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 July, 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
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
London, UK - 15 July 2005: Spirent plc (LSE: SPT; NYSE: SPM), a leading
communications technology company, will report its financial results in
accordance with International Financial Reporting Standards (IFRS) for financial
periods commencing from 1 January 2005. As part of this transition, Spirent is
today providing historical financial information for the full years 2003 and
2004 and the first half of 2004 under IFRS.
The Company's 2005 interim results, due to be announced on 11 August 2005, will
be reported in accordance with IFRS.
The most significant impacts of the transition to IFRS from UK Generally
Accepted Accounting Practice (UK GAAP) for Spirent are in relation to:
- the elimination of the charge for goodwill amortisation;
- the change in the profit or loss on disposal of operations; and
- an increase in the charge for share-based payment.
As a result, under IFRS, the profit attributable to equity shareholders for the
full year 2004 increases from GBP16.0 million to GBP26.2 million and for the
full year 2003 a loss of GBP0.5 million improves to a profit of GBP13.6 million.
The above items have been eliminated in presenting an adjusted earnings per
share measure and therefore adjusted earnings per share under IFRS does not
materially differ with that reported under UK GAAP.
Eric Hutchinson, Finance Director, commented:
"The financial information we are providing today shows the impact of IFRS on
our historical results, ahead of their adoption for our 2005 interim results.
"This has a net beneficial effect on our historic reported numbers, however the
adoption of IFRS has no impact on the cash generation of the Group going
forward."
- ends -
Enquiries
Eric Hutchinson, Finance Director Spirent plc +44 (0)1293 767676
Investor Relations
Catherine Nash Spirent plc +44 (0)1293 767676
Media
Reg Hoare Smithfield +44 (0)20 7360 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 and adapt to economic changes and other changes in demand or
market conditions; our ability to develop and commercialise new products and
services, extend our existing capabilities in IP services and expand our product
offering internationally; our ability to attract and retain qualified personnel;
the effects of competition on our business; fluctuations in exchange rates and
heavy exposure to a weak US dollar; changes in the business, financial condition
or prospects of one or more of our major customers; risks of doing business
internationally; 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.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
Contents
1 Transitional arrangements
2 Consolidated income statements restated under IFRS
3 Consolidated balance sheets restated under IFRS
4 Consolidated cash flow statements restated under IFRS
5 Consolidated statement of changes in equity restated under IFRS
6 Reconciliation of the consolidated income statements
7 Reconciliation of the consolidated balance sheets
8 Segmental information
9 Independent auditors' report to Spirent plc on the preliminary IFRS
financial statements for the years ended 31 December 2003 and
31 December 2004
10 Independent review report to Spirent plc on the preliminary IFRS financial
statements for the period ended 4 July 2004
Appendices
I) International Financial Reporting Standards accounting policies
II) Explanation of IFRS adjustments to the income statements and balance
sheets
III) Analysis of adjustments to the financial statements
Consolidated income statements
a) for the year to 31 December 2004
b) for the first half of 2004
c) for the year to 31 December 2003
Consolidated balance sheets
d) at 31 December 2004
e) at the end of the first half of 2004
f) at 31 December 2003
Transition date consolidated balance sheet at 1 January 2003
IV) Explanation of material adjustments to the consolidated cash flow
statements
V) Earnings/(loss) per share
Spirent is required to comply with IFRS as adopted by the European Union with
effect from 1 January 2005. Consequently the Group's 2005 interim results will
be prepared in accordance with IFRS.
We present below the consolidated results for the Spirent Group as they are
converted from UK Generally Accepted Accounting Practice (UK GAAP) to IFRS in
relation to the full years 2003 and 2004 and the first half of 2004.
As stated in our 2004 Annual Report, Spirent has adopted 1 January 2003 as its
transition date to IFRS which will enable two years of historical comparative
data to be provided.
The adoption of IFRS will not affect our position under existing borrowing
covenants as these are calculated under UK GAAP as it existed at 31 December
2002.
The Group's first IFRS results will be its interim results for the first half of
2005 and the first Annual Report under IFRS will be for the year to 31 December
2005. 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 are provided in this
document. These IFRS financial statements will form the basis of the
comparative information in the first IFRS accounts and have been prepared on the
basis of IFRS expected to be in issue at 31 December 2005 which are still
subject to change. We will update the restated information for any such change.
The accounting policies applied in preparing these IFRS financial statements
are set out in Appendix I.
The restatements have been prepared on the assumption that all IFRS statements,
including International Accounting Standards (IAS), Standing Interpretations
Committee (SIC) interpretations and International Financial Reporting
Interpretations Committee (IFRIC) interpretations issued by the International
Accounting Standards Board (IASB) as effective for 2005 reporting will be
endorsed by the European Commission. At the time of preparation of these
restated financial statements, not all standards have been endorsed by the
European Commission. It is possible, therefore, that future changes will be
required before the information is published as comparative information in the
2005 Interim Report and 2005 Annual Report and Form 20-F.
The IFRS financial statements for the years to 31 December 2003 and 31 December
2004 have been audited by Ernst & Young LLP. The interim IFRS financial
information for the first half of 2004 has been reviewed by Ernst & Young LLP.
Their reports, which draw attention to the fact that there is a possibility that
the financial statements may require adjustment before constituting final IFRS
financial statements and that only a complete set of financial statements can
provide a fair presentation of the Group's financial position, are set out on
pages 12 to 14.
1. Transitional arrangements
IFRS 1 'First Time Adoption of International Financial Reporting Standards'
permits companies, on adoption of IFRS, to take advantage of certain exemptions
from the full requirements in the transition period. Spirent has taken
advantage of the following exemptions allowed by this Standard:
i) Business combinations: Spirent has elected not to restate business
combinations prior to the transition date of 1 January 2003. Furthermore,
Spirent has chosen not to apply IAS 21 'The Effects of Changes in Foreign
Exchange Rates' retrospectively to fair value adjustments and goodwill on
business combinations that occurred before the date of transition to IFRS.
Therefore, goodwill and fair value adjustments which have been treated as
an asset of the parent, continue to be sterling denominated.
ii) Financial instruments: Spirent has chosen to implement IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1 January 2005.
Comparative information is therefore presented under UK GAAP in existence
at 31 December 2004. A reconciliation between the closing position at
31 December 2004 and the opening position at 1 January 2005 will be
provided in the 2005 Interim Report.
iii) Cumulative exchange adjustments on translation: Spirent has chosen to set
the cumulative exchange adjustments on translation to zero at the
transition date, 1 January 2003. Following the transition date, exchange
differences on translation under IAS 21 are required to be taken to a
separate translation reserve included within equity. Under IAS 21, on
disposal of a foreign operation, the cumulative amount of the exchange
differences previously recognised in the translation reserve for that
foreign operation is required to be transferred to the income statement
and included in the profit or loss on disposal.
iv) Share-based payment: Spirent has elected to apply IFRS 2 'Share-based
Payment' only to awards made after 7 November 2002 and not fully vested
at 1 January 2005.
2. Consolidated income statements restated under IFRS
GBP million Year First half Year
2004 2004 2003
------------------------------------------------------------------------------------------------------------
Revenue 475.0 239.3 466.2
Cost of sales (274.9) (139.6) (279.8)
------------------------------------------------------------------------------------------------------------
Gross profit 200.1 99.7 186.4
Operating expenses (164.0) (79.5) (158.3)
------------------------------------------------------------------------------------------------------------
Operating profit 36.1 20.2 28.1
------------------------------------------------------------------------------------------------------------
Restructuring and refinancing costs 2.9 - 7.5
Share-based payment 5.2 1.3 1.0
Operating profit before restructuring and refinancing
costs and share-based payment 44.2 21.5 36.6
------------------------------------------------------------------------------------------------------------
(Loss)/profit from interests in joint ventures (0.7) (0.2) 1.4
Profit from interests in associates 1.8 0.7 1.1
------------------------------------------------------------------------------------------------------------
Operating profit of the Group, joint ventures and
associates 37.2 20.7 30.6
Profit on the disposal of operations 4.0 - 8.6
------------------------------------------------------------------------------------------------------------
Profit before interest 41.2 20.7 39.2
Finance income 1.6 0.7 3.1
Finance costs (9.1) (4.7) (13.7)
Costs associated with the part prepayment of loan notes (0.5) - (16.1)
------------------------------------------------------------------------------------------------------------
Profit before tax 33.2 16.7 12.5
Tax (6.7) (4.7) 1.3
------------------------------------------------------------------------------------------------------------
Profit for the period 26.5 12.0 13.8
============================================================================================================
Attributable to
Equity shareholders 26.2 11.8 13.6
Minority shareholders' interests 0.3 0.2 0.2
------------------------------------------------------------------------------------------------------------
26.5 12.0 13.8
============================================================================================================
Basic earnings per share (pence) 2.79 1.26 1.46
Diluted earnings per share (pence) 2.74 1.23 1.44
3. Consolidated balance sheets restated under IFRS
GBP million 31 December First half(1) 31 December
2004 2004 2003
------------------------------------------------------------------------------------------------------------
Assets
Non current assets
Goodwill 106.5 109.8 110.9
Property, plant and equipment 86.3 85.5 90.2
Investments
Investment in joint venture - 0.3 0.3
Investment in associates 14.3 13.0 13.1
Deferred tax 11.1 10.3 13.0
------------------------------------------------------------------------------------------------------------
218.2 218.9 227.5
------------------------------------------------------------------------------------------------------------
Current assets
Inventories 54.0 53.8 55.0
Trade and other receivables 89.9 94.7 86.9
Cash and cash equivalents 51.7 30.5 37.6
------------------------------------------------------------------------------------------------------------
195.6 179.0 179.5
------------------------------------------------------------------------------------------------------------
Total assets 413.8 397.9 407.0
------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other payables (90.8) (87.4) (87.6)
Current tax (26.2) (27.4) (24.7)
Short term borrowings and overdrafts (1.8) (1.6) (1.8)
Provisions and other liabilities (4.2) (2.3) (4.6)
------------------------------------------------------------------------------------------------------------
(123.0) (118.7) (118.7)
------------------------------------------------------------------------------------------------------------
Non current liabilities
Trade and other payables (3.9) (4.3) (2.3)
Long term borrowings (76.3) (82.4) (93.3)
Retirement benefit obligations (38.1) (35.0) (48.2)
Deferred tax (2.5) (2.4) (2.9)
Provisions and other liabilities (9.6) (11.8) (13.3)
------------------------------------------------------------------------------------------------------------
(130.4) (135.9) (160.0)
------------------------------------------------------------------------------------------------------------
Total liabilities (253.4) (254.6) (278.7)
------------------------------------------------------------------------------------------------------------
Net assets 160.4 143.3 128.3
============================================================================================================
Equity
Called up share capital 31.9 31.8 31.5
Share premium account 1.3 701.9 697.5
Capital reserve 10.9 14.4 17.7
Capital redemption reserve - 0.7 0.7
Translation reserve 1.6 (0.5) 3.0
Retained earnings/(loss) 113.4 (606.6) (624.3)
------------------------------------------------------------------------------------------------------------
Shareholders' funds - equity 159.1 141.7 126.1
Minority interests - equity 1.3 1.6 2.2
------------------------------------------------------------------------------------------------------------
Total equity and reserves 160.4 143.3 128.3
============================================================================================================
Note
(1) First half 2004 refers to the position at 4 July 2004
4. Consolidated cash flow statements restated under IFRS
GBP million Year First half Year
2004 2004 2003
------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Operating profit 36.1 20.2 28.1
Depreciation of property, plant and equipment 25.4 13.0 29.3
Loss/(profit) on disposal of tangible fixed assets 0.4 0.4 (0.1)
Tangible fixed asset write-downs 0.6 - 2.2
Share-based payment 5.2 1.3 1.0
Deferred income received 4.9 4.6 0.2
(Increase)/decrease in debtors (9.1) (10.2) 3.8
(Increase)/decrease in inventories (1.0) (0.2) 3.1
Increase in creditors 8.5 1.4 5.7
Decrease in provisions (2.9) (3.4) (5.9)
Pension fund liability (7.8) (7.2) 0.8
Tax (paid)/received (3.1) (1.4) 8.9
------------------------------------------------------------------------------------------------------------
Net cash from operating activities 57.2 18.5 77.1
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Dividends received from associates 0.1 0.1 0.1
Interest received 1.6 0.8 3.6
Disposal of operations 2.5 - 62.0
Purchase of property, plant and equipment (25.3) (11.3) (16.7)
Proceeds from sale of property, plant and equipment 0.5 0.3 0.9
Acquisition of subsidiaries (1.1) (0.8) (1.1)
Contribution to joint venture (0.2) - (0.5)
------------------------------------------------------------------------------------------------------------
Net cash (used in)/from investing activities (21.9) (10.9) 48.3
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Interest paid (8.4) (4.5) (12.6)
Interest element of finance lease rental payments (0.4) (0.2) (0.5)
Costs associated with the part prepayment of loan notes (2.3) (1.8) (13.7)
Proceeds from the issue of share capital 1.5 0.9 0.7
New loans - - 9.4
Repayment of loans (10.2) (8.2) (152.9)
Repayment of capital element of finance lease rentals (0.8) (0.4) (0.8)
------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (20.6) (14.2) (170.4)
------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 14.7 (6.6) (45.0)
Cash and cash equivalents at the beginning of the period 36.9 36.9 83.0
Effect of exchange rate changes (0.6) (0.5) (1.1)
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 51.0 29.8 36.9
============================================================================================================
Cash and cash equivalents comprise:
Cash and cash equivalents 51.7 30.5 37.6
Overdrafts (0.7) (0.7) (0.7)
------------------------------------------------------------------------------------------------------------
51.0 29.8 36.9
============================================================================================================
5. Consolidated statement of changes in equity restated under IFRS
GBP million Called Share Capital Capital Translation Investment Retained Total
up share premium reserve redemption reserve in own earnings/ equity
capital account reserve shares (loss)
-----------------------------------------------------------------------------------------------------------------
At 1 January 2003
As originally stated 31.3 696.1 17.6 0.7 - (2.1) (648.5) 95.1
Changes in accounting policy
relating to first time
application of IFRS - - - - - 2.1 (4.9) (2.8)
-----------------------------------------------------------------------------------------------------------------
At 1 January 2003 as restated 31.3 696.1 17.6 0.7 - - (653.4) 92.3
-----------------------------------------------------------------------------------------------------------------
Changes in equity for 2003
Exchange differences on
translating foreign operations - - - - 5.6 - - 5.6
Overseas tax on exchange
differences - - - - (0.2) - - (0.2)
Exchange gain transferred to
profit on sale - - - - (2.4) - - (2.4)
Share-based payment - - - - - - 0.4 0.4
Gain on lapsed options - - (1.2) - - - 1.2 -
Actuarial gain recognised on
pension schemes - - - - - - 0.3 0.3
Tax on actuarial gain - - - - - - (0.1) (0.1)
Deferred tax asset - - - - - - 12.6 12.6
-----------------------------------------------------------------------------------------------------------------
Net profits and losses
recognised directly in equity - - (1.2) - 3.0 - 14.4 16.2
Profit for the period - - - - - - 13.6 13.6
-----------------------------------------------------------------------------------------------------------------
Total recognised profits and
losses for the period - - (1.2) - 3.0 - 28.0 29.8
New shares issued 0.2 1.4 (0.9) - - - - 0.7
Obligation to issue share
capital
Caw Networks, Inc. - - 2.7 - - - - 2.7
Other movements - - (0.5) - - - 1.1 0.6
-----------------------------------------------------------------------------------------------------------------
At 31 December 2003 31.5 697.5 17.7 0.7 3.0 - (624.3) 126.1
-----------------------------------------------------------------------------------------------------------------
Changes in equity for 2004
Exchange differences on
translating foreign operations - - - - (1.4) - - (1.4)
Share-based payment - - - - - - 4.8 4.8
Gain on lapsed options - - (1.2) - - - 1.2 -
Actuarial gain recognised on
pension schemes - - - - - - 3.0 3.0
Tax on actuarial gain - - - - - - (0.9) (0.9)
-----------------------------------------------------------------------------------------------------------------
Net profits and losses
recognised directly in equity - - (1.2) - (1.4) - 8.1 5.5
Profit for the period - - - - - - 26.2 26.2
-----------------------------------------------------------------------------------------------------------------
Total recognised profits and
losses for the period - - (1.2) - (1.4) - 34.3 31.7
New shares issued 0.3 3.3 (2.1) - - - - 1.5
New shares issued
Caw Networks, Inc. 0.1 3.2 (2.7) - - - - 0.6
Cancellation of share premium
and capital redemption reserve - (702.7) - (0.7) - - 703.4 -
Other movements - - (0.8) - - - - (0.8)
-----------------------------------------------------------------------------------------------------------------
At 31 December 2004 31.9 1.3 10.9 - 1.6 - 113.4 159.1
=================================================================================================================
6. Reconciliation of the consolidated income statements
GBP million Year 2004 First half 2004 Year 2003
UK GAAP Total IFRS IFRS UK GAAP Total IFRS IFRS UK GAAP Total IFRS IFRS
adjustments adjustments adjustments
Appendix III (a) (b) (c)
-------------------------------------------------------------------------------------------------------------------
Revenue 475.0 - 475.0 239.3 - 239.3 466.2 - 466.2
Cost of sales (274.9) - (274.9) (139.6) - (139.6) (279.8) - (279.8)
-------------------------------------------------------------------------------------------------------------------
Gross profit 200.1 - 200.1 99.7 - 99.7 186.4 - 186.4
Operating expenses (169.3) 5.3 (164.0) (82.7) 3.2 (79.5) (167.6) 9.3 (158.3)
-------------------------------------------------------------------------------------------------------------------
Operating profit 30.8 5.3 36.1 17.0 3.2 20.2 18.8 9.3 28.1
-------------------------------------------------------------------------------------------------------------------
Restructuring and
refinancing costs 2.9 - 2.9 - - - 7.5 - 7.5
Goodwill
amortisation 9.1 (9.1) - 4.6 (4.6) - 9.7 (9.7) -
Share-based
payment 0.6 4.6 5.2 0.3 1.0 1.3 0.6 0.4 1.0
Operating profit
before
restructuring and
refinancing costs,
goodwill
amortisation and
share-based
payment 43.4 0.8 44.2 21.9 (0.4) 21.5 36.6 - 36.6
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit from
interests in joint
ventures (0.7) - (0.7) (0.2) - (0.2) 2.7 (1.3) 1.4
Profit from
interests in
associates 2.8 (1.0) 1.8 1.2 (0.5) 0.7 2.1 (1.0) 1.1
-------------------------------------------------------------------------------------------------------------------
Operating profit
of the Group,
joint ventures and
associates 32.9 4.3 37.2 18.0 2.7 20.7 23.6 7.0 30.6
(Loss)/profit on
the disposal of
operations (0.9) 4.9 4.0 - - - 3.6 5.0 8.6
-------------------------------------------------------------------------------------------------------------------
Profit before
interest 32.0 9.2 41.2 18.0 2.7 20.7 27.2 12.0 39.2
Finance income 1.6 - 1.6 0.7 - 0.7 3.1 - 3.1
Finance costs (8.4) (0.7) (9.1) (4.3) (0.4) (4.7) (12.4) (1.3) (13.7)
Costs associated
with the part
prepayment of loan
notes (0.5) - (0.5) - - - (16.1) - (16.1)
Other finance
expense (0.7) 0.7 - (0.4) 0.4 - (1.5) 1.5 -
-------------------------------------------------------------------------------------------------------------------
Profit before tax 24.0 9.2 33.2 14.0 2.7 16.7 0.3 12.2 12.5
Tax (7.7) 1.0 (6.7) (5.2) 0.5 (4.7) (0.6) 1.9 1.3
-------------------------------------------------------------------------------------------------------------------
Profit/(loss) for
the period 16.3 10.2 26.5 8.8 3.2 12.0 (0.3) 14.1 13.8
===================================================================================================================
Attributable to
Equity
shareholders 16.0 10.2 26.2 8.6 3.2 11.8 (0.5) 14.1 13.6
Minority
shareholders'
interests 0.3 - 0.3 0.2 - 0.2 0.2 - 0.2
-------------------------------------------------------------------------------------------------------------------
16.3 10.2 26.5 8.8 3.2 12.0 (0.3) 14.1 13.8
===================================================================================================================
Basic earnings/
(loss) per share
(pence) 1.70 1.09 2.79 0.92 0.34 1.26 (0.05) 1.51 1.46
Diluted earnings/
(loss) per share
(pence) 1.67 1.07 2.74 0.90 0.33 1.23 (0.05) 1.49 1.44
Adjusted earnings
per share(1),(2)
(pence) 3.06 0.08 3.14 1.44 (0.04) 1.40 2.38 (0.02) 2.36
Notes
(1) Before restructuring and refinancing costs, goodwill amortisation and share-based payment
(2) Under UK GAAP, adjusted earnings is headline earnings as previously reported before deducting the
charge for share-based payment
7. Reconciliation of the consolidated balance sheets
GBP million 31 December 2004 First half 2004 31 December 2003
UK GAAP Total IFRS IFRS UK GAAP Total IFRS IFRS UK GAAP Total IFRS IFRS
adjustments adjustments adjustments
Appendix III (d) (e) (f)
------------------------------------------------------------------------------------------------------------------
Assets
Non current
assets
Goodwill 88.8 17.7 106.5 96.2 13.6 109.8 101.6 9.3 110.9
Property, plant
and equipment 86.3 - 86.3 85.5 - 85.5 90.2 - 90.2
Investment in
joint venture - - - 0.3 - 0.3 0.3 - 0.3
Investment in
associates 15.8 (1.5) 14.3 14.5 (1.5) 13.0 14.6 (1.5) 13.1
Deferred tax - 11.1 11.1 - 10.3 10.3 - 13.0 13.0
------------------------------------------------------------------------------------------------------------------
190.9 27.3 218.2 196.5 22.4 218.9 206.7 20.8 227.5
------------------------------------------------------------------------------------------------------------------
Current assets
Inventories 54.0 - 54.0 53.8 - 53.8 55.0 - 55.0
Trade and other
receivables 89.9 - 89.9 94.7 - 94.7 86.9 - 86.9
Cash and cash
equivalents 51.7 - 51.7 30.5 - 30.5 37.6 - 37.6
------------------------------------------------------------------------------------------------------------------
195.6 - 195.6 179.0 - 179.0 179.5 - 179.5
------------------------------------------------------------------------------------------------------------------
Total assets 386.5 27.3 413.8 375.5 22.4 397.9 386.2 20.8 407.0
------------------------------------------------------------------------------------------------------------------
Liabilities
Current
liabilities
Trade and other
payables (90.6) (0.2) (90.8) (86.0) (1.4) (87.4) (86.6) (1.0) (87.6)
Current tax (26.2) - (26.2) (27.4) - (27.4) (24.7) - (24.7)
Short term
borrowings and
overdrafts (1.8) - (1.8) (1.6) - (1.6) (1.8) - (1.8)
Provisions and
other liabilities - (4.2) (4.2) - (2.3) (2.3) - (4.6) (4.6)
------------------------------------------------------------------------------------------------------------------
(118.6) (4.4) (123.0) (115.0) (3.7) (118.7) (113.1) (5.6) (118.7)
------------------------------------------------------------------------------------------------------------------
Non current
liabilities
Trade and other
payables (3.9) - (3.9) (4.3) - (4.3) (2.3) - (2.3)
Long term
borrowings (76.3) - (76.3) (82.4) - (82.4) (93.3) - (93.3)
Retirement
benefit
obligations (27.0) (11.1) (38.1) (24.7) (10.3) (35.0) (35.2) (13.0) (48.2)
Deferred tax (1.9) (0.6) (2.5) (1.8) (0.6) (2.4) (2.3) (0.6) (2.9)
Provisions and
other liabilities (13.8) 4.2 (9.6) (14.1) 2.3 (11.8) (17.9) 4.6 (13.3)
------------------------------------------------------------------------------------------------------------------
(122.9) (7.5) (130.4) (127.3) (8.6) (135.9) (151.0) (9.0) (160.0)
------------------------------------------------------------------------------------------------------------------
Total liabilities (241.5) (11.9) (253.4) (242.3) (12.3) (254.6) (264.1) (14.6) (278.7)
------------------------------------------------------------------------------------------------------------------
Net assets 145.0 15.4 160.4 133.2 10.1 143.3 122.1 6.2 128.3
------------------------------------------------------------------------------------------------------------------
Equity
Called up share
capital 31.9 - 31.9 31.8 - 31.8 31.5 - 31.5
Share premium
account 1.3 - 1.3 701.9 - 701.9 697.5 - 697.5
Capital reserve 10.9 - 10.9 14.4 - 14.4 17.7 - 17.7
Capital
redemption
reserve - - - 0.7 - 0.7 0.7 - 0.7
Translation
reserve - 1.6 1.6 - (0.5) (0.5) - 3.0 3.0
Investment in own
shares - - - - - - (2.6) 2.6 -
Retained earnings
/(loss) 99.6 13.8 113.4 (617.2) 10.6 (606.6) (624.9) 0.6 (624.3)
------------------------------------------------------------------------------------------------------------------
Shareholders'
funds - equity 143.7 15.4 159.1 131.6 10.1 141.7 119.9 6.2 126.1
Minority
interests -
equity 1.3 - 1.3 1.6 - 1.6 2.2 - 2.2
------------------------------------------------------------------------------------------------------------------
Total equity and
reserves 145.0 15.4 160.4 133.2 10.1 143.3 122.1 6.2 128.3
==================================================================================================================
8. Segmental information
The business segments for the Group reported under IFRS are the same as those
reported under UK GAAP. However, there are stricter definitions included in
IFRS regarding the allocation of corporate or central costs. Those shared
costs, which cannot be allocated directly to individual segments, will now be
reported as non segmental costs.
GBP million Year 2004 First half 2004 Year 2003
UK GAAP IFRS UK GAAP IFRS UK GAAP IFRS
--------------------------------------------------------------------------------------------------------
Revenue
Performance Analysis 176.8 176.8 83.1 83.1 148.7 148.7
Service Assurance 74.7 74.7 42.0 42.0 91.7 91.7
--------------------------------------------------------------------------------------------------------
Communications 251.5 251.5 125.1 125.1 240.4 240.4
Network Products 187.8 187.8 95.0 95.0 174.4 174.4
Systems 35.7 35.7 19.2 19.2 51.4 51.4
--------------------------------------------------------------------------------------------------------
Total Group 475.0 475.0 239.3 239.3 466.2 466.2
========================================================================================================
Operating profit
Operating profit before
restructuring and refinancing
costs, goodwill amortisation and
share-based payment
Performance Analysis 20.3 21.7 7.4 7.6 5.0 5.2
Service Assurance 0.2 2.5 2.2 3.5 9.4 13.4
--------------------------------------------------------------------------------------------------------
Communications 20.5 24.2 9.6 11.1 14.4 18.6
Network Products 20.4 21.3 10.7 10.8 16.7 16.9
Systems 2.5 4.0 1.6 2.3 5.5 6.2
Non segmental - (5.3) - (2.7) - (5.1)
--------------------------------------------------------------------------------------------------------
Total Group 43.4 44.2 21.9 21.5 36.6 36.6
--------------------------------------------------------------------------------------------------------
Restructuring and refinancing
costs
Performance Analysis 1.3 1.3 - - (5.1) (5.1)
Service Assurance (1.9) (1.9) - - (0.1) (0.1)
--------------------------------------------------------------------------------------------------------
Communications (0.6) (0.6) - - (5.2) (5.2)
Non segmental (2.3) (2.3) - - (2.3) (2.3)
--------------------------------------------------------------------------------------------------------
Total Group (2.9) (2.9) - - (7.5) (7.5)
--------------------------------------------------------------------------------------------------------
Share-based payment
Performance Analysis (0.6) (3.2) (0.3) (0.9) (0.6) (0.8)
Service Assurance - (1.4) - (0.3) - (0.1)
--------------------------------------------------------------------------------------------------------
Communications (0.6) (4.6) (0.3) (1.2) (0.6) (0.9)
Network Products - (0.4) - (0.1) - (0.1)
Systems - (0.1) - - - -
Non segmental - (0.1) - - - -
--------------------------------------------------------------------------------------------------------
Total Group (0.6) (5.2) (0.3) (1.3) (0.6) (1.0)
--------------------------------------------------------------------------------------------------------
Goodwill amortisation (9.1) - (4.6) - (9.7) -
--------------------------------------------------------------------------------------------------------
Operating profit 30.8 36.1 17.0 20.2 18.8 28.1
========================================================================================================
9. Independent auditors' report to Spirent plc on the preliminary IFRS
financial statements for the years ended 31 December 2003 and
31 December 2004
We have audited the accompanying preliminary International Financial Reporting
Standards (IFRS) consolidated financial statements of Spirent plc (the Company)
for the years ended 31 December 2003 and 31 December 2004 which comprise the
opening IFRS consolidated balance sheet as at 1 January 2003, the consolidated
income statement, the consolidated cash flow statement and the consolidated
statement of changes in equity for the years ended 31 December 2003 and 31
December 2004 and the consolidated balance sheet as at 31 December 2003 and 31
December 2004, together with the related accounting policies note set out in
Appendix I. This report is made solely to the Company in accordance with our
engagement letter dated 13 May 2005. Our audit work has been undertaken so that
we might state to the Company those matters we are required to state to them in
an auditors' report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility or liability to anyone other
than the Company for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
These preliminary IFRS financial statements are the responsibility of the
Company's directors and have been prepared as part of the Company's conversion
to IFRS. They have been prepared in accordance with the basis set out in the
accounting policies note in Appendix I, which describes how IFRS have been
applied under IFRS 1, including the assumptions management has made about the
standards and interpretations expected to be effective, and the policies
expected to be adopted, when management prepares its first complete set of IFRS
financial statements as at 31 December 2005.
Our responsibility is to express an independent opinion on the preliminary IFRS
financial statements based on our audit. We read the other information
accompanying the preliminary IFRS financial statements and consider whether it
is consistent with the preliminary IFRS financial statements. This other
information comprises the explanation of IFRS adjustments to the consolidated
income statement and the explanation of IFRS adjustments to the balance sheet on
transition and at 31 December 2003 and 31 December 2004, set out in Appendix II.
We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the preliminary IFRS financial
statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
preliminary IFRS financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the preliminary IFRS financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the preliminary
IFRS financial statements. We believe that our audit provides a reasonable
basis for our opinion.
Emphasis of matter
Without qualifying our opinion, we draw attention to the fact that the
accounting policies note explains why there is a possibility that the
preliminary IFRS financial statements may require adjustment before constituting
the final IFRS financial statements. Moreover, we draw attention to the fact
that, under IFRS only a complete set of financial statements with comparative
financial information and explanatory notes can provide a fair presentation of
the Company's financial position, results of operations and cash flows in
accordance with IFRS.
Opinion
In our opinion, the accompanying preliminary IFRS financial statements for the
years ended 31 December 2003 and 31 December 2004 have been prepared, in all
material respects, in accordance with the basis set out in the accounting
policies note in Appendix I, which describes how IFRS have been applied under
IFRS 1, including the assumptions management has made about the standards and
interpretations expected to be effective, and the policies expected to be
adopted, when management prepares its first complete set of IFRS financial
statements as at 31 December 2005.
Ernst & Young LLP
London
14 July 2005
10. Independent review report to Spirent plc on the preliminary IFRS financial
statements for the period ended 4 July 2004
We have reviewed the accompanying preliminary International Financial Reporting
Standards (IFRS) consolidated financial statements of Spirent plc (the Company)
for the period ended 4 July 2004 which comprises the consolidated balance sheet,
the consolidated income statement and the consolidated cash flow statement.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility or liability to anyone other than the Company
for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
This preliminary IFRS financial information is the responsibility of the
Company's directors and has been prepared as part of the Company's conversion to
IFRS. It has been prepared in accordance with the basis set out in the
accounting policies note in Appendix I, which describes how IFRS have been
applied under IFRS 1, including the assumptions management has made about the
standards and interpretations expected to be effective, and the policies
expected to be adopted, when management prepares its first complete set of IFRS
financial statements as at 31 December 2005.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an opinion on
the preliminary IFRS financial information.
Emphasis of matter
Without modifying our review conclusion, we draw attention to the fact that the
accounting policies note set out in Appendix I explains why there is a
possibility that the preliminary IFRS financial statements may require
adjustment before constituting the final IFRS financial statements. Moreover,
we draw attention to the fact that, under IFRS only a complete set of financial
statements with comparative financial information and explanatory notes can
provide a fair presentation of the Company's financial position, results of
operations and cash flows in accordance with IFRS.
Review conclusion
On the basis of our review we are not aware of any material modification that
should be made to the preliminary IFRS financial information as presented for
the period ended 4 July 2004.
Ernst & Young LLP
London
14 July 2005
Appendices
I) International Financial Reporting Standards (IFRS) accounting policies
Basis of presentation
The consolidated financial statements have been prepared in accordance with IFRS
and in accordance with the significant accounting policies set out below. The
consolidated financial statements are presented in pounds sterling.
The financial information has been prepared on the assumption that all IFRS
statements, including International Accounting Standards (IAS), Standing
Interpretations Committee (SIC) interpretations and International Financial
Reporting Interpretations Committee (IFRIC) 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 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 to 31
December 2005. IFRS in force at the time the Group prepares its first IFRS
financial statements may, therefore, require different accounting policies from
those stated here. In 2005 the Group will adopt IFRS for the first time. The
date of transition is 1 January 2003. All comparative information included in
these financial statements has been restated to reflect the effect of adopting
IFRS on that date in accordance with IFRS 1.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries made up to 31 December each year.
Results of subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group. All intra group transactions,
balances, income and expenses are eliminated on consolidation.
The consolidated financial statements include the Group's share of profits or
losses of associates and joint ventures.
Associates are those in which the Group is in a position to exercise significant
influence, but not control or joint control, through participation in the
operating policy decisions of the investee. Results are based on management
accounts to 31 December each year. The investment in associates is accounted
for using the equity method and carried in the balance sheet at cost plus post
acquisition changes in the Group's share of net assets of the associate, less
any impairment in value.
Entities in which the Group enters into a contractual arrangement to undertake
an economic activity with another party or parties that is subject to joint
control are treated as joint ventures. The investment in joint ventures is
accounted for using the equity method. Results are based on management accounts
to 31 December each year. There were no joint venture arrangements in place at
31 December 2004.
Goodwill
Goodwill arising on the acquisition of subsidiaries, representing the excess of
cost over the fair value of the identifiable assets and liabilities acquired, is
capitalised as an intangible asset. Goodwill is carried at cost less any
accumulated impairment losses. It is not amortised but it is tested annually
for impairment, or more frequently if events or changes in circumstances
indicate that it might be impaired. Goodwill is allocated to the relevant
cash-generating unit or groups of cash-generating units for the purpose of
impairment testing.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been
retained at the UK GAAP amounts as at the transition date, 1 January 2003,
having been subject to testing for impairment at that date. Goodwill written
off to reserves under UK GAAP prior to 1998 has not been reinstated and will not
be included in the calculation of any profit or loss on any subsequent disposal.
Research and development
Research expenditure is charged to the income statement in the year in which it
is incurred.
An intangible asset arising on the Group's various development projects is
recognised only if all of the following conditions are met:
i) an asset is created that can be separately identified (such as software or
new processes);
ii) it is probable that the asset created will generate future economic
benefits; and
iii) the development cost can be measured reliably.
Development costs are expensed as incurred until the technological feasibility
of the product under development has been established. Technological
feasibility in Spirent's circumstances occurs when a working model is completed.
For software development technological feasibility is not established until
the process of developing the software is complete. After technological
feasibility is established, additional costs are capitalised and amortised over
the estimated useful life.
Other intangible assets
Other separately identifiable intangible assets such as patent fees, licence
fees and trade marks are capitalised on the balance sheet only when the value
can be measured reliably or the intangible asset is purchased as part of the
acquisition of a business. Such intangible assets are amortised over their
useful economic lives on a straight line basis. The carrying value of
intangible assets is reviewed for impairment if events or changes in
circumstances indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is not provided on freehold land. Depreciation is provided to
write off all other assets over their estimated useful lives on a straight line
basis at rates which take into account commercial conditions at their location.
Usual asset lives are as follows:
Freehold buildings 50 years
Properties held under finance leases Over the lease period
Plant and machinery 3 - 8 years
Fixtures, fittings and equipment
Building installations 20 years or lease period if less
Fittings and equipment 3 - 8 years
Motor vehicles 3 - 5 years
Business systems software 4 years
The carrying values of property, plant and equipment are reviewed for impairment
if events or changes in circumstances indicate the carrying value may not be
recoverable.
Leases
Finance leases, which transfer substantially all the risks and rewards of
ownership of the assets concerned, are capitalised on the balance sheet at the
lower of fair value of the leased property and net present value of the minimum
lease payments at the inception of the lease. The corresponding liabilities are
recorded as long term or current liabilities depending on the period when they
are due. The interest elements of the rental obligations are charged to the
income statement over the periods of the leases as a finance cost. Lease
payments are apportioned between the finance cost and the reduction in the lease
liability so as to achieve a constant rate of interest on the remaining balance
of the liability. Capitalised leased assets are depreciated over their useful
life as above.
Operating leases are leases where the lessor retains substantially all the risks
and rewards of ownership of the asset. Operating lease rentals are charged to
the income statement over the period of the lease.
Inventories
Inventories are valued at the lower of cost and estimated net realisable value.
Cost includes all costs in bringing each product to its present location and
condition, being the full manufacturing cost on a first-in-first-out basis,
including all attributable overheads based on a normal level of activity and
excluding borrowing costs. Net realisable value represents selling price less
further costs to be incurred to completion and on sale.
Provisions
Provisions are recorded when the Group has a present, legal or constructive
obligation as a result of a past event which it is probable that the Group will
be required to settle by an outflow of resources and for which a reliable
estimate of the amount of the obligation can be made. Provisions are reviewed
at each balance sheet date and adjusted to reflect the current best estimate.
Where the effect of the time value of money is material, the amount of the
provision shall be the present value of the expenditures expected to be required
to settle the obligation.
Revenue recognition
Goods and services
Revenue is recognised when it is probable that economic benefits will flow to
the Group, the revenue can be reliably measured and when the Group has
transferred to the buyer the significant risks and rewards of ownership. In
addition, revenue is only recognised when collectibility is probable.
For the sale of services, revenue is recognised in accounting periods in which
the service is rendered. Revenue from maintenance contracts is recognised over
the period of performance.
Revenue from product sales of hardware and software is recognised at the time of
delivery and acceptance and when there are no significant vendor obligations
remaining. It is not until acceptance has occurred that the risks and rewards
of ownership are transferred to the buyer. Terms of acceptance are dependent
upon the specific contractual arrangement agreed with the customer.
Contractual arrangements are accounted for as two or more separate transactions
only where the commercial substance is that the individual components operate
independently of each other because they are capable of being provided
separately from one another and it is possible to attribute reliable fair values
to every component. To the extent that a separate component comprises a product
sale of hardware or software, revenue is recognised as described above. Revenue
is recognised on other components as the Group fulfils its contractual
obligations and to the extent that it has earned the right to consideration.
Foreign currencies
The consolidated financial statements are presented in pounds sterling, which is
the Company's functional and presentation currency. The Group determines the
functional currency of each entity and items included in the financial
statements of each entity are measured using that functional currency.
Transactions in foreign currencies are recorded at the rates of exchange
prevailing on the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated at the rates ruling at the
balance sheet date. Non-monetary assets and liabilities denominated in foreign
currencies are measured in terms of historical costs using the exchange rate at
the date of the initial transactions.
The functional currencies of the Group's foreign operations are principally US
dollar, sterling or euro.
On consolidation the assets and liabilities of the Group's foreign operations
are translated into the Group's presentational currency at exchange rates
prevailing at the balance sheet date. The results of foreign operations are
translated into sterling using average rates.
Equity investments in foreign operations include long term intra group loans the
settlement of which is neither planned nor likely to occur in the foreseeable
future. Exchange differences arising from the retranslation of opening net
assets of foreign investments and exchange adjustments arising from the
translation of the results of foreign operations, are classified as equity and
transferred to the Group's translation reserve. Such translation differences
are recognised as part of the profit or loss on disposal should an operation be
disposed of. The Group has elected to apply the exemption in IFRS 1 'First Time
Adoption of International Financial Reporting Standards' which allows the
cumulative translation differences for all foreign operations to be deemed to be
zero at the date of transition to IFRS. The Group has similarly elected that
the gain or loss on the subsequent disposal of any foreign operation shall
exclude translation differences that arose before the date of transition.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at closing rates of exchange. As permitted by IFRS 1 the Group has
elected to treat goodwill and fair value adjustments arising on acquisitions
prior to the date of transition to IFRS, and treated as an asset of the parent,
as sterling denominated.
All other exchange profits and losses are taken to the income statement, with
the exception of differences on foreign currency borrowings which provide an
effective hedge against the Group's equity investments in foreign operations,
which are taken to equity together with the exchange differences on the carrying
amount of the related investments.
Financial instruments
Financial assets and liabilities are recognised on the Group's balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and short term deposits in the balance sheet comprise cash at bank and in
hand and short term deposits with an original maturity of three months or less.
For the purpose of the cash flow statement, cash and cash equivalents consist of
cash and cash equivalents as defined above, net of outstanding bank overdrafts.
Interest-bearing loans and borrowings
Loans and overdrafts are initially recognised at cost, being the fair value of
the consideration received, net of issue costs. Issue costs are amortised over
the expected life of the instrument.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Amortised cost is calculated by taking into account any issue costs, and any
discount or premium on settlement.
From 1 January 2005, hedge accounting is adopted where derivatives such as
'fixed to floating' interest rate swaps are held as fair value hedges against
fixed interest rate borrowings. Under fair value hedge accounting, fixed
interest rate borrowings are revalued at each balance sheet date by the change
in the fair value attributable to the interest rate risk being hedged.
Trade payables
Trade payables are generally not interest bearing and are stated at their
nominal value.
Equity instruments
Equity instruments are recorded at the proceeds received, net of direct issue
costs.
Derivative financial instruments and hedge accounting
The accounting policy prior to 1 January 2005 is as follows:
The Group uses derivative financial instruments to hedge its exposures to
fluctuations in interest and foreign exchange rates. The Group's policy is not
to undertake any trading activity in financial instruments. Financial
instruments will be accounted for as hedges when designated as hedges at the
inception of the contract.
Forward exchange contracts are used to hedge foreign exchange exposures arising
on forecast receipts and payments in foreign currencies. The rates under these
contracts are used to record the hedged item, and as such gains and losses on
foreign currency contracts are offset against the foreign exchange gains and
losses on the related financial assets and liabilities. Where the contract is a
hedge against future transactions, gains and losses are deferred until the
transaction occurs.
Interest rate swaps are occasionally used to hedge the Group's exposure to
movements in interest rates. Receipts and payments on interest rate instruments
are recognised on an accruals basis over the life of the underlying financial
instrument. Interest rate swaps are not revalued to fair value or shown in the
Group balance sheet at the year end but are disclosed in the notes to the
accounts.
Gains or losses arising on hedging instruments, which are cancelled due to the
termination of the underlying exposure, are taken to the income statement
immediately.
From 1 January 2005 the Group's accounting policy will be as follows:
The Group uses derivative financial instruments to hedge its exposures to
fluctuations in interest and foreign exchange rates. The Group's policy is not
to undertake any trading activity in financial instruments. Such derivative
financial instruments are stated at fair value.
Forward exchange contracts are used to hedge foreign exchange exposures arising
on forecast receipts and payments in foreign currencies. The fair value of
forward exchange contracts is calculated by reference to current forward
exchange rates for contracts with similar maturity profiles. Interest rate
swaps are occasionally used to hedge the Group's exposure to movements in
interest rates. The fair value of interest rate swaps is determined by
reference to market rates for similar instruments. Currently the Group has in
place interest rate swaps which hedge changes in the fair value of its senior
notes.
For the purpose of hedge accounting, hedges are classified as fair value hedges
when they hedge the exposure to changes in the fair value of a recognised asset
or liability; or cash flow hedges where they hedge exposure to the variability
in cash flows that is due to the risk associated with a recognised asset or
liability or a forecast transaction.
In relation to these fair value hedges (interest rate swaps) which meet the
conditions for hedge accounting, any gain or loss from remeasuring the hedging
instrument is recognised in the income statement and any gain or loss on the
item that is being hedged is adjusted against its carrying amount and recognised
in the income statement.
In relation to cash flow hedges (forward foreign exchange contracts) to hedge
firm commitments or highly probable forecast transactions and which meet the
conditions for hedge accounting, the proportion of the gain or loss on the
remeasurement of the fair value of the hedging instrument that is deemed to be
effective is recognised in equity and the ineffective portion is recognised in
the income statement.
When the firm commitment or highly probable forecast transaction results in the
recognition of an asset or liability, the associated gains and losses that have
previously been recognised in equity are included in the initial measurement of
the carrying amount of the asset or liability at the time the asset or liability
is recognised.
For derivatives that do not qualify for hedge accounting, any gains or losses
arising from changes in fair value are taken to the income statement.
Gains or losses arising on hedging instruments, which are cancelled due to
termination of the underlying exposure, are taken to the income statement
immediately.
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risks and characteristics are not
closely related to those of the host contracts.
Pension contributions
In the UK the Group operates two defined benefit pension schemes for the benefit
of employees. These schemes require contributions to be made to separately
administered funds, based on triennial actuarial valuations. Other schemes, all
of which are overseas, are defined contribution in nature.
The assets of the defined benefit schemes are measured at their market value at
the balance sheet date and the liabilities of the schemes are measured using the
projected unit method. The discount rate used to measure the schemes'
liabilities is the current rate of return on an AA corporate bond of equivalent
term and currency to the liabilities. The full extent to which the schemes'
assets exceed or fall short of the schemes' liabilities is shown as a surplus or
deficit in the balance sheet.
The regular service cost of providing retirement benefits to employees in
defined benefit schemes is charged to operating profit in the year together with
the cost of providing benefit improvements in respect of past service and gains
or losses arising on settlements and curtailments.
For the defined benefit schemes, a credit for the expected return on the
schemes' assets and a charge for the increase during the period in the present
value of the schemes' liabilities, because the benefits are one year closer to
settlement, are included in finance costs in the income statement. Differences
arising between the actual and expected returns on the schemes' assets together
with changes in the actuarial assumptions are included in the consolidated
statement of changes in equity.
Contributions payable to the overseas defined contribution plans are charged to
the income statement in the year for which they are due.
Employee benefits
When an employee has rendered services to the Group during an accounting period,
short term benefits expected to be paid in exchange for those services are
recognised in the same accounting period.
Share-based payment
Employees (including directors) of the Group receive remuneration in the form of
share-based payment transactions, whereby employees render services in exchange
for shares or rights over shares (equity-settled transactions).
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date at which they are granted. The fair value is
determined using a binomial model.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
conditions are fulfilled, ending on the date on which the relevant employees
become fully entitled to the award (vesting date). The cumulative expense
recognised for equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the
number of awards that will ultimately vest, in the opinion of the directors of
the Company at that date and based on the best available estimates.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum an expense
is recognised as if the terms had not been modified. In addition, an expense is
recognised for any increase in the value of the transaction as a result of the
modification, as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on
the date of cancellation, and any expense not yet recognised for the award is
recognised immediately. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they were a modification
of the original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected in the computation of
diluted earnings per share.
The Group has an employee share trust for the granting of certain options to
employees. Shares in the Group held by the employee share trust are treated as
treasury shares and presented in the balance sheet as a deduction from equity.
The Group has taken advantage of the transitional provisions of IFRS 1 and IFRS
2 in respect of equity-settled awards and has applied IFRS 2 only to
equity-settled awards granted after 7 November 2002 which were unvested at 1
January 2005.
Government grants
Government grants are recognised as income at fair value over periods which
match them with the related costs and are deducted in reporting the related
expense.
Capital grants are treated as deferred income at fair value and are released to
the income statement over the estimated useful lives of the assets to which they
relate.
Tax
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on the taxable profit for the year. Taxable
profit differs from net profit reported in the income statement as it excludes
income and expenses that are taxable in other accounting periods and income and
expenses which are never taxable or deductible. The liability for current tax
is calculated using tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying value of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent it is probable that taxable profits will be
available against which the temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, associates and joint ventures, except
where the Group is able to control the reversal of the temporary difference and
it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is probable that sufficient taxable
profits will not be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the rates that are expected to apply in the period
when the liability is settled or the asset realised based on tax rates (and tax
laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited to the income statement except where it
relates to items charged or credited to equity, in which case it is dealt with
through equity.
II) Explanation of IFRS adjustments to the income statements and balance sheets
This section describes the most significant changes arising from the transition
to IFRS.
The effect of each of these adjustments is set out in the reconciliations in
Appendix III.
a) IFRS 2 'Share-based Payment'
IFRS 2 requires an expense to be recognised where the Group buys goods or
services in exchange for shares or rights over shares (equity-settled
transactions), or in exchange for other assets equivalent in value to a given
number of shares or rights over shares (cash-settled transactions). The main
impact of IFRS 2 on the Group is the measurement of the expense for employees'
and directors' share options and other share-based incentives by using an
option-pricing model.
IFRS 2 is mandatory for accounting periods beginning on or after 1 January 2005.
However, the Group has taken advantage of the transitional provisions of IFRS
1 and IFRS 2 in respect of equity-settled awards and has applied IFRS 2 only to
equity-settled awards granted after 7 November 2002 which were unvested at 1
January 2005.
Effect on the income statement
This change has resulted in an increase in the reported charge for share-based
payment of GBP4.6 million for the full year 2004, GBP1.0 million for the first
half of 2004 and GBP0.4 million for the full year 2003.
The effect of this revised policy on the full year basic and diluted EPS is as
follows:
- For 2004 a decrease in basic earnings per share of 0.49 pence
(2003 0.04 pence).
- For 2004 a decrease in diluted earnings per share of 0.48 pence
(2003 0.04 pence).
Effect on equity
There is no net effect on equity.
b) IAS 19 'Employee Benefits'
IAS 19 permits a number of different approaches for the accounting of defined
benefit pension plans. Spirent is adopting the approach which is similar to the
UK Standard, Financial Reporting Standard (FRS) 17 'Retirement Benefits'.
Spirent adopted FRS 17 for UK GAAP reporting in 2003 and restated the
consolidated balance sheet at 1 January 2003 for the adoption of this standard.
The implementation of IAS 19 in respect of defined benefit pension plans has had
no effect on the reported results of Spirent compared with the results reported
under UK GAAP.
Under UK GAAP a deferred tax asset arose in respect of the retirement benefit
obligation on the defined benefit pension schemes and this was set off against
the obligation for disclosure purposes. IAS 19 requires that the deferred tax
asset be separately disclosed as a non current asset.
IAS 19 also requires companies to make an accrual for holiday pay; under UK GAAP
this was not mandatory.
Effect on the income statement
The requirement to accrue holiday pay has resulted in a credit to the income
statement of GBP0.8 million for the full year 2004, a charge of GBP0.4 million
for the first half of 2004 and no adjustment for the full year 2003.
The effect of this revised policy in respect of the requirement to accrue
holiday pay on the full year basic and diluted EPS is as follows:
- For 2004 an increase in basic earnings per share of 0.09 pence (2003 nil).
- For 2004 an increase in diluted earnings per share of 0.08 pence (2003 nil).
Effect on equity
At 31 December 2004 a deferred tax asset of GBP11.1 million has been
reclassified from the retirement benefit obligation to non current assets.
Similar reclassifications were made of GBP10.3 million at the end of the first
half of 2004 and of GBP13.0 million at 31 December 2003. No deferred tax asset
was recognised at the transition date 1 January 2003.
An additional accrual of GBP0.2 million for holiday pay has been reported and
included in trade and other payables at 31 December 2004. A similar adjustment
of GBP1.4 million was made at the end of the first half of 2004, GBP1.0 million
at 31 December 2003 and GBP1.0 million at 1 January 2003.
c) IFRS 3 'Business Combinations'
i) Goodwill amortisation
The Spirent Group made no acquisitions in 2003 or 2004 and has elected not to
restate business combinations prior to the transition date of 1 January 2003.
The effect of the adoption of IFRS 3 on the Group's accounting policies has
therefore had no impact on the book value of assets and liabilities acquired for
prior period acquisitions.
The adoption of IFRS 3 and IAS 36 'Impairment of Assets' has resulted in the
Group ceasing annual goodwill amortisation from 1 January 2003 and introduced
the requirement to test for impairment annually at the level of the
cash-generating unit or cash-generating units to which goodwill has been
allocated (unless an event occurs during the year which requires the goodwill to
be tested more frequently).
In addition, the reversal of goodwill amortisation has resulted in a higher
goodwill balance denominated in foreign currencies and hence has adjusted the
exchange difference on retranslation of goodwill into sterling at each reporting
date.
Effect on the income statement
Goodwill amortisation of GBP9.1 million charged in the full year 2004, GBP4.6
million charged in the first half of 2004 and GBP9.7 million charged in the full
year 2003 under UK GAAP has been reversed in the restatements under IFRS.
The effect of this revised policy due to the adoption of IFRS 3 on the full year
basic and diluted EPS is as follows:
- For 2004 an increase in basic earnings per share of 0.97 pence
(2003 1.04 pence).
- For 2004 an increase in diluted earnings per share of 0.96 pence
(2003 1.03 pence).
Effect on equity
A cumulative exchange difference of GBP1.1 million arises on the retranslation
of the adjusted goodwill balance at 31 December 2004. The equivalent cumulative
exchange differences are GBP0.7 million at the end of the first half of 2004 and
GBP0.4 million at 31 December 2003.
The reversal of the cumulative goodwill amortisation at transition date together
with the exchange effects outlined above have increased the carrying value of
goodwill at 31 December 2004 by GBP17.7 million. The cumulative adjustment at
the end of the first half of 2004 was GBP13.6 million and at 31 December 2003,
GBP9.3 million.
ii) Profit or loss on disposal
Goodwill written off to reserves under UK GAAP prior to 1998 has not been
reinstated and will not be included in the calculation of any profit or loss on
any subsequent disposal under IFRS.
Effect on the income statement
Goodwill written off to reserves arising prior to 1998 and reinstated under UK
GAAP on the disposal of operations has been reversed in the amount of GBP4.9
million and GBP2.6 million in the full years 2004 and 2003, respectively. There
is no adjustment required and hence no effect on profits in the first half of
2004.
The effect of this revised policy due to the adoption of IFRS 3 on the full year
basic and diluted EPS is as follows:
- For 2004 an increase in basic earnings per share of 0.52 pence
(2003 0.28 pence).
- For 2004 an increase in diluted earnings per share of 0.51 pence
(2003 0.27 pence).
Effect on equity
There is no net effect on equity.
d) IAS 12 'Income Taxes'
IAS 12 requires that deferred tax liabilities are recognised for taxable
temporary differences arising on investments in subsidiaries, associates and
joint ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. These deferred tax liabilities were not
required to be recognised under UK GAAP.
Effect on the income statement
The tax charge for the Group has increased by GBP0.1 million and that for the
associate by GBP0.1 million for the full year 2003 under IFRS. There is no
effect on the income statement in 2004 and therefore there is no effect on basic
or diluted earnings per share (2003 basic and diluted 0.02 pence decrease).
Effect on equity
Under IFRS additional deferred tax liabilities for subsidiaries have been
recognised of GBP0.6 million and for associates of GBP1.5 million at 31 December
2004, the end of the first half of 2004 and at 31 December 2003. At the
transition date, 1 January 2003, tax liabilities of GBP0.4 million for
subsidiaries and GBP1.4 million for associates have been recognised under IFRS.
e) IAS 28 'Investments in Associates' and IAS 31 'Interests in Joint Ventures'
IAS 28 and IAS 31 require that the Group's share of the associates' or joint
ventures' net profit or loss be disclosed in the income statement as one line
after charging or crediting the Group's share of the associates' or joint
ventures' interest and tax. Under UK GAAP the Group's share of interest and tax
of the associates and joint ventures were disclosed within the interest or tax
lines in the income statement.
Effect on the income statement
An amount of GBP1.0 million of tax has been reclassified to the associates'
result from the tax charge in the full year 2004 under IFRS. In the first half
of 2004 an amount of GBP0.5 million was reclassified from tax to the associates'
result. In the full year 2003 GBP0.2 million of interest and GBP1.1 million of
tax have been reclassified to the joint ventures' result and GBP0.9 million of
tax to the associates' result.
Effect on equity
There is no effect on equity.
f) IAS 21 'The Effects of Changes in Foreign Exchange Rates'
The Group has elected to adopt IAS 21 from the transition date, 1 January 2003.
As a result any goodwill arising on the acquisition of a foreign subsidiary and
any fair value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition are now treated as assets and liabilities of the
foreign operation and translated at the closing rate. Goodwill acquired prior
to 1 January 2003 that has been treated as an asset of the parent is reported in
pounds sterling at the date of transition.
Exchange differences arising from the retranslation of opening net assets of
overseas subsidiaries and exchange adjustments arising from the translation of
the results of overseas subsidiaries, joint ventures and associates, are
classified as equity and transferred to the Group's translation reserve. Such
translation differences are recognised as part of the profit or loss on disposal
should an operation be disposed of. The Group has elected to apply the
exemption that allows the cumulative translation differences for all foreign
operations to be deemed to be zero at the date of transition to IFRS, 1 January
2003. The Group has similarly elected that the gain or loss on the subsequent
disposal of any foreign operation shall exclude translation differences that
arose before the transition date.
For disposals in 2003 and 2004 that occurred after the transition date the
profit or loss on disposal has been restated so as to include the effect of any
post-transition translation differences.
Effect on the income statement
There is no effect on the income statement in either the full year or first half
of 2004. In 2003 exchange gains of GBP2.4 million on foreign operations disposed
of have been credited to the income statement.
The effect of this revised policy on the full year basic and diluted earnings
per share is as follows:
- For 2004 there is no effect on basic earnings per share
(2003 0.25 pence increase).
- For 2004 there is no effect on diluted earnings per share
(2003 0.25 pence increase).
Effect on equity
At 31 December 2004 cumulative translation adjustments of GBP2.8 million have
been transferred to a separate translation reserve in accordance with IAS 21.
These, together with the translation effects of other IFRS adjustments, result
in a closing balance of GBP1.6 million on the translation reserve at this date.
The translation reserve at the end of the first half year 2004 was a debit
balance of GBP0.5 million and at 31 December 2003 a credit balance of GBP3.0
million.
g) Reclassifications
Some reclassifications are required in the restatements under IFRS.
Effect on the income statement
For our defined benefit pension schemes a credit for the expected return on the
schemes' assets and a charge for the increase during the period in the present
value of the schemes' liabilities, because the benefits are one year closer to
settlement, were included in other finance expense or income in the income
statement under UK GAAP. Under IFRS this charge or credit has been reclassified
as finance costs.
Effect on equity
Under IFRS it is necessary to classify provisions into short term provisions and
non current provisions.
Under IFRS the investment in own shares has been reclassified to retained
earnings in the transition date balance sheet and at 31 December 2003. The
investment in own shares was deducted from retained earnings at 31 December 2004
for UK GAAP so no adjustment is required.
For UK GAAP purposes in the attached reconciliations the pension retirement
obligation has been reclassified as a non current liability.
Other
Spirent will apply IAS 39 'Financial Instruments' prospectively, that is with
effect from 1 January 2005, and hence no adjustments for financial instruments
are required in the income statement restatements for 2003 or 2004. The
principles of IAS 39 require that financial instruments be measured at fair
value. Spirent uses derivative financial instruments to hedge its exposures to
fluctuations in interest rates and foreign exchange rates. In general the
number of these transactions is relatively small and Spirent will adopt hedge
accounting where available. It is expected that IAS 39 will not have a
significant effect on our results unless our activity in such instruments
increases.
III) Analysis of adjustments to the financial statements
Consolidated income statements
a) Consolidated income statement for the year to 31 December 2004
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
------------------------------------------------------------------------------------------------------------------
Revenue - - - - - - - -
Cost of sales - - - - - - - -
------------------------------------------------------------------------------------------------------------------
Gross profit - - - - - - - -
Operating expenses (4.6) 0.8 9.1 - - - - 5.3
------------------------------------------------------------------------------------------------------------------
Operating profit (4.6) 0.8 9.1 - - - - 5.3
Loss from interests
in joint ventures - - - - - - - -
Profit from
interests in
associates - - - - (1.0) - - (1.0)
------------------------------------------------------------------------------------------------------------------
Operating profit of
the Group, joint
ventures and
associates (4.6) 0.8 9.1 - (1.0) - - 4.3
(Loss)/profit on
the disposal of
operations - - 4.9 - - - - 4.9
------------------------------------------------------------------------------------------------------------------
Profit before
interest (4.6) 0.8 14.0 - (1.0) - - 9.2
Finance income - - - - - - - -
Finance costs - - - - - - (0.7) (0.7)
Costs associated
with the part
prepayment of loan
notes - - - - - - - -
Other finance
expense - - - - - - 0.7 0.7
------------------------------------------------------------------------------------------------------------------
Profit before tax (4.6) 0.8 14.0 - (1.0) - - 9.2
Tax - - - - 1.0 - - 1.0
------------------------------------------------------------------------------------------------------------------
Profit after tax (4.6) 0.8 14.0 - - - - 10.2
Minority
shareholders'
interests - - - - - - - -
------------------------------------------------------------------------------------------------------------------
Profit for the
period (4.6) 0.8 14.0 - - - - 10.2
==================================================================================================================
Basic earnings per
share (pence) 1.09
Diluted earnings
per share (pence) 1.07
Adjusted earnings
per share (pence) 0.08
-------
b) Consolidated income statement for the first half of 2004
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
Revenue - - - - - - - -
Cost of sales - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Gross profit - - - - - - - -
Operating expenses (1.0) (0.4) 4.6 - - - - 3.2
---------------------------------------------------------------------------------------------------------------
Operating profit (1.0) (0.4) 4.6 - - - - 3.2
Loss from interests
in joint ventures - - - - - - - -
Profit from
interests in
associates - - - - (0.5) - - (0.5)
---------------------------------------------------------------------------------------------------------------
Operating profit of
the Group, joint
ventures and
associates (1.0) (0.4) 4.6 - (0.5) - - 2.7
Profit on the
disposal of
operations - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Profit before
interest (1.0) (0.4) 4.6 - (0.5) - - 2.7
Finance income - - - - - - - -
Finance costs - - - - - - (0.4) (0.4)
Other finance
expense - - - - - - 0.4 0.4
---------------------------------------------------------------------------------------------------------------
Profit before tax (1.0) (0.4) 4.6 - (0.5) - - 2.7
Tax - - - - 0.5 - - 0.5
---------------------------------------------------------------------------------------------------------------
Profit after tax (1.0) (0.4) 4.6 - - - - 3.2
Minority
shareholders'
interests - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Profit for the
period (1.0) (0.4) 4.6 - - - - 3.2
===============================================================================================================
Basic earnings per
share (pence) 0.34
Diluted earnings per
share (pence) 0.33
Adjusted earnings
per share (pence) (0.04)
--------
c) Consolidated income statement for the year to 31 December 2003
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
Revenue - - - - - - - -
Cost of sales - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Gross profit - - - - - - - -
Operating expenses (0.4) - 9.7 - - - - 9.3
---------------------------------------------------------------------------------------------------------------
Operating profit (0.4) - 9.7 - - - - 9.3
Profit from
interests in joint
ventures - - - - (1.3) - - (1.3)
Profit from
interests in
associates - - - (0.1) (0.9) - - (1.0)
---------------------------------------------------------------------------------------------------------------
Operating profit of
the Group, joint
ventures and
associates (0.4) - 9.7 (0.1) (2.2) - - 7.0
Profit on the
disposal of
operations - - 2.6 - - 2.4 - 5.0
---------------------------------------------------------------------------------------------------------------
Profit before
interest (0.4) - 12.3 (0.1) (2.2) 2.4 - 12.0
Finance income - - - - - - - -
Finance costs - - - - 0.2 - (1.5) (1.3)
Costs associated
with the part
prepayment of loan
notes - - - - - - - -
Other finance
expense - - - - - - 1.5 1.5
---------------------------------------------------------------------------------------------------------------
Profit before tax (0.4) - 12.3 (0.1) (2.0) 2.4 - 12.2
Tax - - - (0.1) 2.0 - - 1.9
---------------------------------------------------------------------------------------------------------------
(Loss)/profit after
tax (0.4) - 12.3 (0.2) - 2.4 - 14.1
Minority
shareholders'
interests - - - - - - - -
---------------------------------------------------------------------------------------------------------------
(Loss)/profit for
the period (0.4) - 12.3 (0.2) - 2.4 - 14.1
===============================================================================================================
Basic (loss)/
earnings per share
(pence) 1.51
Diluted (loss)/
earnings per share
(pence) 1.49
Adjusted earnings
per share (pence) (0.02)
--------
Consolidated balance sheets
d) Consolidated balance sheet at 31 December 2004
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
Assets
Non current assets
Goodwill - - 17.7 - - - - 17.7
Property, plant and
equipment - - - - - - - -
Investment in joint
venture - - - - - - - -
Investment in
associates - - - (1.5) - - - (1.5)
Deferred tax - 11.1 - - - - - 11.1
---------------------------------------------------------------------------------------------------------------
- 11.1 17.7 (1.5) - - - 27.3
---------------------------------------------------------------------------------------------------------------
Current assets
Inventories - - - - - - - -
Trade and other
receivables - - - - - - - -
Cash and cash
equivalents - - - - - - - -
---------------------------------------------------------------------------------------------------------------
- - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total assets - 11.1 17.7 (1.5) - - - 27.3
---------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other
payables - (0.2) - - - - - (0.2)
Current tax - - - - - - - -
Short term borrowings
and overdrafts - - - - - - - -
Provisions and other
liabilities - - - - - - (4.2) (4.2)
---------------------------------------------------------------------------------------------------------------
- (0.2) - - - - (4.2) (4.4)
---------------------------------------------------------------------------------------------------------------
Non current
liabilities
Trade and other
payables - - - - - - - -
Long term borrowings - - - - - - - -
Retirement benefit
obligation - (11.1) - - - - - (11.1)
Deferred tax - - - (0.6) - - - (0.6)
Provisions and other
liabilities - - - - - - 4.2 4.2
---------------------------------------------------------------------------------------------------------------
- (11.1) - (0.6) - - 4.2 (7.5)
---------------------------------------------------------------------------------------------------------------
Total liabilities - (11.3) - (0.6) - - - (11.9)
---------------------------------------------------------------------------------------------------------------
Net assets - (0.2) 17.7 (2.1) - - - 15.4
---------------------------------------------------------------------------------------------------------------
Equity
Called up share
capital - - - - - - - -
Share premium account - - - - - - - -
Capital reserve - - - - - - - -
Capital redemption
reserve - - - - - - - -
Translation reserve - - (1.1) (0.1) - 2.8 - 1.6
Retained earnings - (0.2) 18.8 (2.0) - (2.8) - 13.8
---------------------------------------------------------------------------------------------------------------
Shareholders' funds -
equity - (0.2) 17.7 (2.1) - - - 15.4
---------------------------------------------------------------------------------------------------------------
Minority interests -
equity - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total equity and
reserves - (0.2) 17.7 (2.1) - - - 15.4
===============================================================================================================
e) Consolidated balance sheet at the end of the first half of 2004
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
Assets
Non current assets
Goodwill - - 13.6 - - - - 13.6
Property, plant and
equipment - - - - - - - -
Investment in joint
venture - - - - - - - -
Investment in
associates - - - (1.5) - - - (1.5)
Deferred tax - 10.3 - - - - - 10.3
---------------------------------------------------------------------------------------------------------------
- 10.3 13.6 (1.5) - - - 22.4
---------------------------------------------------------------------------------------------------------------
Current assets
Inventories - - - - - - - -
Trade and other
receivables - - - - - - - -
Cash and cash
equivalents - - - - - - - -
---------------------------------------------------------------------------------------------------------------
- - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total assets - 10.3 13.6 (1.5) - - - 22.4
---------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other
payables - (1.4) - - - - - (1.4)
Current tax - - - - - - - -
Short term borrowings
and overdrafts - - - - - - - -
Provisions and other
liabilities - - - - - - (2.3) (2.3)
---------------------------------------------------------------------------------------------------------------
- (1.4) - - - - (2.3) (3.7)
---------------------------------------------------------------------------------------------------------------
Non current
liabilities
Trade and other
payables - - - - - - - -
Long term borrowings - - - - - - - -
Retirement benefit
obligation - (10.3) - - - - - (10.3)
Deferred tax - - - (0.6) - - - (0.6)
Provisions and other
liabilities - - - - - - 2.3 2.3
---------------------------------------------------------------------------------------------------------------
- (10.3) - (0.6) - - 2.3 (8.6)
---------------------------------------------------------------------------------------------------------------
Total liabilities - (11.7) - (0.6) - - - (12.3)
---------------------------------------------------------------------------------------------------------------
Net assets - (1.4) 13.6 (2.1) - - - 10.1
---------------------------------------------------------------------------------------------------------------
Equity
Called up share
capital - - - - - - - -
Share premium account - - - - - - - -
Capital reserve - - - - - - - -
Capital redemption
reserve - - - - - - - -
Translation reserve - - (0.7) (0.1) - 0.3 - (0.5)
Retained loss - (1.4) 14.3 (2.0) - (0.3) - 10.6
---------------------------------------------------------------------------------------------------------------
Shareholders' funds -
equity - (1.4) 13.6 (2.1) - - - 10.1
---------------------------------------------------------------------------------------------------------------
Minority interests -
equity - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total equity and
reserves - (1.4) 13.6 (2.1) - - - 10.1
---------------------------------------------------------------------------------------------------------------
f) Consolidated balance sheet at 31 December 2003
GBP million IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS
& IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------------
Assets
Non current assets
Goodwill - - 9.3 - - - - 9.3
Property, plant and
equipment - - - - - - - -
Investment in joint
venture - - - - - - - -
Investment in
associates - - - (1.5) - - - (1.5)
Deferred tax - 13.0 - - - - - 13.0
---------------------------------------------------------------------------------------------------------------
- 13.0 9.3 (1.5) - - - 20.8
---------------------------------------------------------------------------------------------------------------
Current assets
Inventories - - - - - - - -
Trade and other
receivables - - - - - - - -
Cash and cash
equivalents - - - - - - - -
---------------------------------------------------------------------------------------------------------------
- - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total assets - 13.0 9.3 (1.5) - - - 20.8
---------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other
payables - (1.0) - - - - - (1.0)
Current tax - - - - - - - -
Short term borrowings
and overdrafts - - - - - - - -
Provisions and other
liabilities - - - - - - (4.6) (4.6)
---------------------------------------------------------------------------------------------------------------
- (1.0) - - - - (4.6) (5.6)
---------------------------------------------------------------------------------------------------------------
Non current
liabilities
Trade and other
payables - - - - - - - -
Long term borrowings - - - - - - - -
Retirement benefit
obligation - (13.0) - - - - - (13.0)
Deferred tax - - - (0.6) - - - (0.6)
Provisions and other
liabilities - - - - - - 4.6 4.6
---------------------------------------------------------------------------------------------------------------
- (13.0) - (0.6) - - 4.6 (9.0)
---------------------------------------------------------------------------------------------------------------
Total liabilities - (14.0) - (0.6) - - - (14.6)
---------------------------------------------------------------------------------------------------------------
Net assets - (1.0) 9.3 (2.1) - - - 6.2
===============================================================================================================
Equity
Called up share
capital - - - - - - - -
Share premium account - - - - - - - -
Capital reserve - - - - - - - -
Capital redemption
reserve - - - - - - - -
Translation reserve - - (0.4) (0.1) - 3.5 - 3.0
Investment in own
shares - - - - - - 2.6 2.6
Retained loss - (1.0) 9.7 (2.0) - (3.5) (2.6) 0.6
---------------------------------------------------------------------------------------------------------------
Shareholders' funds -
equity - (1.0) 9.3 (2.1) - - - 6.2
---------------------------------------------------------------------------------------------------------------
Minority interests -
equity - - - - - - - -
---------------------------------------------------------------------------------------------------------------
Total equity and
reserves - (1.0) 9.3 (2.1) - - - 6.2
===============================================================================================================
Transition date consolidated balance sheet at 1 January 2003
GBPmillion UK GAAP IFRS 2 IAS 19 IFRS 3 IAS 12 IAS 28 IAS 21 Reclassifications Total IFRS IFRS
&IAS 31 adjustments
Appendix II (a) (b) (c) (d) (e) (f) (g)
-------------------------------------------------------------------------------------------------------------------
Assets
Non current assets
Goodwill 113.6 - - - - - - - - 113.6
Property, plant
and equipment 110.0 - - - - - - - - 110.0
Investment in
joint venture 50.1 - - - - - - - - 50.1
Investment in
associates 13.3 - - - (1.4) - - - (1.4) 11.9
Deferred tax - - - - - - - - - -
-------------------------------------------------------------------------------------------------------------------
287.0 - - - (1.4) - - - (1.4) 285.6
-------------------------------------------------------------------------------------------------------------------
Current assets
Inventories 61.5 - - - - - - - - 61.5
Trade and other
receivables 97.3 - - - - - - - - 97.3
Cash and cash
equivalents 83.6 - - - - - - - - 83.6
-------------------------------------------------------------------------------------------------------------------
242.4 - - - - - - - - 242.4
-------------------------------------------------------------------------------------------------------------------
Total assets 529.4 - - - (1.4) - - - (1.4) 528.0
-------------------------------------------------------------------------------------------------------------------
Liabilities
Current
liabilities
Trade and other
payables (88.0) - (1.0) - - - - - (1.0) (89.0)
Current tax (19.5) - - - - - - - - (19.5)
Short term
borrowings and
overdrafts (1.8) - - - - - - - - (1.8)
Provisions and
other liabilities - - - - - - - (5.7) (5.7) (5.7)
-------------------------------------------------------------------------------------------------------------------
(109.3) - (1.0) - - - - (5.7) (6.7) (116.0)
-------------------------------------------------------------------------------------------------------------------
Non current
liabilities
Trade and other
payables (4.7) - - - - - - - - (4.7)
Long term
borrowings (243.6) - - - - - - - - (243.6)
Retirement benefit
obligation (46.2) - - - - - - - - (46.2)
Deferred tax (2.4) - - - (0.4) - - - (0.4) (2.8)
Provisions and
other liabilities (26.0) - - - - - - 5.7 5.7 (20.3)
-------------------------------------------------------------------------------------------------------------------
(322.9) - - - (0.4) - - 5.7 5.3 (317.6)
-------------------------------------------------------------------------------------------------------------------
Total liabilities (432.2) - (1.0) - (0.4) - - - (1.4) (433.6)
-------------------------------------------------------------------------------------------------------------------
Net assets 97.2 - (1.0) - (1.8) - - - (2.8) 94.4
===================================================================================================================
Equity
Called up share
capital 31.3 - - - - - - - - 31.3
Share premium
account 696.1 - - - - - - - - 696.1
Capital reserve 17.6 - - - - - - - - 17.6
Capital redemption
reserve 0.7 - - - - - - - - 0.7
Translation
reserve - - - - - - - - - -
Investment in own
shares (2.1) - - - - - - 2.1 2.1 -
Retained loss (648.5) - (1.0) - (1.8) - - (2.1) (4.9) (653.4)
-------------------------------------------------------------------------------------------------------------------
Shareholders'
funds - equity 95.1 - (1.0) - (1.8) - - - (2.8) 92.3
Minority interests
- equity 2.1 - - - - - - - - 2.1
-------------------------------------------------------------------------------------------------------------------
Total equity and
reserves 97.2 - (1.0) - (1.8) - - - (2.8) 94.4
===================================================================================================================
IV) Explanation of material adjustments to the consolidated cash flow statements
Income taxes of GBP1.4 million paid during the first half of 2004 (full year
2004 GBP3.1 million, 2003 GBP8.9 million receipt) are classified as operating
cash flows under IFRS, but were included in a separate category of tax cash
flows under UK GAAP. There are no other material differences between the cash
flow statements presented under IFRS and the cash flow statements presented
under UK GAAP.
V) Earnings/(loss) per share
GBP million Year 2004 First half 2004 Year 2003
UK Total IFRS IFRS UK Total IFRS IFRS UK GAAP Total IFRS IFRS
GAAP adjustments GAAP adjustments adjustments
-------------------------------------------------------------------------------------------------------------
Basic earnings/
(loss)
attributable to
shareholders 16.0 10.2 26.2 8.6 3.2 11.8 (0.5) 14.1 13.6
-------------------------------------------------------------------------------------------------------------
Restructuring and
refinancing costs 2.9 - 2.9 - - - 7.5 - 7.5
Goodwill
amortisation 9.1 (9.1) - 4.6 (4.6) - 9.7 (9.7) -
Loss/(profit) on
the disposal of
operations 0.9 (4.9) (4.0) - - - (3.6) (5.0) (8.6)
Costs associated
with the part
prepayment of loan
notes 0.5 - 0.5 - - - 16.1 - 16.1
Prior year tax
credit (1.3) - (1.3) - - - (6.0) - (6.0)
Attributable tax
on restructuring
and refinancing
costs - - - - - - (1.7) - (1.7)
Share-based
payment 0.6 4.6 5.2 0.3 1.0 1.3 0.6 0.4 1.0
-------------------------------------------------------------------------------------------------------------
Adjusted earnings
attributable to
shareholders 28.7 0.8 29.5 13.5 (0.4) 13.1 22.1 (0.2) 21.9
=============================================================================================================
Per share (pence)
Basic earnings/
(loss) 1.70 1.09 2.79 0.92 0.34 1.26 (0.05) 1.51 1.46
Diluted earnings/
(loss) 1.67 1.07 2.74 0.90 0.33 1.23 (0.05) 1.49 1.44
Adjusted
earnings(1),(2) 3.06 0.08 3.14 1.44 (0.04) 1.40 2.38 (0.02) 2.36
=============================================================================================================
Weighted average
number of shares
in issue
(millions)
Basic and adjusted 939.2 - 939.2 937.2 - 937.2 929.3 - 929.3
Dilutive potential
of employee share
options 18.1 - 18.1 21.0 - 21.0 - 17.1 17.1
-------------------------------------------------------------------------------------------------------------
Diluted 957.3 - 957.3 958.2 - 958.2 929.3 17.1 946.4
=============================================================================================================
Notes
(1) Before restructuring and refinancing costs, goodwill amortisation and share-based payment
(2) For UK GAAP adjusted earnings is headline earnings as previously reported before deducting the charge
for share-based payment
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 15 July 2005 By ____/s/ Luke Thomas____
(Signature)*