strong into North America. This continued the buoyant performance seen in 2020, reflecting the very positive outlook for agriculture, food and medical equipment and the strong fit of our sensor applications in this sector.

The above market growth has also been driven by HBK's initiative to provide OEM sensor capabilities to selected high value asset markets. Demand for HBK's weighing technologies overall, and specifically OEM-type solutions in agriculture and medical applications, to optimise farming and improve healthcare, has been strong. A higher quality offering and increased production capacity has also helped meet the increase in demand.

Aerospace and defence

LFL sales have continued to improve, with growth of 3% in the first half, driven by demand for HBK's transducers and shaker systems. Growth in Asia and Europe more than offset lower LFL sales in North America.

The commercial aerospace sector continues to be impacted by COVID-19, however indicators are that demand will improve against last year, by about 10%. HBK's exposure to commercial aviation is limited and aerospace firms have kept large investment programmes running. Key orders were received to equip updated acoustics labs for a large passenger aircraft manufacturer, as well as orders for sensor supply for rotary aircraft systems.

HBK is more exposed to defence and satellite/space markets where there has been less of an impact on spending. A key win in this area was to supply a system consisting of one of the largest water-cooled shakers that HBK manufactures to a major US university affiliated research centre for defence technologies.

Consumer electronics and telecoms

LFL sales to electronics and telecoms customers were higher overall in the first half of year. We are seeing increasing requirements for support for voice recognition technologies with more widespread deployment in such products as smartphones and voice-activated, smart home products. With consumer satisfaction closely linked to how well smart speakers understand voice commands, HBK's market-leading mouth and ear simulators are well matched to meet the increased requirements for speech intelligibility and overall sound quality.

 

 

Omega

	Half year 2021	Half year 2020	Half year 2019	Change vs 2020	LFL change vs   2020	LFL change vs 2019
Statutory reported sales (£m)	64.3	60.9	69.3	6%	14%	(2%)
Adjusted operating profit1 (£m)	6.5	2.9	9.9	124%	145%	(30%)
Adjusted operating margin1 (%)	10.1%	4.8%	14.3%	530bps	550bps	(420bps)
Statutory operating profit (£m)	3.0	(0.9)	9.6
Statutory operating margin (%)	4.7%	(1.5%)	13.9%

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.

Financial performance

Statutory reported sales increased 6% to £64.3 million, 14% on a LFL basis. Omega has a high exposure to North America (68%), where growth has been above that of the market, with strong demand from its strategic accounts and from market share gains. Similarly, LFL sales growth was strong in Asia, with Europe flat year-on-year.

Statutory operating profit improved to £3.0 million and on a LFL basis, adjusted operating profit increased 145% and LFL operating margins rose 550bps. This resulted from the higher LFL sales, higher gross margins and flat overheads.

Compared with 2019, Omega sales are 2% lower on a LFL basis with LFL adjusted operating profit also lower, given the higher cost base following the website investment. 

Delivering the strategy

Achieving greater scale through organic sales growth is the key requirement for the recovery in performance at Omega. Four focused initiatives have been enacted to drive above market growth and in turn, recover lost margin: enhancing the digital experience; expanding the sales channels; accelerating new product development and improving operational performance. Omega has continued to make progress across each of these focus areas in the first half of 2021.

The refinements to the digital platform to simplify the user experience and improve search functionality are having a positive impact with some good improvements in key metrics in the first half. Web orders have returned to 2018 levels, achieving record average order values and improved conversion rate. In addition, Omega continues to improve product findability and enhance its search engine optimisation rankings.

Efforts to increase sales growth through focusing on under-penetrated channels and on key accounts are helping to drive the above market growth. Omega continues to execute on its sales channel expansion strategy. Sales through the partnership with Newark in North America have doubled year-over-year. Omega is also working to extend this relationship to a global account, expanding its reach in Europe and Asia.

Investment in new products remains a key strategic aim. As well as increasing its engagement with customers, Omega is working to expand its network of university and research lab contacts, staying close to emerging technologies to further enhance the new product development pipeline.

Following the launch in 2020 of 94 new products, the new product innovation strategy has shifted to fewer, more impactful launches in key growth areas. Such an example, has been the launch of a new, innovative high accuracy non-invasive temperature sensor ('HANI') in the first half. This clamp-on sensor achieves the same accuracy and fast response times as state-of-the-art invasive in-pipe temperature sensors, without the cost and risk, and at a lower price point to current equivalent offerings. Omega recently partnered with the Food Innovation Center at Rutgers University (a food business incubator and accelerator) as a beta site to test the HANI sensor in one of their food production lines. The sensor has been installed on the outside of the pipe so that there is no contact with the product and, therefore, zero chance of cross-contamination. The accuracy of the Omega sensor is just as good as, or better than, the thermocouples they replaced and installation was achieved in minutes, rather than the days-long shutdown needed to install an in-line sensor. Food and beverage is a key initial target end market, although other applications for the technology are being planned for other end markets.

 

Omega continued to expand its IIoT solutions range to access further opportunities in  the growing wireless sensing market. Following the launch in 2020 of its Layer N products to sense, store and process data via a fully customised wireless solution, Omega is adding further products to the range, with smart acceleration/vibration sensors scheduled to launch in the fourth quarter and smart differential pressure sensors scheduled to launch early in 2022.

Market trends and outlook

Omega's 14% LFL sales growth was driven by strong market tailwinds in US industrial production, combined with market share gains related to its strategic initiatives. The market recovery and share gain initiatives have been much stronger than the modest growth expected, driving double-digit growth and delivering above market growth for the first half. Omega has almost fully recovered to pre-COVID-19 levels in first half 2019.

In North America, LFL sales were up, led by distribution, reflecting the strong relationship with Newark. Omega has also seen strength with key customers in semiconductor, aerospace, defence and R&D.

In Asia, LFL sales were up significantly, led by China, driven by a key distributor plus other broad-based market gains, and South Korea, driven by key project wins and strong semiconductor demand.

In Europe, the recovery continues to lag other key regions, with LFL sales flat through the first half of the year. However, the trend is improving with sequential gains each month since February. The UK is recovering faster than the rest of Europe.

 

Industrial Solutions

	Half year 2021	Half year 2020	Half year 2019	Change vs 2020	LFL change vs   2020	LFL change vs   2019
Statutory reported sales (£m)	171.0	207.7	296.1	(18%)	12%	(4%)
Adjusted operating profit1 (£m)	24.8	16.4	38.4	51%	41%	4%
Adjusted operating margin1 (%)	14.5%	7.9%	13.0%	660bps	320bps	110bps
Statutory operating profit/(loss) (£m)	23.6	(71.0)	15.7
Statutory operating margin (%)	13.8%	(34.2%)	5.3%

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.

Financial performance

Statutory reported sales decreased 18% to £171.0 million, a 12% increase on a LFL basis. The divestments of B&K Vibro, ESG and Millbrook reduced sales by 22%.

A strong market recovery and the impact of product launches in 2020 has helped underpin growth. LFL sales increased in all regions, with a very strong performance in Asia. By end market, LFL sales growth was strongest into semiconductor and pharmaceutical customers, while LFL sales into energy and utilities were still lower year-on-year, although orders into this sector demonstrate the market is recovering, being up year-on-year by 4%.

Statutory operating profit increased to £23.6 million and LFL adjusted operating profit increased 41% and LFL adjusted operating margins increased 320bps. This primarily resulted from the increase in LFL sales and mix. PMS, which is higher margin, delivered LFL sales growth of 30%. Gross margin was higher, also reflecting the higher volume and some mix effects, and overheads were flat year on year. The improvement in statutory profit also reflected the prior year £75.8 million impairment of goodwill, other acquisition-related intangible assets and other property, plant and equipment at Millbrook.

Compared with 2019, ISD sales are 4% lower and adjusted operating profit is 4% higher on a LFL basis.

Delivering the strategy

Further progress has been made in executing each of the operating company strategies, improving the performance of the businesses, in parallel with the divestment programme.

The divestments of B&K Vibro and Millbrook were completed and sales proceeds of £225.9 million in cash were received in the first quarter. In May, the divestment of ESG was completed to SCF Partners, a private equity investor group, via an existing company in its portfolio Deep Imaging Technologies, Inc. for £3.3 million.

All three of the disposed businesses were dilutive to the Division's and Group's profitability. We expect the portfolio rationalisation strategy, as identified in 2019, to be completed during the second half of this year.

For the remaining ISD businesses, the strategic direction will be centred around being a leading provider of high precision, in-line sensing and monitoring solutions. Here too, the product development strategy has been focused around enhancing the portfolio to meet customers' evolving requirements - for example higher sensitivities, faster measurements and enhanced product capabilities - and targeting high-growth areas such as pharmaceutical and  semiconductors, as well as automation and digitisation solutions.

PMS has been actively releasing new products to meet demand from pharmaceutical customers for its cleanroom monitoring solutions. For example, in May, PMS launched the new Lasair® Pro Airborne Particle Counter. Leveraging the capabilities of its existing, flagship Lasair III particle counter, this new addition to the PMS portfolio supports a variety of applications including clean area monitoring (portable and remote) and classification, while meeting international cleanroom certification standards.

PMS also released the adaptable, new IsoAir® Pro-Plus - another option in its customisable cleanroom monitoring solutions. This new product is the smallest footprint remote particle counter on the market, but with extensive features to meet the needs of environmental monitoring for the pharmaceutical manufacturing industry, where high accuracy, flexible connectivity, instrument durability and world-class service and support are valued.

 

For the semiconductor market, Servomex's new range of gas purity analysers launched in 2020, the Ultra Oxygen and Moisture product range, has positioned Servomex well, driving order growth in the first half, notably above that of the market. The Ultra Series provides higher accuracy measurement for ultra-high purity gas analysis, at a low cost compared to competing technologies, with fast response times, low detection levels and is easy to use and maintain.

NDCT released the next generation of two key products. The AccuScan Pro Series provides higher-accuracy, single-axis diameter measurement for plastic pipe/hose/tube, wire, cable and other extruded or drawn cylindrical, flat or unique profile products. The SlimTrak II, is a space-saving scanning measurement system for narrow processes.

At Red Lion, the product refresh programme continues to make good progress, with its new products, especially the FlexEdge, Intelligent Edge Automation Platform, seeing robust demand as new customer project opportunities continue to grow. Work on its next-generation indication platform ahead of launch in the fourth quarter continues, and the product is getting good support from customers in in pre-launch demos.

Market trends and outlook

Semiconductor and electronics

Sales into semiconductor customers increased notably, with strong demand for PMS' particle measuring counters and cleanroom monitoring products and for Servomex's gas purity analysers, with good demand for the latter's new purity range.

PMS' Chem-20 and Ultra-DI 20 continue to perform well in the semiconductor and electronics market. PMS' performance also reflected market share gains and the strong backlog it had entering 2021. Its sales pipeline funnel continues to expand, underpinning the outlook for the second half of the year. This is in line with the rising demand for chips, which is driving an increase in global fabricated equipment spending in 2021, as well as the onshoring of production to mitigate the risk associated with overseas supply of critical computer chips.

Sales in electronics were down slightly in the first half of the year, after a robust performance in 2020. The pipeline for sales into the electronics industry continues to strengthen supported by LED demand in consumer products, cloud computing and 5G infrastructure roll-out, as well as the development of new consumer 'smart' electronic products.

Pharmaceutical and life sciences

The pharmaceutical and life sciences industries saw notable LFL sales growth in the first half, continuing the strong performance in 2020, and were up notably at both PMS and Servomex.

As well as the underlying growth in the pharmaceutical and life sciences market, demand from pharmaceutical customers has been supported by the notable investment in vaccine production taking place across many countries and the trend for nearshoring of production, to ensure unrestricted access to critically required pharmaceutical products.

In 2020, demand rapidly increased for the Paracube oxygen sensors, manufactured by Servomex's sensor technology brand Hummingbird, which are used in ventilators to monitor the amount of oxygen administered, and sales have continued to be good in the first half of the year. The demand of sensors in the medical equipment industry is normalising after the high demand due to COVID-19, but has been stronger than expected due to the requirements to increase ventilator inventory across many countries.

Energy and utilities

In energy, LFL sales at Servomex were lower year-on-year, reflecting the order book coming into 2021 and a slower recovery in the hydrocarbon sector. Orders in the first half have fared better, supported by strong growth in Asia, in particular as a result of the successful performance of the 2500 SpectraExact product.

The need to reduce emissions, driven by climate change concerns, is expected to create demand for Servomex's products which deliver effective solutions for process control, safety and quality in a wide range of midstream and downstream applications.

Industrial and other markets

In our other end markets, Red Lion posted higher LFL sales. Orders fared even better, being up in all regions  and driven by a strong second quarter. Additionally, Red Lion was awarded the Control Design Readers' Choice Award for their panel meters, where over 15,000 industrial automation participants vote. 

At NDCT, LFL sales were higher with growth, driven by an increase in sales in the converting and film extrusion industries, and in cable and tubing. Following the strong growth in sales into food and beverage customers in 2020, with notable orders into two major North American food manufacturing companies, LFL sales were lower in this sector.

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 44 to 48 in the 2020 Annual Report and Accounts which is available on the Group's website at www.spectris.com. The Group has reviewed these risks and concluded that they will continue to remain relevant for the second half of the financial year. 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 2020 Annual Report. 

The full list of principal risks relevant as at the half year comprises: 

·      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.

·      Compliance - Failure to comply with laws and regulations, leading to reputational damage, substantial fines and potential market exclusion.

·      Cyber Threat - Failure to appropriately protect critical information/physical assets from cyber threats, including external hacking, cyber fraud, and inadvertent/intentional electronic leakage of critical data.

·      Market / Financial Shock - Material adverse changes in market conditions, such as economic recession, sudden negative investor sentiment and currency fluctuation.

·      Political - Material adverse changes in the geopolitical environment putting at risk our ability to execute our strategy, including trade protectionism, punitive tax/regulatory regimes, and general heightened tension between trading parties or blocs.

·      Talent and Capabilities - Failure to attract, retain, and deploy the necessary talent to deliver Group strategy.

·      Strategic Transformation - Failure to successfully deliver the Group strategy, including business transformation and key mergers, acquisitions and divestments activity.

During 2021, we have seen a further decrease in disruption to our businesses caused by the COVID-19 pandemic. Market/financial shock remains an external risk to the Group in 2021. Both risks are existing principal risks, and therefore have been subject to Executive oversight and formal assessment prior to and during the pandemic. Our crisis management efforts and mitigations continue to operate effectively, and we have maintained the resilience demonstrated in 2020. The economic/disruption impact to the business continues to be limited to an appropriately managed 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

28 July 2021

 

Independent Review Report to Spectris PLC

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 2021 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated  Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity and the Condensed Consolidated Statement of Cash Flows and related notes 1 to 11. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, 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.

As disclosed in note 1, the annual financial statements of the group will be prepared in accordance with United Kingdom adopted International Financial Reporting 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".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 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. 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.

Conclusion

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 2021 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.

Use of our report

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. 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

Reading, UK

28 July 2021

 

Condensed Consolidated Income Statement (unaudited)

For the six months ended 30 June 2021

				2021	2020	2020
				Half year	Half year	Full year
	Continuing operations	Note		£m	£m	£m
	Revenue	2		601.8	599.0	1,336.2
	Cost of sales			(261.8)	(278.5)	(599.8)
	Gross profit			340.0	320.5	736.4
	Indirect production and engineering expenses			(46.4)	(48.9)	(96.7)
	Sales and marketing expenses			(118.9)	(131.8)	(268.3)
	Administrative expenses			(114.1)	(196.0)	(394.7)
	Statutory operating profit/(loss)	2		60.6	(56.2)	(23.3)
	Fair value through profit and loss movements on equity investments			-	-	23.2
	Profit on disposal of businesses	8		117.7	5.1	4.4
	Financial income	3		11.9	0.6	1.8
	Finance costs	3		(3.2)	(15.0)	(10.2)
	Profit/(loss) before tax			187.0	(65.5)	(4.1)
	Taxation charge	4		(6.7)	(1.0)	(12.9)
	Profit/(loss) for the period from continuing  operations attributable to owners of the Company			180.3	(66.5)	(17.0)
	Basic earnings/(loss) per share	6		155.8p	(57.3p)	(14.6p)
	Diluted earnings/(loss) per share	6		155.3p	(57.3p)	(14.6p)
	2021 interim dividend declared/2020 interim dividend and additional interim dividend paid for the period (per share)	5		23.0p	21.9p	111.6p
	Dividends paid during the period (per share)	5		46.5p	-	65.1p

 

Condensed Consolidated Statement of Comprehensive Income (unaudited)

For the six months ended 30 June 2021

		2021	2020	2020
		Half year	Half year	Full year
	Note	£m	£m	£m
Profit/(loss) for the period attributable to owners of the Company		180.3	(66.5)	(17.0)
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit obligation		2.2	(1.6)	8.5
Fair value (loss)/gain on investment in equity instruments designated as at fair value through other comprehensive income		(0.6)	(0.1)	0.1
Tax (charge)/credit on items above		(0.1)	0.4	(1.3)
		1.5	(1.3)	7.3
Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net loss on effective portion of changes in fair value of forward exchange contracts on cash flow hedges		-	(3.7)	(0.6)
Foreign exchange movements on translation of overseas operations		(27.0)	62.4	(0.6)
Currency translation differences transferred to profit on disposal of businesses	8	(3.8)	-	-
Tax credit on items above		-	0.7	0.1
		(30.8)	59.4	(1.1)
Total other comprehensive (loss)/income		(29.3)	58.1	6.2
Total comprehensive income/(loss) for the period attributable to owners of the Company		151.0	(8.4)	(10.8)

 

Condensed Consolidated Statement of Changes in Equity (unaudited)

For the six months ended 30 June 2021

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	6.0	231.4	901.5	98.0	(1.9)	3.1	0.5	1,238.6
Profit for the period	-	-	180.3	-	-	-	-	180.3
Other comprehensive income/(loss)	-	-	1.5	(30.8)	-	-	-	(29.3)
Total comprehensive income/(loss) for the period	-	-	181.8	(30.8)	-	-	-	151.0
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(53.6)	-	-	-	-	(53.6)
Own shares acquired for share buyback programme (see note 10)	(0.1)	-	(97.8)	-	-	-	0.1	(97.8)
Share-based payments, net of tax	-	-	4.6	-	-	-	-	4.6
Proceeds from exercise of equity-settled share options	-	-	0.3	-	-	-	-	0.3
At 30 June 2021	5.9	231.4	936.8	67.2	(1.9)	3.1	0.6	1,243.1

 

For the six months ended 30 June 2020

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2020	6.0	231.4	983.3	98.6	(1.4)	3.1	0.5	1,321.5
Loss for the period	-	-	(66.5)	-	-	-	-	(66.5)
Other comprehensive (loss)/ income	-	-	(1.3)	62.4	(3.0)	-	-	58.1
Total comprehensive (loss)/income for the period	-	-	(67.8)	62.4	(3.0)	-	-	(8.4)
Transactions with owners recorded directly in equity:
Share-based payments, net of tax	-	-	0.1	-	-	-	-	0.1
Proceeds from exercise of equity-settled share options	-	-	0.1	-	-	-	-	0.1
At 30 June 2020	6.0	231.4	915.7	161.0	(4.4)	3.1	0.5	1,313.3

 

For the year ended 31 December 2020

	Share capital	Share premium	Retained earnings	Translation reserve	Hedging reserve	Merger reserve	Capital redemption reserve	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2020	6.0	231.4	983.3	98.6	(1.4)	3.1	0.5	1,321.5
Loss for the year	-	-	(17.0)	-	-	-	-	(17.0)
Other comprehensive income/(loss)	-	-	7.3	(0.6)	(0.5)	-	-	6.2
Total comprehensive loss for the year	-	-	(9.7)	(0.6)	(0.5)	-	-	(10.8)
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company	-	-	(75.7)	-	-	-	-	(75.7)
Share-based payments, net of tax	-	-	3.3	-	-	-	-	3.3
Proceeds from exercise of equity-settled share options	-	-	0.3	-	-	-	-	0.3
At 31 December 2020	6.0	231.4	901.5	98.0	(1.9)	3.1	0.5	1,238.6

 

Condensed Consolidated Statement of Financial Position (Unaudited)

As at 30 June 2021

		2021	2020	2020
		Half year	Half year	Full year
	Note	£m	£m	£m
ASSETS
Non-current assets
Intangible assets:
Goodwill		564.4	621.8	577.0
Other intangible assets		122.4	162.1	133.5
		686.8	783.9	710.5
Property, plant and equipment		182.4	368.9	187.1
Investment in equity instruments	8	24.1	0.8	39.4
Investment in debt instruments	8	23.0	-	-
Deferred tax assets		14.5	9.0	14.6
		930.8	1,162.6	951.6
Current assets
Inventories		178.0	221.8	168.5
Current tax assets		5.1	4.1	4.1
Trade and other receivables		273.8	298.1	291.8
Derivative financial instruments		1.9	1.5	1.9
Cash and cash equivalents		273.0	287.0	222.2
Assets held for sale		-	-	178.7
		731.8	812.5	867.2
Total assets		1,662.6	1,975.1	1,818.8
LIABILITIES
Current liabilities
Borrowings		(0.2)	(86.6)	(13.1)
Derivative financial instruments		-	(4.1)	(0.1)
Trade and other payables		(309.2)	(306.8)	(288.3)
Lease liabilities		(13.4)	(14.8)	(12.9)
Current tax liabilities	4	(5.9)	(14.3)	(16.7)
Provisions		(14.7)	(24.6)	(24.7)
Liabilities held for sale		-	-	(37.3)
		(343.4)	(451.2)	(393.1)
Net current assets		388.4	361.3	474.1
Non-current liabilities
Borrowings		-	(106.1)	(104.5)
Other payables		(20.3)	(17.8)	(24.7)
Lease liabilities		(25.0)	(45.0)	(26.0)
Provisions		(4.6)	(4.8)	(3.8)
Retirement benefit obligations		(17.8)	(29.5)	(20.4)
Deferred tax liabilities		(8.4)	(7.4)	(7.7)
		(76.1)	(210.6)	(187.1)
Total liabilities		(419.5)	(661.8)	(580.2)
Net assets		1,243.1	1,313.3	1,238.6
EQUITY
Share capital		5.9	6.0	6.0
Share premium		231.4	231.4	231.4
Retained earnings		936.8	915.7	901.5
Translation reserve		67.2	161.0	98.0
Hedging reserve		(1.9)	(4.4)	(1.9)
Merger reserve		3.1	3.1	3.1
Capital redemption reserve		0.6	0.5	0.5
Total equity attributable to owners of the Company		1,243.1	1,313.3	1,238.6

Condensed Consolidated Statement of Cash Flows (Unaudited)

For the six months ended 30 June 2021

		2021	2020	2020
		Half year	Half year	Full year
	Note	£m	£m	£m
Cash generated from operations	9	96.7	99.9	254.6
Net income taxes paid		(17.2)	(11.5)	(28.6)
Net cash inflow from operating activities		79.5	88.4	226.0
Cash flows used from/(used in) investing activities
Purchase of property, plant and equipment and intangible assets		(19.1)	(23.4)	(43.1)
Proceeds from disposal of property, plant and equipment and software		-	-	4.1
Acquisition of businesses, net of cash acquired	7	(1.3)	(7.1)	(10.9)
Purchase of equity investments		-	-	(15.2)
Proceeds from disposal of equity investments		38.3	-	-
Proceeds from disposal of businesses, net of tax paid of £nil (2020 Half year: £1.0m; 2020 Full year: £2.3m)	8	208.8	21.4	20.6
Proceeds from government grants related to purchase of property, plant and equipment and intangible assets		-	0.2	0.2
Interest received		0.1	0.5	2.4
Net cash flows from/(used in) investing activities		226.8	(8.4)	(41.9)
Cash flows used in financing activities
Interest paid on borrowings		(2.6)	(2.3)	(6.9)
Interest paid on lease liabilities		(0.7)	(1.3)	(2.3)
Dividends paid	5	(53.6)	-	(75.7)
Share buyback purchase of shares	10	(79.7)	-	-
Net proceeds from exercise of share options		0.3	0.1	0.3
Payments on principal portion of lease liabilities		(6.6)	(8.5)	(19.3)
Loan repaid by joint venture		-	3.0	3.0
Proceeds from borrowings		-	-	0.3
Repayment of borrowings		(99.8)	-	(86.4)
Net cash flows used in financing activities		(242.7)	(9.0)	(187.0)
Net increase/(decrease) in cash and cash equivalents		63.6	71.0	(2.9)
Cash and cash equivalents at beginning of period		210.9	213.1	213.1
Effect of foreign exchange rate changes		(1.5)	2.9	0.7
Cash and cash equivalents at end of period1		273.0	287.0	210.9

 

1.        Cash and cash equivalents in the Condensed Consolidated Statement of Cash Flows at 30 June 2021 and 30 June 2020 consisted solely of cash and cash equivalents included in current assets. Cash and cash equivalents in the Condensed Consolidated Statement of Cash Flows at 31 December 2020 consisted of £222.2 million of cash and cash equivalents included in current assets, £3.7 million of cash and cash equivalents included in assets held for sales less £12.8 million of notional cash-pool related bank overdrafts included in current borrowings and £2.2 million of notional cash-pool related bank overdrafts included in liabilities held for sale.

 

Notes to the accounts

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 2021 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 2020 are available upon request from the Company's registered office at Heritage House, Church Road, Egham, Surrey TW20 9QD, 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 European Union. 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 2020.

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.

New standards and interpretations applied for the first time

On 1 January 2021, the Group adopted Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) as issued by the IASB. The adoption has not had a material impact on the interim Condensed Consolidated Financial Statements. Apart from this change, the accounting policies set out in the 2020 Annual Report and Accounts have been applied consistently to both periods presented in these Condensed Consolidated Financial Statements.

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.

The Condensed Consolidated Interim Financial Statements for the six-month period ended 30 June 2021 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 2020 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 2020. These Condensed Consolidated Interim Financial Statements were approved by the Board of Directors on 28 July 2021.

b)            Going concern

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 COVID-19 on the Group, which are described in the Chief Executive's Review, Financial Review and Operating Review.

During the period, the Group repaid in full a seven-year €116.2 million (£99.8 million) term loan which was due to mature in September 2022. As at 30 June 2021, the Group had £578.7 million of committed facilities, consisting entirely of an $800.0 million multi-currency revolving credit facility ('RCF') maturing in July 2025. The RCF was undrawn at 30 June 2021. The Group is in the process of reviewing its $800 million committed facility with a view to agreeing a reduction in size to $500 million by the end of the third quarter of 2021.

The RCF has a leverage (net debt/EBITDA) covenant of up to 3.5x. The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants. At 30 June 2021, interest cover (defined as adjusted earnings before interest, tax and amortisation divided by net finance charges) was 48 times (30 June 2020: 35 times; 31 December 2020: 42 times), against a minimum requirement of 3.75 times, and leverage (defined as adjusted earnings before interest, tax, depreciation and amortisation divided by net cash/(debt)) was less than zero (30 June 2020 and 31 December 2020: less than zero) due to the Group's net cash position, against a maximum permitted leverage of 3.5 times.

In addition to the above, at 30 June 2021, the Group had a cash and cash equivalents balance of £273.0 million and various uncommitted facilities and bank overdraft facilities available, resulting in a net cash position of £272.8 million, an increase of £166.7 million from £106.1 million at 31 December 2020.

The Group has prepared and reviewed cash flow forecasts for the period to 31 December 2022, which reflect forecasted changes in revenue across its business as set out 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. Assuming similar levels of cash conversion as experienced in recent months since the outbreak of COVID-19 occurred, a monthly decline of revenue well in excess of that experienced in any month during 2020 would need to persist throughout the entire going concern period for a covenant breach to occur, which is considered very unlikely. In addition, the reverse stress test does not take in 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, including the impact of COVID-19 on the Group.

At 31 December 2020, management concluded that determining the provision for tax was a key source of estimation uncertainty. During the half year ended 30 June 2021, the Group agreed a formal settlement with HMRC to resolve its dispute in relation to the taxation of dividends received from EU based subsidiaries prior to 2009. Further details are provided in note 4. As this matter has now been settled, management believes that the determination of the provision for tax no longer has sufficient estimation uncertainty to cause a material adverse impact on the results and net position of the Group within the next twelve months and have therefore removed this as a source of key estimation uncertainty.

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 2020.

2. Operating segments

The Group has four reportable segments, as described below. The segmental platform structure reflects the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making decisions on capital allocated to each segment and to assess performance. The operating segment results include an allocation of head office expenses. The following summarises the operations in each of the Group's reportable segments:

 

• The Malvern Panalytical platform provides products and services that enable customers to determine structure, composition, quantity and quality of particles and materials during their research and product development processes, when assessing materials before production, or during the manufacturing process. The operating companies in this segment are Malvern Panalytical and Concept Life Sciences.

 

• The HBK platform supplies test, measurement and analysis equipment, software and services for product design optimisation, and manufacturing control. The operating companies in this segment are Hottinger, Brüel & Kjær and VI-grade.

 

• The Omega platform is a global leader in the technical marketplace, offering products for measurement and control of temperature, humidity, pressure, strain, force, flow, level, pH and conductivity. Omega also provides a complete line of data acquisition, electric heating and custom-engineered products. The operating company in this segment is Omega Engineering.

 

• The Industrial Solutions division ('ISD') comprises a portfolio of high-value, niche businesses. A number of ISD companies have platform potential, with strong market positions, growth prospects and margins. The operating companies in this segment are NDC Technologies, Particle Measuring Systems, Red Lion Controls, Servomex, Brüel & Kjær Vibro (disposed 1 March 2021), ESG Solutions (disposed 3 May 2021) and Millbrook (disposed 2 February 2021).

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
Information about reportable segments	£m	£m	£m	£m	£m
Segment revenues	178.6	188.1	64.3	171.2	602.2
Inter-segment revenue	(0.1)	(0.1)	-	(0.2)	(0.4)
External revenue	178.5	188.0	64.3	171.0	601.8
Statutory operating profit	18.3	15.7	3.0	23.6	60.6
Profit on disposal of businesses1					117.7
Financial income1					11.9
Finance costs1					(3.2)
Profit before tax1					187.0
Taxation charge1					(6.7)
Profit after tax1					180.3

1. Not allocated to reportable segments

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2020 Half year Total
Information about reportable segments	£m	£m	£m	£m	£m
Segment revenues	151.0	179.7	60.9	207.9	599.5
Inter-segment revenue	-	(0.3)	-	(0.2)	(0.5)
External revenue	151.0	179.4	60.9	207.7	599.0
Statutory operating profit/(loss)	4.8	10.9	(0.9)	(71.0)	(56.2)
Profit on disposal of businesses1					5.1
Financial income1					0.6
Finance costs1					(15.0)
Loss before tax1					(65.5)
Taxation charge1					(1.0)
Loss after tax1					(66.5)

1. Not allocated to reportable segments

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2020 Full year Total
Information about reportable segments	£m	£m	£m	£m	£m
Segment revenues	372.6	393.3	119.3	452.2	1,337.4
Inter-segment revenue	(0.1)	(0.7)	(0.1)	(0.3)	(1.2)
External revenue	372.5	392.6	119.2	451.9	1,336.2
Statutory operating profit/(loss)	44.6	14.2	1.2	(83.3)	(23.3)
Fair value through profit and loss movements on equity investments1					23.2
Profit on disposal of businesses1					4.4
Financial income1					1.8
Finance costs1					(10.2)
Loss before tax1					(4.1)
Taxation charge1					(12.9)
Loss after tax1					(17.0)

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 by geographical destination.

			2021 Half year	2020 Half year	2020 Full year
			£m	£m	£m
UK			28.3	48.0	101.4
Germany			53.0	53.8	114.7
France			19.3	17.8	41.9
Rest of Europe			85.5	78.3	182.2
USA			169.6	182.9	386.3
Rest of North America			17.6	17.7	37.9
Japan			31.8	34.2	73.0
China			97.7	79.0	190.4
South Korea			20.1	16.1	41.6
Rest of Asia			53.8	44.9	106.3
Rest of the world			25.1	26.3	60.5
			601.8	599.0	1,336.2

 

3. Financial income and finance costs

			2021 Half year	2020 Half year	2020 Full year
Financial income			£m	£m	£m
Interest receivable			(0.1)	(0.6)	(1.8)
Interest credit on release of provision on settlement of EU dividends tax claim (see note 4)			(5.1)	-	-
Net gain on retranslation of short-term inter-company loan balances			(6.7)	-	-
			(11.9)	(0.6)	(1.8)

 

			2021 Half year	2020 Half year	2020 Full year
Finance costs			£m	£m	£m
Interest payable on loans and overdrafts			2.5	2.7	6.0
Net loss on retranslation of short-term inter-company loan balances			-	10.4	0.8
Unwinding of discount factor on lease liabilities			0.7	1.3	2.3
Unwinding of discount factor on deferred and contingent consideration			-	0.3	0.4
Net interest cost on pension plan obligations			-	0.2	0.4
Other finance costs			-	0.1	0.3
			3.2	15.0	10.2
Net finance (credit)/costs			(8.7)	14.4	8.4

 

4. Taxation

The tax charge for the six months to 30 June 2021 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 2021. The effective tax rate applied to adjusted profit before tax for the half year is 22.0% (Half year 2020: 22.0%; Full year 2020: 21.8%). 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:

	2021 Half year	2020 Half year	2020 Full year
	£m	£m	£m
Tax charge on adjusted profit before tax	16.2	8.9	36.3
Tax credit on amortisation and impairment of acquisition-related intangible assets and other property, plant and equipment	(1.8)	(6.6)	(18.8)
Tax credit on net transaction-related costs and fair value adjustments	(0.1)	(0.1)	(1.6)
Tax credit on impairment of goodwill	-	(0.9)	(0.9)
Tax charge on profit on disposal of businesses	-	1.1	1.1
Tax charge/(credit) on retranslation of short-term inter-company loan balances	0.3	(0.6)	(0.4)
Tax credit on depreciation of acquisition-related fair value adjustments to property, plant and equipment	-	(0.1)	(0.1)
Tax credit on release of provision on settlement of EU dividends tax claim	(7.0)	-	-
Tax charge on fair value through profit and loss movements on equity investments	-	-	1.8
Tax credit on restructuring costs	(0.9)	(0.7)	(4.5)
Total tax charge	6.7	1.0	12.9

In June 2021, the Group agreed a formal settlement with HMRC to resolve its dispute in relation to the taxation of dividends received from EU based subsidiaries prior to 2009. The outstanding liability agreed with HMRC of £0.3 million of tax and £0.2 million of interest was paid in June 2021. As a result, £8.0 million of provision for current tax liabilities and a deferred tax asset of £1.0 million related to accrued interest liabilities were released to the condensed consolidated income statement in the half year ending 30 June 2021. In addition, £5.1 million of accrued interest liabilities were released to the Condensed Consolidated Income Statement, as disclosed in note 3.

5. Dividends

Amounts recognised and paid as distributions to owners of the Company in the period	2021 Half year	2020 Half year	2020 Full year
	£m	£m	£m
Interim dividend for the year ended 31 December 2020 of 21.9p per share	-	-	25.5
Additional interim dividend for the year ended 31 December 2020 of 43.2p per share	-	-	50.2
Final dividend for the year ended 31 December 2020 of 46.5p per share	53.6	-	-
	53.6	-	75.7

 

An interim 2021 dividend of 23.0p per share has been declared and will be payable on 12 November 2021 to ordinary shareholders on the register at the close of business on 8 October 2021.

6. Earnings/(loss) per share

Basic earnings/(loss) per share amounts are calculated by dividing net profit/(loss) for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period (excluding treasury shares).

Diluted profit/(loss) per share amounts are calculated by dividing the net profit/(loss) 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.

Basic earnings/(loss) per share		2021 Half year	2020 Half year	2020 Full year
Profit/(loss) after tax (£m)		180.3	(66.5)	(17.0)
Weighted average number of shares outstanding (millions)		115.7	116.0	116.1
Basic earnings/(loss) per share (pence)		155.8	(57.3)	(14.6)

 

Diluted earnings/(loss) per share	2021 Half year	2020 Half year	2020 Full year
Profit/(loss) after tax (£m)	180.3	(66.5)	(17.0)
Basic weighted average number of shares outstanding (millions)	115.7	116.0	116.1
Weighted average number of dilutive 5p ordinary shares under option (millions)	0.5	n/a	n/a
Weighted average number of 5p ordinary shares that would have been issued at average market value from proceeds of dilutive share options (millions)	(0.1)	n/a	n/a
Diluted weighted average number of shares outstanding (millions)	116.1	116.0	116.1
Diluted earnings/(loss) per share (pence)	155.3	(57.3)	(14.6)

 

7. Acquisitions

The Group paid £1.3 million during the half year ended 30 June 2021 in respect of deferred consideration on prior years' acquisitions (Half year 2020 £7.1 million; Full year 2020: £8.3 million).

On 9 July 2021, the Group acquired 100% of Concurrent Real-Time ('Concurrent-RT') for a headline net purchase consideration of $166.1 million (£120.9 million) in cash. 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. Concurrent-RT will be integrated into HBK.

The initial accounting for the business combination is incomplete due to the short time between completion of the business combination and 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.

For the 12 months ending 30 June 2021, Concurrent-RT's revenues are expected to be $42 million, with a CAGR of 6% pa since 2018, and an expected EBITDA of $10.4 million.

8. Disposal of businesses and equity investments

On 5 January 2021, the Group disposed of Concept Life Sciences' legacy food testing business based in Cambridge, which formed part of the Malvern Panalytical operating segment. The consideration received was £6.2 million, settled in cash received.

On 2 February 2021, the Group disposed of 100% of its Millbrook business, which formed part of the Industrial Solutions operating segment. The consideration received was £119.2 million, consisting of £71.2 million of cash received, €27.5 million (£25.0 million) of investment units in EZ Ring FPCI (the fund holding the combined UTAC-Millbrook group) and a £23.0 million Vendor Loan Note Receivable.

On 1 March 2021, the Group disposed of 100% of its Brüel & Kjær Vibro business, which formed part of the Industrial Solutions operating segment. The consideration received was £154.7 million, settled in cash received.

On 3 May 2021, the Group disposed of 100% of its ESG business, which formed part of the Industrial Solutions operating segment. The consideration received was £3.3 million, settled by £3.4 million cash received less a £0.1 million estimated completion accounts true-up.

Also included in profit on disposal of businesses is £0.8 million credit relating to prior year disposals. The total profit on disposal of businesses was £117.7 million, calculated as follows:

 

	Brüel & Kjaer Vibro	Millbrook	Other disposals	Total
2021	£m	£m	£m	£m
Net assets disposed
Goodwill	14.9	-	1.1	16.0
Other intangible assets	1.0	0.5	-	1.5
Property, plant and equipment	2.8	108.7	6.2	117.7
Current and deferred tax assets	-	1.8	1.6	3.4
Inventories	3.4	2.9	0.5	6.8
Trade and other receivables	8.2	23.9	2.9	35.0
Cash and cash equivalents	6.2	7.1	1.7	15.0
Trade and other payables	(6.9)	(14.0)	(1.5)	(22.4)
Lease liabilities	(1.1)	(9.8)	(1.1)	(12.0)
Current and deferred tax liabilities	(0.9)	-	-	(0.9)
Provisions	(0.5)	(0.3)	(0.1)	(0.9)
Retirement benefit obligations	(0.6)	-	-	(0.6)
Net assets of disposed businesses	26.5	120.8	11.3	158.6
Consideration received
Settled in cash	154.7	71.2	9.6	235.5
Investment in equity instruments	-	25.0	-	25.0
Vendor Loan Note Receivable	-	23.0	-	23.0
Estimated completion accounts payable	-	-	(0.1)	(0.1)
Total consideration received	154.7	119.2	9.5	283.4
Transaction expenses booked to profit/(loss) on disposal of business	(7.1)	(3.3)	(0.5)	(10.9)
Net consideration from disposal of businesses	147.6	115.9	9.0	272.5
Net assets disposed (including cash and cash equivalents held by disposal group)	(26.5)	(120.8)	(11.3)	(158.6)
Currency translation differences transferred from translation reserve	3.3	0.4	0.1	3.8
Profit/(loss) on disposal of businesses	124.4	(4.5)	(2.2)	117.7
Net proceeds recognised in the Condensed Consolidated  Statement of Cash Flows
Consideration received settled in cash	154.7	71.2	9.6	235.5
Cash and cash equivalents held by disposed businesses	(6.2)	(7.1)	(1.7)	(15.0)
Transaction fees paid	(7.1)	(3.6)	(1.0)	(11.7)
Net proceeds recognised in the Condensed Consolidated Statement of Cash Flows	141.4	60.5	6.9	208.8

8. Disposal of businesses and equity investments (continued)

 

The disposals in the period did not meet the definition of discontinued operations given in IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' and, therefore, no disclosures in relation to discontinued operations were made.

 

The Group received £38.3 million in relation to the stake in the US-listed company where the acquisition by a third-party completed in April 2021 (H1 2020 and FY 2020: nil). The investment balance was valued at £38.3 million at the start of 2021 and therefore there was no 2021 income statement impact from this transaction.

 

9. Cash generated from operations

 

		2021 Half year	2020 Half year	2020 Full year
	Note	£m	£m	£m
Cash flows from operating activities
Profit/(loss) after tax		180.3	(66.5)	(17.0)
Adjustments for:
Taxation charge	4	6.7	1.0	12.9
Profit on disposal of businesses	8	(117.7)	(5.1)	(4.4)
Finance costs	3	3.2	15.0	10.2
Financial income	3	(11.9)	(0.6)	(1.8)
Depreciation and impairment of property, plant and equipment		15.5	33.0	108.9
Amortisation and impairment of intangible assets		14.2	34.9	57.9
Impairment of goodwill		-	58.4	58.4
Transaction-related fair value adjustments		(0.1)	(1.3)	(2.2)
Fair value through profit and loss movements on equity investments		-	-	(23.2)
Profit on disposal of property, plant and equipment and   associated lease liabilities		-	(0.4)	(0.1)
Equity-settled share-based payment expense		3.8	0.2	2.9
Operating cash flow before changes in working capital and provisions		94.0	68.6	202.5
Decrease in trade and other receivables		9.9	48.3	8.0
(Increase)/decrease in inventories		(13.8)	(14.2)	24.4
Increase in trade and other payables		12.0	1.4	24.5
Decrease in provisions and retirement benefits		(5.4)	(4.2)	(4.8)
Cash generated from operations		96.7	99.9	254.6

 

10. Share buyback, treasury shares and employee benefit trust shares

During the half year ended 30 June 2021, 2,537,540 ordinary shares were repurchased and 2,417,148 were cancelled by the Group as part of the £200 million share buyback programme announced on 25 February 2021  (Half year 2020 and Full year 2020: nil), resulting in a cash outflow of £79.7 million (H1 2020 and FY 2020: nil). At 30 June 2021 the Group was irrevocably committed to making a further £18 million of buyback payments and has therefore recognised a liability for this portion of the ongoing buyback programme.

At 30 June 2021, the Group held 4,807,386 treasury shares (Half year 2020: 5,060,339; Full year 2020: 4,934,567). During the period, 127,181 (Half year 2020: 122,027; Full year 2020: 247,799) 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.

 

				30 June 2021
	Level 1 fair value	Level 2 fair value	Level 3 fair value	Carrying amount
	£m	£m	£m	£m
Fair value hierarchy categorisation of financial instruments measured at fair value
Deferred and contingent consideration payable on acquisitions and disposals	-	-	(1.6)	(1.6)
Investment in equity instruments	0.5	-	23.6	24.1
Investment in debt instruments	-	-	23.0	23.0
Forward exchange contract assets	-	1.9	-	1.9
Cash and cash equivalents	-	273.0	-	273.0
Floating rate borrowings and bank overdrafts	-	(0.2)	-	(0.2)
				320.2

There were no movements between the different levels of the fair value hierarchy during the period.

 

The level 3 £23.6 million of investment in equity instruments consists of the investment units in EZ Ring FPCI (the fund holding the combined UTAC-Millbrook group), recognised in the period as part of the sales proceeds from the Millbrook business disposal (see note 8). This investment was recognised at fair value, using the income approach, with the key input being a discounted cash flow.

The level 3 £23.0 million of investment in debt instruments consists of a Vendor Loan Note Receivable received as part of the sales proceeds from the Millbrook business disposal (see note 8). This investment was recognised at fair value by establishing an appropriate market yield. The key inputs used were synthetic credit ratings and market interest rates.

The fair value measurement methodology of other financial instruments remains consistent with the approach disclosed in the Consolidated Financial Statements for the financial year ended 31 December 2020.

 

			30 June 2020
	Level 1 fair value	Level 2 fair value	Level 3 fair value	Carrying amount
	£m	£m	£m	£m
Fair value hierarchy categorisation of financial instruments measured at fair value
Deferred and contingent consideration payable on acquisitions and disposals	-	-	(2.7)	(2.7)
Investment in equity instruments	0.8	-	-	0.8
Forward exchange contract assets	-	1.5	-	1.5
Cash and cash equivalents	-	287.0	-	287.0
Fixed rate borrowings	-	(196.5)	-	(192.7)
Forward exchange contract liabilities	-	(4.1)	-	(4.1)
				89.8

 

			31 December 2020
	Level 1 fair value	Level 2 fair value	Level 3 fair value	Carrying amount
	£m	£m	£m	£m
Fair value hierarchy categorisation of financial instruments measured at fair value
Deferred and contingent consideration payable on acquisitions and disposals	-	-	(3.1)	(3.1)
Financial instruments included in assets held for sale	-	3.7	-	3.7
Financial instruments included in liabilities held for sale	-	(2.2)	-	(2.2)
Investment in equity instruments	39.4	-	-	39.4
Forward exchange contract assets	-	1.9	-	1.9
Cash and cash equivalents (excluding £3.7m classified as assets held for sale)	-	222.2	-	222.2
Floating rate borrowings and bank overdrafts (excluding £2.2m classified as liabilities held for sale)	-	(13.1)	-	(13.1)
Fixed rate borrowings	-	(107.4)	-	(104.5)
Forward exchange contract liabilities	-	(0.1)	-	(0.1)
				144.2

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 better 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 as:

• restructuring costs from significant programmes;

• amortisation and impairment of acquisition-related goodwill and other intangible assets

• impairment of property, plant and equipment;

• bargain purchase on acquisition;

• depreciation of acquisition-related fair value adjustments to property, plant and equipment;

• transaction-related costs, deferred and contingent consideration fair value adjustments;

• profits or losses on termination or disposal of businesses;

• impairment of non-current receivable from joint venture and share of impairment of investment in joint venture;

• unwinding of the discount factor on deferred and contingent consideration;

• unrealised changes in the fair value of financial instruments;

• Interest credit on release of provision on settlement of EU dividends tax claim;

• 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).

In November 2018, the Group announced the implementation of a Group-wide profit improvement programme. The total costs of implementation of this programme are considered to be significant in both nature and amount. On this basis the costs of the implementation of this programme are excluded from adjusted operating profit. Adjusted operating profit (including on a LFL basis) is therefore presented before the impact of the Group profit improvement programme costs.
The ongoing benefits arising from this programme are considered to be part of underlying trading.

LFL measures

The Board reviews and compares current and prior year 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.

To allow a better comparison with 2019 performance, the Group has extended the existing LFL measure for revenue and operating profit to apply to 2019, so that 2021 is retranslated at 2019 foreign exchange rates, adjusted for Group scope changes.

On 31 January 2020, Malvern Panalytical's rheology business was disposed of and, as a result, the segmental LFL adjusted sales and adjusted operating profit for Malvern Panalytical for half year 2020 exclude the trading results of the rheology business.

On 2 February 2021, Industrial Solutions' Millbrook business was disposed of and, as a result, the segmental LFL adjusted sales and adjusted operating profit for Industrial Solutions for half year 2020 exclude the trading results of the Millbrook business for the five-month period from February 2020 to June 2020.

On 1 March 2021, Industrial Solutions' Brüel & Kjaer Vibro business was disposed of and, as a result, the segmental LFL adjusted sales and adjusted operating profit for Industrial Solutions for half year 2020 exclude the trading results of the Brüel & Kjaer Vibro business for the four-month period from March 2020 to June 2020.

On 3 May 2021, Industrial Solutions' ESG business was disposed of and, as a result, the segmental LFL adjusted sales and adjusted operating profit for Industrial Solutions for half year 2020 exclude the trading results of the ESG business for the two-month period from May 2020 to June 2020.

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

1.   2021 Half year LFL adjusted sales versus 2020 Half year LFL adjusted sales

	Malvern  Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year sales by segment	£m	£m	£m	£m	£m
Sales	178.5	188.0	64.3	171.0	601.8
Constant exchange rate adjustment to 2020 half year exchange rates	6.2	6.9	4.9	10.3	28.3
Acquisitions	-	(1.0)	-	-	(1.0)
LFL adjusted sales	184.7	193.9	69.2	181.3	629.1
	Malvern  Panalytical	HBK	Omega	Industrial Solutions	2020 Half year Total
2020 Half year sales by segment	£m	£m	£m	£m	£m
Sales	151.0	179.4	60.9	207.7	599.0
Disposal of businesses	(0.6)	-	-	(45.2)	(45.8)
LFL adjusted sales	150.4	179.4	60.9	162.5	553.2

 

 

2.  2021 Half year LFL adjusted sales versus 2019 Half year LFL adjusted sales

	Malvern  Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year sales by segment	£m	£m	£m	£m	£m
Sales	178.5	188.0	64.3	171.0	601.8
Constant exchange rate adjustment to 2019 half year exchange rates	5.7	5.5	3.8	7.5	22.4
Acquisitions	-	(1.0)	-	-	(1.0)
LFL adjusted sales	184.2	192.5	68.1	178.5	623.2
	Malvern  Panalytical	HBK	Omega	Industrial Solutions	2019 Half year Total
2019 Half year sales by segment	£m	£m	£m	£m	£m
Sales	200.2	193.5	69.3	296.1	759.1
Disposal of businesses	(10.1)	-	-	(111.0)	(121.1)
LFL adjusted sales	190.1	193.5	69.3	185.1	638.0

 

b) Adjusted operating profit, operating margin and adjusted EBITDA

 

1.     2021 Half year LFL adjusted operating profit versus 2020 Half year LFL adjusted operating profit

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year adjusted operating profit
	£m	£m	£m	£m	£m
Statutory operating profit	18.3	15.7	3.0	23.6	60.6
Restructuring costs	1.1	2.9	-	(0.2)	3.8
Net transaction-related costs and fair value adjustments	1.0	1.3	-	1.1	3.4
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.1	-	-	-	0.1
Amortisation and impairment of acquisition-related intangible assets and impairment of other property, plant and equipment	2.5	2.6	3.5	0.3	8.9
Adjusted operating profit	23.0	22.5	6.5	24.8	76.8
Constant exchange rate adjustment to 2020 half year exchange rates	0.9	1.2	0.6	2.9	5.6
Acquisitions	-	-	-	-	-
LFL adjusted operating profit	23.9	23.7	7.1	27.7	82.4

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2020 Half year Total
2020 Half year adjusted operating profit
	£m	£m	£m	£m	£m
Statutory operating profit/(loss)	4.8	10.9	(0.9)	(71.0)	(56.2)
Restructuring costs	-	3.0	-	-	3.0
Net transaction-related costs and fair value adjustments	-	(1.2)	-	3.2	2.0
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.1	-	-	0.3	0.4
Impairment of goodwill	-	-	-	58.4	58.4
Amortisation and impairment of acquisition-related intangible assets and impairment of other property, plant and equipment	3.5	3.7	3.8	25.5	36.5
Adjusted operating profit	8.4	16.4	2.9	16.4	44.1
Disposal of businesses	-	-	-	3.3	3.3
LFL adjusted operating profit	8.4	16.4	2.9	19.7	47.4

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year operating margin	%	%	%	%	%
Statutory operating margin1	10.3	8.4	4.7	13.8	10.1
Adjusted operating margin2	12.9	12.0	10.1	14.5	12.8
LFL adjusted operating margin3	12.9	12.2	10.3	15.3	13.1

 

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2020 Half year Total
2020 Half year operating margin	%	%	%	%	%
Statutory operating margin1	3.2	6.1	(1.5)	(34.2)	(9.4)
Adjusted operating margin2	5.6	9.1	4.8	7.9	7.4
LFL adjusted operating margin3	5.6	9.1	4.8	12.1	8.6

1.  Statutory operating margin is calculated as statutory operating profit/(loss) 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.

 

2.     2021 Half year LFL adjusted operating profit versus 2019 Half year LFL adjusted operating profit

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year adjusted operating profit
	£m	£m	£m	£m	£m
Statutory operating profit	18.3	15.7	3.0	23.6	60.6
Restructuring costs	1.1	2.9	-	(0.2)	3.8
Net transaction-related costs and fair value adjustments	1.0	1.3	-	1.1	3.4
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.1	-	-	-	0.1
Amortisation and impairment of acquisition-related intangible assets and impairment of other property, plant and equipment	2.5	2.6	3.5	0.3	8.9
Adjusted operating profit	23.0	22.5	6.5	24.8	76.8
Constant exchange rate adjustment to 2019 half year exchange rates	0.6	0.8	0.4	1.8	3.6
Acquisitions	-	-	-	-	-
LFL adjusted operating profit	23.6	23.3	6.9	26.6	80.4

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2019 Half year Total
2019 Half year adjusted operating profit
	£m	£m	£m	£m	£m
Statutory operating (loss)/profit	(63.2)	(8.2)	9.6	15.7	(46.1)
Restructuring costs	9.0	7.3	1.8	11.0	29.1
Net transaction-related costs and fair value adjustments	(0.4)	1.9	-	4.8	6.3
Depreciation of acquisition-related fair value adjustments to property, plant and equipment	0.1	-	-	0.3	0.4
Profit on disposal of property	-	-	(5.2)	-	(5.2)
Impairment of goodwill	35.1	-	-	-	35.1
Amortisation and impairment of acquisition-related intangible assets and impairment of other property, plant and equipment	37.9	15.7	3.7	6.6	63.9
Adjusted operating profit	18.5	16.7	9.9	38.4	83.5
Disposal of businesses	(0.1)	-	-	(12.9)	(13.0)
LFL adjusted operating profit	18.4	16.7	9.9	25.5	70.5

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2021 Half year Total
2021 Half year operating margin	%	%	%	%	%
Statutory operating margin1	10.3	8.4	4.7	13.8	10.1
Adjusted operating margin2	12.9	12.0	10.1	14.5	12.8
LFL adjusted operating margin3	12.8	12.1	10.1	14.9	12.9

 

 

	Malvern Panalytical	HBK	Omega	Industrial Solutions	2019 Half year Total
2019 Half year operating margin	%	%	%	%	%
Statutory operating margin1	(31.6)	(4.2)	13.9	5.3	(6.1)
Adjusted operating margin2	9.2	8.6	14.3	13.0	11.0
LFL adjusted operating margin3	9.7	8.6	14.3	13.8	11.1

1.  Statutory operating margin is calculated as statutory operating profit/(loss) 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.

 

 

	2021 Half year	2020 Half year	2020 Full year
Adjusted EBITDA	£m	£m	£m
Statutory operating profit/(loss)	60.6	(56.2)	(23.3)
Depreciation and impairment of owned assets	10.3	18.9	86.7
Depreciation and impairment of right-of-use assets	5.2	14.1	22.2
Amortisation and impairment of intangible assets	14.2	34.9	57.9
Impairment of goodwill	-	58.4	58.4
EBITDA	90.3	70.1	201.9
Restructuring costs excluding impairment of owned and right-of-use property, plant and equipment and intangible assets	3.8	3.0	13.0
Net transaction-related costs and fair value adjustments	3.4	2.0	19.4
Adjusted EBITDA	97.5	75.1	234.3

 

EBITDA is calculated as statutory operating profit/(loss) before depreciation, amortisation and impairment of property, plant and equipment, intangible assets and goodwill. Adjusted EBITDA is calculated as EBITDA excluding other adjusting items as defined previously. This measure is used for the purpose of assessing capital management and covenant compliance and is reported to the Group Executive Committee.

c) Adjusted net finance costs

			2021 Half year	2020 Half year	2020 Full year
			£m	£m	£m
Statutory net finance costs			8.7	(14.4)	(8.4)
Net (gain)/loss on retranslation of short-term inter-company loan balances			(6.7)	10.4	0.8
Interest credit on release of provision on settlement of EU dividends tax claim			(5.1)	-	-
Unwinding of discount factor on deferred and contingent consideration			-	0.3	0.4
Adjusted net finance costs			(3.1)	(3.7)	(7.2)

 

 

d) Adjusted profit before taxation

			2021 Half year	2020 Half year	2020 Full year
			£m	£m	£m
Adjusted operating profit			76.8	44.1	173.6
Adjusted net finance costs			(3.1)	(3.7)	(7.2)
Adjusted profit before taxation			73.7	40.4	166.4

 

e) Adjusted earnings per share

		2021 Half year	2020 Half year	2020 Full year
Adjusted earnings		£m	£m	£m
Statutory profit/(loss) after tax		180.3	(66.5)	(17.0)
Adjusted for:
Restructuring costs		3.8	3.0	19.5
Net transaction-related costs and fair value adjustments		3.4	2.0	19.4
Depreciation of acquisition-related fair value adjustments to property, plant and equipment		0.1	0.4	0.7
Impairment of goodwill		-	58.4	58.4
Amortisation and impairment of acquisition-related intangible assets and impairment of other property, plant and equipment		8.9	36.5	98.9
Fair value through profit and loss movements on equity investments		-	-	(23.2)
Profit on disposal of businesses		(117.7)	(5.1)	(4.4)
Interest credit on release of provision on settlement of EU dividends tax claim		(5.1)	-	-
Net (gain)/loss on retranslation of short-term inter-company loan balances		(6.7)	10.4	0.8
Unwinding of discount factor on deferred and contingent consideration		-	0.3	0.4
Tax effect of the above and other non-recurring items		(9.5)	(7.9)	(23.4)
Adjusted earnings		57.5	31.5	130.1

 

Adjusted earnings per share			2021 Half year	2020 Half year	2020 Full year
Weighted average number of shares outstanding (millions)			115.7	116.0	116.1
Adjusted earnings per share (pence)			49.7	27.2	112.1

Basic earnings/(loss) per share in accordance with IAS 33 'Earnings Per Share' are disclosed in Note 6.

Financial position measures

f) Net cash

	2021 Half year	2020 Half year	2020 Full year
	£m	£m	£m
Bank overdrafts	(0.2)	-	(13.1)
Bank overdrafts included in liabilities held for sale	-	-	(2.2)
Bank loans unsecured		(192.7)	(104.5)
Total borrowings	(0.2)	(192.7)	(119.8)
Cash and cash equivalents included in current assets	-	-	222.2
Cash and cash equivalents	273.0	287.0	3.7
Net cash	272.8	94.3	106.1

 

		2021	2020	2020
		Half year	Half year	Full year
		£m	£m	£m
Reconciliation of changes in cash and cash equivalents to movements in net cash
Net increase/(decrease) in cash and cash equivalents		63.6	71.0	(2.9)
Proceeds from borrowings		-	-	(0.3)
Repayment of borrowings		99.8	-	86.4
Effect of foreign exchange rate changes		3.3	(10.2)	(10.6)
Movement in net cash		166.7	60.8	72.6
Net cash at beginning of year		106.1	33.5	33.5
Net cash at end of period		272.8	94.3	106.1

Net cash excludes lease liabilities arising under IFRS 16 as this aligns with the definition of net cash under the Group's bank covenants.

 

Cash flow measures

g) Adjusted cash flow

	2021 Half year	2020 Half year	2020 Full year
	£m	£m	£m
Cash generated from operations	96.7	99.9	254.6
Net income taxes paid	(17.2)	(11.5)	(28.6)
Net cash inflow from operating activities	79.5	88.4	226.0
Transaction-related costs paid	9.0	3.9	13.6
Restructuring cash outflow	6.8	8.2	15.1
Net income taxes paid	17.2	11.5	28.6
Purchase of property, plant and equipment and intangible assets	(19.1)	(23.4)	(43.1)
Proceeds from government grants related to purchase of property, plant and equipment and intangible assets	-	0.2	0.2
Proceeds from disposal of property, plant and equipment and software	-	-	4.1
Adjusted cash flow	93.4	88.8	244.5
Adjusted cash flow conversion1	122%	201%	141%

1. Adjusted cash flow conversion is calculated as adjusted cash flow as a proportion of adjusted operating profit.

Other measures

h) Return on gross capital employed ('ROGCE')

The return on gross capital employed is calculated as adjusted operating profit 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 2021	30 June 2020	30 June 2019
	£m	£m	£m
Net (cash)/debt (see APM f)	(272.8)	(94.3)	312.6
Accumulated impairment losses on goodwill	156.7	247.3	185.4
Accumulated amortisation and impairment of acquisition-related intangible assets	362.7	415.3	371.0
Shareholders' equity	1,243.1	1,313.3	1,133.8
Gross capital employed	1,489.7	1,881.6	2,002.8
Average gross capital employed (current and prior period)1	1,685.7	1,942.2
Adjusted operating profit for six months to June 2021 and 2020  (see APM b)	76.8	44.1
Adjusted operating profit for six months to December 2020 and 2019	129.5	174.6
Total adjusted operating profit for last 12 months	206.3	218.7
Return on gross capital employed	12.2%	11.3%

1. Average gross capital employed is calculated as current period gross capital employed divided by comparative period gross capital employed.

i) Net transaction-related costs and fair value adjustments

Net transaction-related costs and fair value adjustments comprise transaction costs of £3.5 million
(Half year 2020: £3.3 million; Full year 2020: £21.6 million) that have been recognised in the Condensed Consolidated Income Statement under IFRS 3 (Revised) 'Business Combinations' and other fair value adjustments relating to deferred and contingent consideration comprising a credit of £0.1 million (Half year 2020: £1.3 million; Full year 2020: £2.2 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 £9.0 million (Half year 2020: £3.9 million; Full year 2020: £13.6 million) have been excluded from the adjusted cash flow.

 

Dividend timetable - H1 2021 interim dividend

 

Event	Date - 2021
Ex-dividend date	7 October
Record date	8 October
Payment date	12 November
Expected DRIP purchase settlement	16 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.