REG - Spectris PLC - Final Results <Origin Href="QuoteRef">SXS.L</Origin> - Part 2
14/02/2017 07:06
- Part 2: For the preceding part double click ID:nRSN7760Wa
acquisition-related
intangibles.
Earnings per share
Adjusted earnings per share increased by 11.5% from 114.3p to 127.5p, reflecting the net impact of the 11.1% increase in
adjusted profit before tax, the reduction in the effective tax rate and the increase in the weighted average number of
shares from 119.0 million in 2015 to 119.1 million in 2016.
Reported basic earnings per share decreased by 91.0% from 95.6p to 8.6p, with the difference between the two measures shown
in the table below. Excluding the £115.3 million impairment charge, reported basic earnings per share would have increased
by 10.3% to 105.4p in 2016.
2016Pence 2015Pence
Reported basic earnings per share 8.6 95.6
Impairment of goodwill and other acquisition-related intangible assets 96.8 1.3
Amortisation and impairment of acquisition-related intangible assets 31.0 27.8
Net acquisition-related costs and fair value adjustments 8.5 2.4
Depreciation of acquisition-related fair value adjustments to tangible assets 0.2 -
Net loss/(gain) on retranslation of short-term inter-company loan balances 0.7 (2.5)
Unwinding of discount factor on deferred and contingent consideration 0.5 0.2
Tax effect of the above and other non-recurring items (18.8) (10.5)
Adjusted earnings per share 127.5 114.3
Cash flow
Operating cash flow 2016£m 2015£m
Adjusted operating profit 200.8 181.1
Adjusted depreciation and software amortisation 28.3 24.4
Working capital and other movements 27.4 (13.8)
Capital expenditure (28.7) (26.0)
Adjusted operating cash flow 227.8 165.7
Adjusted operating cash flow conversion 113% 91%
Non-operating cash flow
Tax paid (29.8) (33.5)
Net interest paid (4.1) (4.5)
Dividends paid (59.8) (56.9)
Acquisition of businesses, net of cash (160.9) (40.1)
Acquisition-related costs paid (5.4) (3.9)
Foreign exchange (20.3) (0.1)
Exercise of share options 0.2 0.3
Total non-operating cash flow (280.1) (138.7)
Adjusted operating cash flow 227.8 165.7
(Increase)/decrease in net debt (52.3) 27.0
The year-end trade working capital to sales ratio decreased from 16.6% in 2015 to 15.9% in 2016, a 0.7pp decrease. Average
trade working capital, expressed as a percentage of sales, decreased to 14.2% (2015: 15.4%), a 1.2pp decrease. Excluding
acquisitions and foreign exchange, the LFL reduction in average trade working capital was 0.9pp, with the improvement
primarily arising within the Materials Analysis segment due to reduced trade receivables from strong cash collections and
improved inventory management.
Capital expenditure during the year equated to 2.1% of sales (2015: 2.2%) and, at £28.7 million
(2015: £26.0 million), was 101% of depreciation and software amortisation (2015: 107%), primarily due to ongoing
investments in property and infrastructure in Europe and North America, and automotive testing cells within the recently
acquired Millbrook business.
Overall, net debt increased by £52.3 million (2015: decrease of £27.0 million) from £98.6 million to
£150.9 million. Adjusted interest costs, excluding the financing charge arising from IAS 19 (Revised) and other finance
costs, were covered by adjusted operating profit 43.7 times (2015: 39.4 times).
Dividends
The Board is proposing to pay a final dividend of 34.0 pence per share which, combined with the interim dividend of 18.0
pence per share, gives a total dividend of 52.0 pence per share for the year, an increase of 5%. The dividend is covered
2.5 times by adjusted earnings and is consistent with our policy of making progressive dividend payments, based upon
affordability and sustainability. In determining the level of dividend in any year, the Board considers a number of factors
that influence the proposed dividend, including the level of distributable reserves in the Parent Company, future cash
commitments and investment needs to sustain the long-term growth prospects of the Group and the level of dividend cover.
Financing and treasury
The Group finances its operations from both retained earnings and third-party borrowings, with the majority of the year-end
gross debt balance being at fixed rates of interest.
As at 31 December 2016, the Group had £628.1 million of committed facilities denominated in different currencies,
consisting of a five-year $550 million (£447.0 million) revolving credit facility maturing in October 2019, a seven-year
E94.8 million (£81.4 million) term loan maturing in October 2020, and a seven-year
E116.2 million (£99.7 million) term loan maturing in September 2022. £406.0 million of the revolving credit facility was
undrawn at the year end. In addition, the Group had a year-end cash balance of £83.5 million, bank overdrafts of £12.3
million and various uncommitted facilities available.
At the year end, the Group's borrowings amounted to £234.4 million, 77% of which was at fixed interest rates (2015: 99%).
The ageing profile at the year-end showed that 5% (2015: 1%) of year-end borrowings is due to mature within one year, 52%
between two and five years (2015: 44%) and 43% in more than five years
(2015: 55%).
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 flows where there is reasonable certainty of an exposure.
At 31 December 2016, approximately 73% of the estimated net Euro,
US Dollar and Japanese Yen exposures for 2017 were hedged using forward exchange contracts, mainly against the Swiss Franc,
Sterling, the Euro and the Danish Krone.
The largest translational exposures are to the US Dollar, Euro, Danish Krone, Japanese Yen and Swiss Franc. Translational
exposures are not hedged. The table below shows the key average exchange rates compared to Sterling during 2016 and 2015.
2016(average) 2015(average) Change
USD 1.35 1.53 -11%
EUR 1.22 1.38 -11%
JPY 147 185 -20%
CHF 1.33 1.47 -9%
During the year, the translational foreign exchange gain on operating profit of £22.6 million, arising from the weakness of
Sterling, was offset by a transactional foreign exchange loss of £7.8 million (2015: £0.3 million loss).
2017 OUTLOOK
In 2016, we launched Project Uplift, our group-wide productivity improvement programme, and we have now identified total
potential annualised recurring savings of £35 million over the period to end 2019. The P&L cost to achieve these savings is
currently estimated at £45 million. In 2017, the Group expects there to be a benefit of £6 million at a cost of £20
million, i.e. a net P&L charge of £14 million.
The 2016 restructuring programme is expected to generate an annualised benefit in 2017 of approximately
£3 million.
Planned capital expenditure on a cash basis in 2017 is expected to be significantly higher than in 2016 at around £70
million, primarily related to expansion opportunities at Millbrook, as well as a number of infrastructure projects at HBM,
Omega and Malvern Instruments.
The Group expects its effective tax rate to be around 22% in 2017 (2016: 22.4%).
The Group has both translational and transactional currency exposures, with a proportion (up to 75%) of net transactional
exposures for the next 12 months being hedged. Translational exposures are not hedged and the Group's sensitivity to
translational gains or losses for sales and operating profit in respect of two of our major currency exposures is as
estimated below:
Impact of 1 cent change versus GBP of the average FX rate in 2017 compared to the average exchange rate in 2016 2017 FY reported sales£m 2017 FY adjustedoperating profit£m
EUR 3.0 0.5
USD 4.0 0.5
Consolidated Income Statement
For the year ended 31 December 2016
2016 2015
Note £m £m
Continuing operations
Revenue 3 1,345.8 1,190.0
Cost of sales (585.3) (506.9)
Gross profit 760.5 683.1
Indirect production and engineering expenses (108.9) (98.6)
Sales and marketing expenses (320.1) (274.4)
Administrative expenses (177.9) (164.9)
Impairment of goodwill and other acquisition-related intangible assets (115.3) (1.6)
Operating profit before acquisition-related items and impairment 200.8 181.1
Net acquisition-related costs and fair value adjustments 2 (10.1) (2.9)
Depreciation of acquisition-related fair value adjustments to tangible assets 2 (0.2) -
Amortisation of acquisition-related intangible assets 2 (36.9) (33.0)
Impairment of goodwill and other acquisition-related intangible assets 2 (115.3) (1.6)
Operating profit 2,3 38.3 143.6
Financial income 4 0.5 3.3
Finance costs 4 (6.9) (5.3)
Profit before tax 31.9 141.6
Taxation - UK 5 (4.4) (1.3)
Taxation - Overseas 5 (17.2) (26.5)
Profit after tax for the year from continuing operations attributable to owners of the Parent Company 10.3 113.8
Basic earnings per share 7 8.6p 95.6p
Diluted earnings per share 7 8.6p 95.4p
Interim dividends paid and final dividends proposed for the period (per share) 6 52.0p 49.5p
Dividends paid during the period (per share) 6 50.2p 47.8p
Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS.
Reconciliations showing how the adjusted performance measures are derived from those reported under adopted IFRS are set
out in Note 2.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
2016 2015
Note £m £m
Profit for the year attributable to owners of the Parent Company 10.3 113.8
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit obligations, net of foreign exchange (12.6) (7.9)
Tax on items above 5 3.0 1.7
(9.6) (6.2)
Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net (loss)/gain on effective portion of changes in fair value of forward exchange contracts on cash flow hedges (3.1) 0.1
Foreign exchange movements on translation of overseas operations 160.4 (1.9)
Tax on items above 5 0.7 -
158.0 (1.8)
Total comprehensive income for the year attributable to owners of the Parent Company 158.7 105.8
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Sharecapital Sharepremium Retainedearnings Translationreserve Hedgingreserve Mergerreserve CapitalRedemptionreserve Total equity
£m £m £m £m £m £m £m £m
Balance at 1 January 2016 6.2 231.4 694.9 33.0 (2.9) 3.1 0.3 966.0
Profit for the year - - 10.3 - - - - 10.3
Other comprehensive income:
Net loss on effective portion of changes in fair value of forward exchange contracts, net of tax - - - - (2.4) - - (2.4)
Foreign exchange movements on translation of overseas operations - - - 160.4 - - - 160.4
Re-measurement of net defined benefit obligations, net of foreign exchangeand tax - - (9.6) - - - - (9.6)
Total comprehensive income for the year - - 0.7 160.4 (2.4) - - 158.7
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company - - (59.8) - - - - (59.8)
Share-based payments, net of tax - - 2.3 - - - - 2.3
Share options exercised from own shares (treasury) purchased - - 0.2 - - - - 0.2
Balance at 31 December 2016 6.2 231.4 638.3 193.4 (5.3) 3.1 0.3 1,067.4
Share capital Sharepremium Retainedearnings Translationreserve Hedgingreserve Mergerreserve CapitalRedemptionreserve Total equity
For the year ended 31 December 2015 £m £m £m £m £m £m £m £m
Balance at 1 January 2015 6.2 231.4 643.1 34.9 (3.0) 3.1 0.3 916.0
Profit for the year - - 113.8 - - - - 113.8
Other comprehensive income:
Net gain on effective portion of changes in fair value of forward exchange contracts, net of tax - - - - 0.1 - - 0.1
Foreign exchange movements on translation of overseas operations - - - (1.9) - - - (1.9)
Re-measurement of net defined benefit obligations, net of foreign exchange and tax - - (6.2) - - - - (6.2)
Total comprehensive income for the year - - 107.6 (1.9) 0.1 - - 105.8
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company - - (56.9) - - - - (56.9)
Share-based payments, net of tax - - 0.8 - - - - 0.8
Share options exercised from own shares (treasury) purchased - - 0.3 - - - - 0.3
Balance at 31 December 2015 6.2 231.4 694.9 33.0 (2.9) 3.1 0.3 966.0
Consolidated Statement of Financial Position
As at 31 December 2016
2016 2015
£m £m
ASSETS
Non-current assets
Intangible assets:
Goodwill 654.3 584.9
Other intangible assets 245.2 201.7
899.5 786.6
Property, plant and equipment 238.8 160.8
Deferred tax assets 13.4 17.2
1,151.7 964.6
Current assets
Inventories 187.8 182.5
Income taxation recoverable 2.4 0.7
Trade and other receivables 306.6 253.1
Cash and cash equivalents 83.5 58.2
580.3 494.5
Total assets 1,732.0 1,459.1
LIABILITIES
Current liabilities
Short-term borrowings (12.3) (1.7)
Derivative financial instruments (4.2) (0.4)
Trade and other payables (259.2) (206.6)
Income taxation payable (36.8) (27.5)
Provisions (19.5) (22.2)
(332.0) (258.4)
Net current assets 248.3 236.1
Non-current liabilities
Medium- and long-term borrowings (222.1) (155.1)
Other payables (29.0) (16.6)
Retirement benefit obligations (40.3) (22.1)
Deferred tax liabilities (41.2) (40.9)
(332.6) (234.7)
Total liabilities (664.6) (493.1)
Net assets 1,067.4 966.0
EQUITY
Share capital 6.2 6.2
Share premium 231.4 231.4
Retained earnings 638.3 694.9
Translation reserve 193.4 33.0
Hedging reserve (5.3) (2.9)
Merger reserve 3.1 3.1
Capital redemption reserve 0.3 0.3
Total equity attributable to equity holders of the Parent Company 1,067.4 966.0
Total liabilities and equity 1,732.0 1,459.1
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
2016 2015
Note £m £m
Cash flows from operating activities
Profit after tax 10.3 113.8
Adjustments for:
Taxation 5 21.6 27.8
Finance costs 4 6.9 5.3
Financial income 4 (0.5) (3.3)
Depreciation 23.0 19.6
Amortisation of intangible assets 42.4 37.8
Impairment of goodwill and other acquisition-related intangible assets 115.3 1.6
Acquisition-related fair value adjustments 5.6 (0.1)
(Profit)/loss on sale of property, plant and equipment (1.2) 0.2
Equity-settled share-based payment transactions 2.1 0.7
Operating cash flow before changes in working capital and provisions 225.5 203.4
Increase in trade and other receivables (7.1) (17.1)
Decrease/(increase) in inventories 25.4 (7.6)
Increase in trade and other payables 8.2 3.5
(Decrease)/increase in provisions and employee benefits (6.3) 4.7
Net income taxes paid (29.8) (33.5)
Net cash flows generated from operating activities 215.9 153.4
Cash flows from investing activities
Purchase of property, plant and equipment and software (28.7) (26.0)
Proceeds from disposal of property, plant and equipment and software 5.4 0.9
Acquisition of businesses, net of cash acquired 9 (160.9) (40.1)
Interest received 0.5 0.2
Net cash flows used in investing activities (183.7) (65.0)
Cash flows from financing activities
Interest paid (4.6) (4.7)
Dividends paid 6 (59.8) (56.9)
Proceeds from exercise of share options (treasury shares) 0.2 0.3
Proceeds from borrowings 41.0 85.0
Repayment of borrowings - (85.5)
Net cash flows used in financing activities (23.2) (61.8)
Net increase in cash and cash equivalents 9.0 26.6
Cash and cash equivalents at beginning of year 56.5 32.3
Effect of foreign exchange rate changes 5.7 (2.4)
Cash and cash equivalents at end of year 71.2 56.5
2016 2015
Reconciliation of changes in cash and cash equivalents to movements in net debt £m £m
Net increase in cash and cash equivalents 9.0 26.6
Proceeds from borrowings (41.0) (85.0)
Repayment of borrowings - 85.5
Effect of foreign exchange rate changes (20.3) (0.1)
Movement in net debt (52.3) 27.0
Net debt at start of year (98.6) (125.6)
Net debt at end of year (150.9) (98.6)
Notes to the Accounts
1. Basis of preparation and summary of significant accounting policies
Basis of accounting
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 IFRS as issued by the International Accounting Standards Board ('IASB') and
interpretations issued by the International Financial Reporting Interpretations Committee of the IASB, as adopted by the
European Union ('adopted IFRS'), and in accordance with the provisions of the Companies Act 2006.
The full year results announcement has been prepared using consistent accounting policies. No revisions to adopted IFRS
that became applicable in 2016 had a significant impact on the Group's Financial Statements. The full year results
announcement is presented in millions of pounds Sterling rounded to the nearest one decimal place.
Basis of consolidation
The full year results announcement sets out the Group's financial position as at 31 December 2016 and the Group's financial
performance for the year ended 31 December 2016.
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group. Associates are accounted for using the equity method of
accounting and are initially recognised at cost.
All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been
eliminated in full. Unrealised losses are eliminated in the same way as unrealised gains except that they are only
eliminated to the extent that there is no evidence of impairment.
Going concern
The Group's net debt balance at 31 December 2016 was £150.9m (2015: £98.6m), with available undrawn committed borrowing
facilities of £406.0m (2015: £371.1m).
The Board has reviewed sensitivity analysis on the Group's forecasts to 30 June 2018, the maturity profile of its financial
facilities and liabilities and the ability of the Group to re-finance these obligations as they fall due. The principal
liquidity risk is mitigated through its financial risk management policies. For the foreseeable future, the Board has a
high level of confidence that the Group will have the necessary liquid resources to meet its liabilities as they fall due
and will be able to sustain its business model, strategy and operations and remain solvent, including the impact of
reasonable scenarios. For this reason, it continues to adopt the going concern basis in preparing the Group Financial
Statements. There are no key sensitivities identified in relation to this conclusion.
Significant accounting judgements and estimates
In preparing the Consolidated Financial Statements, management has made judgements, estimates and assumptions that affect
the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors
that are believed to be reasonable under the circumstances.
Information about significant areas where judgements, estimates and assumptions are required is included in the following
notes:
· Impairment of goodwill. The carrying amount of goodwill has been tested for impairment by estimating the value in
use of the cash-generating units to which it has been allocated.
· Business combinations. Judgement is applied in relation to the estimation of the provisional fair values and useful
lives of acquired assets and liabilities at the date of acquisition.
· Provisions against inventory. Judgement is applied to assess the level of provisions required to write down
slow-moving, excess and obsolete inventory to its net realisable value.
· Taxation and deferred tax. The assessment and recognition of tax provisions requires judgement.
The financial statements were approved by the Board of Directors on 14 February 2017.
2. Adjusted performance measures
Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management
believe these measures enable them to assess the underlying trading performance of the businesses as they exclude foreign
exchange movements and the impact of acquisitions. Adjusted figures exclude certain non-operational items that are
predominantly acquisition or disposal related-items which management have defined as:
· Amortisation and impairment of acquisition-related goodwill and other intangible assets;
· Depreciation of acquisition-related fair value adjustments to tangible assets;
· Acquisition-related costs and contingent consideration fair value adjustments;
· 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;
· 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.
During the year, the Group acquired Millbrook Group Limited, an engineering services business that owns a significant
amount of tangible assets. On acquisition, IFRS 3 (Revised) 'Business Combinations' requires tangible assets to be
accounted for at fair value and as the book value of these tangible assets was lower than the fair value this has resulted
in a significant fair value adjustment to increase the carrying value of the tangible assets.
In order for management to assess the underlying trading performance of the business, the additional depreciation charge
due to the fair value adjustment on these assets above book value has been excluded from the adjusted figures.
The Board reviews and compares current and prior year segmental sales and adjusted profit at constant exchange rates. The
constant exchange rate comparison uses the current year reported segmental information, stated in each entity's functional
currency, and translates the results in to its presentation currency using prior year' monthly exchange rates, irrespective
of the underlying transactional currency.
Within the In-Line Instrumentation segment, the BTG Business has large functional currency mismatches against its
underlying transaction currencies which distort like-for-like ('LFL') comparison at times of significant currency
movements. Accordingly, we have modified the basis on which BTG's LFL results are translated into sterling by using the
actual underlying transaction currency mix for determining transactional gains/losses to provide more accurate and reliable
information on BTG's underlying performance. This approach has not been applied to any other operating company as BTG is
the only business with a significant functional currency mismatch for LFL reporting purposes.
The Board reviews current and prior year segmental sales and adjusted profit at constant exchange rates excluding the
incremental impact of acquisitions for the first twelve months of ownership from the month of purchase.
By removing the acquisition related sales and operating profit, this allows the Board to assess the underlying trading
performance of the businesses on a LFL basis.
The adjusted performance measures are derived from the reported figures under adopted IFRS as follows:
2016 2015
Sales £m £m
Sales as reported under adopted IFRS 1,345.8 1,190.0
Constant exchange rate adjustment (141.1) 16.7
Sales at constant exchange rates 1,204.7 1,206.7
Acquisitions (36.7) (36.1)
LFL sales 1,168.0 1,170.6
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Total
Sales by segment - 2016 £m £m £m £m £m
Sales as reported under adopted IFRS 418.9 404.5 275.6 246.8 1,345.8
Constant exchange rate adjustment (41.9) (44.9) (27.4) (26.9) (141.1)
Sales at constant exchange rates 377.0 359.6 248.2 219.9 1,204.7
Acquisitions (5.4) (21.8) (4.1) (5.4) (36.7)
LFL sales 371.6 337.8 244.1 214.5 1,168.0
Materials Test and In-line Industrial 2015
Analysis Measurement Instrumentation Controls Total
Sales by segment - 2015 £m £m £m £m £m
Sales as reported under adopted IFRS 364.4 351.3 255.0 219.3 1,190.0
Constant exchange rate adjustment 9.0 15.9 3.8 (12.0) 16.7
Sales at constant exchange rates 373.4 367.2 258.8 207.3 1,206.7
Acquisitions (13.0) (21.4) - (1.7) (36.1)
LFL sales 360.4 345.8 258.8 205.6 1,170.6
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Total
Sales growth - 2016 % % % % %
Sales as reported under adopted IFRS growth 15.0 15.1 8.1 12.4 13.1
Sales at constant exchange rates growth 3.5 2.4 (2.6) 0.2 1.2
LFL sales growth 2.0 (3.8) (4.2) (2.3) (1.9)
Materials Test and In-line Industrial 2015
Analysis Measurement Instrumentation Controls £m
Sales growth - 2015 % % % % %
Sales as reported under adopted IFRS growth 4.5 2.4 (2.4) (0.6) 1.4
Sales at constant exchange rates growth 7.0 7.1 (1.0) (6.0) 2.8
LFL sales growth 3.3 0.9 (1.0) (6.8) (0.3)
2016 2015
Adjusted operating profit £m £m
Operating profit as reported under adopted IFRS 38.3 143.6
Net acquisition-related costs and fair value adjustments 10.1 2.9
Depreciation of acquisition-related fair value adjustments to tangible assets 0.2 -
Amortisation of acquisition-related intangible assets 36.9 33.0
Impairment of goodwill and other acquisition-related intangible assets 115.3 1.6
Adjusted operating profit 200.8 181.1
Constant exchange rate adjustment (22.6) 4.8
Operating profit at constant exchange rates 178.2 185.9
Acquisitions (8.3) (5.2)
LFL operating profit 169.9 180.7
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Total
Adjusted operating profit by segment - 2016 Note £m £m £m £m £m
Operating profit as reported under adopted IFRS 66.2 26.7 37.6 (92.2) 38.3
Net acquisition-related costs and fair value adjustments 0.2 2.1 0.3 7.5 10.1
Depreciation of acquisition-related fair value adjustments to tangible assets - 0.2 - - 0.2
Amortisation of acquisition-related intangible assets 9.8 11.9 3.3 11.9 36.9
Impairment of goodwill and other acquisition-related intangible assets - 20.9 - 94.4 115.3
Adjusted operating profit 3 76.2 61.8 41.2 21.6 200.8
Constant exchange rate adjustment (7.7) (7.8) (5.4) (1.7) (22.6)
Operating profit at constant exchange rates 68.5 54.0 35.8 19.9 178.2
Acquisitions (0.3) (5.1) (0.6) (2.3) (8.3)
LFL operating profit 68.2 48.9 35.2 17.6 169.9
Materials Test and In-line Industrial 2015
Analysis Measurement Instrumentation Controls Total
Adjusted operating profit by segment - 2015 Note £m £m £m £m £m
Operating profit as reported under adopted IFRS 42.6 43.6 34.2 23.2 143.6
Net acquisition-related costs and fair value adjustments 0.2 1.5 0.1 1.1 2.9
Depreciation of acquisition-related fair value adjustments to tangible assets - - - - -
Amortisation of acquisition-related intangible assets 9.3 10.2 2.5 11.0 33.0
Impairment of goodwill and other acquisition-related intangible assets 1.6 - - - 1.6
Adjusted operating profit 3 53.7 55.3 36.8 35.3 181.1
Constant exchange rate adjustment 1.5 3.6 2.2 (2.5) 4.8
Operating profit at constant exchange rates 55.2 58.9 39.0 32.8 185.9
Acquisitions (2.8) (2.2) - (0.2) (5.2)
LFL operating profit 52.4 56.7 39.0 32.6 180.7
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Total
Operating profit growth - 2016 % % % % %
Operating profit as reported under adopted IFRS 55.4 (38.8) 9.9 (497.4) (73.3)
Adjusted operating profit 41.8 11.7 11.9 (38.7) 10.9
Operating profit at constant exchange rates 27.6 (2.4) (2.9) (43.5) (1.6)
LFL operating profit 27.0 (11.6) (4.4) (50.2) (6.2)
Materials Test and In-line Industrial 2015
Analysis Measurement Instrumentation Controls Total
Operating profit growth - 2015 % % % % %
Operating profit as reported under adopted IFRS (11.3) (4.5) (25.0) (20.0) (14.7)
Adjusted operating profit 0.8 6.0 (23.3) (21.1) (8.6)
Operating profit at constant exchange rates 3.6 12.8 (18.7) (26.4) (6.1)
LFL operating profit (1.7) 8.6 (18.7) (26.7) (8.8)
Net acquisition-related costs and fair value adjustments comprises acquisition costs of £4.5m (2015: £3.0m) that have been
recognised in the Consolidated Income Statement under IFRS 3 (Revised) 'Business Combinations', fair value adjustments to
inventory of £nil (2015: £0.7m) and other fair value adjustments resulting in a debit of £5.6m (2015: credit £0.8m). Net
acquisition-related costs and fair value adjustments are included within administrative expenses. Acquisition-related costs
have been excluded from the adjusted operating profit and acquisition costs paid of £5.4m (2015: £3.9m) have been excluded
from adjusted operating cash flow.
Materials Test and In-line Industrial 2016
Analysis Measurement Instrumentation Controls Total
Return on sales by segment - 2016 % % % % %
Using operating profit as reported under adopted IFRS 15.8 6.6 13.6 (37.4) 2.8
Using adjusted operating profit 18.2 15.3 15.0 8.7 14.9
Using adjusted operating profit at constant exchange rates 18.2 15.0 14.4 9.0 14.8
Using adjusted LFL operating profit 18.4 14.5 14.4 8.2 14.5
Materials Test and In-line Industrial 2015
Analysis Measurement Instrumentation Controls Total
Return on sales by segment - 2015 % % % % %
Using operating profit as reported under adopted IFRS 11.7 12.4 13.4 10.6 12.1
Using adjusted operating profit 14.7 15.8 14.4 16.1 15.2
Using adjusted operating profit at constant exchange rates 14.8 16.1 15.1 15.8 15.4
Using adjusted operating profit on a LFL basis 14.5 16.4 15.1 15.9 15.4
2016 2015
Reconciliation to adjusted profit before tax and adjusted operating profit Note £m £m
Profit before tax as reported under adopted IFRS 31.9 141.6
Add/(deduct):
Net acquisition-related costs and fair value adjustments 10.1 2.9
Depreciation of acquisition-related fair value adjustments to tangible assets 0.2 -
Amortisation of acquisition-related intangible assets 36.9 33.0
Impairment of goodwill and other acquisition-related intangible assets 115.3 1.6
Net loss/(gain) on retranslation of short-term inter-company loan balances 4 0.8 (3.0)
Unwinding of discount factor on deferred and contingent consideration 4 0.6 0.2
Adjusted profit before tax 195.8 176.3
Adjusted net finance costs (see below) 5.0 4.8
Adjusted operating profit 200.8 181.1
2016 2015
Adjusted net finance costs Note £m £m
Net interest costs as reported under adopted IFRS 4 (6.4) (2.0)
Net loss/(gain) on retranslation of short-term inter-company loan balances 4 0.8 (3.0)
Unwinding of discount factor on deferred and contingent consideration 4 0.6 0.2
Adjusted net finance costs (5.0) (4.8)
2016 2015
Adjusted operating cash flow £m £m
Net cash flows generated from operating activities under adopted IFRS 215.9 153.4
Acquisition-related costs paid 5.4 3.9
Net income taxes paid 29.8 33.5
Purchase of property, plant and equipment and software (28.7) (26.0)
Proceeds from sale of property, plant and equipment 5.4 0.9
Adjusted operating cash flow 227.8 165.7
Adjusted operating cash flow conversion 113% 91%
2016 2015
Adjusted earnings per share Note £m £m
Profit after tax as reported under adopted IFRS 10.3 113.8
Adjusted for:
Net acquisition-related costs and fair value adjustments 10.1 2.9
Depreciation of acquisition-related fair value adjustments to tangible assets 0.2 -
Amortisation of acquisition-related intangible assets 36.9 33.0
Impairment of goodwill and other acquisition-related intangible assets 115.3 1.6
Net loss/(gain) on retranslation of short-term inter-company loan balances 4 0.8 (3.0)
Unwinding of discount factor on deferred and contingent consideration 4 0.6 0.2
Tax effect of the above and other non-recurring items 5 (22.3) (12.4)
Adjusted earnings 151.9 136.1
Weighted average number of shares outstanding (millions) 119.1 119.0
Adjusted earnings per share (pence) 127.5 114.3
2016 2015
Adjusted diluted earnings per share (pence) £m £m
Diluted weighted average number of shares outstanding (millions) 119.6 119.3
Adjusted diluted earnings per share (pence) 127.0 114.1
Basic and diluted earnings per share in accordance with IAS 33 'Earnings Per Share' are disclosed in Note 7.
2016 2015
Analysis of net debt £m £m
Bank overdrafts 12.3 1.7
Bank loans - unsecured 222.1 155.1
Total borrowings 234.4 156.8
Cash balances (83.5) (58.2)
Net debt 150.9 98.6
3. Operating segments
The Group has four reportable segments, as described below, which are the Group's strategic business units. These units
offer different applications, assist companies at various stages of the production cycle and are focussed towards specific
industries. These segments reflect 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 segment results include an allocation of head office expenses. The following summary describes the operations in each
of the Group's reportable segments:
· Materials Analysis provides products and services that enable customers to determine structure, composition,
quantity and quality of particles and materials during their research and product development processes, when assessing
materials before production, or during the manufacturing process. The operating companies in this segment are Malvern
Instruments, PANalytical and Particle Measuring Systems. Malvern Instruments and PANalytical merged as from 1 January
2017.
· Test and Measurement supplies test, measurement and analysis equipment, software and services for product design
optimisation and validation, manufacturing control, microseismic monitoring and environmental noise monitoring. The
operating companies in this segment are Brüel & Kjær
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