Materials Analysis provides a wide range of analytical instrumentation and systems for material characterisation to the metals and mining, pharmaceutical and life sciences, and semiconductor industries. Our products help customers to improve accuracy and speed of materials analysis in the laboratory and in process manufacturing applications. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems.

In addition to the need to improve process manufacturing productivity, a key factor in the demand for this segment's products is the requirement for certification to comply with regulation, for example for quality control in the manufacture of drugs in the pharmaceutical industry and detection of materials such as lead and cadmium to meet legislation on the use of hazardous substances. Another driver for materials analysis instrumentation is the growth in new molecular and material sciences, where our equipment is used to analyse and characterise materials and structures in the development of new products.

Sales in Materials Analysis increased by 18% (8% at constant currencies) to £253.2 million. Operating profit increased by 8% to £37.5 million. Operating margins declined from 16.3% to 14.8%. Approximately 0.9pp of this reduction was due to a 34% increase in research and development expenditure in this segment from 7.5% to 8.4% of sales, and 0.6pp was due to the dilutive effects of foreign exchange rates.

Malvern launched a number of new products aimed at the pharmaceutical and life sciences industry, with particular emphasis on the characterisation of proteins. These included two additions to the highly successful Zetasizer family: the Zetasizer APS and the Zetasizer μV, both of which are used for measuring the particle size and distribution of proteins and nano-particles in drug development. These products utilise technology developed by Viscotek, the business Malvern acquired in January. Particle Measuring Systems continued to focus on contamination monitoring products for the pharmaceutical industry and extended its capabilities for counting aerosol particle concentrations in the nano-particulate range (down to one nanometre of diameter) through the acquisition of a 31.2% investment in Naneum Limited, a company supplying instruments for nano-technology applications.

PANalytical saw continuing demand from the metals, minerals and mining industry, despite the sector slowing in the second half of the year, as the need for greater efficiency and cost reduction sustained demand for analytical instruments. The company extended its range of products specifically designed for materials applications. One example is the MiniPal 4 Sulfur, based on the highly successful MiniPal compact spectrometer. Designed for petrochemical analysis, this product helps industrial customers demonstrate, amongst other things, compliance with new European legislation on sulphur in fuel. X-ray fluorescence spectroscopy has also emerged as an optimal solution for the screening of toxic heavy metals regulated by the EU directives RoHS (Restriction of Hazardous Substances) and WEEE (Waste Electrical and Electronic Equipment) and PANalytical's equipment is helping customers to ensure their products meet these standards.

In the semiconductor industry, with a few notable exceptions, there was a decline in investment in capital equipment and the industry is beginning to see some consolidation. The reduction in demand for production-related equipment was offset to some extent by continued demand from universities and government-funded institutions for research and development solutions for the analysis of new materials and complex structures, particularly in the fields of material sciences, which benefited PANalytical.

We expect that consolidation in the pharmaceutical sector will continue to be a feature of the industry, however, our operating companies, with the new products and applications they have recently introduced, together with those they have acquired, are well placed to capture the opportunities in this sector, particularly in the increasingly important fields of life sciences and biotechnology. Demand in the metals, minerals and mining industry fell sharply towards the end of 2008 as capital expenditure was reined in, however, service and consumables are a major feature in this sector and we expect the demand for these to continue. Although demand in the semiconductor industry is not expected to improve in 2009, this market represents less than 5% of revenues in this segment and is thus not expected to have a significant impact.