Final Results
Spirent PLC
23 February 2006
SPIRENT PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2005
London, UK - 23 February 2006: Spirent plc (LSE: SPT; NYSE: SPM), a leading
communications technology company, today announces its preliminary results for
the year to 31 December 2005.
Summary of results
£ million 2005 2004 Change %
----------------------------------- ---------- ---------- ----------
Continuing Group
Revenue 259.3 287.2 (10)
Operating profit1 11.5 22.9 (50)
Adjusted profit before tax2 4.9 15.4 (68)
Reported (loss)/profit before tax (41.7) 11.2 -
Basic (loss)/earnings per share (pence) (3.97) 0.98 -
Total Group
Adjusted earnings per share3 (pence) 2.30 3.14 (27)
----------------------------------- --------- ---------- ----------
The HellermannTyton Division has been treated as a discontinued operation in
accordance with International Financial Reporting Standards. The table above and
the text below relate to continuing operations only unless otherwise stated.
Strategic progress
• The disposal of the HellermannTyton Division for £288.9 million, announced
on 15 December 2005, was completed on 15 February 2006. Proceeds are being
used to repay debt, substantially fund the pension scheme, buy back up to
£50 million of shares and make selective acquisitions.
• We have transformed Spirent into a focused communications company with a
significantly improved financial position.
• The acquisitions of SwissQual and QuadTex in 2006 will enhance Spirent's
market presence and enable our entry into new and growing markets.
Overview of results
• We took firm actions to address the losses in Service Assurance that
negatively impacted the first half, which resulted in recovery in the
second half.
Performance Analysis
• Overall revenues and operating profit1 were slightly ahead of 2004.
• Activity levels in the fourth quarter recovered somewhat following a
weaker third quarter.
• Our wireless activities had a record year, with sales growing by 17%.
• Launch of the new unified platform, Spirent TestCenterTM, has resulted
in competitive wins with new and existing customers in the second half.
Further progress will be made through the addition of greater functionality
and automation over the next 18 months.
Service Assurance
• The division stabilised in the second half reporting a significantly
reduced operating loss1 of £0.6 million (first half operating loss1: £9.0
million).
• We are concentrating on the development of new solutions for triple play
and advanced business services.
Systems
• The group grew revenue by 20% to £37.7 million and operating profit1 by
29% to £4.4 million.
Notes
1 Before material one-time items, goodwill impairment and share-based payment.
2 Before material one-time items, goodwill impairment, share-based payment,
profit on the disposal of operations and costs associated with the part
prepayment of loan notes.
3 Adjusted earnings per share is based on adjusted earnings as set out in note 4
to this report.
Commenting on the results, Anders Gustafsson, Chief Executive, said:
'The disposal of the HellermannTyton Division has transformed Spirent into a
focused communications company, as well as having significantly improved our
financial position. Spirent is well placed to grow organically from its
established market-leading positions. We also have the potential to expand
through selective acquisitions, such as SwissQual and QuadTex, announced in
2006.
'The variable market conditions seen in 2005 have continued through the
beginning of the first quarter, which is usually our quietest. As 2006
progresses, the year will be a period of product transition as the increased
capability of our new products and solutions will enable us to gain market
share. As a result, we anticipate that the Group's performance for 2006 will
show recovery over last year, with a more pronounced seasonal increase in
activity in the second half.'
- ends -
Enquiries
Anders Gustafsson, Chief Executive Spirent plc +44 (0)1293 767676
Eric Hutchinson, Finance Director
Reg Hoare Smithfield +44 (0)20 7360 4900
Katie Hunt
The Company will host a results presentation today at 09.15 for 09.30 UK time. A
simultaneous webcast of the presentation will be available on the Spirent plc
website at www.spirent.com.
Photography is available from UPPA (Universal Pictorial Press & Agency) -
www.uppa.co.uk or tel: +44 (0)20 7421 6000
About Spirent
Spirent 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 plc can be found at www.spirent.com
Spirent Ordinary shares are traded on the London Stock Exchange (ticker: SPT)
and on the New York Stock Exchange (ticker: SPM; CUSIP number: 84856M209) in the
form of American Depositary Shares (ADS), represented by American Depositary
Receipts, with one ADS representing four Ordinary shares.
Spirent and the Spirent logo are trademarks or registered trademarks of Spirent
plc. All other trademarks or registered trademarks mentioned herein 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 Litigation Reform Act of 1995)
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. Such factors include, but are not limited to: the extent to which
customers continue to invest in next-generation technology and deploy advanced
IP-based services; our ability to successfully expand our customer base; our
ability to continue to benefit from generally improving market conditions; the
prevailing market conditions and pace of economic recovery; our ability to
improve efficiency, achieve the benefits of our cost reduction goals and adapt
to economic changes and other changes in demand or market conditions; our
ability to develop and commercialise new products and services, extend our
existing capabilities in IP services and expand our product offering
internationally; our ability to attract and retain qualified personnel; the
effects of competition on our business; fluctuations in exchange rates and heavy
exposure to a weak US dollar; changes in the business, financial condition or
prospects of one or more of our major customers; risks of doing business
internationally; risks relating to the acquisition or sale of businesses and our
subsequent ability to integrate businesses; our reliance on proprietary
technology; our exposure to liabilities for product defects; our reliance on
third party manufacturers and suppliers; and other risks described from time to
time in Spirent plc's Securities and Exchange Commission periodic reports and
filings. The Company undertakes no obligation to update any forward-looking
statements contained in this press release, whether as a result of new
information, future events or otherwise.
REPORT FOR THE YEAR TO 31 DECEMBER 2005
Operating profit/(loss) and return on sales are used by the Group as key
measures of operating performance and are stated in the text before the effect
of material one-time items, goodwill impairment and share-based payment so that
period on period comparisons are not distorted.
The HellermannTyton Division for the purposes of these results has been
presented as a discontinued operation and our financial results are presented
and discussed for the continuing Spirent Group unless otherwise stated.
CHAIRMAN'S STATEMENT
In 2005 Spirent was transformed into a focused communications business. In the
first half of the year, we carried out major restructuring within the Service
Assurance division. In December we announced the proposed disposal of the
HellermannTyton Division and our share of its associated companies to funds
controlled by Doughty Hanson & Co Limited ('Doughty Hanson'). We believe the
consideration of approximately £288.9 million, at a cash free/debt free
equivalent value, represents fair value for the business and reflects its strong
performance under our management. As a result of this sale, the Group's
financial position has been significantly strengthened.
Following approval by shareholders at an Extraordinary General Meeting held on
24 January 2006, the disposal was completed on 15 February 2006. As previously
indicated, the proceeds have been used to repay the outstanding loan notes of
£71.5 million together with the make whole amount of £7.4 million and associated
swap break fees of £2.3 million. In addition a special contribution of £47.0
million has been made to substantially fund the UK final salary pension scheme
and the Board intends to return up to £50 million to shareholders through an
on-market share repurchase programme over the coming year.
To reflect the transformation of the Group, a proposal will be made at the
forthcoming AGM to rename Spirent plc as Spirent Communications plc.
James Wyness will retire from the Board with effect from the date of the 2006
Annual General Meeting and we would like to thank him for his valuable
contribution during his long service as a non-executive director, Marcus
Beresford will assume the responsibilities of the senior independent director on
James' retirement.
I would like to take this opportunity to thank all of our employees for their
contribution during this year of transformation. We wish the employees of
HellermannTyton success under their new ownership and thank them for their
contribution over many years.
CHIEF EXECUTIVE'S OVERVIEW
Introduction and strategy
Since joining Spirent as Chief Executive I have set out to transform the Group
into a focused communications company. During 2005 we have been busy reshaping
and restructuring the business culminating in the disposal of HellermannTyton,
as well as starting in 2006 to make selective acquisitions.
The decision to focus on communications reflects our view that the sector offers
Spirent the best top and bottom line growth opportunities in the mid and long
term, leveraging our leading market positions in our key product segments.
We are therefore continuing to invest in organic growth opportunities through
research and development and sales and marketing activities and the launch of
new products such as the Spirent TestCenter(TM).
We will also continue to make selective acquisitions. These acquisitions will be
a good strategic fit with our existing activities as well as expanding our
customer base, broadening our geographic coverage or enabling entry into new
markets. The principal strategic drivers for acquisition are to expand our
market position and our competitive offering into markets where we see strong
growth opportunities. This will ensure that we remain a core supplier to our
customers, whilst at the same time accelerating our development plans to keep
ahead of competition.
We will shortly establish our operational headquarters in Sunnyvale, California,
in the centre of Silicon Valley where we have the highest concentration of
customers. I will relocate in the spring, but we will maintain a small corporate
headquarters in the UK.
Results overview
The Group's 2005 results were principally affected by the operating losses
incurred by the Service Assurance division, which were described in detail at
the time of the interim results in August 2005. These losses were substantially
reduced in the second half as a result of the actions we took in the first half.
Material one-time items of £8.4 million have been expensed in the year. Of this
£3.9 million is in relation to restructuring actions in the Service Assurance
division and £1.4 million for inventory write-downs again in this division.
Other material one-time items of £3.1 million have been taken in relation to
supply chain initiatives and other restructuring actions within the Group. This
was reported in our interim results.
In the first half we took a goodwill impairment charge of £37.0 million due to
the drop in activity in the Service Assurance division.
Performance Analysis
Revenue and operating profit in the Performance Analysis division for 2005 were
slightly up on 2004. In this division several of our end markets were weaker
than had been anticipated earlier in the year, particularly so in the third
quarter, although activity in the fourth quarter did recover somewhat. In
addition, we are in a product transition phase as we progressively introduce new
and improved products and solutions. Encouragingly, sales to some of our largest
customers in the equipment manufacturing sector grew by more than 30 per cent
and the division's wireless and position location test activities experienced
their best year ever.
Service Assurance
Revenue in the Service Assurance division was down 43 per cent compared with
2004 and as a result the division reported an operating loss of £9.6 million of
which £9.0 million was incurred in the first half. In the first quarter of 2005
our major customers, the US service providers, had delayed the release of their
full capital spending budgets partly due to merger activity, with a larger
proportion of these budgets shifting towards next-generation rather than
existing networks. As these trends became apparent we undertook significant
restructuring actions in the division, including changing senior management,
reducing headcount by around 260 (approximately 40 per cent of the total
workforce) which resulted in a much reduced loss for the second half of £0.6
million. During 2005 we have refocused our product development efforts to
generate new solutions for triple play and advanced business services; this will
continue through 2006.
Systems
Our Systems group grew revenue and operating profit by 20 per cent and 29 per
cent respectively, benefiting from the launch of two new wheelchair control
systems.
Acquisitions in 2006
On 23 January 2006, we announced the acquisition of SwissQual Holding AG
('SwissQual') for an initial consideration of £27.7 million paid in cash, with
up to a further £12.4 million payable depending on revenue growth and various
technical and financial milestones. SwissQual provides world class products and
talent in the development of voice and video solutions that analyse, recognise
and improve the quality of experience for users of wireless applications and
services.
We also announced on 13 February 2006 the acquisition of QuadTex Systems, Inc
('QuadTex') for an initial consideration of £4.2 million with further
consideration of up to £0.9 million. QuadTex is a fast growing US based provider
of innovative and leading test tools for internet protocol multimedia subsystems
('IMS') and voice over IP ('VoIP') testing.
SwissQual and QuadTex will enhance Spirent's product offerings, capabilities and
customer base in the wireless, triple play and IMS markets.
Outlook
The disposal of the HellermannTyton Division has transformed Spirent into a
focused communications company, as well as having significantly improved our
financial position. Spirent is well placed to grow organically from its
established market-leading positions. We also have the potential to expand
through selective acquisitions, such as SwissQual and QuadTex, announced in
2006.
The variable market conditions seen in 2005 have continued through the beginning
of the first quarter, which is usually our quietest. As 2006 progresses, the
year will be a period of product transition as the increased capability of our
new products and solutions will enable us to gain market share. As a result, we
anticipate that the Group's performance for 2006 will show recovery over last
year, with a more pronounced seasonal increase in activity in the second half.
OPERATING REVIEW
Communications
£ million 2005 2004 Change %
---------------------------- --------- --------- ---------
Revenue
Performance Analysis 178.8 176.8 1
Service Assurance 42.8 74.7 (43)
---------------------------- --------- ---------
Communications group 221.6 251.5 (12)
Operating profit/(loss)
Performance Analysis 22.0 21.7 1
Service Assurance (9.6) 2.5 -
---------------------------- --------- ---------
Communications group 12.4 24.2 (49)
Return on sales (%)
Performance Analysis 12.3 12.3
Service Assurance - 3.3
Communications group 5.6 9.6
---------------------------- --------- ---------
Our Communications group, Spirent Communications, works behind the scenes to
help the world communicate faster, better and more efficiently. The world's
leading communications companies use Spirent solutions to conduct performance
analysis tests in labs on their latest technologies. As new communications
services are introduced Spirent provides the tools to facilitate troubleshooting
and improve the quality of these new networks and services.
Revenue and operating profit in the Performance Analysis division was slightly
up. In this division we experienced variability in terms of end customer demand
principally in the third quarter and in the broadband test activities, with the
division's wireless and position location test activities experiencing good
growth.
In 2005 the operating loss in the Service Assurance division, although
substantially reduced in the second half year, affected the performance of the
Communications group as a whole.
Indeed, revenue in the Service Assurance division was down 43 per cent compared
with 2004 and the division reported an operating loss of £9.6 million. The
reduced revenues were principally a result of the decline in leased line
monitoring and the delay in installation of next-generation assurance solutions.
Firm and significant actions were taken in this division in the first half year
to reduce the rate of loss.
Performance Analysis
Our Performance Analysis division addresses the needs of service providers,
equipment manufacturers, large enterprises and government to test the equipment
developed and deployed for telecommunications networks. Our solutions test the
performance, functionality and conformance of telecoms devices. We provide
effective and efficient test and measurement capabilities to meet the needs of
voice, video, data and mobile testing to reduce risk in deploying new products
in the next-generation fixed line and wireless networks. We achieve this by
simulating real-world conditions in the laboratories of our customers,
subjecting the equipment under test to impairment and stress to establish their
true capability. The increasing scale and complexity of devices combined with
the necessity to increase the efficiency of our customers' engineers, drives
demand for more innovative test solutions. Our emphasis on customer support and
professional services are important differentiators, giving Spirent
Communications a leading reputation in the market and distinct competitive
advantage.
Revenue and operating profit in the Performance Analysis division grew by 1 per
cent in 2005. We invested £42.1 million, representing 24 per cent of sales (2004
£43.2 million and 24 per cent), into product development to increase the
capabilities of our existing products and develop innovative products for launch
in 2005 and 2006.
The market proved to be volatile and highly competitive during 2005. At the
interim stage we reported that market conditions were variable due to lower
spending by the US government and certain US service providers. As expected the
variable conditions continued through the second half year.
As announced in December, revenue for the third quarter was lower than
previously expected, although this was partly offset by improved trading in the
fourth quarter. We experienced slower demand in 2005 due to activity levels with
US service providers being markedly lower, a result of the impact of merger
activity in the sector, and the fact that other customers were absorbing the
high levels of equipment they purchased in 2004. In addition there was a notable
slowdown in the demand for ATM test equipment, whilst the US government also
shifted its spending to other priorities. Finally, some major equipment
manufacturers continued to work their way through strategic reviews, resulting
in further cutting back of their research and development programmes.
In contrast, more favourable conditions were seen in the demand for: security
testing across all market segments, high speed Ethernet devices, Gig E and 10
Gig E, requirements for increased scale and the emerging needs for triple play
(voice, video, data) testing and video quality testing. The transition of access
and metro networks to Ethernet, saw expansion in demand, particularly in the
first half year. Wireless infrastructure testing has expanded from functional
test to performance test, stimulating demand for our products. The emergence of
IMS is also creating new opportunities for Spirent Communications.
Despite the strength of demand for Ethernet test equipment aggressive actions by
competition resulted in some loss of market share in this sector. We have
responded by establishing a major customer support team, to offer both
additional services and to launch new leading edge product solutions during the
second half year. Internally we are progressing our initiatives to increase our
own product development efficiency and effectiveness to improve our product
realisation process. The launch of Spirent TestCenterTM, our unified platform
for Ethernet testing, has resulted in key competitive wins with major existing
as well as new customers. Our development plans for Spirent TestCenterTM
throughout the next 18 months will deliver increased functionality, scale, ease
of use and automation, making it an industry leading platform.
Total revenues from our top 20 customers grew year on year and account for
approximately 40 per cent of revenues; growth rates for a number of these
accounts exceeded 30 per cent. No one customer represented more than 10 per cent
of the total divisional revenues. Our revenues by customer type maintained a
similar profile. Sales to network equipment manufacturers represented 49 per
cent of the total; sales to service providers of 17 per cent; government
accounted for 8 per cent (down compared to 2004). The remainder includes chip
manufacturers and enterprise customers.
On a geographic basis there was growth in revenue in Europe for all test
solutions, but notably for VoIP, web applications and wireless handset test
systems. The US market was flat, for the reasons described above. Activity in
the Asia Pacific region grew, building on a remarkable growth rate, particularly
in China in 2004. We maintained revenue levels in Japan, despite difficult
market conditions. We enjoyed strong growth in the Indian market.
Our wireless and positioning test products had a record year and sales now
represent 27 per cent of the division's turnover. All product lines achieved
strong growth: CDMA, W-CDMA and GPS. We gained market share in the important W-
CDMA performance test market and made further strong progress in the sale of GPS
emulation systems. Revenues grew in the most important markets in Asia, namely
China, Korea and Japan and we also made good progress in Europe. We have
established and opened wireless service centres in China, Korea, Japan and UK,
offering higher levels of customer service and support. We specified, developed
and launched a new HSDPA - capable network emulator for the W-CDMA market.
Spirent's navigation and positioning test division has been selected to supply
key test equipment to support the joint EU and European Space Agency Galileo
project. Galileo is a major new global navigation system. Spirent is a leader in
navigation and positioning test.
As we look forward into 2006 and the future, we feel increased confidence that
our Performance Analysis solutions, in the form of new products such as Spirent
TestCenter(TM) and our wireless handset test solutions, offer leading edge test
capabilities. We expect to see the benefit from market growth as our customers
increase their investment in latest technologies. 2006 will be a period of
product transition as the increased capability of our new products enable us to
gain market share against a background of continued variable market conditions.
Service Assurance
Our Service Assurance division is focused on the development of network
monitoring systems to enable telecom service providers to test and assure
broadband leased line, DSL and IP services.
Our products include operations support systems software, remote test probes,
network access systems and consulting and technical services. We also supply
portable systems for fault identification and test of copper telephone lines in
the field. Our systems help service providers reduce their operational costs by
automating and centralising their network testing and service assurance
processes, reducing the need for expensive engineering intervention and
facilitating faster responses to customers' problems.
Our product solutions are based on a solid business case which offers carriers
increased operational efficiencies whilst ensuring the quality of the voice,
video and data services they provide.
The global telecoms sector continues to migrate from legacy networks towards
IP-based networks and services, which will result in substantial new investment.
The shift in carriers' capital expenditure has been slower than expected for
service assurance solutions for the deployment of triple play services. We
believe that the service assurance market opportunity will develop once the
build out has taken place and these new services are launched.
Following a very tough first six months of 2005, when we reported a fall in the
division's revenues of over half and an operating loss of £9.0 million, we
achieved stability during the second half, having realised the substantial cost
savings announced in the first half. We have developed a new strategy for growth
to meet the needs of service providers for their new triple play networks and
services. In addition, we have developed a new generation of handheld test
equipment, which will enable field test engineers to access the power of the
central office test and monitoring systems in the field.
The revenue profile by customer has remained comparable with 2004, with over
half of the activity being with US Incumbent Local Exchange Carriers. The
provision of leased line assurance products accounted for approximately 70 per
cent of sales throughout the year, whilst the provision of service maintenance
and support accounted for 15 per cent. The second half operating loss of £0.6
million reduced significantly from the first half loss of £9.0 million. This
was due to higher revenue of £2.4 million, a gross profit improvement from a
favourable product mix as we shipped software at higher margins in the second
half, and the realisation of cost savings.
Sales opportunities for this division were constrained in 2005 partly as a
result of the major acquisitions made by our customers, which has delayed the
sourcing of service assurance solutions as they integrated their businesses. In
the long term, this industry consolidation is likely to be beneficial as we aim
to extend our embedded solutions and sell new solutions for triple play, field
test and advanced business services into these enlarged customers. In addition,
sales decreased due to a rapid shift in technology, whilst customers were not
yet ready to install next generation assurance solutions.
We were awarded our first triple play contract with TELUS, a major Canadian
telecoms company, our first customer win outside the US for DSL and for advanced
broadband service assurance solutions.
We have concentrated on developing new solutions for triple play and advanced
business services. Whilst we remain cautious about the timing of the full scale
deployment of advanced services by carriers worldwide, we believe that due to
the actions taken in 2005 we are well placed to serve the market requirements as
they develop.
Systems
£ million 2005 2004 Change %
----------------------------- --------- --------- ---------
Revenue 37.7 31.3 20
Operating profit 4.4 3.4 29
Return on sales (%) 11.7 10.9
----------------------------- --------- --------- ---------
Figures in the above table relate to PG Drives Technology only. Divested
businesses contributed £4.4 million of revenue and £0.6 million of operating
profit in 2004.
The Systems group comprises PG Drives Technology, a leading supplier of control
systems for electrically powered medical and small industrial vehicles. Revenue
and operating profit were up 20 per cent and 29 per cent, respectively. Return
on sales increased to 11.7 per cent compared with 10.9 per cent in 2004.
During 2005 we launched two new wheelchair control systems: - the VR2, low cost,
mainstream wheelchair control system, and the R-net, a highly sophisticated
wheelchair system, designed for the rehab market that can incorporate a wide
variety of input and output devices to suit many different disabilities. Due to
the competitiveness of these systems and of our established VSI, S-Drive and
TRIO+ products, we were successful in increasing customer penetration in both
the mobility and industrial vehicles markets during the year. This was achieved
in spite of continuing constraints in US government healthcare funding for
powered wheelchairs. We also moved some more of our production to China to
reduce the logistical costs of supporting our activities in the Asia Pacific
region. In 2006 we are planning further new product launches that will enable us
to strengthen our position in both our addressed markets.
Discontinued operations
Network Products
£ million 2005 2004 Change %
----------------------------- --------- --------- ---------
Revenue 205.5 187.8 9
Operating profit 25.3 21.3 19
Return on sales (%) 12.3 11.3
----------------------------- --------- --------- ---------
Discontinued operations relate to the HellermannTyton Division, comprising the
Network Products group and the investment in associated companies.
We announced in December that we had entered into an agreement to dispose of the
HellermannTyton Division to Doughty Hanson and this disposal was completed on
15 February 2006.
The Network Products group delivered a strong performance in 2005, with revenue
of £205.5 million, up 9 per cent compared with 2004. Operating profit of £25.3
million was ahead by 19 per cent over 2004, and return on sales improved to 12.3
per cent from 11.3 per cent.
Organic growth was achieved in all regions and also through the associated
company in Japan. The business continued to increase its automotive sales
despite flattening production levels by the European car manufacturers, and to
achieve strong growth through its initiatives in North America in automatic
application systems, particularly in automotive and through the success of its
pre-terminated structured cabling system, RapidNet.
Profit after tax from discontinued operations was £13.2 million after charging
£6.7 million of costs related to the disposal of this business, compared with
£17.3 million in 2004.
FINANCIAL REVIEW
Reporting format
The format of the consolidated results for the Spirent Group has been
significantly altered in this year's report as a result of two factors: first
the conversion from UK Generally Accepted Accounting Practice ('UK GAAP') to
International Financial Reporting Standards ('IFRS'); second, the
reclassification of the results of the HellermannTyton Division (the Network
Products group) to discontinued operations. The table below sets out revenue and
operating profit for the total Group for 2005 and 2004.
----------------- -------- -------- -------- -------- --------
£ million First half Second half 2005 2004 Change %
2005 2005
----------------- -------- -------- -------- -------- --------
Revenue
Continuing 126.5 132.8 259.3 287.2 (10)
Discontinued 103.9 101.6 205.5 187.8 9
----------------- -------- -------- -------- -------- --------
Total 230.4 234.4 464.8 475.0 (2)
----------------- -------- -------- -------- -------- --------
Operating profit
Continuing 1.8 9.7 11.5 22.9 (50)
Discontinued 12.3 13.0 25.3 21.3 19
----------------- -------- -------- -------- -------- --------
Total 14.1 22.7 36.8 44.2 (17)
----------------- -------- -------- -------- -------- --------
Return on sales (%)
Continuing 1.4 7.3 4.4 8.0
Discontinued 11.8 12.8 12.3 11.3
----------------- -------- -------- -------- -------- --------
Total 6.1 9.7 7.9 9.3
----------------- -------- -------- -------- -------- --------
As our results are reported for the first time in accordance with IFRS,
comparative data has been restated. All amounts referred to below relate to
continuing operations unless otherwise stated.
Results
Reported revenue from continuing businesses for 2005 of £259.3 million was down
10 per cent and operating profit of £11.5 million was down 50 per cent compared
with 2004. Return on sales for the continuing Group reduced to 4.4 per cent from
8.0 per cent in 2004.
Revenue by market grew in the Asia Pacific region by 4 per cent but was down in
Europe and North America, having been affected by the performance of the Service
Assurance division in both regions.
Operating profit was impacted by the weakness in the Service Assurance division
in the first half, this division reported a loss of £9.0 million for that
period. In the second half year the loss in this division was much reduced to
£0.6 million, mainly as a result of the firm actions we took. Revenue and
operating profit in the Performance Analysis division were up 1 per cent
compared with 2004. Profitability in the Performance Analysis division was
slightly lower in the third quarter of 2005 recovering somewhat in the fourth.
The ongoing business in the Systems group reported good growth in 2005 over
2004.
Non-segmental costs, which are those that cannot be directly attributed to the
operating segments were £5.3 million excluding material one-time items and
share-based payment (2004 £5.3 million). These costs include the costs of our
Board, costs in relation to our dual listings and compliance costs, including
those in relation to the Sarbanes-Oxley Act of 2002.
Currency impact
In 2005 the effects of currency translation were less marked than in 2004.
Currency translation increased revenue from continuing operations by £1.7
million, and increased profit before tax, goodwill impairment and material
one-time items by £0.2 million.
Cost of sales and operating expenses
Product development spend for 2005 was £58.4 million, or 23 per cent of revenue
(2004 £63.2 million and 22 per cent respectively). Of this amount £42.1 million
(2004 £43.2 million) was spent in the Performance Analysis division and
£14.0 million (2004 £17.2 million) in the Service Assurance division. Product
development is included in the cost of sales on the income statement.
Gross profit decreased to £106.2 million, 41 per cent of sales from £122.0
million, 42 per cent of sales in 2004. This was a result of the decrease in
revenue in Service Assurance, the low levels of activity in the first half
resulting in unrecovered manufacturing overheads and to the relative increase in
product development spending as a percentage of sales as noted above.
Administration costs of £74.3 million for 2005 (2004 £34.0 million) include a
goodwill impairment charge of £37.0 million made in the first half.
A share-based payment charge of £5.1 million has been reported in accordance
with IFRS 2 'Share-based Payment' for the continuing Group. This charge
represents the expense for share options and other share-based incentives
calculated using an option pricing model. On transition to IFRS Spirent has
applied IFRS 2 only to awards made after 7 November 2002 and not fully vested at
1 January 2005. We anticipate that the charge for 2006 will be in the region of
£6 million based on current share price and volatility.
Material one-time items of £8.4 million have been charged in 2005 that relate to
restructuring costs and inventory write downs within our businesses.
Disposal of operations
A one-time profit on the disposal of operations of £3.9 million has been
reported, this relates to the sale of certain non trading companies.
Finance charges
Net interest expense for 2005 was £6.6 million, being £8.1 million cost less
£1.5 million income, compared with £6.8 million in 2004 (excluding a make whole
amount in 2004 of £0.5 million). Net interest includes a charge of £1.1 million
in respect of the UK final salary pension scheme in accordance with IAS 19
'Employee Benefits'. The deficit in this scheme has been reduced by the
special contribution of £47.0 million in February 2006 and as a result it is
estimated that net interest income in respect of the pension scheme will be
approximately £1.5 million for 2006. For 2006, and following repayment of the
senior loan notes, Spirent expects to earn current market rates of interest on
the net cash balance remaining from the disposal of the HellermannTyton Division.
(Loss)/profit before tax
Reported loss before tax was £41.7 million compared with a profit of £11.2
million for 2004.
Profit before tax, material one-time items, goodwill impairment, share-based
payment, profit on disposal of operations and costs associated with the part
prepayment of loan notes is set out below:
£ million 2005 2004
------------------------------- ----------- -----------
Reported (loss)/profit before tax (41.7) 11.2
Material one-time items 8.4 2.9
Goodwill impairment 37.0 -
Share-based payment 5.1 4.8
Profit on disposal of operations (3.9) (4.0)
Costs associated with the part prepayment of loan notes - 0.5
------------------------------- ----------- -----------
Adjusted profit before tax 4.9 15.4
------------------------------- ----------- -----------
Tax
There was a tax credit of £4.0 million in 2005 compared with a charge of £2.0
million in 2004, due to the release of provisions. We anticipate that the
effective tax rate for 2006 will be approximately 25 per cent.
Discontinued operations
Discontinued operations contributed profit after tax of £13.2 million compared
with £17.3 million in 2004. This result is after charging £6.7 million of costs
in relation to the disposal that were incurred and expensed during 2005.
Earnings per share
We are presenting an adjusted earnings per share measure that adds back the
effect of material one-time items, goodwill impairment, share-based payment,
profit on the disposal of operations and any related tax as well as prior year
tax adjustments. The adjusted earnings per share measure for the Group as a
whole is 2.30 pence for 2005 compared with 3.14 pence in 2004, a decrease of
27 per cent. The weighted average number of shares outstanding at the period end
was 950.4 million (2004 939.2 million). Basic loss per share from continuing
operations was 3.97 pence compared with basic earnings per share of 0.98 pence
in 2004.
Financing and cash flow
At 31 December 2005 the Group held cash of £49.2 million compared with £51.7
million at 31 December 2004. Borrowings of the continuing Group at the year end
were £75.1 million and borrowings of the discontinued operations were
£9.7 million. Total borrowings of the Group at 31 December 2005 were
£84.8 million compared with £78.1 million at 31 December 2004. The effect of
translation increased borrowings in 2005 by £7.7 million due to the
strengthening of the US dollar during the year.
Our major borrowings in 2005 continued to be the senior loan notes of $124.8
million (£72.6 million) which were repaid in February 2006 out of the proceeds
of the sale of the HellermannTyton Division (see post balance sheet events
below). During 2005 our £30 million bank facility remained nil drawn, this
facility was cancelled in February 2006.
Total Group net cash from operating activities for 2005 was down by 49 per cent
at £29.4 million compared with £57.2 million in 2004 due to the deterioration in
Service Assurance and absorption of working capital. As reported at the interim
stage, working capital increased due to a significant reduction in payables of
about £12 million, a result of the settlement of liabilities in respect of 2004.
For continuing operations there was a cash outflow from operating activities of
£1.1 million for the year, this includes £4.0 million in respect of
restructuring actions (2004 inflow £31.0 million).
Free cash flow, being cash flow before disposals, acquisitions and financing for
2005 for the Group as a whole was an outflow of £6.8 million compared with an
inflow of £23.0 million in 2004.
Net capital expenditure increased to £29.9 million, as planned, compared with
£24.8 million in 2004. We expect capital expenditure to be much reduced in 2006
as the HellermannTyton Division comprised the major part of this. Capital
expenditure for the continuing Group for 2005 was £14.8 million and we expect it
to be around £13 million in 2006.
The depreciation charge was £11.4 million for 2005 compared with £14.8 million
in 2004. We expect the charge for 2006 to be in the region of £13 million.
Net tax payments for the Group of £4.6 million were made in 2005 compared with
£3.1 million in 2004. We have, and expect to continue to benefit from the
utilisation of carried forward tax losses in the UK and the US. We expect tax
payments for 2006 to be approximately £4 million.
In 2005 we made our second additional annual cash contribution of £3.5 million
to our final salary UK pension scheme. The Company is not expected to make a
further such payment in 2006 having instead made a special contribution of £47.0
million out of the proceeds of the sale of the HellermannTyton Division in
February 2006.
Net interest payments of £6.5 million in 2005 were below the £7.2 million paid
in 2004. In addition in 2004 we paid make whole amounts of £2.3 million.
Pension fund
At the end of 2005 the deficit in the UK final salary pension scheme under IAS
19 'Employee Benefits' had increased to £51.5 million (31 December 2004 £38.1
million). The assets have grown during the year by £21.9 million as a result of
the positive performance of equity markets and additional Company contributions
made. However, the liabilities have grown by £35.3 million due to falling bond
rates together with changes in longevity assumptions. In February 2006 the
Company made a special contribution of £47.0 million into the UK final salary
pension scheme as had been announced in December 2005.
We have reassessed the recognition of the deferred tax asset in relation to the
pension scheme. The funding of the scheme will crystallise a tax loss in 2006
that may not be recoverable in the foreseeable future as the Company has
significant accumulated tax losses in the UK. Consequently, the deferred tax
asset of £11.1 million, which had been recognised at 31 December 2004, has been
written off through reserves.
Dividend
No dividend is being declared in respect of 2005.
Post balance sheet events
On 23 January 2006 Spirent announced that it had entered into an agreement to
acquire SwissQual Holding AG ('SwissQual') for an initial consideration of CHF
62.5 million (£27.7 million). The initial consideration was paid in cash on
completion on 23 January 2006 out of cash resources and utilisation of a new
bank facility that was set up specifically for the purpose. A further CHF 28.0
million (£12.4 million) is payable in 2007 depending on revenue growth and
various technical milestones.
We also announced on 13 February 2006 the acquisition of QuadTex for US$7.5
million (£4.2 million), payable in cash on completion with a further US$1.5
million (£0.9 million) payable depending on certain technical milestones and the
retention of key employees.
The disposal of the HellermannTyton Division was completed on 15 February 2006
when proceeds of £288.9 million (for a cash free/debt free equivalent value)
were received. These proceeds have been applied as follows:
• Repayment of the senior loan notes of $124.8 million (£71.5 million)
• Payment of the make whole amount (an amount which becomes payable on the
early redemption of the senior loan notes) of $12.9 million (£7.4 million)
• Break fees of £2.3 million in respect of interest rate swaps taken out
in connection with the senior loan notes
• Special contribution of £47.0 million to the UK final salary pension
scheme
• Repayment and cancellation of the bank facility in connection with the
acquisition of SwissQual
Taking these transactions into account the pro forma cash balance is
approximately £150 million, of this, up to £50 million has been earmarked to
fund the on-market share repurchase programme. The programme is expected to
begin in the second quarter, following the completion of certain actions:
establishing distributable reserves in the parent Company, clearance from the
Pension Regulator and the approval from shareholders to make on-market share
repurchases of up to 14.99 per cent of our issued share capital.
Following the disposal of the HellermannTyton Division the Company issued
notices of cancellation in respect of all its borrowing facilities.
Adoption of International Financial Reporting Standards
Spirent has applied International Financial Reporting Standards ('IFRS'), as
adopted by the European Union, for the first time with effect from 1 January
2005. The effect of the transition to IFRS on the financial information now
being presented, including restatement of comparatives and the accounting
policies adopted, has not materially changed from the information provided in
the document issued by Spirent on 15 July 2005 and entitled 'Transition to
International Financial Reporting Standards'.
The most significant impacts have been in relation to:
• The elimination of the charge for goodwill amortisation
• The change in the profit or loss on the disposal of operations; and
• An increase in the charge for share-based payment
Overall, this has had a net beneficial effect on Spirent's historic reported
earnings for 2003 and 2004, however the adoption of IFRS has no impact on the
cash generation of the Group.
Consolidated income statement
Year to 31 December
-------------------
£ million Note 2005 2004
------------------------------ ------ --------- ---------
Continuing operations
Revenue 2,3 259.3 287.2
Cost of sales (153.1) (165.2)
------------------------------ ------ --------- ---------
Gross profit 106.2 122.0
Selling and distribution (70.9) (73.0)
Administration (74.3) (34.0)
Other operating income - 0.2
------------------------------ ------ --------- ---------
Operating (loss)/profit 2 (39.0) 15.2
------------------------------ ------ --------- ---------
Add back:
Material one-time items 8.4 2.9
Goodwill impairment 37.0 -
Share-based payment 5.1 4.8
Operating profit before material one-time items, goodwill
impairment and share-based payment 2 11.5 22.9
------------------------------ ------ --------- ---------
Loss from interest in joint venture - (0.7)
------------------------------ ------ --------- ---------
Operating (loss)/profit of the Group and joint venture (39.0) 14.5
Profit on the disposal of operations 3.9 4.0
------------------------------ ------ --------- ---------
(Loss)/profit before interest (35.1) 18.5
Finance income 1.5 1.4
Finance costs (8.1) (8.2)
Costs associated with the part prepayment of loan notes - (0.5)
------------------------------ ------ --------- ---------
(Loss)/profit before tax (41.7) 11.2
Tax 4.0 (2.0)
------------------------------ ------ --------- ---------
(Loss)/profit for the year from continuing operations
after tax (37.7) 9.2
Discontinued operations
Profit for the year from discontinued operations 13.2 17.3
------------------------------ ------ --------- ---------
(Loss)/profit for the year (24.5) 26.5
------------------------------ ------ --------- ---------
Attributable to
Equity holders of parent (24.9) 26.2
Minority shareholders' interests - discontinued operations 0.4 0.3
------------------------------ ------ --------- ---------
(Loss)/profit for the year (24.5) 26.5
------------------------------ ------ --------- ---------
(Loss)/earnings per share 4
Basic (loss)/earnings (pence) (2.62) 2.79
Basic (loss)/earnings from continuing operations (pence) (3.97) 0.98
Diluted (loss)/earnings (pence) (2.62) 2.74
Diluted (loss)/earnings from continuing operations (pence) (3.97) 0.96
------------------------------ ------ --------- ---------
Consolidated statement of recognised income and expense
Year to 31 December
---------------------
£ million 2005 2004
---------------------------------- --------- ---------
Income and expense recognised directly in equity
Gains on cash flow hedges taken to equity 1.9 -
Exchange differences on retranslation of foreign
operations 4.1 (1.5)
Actuarial (losses)/gains on defined benefit pension
plans (16.1) 3.0
---------------------------------- --------- ---------
(10.1) 1.5
Transfers to income statement
Gains on cash flow hedges (0.5) -
Transfers to balance sheet
Deferred tax asset on pension liability (11.1) -
Tax on actuarial gains - (0.9)
---------------------------------- --------- ---------
Net (expense)/income recognised directly in equity (21.7) 0.6
(Loss)/profit for the year (24.5) 26.5
---------------------------------- --------- ---------
Total recognised income and expense for the year (46.2) 27.1
---------------------------------- --------- ---------
Attributable to
Equity holders of parent (46.8) 26.9
Minority shareholders' interests - discontinued
operations 0.6 0.2
---------------------------------- --------- ---------
(46.2) 27.1
---------------------------------- --------- ---------
Effects of changes in accounting policy
Equity holders of parent
Net gain on cash flow hedges on first-time application
of IAS 39 0.5 -
Net loss on fair value hedges on first-time application
of IAS 39 (1.0) -
Loan notes at fair value on first-time application of
IAS 39 0.4 -
---------------------------------- --------- ---------
(0.1) -
---------------------------------- --------- ---------
Consolidated balance sheet
At 31 December
---------------------
£ million 2005 2004
---------------------------------- --------- ---------
Assets
Non current assets
Goodwill 71.5 106.5
Property, plant and equipment 30.1 86.3
Investment in associates - 14.3
Trade and other receivables 1.7 1.5
Deferred tax 1.0 11.1
---------------------------------- --------- ---------
104.3 219.7
---------------------------------- --------- ---------
Current assets
Inventories 27.0 54.0
Trade and other receivables 56.3 88.4
Derivative financial instruments 2.6 -
Cash and cash equivalents 49.2 51.7
---------------------------------- --------- ---------
135.1 194.1
---------------------------------- --------- ---------
Assets held in disposal group held for sale 164.1 -
---------------------------------- --------- ---------
Total assets 403.5 413.8
---------------------------------- --------- ---------
Liabilities
Current liabilities
Trade and other payables (62.9) (90.8)
Current tax (24.7) (26.2)
Derivative financial instruments (0.7) -
Short term borrowings and overdrafts (3.9) (1.8)
Provisions and other liabilities (4.1) (4.2)
---------------------------------- --------- ---------
(96.3) (123.0)
---------------------------------- --------- ---------
Non current liabilities
Trade and other payables (0.7) (3.9)
Derivative financial instruments (2.0) -
Long term borrowings (71.2) (76.3)
Defined benefit pension plan deficit (51.5) (38.1)
Deferred tax (0.8) (2.5)
Provisions and other liabilities (10.1) (9.6)
---------------------------------- --------- ---------
(136.3) (130.4)
---------------------------------- --------- ---------
Liabilities included in disposal group held for sale (48.7) -
---------------------------------- --------- ---------
Total liabilities (281.3) (253.4)
---------------------------------- --------- ---------
Net assets 122.2 160.4
---------------------------------- --------- ---------
Capital and reserves
Share capital 32.2 31.9
Share premium account 4.4 1.3
Capital reserve 10.2 10.9
Translation reserve 5.5 1.6
Net unrealised gains and losses 1.9 -
Retained earnings 66.1 113.4
---------------------------------- --------- ---------
Equity holders of parent 120.3 159.1
Minority interests 1.9 1.3
---------------------------------- --------- ---------
Total equity 122.2 160.4
---------------------------------- --------- ---------
Consolidated cash flow statement
Year to 31 December
-------------------
£ million Note 2005 2004
------------------------------ ------ --------- ---------
Cash flows from operating activities
Cash generated from operations 5 34.0 60.3
Tax paid (4.6) (3.1)
------------------------------ ------ --------- ---------
Net cash from operating activities 29.4 57.2
------------------------------ ------ --------- ---------
Cash flows from investing activities
Dividends received from associates 0.2 0.1
Interest received 1.4 1.6
Disposal of operations 2.4 2.5
Purchase of property, plant and equipment (30.5) (25.3)
Proceeds from the sale of property, plant and
equipment 0.6 0.5
Acquisition of subsidiaries - (1.1)
Contribution to joint venture - (0.2)
------------------------------ ------ --------- ---------
Net cash used in investing activities (25.9) (21.9)
------------------------------ ------ --------- ---------
Cash flows from financing activities
Interest paid (7.4) (8.4)
Interest element of finance lease rental payments (0.5) (0.4)
Costs associated with the part prepayment of loan
notes - (2.3)
Proceeds from the issue of share capital 2.7 1.5
Repayments of borrowings (0.2) (10.2)
Repayments of capital element of finance lease
rentals (1.4) (0.8)
------------------------------ ------ --------- ---------
Net cash used in financing activities (6.8) (20.6)
------------------------------ ------ --------- ---------
Net (decrease)/increase in cash and cash equivalents (3.3) 14.7
Cash and cash equivalents at the beginning of the
year 51.0 36.9
Effect of foreign exchange rate changes 1.1 (0.6)
------------------------------ ------ --------- ---------
Cash and cash equivalents at the end of the year 48.8 51.0
------------------------------ ------ --------- ---------
Cash and cash equivalents comprise:
Cash and cash equivalents 49.2 51.7
Overdrafts (0.4) (0.7)
------------------------------ ------ --------- ---------
48.8 51.0
------------------------------ ------ --------- ---------
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.
The financial statements for the year to 31 December 2004 were prepared in
accordance with UK Generally Accepted Accounting Practice ('UK GAAP'). These
financial statements, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies.
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 2005 in accordance with International Financial Reporting Standards
('IFRS') as adopted by the European Union. This is the first year in which the
Group has prepared its financial statements under IFRS and the comparatives have
been restated from UK GAAP to comply with IFRS.
The effect of the transition to IFRS on the financial information now being
presented, including restatement of comparatives and the accounting policies
adopted, has not materially changed from the information provided in the
document issued by Spirent on 15 July 2005 and entitled 'Transition to
International Financial Reporting Standards'.
2 Segmental analysis
------------ -------- ------- ---------- ------ ------- ------- -------- -------
£ million Performance Service Communications Systems Non Continuing Discontinued Total
Analysis Assurance segmental operations operation operations
Network
Total Products
------------ -------- ------- ---------- ------- ------- ------- -------- -------
2005
Revenue 178.8 42.8 221.6 37.7 - 259.3 205.5 464.8
------------ -------- ------- ---------- ------- ------- ------- -------- -------
Operating
profit/(loss)
before material
one-time items,
goodwill
impairment and
share-based
payment 22.0 (9.6) 12.4 4.4 (5.3) 11.5 25.3 36.8
Material
one-time items (2.5) (5.4) (7.9) - (0.5) (8.4) (0.4) (8.8)
Goodwill
impairment - (37.0) (37.0) - - (37.0) - (37.0)
Share-based
payment (3.6) (1.2) (4.8) (0.1) (0.2) (5.1) (0.5) (5.6)
------------ -------- ------- ---------- ------- ------- ------- -------- -------
Operating
(loss)/profit 15.9 (53.2) (37.3) 4.3 (6.0) (39.0) 24.4 (14.6)
Share of
profit of
associates - - - - - - 2.7 2.7
------------ -------- ------- ---------- ------- ------- ------- -------- -------
Operating
(loss)/profit
of the Group
and associates 15.9 (53.2) (37.3) 4.3 (6.0) (39.0) 27.1 (11.9)
Profit on
disposal of
operations 3.9 (6.7) (2.8)
Finance income 1.5 0.1 1.6
Finance costs (8.1) (1.2) (9.3)
------------ -------- ------- ---------- ------- ------- ------- -------- -------
(Loss)/profit
before tax (41.7) 19.3 (22.4)
Tax 4.0 (6.1) (2.1)
------------ -------- ------- ---------- ------- ------- ------- -------- -------
(Loss)/profit
after tax for
the year (37.7) 13.2 (24.5)
------------ -------- ------- ---------- ------- ------- ------- -------- -------
2 Segmental analysis cont.
------------ -------- ------- --------- ------ ------- ------- ------- -------
£ million Performance Service Communications Systems Non Continuing Discontinued Total
Analysis Assurance segmental operations operation operations
Network
Total Products
------------ -------- ------- --------- ------ ------- ------- ------- -------
2004
Revenue 176.8 74.7 251.5 35.7 - 287.2 187.8 475.0
------------ -------- ------- --------- ------ ------- ------- ------- -------
Operating
profit before
material
one-time
items and
share-based
payment 21.7 2.5 24.2 4.0 (5.3) 22.9 21.3 44.2
Material
one-time items 1.3 (1.9) (0.6) - (2.3) (2.9) - (2.9)
Share-based
payment (3.2) (1.4) (4.6) (0.1) (0.1) (4.8) (0.4) (5.2)
------------ -------- ------- --------- ------ ------- ------- ------- -------
Operating
profit/ (loss) 19.8 (0.8) 19.0 3.9 (7.7) 15.2 20.9 36.1
Loss from
interest in
joint venture - (0.7) (0.7) - - (0.7) - (0.7)
Share of
profit of
associates - - - - - - 1.8 1.8
------------ -------- ------- --------- ------ ------- ------- ------- -------
Operating
profit/(loss)
of the Group,
joint venture
and associates 19.8 (1.5) 18.3 3.9 (7.7) 14.5 22.7 37.2
Profit on the
disposal of
operations 4.0 - 4.0
Finance income 1.4 0.2 1.6
Finance costs (8.2) (0.9) (9.1)
Costs
associated
with the part
pre-payment of
loan notes (0.5) - (0.5)
------------ -------- ------- --------- ------ ------- ------- ------- -------
Profit before
tax 11.2 22.0 33.2
Tax (2.0) (4.7) (6.7)
------------ -------- ------- --------- ------ ------- ------- ------- -------
Profit after
tax for the
year 9.2 17.3 26.5
------------ -------- ------- --------- ------ ------- ------- ------- -------
3 Geographical analysis
£ million 2005 2004
---------------------------------- --------- ---------
Revenue by market
Continuing operations
Europe 43.0 49.3
North America 158.2 182.0
Asia Pacific, Rest of Americas, Africa 58.1 55.9
---------------------------------- --------- ---------
259.3 287.2
---------------------------------- --------- ---------
Discontinued operations
Europe 122.8 118.1
North America 42.0 35.0
Asia Pacific, Rest of Americas, Africa 40.7 34.7
---------------------------------- --------- ---------
205.5 187.8
---------------------------------- --------- ---------
464.8 475.0
---------------------------------- --------- ---------
Revenue by source
Continuing operations
Europe 61.2 59.9
North America 180.9 209.7
Asia Pacific, Rest of Americas, Africa 17.2 17.6
---------------------------------- --------- ---------
259.3 287.2
---------------------------------- --------- ---------
Discontinued operations
Europe 131.0 125.0
North America 40.3 33.7
Asia Pacific, Rest of Americas, Africa 34.2 29.1
---------------------------------- --------- ---------
205.5 187.8
---------------------------------- --------- ---------
464.8 475.0
---------------------------------- --------- ---------
4 (Loss)/earnings per share
£ million Continuing Discontinued Total
operations operations operations
---------------------------- ---------- ------------ ----------
2005
(Loss)/profit for the year (37.7) 13.2 (24.5)
Less: minority shareholders'
interests - (0.4) (0.4)
---------------------------- ---------- ------------ ----------
(Loss)/profit for the year
attributable to equity
holders of parent (37.7) 12.8 (24.9)
Material one-time items 8.4 0.4 8.8
Goodwill impairment 37.0 - 37.0
Share-based payment 5.1 0.5 5.6
Profit on the disposal of
operations (3.9) 6.7 2.8
Prior year tax credit (5.9) - (5.9)
Prior year tax credit on
associate - (1.5) (1.5)
---------------------------- ---------- ------------ ----------
Adjusted earnings attributable
to equity holders of parent 3.0 18.9 21.9
---------------------------- ---------- ------------ ----------
2004
Profit for the year 9.2 17.3 26.5
Less: minority shareholders'
interests - (0.3) (0.3)
---------------------------- ---------- ------------ ----------
Profit for the year
attributable to equity
holders of parent 9.2 17.0 26.2
Material one-time items 2.9 - 2.9
Share-based payment 4.8 0.4 5.2
Profit on the disposal of
operations (4.0) - (4.0)
Costs associated with the
part prepayment of loan notes 0.5 - 0.5
Prior year tax credit (1.3) - (1.3)
---------------------------- ---------- ------------ ----------
Adjusted earnings
attributable to equity
holders of parent 12.1 17.4 29.5
---------------------------- ---------- ------------ ----------
2005 2004
---------------------------- ---------- ------------ ----------
(Loss)/earnings per share (pence)
Basic (2.62) 2.79
Basic from continuing
operations (3.97) 0.98
Diluted (2.62) 2.74
Diluted from continuing
operations (3.97) 0.96
Adjusted 2.30 3.14
Adjusted from continuing
operations 0.32 1.29
---------------------------- ---------- ------------ ----------
Weighted average number of shares
in issue (million)
Basic and adjusted 950.4 939.2
Dilutive potential of
employee share options 10.2 18.1
---------------------------- ---------- ------------ ----------
Weighted average number of shares
in issue -
diluted 960.6 957.3
---------------------------- ---------- ------------ ----------
5 Reconciliation of operating (loss)/profit to cash generated from operations
£ million 2005 2004
---------------------------------- --------- ---------
Continuing operations
Operating (loss)/profit (39.0) 15.2
Adjustments for:
Goodwill impairment 37.0 -
Depreciation of property, plant and equipment 11.4 14.8
Loss on the disposal of property, plant and equipment 0.1 0.5
Impairment of property, plant and equipment - 0.6
Share-based payment 5.1 4.8
Changes in working capital:
Deferred income received 5.8 4.9
Decrease/(increase) in receivables 0.4 (7.1)
(Increase)/decrease in inventories (0.4) 3.5
(Decrease)/increase in payables (16.8) 4.5
Decrease in provisions (0.9) (2.9)
Defined benefit pension plan (3.8) (7.8)
---------------------------------- --------- ---------
Cash (outflow)/generated from continuing operations (1.1) 31.0
---------------------------------- --------- ---------
Discontinued operations
Operating profit 24.4 20.9
Adjustments for:
Depreciation of property, plant and equipment 11.2 10.6
Profit on the disposal of property, plant and equipment (0.1) (0.1)
Share-based payment 0.5 0.4
Changes in working capital:
Increase in receivables (1.7) (2.0)
Increase in inventories (3.0) (4.5)
Increase in payables 3.8 4.0
---------------------------------- --------- ---------
Cash generated from discontinued operations 35.1 29.3
---------------------------------- --------- ---------
Cash generated from operations 34.0 60.3
---------------------------------- --------- ---------
This information is provided by RNS
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