Review of Operations

• Chairman's Statement
• Chief Executive's Review
• Financial Review
• Statement of Directors' Responsibilities
• Principal Risks and Uncertainties

Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. Adjusted figures exclude certain non-operational items which management has defined as amortisation and impairment of acquisition-related intangible assets, profits or losses on the termination or disposal of businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan balances, related tax effects and other tax items which do not form part of the underlying tax rate. Unless otherwise stated, all profit and earnings figures referred to below are adjusted measures – for explanation of adjusted figures and reconciliation to the statutory reported figures see Note 2.

Reported sales in the first half increased by 4% from £358.5 million in 2008 to £371.5 million in 2009. Favourable movements in foreign currency exchange rates had an impact of approximately £60.4 million or 17% on sales, meaning that sales decreased by approximately 13% on a constant currency basis. The year-on-year impact on sales from acquisitions is approximately £25.9 million or 7% (2008: £5.5 million), resulting in an organic constant currency decline of 20%.

Reported operating profits decreased by 57% from £46.4 million in 2008 to £20.0 million in 2009. Movements in foreign currency exchange rates had a positive effect on operating profit of approximately £2.8 million or 6%. Volume reductions had a negative impact of £45.2 million, which was partially offset by overhead cost savings of £24.0 million. On a constant currency basis, profits decreased by approximately 63%. The year-on-year impact from acquisitions is a loss of approximately £1.2 million, before post-acquisition integration charges of approximately £4.0 million. With the integration into our businesses substantially complete, we are expecting a strong recovery from our acquisitions in the second half.

Unadjusted statutory operating profits, after including acquisition-related intangible asset amortisation charges of £3.2 million (2008: £1.7 million), decreased from £44.7 million in 2008 to £16.8 million in 2009.

The year-on-year increase in interest costs is £1.9 million (from £3.8 million in 2008 to £5.7 million in 2009). This includes £1.0 million relating to foreign exchange and the balance is due to average net debt being £55 million higher than the same period in 2008 as a result of acquisitions offset by lower interest rates. Profit before tax decreased by 66% from £42.6 million to £14.3 million.

Based on the forecast for the full year, the effective tax rate for the half year is 24% (2008 full year: 23.7%). Corporation tax paid at £17.7 million is higher than the tax charge due to payments required in respect of prior years.

The lower operating profits resulted in earnings per share decreasing by 65% from 26.6 pence to 9.4 pence.

Operating cash flow of £32.8 million is £8.7 million lower than the prior year (£41.5 million), despite the reduced operating profit. Rigorous working capital management and reduced capital expenditure led to cash conversion at 164% (2008: 89%). Nonetheless, net debt increased by £17.0 million (2008: increase of £13.2 million) from £162.1 million at 31 December 2008 to £179.1 million, mainly due to acquisitions.

Group finance director