UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2005
SPIRENT plc
_____________________________________________________________________
(Translation of registrant's name into English)
Spirent House, Crawley Business Quarter, Fleming Way, Crawley, West Sussex
RH10 9QL, UK.
_____________________________________________________________________
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ________
SPIRENT PLC
INTERIM RESULTS FOR THE FIRST HALF OF 2005
London, UK - 11 August 2005: Spirent plc (LSE: SPT; NYSE: SPM), a leading
communications technology company, today announces its interim results for the
first half of 2005.
Summary
GBP million First half First half Change
2005(1) 2004(1) %
---------------------------------------------------------------------
Revenue 230.4 239.3 (4)
Operating profit(2) 14.1 21.5 (34)
Adjusted profit before tax(3) 11.5 18.0 (36)
Reported (loss)/profit before
tax (34.1) 16.7 -
Adjusted earnings per
share(3),(4) (pence) 0.91 1.40 (35)
* All ongoing businesses increased revenue and operating profit(2) in the
first half of 2005 except the Service Assurance division which reported a
loss as previously announced.
- Performance Analysis operating profit(2) GBP11.4 million, up 50 per
cent.
- Network Products operating profit(2) GBP12.3 million, up 14 per cent.
- Ongoing Systems business operating profit(2) GBP2.1 million, up 24 per
cent.
- Service Assurance operating loss(2) GBP9.0 million, in line with our
April trading update.
* We are taking a goodwill impairment charge of GBP37.0 million in relation
to the Service Assurance division. Other material one-time charges of
GBP7.1 million with a cash cost of GBP3.3 million have been taken in the
period.
* Net debt increased to GBP42.4 million (31 December 2004 GBP26.4 million)
due to a reduction in operating cash flow, including the cash cost of
restructuring, increased capital expenditure and a GBP5.1 million currency
translation impact.
Notes
1 First half 2005 refers to the period to 3 July 2005 and first half 2004
refers to the period to 4 July 2004. The results are prepared in accordance
with the accounting policies set out in the document entitled 'Transition
to International Financial Reporting Standards' issued on 15 July 2005.
2 Before material one-time charges and share-based payment.
3 Before material one-time charges, share-based payment and profit on
disposal of operations.
4 Adjusted earnings per share is based on adjusted earnings as set out in
note 6 to the Interim Report.
Anders Gustafsson, Chief Executive, commented:
"We expect the Performance Analysis division to make sequential progress in the
second half of the year although conditions in the market remain variable. The
Service Assurance division will continue to be loss making in the second half,
albeit at a substantially reduced level as the benefits of the cost reductions
are realised. The Network Products group's performance in the second half will
reflect the normal seasonality of the business. As a result our expectations for
the Group's outcome for the year as a whole remain unchanged.
"The telecoms test and monitoring market remains the focus for the Group. In the
last twelve months we have achieved much to improve the way we address our
target markets and to increase our operational efficiency and we are now better
positioned to develop the business in line with our strategic objectives."
- ends -
Enquiries
Anders Gustafsson, Chief Executive Spirent plc +44 (0)1293 767676
Eric Hutchinson, Finance Director
Investor Relations
Catherine Nash Spirent plc +44 (0)1293 767676
Media
Reg Hoare/Katie Hunt Smithfield +44 (0)207 360 4900
About Spirent
Spirent is a leading communications technology company focused on delivering
innovative systems and services to meet the needs of customers worldwide. We
are a global provider of performance analysis and service assurance solutions
that enable the development and deployment of next-generation networking
technologies such as broadband services, Internet telephony, 3G wireless and
web applications and security testing. Our Network Products business is a
developer and manufacturer of innovative solutions for fastening,
identification, protection and connectivity in electrical and communications
networks marketed under the global brand HellermannTyton. The Systems group
comprises PG Drives Technology which develops power control systems for
specialist electrical vehicles in the mobility and industrial markets. Further
information about Spirent plc can be found at www.spirent.com
Spirent Ordinary shares are traded on the London Stock Exchange (ticker: SPT)
and on the New York Stock Exchange (ticker: SPM; CUSIP number: 84856M209) in the
form of American Depositary Shares (ADS), represented by American Depositary
Receipts, with one ADS representing four Ordinary shares.
Spirent and the Spirent logo are trademarks or registered trademarks of Spirent
plc. All other trademarks or registered trademarks mentioned herein are held by
their respective companies. All rights reserved.
This press release may contain forward-looking statements (as that term is
defined in the United States Private Securities Litigation Reform Act of 1995)
based on current expectations or beliefs, as well as assumptions about future
events. You can sometimes, but not always, identify these statements by the use
of a date in the future or such words as "will", "anticipate", "estimate",
"expect", "project", "intend", "plan", "should", "may", "assume" and other
similar words. By their nature, forward-looking statements are inherently
predictive and speculative and involve risk and uncertainty because they relate
to events and depend on circumstances that will occur in the future. You should
not place undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that could cause our
actual results to differ materially from those expressed or implied by these
statements. Such factors include, but are not limited to: the extent to which
customers continue to invest in next-generation technology and deploy advanced
IP-based services; our ability to successfully expand our customer base; our
ability to continue to benefit from generally improving market conditions; the
prevailing market conditions and pace of economic recovery; our ability to
improve efficiency, achieve the benefits of our cost reduction goals and adapt
to economic changes and other changes in demand or market conditions; our
ability to develop and commercialise new products and services, extend our
existing capabilities in IP services and expand our product offering
internationally; our ability to attract and retain qualified personnel; the
effects of competition on our business; fluctuations in exchange rates and heavy
exposure to a weak US dollar; our ability to avoid a breach of our financial
covenants and to achieve certain financial requirements under our renegotiated
borrowing terms; changes in the business, financial condition or prospects of
one or more of our major customers; risks of doing business internationally; the
financial burden of our pension fund deficit; risks relating to the acquisition
or sale of businesses and our subsequent ability to integrate businesses; our
reliance on proprietary technology; our exposure to liabilities for product
defects; our reliance on third party manufacturers and suppliers; and other
risks described from time to time in Spirent plc's Securities and Exchange
Commission periodic reports and filings. The Company undertakes no obligation to
update any forward-looking statements contained in this press release, whether
as a result of new information, future events or otherwise.
INTERIM REPORT FOR THE FIRST HALF OF 2005
Operating profit/(loss) and return on sales are used by the Group as key
measures of operating performance and are stated in the text before the effect
of goodwill impairment, other material one-time charges and share-based payment
so that period on period comparisons are not distorted.
In constant currencies or on a constant currency basis means calculated at
constant exchange rates.
First half 2005 refers to the period to 3 July 2005 and first half 2004 refers
to the period to 4 July 2004. The results are prepared in accordance with the
accounting policies set out in the document entitled 'Transition to
International Financial Reporting Standards' issued on 15 July 2005.
Overview
All our ongoing businesses increased revenue and operating profit in the first
half of 2005 except the Service Assurance division which reported a loss as
previously announced.
The Performance Analysis division grew operating profit by 50 per cent, despite
a slow down in spending by the US carriers as well as lower than expected US
government spending on telecoms in the first half.
We have for some time been reporting that we were experiencing a slow down in
our Service Assurance division's existing leased line and DSL business. However,
we announced in April that the extent of the decline in the first quarter had
been significantly greater than anticipated. This was due to customers delaying
the release of capital spending budgets and a larger than expected shift in
customers' investment towards next-generation networks. In addition, merger
activity among the US carriers delayed spending on monitoring equipment. These
factors have adversely affected the Service Assurance division's performance and
we reported an operating loss of GBP9.0 million in the first half.
In response to the significant drop in activity levels, we undertook in June a
restructuring of the division to realign resources and further reduce operating
costs. This was in addition to the actions taken and announced in February.
These restructurings allow support for existing leased line monitoring customers
to be provided on a more efficient basis while we continue to invest in our new
IP service assurance products. In total the restructuring actions have reduced
headcount in the division by around 260, representing some 40 per cent of the
workforce, and are expected to result in total annualised cost savings of
approximately GBP12 million, of which approximately GBP5 million will benefit
the second half of 2005. After the full benefit of the restructurings, the
annualised revenue required in the Service Assurance division to achieve a
breakeven result at the operating level will be approximately GBP52 million.
As anticipated, we are taking a goodwill impairment charge in relation to the
Service Assurance division and this amounted to GBP37.0 million. The carrying
value of the Service Assurance division at the end of the first half is GBP16.6
million. Other material one-time charges of GBP7.1 million in the period
comprise GBP4.0 million in respect of restructuring and inventory write-downs in
the Service Assurance division and GBP3.1 million in respect of the supply chain
initiatives and other restructuring within the Group. The cash cost of these
charges is GBP3.3 million in the first half. Further restructuring charges of
approximately GBP3 million will be taken in the second half to complete the
supply chain initiatives.
Both our Network Products group and the ongoing Systems business reported
improved results over the same period last year with operating profit up 14 per
cent and 24 per cent, respectively.
Net debt increased to GBP42.4 million in the first half of 2005 (31 December
2004 GBP26.4 million) due to a reduction in operating cash flow, including the
cash cost of restructuring, increased capital expenditure and a GBP5.1 million
currency translation impact.
Outlook
We expect the Performance Analysis division to make sequential progress in the
second half of the year although conditions in the market remain variable. The
Service Assurance division will continue to be loss making in the second half,
albeit at a substantially reduced level as the benefits of the cost reductions
are realised. The Network Products group's performance in the second half will
reflect the normal seasonality of the business. As a result our expectations for
the Group's outcome for the year as a whole remain unchanged.
The telecoms test and monitoring market remains the focus for the Group. In the
last twelve months we have achieved much to improve the way we address our
target markets and to increase our operational efficiency and we are now better
positioned to develop the business in line with our strategic objectives.
Operating review
Communications
GBP million First half First half Change
2005 2004 %
----------------------------------------------------------------
Revenue
Performance Analysis 87.6 83.1 5
Service Assurance 20.2 42.0 (52)
----------------------------------------------------------------
Communications group 107.8 125.1 (14)
Operating profit/(loss)
Performance Analysis 11.4 7.6 50
Service Assurance (9.0) 3.5 -
----------------------------------------------------------------
Communications group 2.4 11.1 (78)
Return on sales (%)
Performance Analysis 13.0 9.1
Service Assurance - 8.3
Communications group 2.2 8.9
The anticipated loss in the Service Assurance division affected the performance
of the Communications group as a whole in the first half of 2005. Revenue for
this group decreased by 14 per cent to GBP107.8 million and operating profit
declined to GBP2.4 million. Return on sales fell from 8.9 per cent to 2.2 per
cent.
Product development in the first half of 2005 was GBP28.4 million, or 26 per
cent of revenue (first half 2004 GBP30.1 million, 24 per cent of revenue). This
was split as to GBP19.9 million in the Performance Analysis division (first half
2004 GBP20.8 million) and GBP8.5 million in the Service Assurance division
(first half 2004 GBP9.3 million). This investment continues to be directed at
next-generation technologies and in particular at the development of our new
unified test platform, our wideband CDMA wireless handset test systems and our
IP service assurance solutions.
In the second half of 2004 we embarked on a number of initiatives to improve the
operational efficiency of the Communications group and we have made progress
with the integration of cross-group functions such as IT, finance, human
resources and corporate marketing. We have also made progress with the
rationalisation of our supply chain across the Communications group and have now
made arrangements for the majority of our manufacturing functions to be
outsourced. This approach will reduce the group's fixed costs and enable us to
move to a more variable cost based model.
Performance Analysis
The Performance Analysis division achieved a 5 per cent increase in revenue in
the first half of 2005 driven by continued customer spending on next-generation
and 3G wireless technologies in the period. This growth was achieved despite
variable market conditions in the first half caused by lower than expected
spending by the US government and reduced spending by certain of the US service
providers. Operating profit in the first half of 2005 of GBP11.4 million was up
50 per cent over the first half of 2004 due to the increased volumes and the
benefits of cost control. On a constant currency basis, revenue and operating
profit were up 8 per cent and 55 per cent, respectively, in the first half.
Return on sales improved to 13.0 per cent for the period compared with 9.1 per
cent in the first half of 2004.
In the first half of 2005 we achieved increased sales in constant currencies
from our routing, IP telephony, triple play, broadband access and security, web
and application testing solutions compared with the first half of 2004. Our new
unified platform for Ethernet testing, Spirent TestCenter(TM), which delivers
increased scalability and improved automation, has been well received and we
have secured initial orders since its launch in May. We have successfully
addressed customers' needs in relation to the delivery of complex IP telephony
services and infrastructure quality of service testing for triple play (voice,
video and data). We now have a leading position in this market due to our
ability to provide end-to-end test capabilities across complex converged
networks. Web security remains an issue for businesses worldwide and we have
enhanced our Avalanche(TM) offering through partnerships that enable us to
generate the latest malicious attacks and simulate financial trading traffic. We
saw a good contribution from our professional services activities which offer
tailored support to customers for complex testing projects.
In the period we saw particularly good growth in our wireless and position
location test activities, which accounted for 25 per cent of divisional revenue
in the first half of 2005. This was partly driven by continuing strong sales of
our CDMA handset test solutions due to the commercial roll out of the 3G
technology 1xEV-DO and the increasing need to test sophisticated applications
and services on CDMA handsets. Growth was also driven by increased sales in the
wideband CDMA sector, where our unique position location testing capability
enabled us to achieve significant market share gains.
North America continues to represent the largest market for this division but we
have made progress in Europe and the Asia Pacific region in the period. We
recently opened a facility in Bangalore, India to serve customers with research
and development operations in the region and sales have grown significantly
albeit from a low base.
During the first half of the year we have made several advances in sharpening
our market focus and improving operational efficiencies. These advances and our
strong portfolio of next-generation products will allow us to move forward with
our strategy of developing our telecoms test activities.
Service Assurance
Revenue for the division in the first half of 2005 was down by 52 per cent
compared with the same period last year due to the significant drop in activity
levels in our existing business. The division delivered an operating loss of
GBP9.0 million for the period compared with an operating profit of GBP3.5
million in the first half of 2004.
Revenue in the first half of 2005 comprised orders from our leased line and DSL
customers as well as ongoing contributions from annual service and support
contracts. Our leased line monitoring activities contributed over 60 per cent of
this division's revenue in the period. We also saw a small contribution from the
initial sales of our IP service assurance solutions.
We continue to supply and support leased line and DSL monitoring systems for
major US service providers. However, as announced in April, we saw a substantial
drop off in this business in the first quarter. In response to this trend we
have undertaken a major restructuring of this division so as to enable us to
support our existing leased line customers on a more efficient basis while
continuing to invest in our new IP service assurance products.
The strategy for this division is to deliver service assurance solutions for IP
business services and residential triple play offerings. We are also focused on
delivering next-generation field test solutions to service providers worldwide.
We believe that our solutions address the challenges and issues carriers will
face as they deploy Ethernet, voice-over-IP and video services on a commercial
scale. Customers worldwide continue to provide positive feedback and show
interest in our IP solutions and we are currently involved in a number of lab
and field trials for IP business services, residential triple play and field
test solutions. Our products are being developed to match the service assurance
and field test needs of these customers.
While we have seen an uplift in quote and proposal activity for IP service
assurance solutions in the second quarter of 2005, we remain cautious as to the
timing of full scale deployment of these advanced services by carriers
worldwide. As a consequence we cannot be certain as to the timing of further
revenue from our new IP products.
Network Products
GBP million First half First half Change
2005 2004 %
----------------------------------------------------------------
Revenue 103.9 95.0 9
Operating profit 12.3 10.8 14
Return on sales (%) 11.8 11.4
Our Network Products group delivered a strong performance in the first half of
2005 with revenue of GBP103.9 million up 9 per cent over the same period last
year. Operating profit of GBP12.3 million was ahead by 14 per cent over the
first half of 2004 and return on sales improved slightly to 11.8 per cent from
11.4 per cent.
Despite a flattening in automotive production levels and car sales, our sales to
the European car manufacturers grew compared with the same period last year as
our products have been specified on a number of new models that have now entered
production. We have made good progress in the US automotive market due to our
strong position with European car manufacturers who are expanding their North
American operations, and our established position in the US bus and truck
market. We have also increased sales of our Autotool automated application
systems into first tier suppliers to the US car market. We received a positive
reaction to the launch of our pre-terminated structured cabling system,
RapidNet, in the US and are encouraged by the initial sales we have achieved. We
continued to launch additions to all our product ranges during the first half.
While European sales increased overall, sales in the UK were depressed by the
weaker industrial economy and slippage in customers' programmes. Good growth in
sales was achieved in North America, South America and the Asia Pacific region.
Major investment activities include the extension of our facility in Tornesch,
Germany, which will be completed in the second half of this year, and the
integration of our operations in Argentina and Brazil in order to serve the
local market on a more efficient basis.
Overall we continue to increase customer penetration and gain market share in
the major market segments we serve.
Systems
GBP million First half First half Change
2005 2004 %
----------------------------------------------------------------
Revenue 18.7 15.5 21
Operating profit 2.1 1.7 24
Return on sales (%) 11.2 11.0
Figures in the above table relate to the ongoing business only. Divested
businesses contributed GBP3.7 million of revenue and GBP0.6 million of operating
profit in the first half of 2004.
Our Systems group is a leading supplier of power control systems for powered
medical and small industrial vehicles. Revenue was up by 21 per cent and
operating profit was up 24 per cent in the period. Return on sales increased
marginally to 11.2 per cent compared with 11.0 per cent in the first half of
2004.
The business continues to be impacted by the effect of the weak US dollar as
nearly 80 per cent of the UK-based manufacturing is exported priced in US
dollars. In order to mitigate this effect we have continued to move more of our
manufacturing to China.
The situation regarding US government healthcare funding of wheelchairs has
broadly stabilised and this has had a positive effect on sales of our wheelchair
control systems in the first half of the year. We launched the VR2, a
sophisticated mainstream wheelchair controller with enhanced performance
characteristics, in the first half and customer reaction to the product has been
positive. We have made progress in addressing the small industrial vehicle
market with our Trio+ and Access 120 systems and sales to this sector have
increased by 60 per cent from a low base in the first half of 2004.
Financial Review
GBP million First half First half Change
2005 2004 %
----------------------------------------------------------------
Revenue 230.4 239.3 (4)
Operating profit 14.1 21.5 (34)
Return on sales (%) 6.1 9.0
The interim results for the first half of 2005 are prepared in accordance with
the accounting policies set out in the document entitled 'Transition to
International Financial Reporting Standards' issued on 15 July 2005. The most
significant impacts of the transition to International Financial Reporting
Standards (IFRS) from UK Generally Accepted Accounting Practice (UK GAAP) for
Spirent are in relation to:
i) the elimination of the charge for goodwill amortisation;
ii) the change in the profit or loss on disposal of operations; and
iii) an increase in the charge for share-based payment.
Information on the impact of the transition to IFRS, including accounting
policies and reconciliations of the Group's UK GAAP balance sheets to its IFRS
balance sheets at 1 January 2003 (the transition date balance sheet),
31 December 2003, 4 July 2004 and 31 December 2004, together with
reconciliations of the Group's UK GAAP income statements to its IFRS income
statements for the first half of 2004 and for the years to 31 December 2003 and
31 December 2004, can be found in the document entitled 'Transition to
International Financial Reporting Standards' (see note 1 of Notes to the
financial information).
Group revenue for the first half of 2005 was 4 per cent below the same period in
2004. Operating profit was GBP14.1 million for the first half of 2005, 34 per
cent lower than the first half of 2004. This was largely due to the performance
of the Service Assurance division which reported an operating loss for the first
half of GBP9.0 million compared with an operating profit in the first half of
2004 of GBP3.5 million. Our other ongoing businesses showed growth in revenue
and operating profit compared with the first half of 2004. Return on sales has
dropped to 6.1 per cent compared with 9.0 per cent in the first half of 2004.
The translation effect of exchange rates, principally the US dollar, on trading
has not been significant in the period. Revenue has been reduced by GBP1.4
million and operating profit has not been materially affected by exchange.
Revenue by market and source grew over the first half of 2004 in Europe and the
Asia Pacific region but fell in North America due to the decline in revenue in
the Service Assurance division.
Product development spending for the Group in the first half of 2005 was GBP31.8
million, or 14 per cent of revenue (first half 2004 GBP33.7 million, 14 per cent
of revenue) and continues to be principally in the Communications group.
The business segments for the Group reported under IFRS are the same as those
that were reported under UK GAAP. However, there are stricter definitions
included in IFRS regarding the allocation of corporate costs. Those shared costs
which cannot be allocated directly to individual segments are now reported as
non segmental costs. These non segmental costs (before material one-time charges
and share-based payment) amount to GBP2.7 million for the first half of 2005
(first half 2004 GBP2.7 million) and include costs for our Board, listing costs
in relation to our dual listing and compliance costs including those in relation
to the Sarbanes-Oxley Act 2002.
As a result of the substantial drop in activity levels in the Service Assurance
division we are taking a goodwill impairment charge of GBP37.0 million. The
carrying value of the Service Assurance division at the end of the first half of
2005 is GBP16.6 million. Other material one-time charges of GBP7.1 million have
been incurred in the period. As previously stated, actions have been taken in
the Service Assurance division which resulted in restructuring charges of GBP2.7
million and related inventory write-downs of GBP1.3 million in the first half of
2005. Other charges totalling GBP3.1 million relate to supply chain initiatives
and other restructuring activities in our businesses and at a corporate level.
A charge for share-based payment is being reported in accordance with IFRS. This
charge represents the expense for share options and other share-based incentives
using an option pricing model. The charge for the first half of 2005 is GBP2.4
million (first half 2004 GBP1.3 million). We anticipate that this charge will be
marginally higher in the second half as we expect to make further awards in the
second half of 2005. On transition to IFRS Spirent has applied IFRS 2 'Share-
based Payment' only to awards made after 7 November 2002 and not fully vested
at 1 January 2005. The charge is therefore expected to increase over time as
more awards become subject to this treatment.
The reported GBP0.9 million gain on disposal of operations relates to the sale
of certain non trading Group companies.
Net interest payable in the first half of 2005 was GBP3.3 million compared with
GBP4.0 million in the same period of 2004. The interest charge is expected to be
of a similar magnitude in the second half of the year.
Reported loss before tax for the first half of 2005 is GBP34.1 million compared
with a profit before tax of GBP16.7 million for the first half of 2004.
The effective rate of tax for the first half of 2005 was 23.5 per cent compared
with 21.2 per cent for the full year 2004. We expect the effective tax rate for
the full year to be approximately 24 per cent.
Basic loss per share was 3.90 pence (first half 2004 earnings per share 1.26
pence). We are presenting an adjusted earnings per share measure which adds back
the effect of goodwill impairment, other material one-time charges, share-based
payment, profit or loss on disposal of operations and any related tax. The
Company believes that this measure provides greater comparability of the
underlying performance of the Group from period to period. We are reporting an
adjusted earnings per share of 0.91 pence for the first half of 2005 compared
with 1.40 pence for the first half of 2004, a decline of 35 per cent.
Net debt increased from GBP26.4 million at the end of 2004 to GBP42.4 million at
the end of the first half of 2005 with GBP5.1 million of this increase being due
to the effects of currency translation. In addition operating cash inflow was
lower and capital expenditure increased as had been expected.
Operating cash inflow was GBP4.2 million for the first half of 2005 compared
with an inflow of GBP18.5 million in the first half of 2004, a result of the
drop in operating profit and increases in working capital which included the
payment of GBP3.3 million of restructuring costs. Net capital expenditure was
GBP15.8 million in the first half of 2005 (first half 2004 GBP11.0 million). We
expect capital expenditure for the full year to be in the region of GBP30
million (full year 2004 GBP24.8 million). The depreciation charge was GBP10.9
million in the first half and is expected to be in the range GBP21 million to
GBP23 million for the full year.
The covenants in our principal borrowing agreements are based on UK GAAP as it
existed at 31 December 2002. In accordance with the terms of these agreements
earnings before interest, tax, amortisation and exceptional items to net
interest expense was 5.1 times (covenant ratio greater than or equal to 3.0
times) and net debt to earnings before interest, tax, depreciation, amortisation
and exceptional items was 0.8 times (covenant ratio less than or equal to 3.0
times) on a rolling 12 month basis.
At the end of the first half of 2005 the retirement benefit obligations were
GBP39.2 million (31 December 2004 GBP38.1 million). The Company made an
additional annual cash contribution of GBP3.5 million to our UK defined benefit
pension plan in the first half of 2005. An actuarial loss of GBP4.2 million has
been charged in the consolidated statement of changes in equity. This
principally arises due to a reduction in the corporate bond rates which are used
for the measurement of scheme liabilities in accordance with accounting
standards.
No dividend is being declared in respect of the first half of 2005.
Consolidated income statement
------------------------------------------------------------------------------
GBP million Notes First half First half Year
2005 2004 2004
------------------------------------------------------------------------------
Revenue 2, 3 230.4 239.3 475.0
Cost of sales (136.8) (139.6) (274.9)
------------------------------------------------------------------------------
Gross profit 93.6 99.7 200.1
Operating expenses (126.0) (79.5) (164.0)
------------------------------------------------------------------------------
Operating (loss)/profit 2 (32.4) 20.2 36.1
------------------------------------------------------------------------------
Goodwill impairment 37.0 - -
Other material one-time charges 4 7.1 - 2.9
Share-based payment 2.4 1.3 5.2
Operating profit before material
one-time charges and share-based
payment 2 14.1 21.5 44.2
------------------------------------------------------------------------------
Loss from interest in joint venture - (0.2) (0.7)
Share of profit of associates 0.7 0.7 1.8
------------------------------------------------------------------------------
Operating (loss)/profit of the
Group, joint venture and associates (31.7) 20.7 37.2
Profit on the disposal of operations 0.9 - 4.0
------------------------------------------------------------------------------
(Loss)/profit before interest (30.8) 20.7 41.2
Finance income 1.0 0.7 1.6
Finance costs (4.3) (4.7) (9.1)
Costs associated with the part
prepayment of loan notes - - (0.5)
------------------------------------------------------------------------------
(Loss)/profit before tax (34.1) 16.7 33.2
Tax 5 (2.7) (4.7) (6.7)
------------------------------------------------------------------------------
(Loss)/profit for the period (36.8) 12.0 26.5
------------------------------------------------------------------------------
Attributable to
Equity shareholders (37.0) 11.8 26.2
Minority shareholders' interests 0.2 0.2 0.3
------------------------------------------------------------------------------
(Loss)/profit for the period (36.8) 12.0 26.5
------------------------------------------------------------------------------
Basic (loss)/earnings per share
(pence) 6 (3.90) 1.26 2.79
Diluted (loss)/earnings per share
(pence) 6 (3.90) 1.23 2.74
------------------------------------------------------------------------------
Consolidated balance sheet
GBP million First half First half 31 December 2004
2005(1) 2004 (1)
------------------------------------------------------------------------------
Assets
Non current assets
Goodwill 74.4 109.8 106.5
Property, plant and
equipment 94.0 85.5 86.3
Interest in joint
venture - 0.3 -
Investments in
associates 14.6 13.0 14.3
Deferred tax 11.4 10.3 11.1
------------------------------------------------------------------------------
194.4 218.9 218.2
------------------------------------------------------------------------------
Current assets
Inventories 57.8 53.8 54.0
Trade and other
receivables 99.1 94.7 89.9
Cash and cash
equivalents 40.1 30.5 51.7
------------------------------------------------------------------------------
197.0 179.0 195.6
------------------------------------------------------------------------------
Total assets 391.4 397.9 413.8
------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other
payables (95.3) (87.4) (90.8)
Current tax (29.2) (27.4) (26.2)
Short term
borrowings and
overdrafts (1.7) (1.6) (1.8)
Provisions and other
liabilities (3.3) (2.3) (4.2)
------------------------------------------------------------------------------
(129.5) (118.7) (123.0)
------------------------------------------------------------------------------
Non current liabilities
Trade and other
payables (4.6) (4.3) (3.9)
Long term borrowings (80.8) (82.4) (76.3)
Retirement benefit
obligations (39.2) (35.0) (38.1)
Deferred tax (2.2) (2.4) (2.5)
Provisions and other
liabilities (10.5) (11.8) (9.6)
------------------------------------------------------------------------------
(137.3) (135.9) (130.4)
------------------------------------------------------------------------------
Total liabilities (266.8) (254.6) (253.4)
------------------------------------------------------------------------------
Net assets 124.6 143.3 160.4
------------------------------------------------------------------------------
Equity
Called up share
capital 32.1 31.8 31.9
Share premium
account 3.9 701.9 1.3
Capital reserve 10.4 14.4 10.9
Capital redemption
reserve - 0.7 -
Translation reserve 2.9 (0.5) 1.6
Net unrealised gains
and losses (1.0) - -
Retained
earnings/(loss) 74.7 (606.6) 113.4
------------------------------------------------------------------------------
Shareholders' funds
- equity 123.0 141.7 159.1
Minority interests -
equity 1.6 1.6 1.3
------------------------------------------------------------------------------
Total equity and
reserves 124.6 143.3 160.4
------------------------------------------------------------------------------
1 First half 2005 refers to the position at 3 July 2005 and first half 2004
refers to the position at 4 July 2004.
Consolidated cash flow statement
------------------------------------------------------------------------------
GBP million First half First half Year
2005 2004 2004
------------------------------------------------------------------------------
Cash flows from operating
activities
Operating (loss)/profit (32.4) 20.2 36.1
Goodwill impairment 37.0 - -
Depreciation of property, plant and
equipment 10.9 13.0 25.4
(Profit)/loss on disposal of
property, plant and equipment (0.1) 0.4 0.4
Write-down of property, plant and
equipment - - 0.6
Share-based payment 2.4 1.3 5.2
Deferred income received 9.4 4.6 4.9
Increase in debtors (5.7) (10.2) (9.1)
Increase in inventories (2.1) (0.2) (1.0)
(Decrease)/increase in creditors (9.1) 1.4 8.5
Decrease in provisions (0.7) (3.4) (2.9)
Retirement benefit obligations (3.5) (7.2) (7.8)
Tax paid (1.9) (1.4) (3.1)
------------------------------------------------------------------------------
Net cash from operating activities 4.2 18.5 57.2
------------------------------------------------------------------------------
Cash flows from investing
activities
Dividends received from associates - 0.1 0.1
Interest received 0.9 0.8 1.6
Disposal of operations 0.9 - 2.5
Purchase of property, plant and
equipment (16.1) (11.3) (25.3)
Proceeds from sale of property,
plant and equipment 0.3 0.3 0.5
Acquisition of subsidiaries - (0.8) (1.1)
Contribution to joint venture - - (0.2)
------------------------------------------------------------------------------
Net cash used in investing
activities (14.0) (10.9) (21.9)
------------------------------------------------------------------------------
Cash flows from financing
activities
Interest paid (3.7) (4.5) (8.4)
Interest element of finance lease
rental payments (0.2) (0.2) (0.4)
Costs associated with the part
prepayment of loan notes - (1.8) (2.3)
Proceeds from the issue of share
capital 2.3 0.9 1.5
Repayment of loans - (8.2) (10.2)
Repayment of capital element of
finance lease rentals (0.5) (0.4) (0.8)
------------------------------------------------------------------------------
Net cash used in financing
activities (2.1) (14.2) (20.6)
------------------------------------------------------------------------------
Net (decrease)/increase in cash and
cash equivalents (11.9) (6.6) 14.7
Cash and cash equivalents at the
beginning of the period 51.0 36.9 36.9
Effect of exchange rate changes 0.2 (0.5) (0.6)
------------------------------------------------------------------------------
Cash and cash equivalents at the
end of the period 39.3 29.8 51.0
------------------------------------------------------------------------------
Cash and cash equivalents comprise:
Cash and cash equivalents 40.1 30.5 51.7
Overdrafts (0.8) (0.7) (0.7)
------------------------------------------------------------------------------
39.3 29.8 51.0
------------------------------------------------------------------------------
Consolidated statement of changes in equity
---------------------------------------------------------------------------------------------
GBP million Net
Called up Share unrealised Shareholders'
share premium Capital Translation gains/ Retained funds -
capital account reserve reserve (losses) earnings equity
---------------------------------------------------------------------------------------------
At 1 January 2005
As originally
restated under
IFRS 31.9 1.3 10.9 1.6 - 113.4 159.1
Changes in
accounting
policy
relating to
first time
application of
IAS 39
'Financial
Instruments:
Recognition
and
Measurement'
(note 1) - - - - (0.1) - (0.1)
---------------------------------------------------------------------------------------------
At 1 January
2005 as
restated 31.9 1.3 10.9 1.6 (0.1) 113.4 159.0
---------------------------------------------------------------------------------------------
Changes in equity
for the first
half of 2005
Exchange
differences on
translating
foreign
operations - - - 1.3 - - 1.3
Share-based
payment - - - - - 2.2 2.2
Actuarial loss
recognised on
retirement
benefit
obligations - - - - - (4.2) (4.2)
Tax on
retirement
benefit
obligations - - - - - 0.3 0.3
Net unrealised
losses on cash
flow hedges - - - - (0.9) - (0.9)
---------------------------------------------------------------------------------------------
Net profits
and losses
recognised
directly in
equity - - - 1.3 (0.9) (1.7) (1.3)
Loss for the
period
attributable
to equity
shareholders - - - - - (37.0) (37.0)
-----------------------------------------------------------------------------------------------
Total
recognised
profits and
losses for the
period - - - 1.3 (0.9) (38.7) (38.3)
-----------------------------------------------------------------------------------------------
New shares
issued 0.2 2.6 (0.5) - - - 2.3
-----------------------------------------------------------------------------------------------
At the end of
the period 32.1 3.9 10.4 2.9 (1.0) 74.7 123.0
-----------------------------------------------------------------------------------------------
Notes to the financial information
1 Basis of preparation
The consolidated interim financial statements have been prepared in accordance
with the principal accounting policies set out in the document entitled
'Transition to International Financial Reporting Standards', which was issued by
Spirent on 15 July 2005. These interim financial statements should be read in
conjunction with this document. The document can be found on the Company's
website, www.spirent.com, or can be obtained by writing to the Company Secretary
at Spirent House, Crawley Business Quarter, Fleming Way, Crawley, West Sussex,
RH10 9QL.
This interim financial information has been prepared on the assumption that all
IFRS statements, including International Accounting Standards (IASs), Standing
Interpretations Committee (SIC) interpretations and International Financial
Reporting Interpretations Committee (IFRICs) interpretations issued by the
International Accounting Standards Board (IASB) as effective for 2005 reporting
will be endorsed by the European Commission. These are subject to ongoing review
and possible amendment by the IASB and subsequent endorsement by the European
Commission and therefore may change. Further standards and interpretations may
also be issued that will become applicable for the Group's financial year ending
31 December 2005. In 2005 the Group has adopted IFRS for the first time. The
date of transition is 1 January 2003. IAS 34 'Interim Financial Reporting' has
not been applied to this interim financial information.
The financial information does not constitute statutory accounts as defined in
Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31
December 2004, which were prepared under accounting policies generally accepted
in the UK, have been filed with the Registrar of Companies. The auditors report
on those accounts was unqualified and did not contain a statement made under
Section 237(2) or Section 237(3) of the Companies Act 1985.
The Interim Report for the period ended 3 July 2005 was approved by the
directors on 11 August 2005.
Changes in accounting policy
The Group has taken the transitional exemption not to apply IAS 32 'Financial
Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:
Recognition and Measurement' to the period ended 4 July 2004 and the year ended
31 December 2004. These standards have been implemented with effect from 1
January 2005 and as a result a number of financial instruments have been
recognised on the opening balance sheet at that date.
The accounting policy in respect of these standards can be found in the document
entitled 'Transition to International Financial Reporting Standards'. This
change results in the following restatements at 1 January 2005:
GBP million Shareholders' Current assets Current
equity - net - trade and liabilities -
unrealised gains other trade and other Long term
and (losses) receivables payables borrowings
------------------------------------------------------------------------------
At 1 January
2005 - as
originally
restated under
IFRS - 89.9 90.8 76.3
Implementation
of IAS 39 (0.1) 0.5 1.0 (0.4)
------------------------------------------------------------------------------
At 1 January
2005 as
restated (0.1) 90.4 91.8 75.9
------------------------------------------------------------------------------
2 Segmental analysis
GBP million Performance Service Network Non
Analysis Assurance Communications Products Systems segmental Group
---------------------------------------------------------------------------------------------
First half
2005
Revenue 87.6 20.2 107.8 103.9 18.7 - 230.4
---------------------------------------------------------------------------------------------
Operating
profit/(loss)
before
material
one-time
charges and
share-based
payment 11.4 (9.0) 2.4 12.3 2.1 (2.7) 14.1
Goodwill
impairment - (37.0) (37.0) - - - (37.0)
Other
material
one-time (2.4) (4.0) (6.4) (0.4) - (0.3) (7.1)
charges
Share-based
payment (1.4) (0.6) (2.0) (0.2) (0.1) (0.1) (2.4)
---------------------------------------------------------------------------------------------
Operating
profit/(loss) 7.6 (50.6) (43.0) 11.7 2.0 (3.1) (32.4)
---------------------------------------------------------------------------------------------
First half
2004
Revenue 83.1 42.0 125.1 95.0 19.2 - 239.3
---------------------------------------------------------------------------------------------
Operating
profit/(loss)
before
share-based
payment 7.6 3.5 11.1 10.8 2.3 (2.7) 21.5
Share-based
payment (0.9) (0.3) (1.2) (0.1) - - (1.3)
---------------------------------------------------------------------------------------------
Operating
profit/(loss) 6.7 3.2 9.9 10.7 2.3 (2.7) 20.2
---------------------------------------------------------------------------------------------
Year 2004
Revenue 176.8 74.7 251.5 187.8 35.7 - 475.0
---------------------------------------------------------------------------------------------
Operating
profit/(loss)
before
material
one-time
charges and
share-based
payment 21.7 2.5 24.2 21.3 4.0 (5.3) 44.2
Material
one-time
charges 1.3 (1.9) (0.6) - - (2.3) (2.9)
Share-based
payment (3.2) (1.4) (4.6) (0.4) (0.1) (0.1) (5.2)
---------------------------------------------------------------------------------------------
Operating
profit/(loss) 19.8 (0.8) 19.0 20.9 3.9 (7.7) 36.1
---------------------------------------------------------------------------------------------
3 Geographical analysis
GBP million First half First half Year
2005 2004 2004
-------------------------------------------------------------------------------
Revenue by market
Europe 84.8 82.6 167.4
North America 100.1 116.0 223.4
Asia Pacific, Rest of Americas,
Africa 45.5 40.7 84.2
-------------------------------------------------------------------------------
Group 230.4 239.3 475.0
-------------------------------------------------------------------------------
Revenue by source
Europe 98.7 91.6 184.9
North America 106.4 124.6 243.4
Asia Pacific, Rest of Americas,
Africa 25.3 23.1 46.7
-------------------------------------------------------------------------------
Group 230.4 239.3 475.0
-------------------------------------------------------------------------------
Average exchange rates
US Dollar 1.87 1.82 1.83
Euro 1.46 1.48 1.47
-------------------------------------------------------------------------------
4 Other material one-time charges
GBP million First half First half Year
2005 2004 2004
------------------------------------------------------------------------------
Inventory write-downs 1.3 - -
Restructuring costs (including
write-down of property, plant and
equipment and lease provisions) 5.8 - 1.6
Exit from joint venture - - 1.3
------------------------------------------------------------------------------
7.1 - 2.9
------------------------------------------------------------------------------
There is no tax effect in respect of the material one-time charges.
5 Tax
GBP million First half First half Year
2005 2004 2004
------------------------------------------------------------------------------
UK tax - - -
Overseas tax 2.7 4.7 6.7
------------------------------------------------------------------------------
2.7 4.7 6.7
------------------------------------------------------------------------------
6 (Loss)/earnings per share
GBP million First half First half Year
2005 2004 2004
-------------------------------------------------------------------------------
(Loss)/earnings attributable to equity
shareholders (37.0) 11.8 26.2
-------------------------------------------------------------------------------
Goodwill impairment 37.0 - -
Other material one-time charges 7.1 - 2.9
Share-based payment 2.4 1.3 5.2
Profit on the disposal of operations (0.9) - (4.0)
Costs associated with the part
prepayment of loan notes - - 0.5
Prior year tax credit - - (1.3)
-------------------------------------------------------------------------------
Adjusted earnings attributable to equity
shareholders 8.6 13.1 29.5
-------------------------------------------------------------------------------
(Loss)/earnings per share (pence)
Basic (3.90) 1.26 2.79
Diluted (3.90) 1.23 2.74
Adjusted 0.91 1.40 3.14
-------------------------------------------------------------------------------
Weighted average number of shares in issue
(millions)
Basic and adjusted 948.8 937.2 939.2
Dilutive potential of employee share
options - 21.0 18.1
-------------------------------------------------------------------------------
Diluted 948.8 958.2 957.3
-------------------------------------------------------------------------------
7 Net income under US GAAP
GBP million Restated(1)
First half First half Year
2005 2004 2004
-------------------------------------------------------------------------------
(Loss)/profit attributable to
shareholders in accordance with IFRS (37.0) 11.8 26.2
-------------------------------------------------------------------------------
Adjustments
Revenue recognition - deferred revenue 20.4 (7.0) 9.9
- deferred costs (5.1) 0.6 (7.0)
-------------------------------------------------------------------------------
15.3 (6.4) 2.9
-------------------------------------------------------------------------------
Goodwill and other intangible assets - impairment 37.0 - -
- amortisation (4.2) (4.4) (8.7)
-------------------------------------------------------------------------------
32.8 (4.4) (8.7)
-------------------------------------------------------------------------------
Share-based payment 3.1 (0.7) 2.0
Disposal of operations - - 0.1
Pension costs (0.7) - (0.6)
Derivative financial instruments - (0.8) 0.4
Deferred tax on above adjustments (4.4) 3.7 2.6
-------------------------------------------------------------------------------
Total adjustments 46.1 (8.6) (1.3)
-------------------------------------------------------------------------------
Net income as adjusted to accord with
US GAAP 9.1 3.2 24.9
-------------------------------------------------------------------------------
Net income per share (pence)
Basic 0.96 0.34 2.65
Diluted 0.95 0.33 2.60
-------------------------------------------------------------------------------
1 Results for the first half of 2004 under US GAAP have been restated to
reflect a change in the treatment of revenue recognition on multiple
element arrangements within the Service Assurance division.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
______LUKE THOMAS______
(Registrant)
Date 11 August 2005 By ____/s/ Luke Thomas____
(Signature)*