Interim Results
Spirent PLC
06 August 2003
823 - 6 August 2003
SPIRENT PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2003
Spirent plc (LSE: SPT; NYSE: SPM), a leading international network technology
company, today announced its interim results for the six months to 30 June 2003.
Summary
£ million Six months to Six months to Six months to
30 June 2003 31 December 2002 30 June 2002
Turnover 229.2 247.9 311.0
Operating profit* 14.3 15.3 35.2
Profit before taxation* 12.8 15.0 31.4
Headline earnings per share* (pence) 0.96 0.98 2.42
• Turnover from ongoing businesses of £224.4 million was down 5 per cent
and operating profit* of £14.6 million was up 6 per cent relative to
the second half of 2002. Turnover from divestments was £4.8 million
and operating loss was £0.3 million.
• All operating groups delivered operating profit* and generated cash,
with total cash generation from operations of £28.6 million, after
investment in product development of £32.9 million.
• Cost reduction actions resulted in savings of £16.6 million being
realised in the period.
• Net debt reduced to £99.5 million at 30 June 2003 from £161.8
million at the end of 2002.
• Communications group turnover of £117.5 million was down 13 per cent
but operating profit* of £5.1 million was up 11 per cent compared with
the second half of 2002.
• Network Products group turnover was up 7 per cent at £85.9 million
and operating profit* was up 5 per cent at £7.7 million relative to
the second half of 2002.
• Reported loss before taxation, after goodwill amortisation and
exceptional items, was £9.6 million (first half 2002 loss £22.4
million) and basic loss per share was 1.34 pence (first half 2002
loss 3.42 pence).
• Divestments of WAGO and Aviation Information Solutions businesses
completed in the period.
* Before goodwill amortisation and exceptional items
Commenting on the results, Nicholas Brookes, Chief Executive, said:
'During the first six months of 2003 we experienced difficult economic
conditions worldwide and continuing tough conditions in the telecoms sector,
with our Communications group's customers further cutting their capital
spending. Despite this, our focus on cost control and cash management has
enabled all our operating groups to continue to be cash generative and
profitable at the operating level in the period.
'We believe that our focus on next-generation technologies, our ability to
provide integrated solutions for our customers and the quality of our people
provide us with competitive advantages. Throughout the downturn we have
maintained the pace of product development investment to keep us at the
forefront of next-generation technologies and to enable us to meet our
customers' needs when the upturn comes.
'We continue to drive our efforts in the telecoms test and monitoring sector,
which we believe will provide attractive growth opportunities in the future.
However, our current plans do not anticipate any improvement in the telecoms
market for the remainder of the year.'
- ends -
Enquiries
Nicholas Brookes, Chief Executive Spirent plc +44 (0)1293 767676
Eric Hutchinson, Finance Director
Investor Relations
Catherine Nash Spirent plc +44 (0)1293 767676
Media
Jon Coles/Rupert Young Brunswick +44 (0)20 7404 5959
About Spirent
Spirent plc is an international network technology company providing
state-of-the-art systems and solutions for a broad range of customers worldwide.
Our Communications group is a worldwide provider of integrated performance
analysis and service assurance systems for next-generation network technologies.
Spirent's solutions enable customers to develop and deploy network equipment
and services more economically and efficiently by emulating real-world
conditions and assuring end-to-end performance of large-scale networks. Our
Network Products group provides innovative solutions for fastening, identifying,
insulating, organising, routing and connectivity that add value to electrical
and communication networks in a wide range of applications. Our Systems group
offers integrated product solutions for the power controls and aerospace
markets. Further information about Spirent plc can be found at www.spirent.com
Spirent plc is listed on the London Stock Exchange (ticker: SPT) and on the New
York Stock Exchange (ticker: SPM; CUSIP number: 84856M209) with one American
Depositary Receipt representing four Ordinary shares.
Spirent and the Spirent logo are registered trademarks of Spirent plc. 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 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: our ability to
improve efficiency and adapt to the current economic downturn and other changes
in demand; our ability to avoid a breach of our financial covenants and to
achieve certain financial requirements under our renegotiated borrowing terms;
our ability to meet and achieve the benefits of our cost reduction goals and
otherwise successfully adopt cost structures to respond to changes in business
conditions; risks that our cost cutting initiatives will impair our ability to
develop products, operate our business effectively and remain competitive; the
extent of our pension fund deficit; our ability to maintain our product
development focus on our customers' needs; risks of failing to anticipate and
meet market trends and customer needs; the effects of competition on our
business; our ability to develop and commercialise new products and services and
realise product synergies; risks relating to the acquisition or sale of
businesses and our subsequent ability to integrate businesses; changes in the
business, financial condition or prospects of one or more of our major customers
and our reliance on a limited number of customers; our reliance on third party
manufacturers and suppliers; risks of not retaining or increasing market share;
our exposure to liabilities for product defects; our reliance on proprietary
technology; our ability to attract and retain qualified personnel; risks of
doing business internationally; changes in market conditions in the markets in
which we participate or in general economic or political conditions;
fluctuations in exchange rates and heavy exposure to a weakening US dollar; 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.
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2003
The Group adopts the following measures as key measures of operating performance
so that period on period comparisons are not distorted by the impact of goodwill
amortisation and exceptional items:
Operating profit before goodwill amortisation and exceptional items (EBITA
before exceptional items)
Return on sales before goodwill amortisation and exceptional items
Headline earnings per share
Free cash flow, cash flow before acquisitions and disposals, equity dividends
and financing, before the cash cost of exceptional items
Operating profit and return on sales in the text are stated before goodwill
amortisation and exceptional items.
Operating Review
Communications
£ million Six months to Six months to Six months to Compared with
30 June 2003 31 December 2002 30 June 2002 six months to
31 December 2002
Change %
___________________________ _____________ ________________ ___________ _______________
Turnover:
Performance Analysis 75.0 87.1 100.0 (14)
Service Assurance 42.5 48.5 79.8 (12)
____________ ______________ __________
Communications group 117.5 135.6 179.8 (13)
Operating profit:
Performance Analysis 0.7 2.4 7.0 (71)
Service Assurance 4.4 2.2 19.2 100
____________ ______________ __________
Communications group 5.1 4.6 26.2 11
Return on sales:
Performance Analysis (%) 0.9 2.8 7.0
Service Assurance (%) 10.4 4.5 24.1
Communications group (%) 4.3 3.4 14.6
As anticipated the telecoms market remained tough during the first six months of
2003 with our network equipment manufacturer and network service provider
customers further cutting capital spending and the challenging economic
conditions in North America and Asia also affecting our performance. Turnover
and operating profit for the Communications group decreased by 35 per cent and
81 per cent, respectively, compared with the same period last year.
Sequentially turnover was down 13 per cent but operating profit was up 11 per
cent compared with the second half of 2002.
Cost savings of £16.6 million were realised in the first six months of 2003 due
to the cost reduction actions taken in October 2002 and May 2003 and as a result
return on sales for the group improved to 4.3 per cent from 3.4 per cent in the
second half of 2002. We continued to invest in product development, spending
£28.5 million, or 24 per cent of turnover, in the period (second half 2002 £32.5
million, 24 per cent of turnover). This investment enables us to deliver a
broad portfolio of next-generation products and solutions that are critical to
the operational success of evolving telecoms networks.
Performance Analysis
The Performance Analysis division experienced a 14 per cent reduction in
turnover in the first six months of 2003 relative to the second half of 2002
against a background which saw a substantial drop in our customers' capital
spending. While turnover has fallen gross margins have been broadly maintained.
As a result of the high operational gearing in the business the loss of
contribution due to the fall in turnover has offset cost savings resulting in a
drop in operating profit to £0.7 million. The £5.0 million annualised cost
reduction actions taken in May 2003 were all in this division. We have
maintained high levels of investment in product development during the period in
order to maintain our position at the forefront of next-generation technologies.
Product launches in the first half included the introduction of a number of
wireless test solutions that will help accelerate the deployment of W-CDMA, the
3G technology standard being adopted in Europe and Asia. Progress was also made
in expanding our security and web applications test solutions. These systems
allow real-world capacity assessment of web equipment, network and applications
and help prevent network failures due to heavy traffic loads and security
intrusions. Other product introductions in the period included the launch of a
test solution that gives customers the ability to evaluate and test both copper
and fibre-based gigabit Ethernet using a single solution, an integrated solution
for testing the functionality of voice-over-IP and traditional telephony on a
single platform, and a new test suite which allows for the highest capacity
testing of edge aggregation routers.
We believe the progress we have made with product development and enhancements
will keep us closely aligned with our customers' needs when they step up
investment in their next-generation networks.
Service Assurance
Our Service Assurance division saw turnover drop by 12 per cent but operating
profit was up 100 per cent over the second half of 2002. However, on a constant
currency basis, operating profit was up by 49 per cent. Customers continue to
focus on the roll-out of their digital subscriber line (DSL) services and sales
of our DSL probes were up sequentially in the first six months of 2003. Our
leased line business, which has a more regular ordering pattern, fell slightly
but accounts for more than 50 per cent of turnover. Operating profit improved,
despite the fall in turnover, largely due to the cost savings achieved in the
period, some of which are non-recurring and as such will not benefit the second
half of the year. Return on sales increased to 10.4 per cent in the first six
months of 2003 compared with 4.5 per cent in the second half of 2002. There was
little change in the order book, which at 30 June 2003 stood at $57.5 million
(£34.8 million) compared with $58.5 million (£36.3 million) at the end of 2002.
Expanding the customer base geographically is a focus for this business and we
are developing our products to meet the needs of non-US telecoms carriers and
are actively engaged in both trials and tenders outside North America.
We continue to deliver service assurance solutions that enable customers to
reduce operational costs and generate revenue from their network investments.
During the first six months of 2003 we extended our market-leading broadband
remote test unit to include optical and protocol analysis capabilities, which
expands our service assurance capabilities to high-speed data and Internet
Protocol (IP) networks. We also delivered a more efficient and economic version
of our widely deployed remote test unit for assuring DSL networks.
Network Products
£ million Six months to Six months to Six months to Compared with
30 June 2003 31 December 2002 30 June 2002 six months to
31 December 2002
Change %
______________________ ________________ _________________ _____________ ________________
Turnover 85.9 80.0 84.7 7
Operating profit 7.7 7.3 7.7 5
Return on sales (%) 9.0 9.1 9.1
Despite difficult economic conditions worldwide our Network Products group
delivered a robust performance in the first six months of 2003 with turnover up
7 per cent sequentially reflecting the seasonality in the business and our
continuing ability to increase customer penetration and broaden our product
offering. Operating profit was up 5 per cent at £7.7 million and return on
sales remained steady at 9.0 per cent.
Sales to the automotive sector continue to represent a growing proportion of the
business, accounting for 33 per cent of turnover in the first six months of
2003. The development of new plastic fixings for the automotive and OEM market,
our technical capabilities and the ability to provide a global service have
enabled us to continue to gain market share in a competitive market. We have
also launched a new range of cable ties targeted primarily at this sector which
we expect to contribute to growth in the future.
The markets for our broadband and local area network products continued to
decline reflecting further cuts in capital spending by telecoms service
providers and cut backs in IT spending amongst enterprise customers worldwide.
During the first six months of 2003 we introduced a number of new and improved
products including TREDUX and HIS, superior performance heatshrink ranges, new
identification and marking systems, HELASIGN (trade mark) and RiteOn (trade
mark), and the Spirit (trade mark) 2100, a portable label printing system for a
wide range of applications including telecoms. We also saw further take up of
our Autotool automated application systems with further deployments within
existing customers as well as additional new contracts.
Systems
£ million Six months to Six months to Six months to Compared with
30 June 2003 31 December 2002 30 June 2002 six months to
31 December 2002
Change %
______________________ ______________ _______________ _____________ ________________
Turnover 21.0 21.8 21.2 (4)
Operating profit 1.8 1.9 2.6 (5)
Return on sales (%) 8.6 8.7 12.3
Figures in the above table relate to ongoing businesses only
In June 2003 we completed the divestment of the Aviation Information Solutions
(AIS) businesses from within the Systems group's aerospace business. The
Systems group now comprises our electronic power controls business, which
represents the most significant proportion of the group, and our aerospace
maintenance, repair and overhaul (MRO) software business. The results for the
Systems group were broadly flat in the first six months of 2003 compared with
the second half of 2002, being affected by the weakness of the US dollar.
In our power controls business, continued investment in research and development
has enabled us to expand our product range and increase market penetration. New
products released in the first six months of 2003 included the VSI 70, a
high-power version of our successful VSI wheelchair controller. We also made
progress in our strategy of extending our products into the small industrial
vehicles market with the introduction of the I-Drive, an industrial version of
the S-Drive low-cost scooter controller, and TRIO+, an enhanced version of the
TRIO (trade mark) sweeper-scrubber control system.
The civil aviation market remained depressed during the period resulting in a
falling order book in our MRO business. However we continued to win new
business for our products predominantly in the military sector of the market.
Financial Review
£ million Six months to Six months to Six months to 30
30 June 2003 31 December 2002 June 2002
_____________________________________ _______________ _________________ _____________
Turnover:
Ongoing businesses 224.4 237.4 285.7
Divestments 4.8 10.5 25.3
______________ _______________ ____________
Group 229.2 247.9 311.0
============= ============== ===========
Operating profit:
Ongoing businesses 14.6 13.8 36.5
Divestments (0.3) 1.5 (1.3)
______________ _______________ ____________
Group 14.3 15.3 35.2
============= ============== ===========
Return on sales:
Group (%) 6.2 6.2 11.3
============= ============== ===========
Turnover for the first six months of 2003 of £229.2 million was down 26 per cent
over the first six months of 2002 and 8 per cent below the second half of 2002
reflecting the declining levels of activity seen in the telecoms market in the
second half of 2002 and into 2003. On an ongoing business basis, after
adjusting for the effect of the disposals, turnover of £224.4 million for the
first six months of 2003 was 5 per cent down compared with the second half of
2002.
Operating profit before goodwill amortisation and exceptional items of £14.3
million for the first six months of 2003 was down 59 per cent compared with the
same period in 2002. For ongoing businesses, operating profit of £14.6 million
for the first six months of 2003 increased by 6 per cent compared with the
second half of 2002.
The effects of currency translation, primarily due to the weakness of the US
dollar, reduced turnover by £12.3 million. In relation to profit before
taxation, goodwill amortisation and exceptional items, on translation the
strength of the euro offset US dollar weakness and resulted in an improvement of
£0.4 million.
On a geographic basis, turnover in Europe held up well compared with the first
half of 2002 at £83.9 million, but we saw a decline in turnover in North America
to £127.8 million. Operating profit from Europe of £9.8 million now accounts
for 68 per cent of the total compared with 33 per cent in the same period last
year.
Of the £33.5 million annualised cost savings implemented at the end of 2002, we
achieved £16.0 million of savings in the first half of 2003 over those that had
already been realised in 2002. £0.6 million of the £5.0 million annualised cost
savings announced in May 2003 has also been achieved in the period.
Based on an initial valuation at 1 April 2003, carried out on an ongoing basis,
the UK defined benefit pension plan showed a funding deficit of £50.2 million or
39 per cent of the scheme's obligations in respect of which an amount of £1.2
million has been charged to operating profit in the period. It is anticipated
that additional cash contributions of approximately £3.0 million per year will
be made to the fund commencing in 2004.
Product development expenditure for the group in the first six months of 2003
was £32.9 million, or 14 per cent of turnover (second half 2002 £37.2 million,
15 per cent of turnover).
Return on sales of 6.2 per cent for the first six months of 2003 was comparable
with the second half of 2002, although below the 11.3 per cent reported for the
same period in 2002.
Operating exceptional expenses of £4.9 million comprise £1.0 million in respect
of the renegotiation of our borrowing terms and £3.9 million in respect of the
cost reduction actions within the Performance Analysis division and the exit
from our high-speed optical test activities.
Non-operating exceptional items in the period include a net profit on
divestments of £1.6 million comprising a loss of £3.0 million, after charging
£2.3 million of goodwill previously written off to reserves, on the sale of AIS
from within our Systems group, and a net profit of £4.6 million on the sale of
WAGO, our interconnection joint venture. To provide us with an increase in the
level of headroom available in relation to certain of the financial covenants
related to our senior loan notes and our syndicated bank facility, amendments to
the terms of the loan notes and the bank facility were agreed in the period.
These amendments were conditional on the completion of the divestment of WAGO
and use of the net proceeds to partially pre-pay the loan notes and pay an
associated contractual make-whole amount. Accordingly, on completion of the
sale of WAGO in April 2003 the net proceeds were used to pre-pay £47.0 million
of loan notes and pay the make-whole amount of £12.5 million. This amount and
other related bank fees have been reported as an exceptional interest expense of
£14.3 million.
Net interest payable before exceptional interest expense in the six months to 30
June 2003 reduced to £5.0 million compared with £6.5 million for the same period
in 2002 due to the reduction in net debt.
The reported loss before taxation was £9.6 million after charging exceptional
items of £17.6 million compared with a loss of £22.4 million after exceptional
charges of £27.1 million for the first half of 2002.
The effective rate of taxation for the first six months of 2003 reverted to
normal levels of 29.7 per cent compared with 18.1 per cent for the full year
2002 which benefited from a credit relating to prior years.
Headline earnings per share of 0.96 pence decreased by 60 per cent compared with
2.42 pence for the first half of 2002. The weighted average number of shares
outstanding at 30 June 2003 was 928.8 million (full year 2002 922.5 million).
After charging goodwill amortisation and exceptional items, basic loss per share
for the six months to 30 June 2003 was 1.34 pence (first half 2002 loss 3.42
pence). No dividend will be paid in respect of the first six months of 2003.
Free Cash Flow
£ million Six months to Six months to Six months to 30
30 June 2003 31 December 2002 June 2002
_____________________________________ _______________ ________________ _____________
Operating cash flow 28.6 36.2 40.7
Add back cash cost of operating
exceptional items 8.2 7.7 -
Interest and other (19.0) (4.8) (5.7)
Add back cash cost of exceptional interest
expense 13.7 - -
Taxation (2.3) 2.2 (6.4)
Capital expenditure (6.3) (11.7) (14.1)
______________ _______________ ____________
Free cash flow before the cash cost of
exceptional items 22.9 29.6 14.5
============= ============== ===========
In the first six months of 2003 all our operating groups were cash generative.
Free cash flow, that is cash flow before acquisitions and disposals, equity
dividends and financing, was £22.9 million, after adjusting for the cash cost of
exceptional items, compared with £14.5 million for the first half of 2002. The
total cash cost of exceptional items in the first six months of 2003 was £21.9
million including £13.7 million in respect of the exceptional interest expense.
Divestments net of costs realised £60.7 million in cash in the first six months
of 2003.
We have significantly reduced our capital expenditure budget, spending only £6.3
million in the first six months of 2003 compared with £14.1 million in the first
half of 2002 and £11.7 million in the second half of 2002. Our capital
investment plans for the second half of the year will result in expenditure of
between £10 million to £12 million for that period. The depreciation charge for
the period was £15.0 million.
Following the pre-payment of loan notes, $144.2 million (£87.4 million) of loan
notes now remain outstanding at an average interest rate of 9.45 per cent. An
interest rate swap is in place, which reduces the effective interest rate on
$72.1 million (£43.7 million) of the loan notes by 2 per cent. Under the
syndicated bank facility Spirent has a committed line of £75 million available
to it, of which £17.0 million was drawn at 30 June 2003.
Net debt closed at £99.5 million, down from £161.8 million at 31 December 2002.
The dollar: sterling exchange rate at period end benefited net debt by £0.7
million.
Earnings before interest, taxation, amortisation and exceptional items (EBITA
before exceptional items) to net interest expense was 2.9 times (covenant ratio:
greater than or equal to 2.0 times) and net debt to earnings before interest,
taxation, depreciation, amortisation and exceptional items (EBITDA before
exceptional items) was 1.7 times (covenant ratio: less than or equal to 2.75
times) on a rolling 12 month basis, as calculated in accordance with the terms
of our borrowing agreements.
New York Stock Exchange Continued Listing Requirements
In accordance with the rules of the New York Stock Exchange (NYSE) we are
announcing that in March 2003 the average closing price of Spirent's American
Depositary Receipts (ADRs), representing four Ordinary shares, fell below $1.00
over a consecutive 30-trading day period, that is, below the level required by
the continued listing criteria of the NYSE.
However, Spirent's ADRs have been trading at a 30-trading day average and
absolute price above $1.00, consequently the Company is of the opinion that no
action need be taken in the immediate future. The situation will be kept under
review and it is the Company's intention to take such actions as are necessary
to comply with the continued listing criteria of the NYSE.
Our People
Our people have risen to the challenges presented by these tough times and
continue to deliver leading-edge products and services to our customers. We
would like to thank all our employees for the efforts made and commitment shown.
Outlook
We believe that our focus on next-generation technologies, our ability to
provide integrated solutions for our customers and the quality of our people
provide us with competitive advantages. Throughout the downturn we have
maintained the pace of product development investment to keep us at the
forefront of next-generation technologies and to enable us to meet our
customers' needs when the upturn comes.
We continue to drive our efforts in the telecoms test and monitoring sector,
which we believe will provide attractive growth opportunities in the future.
However, our current plans do not anticipate any improvement in the telecoms
market for the remainder of the year.
Consolidated Profit and Loss Account
Year to
£ million Six months to 30 June 31 December
______________________________ _______ ___________
2003 2002 2002
Notes Before Exceptional Total Total Total
exceptional items
items
Turnover: Group and share of
joint venture 251.6 - 251.6 348.1 634.5
Less: share of joint venture's
turnover (22.4) - (22.4) (37.1) (75.6)
_________ __________ _____ ______ __________
Turnover 1,2 229.2 - 229.2 311.0 558.9
======== ========= ===== ====== =========
Operating profit/(loss) 1,2 9.5 (4.9) 4.6 6.2 (970.5)
________________________ _____ _________ __________ _____ ______ __________
Operating exceptional items
Goodwill impairment - - - - 923.3
Other 3 - 4.9 4.9 2.3 41.6
Goodwill amortisation 4.8 - 4.8 26.7 56.1
Operating profit before
goodwill amortisation and
exceptional items 1,2 14.3 - 14.3 35.2 50.5
________________________ _____ _________ __________ _____ ______ __________
Income from interests in joint
ventures 2.7 - 2.7 2.8 7.4
Income from interests in
associates less goodwill
amortisation 0.8 - 0.8 (0.1) 0.8
_________ __________ _____ ______ __________
Operating profit/(loss) of the
Group, joint ventures and
associates 13.0 (4.9) 8.1 8.9 (962.3)
Non-operating exceptional
items
Profit/(loss) on disposal of
operations - 1.6 1.6 (24.8) (48.4)
Provision against investment
in own shares - - - - (30.1)
_________ __________ _____ ______ __________
Profit/(loss) before interest 13.0 (3.3) 9.7 (15.9) (1,040.8)
Net interest (payable) and
similar charges (5.0) (14.3) (19.3) (6.5) (12.3)
_________ __________ _____ ______ __________
Loss before taxation 8.0 (17.6) (9.6) (22.4) (1,053.1)
Taxation charge/(credit) 4 3.8 (1.1) 2.7 9.0 26.9
_________ __________ _____ ______ __________
Loss after taxation 4.2 (16.5) (12.3) (31.4) (1,080.0)
Minority shareholders'
interest
- equity 0.1 - 0.1 - 0.1
Minority shareholders'
interest
- joint venture - - - 0.1 0.3
_________ __________ _____ ______ __________
Loss attributable to
shareholders 4.1 (16.5) (12.4) (31.5) (1,080.4)
Dividends - - - 12.5 12.5
_________ __________ _____ ______ __________
Loss for the period 4.1 (16.5) (12.4) (44.0) (1,092.9)
======== ========== ===== ====== ==========
Basic and diluted loss per
share (pence) 5 (1.34) (3.42) (117.12)
Headline earnings per share
(pence) 5 0.96 2.42 3.40
Net dividend per share - 1.35 1.35
(pence)
Consolidated Statement of Total Recognised Gains and Losses
Year to
£ million Six months to 30 June 31 December
______________________________ ____________
2003 2002 2002
Loss attributable to shareholders (12.4) (31.5) (1,080.4)
Gain on lapsed options 0.9 4.0 5.2
Exchange adjustment on subsidiaries, 5.0 (9.7) (23.0)
joint ventures and associates
Taxation on exchange adjustment (0.2) - 0.1
____________ ____________ ____________
Total recognised gains and losses (6.7) (37.2) (1,098.1)
=========== =========== ===========
Consolidated Balance Sheet
£ million At 30 June At 31 December
___________________________________ _________________
2003 2002 2002
Fixed assets
Intangible assets 107.9 943.4 113.6
Tangible assets 101.4 123.5 110.0
Investments
Investment in joint ventures
Share of gross assets 0.3 72.1 72.9
Share of gross liabilities - (24.8) (22.8)
______ ________ ______
0.3 47.3 50.1
Investment in associates 13.5 18.5 13.3
Other investments 2.1 32.2 2.1
______ ________ ______
15.9 98.0 65.5
________ ________ _________
Total fixed assets 225.2 1,164.9 289.1
Current assets
Stocks 59.6 74.5 61.5
Debtors 87.8 139.0 97.3
Investments - 0.1 0.1
Cash at bank and in hand 21.1 26.0 83.5
______ ________ ______
168.5 239.6 242.4
______ ________ ______
Current liabilities
Creditors due within one year 101.4 138.9 107.5
Loans and overdrafts 3.4 3.1 1.8
______ ________ ______
104.8 142.0 109.3
______ ________ ______
Net current assets 63.7 97.6 133.1
________ ________ _________
Assets less current liabilities 288.9 1,262.5 422.2
Long term liabilities
Creditors due after more than
one year (125.6) (179.9) (252.6)
Provisions for liabilities and
charges (26.2) (1.3) (28.4)
________ ________ _________
Assets less liabilities 137.1 1,081.3 141.2
======= ======= =========
Shareholders' funds - equity 135.0 1,079.3 139.1
Minority interests - equity 2.1 2.0 2.1
________ ________ _________
137.1 1,081.3 141.2
======= ======= =========
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's 2002 statutory accounts.
The interim financial information is unaudited but has been reviewed by the
auditors.
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985.
The comparative financial information for the year to 31 December 2002 is based
on the statutory accounts for that period.
Those accounts, upon which the auditors issued an unqualified opinion modified
to include a reference to going concern, have been delivered to the Registrar
of Companies.
The interim report for the six months to 30 June 2003 was approved by the
directors on 6 August 2003.
Consolidated Cash Flow Statement
Year to
£ million Six months to 30 June 31 December
___________________________ _____________
2003 2002 2002
Net cash inflow from operating activities 28.6 40.7 76.9
__________ __________ _____________
Dividends received from joint venture - 0.2 0.2
Dividends received from associates - 0.2 0.1
Returns on investments and servicing of
finance (19.0) (6.1) (10.8)
Taxation (2.3) (6.4) (4.2)
Capital expenditure and financial investment (6.3) (14.1) (25.8)
__________ __________ _____________
Cash inflow before acquisitions and
disposals, equity dividends and financing 1.0 14.5 36.4
Acquisitions and disposals 60.7 41.5 6.4
Equity dividends paid - (27.6) (40.2)
Management of liquid resources 0.1 0.2 0.2
Financing (124.7) (32.2) 53.8
__________ __________ _____________
Net cash (outflow)/inflow (62.9) (3.6) 56.6
========= ========= ============
Reconciliation of Net Cash Flow to Movement in Net Debt
Year to
£ million Six months to 30 June 31 December
__________________________ _____________
2003 2002 2002
Net cash (outflow)/inflow (62.9) (3.6) 56.6
Cash outflow/(inflow) arising from the change
in debt and lease financing 125.2 34.5 (51.4)
Cash inflow arising from the decrease in
liquid resources (0.1) (0.2) (0.2)
__________ __________ _____________
Movement arising from cash flows 62.2 30.7 5.0
Debt issue costs (0.6) - -
Loans and finance leases acquired with
subsidiary - - (0.2)
New finance leases - (0.5) (0.2)
Exchange adjustment 0.7 5.7 12.7
__________ __________ _____________
Movement in net debt 62.3 35.9 17.3
Net debt at 1 January (161.8) (179.1) (179.1)
__________ __________ _____________
Net debt (99.5) (143.2) (161.8)
========== ========= ============
Notes to the Financial Information
1. Segmental Analysis
£ million Six months to 30 June Year to 31 December
_____________________________ ____________________
2003 % 2002 % 2002 %
Turnover
Performance Analysis 75.0 33 100.0 32 187.1 33
Service Assurance 42.5 18 79.8 26 128.3 23
______ ____ ________ ____ ________ ________
Communications 117.5 51 179.8 58 315.4 56
Network Products 85.9 38 84.7 27 164.7 30
Systems 25.8 11 46.5 15 78.8 14
______ ____ ________ ____ ________ ________
229.2 100 311.0 100 558.9 100
====== ==== ======= ==== ======= =======
Operating profit/(loss)
Performance Analysis 0.7 5 7.0 20 9.4 19
Service Assurance 4.4 31 19.2 54 21.4 42
______ ____ ________ ____ ________ ________
Communications 5.1 36 26.2 74 30.8 61
Network Products 7.7 54 7.7 22 15.0 30
Systems 1.5 10 1.3 4 4.7 9
______ ____ ________ ____ ________ ________
Operating profit before goodwill
amortisation and exceptional items 14.3 100 35.2 100 50.5 100
______ ==== ________ ==== ________ ========
Operating exceptional items - goodwill
impairment
Performance Analysis - - (330.7)
Service Assurance - - (530.4)
______ ________ ________
Communications - - (861.1)
Network Products - - (21.7)
Systems - - (40.5)
______ ________ ________
- - (923.3)
______ ________ ________
Operating exceptional items - other
Performance Analysis (3.9) (0.6) (28.3)
Service Assurance - (1.4) (8.6)
______ ________ ________
Communications (3.9) (2.0) (36.9)
Network Products - (0.3) (3.3)
Systems - - (1.4)
______ ________ ________
(3.9) (2.3) (41.6)
Non-segmental (1.0) - -
______ ________ ________
(4.9) (2.3) (41.6)
______ ________ ________
Goodwill amortisation
Performance Analysis (1.9) (9.7) (20.8)
Service Assurance (2.8) (16.0) (33.5)
______ ________ ________
Communications (4.7) (25.7) (54.3)
Network Products (0.1) (0.7) (1.5)
Systems - (0.3) (0.3)
______ ________ ________
(4.8) (26.7) (56.1)
______ ________ ________
Operating profit/(loss) 4.6 6.2 (970.5)
====== ======= =======
2. Geographical Analysis
£ million Six months to 30 June Year to 31 December
____________________________ ___________________
2003 % 2002 % 2002 %
Turnover by market
Europe 75.6 33 75.5 24 149.4 27
North America 113.7 50 190.8 61 322.4 57
Asia Pacific, Rest of Americas, Africa 39.9 17 44.7 15 87.1 16
______ ____ ________ ____ ___________ ______
229.2 100 311.0 100 558.9 100
====== ==== ======= ==== ========== =====
Turnover by source
Europe 83.9 36 82.4 26 157.7 28
North America 127.8 56 216.6 70 368.9 66
Asia Pacific, Rest of Americas, Africa 17.5 8 12.0 4 32.3 6
______ ____ ________ ____ ___________ ______
229.2 100 311.0 100 558.9 100
====== ==== ======= ==== ========== =====
Operating profit/(loss) by source
Europe 9.8 68 11.7 33 19.4 38
North America 4.4 31 22.9 65 30.2 60
Asia Pacific, Rest of Americas, Africa 0.1 1 0.6 2 0.9 2
______ ____ ________ ____ ___________ ______
Operating profit before goodwill
amortisation and exceptional items 14.3 100 35.2 100 50.5 100
====== ==== ======= ==== ========== =====
Operating exceptional items - goodwill
impairment
Europe - - (19.5)
North America - - (901.8)
Asia Pacific, Rest of Americas, Africa - - (2.0)
______ ________ ___________
- - (923.3)
______ ________ ___________
Operating exceptional items - other
Europe (1.0) (0.3) (3.6)
North America (3.9) (2.0) (37.3)
Asia Pacific, Rest of Americas, Africa - - (0.7)
______ ________ ___________
(4.9) (2.3) (41.6)
______ ________ ___________
Goodwill amortisation
Europe (0.7) (0.6) (1.6)
North America (4.1) (26.0) (54.4)
Asia Pacific, Rest of Americas, Africa - (0.1) (0.1)
______ ________ ___________
(4.8) (26.7) (56.1)
______ ________ ___________
Operating profit/(loss) by source 4.6 6.2 (970.5)
====== ======= ==========
Average exchange rates
US dollar 1.61 1.45 1.51
Euro 1.46 1.61 1.59
3. Operating Exceptional Items - Other
Year to
£ million Six months to 30 June 31 December
_____________________ ______________
2003 2002 2002
Refinancing costs 1.0 - -
Restructuring costs 3.9 - 8.6
Tangible fixed asset write-downs - - 3.6
Lease provisions - - 20.2
Stock provisions - - 4.4
Acquisition retention bonuses - 2.3 4.8
________ ________ ____________
4.9 2.3 41.6
Tax effect of operating exceptional items - (0.7) (3.5)
________ ________ ____________
4.9 1.6 38.1
======= ======= ===========
4. Taxation
Year to
£ million Six months to 30 June 31 December
_________________________ _____________
2003 2002 2002
UK taxation 0.3 3.4 4.5
Overseas taxation 1.5 4.6 19.1
________ ________ ____________
1.8 8.0 23.6
Share of joint venture's taxation 0.5 0.9 2.7
Share of associates' taxation 0.4 0.1 0.6
________ ________ ____________
2.7 9.0 26.9
======= ======= ===========
Attributable taxation included above on the exceptional interest charge is a
£1.3 million credit and on the disposal of operations is a £0.2 million charge.
5. Earnings per Share
Year to
£ million Six months to 30 June 31 December
_____________________ _____________
2003 2002 2002
Basic loss attributable to shareholders (12.4) (31.5) (1,080.4)
________ ________ ____________
Operating exceptional items
Goodwill impairment - - 923.3
Other 4.9 2.3 41.6
Goodwill amortisation 4.8 26.7 56.1
(Profit)/loss on disposal of operations (1.6) 24.8 48.4
Provision against investment in own shares - - 30.1
Exceptional interest charge 14.3 - -
Prior year tax credit - - (6.2)
Reversal of deferred tax assets - - 19.0
Attributable taxation on exceptional items (1.3) (0.7) (3.5)
Attributable taxation on the disposal of operations 0.2 0.7 3.0
________ ________ ____________
Headline earnings attributable to shareholders 8.9 22.3 31.4
====== ======= ===========
Weighted average number of Ordinary shares in
issue basic, headline and diluted (million) 928.8 920.5 922.5
===== ======= ===========
6. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
Year to
£ million Six months to 30 June 31 December
____________________ ____________
2003 2002 2002
Operating profit 4.6 6.2 (970.5)
Depreciation 15.0 18.0 33.6
(Profit)/loss on disposal of tangible fixed assets - (0.1) 4.1
Goodwill impairment - - 923.3
Amortisation of goodwill 4.8 26.7 56.1
Stock compensation expense 0.4 0.2 0.5
Deferred income received/(released) 1.3 (3.7) (4.8)
Decrease/(increase) in debtors 6.8 (9.6) 2.9
(Increase)/decrease in stocks (0.4) 2.9 15.2
(Decrease)/increase in creditors (2.1) 0.1 (1.9)
(Decrease)/increase in provisions (1.8) - 18.4
________ ________ ____________
Net cash inflow from operating activities 28.6 40.7 76.9
======= ======= ===========
7. Net (Loss)/Income under US GAAP
Year to
£ million Six months to 30 June 31 December
_____________________ ____________
2003 2002 2002
Loss attributable to shareholders in accordance with (12.4) (31.5) (1,080.4)
__________ _________ ___________
UK GAAP
Adjustments:
Goodwill and other intangible fixed assets (1.1) 16.5 197.6
Stock-based compensation (0.4) (0.3) 0.2
Disposal of operations (0.2) 16.6 49.4
Provision against investment in own shares - - 30.1
Other differences between UK GAAP and US GAAP - 2.5 0.2
Deferred taxation on above adjustments 1.7 3.2 28.6
__________ _________ ___________
Total adjustments - 38.5 306.1
__________ _________ ___________
Net (loss)/income as adjusted to accord with US
GAAP (12.4) 7.0 (774.3)
========= ========= ==========
Net (loss)/earnings per share (pence)
Basic (1.34) 0.76 (83.93)
Diluted (1.34) 0.74 (83.93)
========= ========= ==========
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