Final Results
Spirent Communications PLC
28 February 2008
SPIRENT COMMUNICATIONS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
LONDON, UK - 28 February 2008: Spirent Communications plc ("Spirent" or the
"Group") (LSE: SPT), a leading communications technology company, today
announces its preliminary results for the financial year ended 31 December 2007.
Group highlights
• Adjusted earnings per share from continuing operations up 141 per cent at
3.57 pence (2006: 1.48 pence) after charging 0.38 pence (2006: 0.62 pence)
for share-based payment and amortisation of intangibles.
• Earnings per share up 220 per cent in the second half of 2007 at 2.72 pence
(second half 2006: 0.83 pence) after share-based payment and amortisation of
intangibles of 0.22 pence, due to restructuring actions implemented in the
first half.
• Strategic Review completed delivering expected annualised cost savings
of £29.0 million, ahead of initial £21.5 million target.
• Adjusted operating profit from continuing operations up over 200 per
cent at £25.5 million (2006: £8.4 million).
• Strong free cash generation of £50.2 million (2006: outflow of £6.4
million) with closing net cash of £79.0 million.
• Total of £75.0 million returned through share repurchases since 1
January 2007, including £8.7 million returned since the year end.
• At this stage the outlook for 2008 is encouraging.
Divisional highlights
• Performance Analysis: strong second half profit growth with adjusted
operating return on sales increased to 20 per cent.
- Contributed 87 per cent of Group operating profit before exceptionals
for the year; adjusted operating profit of £22.3 million (2006:
£10.6 million).
- Returned to revenue growth in constant currencies in the second half of
5 per cent over the second half of 2006, with growth across all major
product areas.
- Passed key inflection point with new broadband products' order intake
growth of £14.3 million in the second half of 2007 now outpacing the
decline in that for legacy products of £11.0 million.
- Order book increased substantially compared to 2006 resulting in
enhanced sales visibility.
• Service Assurance: stabilised with marked improvement in profitability in
the second half.
• Systems: gradually diversifying while continuing to generate 11 per cent
return on sales.
Edward Bramson, Chairman, commented:
"It is very pleasing to see that Spirent has delivered on all our stated
objectives, including increasing the Group's profitability and predictability,
as well as its financial flexibility.
"We finished the year with the Group restructuring completed, having exceeded
our initial cost saving targets. However, these strong results, with the
performance in the second half ahead of original expectations, reflect more than
a successful restructuring and cost reduction exercise. Operationally, the
business is in a much better position with new products, improved manufacturing
processes and a clear focus on key areas such as the wireless market which offer
significant potential opportunities.
"The year also saw an increasing trend of winning orders, enhancing visibility
and in turn providing additional confidence around the prospects for the Group.
In addition, our strong free cash flow performance has enabled us to continue
our share repurchase programme, reaching a total of 12 per cent of the opening
issued Ordinary share capital during the year.
"At this stage the outlook for 2008 is encouraging."
Results summary
Underlying
change at
constant
£ million 2007 2006 Change (%) currency (%)
---------------------------------------------------------------------------------------------------------------
Reported
Continuing operations
Revenue 237.0 258.9 (8) (2)
Profit/(loss) before tax 17.8 (22.3)
Basic earnings/(loss) per share (pence) 2.97 (2.45)
Adjusted
Continuing operations
Operating profit1 25.5 8.4 204 260
Profit before tax2 32.2 14.4 124 157
Adjusted earnings3 per share (pence) 3.57 1.48 141 177
---------------------------------------------------------------------------------------------------------------
Notes
1 Before exceptional items and goodwill impairment.
2 Before exceptional items, goodwill impairment and costs associated with the
repayment of loan notes.
3 Adjusted earnings per share is based on adjusted earnings as set out in
note 6.
- ends -
Enquiries
Edward Bramson, Executive Chairman Spirent Communications plc +44 (0)1293 767676
Eric Hutchinson, Chief Financial Officer
Andrew Dowler/Harriet Keen Financial Dynamics +44 (0)20 7831 3113
About Spirent Communications plc
Spirent Communications plc is a leading communications technology company
focused on delivering innovative systems and services to meet the needs of
customers worldwide. We are a global provider of performance analysis and
service assurance solutions that enable the development and deployment of
next-generation networking technologies such as broadband services, Internet
telephony, 3G wireless and web applications and security testing. The Systems
group develops power control systems for specialist electrical vehicles in the
mobility and industrial markets. Further information about Spirent
Communications plc can be found at www.spirent.com.
Spirent Communications plc Ordinary shares are traded on the London Stock
Exchange (ticker: SPT). The Company operates a Level 1 American Depositary
Receipt ("ADR") programme with each ADR representing four Spirent Communications
plc Ordinary shares. The ADRs trade in the US over-the-counter ("OTC") market
under the symbol SPMYY and the CUSIP number is 84856M209.
Spirent and the Spirent logo are trademarks or registered trademarks of Spirent
Communications plc. All other trademarks or registered trademarks mentioned
herein are held by their respective companies. All rights reserved.
This document may contain forward-looking statements which are made in good
faith and are based on current expectations or beliefs, as well as assumptions
about future events. You can sometimes, but not always, identify these
statements by the use of a date in the future or such words as "will",
"anticipate", "estimate", "expect", "project", "intend", "plan", "should",
"may", "assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that will
occur in the future. You should not place undue reliance on these
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. The Company undertakes no
obligation to update any forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
EXECUTIVE CHAIRMAN'S STATEMENT
I am pleased to report that Spirent's adjusted earnings per share increased by
141 per cent in 2007 to 3.57 pence, before exceptional items, from 1.48 pence in
the prior year. This was after charging 0.38 pence for share-based payment and
intangible amortisation, down from 0.62 pence in 2006. The restructuring
programme announced by the Board in April yielded greater benefits than
originally expected, allowing Spirent to substantially exceed its original
earnings expectations for the year. Due to the timing of the restructuring
actions, almost all of the improvements were realised after June, so the
majority of the earnings increase for the year occurred in the second half of
the year when adjusted earnings per share increased to 2.72 pence (after
share-based payment and intangible amortisation of 0.22 pence), an increase of
228 per cent over the second half of last year.
The largest component of Spirent's revenue and profit is our Performance
Analysis business, which supplies telecommunications test and measurement
equipment and software, principally to manufacturers of telecommunications
network products. Performance Analysis sales returned to growth in the second
half of the year on a constant currency basis. This growth was driven primarily
by next-generation broadband and wireless products. Wireless products grew by
21 per cent in 2007. The overall growth of Performance Analysis sales was
substantially less than this as we still have a number of mature or declining
legacy items in our portfolio. Our second half sales increases are indicative
of the fact that the growth of our new products is now overtaking the decline of
older ones, a trend that we expect to continue in 2008.
Future prospects for the Performance Analysis business are encouraging as the
increasing data intensity of services such as IPTV and evolving wireless
technologies challenge our customers to respond by continuously investing in
developing new products, which is a key driver of the test and measurement
markets. Market conditions at the end of last year were reasonably good for
most of the major test and measurement suppliers and 2008 has started out in
line with our expectations.
Spirent's Service Assurance and Systems businesses, representing 15 per cent and
14 per cent, respectively, of our sales, performed slightly better than
expectations against a market backdrop that was relatively flat. At present,
the markets for these businesses in 2008 appear to be similar to those
experienced in 2007.
Restructuring has reduced Spirent's costs and lowered the break-even level of
sales, but it has also resulted in improvement in important areas of operating
performance that will be of continuing benefit in the future. For example, our
success in completing new product developments on time. Similarly, inventory
turnover in Performance Analysis has improved to 3.7 times in 2007 versus 2.6
times in the prior year, releasing capital employed and, more importantly,
reducing our exposure to charges for excess or obsolete inventory which have
been costly in the past.
The programmes implemented by the Board last year also contributed to a major
increase in cash generation. Free cash flow increased to £50.2 million in 2007
compared with a negative cash flow in the prior year. We are optimistic that a
full year of restructuring benefits in 2008 and the reduced capital requirements
resulting from our further outsourcing of manufacturing should generate
significant free cash in 2008 as well. The financial flexibility afforded by
our improved cash generation enabled us to return £75.0 million from January
2007 to date to our investors through share repurchases. The anticipated free
cash flow in 2008 will be available for further distributions to shareholders
and to fund expansion of the Company's businesses.
The outlook for increasing volumes of data traffic and evolving wireless
technologies is encouraging. As outlined in the Board's November Strategic
Review, we are investing significant amounts in research and development to
address these opportunities and to transform the exceptional breadth of
capabilities that Spirent possesses into a sustainable competitive advantage.
To facilitate this, we have created a new position, Chief Executive of the
Communications businesses, to bring the Communications businesses into strategic
alignment. William Burns, who joined the Group in 2004 and has substantial
industry experience, assumed this role from January of this year.
We anticipate that the effect of a full year of restructuring benefits in 2008
compared to only six months in 2007 will support a significant growth in
earnings and free cash flow. Although we are cognisant of the uncertainty in
the service provider marketplace, our current expectation is for Performance
Analysis sales to increase in constant currency terms. Encouragingly,
reinvigorated sales and marketing teams and a strong new product portfolio
enabled us to end the year with a Performance Analysis order book that has
increased substantially over that at the end of 2006. Allowing the order book
to build in this way is a goal that we set for ourselves as part of the change
in setting operational targets instituted by the Board earlier in the year. As
a result, we have more visibility into future sales levels than at the same time
last year and are able to manage our operations more effectively.
Inevitably, given its significant size and the amount of change in the business,
we have primarily dwelt on Performance Analysis in this year's results.
However, our other business units, Service Assurance and Systems have each
performed well relative to expectations and have some interesting opportunities
to focus on in the coming year.
Spirent now has in place a highly competent, motivated and stable management
team, which merits our sincere thanks and congratulations.
I look forward to updating you on our progress at the Annual General Meeting.
BUSINESS REVIEW
Introduction
The Company performed well in 2007, due in large part to the talents of its
employees, its strong base of technology and its customer relationships. The
strong balance sheet and cash generation both support the development of the
business and reflect the achievements realised in the year. As indicated at the
beginning of the year, the successful outcome of the Board's review has come
through the focus of resources, increased efficiency and effectiveness of the
business in its leading markets.
Business portfolio
In 2007 the Board's focus has been on developing the Performance Analysis
business, which has an exceptional product breadth and comprises 71 per cent of
overall Group revenue. Performance Analysis generated a 20 per cent return on
sales for the second half of 2007 compared with 6 per cent in the first half, as
a result of the cost containment actions and operating changes set out in the
Operating and Strategic Reviews. During the period the division has reallocated
significant development resources to expand its wireless and positioning product
offerings.
In Service Assurance, although the expected adoption of 'Triple Play' service
assurance solutions did not progress to any great extent, the outlook for the
business stabilised and the decline in legacy product revenues has slowed
compared to past years.
In Systems revenues were impacted, as expected, by changes in the US government
healthcare funding for powered wheelchairs, although the business is
successfully diversifying its product range into new industrial products. In
addition, the weakness in the US dollar exchange rate impacted the results.
Increased outsourcing of production has been and continues to be undertaken to
mitigate currency impact.
Restructuring
The cost savings objective of £21.5 million announced in April was achieved and
exceeded, as previously communicated in the Strategic Review at the beginning of
November. Total realised savings of £29.0 million resulted in a significant
improvement in second half profits. Revenues also increased during the second
half in US dollar terms. Restructuring has been achieved with minimal effect on
trading, as demonstrated by our stronger second half result, and with no delay
in our product development programme. Restructuring actions have concentrated
on eliminating duplicated activities and processes, consolidating manufacturing
and reducing general overheads. We have made significant progress in
outsourcing our manufacturing activities across the entire Group.
On-market share repurchase programme
Substantial returns of cash were made to shareholders through the on-market
share repurchase programme during 2007. Shares in issue were reduced by 103.4
million, being 12 per cent of the opening issued Ordinary share capital,
resulting in a £66.8 million return of cash to the market. This in itself
represents a meaningful enhancement to future earnings per share.
Share-based payment
In addition, the potential and real dilution through the issue of share
incentives has been addressed. Share incentives granted in the year amounted to
1.1 million share options compared to 25.8 million share options in 2006.
The charge for share-based payment was £2.5 million, less than half of the £5.2
million for 2006, the charge in 2008 is expected to be about £1.5 million.
Business performance
The business improved in 2007 with the book to bill ratio growing to 1.05 from
0.97, resulting in an increased order book compared to the prior year. Revenue
was lower by 2 per cent at constant currencies affected by the expected decline
in legacy product revenue in Service Assurance. Adjusted pre-tax profits grew
to £32.2 million in 2007 from £14.4 million in 2006, with profit before tax for
the second half year of £24.1 million compared to £7.9 million for the second
half of 2006.
The resulting adjusted earnings per share for continuing operations was 3.57
pence compared to 1.48 pence for 2006. The marked improvement primarily
occurred in the second half year, generating earnings of 2.72 pence for 2007
compared to 0.83 pence for 2006.
Board
As reported at the interim, the addition of two new independent non-executive
directors to the Board, Duncan Lewis in July and Tom Maxwell in October, has
enabled the composition of the Board and its Committees to become fully
compliant with the Combined Code in terms of independent non-executive
directors.
In addition, it is intended that the role of Chairman and that of Chief
Executive will be separated before the 2009 Annual General Meeting.
Summary and outlook
The year ended with the Group restructuring completed, having exceeded the
initial cost saving targets. However, these strong results, with the
performance in the second half ahead of original expectations, reflect more than
a successful restructuring and cost reduction exercise. Operationally, the
business is in a much better position with new products, improved manufacturing
processes and a clear focus on key areas such as the wireless market which offer
significant potential opportunities.
The year also saw an increasing trend of winning orders, enhancing visibility
and in turn providing additional confidence around the prospects for the Group.
In addition, the strong free cash flow performance has enabled the Company to
continue the share repurchase programme, reaching a total of 12 per cent of the
opening issued Ordinary share capital during the year.
At this stage the outlook for 2008 is encouraging.
Business group development and performance
Communications
Underlying
change at
First half Second half Full year Restated constant
£ million 2007 2007 2007 20061 Change (%) currencies (%)
---------------------------------------------------------------------------------------------------------------------
Revenue
Performance Analysis 80.6 88.7 169.3 179.5 (6) 1
Service Assurance 16.5 17.8 34.3 43.6 (21) (16)
Communications group 97.1 106.5 203.6 223.1 (9) (2)
Adjusted operating profit/(loss) 2
Performance Analysis 4.5 17.8 22.3 10.6 110 140
Service Assurance 0.9 2.4 3.3 (1.1) >100 >100
------------------------------------------------------------------------------------------
Communications group 5.4 20.2 25.6 9.5 169 205
------------------------------------------------------------------------------------------
Return on sales (%)2
Performance Analysis 5.6 20.1 13.2 5.9
Service Assurance 5.5 13.5 9.6 (2.5)
------------------------------------------------------------------------------------------
Communications group 5.6 19.0 12.6 4.3
------------------------------------------------------------------------------------------
Notes
1 Restated to reflect the presentation of SwissQual as a discontinued operation.
2 Before exceptional items and goodwill impairment.
Performance Analysis
Market conditions
Market conditions in 2007 were variable; after a subdued start to the first
half, demand increased in the second half year. For the Broadband business,
this was stimulated by the release of the flagship test product Spirent
TestCenterTM 2.0 in the second quarter. This provided a catalyst for demand as
customer confidence grew based on positive results after deployment in their
labs. The first half was characterised by capital spending delays by major
customers, whereas the second half saw increased spending on testing for
developing IP requirements, such as integrated layer testing, multimedia
applications and services. Application and mobility testing solutions achieved
strong growth levels. Wireless test products saw growth across the product
range. Demand was driven by intense competition between wireless service
providers to provide increasingly high levels of data transmission rates.
Service providers are seeking to retain customers through increased reliability
and provision of new applications. Multimedia capabilities on high-end mobile
devices are setting new benchmarks and new content providers are entering the
wireless market. However, during 2007 the rate of deployment of video services
across networks was lower than expected.
CDMA test demand grew with enhanced data service development ("EV-DOrA").
In the WCDMA and physical layer wireless test markets opportunities for growth
are increasing, particularly driven by Location Based Services ("LBS") and Radio
Frequency Channel emulation. 4G technologies are in the early stage of
deployment, but we expect that 3G deployments will continue until 2010 and other
technologies, such as WiMax, will also be deployed.
Revenue
Performance Analysis revenues were flat in constant currencies year-on-year.
The rate of underlying growth in the second half was 5 per cent, following a 3
per cent decline in the first half.
The growth in the second half of 2007 was a result of many factors, including
the introduction of Spirent TestCenter 2.0 in the second quarter, and the switch
over from legacy products to the new platform reaching the critical inflection
point during the second half, with new broadband products' order intake growing
by £14.3 million, which outpaced the decline in that for legacy products of
£11.0 million. There was an increase in demand for wireless and positioning
products. Business was won with new and existing customers through the
advantages of Spirent's overall system performance and new features able to
support customers' product innovations. The increasing pressure on customers
for a faster time to market has created a need for a reduction in testing cycle
times. The focus on test automation and professional services support is
helping customers to speed up their test processes to simplify and to automate
their lab environment. This has been evidenced in the growth of Spirent's
services business. Wireless and positioning products' underlying sales growth
was 21 per cent year-on-year. These revenues now account for 32 per cent of
total Performance Analysis revenues. Growth was achieved across all major
product areas with WCDMA-based systems, particularly location test systems,
increasing strongly through new customers being won. CDMA test product revenues
grew strongly in Asia and North America, whilst physical layer test product
revenues saw a strong performance in Europe, Middle East and Africa ("EMEA")
driven by WiMax investments. Support services grew with the business and a new
service centre was opened in India. Positioning products' revenue was
stimulated by growth in GPS as a result of the continued take-up of new signals
and the modernisation programme. Due to government funding problems, activity
levels fell in 2007 in the European positioning satellite programme, Galileo;
however, recent events have increased optimism of generating revenues from this
programme in the future. The divisional revenues are broad-based, with no
single customer accounting for more than 10 per cent of sales and the top ten
customers accounting for 30 per cent of the total.
Profitability
The profitability of the Performance Analysis division improved markedly, mainly
due to the cost reductions and operating changes made as a result of the
Operating and Strategic Reviews. As a result the gross profit margin improved
in the second half of 2007 by 5.3 percentage points compared to that for the
first half year. The cost reductions and operating improvements were primarily
based in our Broadband business, but all operations have benefited from the
lower shared service overheads across the Group.
Product development
The development of the Performance Analysis business builds on its expertise in
test and measurement of the performance of devices in real-world conditions. A
key objective is to emulate and test the quality of experience for end users,
which is increasingly important in multimedia telecommunications. The Company
continues to build on its switching and routing test expertise through future
enhancements to Spirent TestCenter. Achievements are evidenced by the expansion
of the customer base for Spirent TestCenter from 200 customers at the beginning
of 2007 to 340 at the end of the year. Additional application and mobility
testing capabilities were and continue to be expanded, driving further growth in
our professional services and support business. Spirent's Broadband
applications test capabilities are being utilised in the testing of devices
utilised in the convergence of technologies and in the expansion of mobile
communications. These address the needs of new wireless technologies and will
enable Spirent to increase its market share in the future.
The Company's development strategy is to select desirable market areas, with
evolving technologies, showing faster than average growth, where there are large
markets or market share opportunities that have a stable or expanding customer
base. Such opportunities are matched with Spirent's relative strengths. Product
development projects are based on realistic engineering objectives that also
enable access to greater engineering efficiency. Such new products will be
introduced in a way that will involve minimal disruption to existing activities.
In addition, the software content of sales is being increased, which will also
result in the associated professional service and support business.
Applications being addressed include IPTV, wireless services, IMS and multimedia
testing, wireless data services, testing increased entertainment content with
integrated voice services.
Given the Performance Analysis division's broad product portfolio, the business
is in a position to benefit from the current positive market trends driven by
the convergence of wired and wireless technologies in a world that is demanding
more and more mobile communication.
Service Assurance
Market conditions
General market conditions remained challenging throughout 2007 for the Service
Assurance division. There were continued delays in 'Triple Play' service
assurance deployments by most major customers. More positively field test
represents a growing market and offers potential opportunities.
Overall the service assurance market remains sluggish with limited growth
opportunities in this sector. Demand was limited by delays in procurement of
service assurance solutions due to customer reorganisations, consolidations and
changes in ownership.
Revenue
The decline in legacy revenues continued, but at a lower rate than in past
years. This indicates that carriers will continue to spend on legacy solutions
following a period when they cut back spending in these areas dramatically. The
cut back in spending was in anticipation of shifting spending to next-generation
network architecture, which has created some challenges across customers and
potential customers. Service revenues, through professional service
engagements, were an area of growth.
Order intake grew year-on-year in constant currencies through customer
acceptance of new products and growth in professional service engagements.
As expected, revenue declined in constant currencies by 16 per cent. This
reflected recognition of deferred revenue of £4.5 million for prior years in
2006, the decline in legacy revenues and their associated maintenance contracts.
Profitability
Profitability improved markedly in the second half year compared to that for the
first half. The improvement was achieved as a result of higher revenue,
additional gross profit margin and to the full year benefit of cost savings
previously actioned.
Product development
New service assurance solutions were launched for 'Triple Play', including
SmartSight Central Software and the IPMax hardware probe. These generated new
revenues in 2007. A major new development programme commenced for an in-home
field test solution product in the last quarter of 2007.
Whilst the adoption of 'Triple Play' service assurance solutions remain
uncertain, the outlook for 2008 appears to be relatively stable. The
development of field test solutions offer opportunities for growth and the
development of an in-home field test solution offers a capability which is
compatible with fibre-to-the-node and fibre-to-the-home network topographies.
Systems
Underlying
change at
constant
£ million 2007 2006 Change (%) currency (%)
------------------------------------------------------------------------------------------------------------
Revenue 33.4 35.8 (7) -
Operating profit 1 3.8 4.7 (19) 11
Return on sales (%) 11.4 13.1
------------------------------------------------------------------------------------------------------------
Note
1 Before exceptional items and goodwill impairment.
The Systems group comprises PG Drives Technology, a leading supplier of control
systems for electrically powered medical and small industrial vehicles. As
expected, revenue was impacted in 2007 due to the previously announced changes
in US government healthcare funding for powered wheelchairs. This created a
shift from premium systems to lower cost solutions. The US dollar exchange rate
impacted revenue and profit by £2.3 million and £1.4 million respectively. We
continued to place more production into China to support our activities in the
Asia Pacific Region and in order to gain product and logistical cost benefits.
During 2007, new products for scooters and rehabilitation wheelchairs were
introduced that further strengthen System's position in the medical mobility
market. New industrial market segments, such as forklift trucks and golf carts,
began to be served by new products, such as Sigma and X30/25. The division
continues to generate an 11 per cent operating return on sales whilst the
business is being diversified beyond the healthcare sector.
Non-segmental costs
Costs not directly attributable to the operating segments reduced to £3.9
million compared to £5.8 million in 2006. The second half costs were £1.8
million. The cost reductions are a result of the actions implemented in the
second quarter of 2007. The actions included consolidating reporting activities
and other functions in the business units, enabling a reduction in staff levels.
The deregistration in the United States has also reduced overhead costs.
Overall there has been a lowering in the cost of the Board of Directors.
Group financial performance
Results
Underlying
change at
First half Second half Full year Restated constant
£ million 2007 2007 2007 20061 Change (%) currencies (%)
---------------------------------------------------------------------------------------------------------------------
Revenue 114.2 122.8 237.0 258.9 (8) (2)
Adjusted operating profit(2) 5.0 20.5 25.5 8.4 204 260
Return on sales(2) (%) 4.4 16.7 10.8 3.2
Adjusted earnings per
share (pence)(3) 0.85 2.72 3.57 1.48 141 177
Free cash flow4 21.3 28.9 50.2 (6.4)
---------------------------------------------------------------------------------------------------------------------
The Group's financial performance is reported in accordance with International
Financial Reporting Standards ("IFRS").
All comments below refer to continuing activities only unless otherwise stated.
The Group is reporting an underlying change in revenue and adjusted operating
profit given the significant effect the weakness of the US dollar has had on
operating results this year compared with the previous year. Underlying change
is the change at constant currencies and eliminates the effects of fluctuating
exchange rates on the translation of operating results and on the transactions
during the year.
Notes
1 Restated to reflect the presentation of SwissQual as a discontinued operation.
2 Before exceptional items and goodwill impairment.
3 Adjusted earnings per share is based on adjusted earnings as set out in
note 6.
4 Operating cash flow, net interest and net capital expenditure.
Revenue
Reported revenue in sterling was down 8 per cent compared with 2006. The
underlying change was a reduction of 2 per cent. The fall in revenue was
largely due to the expected decline in the Service Assurance division's revenue
and to the impact of the weak US dollar.
The impact of currency on reported revenue was to reduce the reported figure by
£14.0 million on the translation of foreign currency denominated results and by
£2.5 million due to the translation impact on exports priced in US dollars.
The geographic profile by market of reported revenues was as follows:
2007 % 2006 %
----------------------------------------------------------------------------------------------------------
Europe 43.7 18 43.7 17
North America 132.2 56 152.1 59
Asia and Rest of the World 61.1 26 63.1 24
----------------------------------------------------------------------------------------------------------
237.0 258.9
----------------------------------------------------------------------------------------------------------
The geographical revenue profile did not change significantly, although there
was a shift away from North America to Europe and Asia. This effect was largely
due to the decline in Service Assurance revenue.
Adjusted operating profit improved by £17.1 million compared to 2006. £16.3
million of the improvement was achieved in the second half year. This derived
from increased underlying revenues, improved gross profit margin and reduction
in overhead cost.
The resulting operating return on sales increased to 10.8 per cent for 2007
compared to 3.2 per cent in 2006, being 16.7 per cent for the second half of
2007.
Currency impact
There was a significant weakening of the US dollar in 2007 compared with 2006,
as the average US dollar to sterling exchange rate rose to $2.00:£1 in 2007 from
$1.85:£1 in 2006. Given that 64 per cent of our revenue arises in North America
this had a marked effect on the translation of our revenue and profits, reducing
revenue as previously noted. The impact on operating profit was a reduction of
£2.3 million due to translation and a reduction of a further £2.4 million due to
US dollar priced exports.
The Systems group is exposed to transactional currency risk, but as it had
hedged some of the 2007 US dollar exposures by the end of 2006 it did not feel
the full effect of the US dollar weakness in 2007. This business has hedged
forecast US dollar exposures for 2008 at an average forward rate of $2.03:£1.
These forward contracts have been fair valued based at a closing spot rate of
$1.99:£1, this resulted in an unrealised loss of £0.5 million at the balance
sheet date.
Cost of sales and operating expenses
Cost of sales reduced to 37.6 per cent from 39.4 per cent in 2006. This
reduction reflects the improvement achieved through the restructuring and
outsourcing actions undertaken in the Communications businesses and the benefit
of the increased efficiencies achieved as new products were produced in higher
volume. The result was a 1.8 percentage point improvement in gross profit
margin.
Product development expense reduced from £53.7 million in 2006 to £44.5 million
in 2007, or a fall from 20.7 per cent to 18.8 per cent of sales respectively.
The second half year run rate was £21.7 million for the Group. The lower
expense was achieved by the reduction in the number of sites and through
increases in engineering efficiency. The increase in engineering efficiency
enabled an increase in on-time delivery of engineering projects. There was a
significant investment in new product development, with an increased emphasis on
Wireless test products.
Other operating expenses reduced from £94.9 million in 2006 to £77.8 million in
2007, being 36.7 per cent of sales and 32.8 per cent of sales respectively. The
second half year operating expense run rate was £37.2 million, or 30.3 per cent
of sales. The annual reduction includes the lower expense for share-based
payment of £2.7 million and the cost reduction benefit arising from the
termination of the Company's reporting obligations under the US Securities
Exchange Act.
Exceptional items
The cost containment actions were identified in the Operating and Strategic
Reviews. The actions were to eliminate duplicated activities and processes,
consolidate manufacturing and business sites and to reduce general overheads.
In total exceptional items of £14.4 million have been charged in 2007 (2006:
£8.8 million). This compares with the estimate of £15 million made at the time
of the Operating Review. Of this overall cost £5.3 million relates to severance
and other reorganisation costs associated with the outsourcing of manufacturing,
£3.1 million was charged for asset write-downs in relation to redundant
property, plant and equipment as sites were vacated, inventory write-downs of
£2.4 million in respect of excess and obsolete inventory, identified as a result
of the outsourcing activities, and £3.6 million was in respect of onerous lease
obligations on empty properties, net of releases, created by vacated
manufacturing facilities and the consolidation of functions. Progress has been
made in reducing the obligations on certain empty properties where lease
surrender or termination have been negotiated.
Goodwill impairment
There was no goodwill impairment in 2007. In 2006 £19.1 million was charged in
respect of the Service Assurance division, this was included in the continuing
business results. A further £27.7 million was charged in respect of
discontinued businesses.
Intangible amortisation
Operating expense for continuing businesses includes a charge of £0.9 million
for the amortisation of intangibles in 2007, compared to £0.5 million in 2006.
Share-based payment
The charge for share-based payment for 2007 was £2.5 million compared to £5.2
million for 2006. The reduction reflects the lower number of share incentives
granted in 2007 and the lapsing of prior year awards.
The charge for 2008 is expected to be about £1.5 million.
Net finance income
Net finance income was £6.7 million compared with £6.0 million for 2006. 2006
excludes the exceptional cost associated with the repayment of loan notes of
£8.8 million. Net finance income includes £0.9 million in respect of the
expected return on pension scheme assets less the interest charge on the
unwinding of liabilities (2006: £2.0 million).
The surplus cash is held on deposit earning current market rates of interest.
Profit before tax for continuing operations
Reported profit before tax for continuing operations was £17.8 million compared
with a loss of £22.3 million for 2006.
Adjusted profit before tax is set out below:
£ million 2007 2006
----------------------------------------------------------------------------------------------------------
Reported profit/(loss) before tax 17.8 (22.3)
Exceptional items 14.4 8.8
Goodwill impairment - 19.1
Cost associated with the repayment of loan notes - 8.8
----------------------------------------------------------------------------------------------------------
Adjusted profit before tax 32.2 14.4
----------------------------------------------------------------------------------------------------------
Tax
There was a net tax credit in 2007 of £7.7 million (2006: £0.4 million charge),
which includes a £5.3 million credit in respect of prior years and a tax credit
on exceptional items of £3.9 million. This gives an effective current year rate
of 4.7 per cent on the adjusted profit before tax. A very low effective tax
rate continues to be incurred due to the carry forward of tax losses. Included
in the above, a deferred tax asset of £10.5 million has been recognised. Under
current conditions it is expected that the low effective tax rates will continue
for the foreseeable future.
Discontinued operations
2007 discontinued operations relate to the loss making SwissQual business. The
disposal was completed on 5 July 2007 for cash proceeds for $3.0 million (£1.5
million). A loss on disposal of £4.2 million was recorded. In the period
SwissQual reported revenue of £3.6 million and an operating loss of £3.4
million.
Discontinued operations in 2006 also include the HellermannTyton Division sold
in February 2006.
Earnings per share
Basic earnings per share for the Group was 2.05 pence compared with 11.75 pence
for 2006. Earnings in 2006 include the profit on the sale of the
HellermannTyton Division of £166.1 million.
Adjusted earnings per share for continuing operations, being before exceptional
items, goodwill impairment, costs associated with repayment of loan notes, net
of any related tax and prior year tax, was 3.57 pence compared with 1.48 pence
for 2006.
Weighted average Ordinary share capital was 859.8 million shares compared with
925.9 million for 2006, significantly reduced by the on-market share repurchase
programme during 2007.
Financing and cash flow
Cash generation was strong in 2007. Cash and cash equivalents were £79.0
million at 31 December 2007 compared with £97.6 million at 31 December 2006, and
this was after an outflow of £66.3 million for the share repurchase programme in
2007, with £0.5 million of share repurchases in 2007 being settled in 2008.
Cash flows improved throughout 2007 as the results of the cost containment
actions started to take effect. The Group continues to be debt free.
Operating activities generated £49.8 million in the year compared with a cash
outflow in 2006 of £43.0 million. In 2006 the Company made a payment of £47.0
million to fund the UK defined benefit pension fund.
Free cash flow is set out below:
£ million 2007 2006
----------------------------------------------------------------------------------------------------------
Reported operating cash flow before pension 49.8 4.0
Net interest income 5.6 4.1
Net capital expenditure (5.2) (14.5)
----------------------------------------------------------------------------------------------------------
Free cash flow 50.2 (6.4)
----------------------------------------------------------------------------------------------------------
Tax payments are low as the Group benefits from tax losses carried forward and
in 2007 there was a net tax refund of £6.0 million compared with a net payment
of £2.3 million in 2006. In addition, in 2007 tax obligations of £6.8 million
due in respect of the sale of the HellermannTyton Division were settled.
Net capital expenditure for the Group was reduced to £5.2 million of cash
outflow in 2007 (2006: £14.5 million). This was well below the depreciation
charge of £9.5 million. With the outsourcing of production there is a lower
requirement to make new capital investment, in addition the reduction in the
number of sites and increased engineering efficiency has also had a beneficial
impact.
Net proceeds of £0.6 million were received from the sale of SwissQual and £5.5
million of deferred consideration was incurred in respect of acquisitions made
in 2006.
Pension fund
The accounting valuation of the UK defined benefit pension plans at the end of
2007 was based on the results of the triennial valuation of the plans at 1 April
2006. This valuation was completed during 2007. The surplus in the plans rose
from £2.4 million at 31 December 2006 to £7.7 million at 31 December 2007 with
the improvement in funding being a result of the rising equity markets and a
change to the assumptions underlying the calculation of the liabilities, namely
the rate of return on corporate bonds. The accounting rules however limit the
surplus that may be recognised by the Company and, due to this, the surplus
recognised on the balance sheet at 31 December 2007 was restricted to £3.0
million. The Group has also reported a liability of £0.7 million in respect of
the UK unfunded plan.
Capital structure, on-market share repurchase programme and dividend
In 2007 £66.8 million of cash was returned to shareholders, representing 103.4
million Ordinary shares. Including monies returned since May 2006, the total
return of cash to shareholders to 31 December 2007 was £108.7 million,
representing 193.7 million Ordinary shares.
The share repurchase programme has continued into 2008 and has now returned
£75.0 million of cash in total since the start of 2007.
At the end of February 2008, there were 777.6 million Ordinary shares in issue.
This excludes treasury shares.
Dividend policy is under review by the Board, however no dividend is being paid
in respect of 2007.
US listing and SEC registration
On 5 June 2007 Spirent filed an application to delist its American Depositary
Shares ("ADS") from the New York Stock Exchange and to terminate the US
registration of its ADS and Ordinary shares from the US Securities and Exchange
Commission. The Company's US Securities Exchange Act reporting obligations have
now ceased and the termination of registration occurred after the statutory 90
day review period.
Consolidated income statement
-----------------------------
2006
2007 (restated)1
Year to 31 December Notes £ million £ million
-----------------------------------------------------------------------------------------------------------------------
Before
exceptional Exceptional
Before items and items and
Exceptional Exceptional goodwill goodwill
items items note Total impairment impairment Total
5 note 5
-----------------------------------------------------------------------------------------------------------------------
Continuing operations
Revenue 2,3 237.0 - 237.0 258.9 - 258.9
Cost of sales (89.2) (2.4) (91.6) (101.9) - (101.9)
-----------------------------------------------------------------------------------------------------------------------
Gross profit 147.8 (2.4) 145.4 157.0 - 157.0
Product development (44.5) - (44.5) (53.7) - (53.7)
Selling and distribution (47.1) - (47.1) (55.8) - (55.8)
Administration (30.7) (12.0) (42.7) (39.1) (27.9) (67.0)
-----------------------------------------------------------------------------------------------------------------------
Operating profit/(loss) 25.5 (14.4) 11.1 8.4 (27.9) (19.5)
Finance income 7.0 - 7.0 7.6 - 7.6
Finance costs (0.3) - (0.3) (1.6) - (1.6)
Costs associated with the repayment
of loan notes - - - - (8.8) (8.8)
-----------------------------------------------------------------------------------------------------------------------
Profit/(loss) before tax 32.2 (14.4) 17.8 14.4 (36.7) (22.3)
Tax 3.8 3.9 7.7 (0.4) - (0.4)
-----------------------------------------------------------------------------------------------------------------------
Profit/(loss) for the year from
continuing operations after tax 36.0 (10.5) 25.5 14.0 (36.7) (22.7)
Discontinued operations 4
Profit/(loss) for the year from
discontinued operations (3.7) (4.2) (7.9) 2.3 129.2 131.5
-----------------------------------------------------------------------------------------------------------------------
Profit/(loss) for the year
attributable to equity holders of parent 32.3 (14.7) 17.6 16.3 92.5 108.8
-----------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share (pence) 6
Basic earnings 2.05 11.75
Basic earnings/(loss) from continuing
operations 2.97 (2.45)
Diluted earnings 2.03 11.75
Diluted earnings/(loss) from
continuing operations 2.94 (2.45)
-----------------------------------------------------------------------------------------------------------------------
Note
1 2006 has been restated to reflect the presentation of SwissQual as a
discontinued operation, the reclassification of product development out of cost
of sales and the reclassification of costs of customer service operations to
cost of sales from selling and distribution expense.
Consolidated statement of recognised income and expense
Year to 31 December
-------------------
£ million 2007 2006
-----------------------------------------------------------------------------------------------------------
Income and expense recognised directly in equity
Gains/(losses) on cash flow hedges taken to equity (0.5) -
Exchange differences on retranslation of foreign operations (0.6) (10.3)
Actuarial gains/(losses) on defined benefit pension plans (0.6) 1.6
Deferred tax liability on pension plans (0.8) -
-----------------------------------------------------------------------------------------------------------
(2.5) (8.7)
Transfers to income statement
Exchange gain transferred to profit on sale - (1.3)
Gains on cash flow hedges - (1.9)
-----------------------------------------------------------------------------------------------------------
Net income/(expense) recognised directly in equity (2.5) (11.9)
Profit for the year 17.6 108.8
-----------------------------------------------------------------------------------------------------------
Total recognised income and expense for the year attributable
to equity holders of parent 15.1 96.9
-----------------------------------------------------------------------------------------------------------
Consolidated balance sheet
--------------------------
At 31 December
-------------------
£ million 2007 2006
-----------------------------------------------------------------------------------------------------------
Assets
Non-current assets
Intangible assets 58.6 63.3
Property, plant and equipment 16.2 25.3
Trade and other receivables 1.4 1.4
Cash on deposit 3.7 8.5
Defined benefit pension plan surplus 3.0 2.4
Deferred tax 10.5 1.2
-----------------------------------------------------------------------------------------------------------
93.4 102.1
-----------------------------------------------------------------------------------------------------------
Current assets
Inventories 17.8 25.4
Trade and other receivables 50.2 63.8
Derivative financial instruments - 0.1
Cash and cash equivalents 79.0 97.6
-----------------------------------------------------------------------------------------------------------
147.0 186.9
-----------------------------------------------------------------------------------------------------------
Total assets 240.4 289.0
-----------------------------------------------------------------------------------------------------------
Liabilities
-----------
Current liabilities
Trade and other payables (54.6) (61.8)
Current tax (32.7) (30.5)
Derivative financial instruments (0.5) -
Provisions and other liabilities (5.1) (5.9)
-----------------------------------------------------------------------------------------------------------
(92.9) (98.2)
-----------------------------------------------------------------------------------------------------------
Non-current liabilities
Trade and other payables (1.1) (0.5)
Defined benefit pension plan deficit (0.7) (1.4)
Provisions and other liabilities (7.6) (6.1)
-----------------------------------------------------------------------------------------------------------
(9.4) (8.0)
-----------------------------------------------------------------------------------------------------------
Total liabilities (102.3) (106.2)
-----------------------------------------------------------------------------------------------------------
Net assets 138.1 182.8
-----------------------------------------------------------------------------------------------------------
Capital and reserves
--------------------
Share capital 28.0 32.5
Share premium account 15.5 10.6
Capital redemption reserve 4.8 -
Capital reserve 3.6 5.5
Translation reserve (6.7) (6.1)
Net unrealised gains and losses (0.5) -
Retained earnings 93.4 140.3
-----------------------------------------------------------------------------------------------------------
Total equity 138.1 182.8
-----------------------------------------------------------------------------------------------------------
Consolidated cash flow statement
--------------------------------
Year to 31 December
--------------------
£ million Note 2007 2006
-----------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Cash flows from operations 7 43.8 (40.7)
Tax received/(paid) 6.0 (2.3)
-----------------------------------------------------------------------------------------------------------
Net cash inflow/(outflow) from operating activities 49.8 (43.0)
-----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Interest received 5.7 5.5
Transfer from/(to) long term deposit 4.8 (8.5)
Disposal of operations 0.6 278.2
Tax paid on the disposal of operations (6.8) -
Purchase of intangible assets (0.3) (0.8)
Purchase of property, plant and equipment (5.1) (14.1)
Proceeds from the sale of property, plant and equipment 0.2 0.4
Acquisition of subsidiaries (5.5) (44.4)
-----------------------------------------------------------------------------------------------------------
Net cash from/(used in) investing activities (6.4) 216.3
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Interest paid (0.1) (1.4)
Costs associated with the repayment of loan notes - (9.5)
Proceeds from the issue of share capital and
employee share ownership trust 4.4 2.4
On-market share repurchase (66.3) (41.9)
New borrowings - 23.0
Repayments of borrowings - (95.7)
-----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (62.0) (123.1)
-----------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (18.6) 50.2
Cash and cash equivalents at the beginning of the year 97.6 48.8
Effect of foreign exchange rate changes - (1.4)
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 79.0 97.6
-----------------------------------------------------------------------------------------------------------
Notes
1 Financial information presented
The financial information contained in this document does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
As required by the European Union's IAS Regulation and the Companies Act 1985
the Group has prepared its consolidated financial statements for the year to 31
December 2007 in accordance with International Financial Reporting Standards ("
IFRS") as adopted by the European Union. The comparative financial information
is based on the statutory accounts to 31 December 2006 apart from as stated
below. These accounts, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies.
The Group has reclassified product development costs out of cost of sales and is
disclosing these costs separately in the income statement. The change has been
made to improve the transparency of the Group's results.
The costs of customer service operations have been reclassified from selling and
distribution expense to cost of sales. This change reflects the increasing
proportion of revenues derived from the provision of value added services, and
the Board has concluded that this classification is a fairer representation of
the commercial operations and the gross profit of the Group.
Comparatives have been restated accordingly. In addition comparative numbers
have been restated to reflect the presentation of SwissQual as a discontinued
operation.
2 Segmental analysis
Continuing
Performance Service operations
£ million Analysis Assurance Communications Systems Non-segmental Total
2007
Revenue 169.3 34.3 203.6 33.4 - 237.0
-----------------------------------------------------------------------------------------------------------------
Operating profit/(loss)
before exceptional items 22.3 3.3 25.6 3.8 (3.9) 25.5
Exceptional items (10.0) (2.6) (12.6) - (1.8) (14.4)
-----------------------------------------------------------------------------------------------------------------
Operating profit/(loss) 12.3 0.7 13.0 3.8 (5.7) 11.1
Finance income 7.0
Finance costs (0.3)
-----------------------------------------------------------------------------------------------------------------
Profit before tax 17.8
Tax 3.8
Tax on exceptional items 3.9
-----------------------------------------------------------------------------------------------------------------
Profit after tax for the year 25.5
-----------------------------------------------------------------------------------------------------------------
Other information
Product development 36.9 5.3 42.2 2.3 - 44.5
Share-based payment 1.7 0.5 2.2 0.1 0.2 2.5
Intangible amortisation 0.9 - 0.9 - - 0.9
-----------------------------------------------------------------------------------------------------------------
Continuing
operations
Performance Service (restated)
£ million Analysis Assurance Communications Systems Non-segmental Total
-------------------------------------------------------------------------------------------------------------------
2006
----
Revenue 179.5 43.6 223.1 35.8 - 258.9
-------------------------------------------------------------------------------------------------------------------
Operating profit/(loss)
before exceptional items
and goodwill impairment 10.6 (1.1) 9.5 4.7 (5.8) 8.4
Exceptional items (3.8) (5.3) (9.1) - 0.3 (8.8)
Goodwill impairment - (19.1) (19.1) - - (19.1)
-------------------------------------------------------------------------------------------------------------------
Operating profit/(loss) 6.8 (25.5) (18.7) 4.7 (5.5) (19.5)
Finance income 7.6
Finance costs (1.6)
Costs associated with the
repayment of loan notes (8.8)
-------------------------------------------------------------------------------------------------------------------
Loss before tax (22.3)
Tax (0.4)
-------------------------------------------------------------------------------------------------------------------
Loss after tax for the year (22.7)
-------------------------------------------------------------------------------------------------------------------
Other information
Product development 41.9 9.5 51.4 2.3 - 53.7
Share-based payment 3.6 1.2 4.8 0.1 0.3 5.2
Intangible amortisation 0.5 - 0.5 - - 0.5
-------------------------------------------------------------------------------------------------------------------
Revenue and operating profit for discontinued operations are disclosed in
note 4.
3 Geographical analysis
2006
£ million 2007 (restated)
-----------------------------------------------------------------------------------------------------------
Revenue by market
Continuing operations
Europe 43.7 43.7
North America 132.2 152.1
Asia Pacific, Rest of Americas, Africa 61.1 63.1
-----------------------------------------------------------------------------------------------------------
237.0 258.9
-----------------------------------------------------------------------------------------------------------
Revenue by source
-----------------
Continuing operations
Europe 64.2 63.8
North America 151.8 175.9
Asia Pacific, Rest of Americas, Africa 21.0 19.2
-----------------------------------------------------------------------------------------------------------
237.0 258.9
-----------------------------------------------------------------------------------------------------------
4 Discontinued operations
2007 2006
£ million (restated)
-----------------------------------------------------------------------------------------------------------
Revenue 3.6 40.7
-----------------------------------------------------------------------------------------------------------
Operating loss (3.4) (24.8)
Share of profit of associates - 0.1
Profit/(loss) on the disposal of operations (4.2) 166.1
Net finance costs - (0.1)
-----------------------------------------------------------------------------------------------------------
Profit/(loss) before tax (7.6) 141.3
Tax (0.3) (0.6)
Tax on the disposal of operations - (9.2)
-----------------------------------------------------------------------------------------------------------
Profit/loss for the year (7.9) 131.5
-----------------------------------------------------------------------------------------------------------
Discontinued operations relate to the HellermannTyton Division, which was sold
on 15 February 2006, and SwissQual, which was sold on 5 July 2007. In 2006
expenses include goodwill impairment of £27.7 million in respect of SwissQual.
5 Exceptional items and goodwill impairment
£ million 2007 2006
-------------------------------------------------------------------------------------------------------------
Goodwill impairment - 19.1
Inventory provisions 2.4 -
Restructuring costs 12.0 9.1
EGM costs - 2.0
Curtailment and settlement gain on defined benefit pension plan - (1.7)
-------------------------------------------------------------------------------------------------------------
Release of provision for prior year disposals - (0.6)
-------------------------------------------------------------------------------------------------------------
14.4 27.9
-------------------------------------------------------------------------------------------------------------
6 Earnings/(loss) per share
Continuing Discontinued Total
£ million operations operations operations
-----------------------------------------------------------------------------------------------------------
2007
----
Profit/(loss) for the year attributable to equity
holders of parent 25.5 (7.9) 17.6
Exceptional items 14.4 - 14.4
Loss on the disposal of operations - 4.2 4.2
Tax on exceptional items (3.9) - (3.9)
Prior year tax credit (5.3) - (5.3)
-----------------------------------------------------------------------------------------------------------
Adjusted earnings attributable to equity holders
of parent 30.7 (3.7) 27.0
-----------------------------------------------------------------------------------------------------------
2006 restated
-------------
Profit/(loss) for the year attributable to equity
holders of parent (22.7) 131.5 108.8
Exceptional items 8.8 - 8.8
Goodwill impairment 19.1 27.7 46.8
Profit on the disposal of operations - (156.9) (156.9)
Costs associated with the repayment of loan notes 8.8 - 8.8
Prior year tax credit (0.3) - (0.3)
-----------------------------------------------------------------------------------------------------------
Adjusted earnings attributable to equity holders
of parent 13.7 2.3 16.0
-----------------------------------------------------------------------------------------------------------
2006
2007 (restated)
-----------------------------------------------------------------------------------------------------------
Earnings/(loss) per share (pence)
Basic 2.05 11.75
Basic from continuing operations 2.97 (2.45)
Diluted 2.03 11.75
Diluted from continuing operations 2.94 (2.45)
Adjusted basic 3.14 1.73
Adjusted basic from continuing operations 3.57 1.48
-----------------------------------------------------------------------------------------------------------
Weighted average number of shares in issue (million)
Basic and adjusted 859.8 925.9
Dilutive potential of employee share options 8.8 3.8
-----------------------------------------------------------------------------------------------------------
Weighted average number of shares in issue - diluted 868.6 929.7
-----------------------------------------------------------------------------------------------------------
7 Reconciliation of profit/(loss) before tax to cash generated from operations
£ million 2007 2006
(restated)
-----------------------------------------------------------------------------------------------------------
Continuing operations
Profit/(loss) before tax 17.8 (22.3)
Adjustments for:
Finance income (7.0) (7.6)
Finance costs 0.3 1.6
Costs associated with the repayment of loan notes - 8.8
Goodwill impairment - 19.1
Intangible asset amortisation 0.9 0.5
Depreciation of property, plant and equipment 9.3 11.5
Loss on the disposal of property, plant and equipment 0.8 0.6
Impairment of property, plant and equipment 3.1 0.8
Share-based payment 2.5 5.2
Settlement and curtailment of pension fund (0.8) (1.7)
Changes in working capital:
Deferred income released (0.4) (0.7)
Decrease/(increase) in receivables 7.7 (4.8)
Decrease in inventories 6.1 0.2
Increase/(decrease) in payables 4.9 (2.9)
Decrease in provisions (0.9) (1.0)
Defined benefit pension fund 0.5 (47.0)
-----------------------------------------------------------------------------------------------------------
Cash flows from continuing operations 44.8 (39.7)
-----------------------------------------------------------------------------------------------------------
Discontinued operations
Profit/(loss) before tax (7.6) 141.3
Adjustments for:
Share of profit of associates - (0.1)
(Profit)/loss on the sale of discontinued operations 4.2 (166.1)
Finance costs - 0.1
Intangible asset amortisation 0.6 1.1
Goodwill impairment - 27.7
Depreciation of property, plant and equipment 0.2 1.9
Profit on the disposal of property, plant and equipment - (0.1)
Share-based payment - 0.4
Changes in working capital:
Deferred income released - (0.6)
Decrease/(increase) in receivables 3.0 (4.2)
Increase in inventories (0.2) (0.1)
Decrease in payables (1.2) (2.3)
-----------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations (1.0) (1.0)
-----------------------------------------------------------------------------------------------------------
Cash flows from operating activities 43.8 (40.7)
-----------------------------------------------------------------------------------------------------------
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