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 March, 2003
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- ________
815 - 12 March 2003
SPIRENT PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2002
Spirent plc (LSE: SPT; NYSE: SPM), a leading international network technology
company, today announced its preliminary results for the year to 31 December
2002. Spirent also today announced the divestment of its interests in WAGO and
the renegotiation of its borrowing terms.
Spirent delivered a resilient performance in the first half of 2002 but suffered
a drop in trading in the third quarter due to a fall in demand from its major
telecoms customers. In response, management implemented cost cutting measures
which improved operating profit* in the fourth quarter. All Spirent's operating
groups delivered operating profit* and generated cash in 2002 despite the
difficult trading environment.
The divestment of Spirent's interests in the WAGO interconnection joint venture
will raise net cash proceeds of approximately GBP58.2 million. WAGO is not
considered to be a core business of the Group. The divestment is subject to
shareholder approval and the net proceeds will be used to pay down debt.
Spirent has renegotiated its borrowing terms to increase the level of headroom
available under certain of its financial covenants. The new borrowing terms are
conditional on the completion of the divestment of WAGO.
Summary of 2002 Results
GBP million 2002 2001
__________ _________
Turnover 558.9 801.8
Operating profit* 50.5 112.9
Profit before taxation** 46.4 100.9
Headline earnings per share** (pence) 3.40 7.76
- All operating groups delivered operating profit* and generated cash
despite the difficult trading environment.
- A non-cash goodwill impairment charge of GBP923 million, the
likelihood of which was indicated in October, together with
exceptional charges of GBP120 million, resulted in a loss before
taxation of GBP1,053 million.
- Communications group delivered turnover of GBP315 million and operating
profit* of GBP31 million, down 27 per cent and 63 per cent,
respectively, compared with 2001.
- Satisfactory results achieved by Network Products group with operating
profit* of GBP15 million and ongoing businesses in the Systems group
showed improvement over 2001 with operating profit* of GBP3 million.
- Cost cutting measures expected to result in annualised savings of GBP34
million.
- Free cash flow+ of GBP36 million generated compared with GBP40 million in
2001.
- Net debt at 31 December 2002 was GBP162 million. The Company continues
to be in compliance with its existing borrowing covenants.
- As indicated in October, the Company will not pay a final dividend in
respect of 2002.
Commenting on the results, Nicholas Brookes, Chief Executive, said:
"2002 was a challenging year for Spirent. The telecoms market continued to
deteriorate but management action ensured that all our operating groups remained
profitable* and cash generative for the year. We have agreed to sell our
interests in WAGO and have additionally renegotiated our borrowing terms to
obtain greater headroom under key covenants.
"We have planned our business assuming the challenging conditions in the
telecoms market will continue throughout 2003 and trading so far this year has
been in line with our expectations. As growth in data traffic creates
opportunities for Spirent, we remain committed to investing in our leading-edge
products, technologies and services to enhance our market positions and grow
market share."
Also commenting, John Weston, Non-executive Chairman, said:
"The sale of WAGO and the increased headroom under our borrowing covenants
represent important achievements for Spirent. Trading in 2002 underlines
Spirent's ability to perform even in a difficult market.
"Our businesses continue to generate cash enabling us to invest in technology to
meet our customers' current and future needs and position us for market
recovery."
Notes
* Before goodwill amortisation and operating exceptional items being GBP56
million (2001 GBP87 million) and GBP965 million (2001 GBP760 million),
respectively, for the Group.
** Before goodwill amortisation and operating exceptional items as above and
non-operating exceptional items of GBP78 million (2001 profit GBP15 million).
+ Cash flow before acquisitions and disposals, equity dividends and
financing.
- ends -
A briefing for analysts and fund managers will be held today at 10.00 at the
Lincoln Centre, 18 Lincoln's Inn Fields, London WC2.
A webcast of the presentation will be available on the Spirent plc website from
16.00 London time at www.spirent.com/investors
An analysts conference call will be held today at 16.00 London time/11.00 EST.
This may be accessed by dialling:
UK/International: +44 (0)20 8401 1043 or UK freephone 0500 101 630
US: +1 303 713 7929 or US freephone +1 800 530 2462
A replay of the call will be available until Wednesday 19 March 2003 by
dialling:
UK/International: +44 (0)20 8288 4459 or UK freephone 0500 637 880
US: +1 703 736 7336 or US freephone +1 800 495 0250
Access code: 713432
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 accelerate the development and deployment of network
equipment and services 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 aerospace and power controls
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 trademarks of Spirent plc. All other
trademarks or registered trademarks 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 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 effects of
competition on our business; our ability to develop and commercialise new
products and services and realise product synergies; our ability to conclude the
divestment of our interests in the WAGO joint venture; our ability to effect
certain amendments to the terms of our loan notes and bank facility; risks
relating to the acquisition or sale of businesses and our subsequent ability to
integrate businesses; 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 and remain competitive; our ability to
improve efficiency and adapt to the current economic slowdown and other changes
in demand; changes in the business, financial condition or prospects of one or
more of our major 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; 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.
PRELIMINARY REPORT FOR THE YEAR TO 31 DECEMBER 2002
CHIEF EXECUTIVE'S REVIEW
Overview
Turnover of GBP558.9 million and operating profit before goodwill amortisation
and exceptional items of GBP50.5 million were 30 per cent and 55 per cent below
our results for 2001, respectively, but all our operating groups generated
operating profit and cash in 2002. In the first half of the year we delivered a
resilient performance despite generally depressed market conditions and
continuing declines in spending by our major telecoms customers. However a drop
in capital expenditure by US network service providers (NSPs) in the third
quarter reduced the performance of our Communications group for the second half
of the year. As a result Group operating profit was significantly lower in the
second half of 2002 compared with the first half.
We are pleased to announce today the divestment of our interests in WAGO to our
joint venture partners for net cash proceeds of approximately GBP58.2 million.
The divestment is subject to shareholder approval which is being sought at an
Extraordinary General Meeting to be convened for 31 March 2003. WAGO is not
considered to be a core business of the Group and does not materially contribute
to the Group's cash flow.
We continue to be in compliance with our existing borrowing covenants. However
in order to increase the level of headroom available under certain of our
financial covenants we have renegotiated our borrowing terms. The new borrowing
terms are conditional on the completion of the divestment of WAGO and the use of
the net proceeds to pay down debt. Further details of the new borrowing terms
are set out in the Financial Review.
The fall in revenues in our Communications group led us to realign our cost
base. This involved an 11 per cent reduction in workforce, reorganisation of
our operations and reductions in discretionary spending within the
Communications group. These actions are expected to result in annualised cost
savings of GBP33.5 million. In accordance with accounting standards and due to
the fall in trading we were required to take a non-cash goodwill impairment
charge of GBP923.3 million in the year. Operating exceptional items totalling
GBP41.6 million have also been charged in 2002 primarily relating to the
reorganisation of our operations.
In difficult conditions our Communications group was able to maintain its
position as a market leader due to our portfolio of leading-edge products,
technologies and services, our expertise in network operations and our ability
to provide integrated performance analysis and service assurance solutions. The
Performance Analysis division achieved a stable order intake rate of some GBP50
million per quarter in the first half of 2002 but this dropped to GBP42 million
in the third quarter. Order intake recovered in the fourth quarter to GBP50
million.
Notes
Operating profit (EBITA) and return on sales as referred to in the text are
stated before goodwill amortisation and exceptional items.
Free cash flow as referred to in the text is cash flow before acquisitions and
disposals, equity dividends and financing.
The Service Assurance division's order book closed the year at GBP37 million
compared with GBP31 million at the end of the third quarter and GBP73 million at
the end of last year, reflecting customers' changing order patterns and
reduction in capital expenditure over the year.
Our Network Products and Systems groups delivered sound performances in the
year. These businesses supply a broad range of industries and therefore have
provided some protection from the current volatile conditions in the telecoms
market.
During the year we expanded the technological capabilities of the Group through
organic development and strategic investments. The Performance Analysis
division expanded its Internet infrastructure testing capabilities through the
acquisition of Caw Networks, Inc. (Caw). The purchase of a wideband CDMA
(W-CDMA) product line has brought us expertise in this important third
generation (3G) wireless technology and the purchase of a remote special
services test product line further strengthened our Service Assurance product
portfolio.
We made progress in the divestment of non-core businesses during the year with
the sale of our aerospace component businesses and the divestments of Switching
Systems International Inc (SSI) and Monitor Labs Incorporated (MLI) from our
Systems group.
Financial Summary
Reported turnover was GBP558.9 million and operating profit was GBP50.5 million
in 2002. Turnover from ongoing businesses was GBP533.9 million and operating
profit was GBP49.2 million, down 18 per cent and 50 per cent, respectively,
compared with 2001. As a result of the drop in turnover and with the cost saving
actions only becoming effective in the fourth quarter, return on sales for
ongoing businesses declined to 9.2 per cent (2001 15.3 per cent). The reduced
trading levels in the third quarter led to a weak second half, down 16 per cent
on turnover and 57 per cent on operating profit from ongoing businesses compared
with the first half of 2002. Our Communications group reported a small operating
loss for the third quarter but returned to profitability in the fourth quarter
as the cost savings started to take effect.
In accordance with accounting standards and due to the deterioration in trading
we were required to reassess the carrying value of certain of our businesses at
the year end. This has resulted in a non-cash goodwill impairment charge of
GBP923.3 million of which GBP330.7 million relates to the Performance Analysis
division and GBP530.4 million is in respect of the Service Assurance division.
Reported loss before taxation was GBP1,053.1 million (2001 loss GBP730.7
million). Before charging goodwill amortisation of GBP56.1 million and
exceptional items of GBP1,043.4 million, profit before taxation was GBP46.4
million for the year.
Headline earnings per share were 3.40 pence (2001 7.76 pence).
Operating cash generation for the year was GBP76.9 million compared with
GBP141.2 million in 2001. Despite the lower levels of trading we were able to
generate GBP36.4 million of free cash flow compared with GBP40.4 million in
2001. This was achieved after investing GBP77.7 million (2001 GBP95.9 million)
in product development representing 14 per cent of turnover, up from 12 per cent
in 2001. Free cash flow was down by only GBP4.0 million despite a fall of
GBP64.3 million in cash flow from operating activities.
Net borrowings reduced to GBP161.8 million (2001 GBP179.1 million) at the year
end. The net proceeds from the divestment of WAGO will reduce net borrowings in
2003.
Operating Summary
Communications
Spirent's Communications group achieved operational successes in a number of key
strategic areas including wireless, metro and broadband access networks,
Internet infrastructure testing together with geographic expansion during the
year.
Our Performance Analysis division competes in the research and development
segment of the test and measurement market and so was directly affected by the
reduction in capital spending by its main chipset and network equipment
manufacturer (NEM) customers. However due to our broad spread of technologies
and the cost efficiencies our products deliver, the division was able to
increase its share of customers' capital budgets.
We continue to focus our product development efforts in those areas where we
believe there are near term opportunities as well as longer term potential. Our
drive for innovation delivered several new product launches and 'industry
firsts' during the year. The quality of our products continued to be recognised
worldwide with the WebAvalanche(TM) 4.2 Internet testing solution winning 'Best
of Show' awards at Networld(TM)+Interop(R) in Atlanta and Tokyo and our Abacus2
voice-over-IP (VoIP) product winning Internet Telephony(R) magazine's 2002
Product of the Year award. Spirent Communications was also proud to be named by
industry analyst Frost & Sullivan as the 2002 Market Engineering Company of the
Year in the category of communications test.
Spirent is a market leader in the US broadband service assurance market where
our systems are deployed to assure some of the largest residential digital
subscriber line (DSL) and high-capacity business leased line networks in the
country. However customers of our Service Assurance division came under
financial pressure during the year and as a result the roll-outs of monitoring
systems for DSL and leased line services were slowed such that our order book
dropped substantially over the year. Nevertheless progress was made by the
division with initial deployment of its CenterOp(TM) platforms for fault and
performance management and the introduction of new systems for the assurance of
optical and packet networks.
A key strategy for our Communications group is to expand its geographic reach
and we made progress in increasing our global presence during the year.
Customers outside North America accounted for 25 per cent of Communications
group sales in 2002 (2001 20 per cent).
Network Products
The results of our Network Products group for 2002 remained in line with 2001
despite a depressed result in South America due to the severe recession in the
region. Overall performance from our activities in the US, Europe and Japan
were broadly flat during the year.
Due to the fall-off in the telecoms market, total sales of our local area
network (LAN) and broadband wide area network connectivity products declined in
the year and now represent only 13 per cent of Network Products group turnover
(2001 17 per cent). This decline was largely off-set by sales to the automotive
sector where our products were accepted onto a number of new car and heavy
vehicle platforms at manufacturers in the US and Europe. Sales of our automated
cable bundling and tying, labelling and printing systems continued to be strong
during the year.
Against a competitive background characterised by downward pricing pressure, our
ability and commitment to working closely with customers to deliver products
that meet their needs enabled us to penetrate new markets and increase market
share during the year.
Systems
The ongoing businesses within our Systems group delivered growth in both
turnover and operating profit due to improved performance in the aerospace
business and continuing growth in the power controls business through increased
penetration of the mobility and small industrial vehicle markets.
Dividend
An interim dividend of 1.35 pence per share was paid to shareholders in November
2002. A final dividend will not be paid in respect of the year to 31 December
2002 nor will a dividend be paid in respect of the year ending 31 December 2003.
The Board intends to keep future dividend policy under review but any future
dividend payments will be dependent on trading outlook and the availability of
cash and distributable reserves.
Board and Senior Management
We were saddened to report the deaths of Dr George Sarney, Non-executive
Chairman, and Mr Ray Parsons CBE, Life President, during the year. They each
made significant contributions to the Group and will be missed.
We would like to thank Mr James Wyness, the Senior Non-executive Director, who
took on the role of Acting Non-executive Chairman. On 31 October 2002 the Board
announced the appointment of John Weston CBE as Non-executive Chairman. He
brings substantial public company experience, strategic insight and a strong
understanding of international business and technology to the Group.
Jim Schleckser, President, Service Assurance - Broadband, Spirent
Communications, has been appointed to the Operations Management Team with effect
from 1 January 2003.
Our People
We appreciate that the uncertainties in the marketplace during the year have
been unsettling for our employees. Our results for the full year are testament
to their ability to respond positively to the demands made of them to ensure we
continue to deliver the cutting-edge technological innovations and dedicated
support and services that our customers have come to expect. We would like to
take this opportunity to acknowledge the contributions made by our employees in
this challenging year and thank them for their continued dedication and
commitment.
Corporate Social Responsibility
We recognise our corporate social, environmental and ethical impact and
responsibilities and are committed to advancing our policies and systems across
the Group to ensure we address, control and monitor all aspects of corporate
responsibility. We strive to maintain an open dialogue with our stakeholders
and welcome contact from all our interested groups.
Outlook
We have planned our business assuming the challenging conditions in the telecoms
market will continue throughout 2003 and trading so far this year has been in
line with our expectations. As growth in data traffic creates opportunities for
Spirent, we remain committed to investing in our leading-edge products,
technologies and services to enhance our market positions and grow market share.
OPERATING REVIEW
Communications
GBP million 2002 2001 Change %
_______ ________ _________
Turnover:
Performance Analysis 187.1 245.5 (24)
Service Assurance 128.3 185.1 (31)
______ ______ _______
315.4 430.6 (27)
Operating profit:
Performance Analysis 9.4 38.7 (76)
Service Assurance 21.4 44.7 (52)
______ ______
30.8 83.4 (63)
Return on sales (per cent):
Performance Analysis 5.0 15.8
Service Assurance 16.7 24.1
Communications group 9.8 19.4
Despite the decline in the global telecoms market in 2002 the Communications
group remained focused on its strategy of enabling customers to move
communications technologies out of the laboratory and into live networks more
rapidly, cost-effectively and with less risk. By staying strategically
well-aligned with the needs of our customers we were able to maintain our
technological leadership, improve our market position and capture an increased
proportion of our customers' reduced capital budgets.
Throughout 2002 our major customers, the NEMs and NSPs, continued to restructure
their operations in response to the significantly reduced overall market. This
coupled with certain regulatory issues for our customers in the US resulted in a
reduction in spending on our products, particularly in the third quarter.
However we were encouraged to see order intake recover somewhat in the fourth
quarter in both the Performance Analysis and Service Assurance divisions. By
taking immediate cost-saving actions in October we were also able to return to
profitability in the fourth quarter after delivering a small operating loss in
the third quarter. Overall the Communications group's turnover in 2002 was
GBP315.4 million, down 27 per cent from 2001, with operating profit down 63 per
cent at GBP30.8 million. Given the drop in performance and with the cost savings
only partially realised by the year end, return on sales for 2002 was
significantly below that for 2001 at 9.8 per cent (2001 19.4 per cent).
During the year we maintained investment in the development of our products to
ensure we continued to meet our customers' needs to be both cost-efficient and
cutting-edge. Product development of GBP66.2 million (2001 GBP73.0 million)
represented 21 per cent of Communications group turnover and was invested in key
areas such as gigabit and 10-gigabit Ethernet in the access and metro networks,
VoIP, Internet Protocol version 6 (IPv6), Internet infrastructure and security
testing, storage area networks and 3G wireless technologies. This investment
resulted in numerous new products and enhancements to existing product lines
being launched during the year including the first end-to-end
Notes
Operating profit (EBITA) and return on sales as referred to in the text are
stated before goodwill amortisation and exceptional items.
Free cash flow as referred to in the text is cash flow before acquisitions and
disposals, equity dividends and financing.
performance analysis and radio frequency emulation system for the wireless LAN
market, a fully automated system for testing W-CDMA mobile handsets, a system
for the analysis of Internet infrastructures simultaneously from the physical
layer to the application layer, and a test system for storage area networks.
Spirent is especially active in the 10-gigabit Ethernet and IPv6 segments which
respectively aim to ease bottlenecks in broadband metro and access networks and
provide higher levels of security and broader address space for the next phase
of the Internet. New Service Assurance products included a series of interfaces
for optical and packet services devices and systems for the performance
management of gigabit Ethernet and high speed optical networks.
The Communications group took a number of significant steps in 2002 to
strengthen Spirent's brand recognition within the communications industry and
improve integration among the group's business units and product lines. An
extensive branding effort in the first half of the year has resulted in improved
name recognition. All of the businesses in the Communications group now operate
under the Spirent name and realignment of the business units within the
Performance Analysis division has clarified product lines and responsibilities.
Spearheaded by our 'Advanced Test Programs' team, Spirent participated in over
one hundred high profile public tests of leading-edge networking equipment and
services, helping make 'Tested with Spirent' one of the industry's best known
programmes in testing.
Performance Analysis
Spirent's Performance Analysis solutions play a critical role in helping
leading-edge equipment manufacturers, service providers and enterprises emulate
communications traffic and simulate real-world conditions for conformance,
functional and performance testing of their equipment and networks. Our
products cover a broad range of communications technologies including Ethernet,
wireless, Internet infrastructure, storage area networks, position location and
VoIP providing customers with a 'one-stop shop' for their test and measurement
needs.
Turnover from this division fell in 2002 due to decreased spending by our major
customers in the US and Europe. Return on sales declined to 5.0 per cent from
15.8 per cent in 2001 due to a combination of the drop in trading levels and the
timing of the associated cost reductions in this business. Despite the overall
reduction in sales there were areas of growth, in particular our wireless test
products which increased strongly with turnover up 57 per cent over 2001 and our
position location test products which also had a good year, largely driven by
sales of our industry leading position location test system launched in 2001.
During the year we strengthened our position as a leader in wireless testing
particularly for next-generation wireless technologies including CDMA-2000, the
3G wireless technology being adopted by the US, and W-CDMA, being adopted by
GSM-centric countries such as those in Europe and Asia. We successfully
introduced new systems that provide automated conformance, network emulation and
position location testing for CDMA-2000 mobile handsets. Spirent's automated
test systems now play an important role in the conformance and acceptance test
laboratories of major CDMA-2000 service providers including Verizon Wireless,
Sprint PCS Group and SK Telecom in Korea. Spirent's automated systems are also
in wide use in the laboratories of major wireless mobile handset and component
providers including QUALCOMM Incorporated, Motorola, Inc. and Nokia Corporation.
We expanded our 3G wireless portfolio through the acquisition of a W-CDMA base
station emulator product line during the year which has brought us important
capabilities in W-CDMA technology.
We further addressed the testing and performance analysis needs of users and
providers of Internet and security applications in 2002. Since the integration
of Caw into the Performance Analysis division during the year progress has been
made on the development of its Avalanche and Reflector(TM) products. With these
systems customers are able to generate large amounts of Internet traffic in the
laboratory to stress network equipment and actual website or security
applications to ensure their robustness. Customers using these systems include
the NEMs, NSPs, high volume website customers, enterprises and government
departments.
An important part of our strategy is to increase our international presence and
during the year we opened sales and support services offices in Beijing,
Shanghai and Guangzhou to better serve customers in the important Asian region.
Service Assurance
Our Service Assurance division provides network monitoring, operations support
systems (OSS), remote test probes, consulting and technical services for some of
the world's largest providers of communications services including leased line,
DSL, wireless, optical and managed IP services. Our systems assist service
providers in cutting their operational costs by automating their network
management monitoring and service assurance processes and are therefore
important to our customers in the current difficult market conditions.
Turnover in the Service Assurance division fell in the third quarter as our
major customers, the incumbent local exchange carriers (ILECs) in the US,
reduced investment in their networks in response to financial constraints and
regulatory pressures. As a result of lower volume, return on sales was affected
falling to 16.7 per cent from 24.1 per cent in 2001. Return on sales was also
affected by the product mix which included a higher hardware content in the
second half of the year as compared with the first half which had a higher
software element. Additionally, sales of monitoring systems for leased line
broadband services represented a higher proportion of turnover in 2002 compared
with 2001 which had a predominance of DSL business.
During the year we maintained our position as a leading provider of service
monitoring systems to the US ILECs with participation in their continuing
business and residential broadband service roll-out programmes. The year also
saw the initial large-scale deployment of the CenterOp platforms, Sentry and
Perform, for fault and performance management. In the wireless space our
service assurance systems provide centralised remote test and performance
monitoring for the core, or land side, of mobile networks and with the addition
of Verizon Wireless and Nextel Communications, Inc. as customers during the year
Spirent systems are now used by seven of the top ten mobile service providers in
the US. The purchase of a remote special services test product line during the
year brought us a large installed base and ongoing business at BellSouth
Corporation and Korea Telecom. The integration of this operation into the
Service Assurance division is largely completed and while revenues were affected
by the market downturn the business has performed in line with our expectations.
An important driver for the acceptance of our systems is their ability to
measure the performance of, or interoperate with, a wide range of network
devices and elements and other OSSs. In 2002 we advanced our certification
programme and now have full interoperability with network elements and OSSs from
a broad range of leading suppliers worldwide.
An important opportunity for growth in the Service Assurance division is the
expansion of the customer base internationally. Although the sales cycle for
our Service Assurance division's large ticket systems is long, we are encouraged
by the progress we have made in pursuing opportunities outside the US. We have
begun formatting our products to enable local language support and were pleased
to secure our first order in Japan. Our efforts in Asia were reinforced by the
opening in Beijing in early 2003 of a sales and support services office for the
Asian region and the formation of Spirent DM, a partnership with two local
companies, to facilitate the development of service assurance products for the
Chinese market.
Network Products
GBP million 2002 2001 Change %
______________________________________________ ______ ______ _______
Turnover 164.7 170.4 (3)
Operating profit 15.0 15.3 (2)
Return on sales (per cent) 9.1 9.0
Turnover in our Network Products group was down marginally by 3 per cent. In
the US, improved sales to the heavy vehicles market and growth of our recently
introduced LAN 'Network Sciences' product line were off-set by reduced sales to
telecoms service providers. Our European sales showed a small increase overall
and in Japan sales were broadly flat. In South America the recession led by the
severe economic collapse in Argentina affected the group. The restructuring
actions taken in 2001 to consolidate and extend customer-facing activities and
reduce administrative and back office activities became fully effective in the
first half of 2002 and margins for the year improved to 9.1 per cent compared
with 7.3 per cent in the second half of 2001.
Sales to the automotive sector contributed 30 per cent to turnover in 2002
compared with 27 per cent in 2001. While global vehicle production was broadly
flat the trend towards increasing electronic/electrical systems content and
lighter vehicles requiring increased use of plastics has provided underlying
market growth. As a result we have been able to increase our penetration with
vehicle manufacturers, their first tier suppliers and major vehicle cable
harness manufacturers worldwide. Our sales in the US heavy vehicles market
recovered showing 23 per cent growth after the significant market downturn in
2001. Due to our product quality and innovation we have 'preferred supplier'
status with important automotive manufacturers and tier one suppliers worldwide.
The market for our broadband products (used in wide area networks to route and
organise fibre optic cables in large telephone exchanges and outside plant) and
structured cabling products (used in local area networks to provide network
connectivity) remained very weak in the US and UK throughout the year due to the
depressed conditions in the telecoms market and reductions in enterprise IT
spending. We have developed and extended our LAN products for the European
market which we expect will benefit sales in 2003.
Despite a generally weak global economy we increased our penetration with
distributors, wholesalers and catalogue houses that sell a broad range of our
products worldwide. The major contract we signed with the Royal Mail during the
year to provide ties for mail sacks has commenced well with 60 per cent of all
orders now being placed via the XML e-procurement system.
Our range of electrically operated automatic application systems was expanded in
the year with the introduction of two major new models: the AT2060 for fixings
and the ALA for identification. We now have a large installed base of Autotool
and printing systems at customer sites worldwide and our contracts to supply the
associated cable ties and identification labels and markers represent a valuable
source of continuing business for the group.
We successfully completed the move into our new production and distribution
facility in Jundai, Brazil without any interruption to customer service and
expect to benefit from cost and operational efficiencies. We also increased the
range of products being manufactured at the Wuxi, China facility after
increasing the production space last year.
Systems
GBP million 2002 2001 Growth %
________________________________________________________ ________ ________ ________
Turnover 53.8 48.6 11
Operating profit 3.4 0.5 >100
Return on sales (per cent) 6.3 1.0
Figures in the above table relate to ongoing businesses only
On an ongoing business basis the Systems group saw an increase in revenues and
operating profit due to increased customer penetration, product launches
(including the new airborne file server) and the successful entrance into new
markets. The impact of cost reductions taken in the first half of the year in
the aerospace business coupled with increased sales resulted in improved trading
in the Systems group for the second half of 2002.
Within the aerospace business sales of our maintenance, repair and overhaul
software systems, AuRA(TM) and GOLD(TM), increased as we continued to win new
business from both the civil and military sectors. Our Aviation Information
Solutions (AIS) business received US Federal Aviation Administration
certification for its airborne file server product which commenced shipping at
the end of the year. AIS's reputation as a leading supplier of integrated
hardware and software solutions to the aerospace industry enabled it to secure
new contracts during the year for its AvVantage(TM) electronic flight bag and
Vision and ReVision pilot training software systems.
The power controls business saw growth in turnover over 2001 mainly due to
increased penetration of the mobility vehicles market. Sales to the industrial
market, a new market for the business, also contributed to the improvement.
The market for power controls for wheelchairs and mobility scooters remains
competitive and is experiencing pricing pressures. We responded to this during
the year through a number of initiatives including the introduction of the VSI
power control system for wheelchairs, which is a lower cost, higher
specification replacement for its predecessor product, the Pilot, and the launch
of a competitively priced mobility scooter controller, the S-Drive. Our ability
to respond quickly and work closely with customers to meet their demands for
increasing functionality at lower prices enables us to maintain our leading
position in this sector.
While the US remains the largest end-user market for powered wheelchairs and
mobility scooters, many of our customers have manufacturing facilities worldwide
and we are shipping an increasing number of units to Asia.
We have made good progress in our efforts to penetrate the small industrial
vehicle market during 2002. We have had particular success with our
multi-functional TRIO(TM) controllers for floor cleaning vehicles, while our
access platform system has been deployed by one of the world's largest
manufacturers of such vehicles. We continue to invest in this market and its
associated technologies to enhance our future opportunities.
Interconnection Joint Venture
In 2002 our share of turnover from the WAGO joint venture decreased by 3 per
cent to GBP75.6 million (2001 GBP78.3 million) and our share of the operating
profit decreased by 23 per cent to GBP7.4 million (2001 GBP9.6 million). The
decline was due to the continuing depressed conditions WAGO experienced in most
of its geographic markets during the year. Our share of interest payable and of
taxation from WAGO were GBP0.7 million and GBP2.7 million, respectively, giving
a profit after taxation of GBP4.0 million.
We announced today the divestment of our interests in WAGO to our joint venture
partners. This transaction is subject to shareholder approval which will be
sought at an Extraordinary General Meeting to be convened on 31 March 2003.
FINANCIAL REVIEW
Results
GBP million Six months to Six months to Year to Year to
30 June 2002 31 December 2002 31 December 2002 31 December 2001
_________ ____________ _____________ ____________
Turnover:
Ongoing businesses 290.1 243.8 533.9 649.6
Divestments and
discontinued
operations 20.9 4.1 25.0 152.2
_________ ____________ _____________ ____________
Group 311.0 247.9 558.9 801.8
======== =========== ============ ===========
Operating profit:
Ongoing businesses 34.5 14.7 49.2 99.2
Divestments and
discontinued
operations 0.7 0.6 1.3 13.7
_________ ____________ _____________ ____________
Group 35.2 15.3 50.5 112.9
_________ ____________ _____________ ____________
Return on sales (per
cent):
Group 11.3 6.2 9.0 14.1
======== =========== ============ ===========
Turnover for 2002 of GBP558.9 million was 30 per cent lower than 2001 with the
second half of 2002 being 20 per cent below the first half. Organically,
excluding the effects of currency exchange and disposals, turnover was 16 per
cent down from 2001 with the impact of currency translation, primarily due to
the weakening of the US dollar, reducing reported turnover for 2002 by some
GBP18.4 million. Divested companies contributed GBP25.0 million to turnover in
2002 (2001 GBP152.2 million).
Levels of activity in the Communications group in the first half of 2002 were in
line with those seen in the second half of 2001. During the third quarter of
2002, however, we saw a marked reduction in activity, particularly in the
Service Assurance division, following announcements by many of our major
customers that they were further cutting their capital expenditure budgets.
In 2002 North America accounted for 66 per cent of turnover by source from
ongoing businesses (2001 73 per cent) at GBP350.2 million compared with GBP472.0
million in 2001. Europe accounted for 28 per cent of turnover by source from
ongoing businesses (2001 23 per cent) and in absolute terms was little changed
on the prior year at GBP151.4 million.
Notes
Operating profit (EBITA) and return on sales as referred to in the text are
stated before goodwill amortisation and exceptional items.
Free cash flow as referred to in the text is cash flow before acquisitions and
disposals, equity dividends and financing.
By market, turnover was reduced in absolute terms in Europe and North America
but there was marginal growth in Asia where turnover increased from 13 per cent
to 16 per cent of the total.
Operating profit before goodwill amortisation and exceptional items of GBP50.5
million was 55 per cent below the previous year, with the second half of 2002 56
per cent below the first half. Organically, operating profit was 50 per cent
below 2001 with the effects of exchange further reducing profits by GBP1.6
million.
Return on sales was consequently much reduced at 9.0 per cent, 5.1 percentage
points below 2001 due to depressed returns in our Communications group. However
Network Products maintained a return of 9.1 per cent and returns in the Systems
group improved over 2001 benefiting from the restructuring in the aerospace
business and growth in power controls.
Earnings before interest, taxation, depreciation, amortisation and exceptional
items (EBITDA before exceptional items) was GBP84.1 million (2001 GBP150.1
million).
Net interest payable reduced from GBP22.8 million in 2001 to GBP12.3 million due
to the reduction in net debt and lower interest rates in the US and UK. An
interest rate swap was entered into in November 2002 replacing a previous swap
arrangement. This swap has the effect of moving the interest on $163.4 million
of the loan notes from a fixed to floating rate, currently saving 3 percentage
points.
The Group's effective tax rate for 2002 was 18.1 per cent. This rate is lower
than the expected rate of 29 per cent due to a credit relating to prior years of
GBP6.2 million. At current levels of profitability it is expected that the
effective tax rate will revert to a level of 31 per cent going forward. An
exceptional tax charge of GBP18.5 million arises principally through the
re-evaluation of the recovery of deferred tax assets under Financial Reporting
Standard (FRS) 19.
Headline earnings per share were 3.40 pence compared with 7.76 pence in 2001.
Reported loss before taxation was GBP1,053.1 million after charging exceptional
items of GBP1,043.4 million compared with a loss of GBP730.7 million in 2001
after charging exceptional items of GBP745.0 million, giving a reported loss per
share of 117.12 pence (2001 loss 83.43 pence).
At 31 December 2002 Spirent was in compliance with its existing borrowing
covenants. Net interest cover was 4.4 times (2001 5.1 times) and net debt to
EBITDA was 1.9 times (2001 1.2 times).
Today, Spirent announced the divestment of its 51 per cent interests in WAGO,
its interconnection joint venture, for net proceeds of approximately GBP58.2
million. WAGO is not considered to be a core business of the Group. The only
contribution to Group cash flow from the WAGO companies for the year to 31
December 2002 was a dividend of GBP0.2 million (2001 GBP1.6 million).
Accordingly, apart from the net proceeds, the divestment will not have a
material effect on the Group's cash flow on an ongoing basis. The divestment is
subject to shareholder approval and requires the consent of our noteholders and
parties to the syndicated bank facility.
New Borrowing Terms
To provide the Group with an increase in the level of headroom available in
relation to certain of the financial covenants, amendments to the terms of the
loan notes and syndicated bank facility have been agreed. These amendments are
conditional on the completion of the divestment of WAGO and the use of the net
proceeds to pre-pay approximately GBP45.8 million of the loan notes and pay an
associated contractual make-whole amount of approximately GBP12.4 million. This
amount and any professional fees in relation to the renegotiation of the
borrowing terms will be charged as exceptional costs in 2003.
Under the revised terms relating to the syndicated bank facility Spirent will
have a committed line of GBP75 million available, which will reduce to GBP60
million by 31 December 2003. The bank facility remains repayable in July 2004.
The interest rate will be increased to an initial margin over LIBOR of 1.75 per
cent, which may decrease in certain circumstances.
Following the application of the net proceeds from the divestment of WAGO it is
expected that $144.5 million of loan notes will remain outstanding with
unchanged maturities principally in 2009. The applicable interest rate will be
increased to a weighted average of 9.45 per cent which will decrease if certain
financial requirements are satisfied.
Certain of the financial covenants attaching to both the syndicated bank
facility and the loan notes, which will be tested on a quarterly basis, have
been amended as set out below:
Existing New
_________ ____________ ___________ ___________
30 June 30 September 31 December
2003 2003 2003
EBITA: net interest > or = 3.00x 2.00x 2.25x 2.50x
Net debt: EBITDA < or = 3.00x 2.75x 2.50x 2.25x
The new borrowing terms also contain a covenant that consolidated net worth must
not be less than GBP100 million at any time.
Other significant terms include restrictions on dividend payments and
restrictions on acquisitions and disposals. Some of these restrictions fall
away on certain financial requirements being satisfied, which in any event
cannot occur before 30 June 2004. The financial requirements to be satisfied
are:
1) that at the end of three consecutive quarters EBITA to net interest must
equal or exceed 4.5 times and net debt to EBITDA must be equal to or less
than 1.5 times for the rolling 12 month period ending on the quarter
end date; and
2) that the Group has in place a bank facility of GBP50 million.
On satisfaction of these financial requirements, the quarterly covenant tests
will be replaced by semi-annual covenant tests with covenants of EBITA to net
interest of 3.0 times and net debt to EBITDA of 3.0 times.
If completion of the divestment of WAGO does not occur, the existing borrowing
terms will continue to apply. In such circumstances and if current levels of
trading are not maintained, the directors would need to consider taking
appropriate actions with a view to maintaining compliance with the existing
terms.
Goodwill Impairment
Following the deterioration in trading, goodwill impairment has been charged at
the year end as required by accounting standards. Goodwill impairment is a
non-cash charge that has no impact on our business going forward.
The total charge reported is GBP923.3 million and is principally in relation to
the Communications group. In line with best practice this charge includes
GBP87.0 million in respect of goodwill previously charged to reserves.
The remaining goodwill carrying value is GBP113.6 million and it is expected
that the goodwill amortisation charge will be approximately GBP10.0 million in
2003. The impairment has resulted in a GBP575.9 million deficit in the
distributable reserves of the Company. At the appropriate time and with court
approval it may be possible to utilise the share premium account, which at 31
December 2002 stood at GBP696.1 million, in order to off-set the deficit on
reserves.
Exceptional Items
Exceptional items (excluding taxation) of GBP1,043.4 million have been charged
in the period and include the goodwill impairment charge of GBP923.3 million
discussed above.
Other Operating Exceptional Items
GBP million Year to
31 December 2002
______________________________________________________________________________________________ ____________________
Restructuring costs 8.6
Tangible fixed asset write-downs 3.6
Lease provisions 20.2
Stock provisions 4.4
Acquisition retention bonuses 4.8
______________
41.6
=============
Restructuring costs of GBP8.6 million have been charged in respect of redundancy
payments and other costs incurred in the restructuring of the business.
After the reduction in workforce in the fourth quarter we relocated certain
employees to make more efficient use of our facilities and this has resulted in
certain leased properties being vacated. Provisions of GBP20.2 million have been
recognised in the period in relation to our continuing obligations under these
leases.
The deterioration in the technology industry has led us to make provisions
amounting to GBP4.4 million (2001 GBP14.2 million) for stocks in excess of 12
months' usage and to write down the value of certain tangible fixed assets by
GBP3.6 million.
Acquisition retention bonuses arising from acquisitions made in 2000 of GBP4.8
million have been charged in the year.
The cash cost of operating exceptional items was GBP7.7 million in 2002 (2001
GBP11.9 million).
Non-operating Exceptional Items
A net loss of GBP48.4 million is reported on divestments from within the Systems
group. The net loss on divestments is after charging GBP70.8 million of goodwill
previously written off to reserves and now reinstated in accordance with FRS10.
The investment in own shares held in the Employee Share Ownership Trust has been
written down to market value at 31 December 2002 resulting in a charge of
GBP30.1 million given the marked reduction in the share price. These shares had
been purchased in previous years to hedge obligations under various option
schemes and the long term share purchase plan which are now out of the money.
Taxation
The reduction in activity levels has necessitated a reassessment of GBP19.0
million of deferred tax assets. These assets had previously been recognised on
the acquisition of businesses, on prior years' exceptional items, and on timing
differences. Although we expect the assets to be recovered in full over time
there is currently insufficient evidence to support the continued recognition of
the deferred tax assets under FRS19. The tax effect of the exceptional items in
2002 gives rise to a tax credit of GBP0.5 million, resulting in an exceptional
tax charge of GBP18.5 million.
Cash Flow
Spirent continued to generate cash in all its operating groups despite the
depressed trading conditions. Operating cash flow of GBP76.9 million was 46 per
cent down on the previous year of GBP141.2 million. Cash flow before
acquisitions and disposals, equity dividends and financing, or free cash flow,
was GBP36.4 million compared with GBP40.4 million for 2001.
Net interest payments were lower by GBP13.1 million compared with the previous
year. This is due to lower levels of debt and a fall in interest rates.
Interest is primarily dollar denominated and provides a natural hedge against
profit translation.
Tax payments have fallen to GBP4.2 million from GBP21.0 million in 2001 due to
reduced trading levels, refunds of over paid tax and the recognition for tax
purposes of items previously charged to profit.
Net capital expenditure at GBP25.8 million was substantially lower than in the
previous year (2001 GBP57.7 million) and was below the 2002 depreciation charge
of GBP33.6 million. It is anticipated that capital expenditure for 2003 will
remain at around the same level as 2002.
Proceeds from disposals net of the cost of acquisitions contributed GBP6.4
million during 2002.
Payments in respect of the 2001 final dividend and the 2002 interim dividend
amounted to GBP40.2 million (2001 GBP39.8 million).
Net borrowings closed at GBP161.8 million compared with GBP179.1 million for the
previous year with exchange benefiting the position by GBP12.7 million.
Acquisitions and Disposals
We made three acquisitions during the year for a total cash cost of GBP49.2
million.
We invested GBP16.4 million in the acquisition of certain assets of the remote
special services test product line of Anritsu Company US in July 2002. In
August 2002 the remaining 85 per cent of Caw not already owned by the Group was
acquired for an initial consideration including expenses of GBP26.7 million in
cash. Deferred consideration (expected to be satisfied by way of shares) is
payable dependent on certain performance criteria being achieved by Caw for the
year ending 31 December 2003. In September 2002 we acquired a product line and
certain intellectual property rights from UbiNetics for a cash consideration of
GBP6.1 million including expenses.
We continued to divest our non-core businesses and realised GBP37.6 million in
net proceeds from the sale of our aerospace component businesses in April 2002.
Other divestments also within our Systems group realised a further GBP18.0
million.
Pension Fund
The Group applies the principles of Statement of Standard Accounting Practice
(SSAP) 24 for determining pension charges. Spirent operates one major defined
benefit pension plan, which is in the UK, and was last subject to a full
actuarial valuation in April 2000 at which time a surplus was identified. A
valuation is required every three years and consequently is due to commence on 1
April 2003. Given the decline in equity markets and reducing interest rates,
which have both adversely affected the funding levels, it is highly likely that
a deficit will arise at the next valuation. Until the valuation has been
performed it is not possible to indicate what the deficit will be. All other
Group pension arrangements are on a defined contribution basis.
Based on FRS17 the funding position at 31 December 2002 was a deficit of GBP41.9
million before taxation, representing a funding deficit of 32 per cent. This
valuation represents a snap shot in time of the plan and is not a valuation of
the plan on an ongoing basis. We consider that such a deficit, should it arise,
would be a manageable position which could be made good over the remaining
service lives of the employees.
Summary
2002 has been a demanding year both in terms of trading and the challenges we
have faced adjusting our cost base and financial structure to meet the downturn
in the Communications group. Our aim is to focus on the organic growth of the
business and cash generation in order to retain cash to further reduce net
borrowings.
Consolidated Profit and Loss Account
GBP million Year to 31 December
______________________________________________
2002 2002 2002 2001
Before Exceptional Total Total
exceptional items
items
Turnover: Group and share of joint venture 634.5 - 634.5 880.1
Less: share of joint venture's turnover (75.6) - (75.6) (78.3)
========= ========= ======= =======
Turnover 558.9 - 558.9 801.8
========= ========= ======= =======
Operating loss (5.6) (964.9) (970.5) (733.2)
____________________________________ __________ ___________ ________ ________
Operating exceptional items
Goodwill impairment - 923.3 923.3 724.6
Other - 41.6 41.6 34.9
Goodwill amortisation 56.1 - 56.1 86.6
Operating profit before goodwill
amortisation
and exceptional items 50.5 - 50.5 112.9
____________________________________ __________ ___________ ________ ________
Income from interests in:
Joint venture 7.4 - 7.4 9.6
Associates less goodwill amortisation 0.8 - 0.8 1.2
__________ ___________ ________ ________
Operating loss of the Group, joint venture
and associates 2.6 (964.9) (962.3) (722.4)
Non-operating exceptional items
(Loss)/profit on disposal and closure of
operations - (48.4) (48.4) 14.5
Provision against investment in own shares - (30.1) (30.1) -
___________ ___________ ________ ________
Loss before interest 2.6 (1,043.4) (1,040.8) (707.9)
Net interest payable (12.3) - (12.3) (22.8)
___________ ___________ ________ ________
Loss before taxation (9.7) (1,043.4) (1,053.1) (730.7)
Taxation 8.4 18.5 26.9 32.6
___________ ___________ ________ ________
Loss after taxation (18.1) (1,061.9) (1,080.0) (763.3)
Minority shareholders' interest 0.4 0.2
________ _______
Loss attributable to shareholders (1,080.4) (763.5)
Dividends 12.5 40.0
________ _______
Loss for the year (1,092.9) (803.5)
________ ________
Basic and diluted loss per share (117.12)p (83.43)p
Headline earnings per share 3.40p 7.76p
Net dividend per share
Interim 1.35p 1.35p
Final - 3.00p
_______ _______
Total dividend 1.35p 4.35p
======= ======
Consolidated Statement of Total Recognised Gains and Losses
GBP million Year to 31 December
_______________________
2002 2001
Loss attributable to shareholders (1,080.4) (763.5)
Gain on lapsed options 5.2 3.3
Exchange adjustment on subsidiaries, joint venture and associates (23.0) (0.2)
UK current taxation on exchange adjustment 0.1 (2.6)
________ ________
Total recognised gains and losses (1,098.1) (763.0)
======== =======
Consolidated Balance Sheet
GBP million At 31 December
___________ __________ ___________ ___________
2002 2001
Fixed assets
Intangible assets 113.6 987.7
Tangible assets 110.0 137.6
Investments
Investment in joint venture
Share of gross assets 72.9 69.0
Share of gross liabilities (22.8) (24.7)
_______ _______
50.1 44.3
Investment in associates 13.3 18.3
Other investments 2.1 34.1
_______ _______
65.5 96.7
_______ _______
Total fixed assets 289.1 1,222.0
Current assets
Stocks 61.5 93.1
Debtors 97.3 143.4
Investments 0.1 0.3
Cash at bank and in hand 83.5 27.6
_______ _______
242.4 264.4
_______ _______
Current liabilities
Creditors due within one year 107.5 166.8
Loans and overdrafts 1.8 11.2
_______ _______
109.3 178.0
_______ _______
Net current assets 133.1 86.4
_______ _______
Assets less current liabilities 422.2 1,308.4
Long term liabilities
Creditors due after more than one year (252.6) (210.1)
Provision for liabilities and charges (28.4) (1.5)
_______ _________
Assets less liabilities 141.2 1,096.8
====== =======
Shareholders' funds - equity 139.1 1,094.4
Minority shareholders' interest - equity 2.1 2.4
________ _______
Total equity 141.2 1,096.8
======= ======
Consolidated Cash Flow Statement
GBP million Year to 31 December
_______________________
2002 2001
Net cash inflow from operating activities 76.9 141.2
Dividends received from joint venture 0.2 1.6
Dividends received from associates 0.1 0.2
Returns on investments and servicing of finance (10.8) (23.9)
Taxation (4.2) (21.0)
Capital expenditure and financial investment (25.8) (57.7)
________ ________
Cash inflow before acquisitions and disposals, equity dividends
and financing 36.4 40.4
Acquisitions and disposals 6.4 149.6
Equity dividends paid (40.2) (39.8)
Management of liquid resources 0.2 3.6
Financing 53.8 (152.8)
_______ _______
Net cash inflow 56.6 1.0
====== ======
Reconciliation of Net Cash Flow to Movement in Net Borrowings
GBP million Year to 31 December
________________________
2002 2001
Net cash inflow 56.6 1.0
Cash (inflow)/outflow arising from the change in debt and lease financing (51.4) 157.7
Cash inflow arising from the change in liquid resources (0.2) (3.6)
________ ______
Movement arising from cash flows 5.0 155.1
Loans and finance leases acquired with subsidiaries (0.2) -
New finance leases (0.2) (0.8)
Exchange adjustment 12.7 (7.0)
______ ______
Movement in net borrowings 17.3 147.3
=
Net borrowings at 1 January (179.1) (326.4)
_______ ______
Net borrowings at 31 December (161.8) (179.1)
====== ======
Segmental Analysis
GBP million Year to 31 December
__________ ________ ___________ ________
2002 % 2001 %
Turnover
Continuing operations:
Performance Analysis 187.1 35 245.5 38
Service Assurance 128.3 24 185.1 28
_______ ______ _______ ______
Communications 315.4 59 430.6 66
Network Products 164.7 31 170.4 26
Systems 53.8 10 48.6 8
_______ ______ _______ ______
533.9 100 649.6 100
===== =====
Divested operations:
Systems 25.0 75.4
Discontinued operations:
Sensing Solutions - 76.8
_______ _______
558.9 801.8
====== ======
Operating loss
Operating profit before goodwill amortisation
and exceptional items
Continuing operations:
Performance Analysis 9.4 19 38.7 39
Service Assurance 21.4 44 44.7 45
_______ ______ _______ ______
Communications 30.8 63 83.4 84
Network Products 15.0 30 15.3 15
Systems 3.4 7 0.5 1
_______ ______ _______ ______
49.2 100 99.2 100
===== ======
Divested operations:
Systems 1.3 5.6
Discontinued operations:
Sensing Solutions - 8.1
_______ _______
50.5 112.9
_______ _______
Goodwill amortisation
Continuing operations:
Performance Analysis (20.8) (24.6)
Service Assurance (33.5) (58.7)
_______ _______
Communications (54.3) (83.3)
Network Products (1.5) (1.5)
Systems (0.2) (0.2)
_______ _______
(56.0) (85.0)
Divested operations:
Systems (0.1) (0.4)
Discontinued operations:
Sensing Solutions - (1.2)
_______ _______
(56.1) (86.6)
_______ _______
Segmental Analysis (continued)
GBP million Year to 31 December
___________ ______ __________ ________
2002 2001
Operating exceptional items: goodwill
impairment
Continuing operations:
Performance Analysis (330.7) (192.2)
Service Assurance (530.4) (532.4)
________ ________
Communications (861.1) (724.6)
Network Products (21.7) -
Systems (40.5) -
_______ _______
(923.3) (724.6)
_______ _______
Operating exceptional items: other
Continuing operations:
Performance Analysis (28.3) (26.8)
Service Assurance (8.6) (4.6)
_______ _______
Communications (36.9) (31.4)
Network Products (3.3) (2.9)
Systems (1.4) (0.6)
_______ _______
(41.6) (34.9)
________ _______
Operating loss (970.5) (733.2)
======= ======
Geographical Analysis
GBP million Year to 31 December
__________ _______ __________ _________
2002 % 2001 %
Turnover by market
Continuing operations:
Europe 144.6 27 153.8 24
North America 302.9 57 410.5 63
Asia Pacific, Rest of Americas, Africa 86.4 16 85.3 13
_______ _____ _______ _____
533.9 100 649.6 100
_______ ==== _______ =====
Divested operations:
Europe 4.8 24.9
North America 19.5 46.0
Asia Pacific, Rest of Americas, Africa 0.7 4.5
_______ _______
25.0 75.4
_______ _______
Discontinued operations:
Europe - 20.7
North America - 45.7
Asia Pacific, Rest of Americas, Africa - 10.4
_______ _______
- 76.8
_______ _______
558.9 801.8
====== ======
Turnover by source
Continuing operations:
Europe 151.4 28 150.9 23
North America 350.2 66 472.0 73
Asia Pacific, Rest of Americas, Africa 32.3 6 26.7 4
_______ _____ _______ _____
533.9 100 649.6 100
_______ ===== _______ =====
Divested operations:
Europe 6.3 32.8
North America 18.7 42.6
_______ _______
25.0 75.4
_______ _______
Discontinued operations:
Europe - 20.6
North America - 48.3
Asia Pacific, Rest of Americas, Africa - 7.9
_______ _______
- 76.8
_______ _______
558.9 801.8
====== ======
Geographical Analysis (continued)
GBP million Year to 31 December
___________ ________ ___________ ________
2002 % 2001 %
Operating loss by source
Operating profit before goodwill amortisation
and exceptional items
Continuing operations:
Europe 18.8 38 17.9 18
North America 29.5 60 79.7 80
Asia Pacific, Rest of Americas, Africa 0.9 2 1.6 2
________ ______ ________ ______
49.2 100 99.2 100
________ ===== ________ =====
Divested operations:
Europe 0.6 3.7
North America 0.7 1.9
________ ________
1.3 5.6
________ ________
Discontinued operations:
Europe - 2.3
North America - 6.3
Asia Pacific, Rest of Americas, Africa - (0.5)
________ ________
- 8.1
________ ________
50.5 112.9
________ ________
Goodwill amortisation
Continuing operations:
Europe (1.6) (1.4)
North America (54.3) (83.5)
Asia Pacific, Rest of Americas, Africa (0.1) (0.1)
________ _______
(56.0) (85.0)
________ _______
Divested operations:
North America (0.1) (0.4)
________ _______
Discontinued operations:
Europe - (0.1)
North America - (0.9)
Asia Pacific, Rest of Americas, Africa - (0.2)
________ _______
- (1.2)
________ _______
(56.1) (86.6)
________ _______
Operating exceptional items: goodwill
impairment
Continuing operations:
Europe (19.5) -
North America (901.8) (724.6)
_______ _______
Asia Pacific, Rest of Americas, Africa (2.0) -
(923.3) (724.6)
________ ________
Operating exceptional items: other
Continuing operations:
Europe (3.6) (2.5)
North America (37.3) (32.1)
Asia Pacific, Rest of Americas, Africa (0.7) (0.3)
_______ _______
(41.6) (34.9)
_______ _______
Operating loss (970.5) (733.2)
====== ======
The above financial information does not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The comparative financial
information is based on the statutory accounts for the financial year to 31
December 2001. Those accounts, upon which the auditors issued an unqualified
opinion, have been delivered to the Registrar of Companies.
On 12 March 2003, the Group announced the conditional sale of its 51 per cent
interests in WAGO, its interconnection joint venture, for a net consideration of
approximately GBP58.2 million. The divestment is subject to shareholder approval
and requires the consent of the noteholders and parties to the syndicated bank
facility. In addition to provide the Group with an increase in the level of
headroom in relation to certain of its financial covenants, amendments to the
terms of the loan notes and syndicated bank facility have been agreed. These
amendments are conditional on the completion of the divestment and the use of
the net proceeds to pre-pay approximately GBP45.8 million of the loan notes and
pay an associated contractual make-whole amount of approximately GBP12.4
million.
The directors are of the opinion that, taking into account the net proceeds from
the divestment and the existing facilities available to the Group on completion
of the divestment, the Group has sufficient working capital for its present
requirements, that is, for at least the next 12 months. However, if completion
of the divestment does not occur, the existing borrowing terms will continue to
apply. In such circumstances and if current levels of trading are not
maintained, the directors would need to consider taking appropriate actions with
a view to maintaining compliance with such existing terms. In the event of a
breach, the lenders have certain rights which may ultimately result in the
Group's debt becoming repayable on demand. The accounts do not include any
adjustments that may result if the divestment were not completed, current levels
of trading are not maintained and the lenders withdraw their support.
As at the date of these accounts the divestment of WAGO remains subject to
shareholder approval, which is being sought at an Extraordinary General Meeting
to be held on 31 March 2003.
The directors consider that in preparing the accounts they have taken into
account all information that could reasonably be expected to be available. On
this basis, they consider that it is appropriate to prepare the accounts on the
going concern basis, which assumes that the Group will continue in operational
existence for the foreseeable future.
The statutory accounts for the year to 31 December 2002, which include an
unqualified audit report modified to include reference to the matters above,
will be circulated to shareholders on 11 April 2003.
The Annual General Meeting will be held on 20 May 2003.
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___12 March 2003____ By ____/s/ Luke Thomas____
(Signature)*