REG - Spectris PLC - 2021 full year results
24/02/2022 07:00
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RNS Number : 6340C Spectris PLC 24 February 2022
2021 full year results
24 February 2022 - Spectris plc (SXS: LSE), the expert in providing insight
through precision measurement, announces full year results for the year ended
31 December 2021.
• Strong demand for our products and services
• 2021 orders 19% higher on a like-for-like ('LFL')(1) basis with strong
customer demand continuing
• Record order book and strong start to 2022 provides business momentum
• Ongoing supply chain challenges, expected to start to ease in the second
half of 2022
• A more focused, higher quality, more profitable business with a strong
balance sheet
• Divestments of Millbrook, Brüel & Kjær Vibro, ESG Solutions and
NDC Technologies completed
• Customer offer strengthened by acquisitions at HBK and Malvern
Panalytical
• Improved adjusted operating margin(1) of 16.2% reflects enhanced quality
of the Group, due to disposals of lower margin businesses; statutory operating
margin 12.0%
• Spectris Business System delivering productivity improvements,
mitigating inflationary pressures
• Year-end net cash of £167.8 million provides M&A optionality;
robust pipeline of opportunities
• Good financial performance
• 10% LFL(1) sales growth
• Statutory reported sales down by 3%, due to divestments and foreign
exchange movements
• Supply chain and COVID challenges constrained sales growth in fourth
quarter
• Adjusted operating profit(1) £209.4 million, statutory operating profit
£154.9 million
• Strong adjusted cashflow conversion(1) of 96%
• Dividend per share increase of 5%, continuing 32-year track record of
dividend growth
• Committed to being a leading sustainable business
• Ambitious Net Zero targets validated by the Science Based Targets
initiative and delivery plans underway
• Spectris Foundation established to promote STEM education; first grant
awarded
• Aligning our strategy with key sustainability themes
2021 2020 Change Like-for-like change vs 20201 Like-for-like change vs 20191
Adjusted1
Sales (£m) 1,292.0 1,336.2 (3%) 10% (2%)
Operating profit (£m) 209.4 173.6 21% 29% (1%)
Operating margin (%) 16.2% 13.0% 320bps 240bps 20bps
Profit before tax (£m) 204.3 166.4 23%
Earnings per share (pence) 140.7p 112.1p 26%
Adjusted cash flow conversion (%) 96% 141% (45pps)
Return on gross capital employed (%)2 13.2% 9.9%2 330bps
Statutory
Sales (£m) 1,292.0 1,336.2 (3%)
Operating profit/(loss) (£m) 154.9 (23.3) n/a
Operating margin (%) 12.0% (1.7%) 1,370bps
Profit/(loss) before tax (£m) 388.6 (4.1) n/a
Cash generated from operations 191.6 254.6 (25%)
Basic earnings/(loss) per share (pence) 305.1p (14.6p) n/a
Dividend per share (pence) 71.8p 68.4p 5%
1. Alternative performance measures ('APMs') are used consistently
throughout this press release and are referred to as 'adjusted' or
'like-for-like' ('LFL'). These are defined in full and reconciled to the
reported statutory measures in the appendix.
2. 2020 return on gross capital employed has been restated for the impact
of the Group's change in accounting policy for Software as a Service ('SaaS')
arrangements. Please refer to Note 1.
Commenting on the results, Andrew Heath, Chief Executive, said: "We delivered
a good financial performance in 2021 and have made significant progress in
executing our Strategy for Profitable Growth, thanks to the hard work of the
whole Spectris team. Demand for our products and services has been strong, and
although supply chain and COVID challenges somewhat constrained our ability to
maximise sales in the fourth quarter, we entered 2022 with a record order
book, and a strong start to the year. This gives us confidence in our ability
to deliver continued good sales growth this year, noting the ongoing supply
chain challenges. We are making good progress in returning the Group to its
previous adjusted operating margin highs of 18%, and ultimately exceeding them
over the longer term.
I am really pleased with the progress made in executing our strategy. We are
creating a Spectris that is more focused, higher quality, more profitable and
more resilient, and supported by a very strong balance sheet. We have
demonstrated our ability to reduce costs responsibly, drive organic growth,
expand margins, allocate capital with discipline for attractive returns, and
have made several synergistic acquisitions to enhance our customer offering.
Looking forward, we will build on this progress, investing in our businesses
to take advantage of new growth opportunities, strongly aligned to our purpose
and to our focus on sustainability. We will continue to aim high and be bold
in our pursuit of enhancing value for all our stakeholders."
Contacts:
Spectris plc
Siobhán Andrews
Head of Corporate Affairs
+44 20 4551 4549/+44 7920 230093
Tulchan Communications
Martin Robinson/Giles Kernick
+44 20 7353 4200
Conference call
A webcast and conference call for analysts and investors will be hosted by
Andrew Heath,
Chief Executive, and Derek Harding, Chief Financial Officer, at 08.00 today to
discuss this statement.
To access the call, please dial +44 (0) 20 3936 2999/0800 640 6441 - Pin code:
391341. Or for replay, please dial +44 (0) 20 3936 3001 - Pin code: 175209#.
Questions will also be taken via the webcast at www.spectris.com.
Copies of this press release are available to the public from the Company's
website at www.spectris.com.
About Spectris
Spectris' global group of businesses are focused on delivering value beyond
measure for all our stakeholders. We target global, attractive and sustainable
markets, where growth and high returns are supported by long-term drivers.
Precision is at the heart of what we do. We provide customers with expert
insight through our advanced instruments and test equipment, augmented by the
power of our software and services. This equips customers with the ability to
reduce time to market, improve processes, quality and yield. In this way,
Spectris know-how creates value for our wider society, as our customers
design, develop, test and manufacture their products to make the world a
cleaner, healthier and more productive place. Headquartered in London, United
Kingdom, the Company employs approximately 7,600 people located in more than
30 countries. For more information, visit www.spectris.com.
Chief Executive's review
Delivery on the Strategy for Profitable Growth
Firstly, I would like to say thank you to every Spectris colleague reading
this, for everything that you gave in 2021 to deliver the performance
described in these pages. In 2022, we will continue to have to navigate supply
chain and COVID-related challenges but we expect these to start to ease in the
second half and I am very optimistic about the future for our business. This
optimism is rooted in the commitment and dedication that I have seen from my
colleagues right across the Group, both before and during the pandemic. My
sincere thanks and admiration go out to you all.
We delivered good progress in our financial and operational performance and
worked diligently to establish Spectris as a purpose-led, growth business,
delivering value beyond measure for all of our stakeholders. After
successfully managing the onset of the COVID-19 pandemic in 2020 through our
balanced and socially responsible approach, our businesses and employees have
demonstrated how well they have adapted to the changes in their operating
environments.
Demand for our products and services recovered strongly in 2021, and we enter
2022 with a record order book across the Group. Supply chain challenges
increased through the year and constrained our ability to translate this very
strong order intake to revenue in the fourth quarter, such that we were at the
lower end of our organic growth guidance. However, the order book strength
provides good momentum coming into 2022 and confidence for the growth outlook
for our businesses. Indeed, orders and sales growth were both strong in
January.
On a LFL basis, sales for the Group recovered to within 2% of 2019 levels and
the improved operating margin demonstrates both the enhanced quality of the
Group and the highly valued and important products and services we provide our
customers. We are making good progress on our strategic evolution, having
completed the disposal programme identified in 2019, and executing on our
profit improvement programme. We are on track to returning Spectris to its
previous margin highs, and through the deployment of our Spectris Business
System ('SBS'), we look to enhance margins further beyond this level. With the
improvement in our performance and supportive end markets, to underpin future
growth and improvements in operating efficiency to deliver this margin
enhancement, we will be further increasing our R&D spend and investing in
new ERP systems at both Malvern Panalytical and HBK.
Purpose led, sustainable growth
One of the strengths of Spectris has always been to foster entrepreneurial
spirit and support the growth aspirations of our different businesses. At the
same time, we have placed great emphasis on being a purpose-led business,
focused on delivering value beyond measure for all our stakeholders. This
means harnessing the power of precision measurement to equip our customers to
make the world cleaner, healthier and more productive. I believe that by truly
living our purpose we can optimise our performance and build the best possible
long-term relationship with our customers, and all our stakeholders. Intrinsic
to this is our sustainability strategy, which is focused on clear commitments
to create a positive and lasting impact. I am pleased with our progress on
delivering these priorities in 2021 as we set out in more detail below.
The COVID-19 pandemic has served to underscore the importance of a strong
culture, which has helped us to navigate the many business challenges of this
period. It has also helped us to come together in a much broader sense, in
protecting the health, safety and wellbeing of our colleagues, their families,
and the wider communities in which we operate. For the planet, we established
clear and ambitious Net Zero targets that have been validated by the Science
Based Targets initiative ('SBTi').
It has been pleasing to see how our people across the Group have united behind
delivering our ambitious Net Zero plans. For our people, we have focused on
building on the lessons learned during the pandemic to further our mental
health and wellbeing provision. Talent development, diversity and inclusion
are also key areas of focus and I look forward to strengthening these
initiatives in 2022. In support of our communities, we have established a
science, technology, engineering and maths ('STEM') strategy and I was
delighted that the Spectris Foundation has now made its first donation to STEM
learning ENTHUSE Partnerships for a two-year STEM Learning project.
Our aspiration is to be a leading sustainable business, setting the benchmark
among our peers for the sustainability of our operations and our contribution
to addressing global environmental challenges. In turn, this is how we will
deliver enhanced returns for our shareholders. In 2022, we will look beyond
the Strategy for Profitable Growth to the next phase of our development, and
sustainability will be a key focus. Spectris has significant opportunities for
future growth aligned to key sustainability themes, and with the right
operational and financial support, united behind a clear purpose and our
shared values, the future for the Group is very exciting.
Delivered a good financial performance
We delivered sales growth of 10% in 2021, on a like-for-like ('LFL') basis and
adjusted operating profit of £209.4 million (2020: £173.6 million) increased
29% on a LFL basis. This resulted in an adjusted operating margin of 16.2%
(2020: 13.0%), reflecting the growth in sales, measured cost control and the
higher margin mix of the portfolio following divestments. The return to
growth, alongside operational improvements achieved in the last two years and
the underlying quality of the retained businesses, has materially improved the
quality of the Group. We are broadly back to 2019 levels and have improved our
operating margin.
On a statutory basis, reported sales declined 3%, operating profit was £154.9
million (2020 loss:
£23.3 million) and operating margin was 12.0% (2020: (1.7%)), with 2020
results reflecting the impairments in businesses disposed of in 2021,
predominantly Millbrook.
Our cash conversion remains strong and, in combination with disposal proceeds,
resulted in a net cash position at the year-end of £167.8 million. The
strength of our balance sheet provides considerable optionality for our
M&A ambitions, and we have been further building our pipeline of
opportunities.
The Board is proposing to pay a final dividend of 48.8 pence per share, 5%
growth year-on-year. When combined with the interim dividend of 23.0 pence per
share, this gives a total dividend of 71.8 pence per share for the year. This
is in line with our underlying policy of making progressive dividend payments
based upon affordability and sustainability.
Delivering LFL sales growth, but constrained by supply chain challenges in the
fourth quarter
We delivered good LFL sales growth in 2021. The introduction of new and
enhanced products across our businesses helped deliver market share gains, as
we outperformed the economic recovery across our end markets. After a strong
first half, sales growth in the second half eased, reflecting both the tougher
year-on-year comparator and the impact of supply chain challenges,
particularly in the fourth quarter. These challenges and the on-set of the
Omicron wave in December constrained our ability to convert the order book to
revenue, resulting in some order fulfilment being pushed into 2022.
Consequently, full-year LFL sales growth was 10%. Although this was a
frustrating end to the year, the continued very strong demand for our products
and services, as evidenced by our record order book, has positioned us well
coming into 2022.
Sales by geography and business - LFL growth vs 2020
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
North America (2%) 20% 11% 6% 8% Malvern Panalytical 20% 26% 10% (1%) 11%
Europe (1%) 21% 9% (4%) 5% HBK (3%) 20% 16% 3% 8%
Asia 24% 25% 15% 5% 16% Omega 1% 28% 11% 19% 14%
Rest of the World (15%) 48% 4% 1% 6% Industrial Solutions 2% 22% 9% 0% 8%
Total sales 5% 23% 12% 2% 10% 5% 23% 12% 2% 10%
Total orders 5% 28% 31% 14% 19% 5% 28% 31% 14% 19%
Our businesses are all growing strongly, both above GDP and the market,
supported by our strategic growth initiatives, with the introduction of new
products and services. Malvern Panalytical has seen a strong rebound in
demand, particularly in pharmaceutical and in Asia. All of HBK's main end
markers have now returned to growth, with automotive recovering well in the
second half of the year. Omega has delivered growth above that of US
industrial production, benefiting from new management and the improved focus.
The Industrial Solutions Division ('ISD') has seen strong demand from growth
in pharmaceutical and semiconductor market investment. Asia posted the
strongest regional growth and by end market, semiconductor, machine
manufacturing and pharmaceutical were the strongest performers.
Transformation of Spectris business portfolio
Back in 2019, we set out to simplify and bring more focus to Spectris. At that
time, the Group comprised 13 operating companies and lacked clarity in its
strategic priorities and route to value creation. During 2021, we completed
four further divestments that were contemplated as part of our Strategy for
Profitable Growth. In total, the divestments ‒ BTG, Brüel & Kjær
Vibro, ESG Solutions, Millbrook and NDC Technologies ‒ generated £685
million of proceeds, with attractive valuations, further strengthening our
balance sheet and providing us with ample funds to grow and develop our
businesses, both organically and by making targeted and disciplined
acquisitions.
Scalable business for organic revenue growth
Spectris today is comprised of three scale, platform businesses in Malvern
Panalytical, HBK and Omega, and a more focused Industrial Solutions Division,
now centred around high precision in-line sensing and monitoring solutions,
with a much-improved financial profile.
Our businesses are leaders in their fields, with strong brands, technology,
products and services. They are aligned to end markets with attractive,
long-term growth profiles. As a more focused, less complex, asset-light,
highly cash generative business, we see significant opportunities to increase
scale, both organically and through M&A, and further grow revenue and
margins. First and foremost, this means investing in their organic growth
strategies to drive market share. A large part of this has been our emphasis,
across the Group, on innovation for growth - refreshing our product portfolios
and focusing our R&D investments on more impactful product launches in
areas where we see compelling growth opportunities.
Ensuring we continue to advance and evolve our product and service offering is
central to our strategy to drive sustainable organic growth, and we have
significantly strengthened our approach to R&D. We also look to complement
our capabilities through M&A and continually seek out opportunities, from
large scale acquisitions, through bolt-ons, to early-life technologies, as
well as collaborations with third parties.
We have made a number of acquisitions which enhance our customer offering:
· HBK acquired Concurrent Real-Time ('Concurrent-RT'), a leading
developer and supplier of real-time operating systems for high performance
simulation applications. Combined with VI-grade's leading position in virtual
testing, Concurrent-RT strengthens HBK's simulation offering and is a further
step in building a position of scale in this high growth and exciting market,
and also build a strong offering in the nascent, but rapidly developing,
hardware-in-the-loop market;
· HBK also notably advanced its software strategy with a licence and
asset purchase agreement with VIMANA. The transaction brings a best-in-class
IoT and data management platform which HBK will use to create a new open
architecture connectivity solution for its test and measurement customers;
· Malvern Panalytical acquired Creoptix AG in January 2022. Creoptix
develops and manufactures analytic tools for kinetics measurements used in
drug research and development. The acquisition strengthens Malvern
Panalytical's pharmaceutical strategy in the affinity (drug binding) area
where Creoptix's superior technology, in terms of speed and sensitivity, can
be scaled up through Malvern Panalytical's extensive customer base.
Higher quality business portfolio supports margin expansion
The Group delivered an adjusted operating margin of 16.2% for 2021, reflecting
the operational improvements that we have made in recent years, as well as the
higher quality of the portfolio today. We are well on our way to returning
Spectris to its previous margin highs, supported by our strategic growth
initiatives and programme of continuous improvement through the deployment of
our SBS.
We remain confident in our ability to enhance margins further, consistent with
the highly specialised, premium products and services that we provide across
the Group. As we invest to support future growth, the actions that we have
taken, and will take, to reduce the cost base will strongly underpin operating
leverage.
We continue to be able to demonstrate pricing power, with new product launches
also contributing to a net improvement in gross margin last year. Our ethos of
continuous improvement and efficiency enhancement supported by implementation
of the SBS tools, helps mitigate these cost pressures and supports us in
continuing to drive margin expansion.
Focus on cashflow generation and enhanced returns
The final cornerstone of our Strategy for Profitable Growth has been to
deliver enhanced returns and cashflow generation. Having returned the Group to
an asset light model, we delivered strong adjusted cashflow conversion at 96%
in 2021 and our return on gross capital employed improved to 13.2%. The full
year dividend growth of 5% continues our long track record of consecutive
dividend growth which now extends to 32 years. Since 2018 alone, we have
returned £427 million to shareholders through dividends and the share buyback
and we remain committed to our sustainable dividend growth policy.
The combination of disposal proceeds and the cash generated from our
continuing businesses, has further strengthened the Group's balance sheet,
providing us with significant scope to invest in M&A, and we have been
further building our pipeline of opportunities on this front. In 2021, we
invested
£146 million on acquisitions and also completed a £200 million share buyback
programme. As we look forward, we will maintain a disciplined approach to
capital allocation and generating enhanced returns.
Leadership and Executive Committee changes
Since we launched the Strategy for Profitable Growth, we have assembled a
terrific leadership team.
I was very happy to welcome Mary Beth Siddons in February as President of ISD.
Mary Beth has had a busy start and I am very pleased to see the work being
done to move ISD towards a more cohesive, exciting future based on high
precision in-line sensing and monitoring. It is testament to the quality of
our team that in November, Joe Vorih, President of HBK, was asked to join
Genuit plc as its Chief Executive Officer. Joe has been a great colleague and
we wish him every success. I am delighted that we have replaced him internally
and welcome Ben Bryson, who was previously Chief Operating Officer, HBK, as
Joe's replacement.
Supporting and developing our people
Our people are at the heart of our business and this year we have focused on
building on many of the lessons learned during the pandemic to further our
mental health and wellbeing offering. A particular highlight of the year for
me was our celebration of World Mental Health Day with 14 globally accessible
mental health events over a week, with content tailored to the different
challenges facing our employees as homeworkers, parents, carers and leaders;
all part of our commitment to building a highly supportive Group-wide culture.
We also continue to leverage technology to bring our people together. The
Executive Committee met virtually with the global leadership community on a
monthly basis through last year to discuss shared challenges and build
solutions. Spending time together on key topics such as lean, diversity and
inclusion and talent development has supported open and progressive dialogue
and strengthened the bonds across the leadership team. While maintaining our
decentralised business model, sharing common challenges and solutions is
driving more rapid progress across the Group. In 2021, we undertook our first
Group-wide global employee engagement survey, using the Gallup Q12
methodology, to help us drive employee engagement in a consolidated and
consistent way using a common measure and toolkit across the Group. Our
first-time results highlighted many positives, but also areas where we need to
improve and develop our talent more effectively. A key focus will continue to
be to build management skills at all levels. We have made significant progress
this year on talent development with the launch of the HBK Leadership 101
programme and the finalisation of the Spectris-wide Ascend leadership
programme which launches in 2022.
STEM strategy underway
The attraction, retention and development of talented technical individuals
and partners is a core growth enabler for the Group. Our STEM strategy is
focused on ensuring that the Group is both an employer and partner of choice.
The launch of the Spectris Foundation in 2021 provides an exciting opportunity
to make a genuine difference to the STEM provision in the communities where
the Group operates. The Foundation has been established to champion equal
opportunity for those with a passion for technology and a desire to engineer a
better world. We are working with external institutes, organisations and
charities to inform our funding strategy with a global community of employee
volunteers formed to assess funding proposals. The Foundation has now made its
first grant ‒
a £100,000 donation to STEM Learning ENTHUSE Partnerships for a two-year STEM
Learning project, funding five partnerships in disadvantaged communities
across the UK. The project will provide comprehensive support to teacher
development, improving resources, creating STEM ambassadors, a mentoring
programme and opportunities for teachers and students to attend STEM
placements. Beyond the Foundation, we have formed a successful partnership
with the Young Professionals Network with Spectris employees sharing their
knowledge and experience to date with over 4,000 students and parents looking
at careers in STEM.
Sustainability focus embedded into our strategy and business model
Following the approval by the Board, in October 2020, of our Group-wide
sustainability strategy, over the past year we have pressed forward with its
roll-out and implementation, tying together all the various strands of
sustainability work from across our businesses and embedding the strategy into
our corporate DNA. Our aspiration is to be a leader in this field, setting the
benchmark among our peers for the sustainability of our operations and our
contribution to addressing global environmental challenges.
Our opportunity is wholly consistent with our purpose: to harness the power of
precision measurement to equip our customers to make the world cleaner,
healthier and more productive. Our sustainability strategy will continue to
differentiate Spectris for customers as we help them address complex
challenges in ways that deliver better outcomes for them and for the planet.
We are playing an important role in many sectors that are transforming rapidly
- such as pharmaceutical, energy, transportation - and where customers want to
work with partners that have the capabilities and the capacity for innovation
to help them address these new challenges.
During 2021, we conducted an in-depth review of our operations and assessed
our activities and growth prospects across a range of key sustainability
themes: the transformation of mobility, the energy transition, responsibility
in sourcing and production, the transition to the circular economy,
environmental protection, the evolution of food production and precision
agriculture, and advancements in health. Spectris has advantaged positions in
these areas today and we see exciting opportunities to accelerate our growth
along these avenues over the coming years, both in our organic development and
in targeted M&A activity, closely aligned to our purpose. This will be a
key focus for the business and something we will be talking more about this
year as we articulate the next chapter for the business that will take us
beyond the Strategy for Profitable Growth.
Ambitious Net Zero targets validated by SBTi
In November, COP26 was a key moment in the effort to align the world's nations
behind plans to address the climate crisis and recognising the importance of
improving the sustainability of our own operations. In July, we announced our
own Net Zero ambition with our targets and roadmap subsequently validated by
the SBTi against a 1.5ºC warming scenario. Through this ambition, we have
clearly demonstrated our commitment to taking a leading role in minimising the
emissions footprint of our own activity, and the activity across our value
chain.
Net Zero at Spectris encompasses our entire value chain, including all Scope
1, 2 and 3 emissions, covering the electricity used in our manufacturing
processes to goods and services purchased, as well as the efficiency of our
products. We have committed to reducing absolute Scope 1 and 2 emissions by
85% by 2030 from 2020 levels and achieving Net Zero by 2030; and to reduce
absolute Scope 3 emissions by 42% by 2030 from 2020 levels and achieving Net
Zero by 2040. We have a clear roadmap to achieve these targets and I have been
really encouraged by the employee engagement that has accompanied the setting
of our Net Zero ambition, and we are harnessing this engagement to make early
progress against our roadmap.
Beyond this ambition, we recognise that the greatest difference Spectris can
make to a Net Zero world is through our products and solutions. Accelerating
our focus on product efficiency and product circularity is core to our
strategy and something that we will be showcasing more in the months and years
to come. Another key focus this year has been the development of a clear
understanding of the potential risks and opportunities present for the Group
in climate change in light of the detailed climate scenarios analysis
undertaken in support of the Task Force on Climate-related Financial
Disclosures ('TCFD'). It is clear that we have a significant opportunity to
further develop our product and service offering to support the many
challenges our customers will face due to climate change and this opportunity
is central to our strategy. Beyond this opportunity, the risks presented
through climate change, particularly around the transition to a low carbon
economy will require active management and this will be the subject of ongoing
focus for the Group. Recognising the importance of both the risk and the
opportunity present, climate change has been elevated to become a Group
Principal Risk.
Looking forward to 2022 with confidence, opportunity and momentum
We delivered a good financial performance in 2021 and have made significant
progress in executing our Strategy for Profitable Growth, thanks to the hard
work of the whole Spectris team. Demand for our products and services has been
strong, and although supply chain and COVID challenges somewhat constrained
our ability to maximise sales in the fourth quarter, we entered 2022 with a
record order book, and a strong start to the year. This gives us confidence in
our ability to deliver continued good sales growth this year, noting the
ongoing supply chain challenges. We are making good progress in returning the
Group to its previous adjusted operating margin highs of 18%, and ultimately
exceeding them over the longer term.
I am really pleased with the progress made in executing our strategy. We are
creating a Spectris that is more focused, higher quality, more profitable and
more resilient, and supported by a very strong balance sheet. We have
demonstrated our ability to reduce costs responsibly, drive organic growth,
expand margins, allocate capital with discipline for attractive returns, and
have made several synergistic acquisitions to enhance our customer offering.
Looking forward, we will build on this progress, investing in our businesses
to take advantage of new growth opportunities, strongly aligned to our purpose
and to our focus on sustainability. We will continue to aim high and be bold
in our pursuit of enhancing value for all our stakeholders.
Andrew Heath
Chief Executive
Financial review
Financial performance
Statutory reported sales decreased by 3% or £44.2 million to £1,292.0
million (2020: £1,336.2 million).
LFL sales increased by £117.9 million (10%), with the impact of disposals,
net of acquisitions, reducing sales by £107.5 million ((8%)) and foreign
exchange movements reducing sales by £54.6 million ((5%)).
The statutory operating profit was £154.9 million, an increase of £178.2
million compared to the 2020 statutory operating loss of £23.3 million.
Statutory operating margins of 12% were 1,370bps higher than 2020 ((1.7%)).
The improved profit results from a £2.4 million volume and price driven gross
profit increase and a £175.8 million decrease in SG&A expenses. 2020
included £125.9 million of Millbrook related impairments, there are no
impairments in 2021.
Restructuring costs in the year were £10.2 million, consisting of £8.8
million of employee-related costs, including redundancy and related costs, and
£1.4 million of other costs.
Net transaction-related costs and fair value adjustments were £19.5 million
including the
£15.0 million donation to the Spectris Foundation.
In April 2021, a new IFRIC interpretation was issued relating to the
capitalisation of costs of configuring or customising application software
under 'Software as a Service' ('SaaS') arrangements. As a result, the Group
has amended its accounting policy and identified SaaS arrangements where it
does not have control of the software and has derecognised the intangible
assets previously capitalised and recognised the expense within the
Consolidated Income Statement. To ensure a consistent understanding of trading
performance, the Group has determined that material SaaS projects which would
have previously been capitalised will now be excluded from adjusted operating
profit as a new alternative performance measure line 'Configuration and
customisation costs carried out by third parties on material SaaS projects.
These projects incurred a net P&L impact of £5.2 million in the year.
The Group incurred £19.4 million of ongoing amortisation of
acquisition-related intangible assets in the year.
2021 2020
£m £m
Statutory operating profit/(loss) 154.9 (23.3)
Restructuring costs 10.2 19.5
Net transaction-related costs and fair value adjustments 19.5 19.4
Depreciation of acquisition-related fair value adjustments to property, plant 0.2
and equipment
0.7
Configuration and customisation costs carried out by third parties on material
SaaS projects 5.2
-
Impairment of goodwill - 58.4
Amortisation and impairment of acquisition-related intangible assets and 19.4
impairment of other property, plant and equipment
98.9
Adjusted operating profit 209.4 173.6
Adjusted operating profit increased by 21% or £35.8 million to £209.4
million on a reported basis
(2020: £173.6 million). LFL adjusted operating profit increased by £48.3
million (29%), with the impact of disposals, net of acquisitions, reducing
adjusted operating profit by £1.6 million ((1%)), and foreign exchange
movements reducing adjusted operating profit by £10.9m ((6%)).
Adjusted operating margins increased by 320bps, with LFL adjusted operating
margins up 240bps compared to 2020. The improvement in the LFL operating
margin was due to a 50bps increase in LFL gross margins at 57.1% (2020:
56.6%), reflecting the incremental volume and favourable pricing offsetting
inflationary cost pressures. There was an expected 4.8% increase in LFL
overheads, with the reversal of certain temporary savings, such as a net £9
million prior year COVID-19 overseas government subsidies, investments for
growth, and salary inflation, impacting the cost base.
Investment in our R&D programmes amounted to £87.0 million or 6.7% of
sales (2020: £92.0 million or 6.9% of sales). R&D investment has
increased by £2.1 million (2.4%) on a like-for-like basis.
Statutory profit before tax of £388.6 million (2020: £4.1 million loss
before tax) is calculated after a
£226.5 million profit on disposal of businesses, which predominantly arose on
the disposal of
Brüel & Kjær Vibro in the first half of the year and NDC Technologies in
early November, and a net finance credit of £7.2 million (2020: £8.4 million
charge), which includes £7.2 million foreign exchange gains (2020: £0.8
million charge) and a £5.1 million interest credit on release of a provision
on settlement of an EU dividends tax claim.
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 million of provision for current tax liabilities, a £5.1 million
accrued interest liability and a deferred tax asset of
£1 million related to accrued interest liabilities were released to the
Consolidated Income Statement in 2021.
The effective tax rate on adjusted profit before tax for 2021 was 21.7% (2020:
21.8%).
Disposals
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 reportable segment. The consideration received was £6.2 million,
settled in cash received.
On 2 February 2021, the Group disposed of its Millbrook business. 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 its Brüel & Kjær Vibro business.
The consideration received was £154.7 million, settled in cash received.
On 3 May 2021, the Group disposed of its ESG business. The consideration
received was £3.4 million, settled by £3.4 million cash received.
On 1 November 2021, the Group disposed of its NDC Technologies business. The
consideration received was £133.0 million, settled by £135.4 million cash
received less £2.4 million estimated accounts true-up.
Millbrook, Brüel & Kjær Vibro, ESG and NDC Technologies formed part of
the Industrial Solutions reportable segment.
Further details of the £226.5 million profit on disposal and the £333.7
million net proceeds from disposals recognised in the Consolidated Statement
of Cash Flows is provided in Note 8 of the Consolidated Financial Statements.
Cash flow
Adjusted cash flow decreased by £43.8 million to £200.7 million during the
year, resulting in an adjusted cash flow conversion rate of 96% (2020: 141%).
2021 2020
Adjusted cash flow £m £m
Adjusted operating profit 209.4 173.6
Adjusted depreciation and software amortisation1 37.3 60.7
Working capital and other non-cash movements (10.7) 53.1
Capital expenditure, net of grants related to capital expenditure (35.3) (42.9)
Adjusted cash flow 200.7 244.5
Adjusted cash flow conversion 96% 141%
1. Adjusted depreciation and software amortisation represent depreciation of
property, plant and equipment, software and internal development amortisation,
adjusted for depreciation of acquisition-related fair value adjustments to
property, plant and equipment.
The decrease principally resulted from a negative working capital movement
mainly attributable to an increase in trade receivables due to higher levels
of sales recorded in the final month of the year, an increase in inventories
due to the high order backlog and lower capital expenditure from timing of
planned projects.
Capital expenditure (net of grants related to capital expenditure) on
property, plant and equipment and intangible assets during the year of £35.3
million (2020: £42.9 million) equated to 2.7% of revenue (2020: 3.2%) and was
95% of adjusted depreciation and software amortisation (2020: 71%).
2021 2020
Other cash flows and foreign exchange £m £m
Tax paid (32.2) (28.6)
Net interest paid on cash and borrowings (2.9) (4.5)
Dividends paid (79.0) (75.7)
Share buyback (201.3) -
Acquisition of businesses, net of cash acquired (135.5) (10.9)
Transaction-related costs paid (26.5) (13.6)
Proceeds from disposal/(Purchase of) of equity investments 38.3 (15.2)
Proceeds from disposal of businesses, net of tax paid of £nil (2020: £2.3 333.7 20.6
million)
Loan repaid by joint venture - 3.0
SaaS-related cash expenditure (5.9) -
Lease payments and associated interest (14.8) (21.6)
Restructuring costs paid (11.9) (15.1)
Net proceeds from exercise of share options 0.3 0.3
Total other cash flows (137.7) (161.3)
Adjusted cash flow 200.7 244.5
Foreign exchange (1.3) (10.6)
Increase in net cash 61.7 72.6
During the year, 5,596,739 ordinary shares were repurchased and cancelled by
the Group as part of the £200 million share buyback programme announced on 25
February 2021, resulting in a cash outflow of £201.3 million (2020: nil),
including transaction fees of £1.3 million (2020: nil).
The Group received £38.3 million from the sale of a stake in a US-listed
company following its acquisition by a third-party in April 2021 (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.
Transaction-related costs paid includes the £15 million donation to the
Spectris Foundation.
Financing and treasury
The Group finances its operations from retained earnings and, where
appropriate, from third-party borrowings. The 31 December 2021 total
borrowings were nil (2020: £119.8 million).
During the year, the Group repaid, in full, a seven-year €116.2 million
(£99.8 million) term loan which was due to mature in September 2022. The
Group reduced its $800 million committed facility in size to $500 million and
reduced the number of relationship banks from ten to eight during the third
quarter. As at 31 December 2021, the Group had £370.3 million of committed
facilities, consisting entirely of a $500 million multi-currency revolving
credit facility ('RCF') maturing in July 2025. The RCF was undrawn at 31
December 2021 (2020: $800 million undrawn).
The RCF has a leverage (covenant defined 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 31 December 2021, interest cover (covenant defined earnings before
interest, tax and amortisation divided by net finance charges) was 67 times
(31 December 2020: 42 times), against a minimum requirement of 3.75 times.
Leverage (covenant defined earnings before interest, tax, depreciation, and
amortisation divided by net cash) was less than zero (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 31 December 2021, the Group had a cash and cash
equivalents balance of £167.8 million. The Group also had various uncommitted
facilities and bank overdraft facilities available, all of which were undrawn,
resulting in a net cash position of £167.8 million, an increase of £61.7
million from £106.1 million at 31 December 2020.
The Group has prepared and reviewed cash flow forecasts for the period to 31
December 2023, which reflect forecasted changes in revenue across its business
and performed a reverse stress test of the forecasts to determine the extent
of downturn which would result in a breach of covenants. Revenue would have to
reduce by 35% over the period under review for the Group to breach the
leverage covenant under the terms of its debt facility. The reverse stress
test does not take into account further mitigating actions which the Group
would implement in the event of a severe and extended revenue decline, such as
cancelling the dividend or reducing capital expenditure. This assessment
indicates that the Group can operate within the level of its current
facilities, as set out above, without the need to obtain any new facilities
for a period of not less than 12 months from the date of this report.
Following this assessment, the Board of Directors are satisfied that the Group
has sufficient resources to continue in operation for a period of not less
than 12 months from the date of this report. Accordingly, they continue to
adopt the going concern basis in relation to this conclusion and preparing the
Consolidated Financial Statements.
Currency
The Group has both translational and transactional currency exposures.
Translational exposures arise on the consolidation of overseas company results
into Sterling. Transactional exposures arise where the currency of sale or
purchase invoices differs from the functional currency in which each company
prepares its local accounts. The transactional exposures include situations
where foreign currency denominated trade receivables, trade payables and cash
balances are held.
After matching the currency of revenue with the currency of costs, wherever
practical, forward exchange contracts are used to hedge a proportion of the
remaining forecast net transaction cash flows where there is reasonable
certainty of an exposure. At 31 December 2021, approximately 66% of the
estimated transactional exposures for 2022 of £145.3 million were hedged
using forward exchange contracts, mainly against Sterling, the Euro, US Dollar
and Danish Krone.
The largest translational exposures during the year were to the US Dollar,
Euro and Chinese Yuan Renminbi. Translational exposures are not hedged. The
table below shows the average and closing key exchange rates compared to
Sterling.
2021 2020 Change 2021 2020 Change
(average)
(average)
(closing)
(closing)
US Dollar (USD) 1.38 1.28 8% 1.35 1.37 (1%)
Euro (EUR) 1.16 1.12 4% 1.19 1.11 7%
Chinese Yuan Renminbi (CNY) 8.87 8.85 - 8.57 8.92 (4%)
During the year, currency translation effects resulted in adjusted operating
profit being £11.0 million lower (2020: £0.8 million higher) than it would
have been if calculated using prior year exchange rates.
Transactional foreign exchange losses of £0.3 million (2020: £1.1 million
losses) were included in administrative expenses, whilst sales include a gain
of £2.1 million (2020: £0.2 million gain) arising on forward exchange
contracts taken out to hedge transactional exposures in respect of sales.
Operating segments - financial summary
Malvern Panalytical HBK Omega Industrial Solutions Total
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Sales (£m) 401.2 372.5 425.5 392.6 129.0 119.2 336.3 451.9 1,292.0 1,336.2
LFL sales growth (%) 11% 8% 14% 8% 10%
Statutory operating profit/(loss) (£m) 57.5 44.6 41.1 14.2 8.3 1.2 48.0 (83.3)(1) 154.9 (23.3)
Statutory operating margin (%) 14.3% 12.0% 9.7% 3.6% 6.4% 1.0% 14.3% (18.4%) 12.0% (1.7%)
Adjusted operating profit (£m) 72.2 54.9 65.0 49.1 15.0 8.7 57.2 60.9 209.4 173.6
LFL adjusted operating profit change (%) 36% 32% 82% 10% 29%
Adjusted operating margin (%) 18.0% 14.7% 15.3% 12.5% 11.6% 7.3% 17.0% 13.5% 16.2% 13.0%
LFL adjusted operating margin change (bps) 320bps 280bps 430bps 30bps 240bps
Sales % of Group sales 31% 28% 33% 29% 10% 9% 26% 34% 100% 100%
1. The statutory operating loss of £83.3 million in 2020 was largely
impacted by the £125.9 million impairment of goodwill, other
acquisition-related intangible assets and other property, plant and equipment
at Millbrook.
Throughout this Operating Review, all commentary refers to the adjusted LFL
measures unless otherwise stated. A reconciliation of adjusted measures to
statutory measures for all segments can be found in the appendix.
Malvern Panalytical
2021 2020 2019 Change vs 2020 LFL change vs 2020 LFL change vs 2019
Statutory reported sales (£m) 401.2 372.5 448.2 8% 11% (3%)
Adjusted operating profit1 (£m) 72.2 54.9 76.2 32% 36% (2%)
Adjusted operating margin1 (%) 18.0% 14.7% 17.0% 330bps 320bps 30bps
Statutory operating profit/(loss) (£m) 57.5 44.6 (17.7) 29%
Statutory operating margin (%) 14.3% 12.0% (3.9%) 230bps
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
On a statutory basis, reported sales increased 8% to £401.2 million, with
operating profit improving to £57.5 million from £44.6 million, primarily
reflecting the impact of the end market recovery on operational performance.
The statutory operating margin was 14.3%.
A strong market recovery, with market share gains supported by the positive
impact from recently launched products, helped Malvern Panalytical achieve a
record order intake with 25% growth in LFL orders and an 11% increase in LFL
sales.
All regions saw strong LFL sales growth, with Asia leading the way. A strong
demand recovery continued in pharmaceutical, with equally strong demand from
the advanced materials sector driven by semiconductor and energy
technology-focused end markets. Primary materials sector growth was
underpinned by a solid recovery in the metals, mining and building materials
end markets. Increased supply chain constraints and the outbreak of Omicron
limited the ability to translate the order book to revenue in the fourth
quarter, with some sales being pushed out into 2022.
Adjusted operating profit of £72.2 million increased by 36% on a LFL basis
and LFL adjusted operating margins rose 320bps, predominantly reflecting the
volume increase and a favourable pricing and mix impact.
Compared with 2019, sales are 3% lower on a LFL basis and LFL adjusted
operating profit was 2% lower.
Delivering the strategy
Continued execution of the strategy in 2021 further strengthened Malvern
Panalytical as a leader in the advanced measurement and characterisation of
materials. Investment was increased to both enhance the performance of
existing products and develop new solutions, with software, services and
analytics being key areas of focus. The recent launch of its new website
highlights how Malvern Panalytical delivers absolute precision in the
measurement of the fundamental chemical, physical or structural make-up of
materials, enabling customers to create a better world, through improving
"everything from the energies that power us and the materials we build with,
to the medicines that cure us and the foods we enjoy".
Enhanced versions of products launched in 2021 include an expanded version of
the Aeris compact
X-ray diffractometer, with capabilities previously only seen in much larger
floor-standing systems, enabling a wider range of customers to carry out
in-depth materials analysis and optimise their processes. The Epsilon X-ray
fluorescence ('XRF') analyser platform was expanded to enable the analysis of
low sulphur content in fuels to meet fuel specification standards for the
petro-chemical industry. Hydro Insight, a dynamic imaging accessory for the
Mastersizer 3000 particle sizing instrument was also launched, providing more
comprehensive insights, combining particle shape with particle sizing,
accelerating method development and increasing confidence in material
production processes.
To support customers in digitally transforming their laboratory workflows and
quality control processes, Malvern Panalytical launched its real-time, remote,
monitoring service. Smart Manager is a cloud based 'control room' that
connects and monitors its Zetium and Axios-mAX XRF systems providing customers
a clear picture of both the real-time utilisation and health of the
instruments, wherever they are located in the world. The additional
information and deeper insights have been well received by customers.
Recent product introductions, launched in the last two years, have
outperformed expectations. These include OmniTrust, a suite of data integrity
solutions and software which provides controlled and trailed access, audit and
validation services for Zetasizer dynamic light scattering systems, and
Empyrean and Aeris X-ray diffraction analysers used in the regulated
pharmaceutical development and manufacturing environment. Also of note, are
enhanced capabilities for Zetasizer Advance, which has seen rapid growth,
particularly in applications linked to nano delivery systems for both drugs
and gene therapies, as well as viral vaccine development.
The strategic focus placed on the pharmaceutical industry has increased sales
by £35 million (34%) over the past three years and this sector now represents
27% of Malvern Panalytical's revenue. Malvern Panalytical is a leading
provider of precision instruments in measuring the structure (arrangement),
stability (long term quality) and affinity (drug binding) drug substances and
drug product formulations as part of research, discovery, manufacturing, and
quality control for drug development.
In January 2022, Creoptix AG was acquired to further strengthen and expand our
offering in the affinity area. Creoptix develops and manufactures analytical
tools, software and consumables for kinetics measurements. The combination
provides an exciting opportunity to quickly scale Creoptix's superior
technology, in terms of speed and sensitivity, by leveraging Malvern
Panalytical's extensive customer base.
As we look to drive further efficiencies in our operating model in Malvern
Panalytical, a programme to simplify, standardise and automate ways of working
across the organisation has been launched, which includes an enterprise-wide
ERP solution.
Looking further forward, we expect a number of sustainability themes to drive
further demand for Malvern Panalytical. The transformation of mobility and
energy transition is driving significant investment in new battery materials
and new, greener technologies and fuels are also being explored for many forms
of transport, as well as for changing the energy mix. Major mining companies,
in particular, are committing to reduce their environmental impact and are
increasingly analysing waste and water contamination. With material use set to
double by 2060, we also see an opportunity to improve the circularity of our
own products in addition to developing recycling solutions in support of
transforming waste materials to new product. These are all in addition to
building on our position in pharmaceuticals and food.
Market trends and outlook
Pharmaceutical and food
Demand remained robust in the pharmaceutical sector throughout 2021, building
on the recovery seen in the second half of the prior year, and resulting in
record order intake. LFL sales to the pharmaceutical sector saw strong growth
in all regions, with some products, such as the Zetasizer and Mastersizer, in
particular, seeing very good order growth. After a strong first half recovery,
growth eased in the second half resulting from supply-chain issues and given
the tougher comparator.
The development of COVID treatments and vaccines continues to support high
demand for vaccine and viral vector development, and manufacturing solutions
in new areas such as immunotherapies and gene therapies are also seeing high
levels of investment. This is supporting strong growth for analytical
instrumentation and further investment in analytical capabilities or
partnership development (such as our partnership with Leukocare), underpinning
the robust opportunity pipeline for Malvern Panalytical's life sciences
solutions.
Demand has been further supported by an increase in onshoring, prompting
investment in pharmaceutical facilities as customers look to increase the
robustness of supply chains and also engage service partners to reduce risk.
Good sales performance in the food sector was supported by the continued focus
on sustainable sourcing and manufacture, food quality and safety. A thorough
understanding of food properties at every stage of the food production chain
is essential for the efficient production of safe and sustainable food and
presents opportunities relevant to our solution portfolio, from assessing soil
fertility and analysing crop nutrients to food formulation and measuring post
production quality attributes such as calories, protein and moisture.
Primary materials
LFL sales were notably higher year-on-year, with Asia posting the strongest
regional performance, and growth evenly split between systems and aftersales
revenues. We 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.
The mining market outlook has become more optimistic with improved metal
prices helping increase exploration budgets. The economic recovery has
supported strong order and sales growth, led by China, south-east Asia and
Latin America.
In oil and chemicals, performance has been more variable. Asia and China
remain growth areas. However, while the oil price outlook is stronger and
activity levels improved, growth for new capex projects has slowed with
companies continuing to concentrate on product maximisation, productivity and
cost constraint.
Our strength in process automation and digital solutions, to help improve
quality and yield, while reducing risk and improving safety, is helping drive
demand in these markets. Additionally, the increasing focus by customers on
sustainable practices and environmental matters is further underpinning growth
prospects.
Advanced materials
LFL sales in advanced materials improved notably across all regions, as
research institutes re-opened and new technology developments and applications
continue in areas such as semiconductor, additive manufacturing and new energy
technologies. Order growth resulted in increased demand for both our
X-ray systems and laser diffraction instruments, with the Mastersizer 3000
particle size analyser selling particularly well.
Within additive manufacturing, we expect investment to expand with various
customers and industry participants announcing expanded capabilities along
with new manufacturing facilities. Demand for emerging battery technologies,
electric vehicles and other new applications is supporting additional capital
investment. Alongside batteries, we expect fuel cell and green hydrogen
technology to be an element of smart energy infrastructure, within energy and
transportation, providing localised energy generation for both stationary and
mobile applications. Also, the expansion and onshoring of semiconductor
manufacturing facilities will continue as digitalisation trends will drive the
increased supply of semiconductors.
HBK
2021 2020 2019 Change LFL change vs 2020 LFL change vs 2019
vs 2020
Statutory reported sales (£m) 425.5 392.6 429.0 8% 8% (2%)
Adjusted operating profit1 (£m) 65.0 49.1 60.4 32% 32% 4%
Adjusted operating margin1 (%) 15.3% 12.5% 14.1% 280bps 280bps 80bps
Statutory operating profit (£m) 41.1 14.2 18.1 189%
Statutory operating margin (%) 9.7% 3.6% 4.2% 610bps
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 8% to £425.5 million and statutory
operating profit improved to £41.1 million from £14.2 million, primarily
reflecting the impact of the end market recovery on operational performance,
as well as a lower level of restructuring and transaction-related costs. The
statutory operating margin was 9.7%.
End market recovery, along with share gains and the impact of new solutions,
delivered a record order book, with a 16% increase in LFL orders. LFL sales
grew 8% with increases seen across all regions, especially in Asia. Robust
demand continued in machine manufacturing, supported by strong demand for our
weighing technologies, and with a steadily improving automotive market. Order
growth was notably ahead of the growth in sales, reflecting supply chain
issues, longer lead times and a planned higher weighting of OEM orders where
order phasing is longer.
Adjusted operating profit of £65.0 million increased by 32% on a LFL basis,
while LFL adjusted operating margins rose 280bps. This was mainly driven by
the higher top line drop through and efficiency improvements, partly offset by
higher overheads to support order growth.
Compared with 2019, HBK sales are 2% lower on a LFL basis while LFL adjusted
operating profit is 4% higher, reflecting the operational improvements and
merger benefits that continue to be delivered.
Delivering the strategy
HBK's strategic objectives further support its role in providing
differentiated sensing, testing, modelling and simulation solutions to help
customers accelerate product development, improve production and optimise
assets. Its strategic initiatives encompass investments in organic growth
projects aligned to the strongest market opportunities, such as
electrification, simulation, smart manufacturing and digitisation, where
customers value its domain expertise and completeness of offering. HBK
differentiates itself from competitors with the breadth and quality of its
solutions, providing a complete simulation, test and measurement offering,
including simulation systems, design optimisation software solutions, data
acquisition hardware and software, production test systems, high precision and
smart sensor solutions, as well as services and support.
The strategic growth drivers are focused on expanding our offerings in:
virtual testing and simulation; software; physical testing (including electric
power testing development); and smart and OEM sensors. New product and
solution launches in 2021, alongside acquisitions made during the year, have
further reinforced HBK's market position.
Concurrent Real-Time ('Concurrent-RT') was acquired in July to further
strengthen our virtual test offering. It is being integrated into HBK's
Virtual Test Division alongside VI-grade's simulation and software business,
IMTEC Engineering's mechatronics and automation activities, plus legacy sound
and vibration simulation software and hardware. Concurrent-RT broadens our
exposure in aerospace and defence, and in particular in North America. It also
creates the opportunity to build a strong and differentiated offering in the
nascent and fast growing, hardware-in-the-loop ('HiL') simulation market,
integrating our driver-in-the-loop and HiL capabilities into a single
simulator offering.
New simulation products were also launched, including NVH Simulator 2021.0
software, incorporating significant new features and capabilities to give
customers a highly accurate experience of sound and vibration data, and
usability enhancements were released for the real-time vehicle simulation
environments and driving simulator platform to enhance the user experience.
These advancements help companies accelerate innovation and reduce
time-to-market, at lower cost and risk.
HBK notably enhanced its software strategy with a licence and asset purchase
agreement with VIMANA, a provider of software and services for smart
manufacturing. The transaction brings data platform technology and software to
HBK and will form the basis for a new engineering centre of excellence focused
on data management and connectivity. Its reliable IIoT data integration and
analytics provide an open architecture approach to easily integrate test
automation and acquired data acquisition into customer networks, significantly
simplifying the data integration challenge for customers. The first product
will be launched alongside HBK's new data acquisition system during 2022.
Two significant software upgrades were released in 2021 ‒ the latest version
of the Tescia Repetitive Testing data acquisition software system, to enable
faster testing, improved product quality and time to market, and nCode 2021,
with key improvements in functionality and performance for this highly
regarded fatigue and durability engineering software solution.
In physical testing, HBK added new technology to its QuantumX data acquisition
systems. The latest version of the MXFS optical interrogator module was also
released, combining mechanical, electrical and fibre-optic measurements in one
system, simplifying complex measurement solutions in battery electric
drive-trains, hydrogen fuel applications and structural health monitoring.
Additionally, HBK launched a new robust force sensor, to provide long-term
stability and exceptionally precise measurement results, even in harsh
applications and difficult environments.
Alongside product developments, initiatives to further strengthen and develop
the organisation are being implemented, with simpler and faster processes
providing even greater customer focus.
In 2021, HBK moved to a new site near Copenhagen, with updated manufacturing
processes to better serve customer demands and a much improved working
experience adapted to post-pandemic requirements. A new go-to-market model and
CRM system are being rolled out during 2022, starting in central Europe,
enhancing the sales and marketing effort to further drive growth and
strengthen customer relationships, along with a new, unified website which
will go live in early 2022. HBK has embarked on a business process improvement
journey that will result in a simplified business model running standard
processes across the entire enterprise. This transition will result in the
deployment of one common ERP platform.
Looking further forward, we expect a number of sustainability themes to drive
demand for HBK's products and solutions. We expect the pace of electrification
of transportation to increase, driving increased R&D and capital
investment in new vehicles, battery technologies and EV infrastructure, and
also rise in non-automotive areas. In turn, this will drive greater focus on
reduced cost and time to market, accelerating the adoption of simulation and
virtual testing as well as demand for HBK's extensive physical testing
offering. Equally, increased automation and connectivity will drive the need
for smart, precision sensors across a broad range of machine manufacturing
sustainability-led areas such as precision agriculture equipment and med-tech.
Market trends and outlook
Automotive
Through the course of 2021, the automotive industry saw a continual recovery.
This was reflected in our orders, which increased steadily through the year,
with LFL sales up slightly year-on-year. In the first half, COVID-19 access
restrictions limited customer access to VI-grade's SIM-centres, delaying large
simulator sales, although software, services and small simulators performed
well. In the physical test space, growth has come from our OEM sensors being
used in off-road/precision agricultural applications, as well as torque
transducers for vehicle test stands, including electric vehicles ('EVs'),
railway testing and powertrain production testing systems, including electric
drivetrains.
With all major automotive OEMs committing to increased development and
production of EVs, and newcomers continuing to enter this market, R&D
budgets in this area remain resilient. Competition in the automotive industry
and the speed of development in pure EV and hybrid drive technologies are
prompting manufacturers to increase investment in the research and development
of batteries, where HBK's battery testing solutions for mechanical vibration,
and electrical testing (https://www.hbm.com/en/8750/electric-power-testing/)
are particularly relevant for automotive customers.
Machine manufacturing
Demand from machine manufacturers remained strong in 2021, reflecting the very
positive outlook and the strong fit of our sensor applications for food
production, medical equipment and semiconductor manufacturing. As a result,
LFL sales to this sector rose notably, continuing the buoyant performance seen
in 2020. Sales were particularly strong into China, North America, and Germany
with sales of OEM sensors, accelerometers and weighing electronics showing
marked increases. HBK's focus on selected high value asset markets has driven
demand for its weighing technologies overall, and specifically for OEM-type
solutions in medical and healthcare applications.
Aerospace and defence
LFL sales have continued to improve through the year, with strong growth in
Asia and Europe. This has been driven by large transducer and data acquisition
orders, especially for helicopter monitoring and aircraft subsystem testing,
and shaker systems, especially for space testing.
Although commercial aerospace has been heavily impacted by the pandemic, HBK's
exposure here is limited and aerospace firms have continued to invest in both
airframe and gas turbine engine development using our equipment.
In defence and satellite/space markets spending has been more resilient. Key
orders included a very large vibration test system for spacecraft in North
America and sensors for a helicopter monitoring programme in Europe.
Consumer electronics and telecoms
Demand for high quality, smart consumer electronics products continues to rise
supporting strong LFL sales growth in all regions. Greater consumer desire for
high-performing voice recognition technologies is supporting demand for HBK's
market-leading mouth and ear simulators, and precision microphones.
Omega
2021 2020 2019 Change vs 2020 LFL change vs 2020 LFL change vs 2019
Statutory reported sales (£m) 129.0 119.2 138.3 8% 14% (1%)
Adjusted operating profit1 (£m) 15.0 8.7 16.9 72% 82% (6%)
Adjusted operating margin1 (%) 11.6% 7.3% 12.2% 430bps 430bps (70bps)
Statutory operating profit (£m) 8.3 1.2 12.0 592%
Statutory operating margin (%) 6.4% 1.0% 8.7% 540bps
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 8% to £129.0 million and statutory
operating profit improved to
£8.3 million from £1.2 million, resulting in a statutory operating margin of
6.4%, primarily reflecting the impact of the end market recovery and
implementation of the strategic initiatives on operational performance.
Omega posted above market growth, with strong demand from its strategic
accounts, new business wins and other share gains, with orders up 23% on a LFL
basis, and above the 2019 order intake. The largest growth came from
semiconductor customers, as well as through key channel partners.
LFL sales increased 14%, with strong growth in both its main market, North
America, as well as Asia.
Adjusted operating profit of £15.0 million increased by 82% on a LFL basis
and LFL operating margins rose 430bps. This resulted from leverage on the
higher sales volume, price gains, and controls on overheads, despite being
higher year-on-year.
Compared with 2019, Omega sales are 1% lower on a LFL basis and LFL adjusted
operating profit is 6% lower.
Delivering the strategy
Achieving greater scale through organic sales growth has been the key
requirement for the performance recovery at Omega. The revised strategic
initiatives to drive above market growth and in turn, improve margin comprise
expanding the sales/distribution channels; international expansion; focused
sales and marketing; and enhancing the customer experience, including
improving operational performance, and product innovation. Omega has made good
progress across each of these areas during 2021 which has delivered above
market growth during the year, and better positioned the business for future
growth.
Omega's sales channel expansion strategy has had notable success through its
partnership with Newark in North America, where sales have increased more than
50% year-over-year. Omega is in the process of extending this relationship to
a global account, expanding its reach in Europe and Asia. It is adding other
distributors that have a similar strategic fit and can help drive growth in
these regions. In particular, Omega is looking to increase its Asia exposure,
with a focus on opportunities in China.
A more pro-active sales and marketing approach is also being implemented to
attract new customers, as well as cross-sell to existing customers. Alongside
this, sales to strategic key accounts have been increasing, especially into
semiconductor customers.
Refinements to the digital platform to simplify and enhance the customer
experience and improve the search functionality have had a positive impact,
driving good improvements in key metrics. Omega achieved its highest ever
digital experience score, and web orders and the conversion rate have both
returned to 2018 levels. In addition, record average order values have been
sustained through the course of 2021. Continued improvements to processing
activities, for example through automation and Lean transformation, will
further help to enhance the customer experience.
Investment in new products remains a key strategic aim, targeting both
customer requirements, as well as emerging technologies. In addition to
increasing its engagement with customers to understand their challenges, Omega
is also expanding its network of university and research lab contacts, to
further enhance the new product development pipeline and is also enhancing its
own R&D capability. The product innovation strategy will deliver fewer,
but more impactful launches in key growth areas.
A key milestone in this regard was the launch of Omega's new, innovative high
accuracy non-invasive temperature sensor ('HANI(TM)') in the first half of the
year, which has received highly positive reviews from the market. This
clamp-on sensor achieves the same accuracy and fast response times as
state-of-the-art invasive in-pipe temperature sensors in sanitary metal pipes,
without the cost and risk, and at a significantly lower price point to current
equivalent offerings. Food and beverage has been a key initial target end
market and an early customer, US brewer Saucy Brew Works, has benefited from
improving its monitoring capability across the brewing process. Reflecting
this functionality, HANI was a winner of the 2021 Innovation Showcase
competition at the Process Expo 2021 trade fair, a competition which recognise
the top technological innovations in processing for all industry segments in
food and beverage. Other applications for the technology are being planned for
additional end markets, such as life sciences and semiconductor manufacturing
for the measurement of temperature in plastic pipes.
Similarly, Omega's Layer N products for IIoT solutions are well positioned to
access further opportunities in the growing wireless sensing market. These
products sense, store and process data via a fully customised wireless
solution, helping customers turn their real-time data into actionable
insights. The product suite is being expanded with new upcoming product
launches in 2022 in areas such as environmental and process monitoring.
Market trends and outlook
In general, Omega's products help customers improve their process efficiency
and productivity. We see future demand being progressively driven by customers
increasing their focus on their own sustainability journeys; using resources
more efficiently and minimising waste, to improve yield and reduce their
environmental impact.
The strength of the order book provides strong tailwinds into the first
quarter of 2022, with visibility significantly ahead of the historic average.
In North America, LFL sales were up strongly reflecting the recovery in US
industrial production, the distribution relationship with Newark and success
in winning large project orders. 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, South Korea and
Singapore, with a notably strong first half performance. Here too, Omega's
distribution expansion strategy helped drive growth as well as the strong
demand from semiconductor customers.
After a flat first half, the recovery in Europe gathered momentum, especially
in the fourth quarter, resulting in full-year LFL sales growth, led by the UK.
Industrial Solutions
2021 2020 2019 Change vs 2020 LFL change vs 2020 LFL change vs 2019
Statutory reported sales (£m) 336.3 451.9 616.5 (26%) 8% (1%)
Adjusted operating profit(1) (£m) 57.2 60.9 104.6 (6%) 10% (4%)
Adjusted operating margin(1) (%) 17.0% 13.5% 17.0% 350bps 30bps (40bps)
Statutory operating profit/(loss) (£m) 48.0 (83.3) 71.9 (158%)
Statutory operating margin (%) 14.3% (18.4%) 11.7% 3270bps
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 26% to £336.3 million, primarily
reflecting a 28% decrease from the divestments of B&K Vibro, ESG
Solutions, Millbrook and NDC Technologies. Statutory operating profit
increased to £48.0 million from a £83.3 million loss, with the statutory
operating margin improving to 14.3%. 2020 included a £125.9 million
impairment of goodwill, other acquisition-related intangible assets and other
property, plant and equipment at Millbrook.
Strong demand from semiconductor and pharmaceutical customers, in particular,
helped deliver a record order book, with LFL orders up 15%. LFL sales
increased 8%. PMS had the strongest performance given its exposure to the
semiconductor and pharmaceutical markets. LFL sales increased in all regions,
with a very strong performance in Asia. LFL sales into energy and utilities
were lower, although the second half saw growth and orders into this sector
demonstrate the market is recovering. Order growth overall was particularly
strong, although with supply chain issues limited sales growth to some degree,
but this provides good momentum into 2022.
Adjusted operating profit of £57.2 million increased by 10% on a LFL basis
and LFL adjusted operating margins increased 30bps. This primarily resulted
from the sales increase and a higher gross margin, reflecting the higher
volume, pricing and some mix effects, partially offset by higher overheads, in
to support the order book expansion and growth initiatives. It also reflected
the impact of the disposals which enhanced the Division's margin.
Compared with 2019, ISD sales are 1% lower and adjusted operating profit is 4%
lower on a LFL basis.
Delivering the strategy
The divestments of B&K Vibro, ESG Solutions, Millbrook and NDC
Technologies were completed in 2021, generating sales proceeds of £410.3
million. ISD is now made up of three, high quality, specialist businesses and
the strategic direction is centred around being a leading provider of high
precision, in-line sensing and monitoring solutions, based around PMS,
Servomex and Red Lion Controls. They are aligned with the Spectris purpose,
are focused on attractive end markets with good growth drivers and
differentiate themselves through their product quality, deep application
knowledge and service. Our strategy remains to invest organically to grow
these businesses, and also pursue M&A to compound growth and build
scale.
ISD will be run as a more integrated division, retaining the business units
and brands, while looking for opportunities to leverage the existing
infrastructure and drive efficiencies. This will involve some restructuring;
including leveraging common channels to market where they exist and make sense
across PMS and Servomex; leveraging our service infrastructure; building
service as a key competitive advantage across the businesses; and
strengthening the deployment of SBS in back office and manufacturing
processes.
Each of the businesses will continue their customer-oriented strategic
initiatives and product development strategies to drive organic growth.
In 2021, PMS launched the new Lasair Pro Airborne Particle Counter, leveraging
the capabilities of its existing flagship Lasair III particle counter, and the
new IsoAir Pro-Plus, another option in its customisable cleanroom monitoring
solutions. Servomex has been capitalising on the new range of gas purity
analysers it launched in 2020, the Ultra Oxygen and Moisture range, which has
driven order growth above that of the market in semiconductor.
At Red Lion, the product refresh programme has made good progress, with its
new products, especially the FlexEdge Intelligent Edge Automation Platform,
which enables simple connectivity and networking capability, seeing robust
demand. Its next-generation indication platform, PM-50 Graphical Panel Meter,
was launched in January 2022. Its smart-device connectivity enables customers
to remotely gather the workflow and process insights they need to increase
productivity.
Looking further forward, each of the ISD business has exposure to a number of
sustainability trends. At Servomex, increasingly strict regulations around
environmental protection offers near-term opportunities while new energy
technologies such as clean hydrogen and carbon capture provide longer term
support for their solutions. A focus on the circular economy also provides
opportunities for gas analyser use in safety and quality control. At PMS,
sustainability related opportunities include improving waste management and
water stewardship in semiconductor manufacturing and the advancement in life
sciences supports demand for its microbial detection solutions. At Red Lion,
the process optimisation and efficiency improvements its products bring,
supports improved resource use and waste reductions, similar to Omega.
Market trends and outlook
Semiconductor and electronics
Sales into semiconductor customers increased notably, with strong demand for
PMS' liquids instruments, and Servomex's new purity range. PMS' performance
particularly reflects an increase in the demand in Asia, especially Taiwan,
Korea and China, market share gains and the strong backlog it had entering
2021. Its sales pipeline funnel has continued to expand, underpinning the
outlook into 2022, driven by investment programmes from its global key
accounts with major semiconductor manufacturers, especially for its Chem-20
and Ultra-DI 20 products.
In electronics, the development of new consumer 'smart' electronic products,
cloud computing and 5G infrastructure roll-out drove demand such that LFL
sales were also up, after a robust 2020 performance, with orders faring even
better and the pipeline continuing to strengthen.
Pharmaceutical and life sciences
Demand also remained robust in the pharmaceutical and life sciences sectors,
continuing the strong performance in 2020 and resulting in good LFL sales
growth, up notably at PMS.
Investment in COVID vaccine and treatment production is supporting further
demand for our products, although after a strong 2020 and first half, orders
for Servomex oxygen sensors have started to decline given the reducing demand
for ventilators.
At PMS, its OEM-focused strategy has also driven the growth in sales, with
notable orders coming directly from filling-machine and isolator
manufacturers. This helps them provide a fully integrated solution to
manufacturers of life sciences products, reducing risk, by ensuring product
quality and safety, as well as regulatory compliance.
Energy and utilities
There has been a slower recovery in the hydrocarbon sector, although there has
been a general upward trend through the year as markets improve. As a result,
LFL sales to energy customers at Servomex were flat year-on-year, also
reflecting the lower order book coming into 2021. There was growth in the
second half as a result and orders have fared better, supported by strong
growth in Asia, especially China. For Red Lion, there has been recent high
demand for automation products driving additional opportunities for its HMI
products. With regulatory compliance, environmental concerns and the energy
transition becoming higher on customers' agendas, Servomex is well placed to
deliver effective solutions for process control, safety and quality in a wide
range of midstream and downstream applications.
Derek Harding
Chief Financial Officer
Consolidated Income Statement
For the year ended 31 December 2021
2021 2020
Continuing operations Note £m £m
Revenue 2 1,292.0 1,336.2
Cost of sales (553.2) (599.8)
Gross profit 738.8 736.4
Indirect production and engineering expenses (95.9) (96.7)
Sales and marketing expenses (242.1) (268.3)
Administrative expenses (245.9) (394.7)
Operating profit/(loss) 2 154.9 (23.3)
Fair value through profit and loss movements on equity investments 23.2
-
Profit on disposal of businesses 8 226.5 4.4
Financial income 3 12.8 1.8
Finance costs 3 (5.6) (10.2)
Profit/(loss) before tax 388.6 (4.1)
Taxation charge 4 (41.7) (12.9)
Profit/(loss) for the year from continuing operations attributable to owners 346.9 (17.0)
of the Company
Basic earnings/(loss) per share 6 305.1p (14.6p)
Diluted earnings/(loss) per share 6 304.0p (14.6p)
2021 interim dividend paid and final dividend proposed for the year (2020: 5 71.8p 111.6p
interim, additional interim and final dividend paid for the year) per share
Dividends paid during the year (per share) 5 69.5p 65.1p
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
Note £m £m
Profit/(loss) for the year attributable to owners of the Company 346.9 (17.0)
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit obligation (1.8) 8.5
Fair value (loss)/gain and foreign exchange movements on translation of (1.8) 0.1
investment in equity instruments designated as at fair value through other
comprehensive income
Tax credit/(charge) on items above 0.7 (1.3)
(2.9) 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 (1.9) (0.6)
contracts on cash flow hedges
Foreign exchange movements on translation of overseas operations (25.1) (0.6)
Currency translation differences transferred to profit on disposal of 8 (4.8) -
businesses
Tax credit on items above 0.3 0.1
(31.5) (1.1)
Total other comprehensive (loss)/income (34.4) 6.2
Total comprehensive income/(loss) for the year attributable to owners of the 312.5 (10.8)
Company
Consolidated Statement of Changes in Equity
For the year ended 31 December 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 (restated) (see note 1) 6.0 231.4 882.6 98.0 (1.9) 3.1 0.5 1,219.7
Profit for the year - - 346.9 - - - - 346.9
Other comprehensive loss - - (1.0) (31.8) (1.6) - - (34.4)
Total comprehensive income/(loss) - - 345.9 (31.8) (1.6) - - 312.5
for the year
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company (see note 5) - - (79.0) - - - - (79.0)
Own shares acquired for share buyback programme (see note 10) (0.2) - (201.3) - - - 0.2 (201.3)
Share-based payments, net of tax - - 9.1 - - - - 9.1
Proceeds from exercise of equity-settled share options - - 0.3 - - - - 0.3
At 31 December 2021 5.8 231.4 957.6 66.2 (3.5) 3.1 0.7 1,261.3
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
Prior period restatement (see note 1) - - (18.9) - - - - (18.9)
At 1 January 2020 (restated) 6.0 231.4 964.4 98.6 (1.4) 3.1 0.5 1,302.6
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 (see note 5) - - (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 (restated) 6.0 231.4 882.6 98.0 (1.9) 3.1 0.5 1,219.7
Consolidated Statement of Financial Position
As at 31 December 2021
2021 (restated)(1) (restated)(1)
2020 2019
Note £m £m £m
ASSETS
Non-current assets
Intangible assets:
Goodwill 631.5 577.0 646.8
Other intangible assets 169.1 107.8 152.8
800.6 684.8 799.6
Property, plant and equipment 150.5 156.0 318.1
Right-of-use assets 60.5 31.1 50.9
Investment in equity instruments 8 24.3 39.4 -
Investment in debt instruments 8 23.0 - -
Deferred tax assets 21.2 16.2 9.0
1,080.1 927.5 1,177.6
Current assets
Inventories 187.9 168.5 197.2
Current tax assets 5.7 4.1 4.1
Trade and other receivables 315.9 293.3 337.2
Derivative financial instruments 0.3 1.9 1.5
Cash and cash equivalents 167.8 222.2 213.1
Assets held for sale 10.4 178.7 18.9
688.0 868.7 772.0
Total assets 1,768.1 1,796.2 1,949.6
LIABILITIES
Current liabilities
Borrowings - (13.1) (80.7)
Derivative financial instruments (1.2) (0.1) (0.1)
Trade and other payables (330.2) (288.3) (296.8)
Lease liabilities (16.6) (12.9) (15.1)
Current tax liabilities 4 (28.1) (15.6) (19.7)
Provisions (17.6) (24.7) (27.3)
Liabilities held for sale - (37.3) -
(393.7) (392.0) (439.7)
Net current assets 294.3 476.7 332.3
Non-current liabilities
Borrowings - (104.5) (98.9)
Other payables (13.8) (24.7) (21.3)
Lease liabilities (49.3) (26.0) (45.4)
Provisions (4.7) (3.8) (5.6)
Retirement benefit obligations (22.3) (20.4) (27.5)
Deferred tax liabilities (23.0) (5.1) (8.6)
(113.1) (184.5) (207.3)
Total liabilities (506.8) (576.5) (647.0)
Net assets 1,261.3 1,219.7 1,302.6
EQUITY
Share capital 5.8 6.0 6.0
Share premium 231.4 231.4 231.4
Retained earnings 957.6 882.6 964.4
Translation reserve 66.2 98.0 98.6
Hedging reserve (3.5) (1.9) (1.4)
Merger reserve 3.1 3.1 3.1
Capital redemption reserve 0.7 0.5 0.5
Total equity attributable to owners of the Company 1,261.3 1,219.7 1,302.6
1. See note 1 for details of the prior period restatement
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
2021 2020
Note £m £m
Cash generated from operations 9 191.6 254.6
Net income taxes paid (32.2) (28.6)
Net cash inflow from operating activities 159.4 226.0
Cash flows used from/(used in) investing activities
Purchase of property, plant and equipment and intangible assets (35.3) (43.1)
Proceeds from disposal of property, plant and equipment and software - 4.1
Finance sublease receivable collected, net of initial direct costs 0.1 -
Acquisition of businesses, net of cash acquired 7 (135.5) (10.9)
Purchase of equity investments - (15.2)
Proceeds from disposal of equity investments 8 38.3 -
Proceeds from disposal of businesses, net of tax paid of £nil (2020: £2.3m) 8 333.7 20.6
Proceeds from government grants related to purchase of property, plant and - 0.2
equipment and intangible assets
Interest received 0.5 2.4
Net cash flows from/(used in) investing activities 201.8 (41.9)
Cash flows used in financing activities
Interest paid on borrowings (3.4) (6.9)
Interest paid on lease liabilities (1.8) (2.3)
Dividends paid 5 (79.0) (75.7)
Share buyback purchase of shares 10 (201.3) -
Net proceeds from exercise of share options 0.3 0.3
Payments on principal portion of lease liabilities (13.0) (19.3)
Loan repaid by joint venture - 3.0
Proceeds from borrowings 70.0 0.3
Repayment of borrowings (169.8) (86.4)
Net cash flows used in financing activities (398.0) (187.0)
Net decrease in cash and cash equivalents (36.8) (2.9)
Cash and cash equivalents at beginning of year 210.9 213.1
Effect of foreign exchange rate changes (6.3) 0.7
Cash and cash equivalents at end of year(1) 167.8 210.9
1. Cash and cash equivalents in the Consolidated Statement of Cash Flows at 31
December 2021 consisted solely of cash and cash equivalents included in
current assets. Cash and cash equivalents in the 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 sale 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 Consolidated Financial Statements of the Company for the 12 months ended
31 December 2021 comprise the Company and its subsidiaries, together referred
to as the 'Group'. These Consolidated 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 Melbourne House, 5(th) Floor, 44-46 Aldwych,
London WC2B 4LL and on the Company's website at www.spectris.com
(http://www.spectris.com) .
The Consolidated Financial Statements have been prepared using consistent
accounting policies with those of the previous financial year except for the
adoption of new accounting standards and interpretations noted below.
The financial information included in the full year results announcement does
not constitute statutory accounts of the Company for the years ended 31
December 2021 and 2020. Statutory accounts for the year ended 31 December 2020
have been reported on by the Company's auditor and delivered to the Registrar
of Companies. Statutory accounts for the year ended 31 December 2021 have been
audited and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting. The report of the auditors for both years
was (i) unqualified, (ii) did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their
report, and (iii) did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006.
The Consolidated Financial Statements have been prepared on a historical cost
basis except for items that are required by IFRS to be measured at fair value,
principally certain financial instruments. The Consolidated Financial
Statements have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006 and UK
adopted IFRS. The Consolidated Financial Statements have been prepared on a
going concern basis. The full year results announcement is presented in
millions of pounds Sterling rounded to the nearest one decimal place, which is
the Group's presentational currency.
These results were approved by the Board of Directors on 23 February 2022.
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 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 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.
Change in accounting policy - Software as a Service ('SaaS') arrangement
The Group has changed its accounting policy relating to the capitalisation of
certain software costs; this change follows the IFRIC Interpretation
Committee's agenda decision published in April 2021 and relates to the
capitalisation of costs of configuring or customising application software
under 'Software as a Service' ('SaaS') arrangements.
The Group's accounting policy has historically been to capitalise costs
directly attributable to the configuration and customisation of SaaS
arrangements as intangible assets in the Consolidated Statement of Financial
Position. Following the adoption of the above IFRIC agenda guidance the
accounting policy was changed so that the Group only capitalises costs
relating to the configuration and customisation of SaaS arrangements as
intangible assets where control of the software exists.
1. Basis of preparation and accounting policies (continued)
As a result of this change in accounting policy, all current SaaS arrangements
were identified and assessed to determine if the Group has control of the
software. For those arrangements where the Group does not have control of the
developed software, the Group derecognised the intangible asset previously
capitalised. To the extent that such amounts were paid to the SaaS supplier in
advance of the service period, including for configuration or customisation,
these were instead treated as a prepayment over the life of the service
period. All other amounts were recognised within administrative expenses in
the Consolidated Income Statement as incurred.
The change in accounting policy led to adjustments amounting to a £25.7
million reduction in intangible assets, a £18.9 million reduction in retained
earnings, a £2.6 million reduction in deferred tax liabilities, a £1.6
million increase in deferred tax assets, a £1.1 million reduction in current
tax liabilities and a £1.5 million increase in trade and other receivables
recognised in the 31 December 2020 Consolidated Statement of Financial
Position. The 2020 Consolidated Income Statement and Statement of Other
Comprehensive Income have not been restated, as the impact on them is
immaterial.
This change in accounting policy also led to adjustments amounting to a £25.7
million reduction in intangible assets, a £18.9 million reduction in retained
earnings, a £4.2 million reduction in deferred tax liabilities, a £1.1
million reduction in current tax liabilities and a £1.5 million increase in
trade and other receivables recognised in the 31 December 2019 Consolidated
Statement of Financial Position.
Accordingly, the prior period Consolidated Statement of Financial Positions at
31 December 2020 and 31 December 2019 have been restated in accordance with
IAS 8, and, in accordance with IAS 1 (revised), a Consolidated Statement of
Financial Position at 31 December 2019 is also presented, together with
related notes. The tables below show the impact of the change in accounting
policy on the previously reported financial position.
As previously reported Impact of restatement Restated 2020
2020 2020
Cost £m £m £m
Other intangible assets 133.5 (25.7) 107.8
Deferred tax assets 14.6 1.6 16.2
Trade and other receivables 291.8 1.5 293.3
Current tax liability (16.7) 1.1 (15.6)
Deferred tax liabilities (7.7) 2.6 (5.1)
Other assets/(liabilities) 823.1 - 823.1
Net assets 1,238.6 (18.9) 1,219.7
Retained earnings 901.5 (18.9) 882.6
Other equity balances 337.1 - 337.1
Total equity attributable to owners of the Company 1,238.6 (18.9) 1,219.7
1. Basis of preparation and accounting policies (continued)
As previously reported Impact of restatement Restated 2019
2019 2019
Cost £m £m £m
Other intangible assets 178.5 (25.7) 152.8
Trade and other receivables 335.7 1.5 337.2
Current tax liability (20.8) 1.1 (19.7)
Deferred tax liabilities (12.8) 4.2 (8.6)
Other assets/(liabilities) 840.9 - 840.9
Net assets 1,321.5 (18.9) 1,302.6
Retained earnings 983.3 (18.9) 964.4
Other equity balances 338.2 - 338.2
Total equity attributable to owners of the Company 1,321.5 (18.9) 1,302.6
b) Going concern
In determining the basis of preparation for the 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 and Climate
Change on the Group, which are described in the Chief Executive's Review,
Financial Review and Operating Review.
During the year, the Group repaid in full a seven-year €116.2 million
(£99.8 million) term loan which was due to mature in September 2022. The
Group reduced its $800 million committed facility in size to $500 million and
reduced the number of relationship banks from 10 to 8 during the third
quarter. As at 31 December 2021, the Group had £370.3 million of committed
facilities, consisting entirely of a $500 million multi-currency revolving
credit facility ('RCF') maturing in July 2025. The RCF was undrawn at 31
December 2021 (2020: $800 million undrawn).
The RCF has a leverage (covenant defined 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 31 December 2021,
interest cover (covenant defined earnings before interest, tax and
amortisation divided by net finance charges) was 67 times (31 December 2020:
42 times), against a minimum requirement of 3.75 times. Leverage (covenant
defined earnings before interest, tax, depreciation, and amortisation divided
by net cash) was less than zero (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 31 December 2021, the Group had a cash and cash
equivalents balance of £167.8 million. The Group also had various uncommitted
facilities and bank overdraft facilities available, all of which were undrawn,
resulting in a net cash position of £167.8 million, an increase of £61.7
million from £106.1 million at 31 December 2020. The Group also had various
uncommitted facilities and bank overdraft facilities available, all of which
were undrawn.
The Group has prepared and reviewed cash flow forecasts for the period to 31
December 2023, which reflect forecasted changes in revenue across its business
and performed a reverse stress test of the forecasts to determine the extent
of downturn which would result in a breach of covenants. Revenue would have to
reduce by 35% over the period under review for the Group to breach the
leverage covenant under the terms of its debt facility. The reverse stress
test does not take into account further mitigating actions which the Group
would implement in the event of a severe and extended revenue decline, such as
cancelling the dividend or reducing capital expenditure. This assessment
indicates that the Group can operate within the level of its current
facilities, as set out above, without the need to obtain ay new facilities for
a period of not less than 12 months from the date of this report.
Following this assessment, the Board of Directors are satisfied that the Group
has sufficient resources to continue in operation for a period of not less
than 12 months from the date of this report. Accordingly, they continue to
adopt the going concern basis in relation to this conclusion and preparing the
Consolidated Financial Statements. There are no key sensitivities identified
in relation to this conclusion.
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 advanced measurement and
materials characterisation, accelerating innovation and efficiency in R&D
and manufacturing;
• The HBK platform provides differentiated sensing, testing, modelling and
simulation solutions to help customers accelerate product development;
• The Omega platform provides specialist sensors, helping customers improve
processes., delivered by a high service omni-channel distribution platform;
• The Industrial Solutions Division ('ISD') is a portfolio of high-value
precision in-line sensing and monitoring businesses. The operating companies
in this segment are Particle Measuring Systems, Red Lion Controls, Servomex,
Brüel & Kjær Vibro (disposed 1 March 2021), ESG Solutions (disposed
3 May 2021), Millbrook (disposed 2 February 2021) and NDC Technologies
(disposed 1 November 2021).
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
Information about reportable segments £m £m £m £m £m
Segment revenues 401.3 425.7 129.0 336.5 1,292.5
Inter-segment revenue (0.1) (0.2) - (0.2) (0.5)
External revenue 401.2 425.5 129.0 336.3 1,292.0
Operating profit 57.5 41.1 8.3 48.0 154.9
Profit on disposal of businesses1 226.5
Financial income1 12.8
Finance costs1 (5.6)
Profit before tax1 388.6
Taxation charge1 (41.7)
Profit after tax1 346.9
1. Not allocated to reportable segments
Malvern Panalytical HBK Omega Industrial Solutions 2020
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
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
2. Operating segments (continued)
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 2020
£m £m
UK 55.7 101.4
Germany 114.7 114.7
France 42.2 41.9
Rest of Europe 171.0 182.2
USA 369.5 386.3
Rest of North America 36.1 37.9
Japan 68.5 73.0
China 212.1 190.4
South Korea 50.9 41.6
Rest of Asia 115.4 106.3
Rest of the world 55.9 60.5
1,292.0 1,336.2
3. Financial income and finance costs
2021 2020
Financial income £m £m
Interest receivable (0.5) (1.8)
Interest credit on release of provision on settlement of EU dividends tax (5.1) -
claim (see note 4)
Net gain on retranslation of short-term (7.2) -
inter-company loan balances
(12.8) (1.8)
2021 2020
Finance costs £m £m
Interest payable on loans and overdrafts 3.6 6.0
Net loss on retranslation of short-term - 0.8
inter-company loan balances
Unwinding of discount factor on lease liabilities 1.8 2.3
Unwinding of discount factor on deferred and contingent consideration - 0.4
Net interest cost on pension plan obligations 0.2 0.4
Other finance costs - 0.3
5.6 10.2
Net finance (credit)/costs (7.2) 8.4
4. Taxation
2021 2020
UK Overseas Total UK Overseas Total
£m £m £m £m £m £m
Current tax (credit)/charge (2.3) 49.2 46.9 3.9 23.5 27.4
Adjustments in respect of current tax of prior years (0.7) (1.2) (1.9) (0.3) (1.1) (1.4)
Deferred tax - origination and reversal of temporary differences (3.1) (0.2) (3.3) (8.0) (5.1) (13.1)
Taxation charge (6.1) 47.8 41.7 (4.4) 17.3 12.9
4. Taxation (continued)
The standard rate of corporation tax for the year, based on the weighted
average of tax rates applied to the Group's profits, is 25.3% (2020: (85.4%)).
The standard rate of corporation tax for the prior year is a charge on a loss
before tax because the statutory tax rates applying to the impairment of
goodwill and other acquisition-related intangible assets are lower than the
statutory tax rates applying to the Group's profits before impairment losses.
In the absence of any impairment losses, the standard rate of corporation tax
for the prior year, based on the weighted average of tax rates applied to the
Group's profits, would have been a charge of 22.9%. The tax charge for the
year is lower (2020: higher) than the tax charge using the standard rate of
corporation tax for the reasons set out in the following reconciliation.
2021 2020
£m £m
Profit/(loss) before taxation 388.6 (4.1)
Corporation tax charge at standard rate of 25.3% (2020: (85.4%)) 98.3 3.5
Profit on disposal of business taxed at (lower)/higher rate (46.5) 0.3
Non-deductible impairments - 11.1
Other non-deductible expenditure 4.7 5.6
Release of provision on settlement of EU dividend claim (8.0) -
Movements on unrecognised deferred tax assets - (2.6)
Tax credits and incentives (6.0) (4.5)
Change in tax rates - 1.1
Adjustments to prior year current and deferred tax charges (0.8) (1.6)
Taxation charge 41.7 12.9
The Group's standard rate of corporation tax of 25.3% is higher than the prior
year rate ((85.4%)), principally due to the impact in the prior year of
impairments being made in countries with lower statutory tax rates.
'Profit on disposal of business taxed at a lower rate' above, in the current
year principally refers to the benefit of tax exemptions for the sale of
shares in certain countries.
'Tax credits and incentives' above refers principally to research and
development tax credits and other reliefs for innovation, such as the UK
Patent Box regime and Dutch Innovation Box regime, as well as tax reliefs
available for Foreign Derived Intangible Income in the US.
The following tax (credits)/charges relate to items of income and expense that
are excluded from the Group's adjusted performance measures.
2021 2020
£m £m
Tax credit on amortisation and impairment of acquisition-related intangible (4.3) (18.8)
assets and other property, plant and equipment
Tax credit on depreciation of acquisition-related fair value adjustments to - (0.1)
property, plant and equipment
Tax credit on impairment of goodwill - (0.9)
Tax credit on net transaction-related costs and fair value adjustments (3.0) (1.6)
Tax charge/(credit) on retranslation of short-term inter-company loan balances 0.3 (0.4)
Tax charge on profit on disposal of businesses 14.2 1.1
Tax credit on configuration and customisation costs carried out by third (1.0) -
parties on material SaaS projects
Tax credit on release of provision and deferred tax asset on settlement of EU (7.0) -
dividends tax claim
Tax charge on fair value through profit and loss movements on equity 0.9 1.8
investments
Tax credit on restructuring costs (2.7) (4.5)
Total tax credit (2.6) (23.4)
4. Taxation (continued)
The effective adjusted tax rate for the year was 21.7% (2020: 21.8%) as set
out in the reconciliation below:
2021 2020
Reconciliation of the statutory taxation charge to the adjusted taxation £m £m
charge
Statutory taxation charge 41.7 12.9
Tax credit on items of income and expense that are excluded from the Group's 2.6 23.4
adjusted profit before tax
Adjusted taxation charge 44.3 36.3
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 Consolidated Income Statement in the year ending 31 December 2021. In
addition, as a result of the dispute resolution, £5.1 million of accrued
interest liabilities were released to the Consolidated Income Statement, as
disclosed in note 3.
In October 2017, the EU Commission opened a formal State Aid investigation
into an exemption within the UK's Controlled Foreign Company regime for
certain finance income. A final decision was published by the Commission
during 2019, concluding that certain aspects of the exemption (as it was
implemented in UK law for the years 2013-2018) constituted State Aid and
requiring the UK to recover such aid from affected parties. This decision was
relevant to Spectris since we had claimed the benefit of the group finance
exemption during the period in question. The Group, along with the UK
government and a number of other affected taxpayers, has sought annulment of
the EU Commission's decision through the EU Courts.
In February 2021, HMRC wrote to Spectris confirming its view that the Group
was not a beneficiary of State Aid during the period in question, as such no
tax and interest should be due. A contingent liability disclosure had been
made in respect of this issue and no provision had been recorded. The Group's
maximum exposure was previously estimated to be £19.5 million in respect of
tax and £1.3 million in respect of interest.
5. Dividends
Amounts recognised and paid as distributions to owners of the Company in the 2021 2020
year
£m £m
Final dividend for the year ended 31 December 2020 of 46.5p per share 53.6 -
Interim dividend for the year ended 31 December 2021 of 23.0p (2020: 21.9p) 25.4 25.5
per share
Additional interim dividend for the year ended 31 December 2020 of 43.2p per - 50.2
share
79.0 75.7
2021 2020
Amounts arising in respect of the year £m £m
Interim dividend for the year ended 31 December 2021 of 23.0p (2020: 21.9p) 25.4 25.5
per share
Additional interim dividend for the year ended 31 December 2020 of 43.2p per - 50.2
share
Proposed final dividend for the year ended 31 December 2021 of 48.8p (2020: 54.1 54.1
46.5p) per share
79.5 129.8
The proposed final 2021 dividend is subject to approval by shareholders at the
AGM on 27 May 2022 and have not been included as a liability in these
Consolidated Financial Statements.
6. Earnings/(loss) per share
Basic earnings/(loss) per share amounts are calculated by dividing net
profit/(loss) for the year 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 year 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 2020
Profit/(loss) after tax (£m) 346.9 (17.0)
Weighted average number of shares outstanding (millions) 113.7 116.1
Basic earnings/(loss) per share (pence) 305.1 (14.6)
Diluted earnings/(loss) per share 2021 2020
Profit/(loss) after tax (£m) 346.9 (17.0)
Basic weighted average number of shares 113.7 116.1
outstanding (millions)
Weighted average number of dilutive 5p ordinary shares under option (millions) 0.5 n/a
Weighted average number of 5p ordinary shares that would have been issued at (0.1) n/a
average market value from proceeds of dilutive share options (millions)
Diluted weighted average number of shares outstanding (millions) 114.1 116.1
Diluted earnings/(loss) per share (pence) 304.0 (14.6)
7. Acquisitions
Concurrent Real-Time
On 9 July 2021, the Group acquired 100% of Concurrent Real-Time
('Concurrent-RT') for net consideration of £123.6 million, made up of £135.9
million gross consideration in cash less £12.3 million cash acquired. There
was no contingent consideration recognised on this acquisition. 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 the HBK reportable segment
and cash generating unit. The excess of the fair value of consideration paid
over the fair value of the net tangible assets acquired is represented by the
following intangible assets: customer-related relationships, contractual
rights, technology and goodwill. Goodwill arising is attributable to the
acquired workforce, expected future customer relationships and synergies from
cross-selling goods and services.
In the Consolidated Income Statement for the year ended 31 December 2021,
sales of £15.4 million and statutory operating profit of £3.7 million have
been included for the acquisition of Concurrent-RT. Group revenue and
statutory operating profit for the year ended 31 December 2021 would have been
£1,308.1 million and £158.0 million, respectively, had this acquisition
taken place on the first day of the financial year.
Where appropriate, a detailed exercise has been undertaken to assess the fair
value of assets acquired and liabilities assumed, supported by the use of
third-party experts. The valuation of the above intangible and tangible assets
requires the use of assumptions and estimates. Intangible asset assumptions
consist of future growth rates, expected inflation and attrition rates,
discount rates used and useful economic lives.
Acquisition-related costs (included in administrative expenses) amount to
£2.7 million.
7. Acquisitions (continued)
Due to their contractual due dates, the fair value of receivables approximates
to the gross contractual amounts receivable. The amount of gross contractual
receivables note expected to be recovered is immaterial. There are no material
contingent liabilities recognised in accordance with IFRS 3 (Revised).
Software licence and asset purchase agreement with VIMANA
On 24 August 2021, the Group completed a software licence and asset purchase
agreement with VIMANA for gross consideration of £10.2 million in cash. There
was no contingent consideration recognised on this acquisition. The
transaction advances HBK's software strategy by bringing technology to HBK and
will form the basis for a new engineering centre of excellence focused on data
management and connectivity. The fair value of net assets acquired was £7.2
million, consisting of
£7.2 million of intangible assets (technology). As a result, £3.0 million of
goodwill was generated, which is attributable to synergies and workforce.
There are no material contingent liabilities recognised in accordance with
IFRS 3 (Revised). The acquisition is included in the HBK operating segment and
cash generating unit.
In the Consolidated Income Statement for the year ended 31 December 2021,
statutory operating profit includes £0.3 million of costs relating to the
VIMANA business. Group revenue and statutory operating profit for the year
ended 31 December 2021 would have been £1,292.0 million and £154.9 million,
respectively, had this acquisition taken place on the first day of the
financial year. Acquisition-related costs (included in administrative
expenses) amount to £0.6 million.
The fair values included in the table below relate to the acquisition of
Concurrent-RT and VIMANA during the year:
Concurrent-RT VIMANA Total fair value
2021 £m £m £m
Intangible assets 74.8 7.2 82.0
Property, plant and equipment 2.7 - 2.7
Right of use assets 5.4 - 5.4
Inventories 1.5 - 1.5
Current tax asset 0.3 - 0.3
Trade and other receivables 5.0 - 5.0
Cash and cash equivalents 12.3 - 12.3
Trade and other payables (6.7) - (6.7)
Retirement benefit obligations (0.5) - (0.5)
Lease liabilities (5.4) - (5.4)
Provisions (0.3) - (0.3)
Deferred tax liabilities (17.0) - (17.0)
Net assets acquired 72.1 7.2 79.3
Goodwill 63.8 3.0 66.8
Gross consideration 135.9 10.2 146.1
Adjustment for cash acquired (12.3) - (12.3)
Net consideration 123.6 10.2 133.8
Analysis of cash outflow in Consolidated Statement of Cash Flows 2021 2020
£m £m
Gross consideration in respect of acquisitions during the year 146.1 3.7
Adjustment for net cash acquired (12.3) (0.5)
Net consideration in respect of acquisitions during the year 133.8 3.2
Deferred and contingent consideration on acquisitions included in net - (0.6)
consideration during the year to be paid in future years
Cash paid during the year in respect of acquisitions during the year 133.8 2.6
Cash paid in respect of prior years' acquisitions 1.7 8.3
Net cash outflow relating to acquisitions 135.5 10.9
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 reportable segment. The consideration received was £6.2 million,
settled in cash received. This generated a profit on disposal of £1.9
million.
On 2 February 2021, the Group disposed of 100% of its Millbrook business,
which formed part of the Industrial Solutions reportable 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 reportable 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 reportable segment. The consideration
received was £3.4 million, settled by cash received. This generated a loss on
disposal of £4.8 million.
On 1 November 2021, the Group disposed of 100% of its NDC Technologies
business ('NDC'), which formed part of the Industrial Solutions reportable
segment. The consideration received was
£133.0 million, settled by £135.4 million cash received less £2.4 million
estimated completion accounts true-up.
Also included in profit on disposal of businesses is a £1.2 million credit
relating to prior year disposals.
The total profit on disposal of businesses was £226.5 million, calculated as
follows:
Brüel & Kjær Vibro Millbrook NDC Other Total
disposals
2021 £m £m £m £m £m
Goodwill 14.9 - 3.0 1.1 19.0
Other intangible assets 1.0 0.5 4.4 - 5.9
Property, plant and equipment - owned and right of use assets 2.8 108.7 4.1 6.2 121.8
Current and deferred tax assets - 1.8 - 1.6 3.4
Inventories 3.4 2.9 9.0 0.5 15.8
Trade and other receivables 8.2 23.9 13.9 2.9 48.9
Cash and cash equivalents 6.2 7.1 5.6 1.7 20.6
Trade and other payables (6.9) (14.0) (15.1) (1.5) (37.5)
Lease liabilities (1.1) (9.8) (3.2) (1.1) (15.2)
Current and deferred tax liabilities (0.9) - (0.7) - (1.6)
Provisions (0.5) (0.3) (0.6) (0.1) (1.5)
Retirement benefit obligations (0.6) - - - (0.6)
Net assets of disposed businesses 26.5 120.8 20.4 11.3 179.0
Consideration received
Settled in cash 154.7 71.2 135.4 9.6 370.9
Investment in equity instruments - 25.0 - - 25.0
Vendor Loan Note Receivable - 23.0 - - 23.0
Estimated completion accounts payable - - (2.4) - (2.4)
Total consideration received 154.7 119.2 133.0 9.6 416.5
Transaction expenses booked to profit/(loss) on disposal of business (7.1) (3.5) (5.0) (0.2) (15.8)
Net consideration from disposal of businesses 147.6 115.7 128.0 9.4 400.7
Net assets disposed (including cash and cash equivalents held by disposal (26.5) (120.8) (20.4) (11.3) (179.0)
group)
Currency translation differences transferred from translation reserve 3.3 0.4 0.9 0.2 4.8
Profit/(loss) on disposal of businesses 124.4 (4.7) 108.5 (1.7) 226.5
8. Disposal of businesses and equity investments (continued)
Brüel & Kjær Vibro Millbrook NDC Other Total
disposals
2021 £m £m £m £m £m
Consideration received settled in cash 154.7 71.2 135.4 9.6 370.9
Cash and cash equivalents held by disposed businesses (6.2) (7.1) (5.6) (1.7) (20.6)
Transaction fees paid (7.1) (3.7) (4.6) (1.2) (16.6)
Net proceeds recognised in the Consolidated Statement of Cash Flows 141.4 60.4 125.2 6.7 333.7
The disposals in the year 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.
Disposal of equity investments
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 (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.
Assets held for sale
Assets held for sale at 31 December 2021 consist of a freehold property with
net book value of
£10.4 million, which forms part of the HBK reportable segment. As a result of
the classification as held for sale, the impairment of this asset that was
recognised in 2020 has resulted in a £6 million impairment reversal in 2021.
This disposal does not meet the definition of discontinued operations given in
IFRS 5.
9. Cash generated from operations
2021 2020
Note £m £m
Cash flows from operating activities
Profit/(loss) after tax 346.9 (17.0)
Adjustments for:
Taxation charge 4 41.7 12.9
Profit on disposal of businesses 8 (226.5) (4.4)
Finance costs 3 5.6 10.2
Financial income 3 (12.8) (1.8)
Depreciation and impairment of property, plant and equipment 26.4 108.9
Amortisation, impairment and other non-cash adjustments made to intangible 23.9 57.9
assets
Impairment of goodwill - 58.4
Transaction-related fair value adjustments 0.2 (2.2)
Fair value through profit and loss movements on equity investments - (23.2)
Profit on disposal and re-measurements of property, plant and equipment and 0.1 (0.1)
associated lease liabilities
Equity-settled share-based payment expense 7.8 2.9
Operating cash flow before changes in working capital and provisions 213.3 202.5
(Increase)/decrease in trade and other receivables (40.2) 8.0
(Increase)/decrease in inventories (30.3) 24.4
Increase in trade and other payables 50.3 24.5
Decrease in provisions and retirement benefits (1.5) (4.8)
Cash generated from operations 191.6 254.6
10. Share buyback, treasury shares and employee benefit trust shares
During the year ended 31 December 2021, 5,596,739 ordinary shares were
repurchased and cancelled by the Group as part of the £200 million share
buyback programme announced on 25 February 2021 (2020: nil), resulting in a
cash outflow of £201.3 million (2020: nil), including transaction fees of
£1.3 million (2020: nil).
At 31 December 2021, the Group held 4,767,106 treasury shares (2020:
4,934,567). During the year,
167,461 (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. Post balance sheet events
On 7 January 2022, the Group acquired 100% of the share capital of Creoptix AG
for initial purchase consideration of up CHF44 million (£36 million) settled
in cash, plus contingent deferred consideration of up to CHF22 million (£18
million), dependent on performance against future milestones. The purchase
consideration is subject to potential adjustment through a completion accounts
process. Creoptix AG is a bioanalytical sensor company, which provides
solutions to accelerate discovery and development of new pharmaceutical drugs,
substances and products. The transaction is in line with Spectris' strategy to
make synergistic acquisitions to enhance and grow its platform and potential
platform businesses. Creoptix AG will be integrated into Malvern Panalytical.
The initial accounting for the business combination is incomplete due to the
short time to convert the accounts from local GAAP, and the time for
preparation of the Consolidated Financial Statements being authorised for
issue. Therefore, the Group is not yet able to provide the disclosure
requirements of IFRS paragraph B64, which includes information on the major
classes of assets acquired, liabilities assumed and details of
transaction-related costs.
For the year ending 31 December 2021, Creoptix AG's revenues are expected to
be £3.7 million, with an expected operating loss of £1.3 million, prepared
under Swiss GAAP.
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 for 2021 and 2020 as:
• restructuring costs from significant programmes;
• amortisation and impairment of acquisition-related goodwill and other
intangible assets
• impairment of property, plant and equipment;
• depreciation of acquisition-related fair value adjustments to property,
plant and equipment;
• transaction-related costs, deferred and contingent consideration fair
value adjustments;
• configuration and customisation costs carried out by third parties on
material SaaS projects;
• profits or losses on termination or disposal of businesses;
• 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;
• fair value through profit and loss movements on equity investments
• gains or losses on retranslation of short-term inter-company loan
balances; and
• related tax effects on the above and other tax items which do not form
part of the underlying tax rate (see Note 4).
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.
Appendix - Alternative performance measures (continued)
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 and 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 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 2020 exclude the trading results of the
Millbrook business for the eleven-month period from February 2020 to December
2020.
On 1 March 2021, Industrial Solutions' Brüel & Kjær Vibro business was
disposed of and, as a result, the segmental LFL adjusted sales and adjusted
operating profit for Industrial Solutions for 2020 exclude the trading results
of the Brüel & Kjær Vibro business for the ten-month period from
March 2020 to December 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 2020 exclude the trading results of the ESG business
for the eight-month period from May 2020 to December 2020.
On 1 November 2021, Industrial Solutions' NDC business was disposed of and, as
a result, the segmental LFL adjusted sales and adjusted operating profit for
Industrial Solutions for 2020 exclude the trading results of the NDC business
for the two-month period from November 2020 to December 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 LFL adjusted sales versus 2020 LFL adjusted sales
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 sales by segment £m £m £m £m £m
Sales 401.2 425.5 129.0 336.3 1,292.0
Constant exchange rate adjustment to 2020 half year exchange rates 13.3 18.3 7.1 15.9 54.6
Acquisitions - (18.8) - - (18.8)
LFL adjusted sales 414.5 425.0 136.1 352.2 1,327.8
Malvern Panalytical HBK Omega Industrial Solutions 2020
Total
2020 sales by segment £m £m £m £m £m
Sales 372.5 392.6 119.2 451.9 1,336.2
Disposal of businesses (0.6) - - (125.7) (126.3)
LFL adjusted sales 371.9 392.6 119.2 326.2 1,209.9
Appendix - Alternative performance measures (continued)
2. 2021 LFL adjusted sales versus 2019 LFL adjusted sales
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 sales by segment £m £m £m £m £m
Sales 401.2 425.5 129.0 336.3 1,292.0
Constant exchange rate adjustment to 2019 half year exchange rates 14.7 16.3 8.0 15.7 54.7
Acquisitions - (20.0) - - (20.0)
LFL adjusted sales 415.9 421.8 137.0 352.0 1,326.7
Malvern Panalytical HBK Omega Industrial Solutions 2019
Total
2019 sales by segment £m £m £m £m £m
Sales 448.2 429.0 138.3 616.5 1,632.0
Disposal of businesses (18.8) - - (259.3) (278.1)
LFL adjusted sales 429.4 429.0 138.3 357.2 1,353.9
b) Adjusted operating profit and operating margin
1. 2021 LFL adjusted operating profit versus 2020 LFL adjusted operating
profit
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 adjusted operating profit
£m £m £m £m £m
Statutory operating profit 57.5 41.1 8.3 48.0 154.9
Restructuring costs 2.3 4.6 - 3.3 10.2
Net transaction-related costs and fair value adjustments 6.0 7.2 2.0 4.3 19.5
Depreciation of acquisition-related fair value adjustments to property, plant 0.2 - - - 0.2
and equipment
Configuration and customisation costs carried out by third parties on material 1.1 4.4 (1.4) 1.1 5.2
SaaS projects
Amortisation and impairment of acquisition-related intangible assets and 5.1 7.7 6.1 0.5 19.4
impairment of other property, plant and equipment
Adjusted operating profit 72.2 65.0 15.0 57.2 209.4
Constant exchange rate adjustment to 2020 half year exchange rates 2.3 3.9 0.8 3.9 10.9
Acquisitions - (3.9) - - (3.9)
LFL adjusted operating profit 74.5 65.0 15.8 61.1 216.4
Malvern Panalytical HBK Omega Industrial Solutions 2020
Total
2020 adjusted operating profit
£m £m £m £m £m
Statutory operating profit/(loss) 44.6 14.2 1.2 (83.3) (23.3)
Restructuring costs 3.0 16.1 - 0.4 19.5
Net transaction-related costs and fair value adjustments 0.6 11.3 - 7.5 19.4
Depreciation of acquisition-related fair value adjustments to property, plant 0.2 - - 0.5 0.7
and equipment
Impairment of goodwill - - - 58.4 58.4
Amortisation and impairment of acquisition-related intangible assets and 6.5 7.5 7.5 77.4 98.9
impairment of other property, plant and equipment
Adjusted operating profit 54.9 49.1 8.7 60.9 173.6
Disposal of businesses - - - (5.5) (5.5)
LFL adjusted operating profit 54.9 49.1 8.7 55.4 168.1
Appendix - Alternative performance measures (continued)
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 operating margin % % % % %
Statutory operating margin(1) 14.3 9.7 6.4 14.3 12.0
Adjusted operating margin(2) 18.0 15.3 11.6 17.0 16.2
LFL adjusted operating margin(3) 18.0 15.3 11.6 17.3 16.3
Malvern Panalytical HBK Omega Industrial Solutions 2020
Total
2020 operating margin % % % % %
Statutory operating margin(1) 12.0 3.6 1.0 (18.4) (1.7)
Adjusted operating margin(2) 14.7 12.5 7.3 13.5 13.0
LFL adjusted operating margin(3) 14.8 12.5 7.3 17.0 13.9
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 LFL adjusted operating profit versus 2019 LFL adjusted operating
profit
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 adjusted operating profit
£m £m £m £m £m
Statutory operating profit 57.5 41.1 8.3 48.0 154.9
Restructuring costs 2.3 4.6 - 3.3 10.2
Net transaction-related costs and fair value adjustments 6.0 7.2 2.0 4.3 19.5
Depreciation of acquisition-related fair value adjustments to property, plant 0.2 - - - 0.2
and equipment
Configuration and customisation costs carried out by third parties on material 1.1 4.4 (1.4) 1.1 5.2
SaaS projects
Amortisation and impairment of acquisition-related intangible assets and 5.1 7.7 6.1 0.5 19.4
impairment of other property, plant and equipment
Adjusted operating profit 72.2 65.0 15.0 57.2 209.4
Constant exchange rate adjustment to 2019 half year exchange rates 1.5 2.3 0.8 3.9 8.5
Acquisitions - (4.4) - - (4.4)
LFL adjusted operating profit 73.7 62.9 15.8 61.1 213.5
Malvern Panalytical HBK Omega Industrial Solutions 2019
Total
2019 adjusted operating profit
£m £m £m £m £m
Statutory operating (loss)/profit (17.7) 18.1 12.0 71.9 84.3
Restructuring costs 16.4 17.7 2.2 15.9 52.2
Net transaction-related costs and fair value adjustments (0.3) 3.1 - 3.3 6.1
Depreciation of acquisition-related fair value adjustments to property, plant 0.4 - - 0.6 1.0
and equipment
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 42.3 21.5 7.9 12.9 84.6
impairment of other property, plant and equipment
Adjusted operating profit 76.2 60.4 16.9 104.6 258.1
Disposal of businesses (1.3) - - (40.9) (42.2)
LFL adjusted operating profit 74.9 60.4 16.9 63.7 215.9
Appendix - Alternative performance measures (continued)
Malvern Panalytical HBK Omega Industrial Solutions 2021
Total
2021 operating margin % % % % %
Statutory operating margin(1) 14.3 9.7 6.4 14.3 12.0
Adjusted operating margin(2) 18.0 15.3 11.6 17.0 16.2
LFL adjusted operating margin(3) 17.7 14.9 11.5 17.4 16.1
Malvern Panalytical HBK Omega Industrial Solutions 2019
Total
2019 operating margin % % % % %
Statutory operating margin(1) (3.9) 4.2 8.7 11.7 5.2
Adjusted operating margin(2) 17.0 14.1 12.2 17.0 15.8
LFL adjusted operating margin(3) 17.4 14.1 12.2 17.8 15.9
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.
c) Adjusted net finance costs
2021 2020
£m £m
Statutory net finance credit/(costs) 7.2 (8.4)
Net (gain)/loss on retranslation of short-term (7.2) 0.8
inter-company loan balances
Interest credit on release of provision on settlement of EU dividends tax (5.1) -
claim
Unwinding of discount factor on deferred and contingent consideration - 0.4
Adjusted net finance costs (5.1) (7.2)
Appendix - Alternative performance measures (continued)
d) Adjusted profit before taxation
2021 2020
£m £m
Adjusted operating profit 209.4 173.6
Adjusted net finance costs (5.1) (7.2)
Adjusted profit before taxation 204.3 166.4
e) Adjusted earnings per share
2021 2020
Adjusted earnings £m £m
Statutory profit/(loss) after tax 346.9 (17.0)
Adjusted for:
Restructuring costs 10.2 19.5
Net transaction-related costs and fair value adjustments 19.5 19.4
Depreciation of acquisition-related fair value adjustments to property, plant 0.2 0.7
and equipment
Configuration and customisation costs carried out by third parties on material 5.2 -
SaaS projects
Impairment of goodwill - 58.4
Amortisation and impairment of acquisition-related intangible assets and 19.4 98.9
impairment of other property, plant and equipment
Fair value through profit and loss movements on equity investments - (23.2)
Profit on disposal of businesses (226.5) (4.4)
Interest credit on release of provision on settlement of EU dividends tax (5.1) -
claim
Net (gain)/loss on retranslation of short-term inter-company loan balances (7.2) 0.8
Unwinding of discount factor on deferred and contingent consideration - 0.4
Tax effect of the above and other non-recurring items (2.6) (23.4)
Adjusted earnings 160.0 130.1
Adjusted earnings per share 2021 2020
Weighted average number of shares outstanding (millions) 113.7 116.1
Adjusted earnings per share (pence) 140.7 112.1
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 2020
£m £m
Bank overdrafts - (13.1)
Bank overdrafts included in liabilities held for sale - (2.2)
Bank loans unsecured - (104.5)
Total borrowings - (119.8)
Cash and cash equivalents included in current assets 167.8 222.2
Cash and cash equivalents included in assets held for sale - 3.7
Net cash 167.8 106.1
Appendix - Alternative performance measures (continued)
2021 2020
£m £m
Reconciliation of changes in cash and cash equivalents to movements in net
cash
Net decrease in cash and cash equivalents (36.8) (2.9)
Proceeds from borrowings (70.0) (0.3)
Repayment of borrowings 169.8 86.4
Effect of foreign exchange rate changes (1.3) (10.6)
Movement in net cash 61.7 72.6
Net cash at beginning of year 106.1 33.5
Net cash at end of year 167.8 106.1
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 2020
£m £m
Cash generated from operations 191.6 254.6
Net income taxes paid (32.2) (28.6)
Net cash inflow from operating activities 159.4 226.0
Transaction-related costs paid 26.6 13.6
Restructuring cash outflow 11.9 15.1
Net income taxes paid 32.2 28.6
Purchase of property, plant and equipment and intangible assets (35.3) (43.1)
SaaS-related cash expenditure 5.9 -
Proceeds from government grants related to purchase of property, plant and - 0.2
equipment and intangible assets
Proceeds from disposal of property, plant and equipment and software - 4.1
Adjusted cash flow 200.7 244.5
Adjusted cash flow conversion1 96% 141%
1. Adjusted cash flow conversion is calculated as adjusted cash flow as a
proportion of adjusted operating profit.
Appendix - Alternative performance measures (continued)
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 and excluding accumulated amortisation and impairment of
acquisition-related intangible assets including goodwill.
31 December 2021 (Restated)(1) (Restated)(1)
31 December 2020 31 December 2019
£m £m £m
Net cash (see APM f) (167.8) (104.6) (33.5)
Accumulated impairment losses on goodwill including items transferred to 157.5 178.6 179.4
assets held for sale
Accumulated amortisation and impairment of acquisition-related intangible 225.0 407.6 366.3
assets including items transferred to assets held for sale
Shareholders' equity 1,261.3 1,219.7 1,302.6
Gross capital employed 1,476.0 1,701.3 1,814.8
Average gross capital employed (current and prior year)(2) 1,588.7 1,758.0
Adjusted operating profit for year (see APM b) 209.4 173.6
Return on gross capital employed 13.2% 9.9%
1. Shareholders' equity and gross capital employed have been restated for the
impact of the Group's change in accounting policy for Software as a Service
('SaaS') arrangements. See note 1 for further details.
2. Average gross capital employed is calculated as current year gross capital
employed divided by comparative year gross capital employed.
i) Net transaction-related costs and fair value adjustments
Net transaction-related costs and fair value adjustments comprise transaction
costs of £19.3 million
(2020: £21.6 million) that have been recognised in the Consolidated Income
Statement under IFRS 3 (Revised) 'Business Combinations' and other fair value
adjustments relating to deferred and contingent consideration comprising a
charge of £0.2 million (2020: credit of £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 £26.6 million (2020:
£13.6 million) have been excluded from the adjusted cash flow.
Dividend timetable
Event Date - 2022
Ex-dividend date 19 May
Record date 20 May
AGM 27 May
Payment date 30 June
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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
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