Final Results
Spirent Communications PLC
01 March 2007
SPIRENT COMMUNICATIONS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
London, UK - 1 March 2007 - Spirent Communications plc ("Spirent" or "the
Group")
(LSE: SPT; NYSE: SPM), a leading communications technology company, today
announces its preliminary results for its financial year ended 31 December 2006.
Highlights
• Much improved performance for the second half year.
• Markets were highly competitive partly as a result of consolidation
amongst our largest customers.
• Restructuring actions taken during the year with total annualised cost
savings of £16 million at a total cost of £9.1 million.
• 24 per cent of orders for Communications group in the final quarter of
2006 came from new product platforms.
Performance Analysis
• Overall performance reflects continued product transition:
- Spirent TestCenter(TM) sales grew to £20 million (2005: £4 million).
- Existing older platforms, SmartBits and AX, orders declined by £27
million, 15 per cent of total Performance Analysis activity, to £48
million (2005: £75 million).
- All other Broadband products and services grew.
• Wireless continued to make good overall progress.
Service Assurance
• Signed our first major contract with TELUS, a leading provider of data,
IP and wireless solutions in Canada, to provide triple play service
assurance solutions.
Financial
• Four acquisitions made for a total initial consideration of £39.7
million.
• Goodwill impairment of £46.8 million in relation to Service Assurance
and SwissQual.
• Net funds at the year end of £106.1 million with £41.9 million returned
to shareholders to date at an average price of 46.1 pence per share.
Board and management
• New leadership at both Board level and in key operational positions:
in-depth business review underway.
Anders Gustafsson, Chief Executive, commented:
"In 2006 Spirent delivered a much improved second half performance benefiting
from growth in new product revenues and the restructuring actions undertaken.
"With new Board leadership and having made key operational appointments we are
now undertaking an in-depth business review, the outcome of which will be
reported before the AGM in May.
"Our performance in 2007 is expected to benefit from the investment in new and
upgraded products and the acquisitions made last year and further progress
beyond that will depend on the outcome of the business review. We are confident
that our new products, led by Spirent TestCenter, will grow revenue and continue
to gain market share although this will be offset by the decreasing revenue from
our older products. With market conditions continuing to be similar to last
year, we consequently expect only a modest growth in Performance Analysis
revenues. In addition, should sterling continue its recent strength relative to
the US dollar, our performance for 2007, particularly in Systems, will be held
back."
Results
The adjusted profit and earnings per share measures have been restated to
include share-based payment of £5.2 million (2005: £5.1 million) and intangible
amortisation of £1.6 million (2005: nil).
£ million 2006 2005 Change %
------------------------- ---------- ---------- ----------
Reported
Continuing operations
Revenue 271.6 259.3 5
Loss before tax (50.1) (41.7)
Basic loss per share (pence) (5.51) (3.97)
Group
Profit/(loss) for the year 108.8 (24.5)
Basic earnings/(loss) per share (pence) 11.75 (2.62)
Adjusted
Continuing operations
Operating profit1 8.3 6.4 30
Profit/(loss) before tax2 14.3 (0.2)
Adjusted earnings/(loss)3 per share (pence) 1.41 (0.22)
------------------------- ---------- ---------- ----------
Notes
1 Before material one-time items and goodwill impairment.
2 Before material one-time items, goodwill impairment, profit on the disposal of
operations and costs associated with the repayment of loan notes.
3 Adjusted earnings/(loss) per share is based on adjusted earnings as set out in
note 6.
- ends -
Enquiries
Anders Gustafsson, Chief
Executive Spirent Communications +44 (0)1293 767676
plc
Eric Hutchinson, Chief Financial
Officer
Reg Hoare/Libby Young Smithfield +44 (0)20 7360 4900
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
Communications 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 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) 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
Communications 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 manage a significant transition in product
revenues to new product solutions incorporating latest technology; the outcome
of the business review; our ability to successfully expand our customer base;
continuing variable market conditions; 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 the 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 Communications 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.
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
CHAIRMAN'S STATEMENT
At the end of 2006 a number of new directors were appointed to the Board and I
was appointed Chairman. Since that time, the Board as a whole has embarked on an
in-depth review of each of the company's operations.
Since I was not at Spirent during most of 2006 my comments are necessarily
limited. However, it is already clear that the company has a strong base of
technology and customer relationships, reflecting a very talented group of
employees. I would like to express our thanks to them for their contributions
during a year of transition and some market uncertainty.
We also find ourselves with a strong balance sheet, largely due to the sale of
the HellermanTyton business in February. Overall the company has a sound
foundation on which to build for which thanks are due to a number of Board
members who departed during the year.
As you will read below, conditions in some of our markets are somewhat
challenging. However, in reality the outlook for Spirent's financial performance
in 2007 and beyond will be more affected by the actions resulting from the
Board's review than by any foreseeable market developments. The major purpose of
the Board's review is to decide where to focus our resources and how to be the
most efficient and effective competitor in our chosen areas. We expect to
announce the results of the review prior to the Annual General Meeting on
9 May and look forward to communicating with shareholders again at that
time.
We evaluate the performance of Spirent based on revenue and operating profit/
(loss) before the effect of material one-time items and goodwill impairment so
that period on period comparisons are not distorted. Operating profit/(loss) and
return on sales are referred to in the text before material one-time items and
goodwill impairment unless otherwise stated.
GROUP OVERVIEW
Introduction
The year as a whole saw a series of challenges, primarily due to the continuing
variable market conditions resulting from the impact of customer consolidation
and product transition which both depressed sales and margins and was
particularly notable in the first half. As expected at the time of the
announcement of the interim results we delivered a much improved second half
which benefited from the growth in new product revenues and restructuring
actions undertaken. For the full year the adjusted profit before tax was £14.3
million compared with a loss before tax of £0.2 million in 2005.
Our newly developed and recently launched products and solutions for
next-generation networks continue to grow sales and gain market share and
represented almost 25 per cent of orders for Performance Analysis Broadband in
the final quarter of the year, demonstrating the success of our investment in
product development and the benefit of newly acquired products.
Four acquisitions were completed expanding our breadth of expertise and
solutions into new growth areas such as IP multimedia subsystems ("IMS"), IP
telephony and security test, whilst boosting our offering in other areas such as
wireless.
With new Board leadership and having made key operational appointments we are
now undertaking an in-depth business review, the outcome of which will be
reported before the AGM in May.
Market conditions
The many high profile mergers of the last two years among our customers have
resulted in customers delaying their investment in next-generation networks and
have created highly competitive markets. Indeed, our sales to these latter
customers as a group fell by 8 per cent in the year as a whole, principally in
the first half. As a result overall, many of our markets saw no growth, although
we remain positive for long term growth prospects. We expect our markets will
remain competitive in the current year.
Product transition
A major feature of the year was significant product transition. The growth in
sales of all our new and enhanced products was encouraging, with Spirent
TestCenter sales reaching £20 million (2005: £4 million), which was the Group's
highest revenue generating product in the final quarter of 2006. As expected,
orders of our older platforms, SmartBits and AX, declined sharply by £27 million
being 36 per cent year-on-year. Revenues from all of our Performance Analysis
Broadband products, apart from SmartBits and AX grew in 2006.
Spending on product development by the Communications businesses, totalled £55.0
million (2005: £56.1 million) of which £5.0 million was incurred by our newly
acquired businesses. Product development was primarily focused on the new
Spirent TestCenter platform, WCDMA performance test equipment for mobile
handsets and triple play IP service assurance monitoring solutions, as well as
in our other faster growing product lines.
Spirent TestCenter was developed to take testing to new levels by consolidating
a host of solutions on a single platform. To date, our new and upgraded products
have been well received by customers, who consistently report enhanced
functionality, improved productivity and reliability. Spirent TestCenter's
performance is very encouraging. It has already been purchased by over 200 cus
tomers worldwide, compared to just 90 when we reported our interim results in
August 2006. These include most of the leading global companies in our industry
and all of our largest customers.
We were pleased with strong performances in our Asia Pacific operations,
especially in Performance Analysis, and Europe, which was boosted by our recent
acquisitions.
Restructuring actions
During the year we continued to manage the balance between the cost base and
maintaining the capability to generate long term growth. Accordingly, we
undertook two major restructuring actions to realign resources and to reduce
operating expenses in our Performance Analysis and Service Assurance divisions,
one announced in June and the other in October, as follows:
• in June, a total annualised cost reduction of approximately £9.0 million
per year at a one-time cost of £3.9 million;
• in October, a total annualised cost reduction of approximately £7.0
million per year at a one-time cost of £5.2 million.
These actions included completion of the outsourcing of all manufacturing except
final assembly and test, continuing investment in our low cost offshore
engineering centre, further divisional management changes and restructuring of
support functions.
Including these actions, we are targeting a long term improvement in operating
margin in Performance Analysis Broadband, with an interim goal to deliver a run
rate of 15 per cent by the end of 2007. The success of Spirent TestCenter as a
single platform should enable the Group to realise significant operating
efficiencies in product development, sales and marketing and other areas within
the division.
The significant restructuring action within Service Assurance is intended to
allow the division to target a break-even position through 2007, whilst funding
the investment in the future of next-generation triple play IP monitoring
solutions.
The Board and staff
Following the Extraordinary General Meeting on 22 December 2006, John Weston,
Andrew Given, Fred D'Alessio, Marcus Beresford and Kurt Hellstrom ceased to be
directors of the Company. We would like to thank them for their collective
service to Spirent over many years.
At the EGM, Edward Bramson, Ian Brindle, Gerard Eastman and Alex Walker were
appointed directors of the Company. Subsequently, Edward Bramson was elected as
Chairman of the Board and appointed as Chairman of the Nomination Committee; Ian
Brindle was appointed Chairman of the Audit Committee, and as a member of the
Remuneration Committee and Nomination Committee; Alex Walker was appointed as
the Senior Independent Non-executive Director and Chairman of the Remuneration
Committee, and as a member of the Audit Committee and Nomination Committee; and
Gerard Eastman was appointed as a member of the Audit, Remuneration and
Nomination Committees.
Outlook
Our performance in 2007 is expected to benefit from the investment in new and
upgraded products and the acquisitions made last year and further progress
beyond that will depend on the outcome of the business review. We are confident
that our new products, led by Spirent TestCenter, will grow revenue and continue
to gain market share although this will be offset by the decreasing revenue from
our older products. With market conditions continuing to be similar to last
year, we consequently expect only a modest growth in Performance Analysis
revenues. In addition, should sterling continue its recent strength relative to
the US dollar, our performance for 2007, particularly in Systems, will be held
back.
Summary
2006 has been a busy and challenging year for Spirent with variability and
unpredictability in our markets. We have worked hard to stay ahead of the
competition and drive the development of our new products and services. We
achieved an improved performance in the second half over the first half year.
We made good progress with our new products and saw growth in a number of key
product areas during 2006. We have secured the first major contract for a
full-scale triple play service assurance solution. We intend to build on this in
2007. In particular the development plans we have for Spirent TestCenter will
deliver increased functionality, scale, ease of use and automation for our
customers.
The sale of the HellermannTyton Division enabled Spirent to achieve a
significantly strengthened balance sheet and to return capital to our
shareholders. Over the coming months the newly constituted Board will be working
to undertake an in-depth business review and will report the outcome before the
AGM in May.
GROUP FINANCIAL REVIEW
The Group's financial performance is reported in accordance with International
Financial Reporting Standards ("IFRS") under which the Group's discontinued
operations, the HellermannTyton Division, are reported as a single line at the
foot of the income statement including the profit on sale.
All comments below refer to continuing activities only unless otherwise stated.
Please note that the adjusted profit and earnings per share measures have been
restated to include share-based payment of £5.2 million (2005: £5.1 million) and
intangible amortisation of £1.6 million (2005: nil).
Results
Continuing operations
£ million Restated
first Second 2006 Restated Change
half half 2005 (%)
---------------- -------- -------- -------- -------- --------
Revenue 138.2 133.4 271.6 259.3 5
Adjusted
operating
profit1 2.8 5.5 8.3 6.4 30
Return on
sales1 (%) 2.0 4.1 3.1 2.5
Adjusted
profit/(loss)
before tax2 5.1 9.2 14.3 (0.2) -
Adjusted
earnings per
share3 (pence) 0.50 0.91 1.41 (0.22)
Adjusted cash
generation
from operating
activities4 (0.9) 13.5 12.6 6.4
---------------- -------- -------- -------- -------- --------
Notes
1 Before material one-time items and goodwill impairment.
2 Before material one-time items, goodwill impairment, profit on the disposal of
operations, costs associated with the repayment of loan notes and any related
tax.
3 As 2 and before any related and prior year tax.
4 Before the cash cost of material one-time items and lump sum pension
contribution.
The year has been affected by the complexities of implementing major product
transitions combined with continued challenging market conditions in our
communications markets. These market conditions to a large extent were a
consequence of the consolidations of some of our major customers. Revenue
increased by 5 per cent over 2005, excluding the contribution from acquisitions
revenue was flat year-on-year. There were some significant areas of growth,
namely in our voice, security testing, positioning, client services and of
course in sales of our pioneering platform Spirent TestCenter. The growth of
these products was offset by the rapid decline of our two traditional products,
SmartBits and AX, which were down by 36 per cent, as well as the expected drop
in revenue in our Service Assurance division during the second half of the year
as carriers continued to shift spending away from legacy networks. We focused on
the realignment of resources and the reduction in operating expenses across all
divisions and took restructuring actions in both Service Assurance and
Performance Analysis in June and also in October which improved the
profitability in Performance Analysis during the second half year and allowed us
to maintain a near break-even position in Service Assurance.
We are presenting an adjusted earnings measure eliminating the effect of
material one-time items and goodwill impairment. Previously we had adjusted for
intangible amortisation and share-based payment. Comparatives have been restated
to reflect this change.
Adjusted operating profit improved by 30 per cent to £8.3 million compared with
£6.4 million in 2005, excluding the effect of exchange, growth was 36 per cent.
This result includes a significant reduction in the loss for the Service
Assurance division to £1.1 million; (after share-based payment of £1.2 million,
2005: £1.2 million) from a loss of £10.8 million reported in 2005. However, this
was offset by the decline in profitability of the Performance Analysis division
down from £18.4 million in 2005 to £10.5 million in 2006 (after share-based
payment of £3.6 million, 2005: £3.6 million and intangible amortisation of £1.6
million, 2005: nil), although the performance improved in this division in the
second half of 2006. The decline in profitability in the Performance Analysis
business was largely a result of additional spend on product development and
sales and marketing costs associated with the launch of new product releases.
Return on sales for the Group improved to 3.1 per cent from 2.5 per cent in
2005.
Revenue grew by market in the Asia Pacific region by 7 per cent and in Europe by
27 per cent, a result of the SwissQual acquisition, but it was reduced in North
America year-on-year.
Currency impact
In 2006 the currency effects were minimal in relation to the income statement.
The average sterling to US dollar exchange rate increased from 1.82 in 2005 to
1.85 in 2006. Currency translation reduced revenue by £3.4 million and operating
profit by £0.4 million compared with 2005. With the US dollar to sterling rate
rising to $1.96: £1 this is likely to have a more material impact in 2007. In
particular our Systems group, which is exposed to transactional currency risk,
had hedged its exposures and as a result did not experience the full effect of
the weakening of the US dollar in 2006. Should the current exchange rate prevail
in 2007, this would have a significant impact on its profitability.
Cost of sales and operating expenses
Product development spend is included in cost of sales in the income statement.
2006 was a year of major product transition hence investment in product
development remained high, with a total of £57.3 million, being 21 per cent of
revenue, expensed during the year (2005: £58.4 million and 23 per cent of
revenue). Of this amount £45.5 million (2005: £42.1 million) was incurred in the
Performance Analysis division, £9.5 million (2005: £14.0 million) in the Service
Assurance division with the remaining £2.3 million (2005: £2.3 million) in the
Systems group. The rate of spend increased in Performance Analysis in 2006
compared with 2005 as we undertook additional investment for the development of
the TestCenter platform. Our acquired businesses have added £5.0 million to
product development spend in 2006. Product development decreased in Service
Assurance year-on-year.
Gross profit was higher at 44 per cent of revenue compared with 41 per cent in
2005 as a result of the reduction in product development expense and the
reorganisation of our supply chain activities to increase efficiency as well as
the move to increase outsourcing.
Operating costs, excluding material one-time items and goodwill impairment are
41 per cent of sales compared with 39 per cent in 2005. This is a result of the
additional sales and marketing effort in respect of new product launches, the
significant costs of compliance with the Sarbanes-Oxley Act 2002, £2.6 million,
incurred as a result of being a US listed company and intangible amortisation of
£1.6 million (2005: nil).
Material one-time items
Material one-time items include restructuring costs of £9.1 million, the costs
related to the EGM requisition in December 2006 of £2.0 million, a credit of
£0.6 million in relation to the release of provisions on prior period disposals
and curtailment and settlement gains of £1.7 million in respect of changes to
our defined benefit pension plan. Together these total a net £8.8 million cost
for the year. The Group incurred a one-time finance charge of £8.8 million as
the loan notes were repaid early out of the proceeds from the sale of the
HellermannTyton Division, and we incurred fees to break the associated interest
rate swaps.
Restructuring actions took place at the end of June 2006 and in October 2006
affecting both our Communications divisions. These actions were in response to
reductions in demand for legacy products in Service Assurance, and include the
closure of loss making locations and the initiatives identified to help achieve
the divisional margin targets in Performance Analysis. The estimated annualised
cost savings from these actions are £16 million in total.
In November 2006 the Company received a notice of requisition from certain
shareholders requesting that the Company convene an Extraordinary General
Meeting to consider the removal of three of its non-executive directors and the
appointment of four proposed new ones. The costs incurred in relation to this
amounted to £2.0 million.
During 2006 active and deferred members of the Spirent Staff Pension Plan were
offered the opportunity to leave the Plan and take an enhanced transfer value to
another pension arrangement. Many members accepted this offer resulting in a
benefit to the funding of the Plan under IFRS of £1.7 million.
Goodwill impairment
We wrote down goodwill in our Service Assurance division by £9.5 million at the
interim stage and have taken a further impairment charge in the second half of
£9.6 million. £19.1 million has been charged in total reflecting the delays in
triple play roll out and continued declines in legacy business. Goodwill in the
Service Assurance division has now been fully impaired.
In accordance with IFRS we have also assessed the goodwill carrying value of the
SwissQual business that we acquired in January 2006 where activity levels have
been lower than had been anticipated. This has resulted in a goodwill impairment
charge of £27.7 million. Goodwill in SwissQual has been fully impaired. Whilst
we have written down the carrying value of SwissQual, we believe that there are
excellent prospects for the new products in the medium term. However, we have
discounted the projections to reflect the inherent risk in the growth
projections.
Goodwill impairment charged in 2005 was £37.0 million and was in respect of the
Service Assurance division.
Intangible amortisation
This is the first year that the Group has acquired businesses under IFRS and
consequently this is the first time acquired intangible assets have been
recognised and the associated amortisation has been charged. We have made four
acquisitions in 2006 resulting in £10.0 million of acquired intangible assets
being recognised on the balance sheet and we have estimated that the average
useful life of these intangibles is 5 years. These intangible assets represent
current technology and customer relationships in the main. Amortisation of £1.6
million has been expensed in the income statement in 2006 and this is expected
be slightly higher in 2007 to reflect the full year effect of the 2006
acquisitions.
Share-based payment
The charge for share-based payment for 2006 is £5.2 million for our continuing
businesses (2005: £5.1 million) based on a fair value model.
Net finance income
In February 2006 we repaid our senior loan notes out of the proceeds of the sale
of the HellermannTyton Division. After funding the UK final salary pension plan
this left us with a significant cash position some of which has been utilised to
pay for acquisitions and commence an on-market share repurchase.
Net finance income was £6.0 million (excluding costs associated with the
repayment of loan notes) compared with a net charge of £6.6 million in 2005. Of
net income £2.0 million is in respect of the expected return on pension scheme
assets less interest on the unwinding of the liabilities (2005: £1.1 million
charge) a result of the change to the funding position of the UK final salary
pension plan in February 2006. Surplus cash is held on deposit or in short dated
commercial paper and is earning current market rates of interest.
Loss before tax for continuing operations
Reported loss before tax for continuing operations was £50.1 million compared
with a loss before tax in 2005 of £41.7 million.
Adjusted profit/(loss) before tax is set out below:
£ million 2006 2005
---------------------- -------------- --------------
Reported loss before tax (50.1) (41.7)
Material one-time items 8.8 8.4
Goodwill impairment 46.8 37.0
Profit on the disposal of operations - (3.9)
Costs associated with the repayment of loan 8.8 -
notes
---------------------- -------------- --------------
Adjusted profit/(loss) before tax 14.3 (0.2)
---------------------- -------------- --------------
Tax
The tax charge for 2006 was £0.9 million, an effective rate of 6.3 per cent on
the adjusted profit before tax (2005: £4.0 million credit). We continue to incur
a low effective rate due to the carry forward of tax losses.
Discontinued operations
Discontinued operations relate to the HellermannTyton Division which was sold to
Doughty Hanson & Co Limited on 15 February 2006. For the period up until sale
the operating result was a profit after share-based payment of £3.0 million.
The profit on the sale before tax was £166.1 million and tax of £9.2 million is
payable in relation to the sale. The final proceeds from the disposal on a cash
free/debt free basis were £296.7 million. The total expenses of the transaction
amounted to £10.9 million, of which £6.7 million was incurred and charged in
2005 and net assets (excluding debt and cash) sold were £128.2 million. We
realised a curtailment gain on the UK final salary pension fund of £0.5 million.
Unrealised exchange gains of £1.3 million have been transferred from the
translation reserve to the profit on sale.
Earnings per share
Basic earnings per share for the Group were 11.75 pence, this includes the
profit on sale of the HellermannTyton Division compared with a loss in 2005 of
2.62 pence. Adjusted earnings per share, being before material one-time items,
goodwill impairment, profit or loss on the disposal of operations and costs
associated with the repayment of loan notes, net of any related tax, was 1.41
pence compared with a loss of 0.22 pence in 2005.
Acquisitions
We acquired four businesses during 2006 paying an initial consideration of £39.7
million and deferred consideration of £3.7 million in the year. All acquisitions
were in the Performance Analysis division. Further deferred consideration
payments amounting to approximately £6.6 million are expected to be paid.
On 23 January 2006 we acquired SwissQual Holding AG ("SwissQual") for an initial
consideration of CHF62.5 million (£27.8 million), paid in cash on completion
with up to a further CHF28.0 million (£12.4 million) payable depending on future
revenue growth and on various technical and financial milestones being achieved.
We have paid an additional £3.1 million of deferred consideration in 2006 and
have accrued for a further £4.5 million of deferred consideration. The total
estimated consideration is £35.4 million, £4.8 million less than the maximum
payable. SwissQual's solutions analyse, measure and improve the quality of
experience for users of wireless applications and services.
On 13 February 2006 we acquired QuadTex Systems, Inc ("QuadTex") for an initial
consideration of $7.5 million (£4.3 million), paid in cash on completion with up
to a further $1.5 million (£0.9 million) payable depending on certain technical
milestones and the retention of key employees. We paid £0.3 million of deferred
consideration in 2006. QuadTex is a provider of innovative and leading test
tools for internet protocol multimedia subsystem ("IMS") and voice over IP
("VoIP") testing.
On 10 July 2006 we acquired Scientific Software Engineering, Inc. ("SSE"), the
US based developer of the Landslide product, a leading software based system for
testing the performance and functionality of 2.5 and 3G wireless network
infrastructure for an initial consideration of $10.0 million (£5.5 million),
paid in cash on completion with up to a further $6.0 million (£3.3 million)
payable depending on the satisfaction of certain technical milestones and the
retention of key employees in 2007. We paid £0.3 million of deferred
consideration in 2006.
On 10 August 2006 we acquired the business of Imperfect Networks, Inc.
("Imperfect Networks"), a US based developer of security testing solutions. The
acquisition enables Spirent to deliver enhanced security testing solutions to
its customers across a number of markets. The initial consideration was $4.0
million (£2.1 million), paid in cash on completion, with up to a further $4.0
million (£2.2 million) payable depending on the satisfaction of certain
technical milestones and revenues to be achieved in 2007.
Financing and cash flow
At 1 January 2006 cash and cash equivalents were £49.2 million and borrowings,
which comprised mainly of £70.9 million of senior loan notes attracting a 9.1
per cent rate of interest, were £84.8 million. The sale of the HellermannTyton
Division enabled the Group to realise a significant amount of cash repaying the
loan notes, extinguishing all other debt, funding the £47.0 million deficit in
the UK final salary pension fund and commencing an on-market share buy back
programme. We ended the year with cash and cash equivalents of £97.6 million, a
significant strengthening of the balance sheet from the prior year end. In
addition £8.5 million of cash is held on deposit in a blocked trust account as
required by the capital restructuring discussed below.
Operating cash flow was representative of the tough market conditions and the
additional costs required to undertake such significant product transition. Net
cash outflow from continuing operations before tax was £40.8 million (2005: £1.1
million outflow). This outflow includes a £47.0 million contribution to fund the
UK final salary pension plan and other one-time costs.
Adjusted operating cash flow before tax is set out below:
£ million 2006 2005
----------------------------- ----------- -----------
Reported cash flows from continuing operations (40.8) (1.1)
Add back:
UK final salary pension plan lump sum contribution 47.0 3.5
Material one-time items 6.4 4.0
----------------------------- ----------- -----------
Adjusted cash generation from continuing operations 12.6 6.4
----------------------------- ----------- -----------
During 2006 the Group absorbed £10.6 million of working capital much of which
was in relation to receivables and a consequence of the higher activity levels
experienced during the latter part of the year.
Reported operating cash outflow for the continuing Group after tax was £42.4
million (2005: £1.8 million outflow) and discontinued operations used £0.6
million of operating cash in the period up to disposal (2005: £31.2 million
inflow). Tax payments in 2006 amounted to £2.3 million compared with £4.6
million in 2005 (including discontinued operations). In the first quarter of
2007 we will settle tax obligations on the sale of the HellermannTyton Division
of approximately £6.7 million.
Capital expenditure was £12.6 million compared with £14.8 million in 2005 for
the continuing Group. The depreciation charge was £11.8 million (2005: £11.4
million).
We spent £44.4 million on the acquisition of businesses in 2006 and received net
cash of £278.2 million from the sale of the HellermannTyton Division. Deferred
consideration payments on acquisitions amounting to approximately £6.6 million
are expected to be paid.
As previously mentioned the senior loan notes were repaid in February 2006 and
this left the Group debt free. On the early repayment of loan notes a make whole
amount was due of £7.2 million and we incurred break fees on the early
termination of interest rate swaps of £2.3 million. Net finance income received
in 2006 was £4.1 million compared with a net finance cost in 2005 of £6.5
million.
Pension fund
The surplus in the UK defined benefit pension plans at 31 December 2006 was £2.4
million (2005: net deficit £50.8 million), having been funded in February 2006
by way of a special contribution of £47.0 million from the proceeds of the
disposal of the HellermannTyton Division. During 2006 the plans have benefited
from rising equity markets but have also benefited from an offer made to active
and deferred members giving them the opportunity to leave the UK final salary
pension plan and take an enhanced transfer value to another pension arrangement.
Many members accepted this offer resulting in a benefit to the funding of the
plan under IFRS of £1.7 million and a reduction in the total liabilities of the
plan of £21.8 million. The value of the surplus at 31 December 2006 has been
calculated using the latest mortality assumptions, and as such this has
adversely affected the position.
The triennial actuarial valuations of the plans at 1 April 2006 are currently
being finalised.
A defined benefit pension plan deficit is reported of £1.4 million at 31
December 2006 in respect of the acquired scheme in SwissQual and the unfunded UK
plan.
Capital structure, on-market share repurchase programme and dividend
During 2006, and following on from the cancellation of the share premium account
and capital redemption reserve (the "Cancellation") which took place in 2004,
the Company was able to release non-distributable special reserves formed as a
result of the Cancellation by placing funds in a blocked trust account in
accordance with the undertakings made to the Court at the date of the
Cancellation. At 31 December 2006 cash held in the blocked trust account was
£8.5 million. The Company currently has reserves of £194.1 million which are
capable of being distributed to shareholders through dividend or through share
buy back.
We commenced an on-market share repurchase programme in May 2006 which had been
announced to shareholders together with the proposed disposal of HellermannTyton
in December 2005. To date we have returned £41.9 million, being 90.3 million
shares, to shareholders at an average price of 46.1 pence per share. There is a
further £8 million to be returned of the originally announced £50 million
programme. Purchases are expected to be completed during 2007. It was also
announced in October that the Company proposed to seek authority for a further
return of £50 million to shareholders. This will be considered further as part
of the in-depth business review currently underway.
Dividend policy is kept under review by the Board, however no dividend is being
declared in respect of 2006.
Review of US listing and SEC registration
As announced in October 2006 the Company has been carrying out a review to
explore a process by which it can de-list its shares and de-register in the
United States. The US listing has become significantly more costly and onerous
in recent years, not least due to the imposition of the Sarbanes-Oxley
regulations, which have cost the Company approximately £2.6 million during 2006.
If the proposed SEC rule change announced in December 2006 is passed without
significant amendment it is expected that the Company will be able to seek a
de-registration as a result of its extremely low trading volumes in the US.
A further update on progress towards de-listing and de-registration will be made
as and when appropriate.
Business group development and performance
Communications
----------------- -------- -------- ------- -------- -------
£ million Restated
First Second 2006 Restated Change %
half half 2005
2006 2006
----------------- -------- -------- ------- -------- -------
Revenue
Performance
Analysis 94.5 97.7 192.2 178.8 7
Service
Assurance 24.9 18.7 43.6 42.8 2
----------------- -------- -------- ------- --------
Communications
group 119.4 116.4 235.8 221.6 6
----------------- -------- -------- ------- --------
Operating profit/
(loss)
Performance
Analysis 3.2 7.3 10.5 18.4 (43)
Service
Assurance 0.1 (1.2) (1.1) (10.8)
----------------- -------- -------- ------- --------
Communications
group 3.3 6.1 9.4 7.6 24
----------------- -------- -------- ------- --------
Return on sales (%)
Performance
Analysis 3.4 7.5 5.5 10.3
Service Assurance - - - -
----------------- -------- -------- ------- --------
Communications
group 2.8 5.2 4.0 3.4
----------------- -------- -------- ------- --------
Performance Analysis
Results for Spirent's Performance Analysis division were marked by significant
growth for a number of its products and solutions, including the pioneering
Spirent TestCenter platform, and an appreciably improved second half due to
early intervention efforts to increase profitability. However, the division's
overall performance was dampened by market variability, intense competition,
delays in technology upgrades and a significant decline in revenue for two
established products.
In 2006, Performance Analysis introduced many new releases and established a
solid foundation for future profitable growth within the segments of 3G
wireless, IMS and VoIP. Several products had noteworthy results, including:
• Spirent TestCenter, which was the Group's highest revenue generating
product in the fourth quarter;
• Spirent Protocol Tester, which received two industry recognition
awards - one of the 10 "Best In Test" products for 2006 by Test & Measurement
World and Product of the Year by Internet Telephony;
• Our security test solutions Avalanche and ThreatEx (the result of the
acquisition of Imperfect Networks);
• Abacus, a leading VoIP testing solution;
• Launch of the new Diversity product (acquired as a result of the
SwissQual acquisition), with subsequent key customer wins; and
• The first test demonstration of a Galileo global positioning system.
In 2006, revenue for this division of £192.2 million (2005: £178.8 million) was
up 7 per cent whilst operating profit decreased by 43 per cent to £10.5 million
(2005: £18.4 million) principally weighed towards the first half. The decline
was largely due to additional spend on product development and sales and
marketing costs associated with the launch of new product releases. To mitigate
the weak first half restructuring actions were taken at the end of the second
quarter together with a greater focus on improving profitability. These actions
resulted in a significantly improved second half operating profit of £7.3
million and a return on sales of 7.5 per cent versus a first half of £3.2
million, and a return on sales of 3.4 per cent.
Spirent's top 20 customers typically represent an estimated 36 per cent of
Performance Analysis revenues. No one customer represented more than 10 per cent
of the total divisional revenues. On a geographic basis there was growth in
Europe driven by Performance Analysis Positioning and SwissQual. Activity in the
Asia Pacific region grew, building on strong growth particularly in China and
India.
Throughout 2006, market conditions continued to be variable and unpredictable in
Performance Analysis Broadband ("Broadband"). While we saw an increase in
spending among some customers in the second half, when combined with customers'
reduced spending in the first half, Broadband experienced a flat year overall.
This was driven by a reduction in the total available market due to
consolidation activity among larger customers, lower spending from our largest
customer, Cisco, and strong competition in the routing, switching, access, and
L4-7 spaces, and in the VoIP and IMS markets. The tougher competitive
environment resulted in pressure on pricing, particularly at our larger
accounts.
Despite unpredictable market conditions, Broadband gained position with leading
customers and strengthened its position in the growing security market with the
acquisition of Imperfect Networks (ThreatEx).
The majority of product development investment for Broadband went to launching
new products and to positioning Spirent for the long term. Spirent TestCenter
continues to make significant gains in the marketplace, including:
• More than half of Spirent TestCenter customers are repeat buyers;
• A significant number of customer wins are at incumbent accounts of the
competition;
• Our top 20 Broadband customers are using Spirent TestCenter; and
• More than 180 customers are now using the new platform.
Spirent's Broadband customers are interested in driving significant competitive
advantage through faster time to market for new services and products, deploying
new services to tap into new revenue streams and seeking highly integrated
solutions to reduce their footprint. They understand that complex testing cannot
be outsourced and that their resources for implementing complex testing are
limited. Development plans for Spirent TestCenter will deliver increased
functionality, scale, ease of use and automation so that our customers can
continue to improve time to test, reduce the cost of testing and achieve a
faster time to revenue for their new products and services. Spirent TestCenter
architecture is significantly ahead of the competition and is designed to
integrate new technologies moving forward to protect customers' investments.
Results for Performance Analysis Wireless ("Wireless") mirrored that of
Broadband - a combination of key market successes countered by market and
product challenges. Spirent's overall CDMA business was down due to a lull in
the air interface evolution by network operators which led to the lack of a new
technology catalyst for testing. In the WCDMA market, our gains in selling into
GSM and WCDMA-based A-GPS mobile device test applications were offset by
declines in the RF test business.
In the Mobile Device Test segment, where we hold a significant market share, we
had a strong year for Location Based Services test in both the CDMA and WCDMA
markets. Spirent's Location Test Systems turned in a record-breaking year,
driven by additional regulatory requirements for handsets and growth in the
deployment of commercial Location Based Services. More than
60 per cent of Wireless R&D is focused on the WCDMA applications market, and
Spirent continues to invest in its core network emulator platform to improve
feature capability. Wireless also saw some modest continued growth in the
simulator market for faders, driven by the evolution of Mobile Input-Mobile
Output technology, a key element of WiMax deployment. At the end of the year,
Spirent saw activity in testing for Mobile TV begin to ramp. This exciting
industry promises to be a key area of focus for Spirent as mobile network
operators deploy multi-media services in 2007.
Performance Analysis Positioning ("Positioning") saw its third year of
double-digit growth. Of note, Positioning launched the World's first commercial
Galileo simulator and secured key contracts for official Galileo program
business. Galileo is expected to be a significant source of revenue in the
future.
Spirent entered into the Subscriber Experience Management ("SEM") market segment
as a result of its acquisition of SwissQual. Here, Spirent experienced a
significant impact from widespread industry consolidation, reducing demand
markedly. In addition, there were substantial delays in purchasing decisions
compared to previous years. Competition is intense as well and drove increased
pressure on pricing; whilst several competitors merged to improve their market
position. Despite these conditions, Spirent added an estimated 30 new SEM
customers during the year. It launched a new product, Diversity, which was well
received by the market and gained traction with leading mobile network
operators.
Service Assurance
In 2006, Spirent's Service Assurance division stabilised its performance amid
significant market consolidation, secured important contracts for its triple
play service assurance and field test solutions and delivered a break-even
result before share-based payment of £1.2 million, marking a significant
improvement over its performance in 2005.
Delays in customer decisions and spending on new solutions continued throughout
the year and competition remains strong as service assurance players vie for
fewer customers and retention of incumbent positions due to market
consolidation. Carriers continue to shift spending away from legacy networks as
they deploy triple play offerings, however the current limited triple play
subscriber base is restricting the service assurance market.
Overall revenues were slightly higher for Service Assurance compared to last
year, due to the recognition of revenue from one-time projects for remote packet
access testing in the first half of 2006. Operating loss was £1.1 million
compared with a loss of £10.8 million in 2005. The improvement in profitability
is due to increased revenue and margin, coupled with the benefit of
restructuring actions that took place in the second quarter. These actions
allowed the division to target a break-even position before share-based payment
for the year.
The revenue profile has remained comparable with the prior year, with the
majority of revenue coming from US service providers. Revenue from DSL equipment
(20 per cent of total revenue) was higher in 2006 due to increased customer
demand. Leased line revenue for service assurance products (50 per cent of
total) was down on 2005 as anticipated as customers continued to move spending
away from legacy service assurance solutions.
Service Assurance has begun to see the results of its investment in
next-generation services. It secured a strategic contract with TELUS, a leading
provider of data, IP and wireless solutions in Canada. The contract represents
the first award for a full-scale triple play service assurance solution. It also
demonstrates that the triple play market is growing and that carriers understand
service assurance solutions are needed before scaling services. In addition, the
Service Assurance division's new handheld field test device, Tech-X, was
approved and deployed at major North American customers.
Service Assurance is focused on providing the right tools for service providers
to scale triple play services and ensure consumers' Quality of Experience
("QoE"). Its portfolio includes software and hardware based centralised test and
diagnostic solutions as well as handheld field test devices. The Tech-X is the
first all-in-one field test solution that combines testing of copper, xDSL and
triple play services enabling field technicians to access the power of the
central test and monitoring systems in the field. Spirent's triple play service
assurance solutions allow service providers to get it right the first time,
scale the service while managing operating costs, and dispatch to fix not to
find problems. From the lab to the live network, Spirent is the only company
that offers triple play solutions throughout the entire technology lifecycle.
The Service Assurance division will continue to seek opportunities to realise
the potential of its existing baseline business while focusing its investments
on expanding its position in the triple play market. However, continuing delays
in the roll out of triple play service assurance solutions by our customers is
likely to impact the timing of deployment of our new centralised test products.
In the short term we expect that revenue from legacy products will decline
faster than the ramp up of revenues from our triple play solutions.
Systems
------------------------ ---------- ---------- ----------
£ million 2006 Restated Change %
2005
------------------------ ---------- ---------- ----------
Revenue 35.8 37.7 (5)
Operating profit 4.7 4.3 9
Return on sales (%) 13.1 11.4
------------------------ ---------- ---------- ----------
The Systems group comprises PG Drives Technology, a leading supplier of control
systems for electrically powered medical and industrial vehicles. Revenue was
down 5 per cent and operating profit up 9 per cent, respectively. Return on
sales increased to 13.1 per cent compared with 11.4 per cent in 2005.
During 2006 we saw continued strong revenues from the VR2, a low cost,
mainstream wheelchair control system that we launched in second half of 2005, as
well as growing market recognition for the R-net, our highly sophisticated rehab
wheelchair system. These new products, together with our established ones,
enabled us to increase 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 more of our production to China to reduce the logistical costs of
supporting our activities in the Asia Pacific region. At the end of 2006 we
launched two new systems, X25/30 and Sigmadrive, targeted at heavier industrial
vehicles. These new products will spearhead our entry into new industrial
markets.
Non-segmental costs
Non-segmental costs, being those which are not directly attributable to the
operating segments, were £5.8 million compared with £5.5 million in 2005. These
costs relate to the costs of our Board and costs in relation to our dual
listing, including much of the costs of the Sarbanes-Oxley Act of 2002.
Consolidated income statement
2006 2005
Year to 31 December Notes £ million £ million
------------------ ------ -------- -------- -------- -------- -------- -------
Before material Material Total Before Material Total
one- one- material one-time
time items time items one-time items
and and items and
goodwill goodwill and goodwill
impairment impairment goodwill impairment
impairment
------------------ ------ -------- -------- -------- -------- -------- -------
Continuing operations
Revenue 2,3 271.6 - 271.6 259.3 - 259.3
Cost of sales (151.2) - (151.2) (151.7) (1.4) (153.1)
------------------ ------ -------- -------- -------- -------- -------- -------
Gross
profit/(loss) 120.4 - 120.4 107.6 (1.4) 106.2
Selling and
distribution (71.2) - (71.2) (70.9) - (70.9)
Administration (40.9) (55.6) (96.5) (30.3) (44.0) (74.3)
------------------ ------ -------- -------- -------- -------- -------- -------
Operating
profit/(loss) 2 8.3 (55.6) (47.3) 6.4 (45.4) (39.0)
Profit on the
disposal of
operations - - - - 3.9 3.9
------------------ ------ -------- -------- -------- -------- -------- -------
Profit/(loss)
before
interest 8.3 (55.6) (47.3) 6.4 (41.5) (35.1)
Finance income 7.6 - 7.6 1.5 - 1.5
Finance costs (1.6) - (1.6) (8.1) - (8.1)
Costs
associated
with the
repayment of
loan notes - (8.8) (8.8) - - -
------------------ ------ -------- -------- -------- -------- -------- -------
Profit/(loss)
before tax 14.3 (64.4) (50.1) (0.2) (41.5) (41.7)
Tax (0.9) - (0.9) 4.0 - 4.0
------------------ ------ -------- -------- -------- -------- -------- -------
Profit/(loss)
for the year
from
continuing
operations
after tax 13.4 (64.4) (51.0) 3.8 (41.5) (37.7)
Discontinued operations
Profit for the
year from
discontinued
operations 4 2.9 156.9 159.8 19.9 (6.7) 13.2
------------------ ------ -------- -------- -------- -------- -------- -------
Profit/(loss)
for the year 16.3 92.5 108.8 23.7 (48.2) (24.5)
------------------ ------ -------- -------- -------- -------- -------- -------
Attributable to:
Equity holders
of parent 16.3 92.5 108.8 23.3 (48.2) (24.9)
Minority
shareholders'
interests - - - - 0.4 - 0.4
discontinued operations
------------------ ------ -------- -------- -------- -------- -------- -------
Profit/(loss)
for the year 16.3 92.5 108.8 23.7 (48.2) (24.5)
------------------ ------ -------- -------- -------- -------- -------- -------
Earnings/(loss) per share
(pence) 6
Basic
earnings/(loss) 11.75 (2.62)
Basic loss
from
continuing
operations (5.51) (3.97)
Diluted
earnings/(loss) 11.70 (2.62)
Diluted loss
from
continuing
operations (5.51) (3.97)
------------------ ------ -------- -------- -------- -------- -------- -------
Consolidated statement of recognised income and expense
Year to 31 December
---------------
£ million 2006 2005
---------------------------------- --------- ---------
Income and expense recognised directly in equity
Gains on cash flow hedges taken to equity - 1.9
Exchange differences on retranslation of foreign
operations (10.3) 4.1
Actuarial gains/(losses) on defined benefit pension
plans 1.6 (16.1)
---------------------------------- --------- ---------
(8.7) (10.1)
Transfers to income statement
Exchange gain transferred to profit on sale (1.3) -
Gains on cash flow hedges (1.9) (0.5)
Transfers to balance sheet
Write-off of deferred tax asset on pension liability - (11.1)
---------------------------------- --------- ---------
Net (expense)/income recognised directly in equity (11.9) (21.7)
Profit/(loss) for the year 108.8 (24.5)
---------------------------------- --------- ---------
Total recognised income and expense for the year 96.9 (46.2)
---------------------------------- --------- ---------
Attributable to:
Equity holders of parent 96.9 (46.8)
Minority shareholders' interests - discontinued
operations - 0.6
---------------------------------- --------- ---------
96.9 (46.2)
---------------------------------- --------- ---------
Consolidated balance sheet
At 31 December
---------------
£ million 2006 2005
---------------------------------- --------- ---------
Assets
Non-current assets
Intangible assets 63.3 71.5
Property, plant and equipment 25.3 30.1
Trade and other receivables 1.4 1.7
Cash on deposit 8.5 -
Defined benefit pension fund surplus 2.4 -
Deferred tax 1.2 1.0
---------------------------------- --------- ---------
102.1 104.3
---------------------------------- --------- ---------
Current assets
Inventories 25.4 27.0
Trade and other receivables 63.8 56.3
Derivative financial instruments 0.1 2.6
Cash and cash equivalents 97.6 49.2
---------------------------------- --------- ---------
186.9 135.1
---------------------------------- --------- ---------
Assets held in disposal group held for sale - 164.1
---------------------------------- --------- ---------
Total assets 289.0 403.5
---------------------------------- --------- ---------
Liabilities
Current liabilities
Trade and other payables (61.8) (62.9)
Current tax (30.5) (24.7)
Derivative financial instruments - (0.7)
Short term borrowings and overdrafts - (3.9)
Provisions and other liabilities (5.9) (4.1)
---------------------------------- --------- ---------
(98.2) (96.3)
---------------------------------- --------- ---------
Non-current liabilities
Trade and other payables (0.5) (0.7)
Derivative financial instruments - (2.0)
Long term borrowings - (71.2)
Defined benefit pension fund deficit (1.4) (51.5)
Deferred tax - (0.8)
Provisions and other liabilities (6.1) (10.1)
---------------------------------- --------- ---------
(8.0) (136.3)
---------------------------------- --------- ---------
Liabilities included in disposal group held for sale - (48.7)
---------------------------------- --------- ---------
Total liabilities (106.2) (281.3)
---------------------------------- --------- ---------
Net assets 182.8 122.2
---------------------------------- --------- ---------
Capital and reserves
Share capital 32.5 32.2
Share premium account 10.6 4.4
Capital reserve 5.5 10.2
Translation reserve (6.1) 5.5
Net unrealised gains and losses - 1.9
Retained earnings 140.3 66.1
---------------------------------- --------- ---------
Equity holders of parent 182.8 120.3
Minority interests - 1.9
---------------------------------- --------- ---------
Total equity 182.8 122.2
---------------------------------- --------- ---------
Consolidated cash flow statement
Year to 31 December
----------------
£ million Note 2006 2005
------------------------------ ------ --------- ---------
Cash flows from operating activities
Cash flow from operations 7 (40.7) 34.0
Tax paid (2.3) (4.6)
------------------------------ ------ --------- ---------
Net cash (outflow)/inflow from operating activities (43.0) 29.4
------------------------------ ------ --------- ---------
Cash flows from investing activities
Dividends received from associates - 0.2
Interest received 5.5 1.4
Cash on deposit (8.5) -
Disposal of operations 278.2 2.4
Purchase of property, plant and equipment (14.1) (30.5)
Purchase of intangible assets (0.8) -
Proceeds from the sale of property, plant and
equipment 0.4 0.6
Acquisition of subsidiaries (44.4) -
------------------------------ ------ --------- ---------
Net cash from/(used in) investing activities 216.3 (25.9)
------------------------------ ------ --------- ---------
Cash flows from financing activities
Interest paid (1.4) (7.4)
Interest element of finance lease rental payments - (0.5)
Costs associated with repayment of loan notes (9.5) -
Proceeds from the issue of share capital and employee
share ownership trust 2.4 2.7
On-market share repurchase (41.9) -
Repayments of borrowings (95.7) (0.2)
New borrowings 23.0 -
Repayments of capital element of finance lease
rentals - (1.4)
------------------------------ ------ --------- ---------
Net cash used in financing activities (123.1) (6.8)
------------------------------ ------ --------- ---------
Net increase/(decrease) in cash and cash equivalents 50.2 (3.3)
Cash and cash equivalents at the beginning of the
year 48.8 51.0
Effect of foreign exchange rate changes (1.4) 1.1
------------------------------ ------ --------- ---------
Cash and cash equivalents at the end of the year 97.6 48.8
------------------------------ ------ --------- ---------
Cash and cash equivalents comprise:
Cash and cash equivalents 97.6 49.2
Overdrafts - (0.4)
------------------------------ ------ --------- ---------
97.6 48.8
------------------------------ ------ --------- ---------
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 2006 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 2005. These accounts, upon
which the auditors issued an unqualified opinion, have been delivered to the
Registrar of Companies.
2 Segmental analysis
-------------- -------- -------- ------------- ------- --------- --------
£ million Performance Service Communications Systems Non-segmental Continuing
Analysis Assurance operations
Total
-------------- -------- -------- ------------- ------- --------- --------
2006
Revenue 192.2 43.6 235.8 35.8 - 271.6
-------------- -------- -------- ------------- ------- --------- --------
Operating
profit/(loss)
before
material
one-time items
and goodwill
impairment 10.5 (1.1) 9.4 4.7 (5.8) 8.3
Material
one-time items (3.8) (5.3) (9.1) - 0.3 (8.8)
Goodwill
impairment (27.7) (19.1) (46.8) - - (46.8)
-------------- -------- -------- ------------- ------- --------- --------
Operating
(loss)/profit (21.0) (25.5) (46.5) 4.7 (5.5) (47.3)
Finance income 7.6
Finance costs (1.6)
Costs
associated
with the
repayment of
loan notes (8.8)
-------------- -------- -------- ------------- ------- --------- --------
Loss before tax (50.1)
Tax (0.9)
-------------- -------- -------- ------------- ------- --------- --------
Loss after tax
for the year (51.0)
-------------- -------- -------- ------------- ------- --------- --------
Other information
Product
development 45.5 9.5 55.0 2.3 - 57.3
Share-based
payment 3.6 1.2 4.8 0.1 0.3 5.2
Intangible
amortisation 1.6 - 1.6 - - 1.6
-------------- -------- -------- ------------- ------- --------- --------
2 Segmental analysis continued
-------------- ----------- --------- ------------- ------- ------------- ----------
£ million Performance Service Communications Systems Non-segmental Continuing
Analysis Assurance operations
Total
-------------- ----------- --------- ------------- ------- ------------- ----------
2005
Revenue 178.8 42.8 221.6 37.7 - 259.3
-------------- ----------- --------- ------------- ------- ------------- ----------
Operating
profit/(loss)
before
material
one-time items
and goodwill
impairment 18.4 (10.8) 7.6 4.3 (5.5) 6.4
Material
one-time items (2.5) (5.4) (7.9) - (0.5) (8.4)
Goodwill
impairment - (37.0) (37.0) - - (37.0)
-------------- ----------- --------- ------------- ------- ------------- ----------
Operating
(loss)/profit 15.9 (53.2) (37.3) 4.3 (6.0) (39.0)
Profit on
disposal of
operations 3.9
Finance income 1.5
Finance costs (8.1)
-------------- ----------- --------- ------------- ------- ------------- ----------
Loss before tax (41.7)
Tax 4.0
-------------- ----------- --------- ------------- ------- ------------- ----------
Loss after tax
for the year (37.7)
-------------- ----------- --------- ------------- ------- ------------- ----------
Other information
Product
development 42.1 14.0 56.1 2.3 - 58.4
Share-based
payment 3.6 1.2 4.8 0.1 0.2 5.1
-------------- ----------- --------- ------------- ------- ------------- ----------
3 Geographical analysis
£ million 2006 2005
---------------------------------- --------- ---------
Revenue by market
Continuing operations
Europe 54.6 43.0
North America 153.0 158.2
Asia Pacific, Rest of Americas, Africa 64.0 58.1
---------------------------------- --------- ---------
271.6 259.3
---------------------------------- --------- ---------
Revenue by source
Continuing operations
Europe 76.5 61.2
North America 175.9 180.9
Asia Pacific, Rest of Americas, Africa 19.2 17.2
---------------------------------- --------- ---------
271.6 259.3
---------------------------------- --------- ---------
4 Discontinued operations
£ million 2006 2005
---------------------------------- --------- ---------
Revenue 28.0 205.5
---------------------------------- --------- ---------
Operating profit 3.0 24.4
Share of profit of associate 0.1 2.7
Profit/(loss) on the disposal of operations 166.1 (6.7)
Net finance costs (0.1) (1.1)
---------------------------------- --------- ---------
Profit/(loss) before tax 169.1 19.3
Tax (0.1) (6.1)
Tax on the disposal of operations (9.2) -
---------------------------------- --------- ---------
Profit for the year 159.8 13.2
---------------------------------- --------- ---------
5 Material one-time items and goodwill impairment
£ million 2006 2005
----------------------------------- -------- ---------
Goodwill impairment 46.8 37.0
Restructuring costs 9.1 6.9
EGM costs 2.0 -
Curtailment and settlement gain on defined benefit pension (1.7) -
plan
Release of provision for prior year disposals (0.6)
Inventory provisions - 1.4
Exit from joint venture - 0.1
----------------------------------- -------- ---------
55.6 45.4
----------------------------------- -------- ---------
6 Earnings/(loss) per share
£ million Continuing Discontinued Total
operations operations operations
---------------------------- -------- --------- ---------
2006
Profit/(loss)
for the year
attributable
to equity
holders of
parent (51.0) 159.8 108.8
Material
one-time items 8.8 - 8.8
Goodwill
impairment 46.8 - 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 13.1 2.9 16.0
---------------------------- -------- --------- ---------
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
(Profit)/loss
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/(loss) attributable
to equity
holders of
parent
(restated) (2.1) 18.4 16.3
---------------------------- -------- --------- ---------
2006 2005
---------------------------- -------- --------- ---------
Earnings/(loss) per share (pence)
Basic 11.75 (2.62)
Basic from
continuing
operations (5.51) (3.97)
Diluted 11.70 (2.62)
Diluted from
continuing
operations (5.51) (3.97)
Adjusted
(restated) 1.73 1.72
Adjusted from
continuing
operations
(restated) 1.41 (0.22)
---------------------------- -------- --------- ---------
Weighted average number of shares in issue (million)
Basic and
adjusted 925.9 950.4
Dilutive
potential of
employee share
options 3.8 10.2
---------------------------- -------- --------- ---------
Weighted
average number
of shares in
issue -
diluted 929.7 960.6
---------------------------- -------- --------- ---------
7 Reconciliation of profit/(loss) before tax to cash generated from operations
£ million 2006 2005
---------------------------------- --------- ---------
Continuing operations
Loss before tax (50.1) (41.7)
Adjustments for:
Profit on the disposal of operations - (3.9)
Finance income (7.6) (1.5)
Finance costs 1.6 8.1
Costs associated with the repayment of loan notes 8.8 -
Goodwill impairment 46.8 37.0
Intangible amortisation 1.6 -
Depreciation of property, plant and equipment 11.8 11.4
Loss on the disposal of property, plant and equipment 0.6 0.1
Impairment of property, plant and equipment 0.8 -
Share-based payment 5.2 5.1
Settlement and curtailment of pension fund (1.7) -
Changes in working capital:
Deferred income (released)/received (1.3) 5.8
(Increase)/decrease in receivables (6.1) 0.4
Increase in inventories (0.4) (0.4)
Decrease in payables (2.8) (16.8)
Decrease in provisions (1.0) (0.9)
Defined benefit pension fund (47.0) (3.8)
---------------------------------- --------- ---------
Cash flows from continuing operations (40.8) (1.1)
---------------------------------- --------- ---------
Discontinued operations
Profit before tax 169.1 19.3
Adjustments for:
Share of profit of associates (0.1) (2.7)
Profit/(loss) on the sale of discontinued operations (166.1) 6.7
Finance income - (0.1)
Finance costs 0.1 1.2
Depreciation of property, plant and equipment 1.6 11.2
Profit on the disposal of property, plant and equipment (0.1) (0.1)
Share-based payment 0.4 0.5
Changes in working capital:
Increase in receivables (2.9) (1.7)
Decrease/(increase) in inventories 0.5 (3.0)
(Decrease)/increase in payables (2.4) 3.8
---------------------------------- --------- ---------
Cash flows from discontinued operations 0.1 35.1
---------------------------------- --------- ---------
Cash flows from operating activities (40.7) 34.0
---------------------------------- --------- ---------
This information is provided by RNS
The company news service from the London Stock Exchange