Interim Results
28 August 2002
SPIRENT PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2002
Spirent plc (LSE: SPT; NYSE: SPM), a leading international network technology
company, today announced its interim results for the six months to 30 June
2002. Turnover was down 32 per cent and operating profit was down 56 per cent
compared with the first six months of 2001.
Because of the fundamental downward shift in the telecommunications market
since the first half of 2001, we believe it is more meaningful to compare our
first half 2002 results on a sequential basis with the second half of 2001. On
this basis, our results for the first six months of 2002 showed a 25 per cent
increase in operating profit generated by ongoing businesses on a 4 per cent
increase in turnover from ongoing businesses compared with the second half of
2001.
Highlights
£ million Six months to Six months to Six months to
30 June 2002 31 December 2001 30 June 2001
Turnover 311.0 342.9 458.9
Operating profit* 35.2 33.5 79.4
Profit before taxation* 31.4 27.3 73.6
Headline earnings per share*†2.42 2.22 5.54
(pence)
Interim dividend per share (pence) 1.35 1.35
* Turnover from ongoing businesses of £298.4 million was up 4 per cent and
operating profit of £34.9 million was up 25 per cent. Turnover from
divestments was £12.6 million and operating profit was £0.3 million.
* Communications group turnover increased by 3 per cent to £179.8 million
with operating profit up 26 per cent at £26.2 million.
* Communications group return on sales improved to 14.6 per cent compared
with 11.9 per cent.
* Network Products group turnover improved by 7 per cent to £84.7 million and
operating profit was up 33 per cent to £7.7 million.
* All groups were cash generative with cash generation from operations of £
40.7 million.
* Net debt reduced to £143.2 million at 30 June 2002. Interest cover for the
six months to 30 June 2002 was 5.8 times*.
* Since June we have invested £46.1 million in cash in the purchase of
certain assets of the remote special services test product line of Anritsu
and the acquisition of Caw Networks to enhance our Communications group's
product offering.
* Before goodwill amortisation and exceptional items
†Headline earnings per share for the six months to 30 June 2001 has been
restated to exclude all exceptional items and attributable taxation
Commenting on the results, Nicholas Brookes, Chief Executive, said:
'Spirent showed a decrease in sales and operating profit relative to the first
half of 2001, but delivered a resilient sequential performance from ongoing
businesses, with a 25 per cent increase in operating profit compared with the
second half of last year. In tough market conditions, Spirent has generated
cash and increased market share and profitability.
'In the Communications group, our focus on the current needs of the
telecommunications market ensures we are in-step with our customers, providing
them with solutions to analyse and assure next-generation networks and deliver
cost-efficiencies. Our Network Products business, which is less exposed to the
telecommunications market, achieved an encouraging performance in the first
half.
'The telecommunications market at this time shows no signs of improvement and
remains unpredictable but we believe we are strategically well positioned to
respond to our customers' evolving needs.'
- ends -
Enquiries
Nicholas Brookes, Chief Executive Spirent plc +44 (0)1293 767676
Eric Hutchinson, Finance Director
Investor Relations
Catherine Nash Spirent plc +44 (0)1293 767676
Media
Jon Coles/Rupert Young Brunswick (London) +44 (0)20 7404 5959
Lauren Teggelaar Brunswick (New York) +1 212 333 3810
About Spirent
Spirent plc is an international network technology company providing
state-of-the-art systems and solutions for a broad range of customers
worldwide. Our Communications group is a worldwide provider of integrated
performance analysis and service assurance systems for next-generation network
technologies. Spirent's solutions accelerate the development and deployment of
network equipment and services by emulating real-world conditions and assuring
end-to-end performance of large-scale networks. Our Network Products group
provides innovative solutions for fastening, identifying, insulating,
organising, routing and connectivity that add value to electrical and
communication networks in a wide range of applications. Our Systems group
offers integrated product solutions for the aerospace, power controls and
environmental markets. Further information about Spirent plc can be found at
www.spirent.com
Spirent plc is listed on the London Stock Exchange (ticker: SPT) and on the New
York Stock Exchange (ticker: SPM; CUSIP number: 84856M209) with one American
Depositary Receipt representing four Ordinary shares.
Spirent and the Spirent logo are trademarks of Spirent plc. All other
trademarks or registered trademarks are held by their respective companies. All
rights reserved.
This press release may contain forward-looking statements (as that term is
defined in the United States Private Securities Legislation Reform Act 1995)
that are based on current expectations or beliefs, as well as assumptions about
future events. You can identify these statements by their use of words such as
'will,' 'anticipate,' 'estimate,' 'expect,' 'project,' 'intend,' 'plan,'
'should,' 'may,' 'assume' and other similar words. You should not place undue
reliance on our forward-looking statements, which are not a guarantee of future
performance and are subject to factors that could cause our actual results to
differ materially from those expressed or implied by these statements. Such
factors include: aggressive competition; our ability to develop and
commercialise new products and services and realise product synergies; our
ability to focus on growth areas in the relevant markets; risks relating to the
acquisition or sale of businesses and our subsequent ability to integrate
businesses; our reliance on third party manufacturers and suppliers; our
exposure to liabilities for product defects; our reliance on proprietary
technology; our ability to attract and retain qualified personnel; risks of
doing business internationally; risks of downturns and continued downturns in
the markets in which we participate; and other risks described from time to
time in Spirent plc's Securities and Exchange Commission periodic reports and
filings. We undertake no obligation to update our forward-looking statements,
whether as a result of new information, future events or otherwise.
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2002
Notes:
1. Organic change is the change at constant currencies excluding the impact of
acquisitions and divestments.
2. Operating profit and return on sales are stated before goodwill
amortisation and exceptional items.
Operating Review
Communications
£ million Six months Six months to Six months Compared with
to 30 June 31 December to 30 June
2002 2001 2001 six months to
31 December 2001
Change Organic
change1
% %
______________________ ____________ ______________ __________ _______ _______
Turnover:
Performance Analysis 100.0 104.2 141.3 (4) (3)
Service Assurance 79.8 71.2 113.9 12 13
______________________ ____________ ______________ __________ _______ _______
179.8 175.4 255.2 3 3
Operating profit2:
Performance Analysis 7.0 5.7 33.0 23 24
Service Assurance 19.2 15.1 29.6 27 29
______________________ ____________ ______________ __________ _______ _______
26.2 20.8 62.6 26 27
Return on sales2 (per
cent):
Performance Analysis 7.0 5.5 23.4
Service Assurance 24.1 21.2 26.0
Communications group 14.6 11.9 24.5
=================== ========= =========== ========
Our Communications group as a whole achieved a 3 per cent increase in turnover
and a 27 per cent increase in operating profit on an organic basis in the first
six months of 2002 compared with the second half of 2001. Return on sales
improved to 14.6 per cent compared with 11.9 per cent in the second half of
2001 benefiting from the cost reductions taken last year and continuing tight
cost control. This creditable first half result was achieved against a backdrop
of continuing declines in research and development and capital expenditure by
our major customers, the network equipment manufacturers and carriers. These
results illustrate our ability to increase our share of customers' spending and
overall market share due to the demonstrable cost-efficiencies and unique
spread of technologies of our products.
Performance Analysis
Our Performance Analysis division saw a small drop in turnover in the first six
months of 2002 relative to the second half of 2001, but despite continuing
reductions in customers' capital expenditure budgets, the order intake rate has
remained at about £50 million per quarter for the last four quarters.
The improvement in return on sales from 5.5 per cent in the second half of 2001
to 7.0 per cent was largely due to cost-savings but these were partially
off-set by a change in product mix in the first six months of 2002. We have
seen weakening in the higher margin ATM/frame relay and voice sides of the
business due to a shift in customer spending. However, sales of our
industry-first integrated wireless CDMA-2000 position location test system
enabled us to more than double our wireless business over the first half of
2001. We also experienced good growth in the first half in our web, storage
area network and 10-gigabit Ethernet test products.
We continue to invest in product development in areas where we see
opportunities for growth and where our customers are increasingly concentrating
their investments, namely third generation wireless, local, storage and metro
area networks and the web. In addition, we are enhancing the scalability,
automation and ease-of-use of existing products in line with customer demand.
New products launched in the first six months of 2002 included our 40-gigabit
optical transport test system, CDMA-2000 wireless test solutions, and an
integrated IPv6 conformance test solution.
We saw encouraging progress in Asia in the first six months of 2002,
particularly in China and Japan, where customers are focusing on delivering
wireline and wireless data services using the new IPv6 protocol which we
address through our comprehensive IPv6 solutions portfolio.
In August 2002 we completed the acquisition of Caw Networks, Inc. (Caw). Caw's
products provide solutions for testing the integrity, security and reliability
of websites and web-based applications. Combined with our expertise in the
physical, data and network layers, we are now able to provide customers with
fully integrated solutions for real-world capacity assessment of web equipment,
networks and applications. The acquisition of Caw also provides us with
products and sales capabilities to address the important enterprise market.
Service Assurance
Our Service Assurance division achieved 13 per cent organic growth in turnover
over the second half of 2001 and 29 per cent organic growth in operating
profit. Return on sales improved to 24.1 per cent compared with 21.2 per cent
in the second half of 2001, partially due to an increased software and services
component. There was a significant reduction in order book levels during the
first quarter of 2002 due to seasonality and a change in customer ordering
patterns. The order book at 30 June 2002 stood at £46 million.
The growth in turnover was driven by continuing projects with our major
customers particularly in special (private line) services and the first full
scale deployment of CenterOp Sentry with Verizon Communications Inc. for fault
management of their nationwide DSL network in the US.
During the first six months of 2002 we launched two further additions to
CenterOp, our operations support systems product suite. CenterOp for CPN
(Converged Packet Networks) is a solution for the service assurance of
packet-based services over existing ATM and evolving IP infrastructures, and
CenterOp for Optical is the first service assurance solution to bridge the gap
between legacy provider optical networks and evolving next-generation optical
networks. Both these solutions are aimed at next-generation networks and will
enable customers to achieve timely and cost-effective deployment of their new
services, while reducing operational costs in their existing infrastructure.
The Service Assurance division continues to generate most of its turnover from
North America but we have made progress in addressing the opportunities
presented by DSL deployment programmes among European incumbent operators and
have strengthened our European sales and marketing presence to support these
efforts.
In July 2002 we completed the acquisition of Anritsu Company US's (Anritsu)
remote special services test product line which is a well-established product
family with a significant installed customer base at service providers such as
BellSouth Corporation and Korea Telecom. The acquisition complements our
existing special services product range and further establishes Spirent as a
leading provider of special services monitoring solutions.
Network Products
£ million Six months Six months to Six months Compared with
to to
31 December six months to
30 June 2001 30 June
2002 2001 31 December 2001
Change Organic
% change1
%
______________________ ___________ ______________ __________ _______ _______
Turnover 84.7 79.2 91.2 7 11
Operating profit2 7.7 5.8 9.5 33 34
Return on sales2 (per 9.1 7.3 10.4
cent)
===================== ========= =========== ======== ====== ======
Our Network Products group achieved an encouraging performance in the first six
months of 2002 with turnover up 11 per cent organically reflecting market share
gains and seasonality in the business. The results of the restructuring actions
taken in 2001 have also benefited operating profit for the first six months of
2002 with return on sales increasing to 9.1 per cent. On a geographic basis we
have seen market share gains in Europe as a result of a focused marketing
effort but sales in South America and Japan are weak reflecting the poor
economic conditions in those regions.
In telecommunications, the markets for our broadband and local area network
(LAN) products continued to decline as enterprise IT budgets have shrunk and
service providers have cut back on spending. However, we have increased our
penetration into new markets and secured new distribution channels which have
benefited our performance in this sector. Following on from a successful
introduction of our `Network Sciences' product line in North America, we have
begun delivering our LAN products under this name in the German market. The
first six months of the year also saw further launches of product upgrades and
modifications under the HellermannTyton name in the UK market. We have a long
and successful relationship with Verizon Logistics and in recognition of our
performance in 2001 they named HellermannTyton as `Supervendor of the Year'. We
also received Communications News magazine's `Editor's Choice' award for our
Spirit 2100 portable printing system displayed at the SUPERCOMM 2002 trade
show.
Sales to the automotive sector continue to be an important factor in the
group's progress with product introductions for new models at a number of car
makers and first tier suppliers increasing our market share, particularly in
Europe and South America, and driving growth in the first six months of 2002.
After a severe downturn, the US truck market is showing signs of recovery and
with incremental new products accepted onto new and existing vehicle platforms
we expect to benefit from the pick-up in this sector. Additionally, in the
first six months of the year we launched two new systems expanding our range of
fixing application tools.
Sales to the general industrial sector, distributors and wholesalers continue
to be affected by general economic trends but against this background we have
continued to increase our market share. Our recent three year contract to
supply ties to Consignia as their first vendor operating by means of XML
e-procurement is our largest single contract ever received in the UK.
Systems
£ million Six months Six months to Six months Compared with
to 30 June 31 December to 30 June
2002* 2001* 2001* six months to
31 December 2001
Change Organic
% change1
%
_____________________ ____________ _______________ ____________ _______ _______
Turnover 33.9 32.6 35.5 4 4
Operating profit2 1.0 1.4 0.9 (29) (27)
Return on sales2 (per 2.9 4.3 2.5
cent)
==================== ========= ============ ========= ====== ======
* Ongoing businesses
In the first six months of 2002 we completed the divestments of the aerospace
component businesses and Switching Systems International (SSI) from the Systems
group and the results for the six months to 30 June 2002 and 2001 and 31
December 2001 above have been adjusted to show the performance of the ongoing
businesses within this group. On an organic basis compared with the second half
of 2001, turnover was up 4 per cent and operating profit down 27 per cent
partly due to reorganisation costs charged in the first six months of 2002.
Spirent Systems' Maintenance, Repair and Overhaul (MRO) software solutions for
the aerospace industry (AuRATM and GOLDTM) continued to win new business in
both the civil and military sectors of the market. During the first six months
of 2002 new contracts were secured with TNT Express and the UK Ministry of
Defence.
Market acceptance of Spirent's Aviation Information Solutions (AIS) was
evidenced by Qantas Airway's decision to select Spirent to supply both hardware
and software for their new Airbus fleet. The AIS business also received the
Boeing Quality 100 Award which recognises Boeing's top 100 suppliers for
quality performance and reflects our ability to consistently deliver quality
products over time.
Our power controls business, which develops and manufactures digital position
controls primarily for use in vehicles for the disabled, had a very good first
half consolidating its market leading position whilst developing small
industrial vehicle applications.
The environmental business, which supplies pollution monitoring equipment to
the US energy plant construction market, has suffered from the general economic
slow-down in the US.
Interconnection Joint Venture
Our share of turnover from the WAGO joint venture was £37.1 million for the
first six months of 2002, 11 per cent down on the first six months of 2001.
Operating profit for the first six months of 2002 was £2.8 million, compared
with £6.6 million in the first six months of 2001. The effect of the current
economic slow-down was experienced in WAGO's major markets in Germany and Japan
and more significantly in the US, where domestic sales of the US business were
15 per cent below the same period in 2001.
New products currently under design will complete the existing range for the
interconnection and electronic market and are expected to help increase market
share in the process automation area. The new range of patent approved products
for the building installation sector launched last year in the German and Swiss
domestic markets has experienced good acceptance in the construction business
and important reference projects were won in the first six months of 2002.
The joint venture is closely monitoring and controlling its cost base and the
overall investment strategy is now in line with the worldwide economic
situation as well as meeting the challenge of market demand for new products.
Financial Review
£ million Six months to Six months to Six months
to
30 June 2002 31 December 30 June
2001 2001
_______________ ___________________ ___________ ____________ _________
Turnover Ongoing businesses 298.4 287.2 381.9
Divestments and
discontinued 12.6 55.7 77.0
operations
______________ ____________________ ___________ ____________ _________
Group 311.0 342.9 458.9
============= ================== ========== =========== ========
Operating Ongoing businesses 34.9 28.0 73.0
profit2
Divestments and
discontinued 0.3 5.5 6.4
operations
______________ ____________________ ___________ ____________ _________
Group 35.2 33.5 79.4
============= ================== ========== =========== ========
Return on sales2
(per cent) Ongoing businesses 11.7 9.7 19.1
Divestments and
discontinued 2.4 9.9 8.3
operations
Group 11.3 9.8 17.3
============= ================== ========== =========== ========
Turnover for the first six months of 2002 of £311.0 million was down 32 per
cent over the first six months of 2001 and 9 per cent below the second half of
2001. However, on an ongoing business basis, after adjusting for the effect of
the disposals of Sensing Solutions in 2001 and our aerospace component
businesses and SSI earlier this year, turnover of £298.4 million for the first
six months of 2002 was up 4 per cent over the comparable figure for the second
half of 2001.
Operating profit before goodwill amortisation and exceptional items of £35.2
million for the first six months of 2002 was down 56 per cent compared with the
same period in 2001. For ongoing businesses, operating profit of £34.9 million
for the first six months of 2002 increased by 25 per cent over the second half
of 2001. The results for the first six months of 2002 include a full six month
benefit from the cost reduction measures initiated in the second half of 2001.
We continue to pursue cost-savings where opportunities are identified.
Return on sales of 11.3 per cent for the first six months of 2002, although
significantly below the 17.3 per cent reported for the same period in 2001,
increased by 1.5 percentage points compared with the second half of 2001 due in
part to our cost reduction measures. The return on sales achieved by our
Communications group has improved over the second half of 2001 by 2.7
percentage points and by our Network Products group by 1.8 percentage points.
Reported loss before taxation was £22.4 million after charging exceptional
items of £27.1 million compared with a loss of £242.8 million after exceptional
charges of £269.7 million for the first six months of 2001. The effects of
currency translation, primarily due to the weakness of the US dollar, reduced
turnover by £4.8 million and profit before taxation, goodwill amortisation and
exceptional items by £0.3 million in the first six months of 2002. A 1 per cent
movement in the US dollar against sterling maintained over the whole year would
affect reported profit before taxation by approximately £0.4 million.
We have continued to invest in our businesses for future growth with product
development in the first six months of 2002 at £40.5 million or 13.0 per cent
of sales. By comparison, for the first six months of 2001 we invested £50.9
million or 11.1 per cent of sales.
An exceptional charge of £2.3 million for acquisition retention bonuses has
been reported in the first six months of 2002 and no further operating
exceptional charges arose in the period. An exceptional loss of £24.8 million
is reported on the disposal of our aerospace component businesses and SSI,
after the effect of reinstating £38.1 million of goodwill previously charged to
reserves. It was not necessary to make any further significant provisions in
respect of excess inventories or receivables beyond those taken in the year to
31 December 2001.
The effective rate of taxation for the first six months of 2002 decreased to
28.7 per cent (full year 2001 29.4 per cent) and we expect this rate to be
sustainable.
Headline earnings per share of 2.42 pence decreased by 56 per cent compared
with earnings per share for the first six months of 2001 of 5.54 pence.
Compared with headline earnings per share for the second half of 2001 of 2.22
pence, this represents a 9 per cent increase. The weighted average number of
shares outstanding at 30 June 2002 was 920.5 million (full year 2001 915.1
million). After charging goodwill amortisation and exceptional items, basic
loss per share for the six months to 30 June 2002 was 3.42 pence (2001 loss
28.47 pence).
Net debt at 30 June 2002 closed at £143.2 million, reduced from £179.1 million
at 31 December 2001. This represents 13 per cent of shareholders' funds (full
year 2001 16 per cent) and 1.3 times earnings before interest, taxation,
depreciation, goodwill amortisation and exceptional items (full year 2001 1.2
times). Interest cover, adjusted for goodwill amortisation and exceptional
items, was 5.8 times (full year 2001 5.4 times). The effect of currency
translation reduced net borrowings by £5.7 million at 30 June 2002. At 30 June
2002 we had confirmed undrawn facilities available to us of £190 million under
the syndicated bank facility.
Since 30 June 2002 we have invested £46.1 million in cash in the purchase of
certain assets of the remote special services test product line of Anritsu and
the acquisition of Caw.
We were cash flow positive in all our groups in the first six months of 2002
with operating cash inflow of £40.7 million. This was 24 per cent below
operating cash flow for the first half of 2001 due to the slow-down in trading
and substantially below that for the second half of 2001. Operating cash inflow
in the second half of 2001 had however been influenced by a number of
initiatives which, together with a continued slow-down in trading, had the
effect of improving working capital by £47.5 million in that period.
Net interest payments in the first six months of 2002 were £6.1 million
compared with £15.6 million for the same period of 2001 as a result of the
reduction in borrowings and a fall in interest rates.
We have significantly reduced our capital expenditure budget, spending £14.1
million in the first six months of 2002 compared with a spend of £30.1 million
for the first half of 2001. This level of spend is below our depreciation
charge.
Cash proceeds, net of expenses, of £41.5 million were received in the first six
months of 2002 from divestments.
Dividend
The interim dividend for the first six months of 2002 has been maintained at
1.35 pence per share. This is payable on 4 November 2002 to Ordinary
shareholders (14 November 2002 for ADR holders) on the register at the close of
business on 11 October 2002.
Acquisitions
In July 2002 we completed the purchase of certain assets of the remote special
services test product line of Anritsu for a cash consideration of £16.8
million.
In August 2002 we completed the acquisition of Caw for an initial consideration
of £29.3 million in cash and £2.7 million in a combination of Spirent
restricted shares and options. In addition, deferred consideration up to a
maximum value of approximately £39.2 million, expected to be satisfied by the
issue of a maximum of 32.7 million Spirent shares at current exchange rates, is
payable on an earn-out basis dependent upon the revenues and certain
technological milestones achieved by Caw for the year ending 31 December 2003.
Divestments
In April 2002 we completed the sale of our aerospace component businesses from
within the Systems group to Curtiss-Wright Corporation for a cash consideration
of £42.1 million.
In May 2002 we announced the sale of SSI for which we have received a cash
consideration of £5.0 million.
These businesses contributed revenues for the period up to divestment of £12.6
million with a combined operating profit of £0.3 million. The proceeds from the
divestments have been used to fund further investments in the expansion of the
Communications group.
Board
We were very saddened by the sudden death of our Non-executive Chairman, Dr
George Sarney, on 30 April 2002. He made an important contribution to the
transformation of the Company into a focused network technology group. We were
also sad to learn of the death of Ray Parsons, Life President, in April 2002.
He was a founder member, with Jack Bowthorpe, of the Company and was previously
Group Managing Director and Executive Chairman.
On 7 May 2002 we announced the appointment of James Wyness as Acting Chairman.
Mr Wyness is the senior independent Non-executive Director and Chairman of the
Audit Committee of Spirent plc. We have instigated a search process to find a
successor for the role of Non-executive Chairman and hope to announce an
appointment before the end of the year.
Our People
Our performance in the first six months of 2002 is testament to the drive and
dedication of our outstanding workforce. Our people have worked hard to
minimise the impact of continuing poor market conditions and, through a focus
on new technology and customer service, to lay the ground for growth. We remain
committed to maintaining an environment within Spirent that nurtures and
rewards achievement and within which people can excel. We thank all our
employees for their considerable achievements in the year to date.
Outlook
The telecommunications market at this time shows no signs of improvement and
remains unpredictable but we believe we are strategically well positioned to
respond to our customers' evolving needs.
Consolidated Profit and Loss Account
Year to
£ million Notes Six months to 30 June 31 December
2002 2001 2001
_______________________________________________ _____________
Before Exceptional Total Total Total
exceptional items
items
Turnover: Group and
share
of joint venture 348.1 - 348.1 500.6 880.1
Less: share of joint
venture's
turnover (37.1) - (37.1) (41.7) (78.3)
____________ ____________ ________ __________ _____________
Turnover 1,2 311.0 - 311.0 458.9 801.8
____________ ____________ ________ __________ _____________
Operating profit/(loss) 1,2 8.5 (2.3) 6.2 (233.2) (733.2)
___________________________________________________________________________________________
Operating exceptional
items
Goodwill impairment - - - 247.6 724.6
Other 3 - 2.3 2.3 18.3 34.9
Goodwill amortisation 26.7 - 26.7 46.7 86.6
Operating profit before
goodwill amortisation
and
exceptional items 1,2 35.2 - 35.2 79.4 112.9
___________________________________________________________________________________________
Income from interest in
joint
venture 2.8 - 2.8 6.6 9.6
(Loss)/income from
interests
in associates less
goodwill
amortisation (0.1) - (0.1) 0.7 1.2
____________ ____________ ________ __________ _____________
Operating profit/(loss)
of
the Group, joint
venture
and associates 11.2 (2.3) 8.9 (225.9) (722.4)
Non-operating
exceptional
items
(Loss)/profit on
disposal and
closure of operations - (24.8) (24.8) (3.8) 14.5
____________ ____________ ________ __________ _____________
Loss before interest 11.2 (27.1) (15.9) (229.7) (707.9)
____________ ____________
Net interest payable (6.5) (13.1) (22.8)
________ __________ _____________
Loss before taxation (22.4) (242.8) (730.7)
Taxation 5 9.0 17.2 32.6
________ __________ _____________
Loss after taxation (31.4) (260.0) (763.3)
Minority shareholders'
interest 0.1 0.1 0.2
________ __________ _____________
Loss attributable to
shareholders (31.5) (260.1) (763.5)
Dividends 12.5 12.5 40.0
________ __________ _____________
Loss for the period (44.0) (272.6) (803.5)
======= ========= ============
Basic and diluted loss
per
share (pence) 4 (3.42) (28.47) (83.43)
Headline earnings per
share†(pence) 4 2.42 5.54 7.76
Net dividend per share
(pence) 1.35 1.35 4.35
†Headline earnings per share for the six months to 30 June 2001 has been
restated to exclude all exceptional items and attributable taxation
Consolidated Statement of Total Recognised Gains and Losses
Year to
£ million Six months to 30 June 31 December
____________________________ ______________
2002 2001 2001
Loss attributable to (31.5) (260.1) (763.5)
shareholders
Gain on lapsed options 4.0 - 3.3
Exchange adjustment on
subsidiaries,
joint venture and associates (9.7) 10.4 (0.2)
UK current taxation on exchange
adjustment - (0.3) (2.6)
____________ ____________ ______________
Total recognised gains and (37.2) (250.0) (763.0)
losses
=========== =========== =============
The interim dividend is payable on 4 November 2002 to Ordinary shareholders (14
November 2002 for ADR holders) on the register at the close of business on 11
October 2002.
Consolidated Balance Sheet
£ million At 30 June At 31 December
_________________________________ _________________
2002 2001 2001
Fixed assets
Intangible assets 943.4 1,544.8 987.7
Tangible assets 123.5 151.0 137.6
Investment in joint
venture
Share of gross assets 72.1 68.4 69.0
Share of gross (24.8) (26.9) (24.7)
liabilities
______ ________ ______
47.3 41.5 44.3
Investment in 18.5 12.7 18.3
associates
Other investments 32.2 35.3 34.1
______ ______ ______
98.0 89.5 96.7
______ ______ ______
Total fixed assets 1,164.9 1,785.3 1,222.0
Current assets
Stocks 74.5 123.8 93.1
Debtors 139.0 179.0 143.4
Investments 0.1 0.6 0.3
Cash at bank and in 26.0 44.5 27.6
hand
______ ______ ______
239.6 347.9 264.4
______ ______ ______
Current liabilities
Creditors due within 138.9 146.8 166.8
one year
Loans and overdrafts 3.1 20.7 11.2
______ ______ ______
142.0 167.5 178.0
______ ______ ______
Net current assets 97.6 180.4 86.4
______ ______ ______
Assets less current 1,262.5 1,965.7 1,308.4
liabilities
Long term liabilities
Creditors due after
more than
one year (179.9) (387.0) (210.1)
Provisions for
liabilities and
charges (1.3) (2.9) (1.5)
______ ______ ______
Assets less liabilities 1,081.3 1,575.8 1,096.8
======= ======= ==========
Shareholders' funds - 1,079.3 1,571.9 1,094.4
equity
Minority interests - 2.0 3.9 2.4
equity
______ ______ ______
1,081.3 1,575.8 1,096.8
======= ======= ==========
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's 2001 statutory accounts. The interim
financial information is unaudited but has been reviewed by the auditors.
The comparative financial information for the year to 31 December 2001 is based
on the statutory accounts for that period. Those accounts, upon which the
auditors issued an unqualified opinion, have been delivered to the Registrar of
Companies.
The interim report for the six months to 30 June 2002 was approved by the
Directors on 28 August 2002.
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985.
Consolidated Cash Flow Statement
Year to
£ million Six months to 30 June 31 December
_________________________ ____________
2002 2001 2001
Net cash inflow from operating 40.7 53.9 141.2
activities
Dividends received from joint 0.2 1.7 1.6
venture
Dividends received from associates 0.2 0.2 0.2
Returns on investments and
servicing of
finance (6.1) (15.6) (23.9)
Taxation (6.4) (13.2) (21.0)
Capital expenditure and financial (14.1) (30.2) (57.7)
investment
__________ __________ _____________
Cash inflow/(outflow) before
acquisitions
and disposals, equity dividends
and
financing 14.5 (3.2) 40.4
Acquisitions and disposals 41.5 23.9 149.6
Equity dividends paid (27.6) (27.4) (39.8)
Management of liquid resources 0.2 3.3 3.6
Financing (32.2) 19.4 (152.8)
__________ __________ _____________
Net cash (outflow)/inflow (3.6) 16.0 1.0
========= ========= ============
Reconciliation of Net Cash Flow to Movement in Net Debt
Year to
£ million Six months to 30 June 31 December
_________________________ ____________
2002 2001 2001
Net cash (outflow)/inflow (3.6) 16.0 1.0
Cash outflow/(inflow) arising from
the change
in debt and lease financing 34.5 (17.8) 157.7
Cash inflow arising from the
decrease in
liquid resources (0.2) (3.3) (3.6)
___________ ___________ _____________
Movement arising from cash flows 30.7 (5.1) 155.1
New finance leases (0.5) - (0.8)
Exchange adjustment 5.7 (15.4) (7.0)
___________ ___________ _____________
Movement in net debt 35.9 (20.5) 147.3
Net debt at 1 January (179.1) (326.4) (326.4)
___________ ___________ _____________
Net debt (143.2) (346.9) (179.1)
========== ========== ============
Notes
1. Segmental Analysis
£ million Six months to 30 June Year to 31 December
____________________________________ ____________________
2002 % 2001 % 2001 %
Turnover
Performance Analysis 100.0 34 141.3 37 245.5 37
Service Assurance 79.8 27 113.9 30 185.1 28
_____________ ____ ____________ ____ _______________ _____
Communications 179.8 61 255.2 67 430.6 65
Network Products 84.7 28 91.2 24 170.4 25
Systems 33.9 11 35.5 9 68.1 10
_____________ ____ ____________ ____ _______________ _____
298.4 100 381.9 100 669.1 100
Divested operations: === === ====
Systems 12.6 30.4 55.9
Discontinued
operations:
Sensing Solutions - 46.6 76.8
_____________ ____ ____________ ____ _______________
311.0 458.9 801.8
============ ==== ============ === ==============
Operating profit/
(loss)
Operating profit
before goodwill
amortisation and
exceptional
items
Performance Analysis 7.0 20 33.0 45 38.7 39
Service Assurance 19.2 55 29.6 41 44.7 44
_____________ ____ ____________ ____ _______________ _____
Communications 26.2 75 62.6 86 83.4 83
Network Products 7.7 22 9.5 13 15.3 15
Systems 1.0 3 0.9 1 2.3 2
_____________ ____ ____________ ____ _______________ _____
34.9 100 73.0 100 101.0 100
Divested operations: === === ====
Systems 0.3 1.8 3.8
Discontinued
operations:
Sensing Solutions - 4.6 8.1
_____________ ____ ____________ ____ _______________
35.2 79.4 112.9
_____________ ____ ____________ ____ _______________
Goodwill
amortisation
Performance Analysis (9.7) (14.9) (24.6)
Service Assurance (16.0) (30.0) (58.7)
_____________ ____ ____________ ____ _______________
Communications (25.7) (44.9) (83.3)
Network Products (0.7) (0.7) (1.5)
Systems (0.1) (0.1) (0.2)
_____________ ____ ____________ ____ _______________
(26.5) (45.7) (85.0)
Divested operations:
Systems (0.2) (0.2) (0.4)
Discontinued
operations:
Sensing Solutions - (0.8) (1.2)
_____________ ____ ____________ ____ _______________
(26.7) (46.7) (86.6)
Operating
exceptional items
Goodwill impairment
Performance Analysis - (192.2) (192.2)
Service Assurance - (55.4) (532.4)
_____________ ____ ____________ ____ _______________
Communications - (247.6) (724.6)
_____________ ____ ____________ ____ _______________
Other
Performance Analysis (0.6) (15.2) (26.8)
Service Assurance (1.4) (1.9) (4.6)
Network Products (0.3) (1.2) (2.9)
Systems - - (0.6)
_____________ ____ ____________ ____ _______________
(2.3) (18.3) (34.9)
_____________ ____ ____________ ____ _______________
Operating profit/ 6.2 (233.2) (733.2)
(loss)
============ ==== ============ === ==============
2. Geographical Analysis
£ million Six months to 30 June Year to 31 December
_________________________________ ___________________
2002 % 2001 % 2001 %
Turnover by market
Europe 70.9 24 84.4 22 154.0 23
North America 183.5 61 250.3 66 429.5 64
Asia Pacific, Rest of
Americas, Africa 44.0 15 47.2 12 85.6 13
___________ ____ ___________ ___ _____________ ____
298.4 100 381.9 100 669.1 100
___________ ==== ___________ === _____________ ====
Divested operations:
Europe 4.6 13.7 24.7
North America 7.3 14.1 27.0
Asia Pacific, Rest of
Americas, Africa 0.7 2.6 4.2
___________ ___________ _____________
12.6 30.4 55.9
___________ ___________ _____________
Discontinued
operations:
Europe - 12.5 20.7
North America - 27.9 45.7
Asia Pacific, Rest of
Americas, Africa - 6.2 10.4
___________ ___________ _____________
- 46.6 76.8
___________ ___________ _____________
311.0 458.9 801.8
=========== ========== ============
Turnover by source
Europe 76.1 26 79.3 21 150.9 23
North America 210.3 70 287.7 75 491.5 73
Asia Pacific, Rest of
Americas, Africa 12.0 4 14.9 4 26.7 4
___________ ____ ___________ ___ _____________ ____
298.4 100 381.9 100 669.1 100
___________ ==== ___________ === _____________ ====
Divested operations:
Europe 6.3 18.2 32.8
North America 6.3 12.2 23.1
Asia Pacific, Rest of
Americas, Africa - - -
___________ ___________ _____________
12.6 30.4 55.9
___________ ___________ _____________
Discontinued
operations:
Europe - 12.4 20.6
North America - 29.2 48.3
Asia Pacific, Rest of
Americas, Africa - 5.0 7.9
___________ ___________ _____________
- 46.6 76.8
___________ ___________ _____________
311.0 458.9 801.8
=========== ========== ============
2. Geographical Analysis (continued)
£ million Six months to 30 June Year to 31 December
_____________________________________ _____________________
2002 % 2001 % 2001 %
Operating profit/
(loss) by
source
Operating profit
before goodwill
amortisation and
exceptional
items
Europe 11.2 32 9.4 13 17.9 18
North America 23.1 66 62.1 85 81.5 81
Asia Pacific, Rest
of Americas,
Africa 0.6 2 1.5 2 1.6 1
____________ ____ _____________ ____ ______________ _____
34.9 100 73.0 100 101.0 100
____________ ==== _____________ === ______________ =====
Divested operations: 0.5 1.5 3.7
Europe
North America (0.2) 0.3 0.1
Asia Pacific, Rest
of Americas,
Africa - - -
____________ _____________ ______________
0.3 1.8 3.8
____________ _____________ ______________
Discontinued - 1.1 2.3
operations:
Europe
North America - 3.7 6.3
Asia Pacific, Rest
of Americas,
Africa - (0.2) (0.5)
____________ _____________ ______________
- 4.6 8.1
____________ _____________ ______________
35.2 79.4 112.9
____________ _____________ ______________
Goodwill
amortisation
Europe (0.6) (0.7) (1.4)
North America (25.8) (44.9) (83.5)
Asia Pacific, Rest
of Americas,
Africa (0.1) (0.1) (0.1)
____________ _____________ ______________
(26.5) (45.7) (85.0)
____________ _____________ ______________
Divested operations: - - -
Europe
North America (0.2) (0.2) (0.4)
Asia Pacific, Rest
of Americas,
Africa - - -
____________ _____________ ______________
(0.2) (0.2) (0.4)
____________ _____________ ______________
Discontinued - (0.1) (0.1)
operations:
Europe
North America - (0.6) (0.9)
Asia Pacific, Rest
of Americas,
Africa - (0.1) (0.2)
____________ ____________ ______________
- (0.8) (1.2)
____________ ____________ ______________
(26.7) (46.7) (86.6)
____________ _____________ ______________
Operating
exceptional items
Goodwill impairment
North America - (247.6) (724.6)
Other
Europe (0.3) (1.2) (2.5)
North America (2.0) (17.1) (32.1)
Asia Pacific, Rest
of
Americas, Africa - - (0.3)
____________ _____________ ______________
Operating profit/
(loss) by
source 6.2 (233.2) (733.2)
____________ _____________ ______________
Average exchange
rates
US dollar 1.45 1.44 1.44
Euro 1.61 1.61 1.61
3. Operating Exceptional Items - Other
Year to
£ million Six months to 30 June 31 December
_______________________ ____________
2002 2001 2001
Stocks and debtors provisions - 14.9 19.4
Reorganisation costs - 0.5 11.3
Acquisition retention bonuses 2.3 2.9 4.2
___________ ___________ _____________
2.3 18.3 34.9
Tax effect of exceptional items (0.7) (5.7) (10.3)
___________ ___________ _____________
1.6 12.6 24.6
========== ========== ==========
4. (Loss)/Earnings per Share
(Loss)/earnings per share is calculated by reference to the (loss)/earnings for
the period and the number of Ordinary shares in issue during the period as
follows:
Year to
£ million Six months to 30 June 31 December
__________________________ ____________
2002 2001 2001
Basic and diluted loss
attributable to
shareholders (31.5) (260.1) (763.5)
__________ __________ _____________
Exceptional items
Goodwill impairment - 247.6 724.6
Other 2.3 18.3 34.9
Goodwill amortisation 26.7 46.7 86.6
Exceptional item - loss/(profit)
on disposal
and closure of operations 24.8 3.8 (14.5)
Attributable taxation on (0.7) (5.7) (10.3)
exceptional items
Attributable taxation on the
disposal of
operations 0.7 - 13.2
__________ __________ _____________
Headline earnings attributable to
shareholders 22.3 50.6 71.0
========== ========== ============
Weighted average number of
Ordinary
shares in issue basic, headline
and diluted
(million) 920.5 913.7 915.1
========== ========== ============
5. Taxation
Year to
£ million Six months to 30 June 31 December
_________________________ ____________
2002 2001 2001
UK taxation 3.4 6.4 7.3
Overseas taxation 4.6 7.9 22.1
__________ __________ ____________
8.0 14.3 29.4
Share of joint venture's taxation 0.9 2.6 2.7
Share of associates' taxation 0.1 0.3 0.5
__________ _________ ____________
9.0 17.2 32.6
========= ======== ===========
6. Reconciliation of Operating Profit/(Loss) to Net Cash Inflow from Operating
Activities
Year to
£ million Six months to 30 June 31 December
_________________________ ____________
2002 2001 2001
Operating profit/(loss) 6.2 (233.2) (733.2)
Depreciation 18.0 17.2 37.2
(Profit)/loss on disposal of
tangible fixed
assets (0.1) 0.3 2.1
Goodwill impairment - 247.6 724.6
Amortisation of goodwill 26.7 46.7 86.6
Acquisition retention bonuses, 0.2 0.3 0.4
non-cash
Deferred income released (3.7) (18.8) (17.8)
(Increase)/decrease in debtors (9.6) 3.6 29.2
Decrease in stocks 2.9 15.4 27.8
Increase/(decrease) in creditors 0.1 (25.2) (15.7)
__________ __________ _____________
Net cash inflow from operating 40.7 53.9 141.2
activities
========= ======== ===========
7. Net Income under US GAAP
Year to
£ million Six months to 30 June 31 December
______________________ ___________
2002 2001 2001
Loss attributable to shareholders in
accordance
with UK GAAP (31.5) (260.1) (763.5)
__________ _________ ___________
Adjustments:
Goodwill and other intangible fixed (a) 16.5 (78.4) (70.5)
assets
Stock-based compensation (b) (0.3) 16.9 18.3
Disposal of operations (c) 16.6 0.1 35.8
Other differences between UK GAAP and (d) 5.7 2.4 6.2
US GAAP
__________ _________ ___________
Total adjustments 38.5 (59.0) (10.2)
__________ _________ ___________
Net income/(loss) as adjusted to accord
with US
GAAP 7.0 (319.1) (773.7)
========= ========= ===========
Arising from:
Continuing operations 15.6 (321.4) (816.4)
Discontinued operations (e)
Result for the period (net of tax) 0.3 2.3 2.9
(Loss)/profit on disposal (net of tax) (8.9) - 39.8
__________ _________ ___________
Net income/(loss) 7.0 (319.1) (773.7)
========= ========= ===========
Earnings per share (pence)
Basic:
Continuing operations 1.69 (35.17) (89.21)
Discontinued operations (e) (0.93) 0.25 4.66
__________ _________ ___________
0.76 (34.92) (84.55)
__________ _________ ___________
Diluted:
Continuing operations 1.67 (35.17) (89.21)
Discontinued operations (e) (0.93) 0.25 4.66
__________ _________ ___________
0.74 (34.92) (84.55)
__________ _________ ___________
a. Goodwill and other intangible fixed assets
Under UK GAAP, goodwill arising on acquisitions prior to 1998 was written off
to retained earnings on acquisition. In accordance with Financial Reporting
Standard No. 10, goodwill arising on acquisitions subsequent to 1 January 1998
is capitalised and amortised over its estimated useful economic life which is
defined as the period over which the value of the underlying business acquired
is expected to exceed the values of its identifiable net assets and is presumed
to be limited to 20 years. In reconciling to US GAAP, amounts of goodwill
arising on acquisitions prior to 1998 written off to retained earnings on
acquisition, have been capitalised and amortised over their estimated useful
economic lives, until 1 January 2002.
Under US GAAP, with the adoption of US Statement of Financial Accounting
Standards (SFAS) 142, effective 1 January 2002, goodwill is no longer amortised
but is subject to periodic review for impairment. Prior to 1 January 2002
purchased goodwill was amortised over the estimated period which benefits from
the original purchased goodwill, which was typically in the range of seven to
ten years.
Other intangible assets included in, and accounted for as, goodwill under UK
GAAP but reclassified under US GAAP continue to be amortised over their
individually determined estimated useful economic lives, subject to the
provisions of SFAS 141, which clarifies the criteria to recognise these
intangible assets separately from goodwill.
In the six months to 30 June 2002 these differences resulted in a UK-US GAAP
adjustment to increase income under US GAAP by £16.5 million. In the six months
to 30 June 2001, goodwill and other intangible assets were being amortised
under US GAAP over periods which were predominantly shorter than under UK GAAP.
In addition, a UK-US GAAP adjustment was made to increase the UK GAAP
impairment charge by £10.3 million. Together these resulted in a UK-US GAAP
adjustment to decrease income under US GAAP for the six months to 30 June 2001
by £78.4 million.
b. Stock-based compensation
Under UK GAAP, no compensation expense arises under the Company's various share
option plans. However, UK corporate governance recommends the inclusion of
performance criteria in UK stock plans and accordingly the UK ESOS plan
includes certain performance criteria, which result in variable accounting
under US GAAP. In reconciling to US GAAP we have elected to use the intrinsic
value basis of calculating compensation expense for this plan, determined by
reference to the Company's share price at each period end. In addition, an
expense arises under US GAAP in respect of the Zarak Amended and Restated Stock
Option Plan, based upon the intrinsic value of unvested stock awards at the
date of acquisition, recognised over the remaining future vesting period. In
the six months to 30 June 2002 these differences resulted in a UK-US GAAP
adjustment to decrease income under US GAAP by £0.3 million (2001 £16.9 million
increase to income).
c. Disposal of operations
The different treatment of goodwill arising on acquisitions prior to 1998 under
UK GAAP and US GAAP, together with the use of different goodwill amortisation
periods and the adoption of SFAS 142, result in adjustments to profit or losses
on disposals of businesses as the determination of the profit or loss on
disposal takes into account the unamortised balance of goodwill released. In
addition, under US GAAP, the profit or loss on disposal is stated net of any
related cumulative currency retranslation differences. In the six months to 30
June 2002 these differences resulted in a UK-US GAAP adjustment to the loss on
disposal calculation of £16.6 million (2001 £0.1 million).
d. Other differences between UK GAAP and US GAAP
Further accounting differences relating to taxation, derivative financial
instruments, vacation accruals and pensions were identified. In aggregate for
the six months to 30 June 2002 these adjustments resulted in additional income
under US GAAP of £5.7 million (2001 £2.4 million).
e. Discontinued operations
Under UK GAAP, the disposal of our aerospace component businesses and SSI from
the Systems group during the six months to 30 June 2002 do not qualify to be
treated as discontinued operations. Under US GAAP, in accordance with SFAS 144,
they qualify as components of an entity and are therefore presented as
discontinued operations. The presentation of net income from discontinued
operations for the six months to 30 June 2001 reflects both these disposals and
the disposal of Sensing Solutions in November 2001.
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