Interim Results

27th Nov 2008 07:00



SEPURA PLC

INTERIM RESULTS ANNOUNCEMENT

FOR THE  HALF YEAR ENDED 30 SEPTEMBER 2008

Sepura plc (the "Company"), a leading global provider of TETRA digital radios, today announces its interim results for the six month period ended 30 September 2008.

An analyst presentation of the interim results will be held today at 9.00 am at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London.

Summary Financial Information	30 September 2008 £'000 (Unaudited)	30 September 2007 £'000 (Unaudited)	% change
International revenue	22,290	17,302	+ 29%
UK revenue	10,607	15,696	- 32%
Total revenue	32,897	32,998	-
Operating profit (excluding IPO costs)	4,958	7,674	- 35%
IPO costs	-	(2,104)	-
Operating profit	4,958	5,570	- 11%
EBITDA (excluding IPO costs)	8,416	10,299	- 18%
Diluted EPS (excluding IPO costs)	2.7p	4.2p	- 36%
Interim dividend	0.42p	-	-

Strategic Highlights: 

- Extension of global footprint:  sales in 3 new countries and 18 new distribution partners appointed (an increase of 25%)

- Increase in market share in EMEA to 36%1

- Won both German contracts awarded to date 

- UK replacement cycle underway - all existing customers retained to date

- New STP8000 and SRH3900 handsets launched with strong customer take-up

- Chinese manufacturing capability firmly established

Financial Highlights:

- As expected financial results were down against a strong first half in 2007

- Revenue flat year-on-year:

International revenue grew by 29% driven by a strong Euro, at constant exchange rates growth was 10%

UK revenue fell by 32% year on year due to a surveillance order delayed into second half

- Gross margin at 53% but down 1% versus last year

- Operating profit2 and diluted EPS2 down 35% and 36% respectively on prior year

- Balance sheet remains strong

- Interim dividend of 0.42 pence per share

1 Based on IMS total shipment date for EMEA (Europe, including UK, Middle East and Asia) for the quarter ended 30 June 2008

2 30 September 2007: excluding IPO costs of £2.1m

Philip Nolan, Chairman of Sepura, commenting on the first half performance and outlook, said:

"Our financial results for the first half of 2008 have suffered from order slippage in both the UK and International markets and at the operating profit level are about 10% below our expectations.

TETRA network deployments continue globally and we continue to make solid progress against our strategic objectives. We have held or grown our market share in key regions and increased the number of distribution partners by 25%. We have won the first two tenders awarded in Germany, potentially the largest TETRA market in the world, and retained all our existing customers in the UK who have begun to replace radios. Thus we remain confident in the medium term outlook for the Group and we are declaring an interim dividend of 0.42 pence per share.

Predicting the exact timing of orders continues to be difficult and this is being exacerbated by the current economic conditions. The Board expects full year revenue growth to be modest.

My Board and I are very pleased with the way in which Gordon Watling has stepped up to his new responsibilities as Chief Executive and we look forward to further success under his leadership."

The Interim Report to Shareholders will be issued on 12 December 2008. 

FOR FURTHER INFORMATION PLEASE CONTACT:

Sepura   Tel: 01223 876 000

Philip Nolan, Chairman

Gordon Watling, Chief Executive Officer

Steve Crowther, Chief Financial Officer

Powerscourt (Media Enquiries) Tel: 020 7250 1446

Keith Brookbank

CAUTIONARY STATEMENT:

This Interim Results announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of Sepura. By their nature, future events and circumstances can cause results and developments to differ from those anticipated. Nothing in this Interim Results announcement should be construed as a profit forecast. No undertaking is given to update the forward-looking statements whether as a result of new information, future events or otherwise. 

NOTES TO EDITORS:

About Sepura

Sepura is a global leader in the design, development and supply of TETRA (TErrestrial Trunked RAdio) digital mobile radios, used predominantly by the emergency services around the world as well as in the military, transportation, utilities, local government and commercial sectors. 

The TETRA standard was developed mainly for public safety professionals. It facilitates reliable radio communication at all times and offers secure voice and data transmissions - free from the possibility of eavesdropping.

Sepura has rapidly expanded across the world with a network of more than 90 regional partners that sell and support locally its market-leading products in over 90 countries. It is now the market leader in more than 25 countries. 

Sepura's development expertise is focused entirely on TETRA radio terminals, and the Company offers the broadest range of TETRA products available. It is the market leader in the supply of surveillance and other specialist TETRA radios and accessories.

Based in Cambridge, England and employing some 300 employees, Sepura was admitted to the Official List of the London Stock Exchange on 3 August 2007.

For further information please visit www.sepura.com 

Recognition For Innovation  

The Company has won a number of awards over the past 12 months, including the PLC Award 2007 for Best Technology Company and the 2008 Frost & Sullivan Global First Responder Company of the Year Award.

CHAIRMAN'S STATEMENT

Our financial results for the first half of 2008 have suffered from order slippage in both the UK and International markets and at the operating profit level are about 10% below our expectations.

TETRA network deployments continue globally and we continue to make solid progress against our strategic objectives. We have held or grown our market share in key regions and increased the number of distribution partners by 25%. We have won the first two tenders awarded in Germany, potentially the largest TETRA market in the world, and retained all our existing customers in the UK who have begun to replace radios. Thus we remain confident in the medium term outlook for the Group and we are declaring an interim dividend of 0.42 pence per share.

Predicting the exact timing of orders continues to be difficult and this is being exacerbated by the current economic conditions. The Board expects full year revenue growth to be modest.

The Company was recently awarded two German contracts to supply TETRA terminals to Police forces in the German states of Niedersachsen and Bremen which were won in partnership with Selectric GmbH, our public safety distribution partner in Germany.

STP8000 radios, designed to meet the specifications of the German market, will be used on Germany's new national public safety digital network, known as BOS-net, which has been developed to equip police, ambulance, fire and security services with a secure and failsafe communications system.  We view Germany as a key TETRA market and one that has the potential to be the world's largest.

The orders for over 8,000 units will be delivered by December 2009.  Two further regional Police force bids have also been submitted with the results expected shortly; tender activity generally in Germany is increasing.These two contract wins in this large and important market reflect the success of our investment in new product development, our significant local sales presence and our close cooperation with Selectric, our distribution partner.

As reported earlier, Gordon Watling, previously Chief Operating Officer, was appointed to the Board as Chief Executive Officer on 1 October 2008 in place of Graham Matthews who stepped down after a distinguished career as a founding member of Sepura and as the Company's first CEO since its formation in 2002.  On behalf of shareholders, the Board would like to recognise the significant contribution that Graham made to Sepura's success thus far and we wish him a prosperous and fruitful retirement. My Board and I are very pleased with the way in which Gordon has stepped up to his new responsibilities as Chief Executive and we look forward to further success under his leadership. 

INTERIM MANAGEMENT REPORT

Revenue

Total revenue for the half-year ended 30 September 2008 was flat at £32.9m compared to £33.0m for the half-year ended 30 September 2007, although volumes increased by 4% to 59,300 units. Our International business continued to report significant growth, aided by the strong Euro, while the UK business was adversely affected by a delay in receiving a material surveillance order until after the period end.

The results of the two businesses are summarised below:

				Half-year ended
	30 September 2008				30 September 2007
	Revenue	Units sold	ARPUS (*)	Gross	Revenue	Units sold	ARPUS (*)	Gross
	£m	(000’s)	£	margin	£m	(000’s)	£	margin
International	22.3	41.8	533	57%	17.3	40.2	430	48%
UK	10.6	17.5	605	61%	15.7	16.6	945	67%
Central costs	–	–	–	(5)%	–	–	–	(3)%
	32.9	59.3	554	53%	33.0	56.8	581	54%

(*) Average Revenue Per Unit Shipped

International Business

Our International business continues to grow as more countries adopt TETRA and the roll-out of networks globally continues. Revenue increased 29% to £22.3m, of which 19% was due to the strengthening of the Euro, the principal currency in which we invoice International customers. Volumes increased by 4% from 40,200 to 41,800 but were impacted by the ongoing delay in shipping 8,000 radios to Pakistan pending confirmation of funding by the customer. ARPUS increased 24% to £533 from £430 in the half-year ended 30 September 2007 (6% excluding the currency impact), driven by customer and product mix, including increasing accessory sales.

During the period our market share in EMEA increased by 2.1% to 35.6% (based on IMS total shipment data for EMEA (Europe, including UK, Middle East and Asia) for the quarter ended 30 June 2008). Significant deliveries were made in the Baltics, China, Macedonia, Malaysia, Spain and Sweden, with revenues exceeding £100,000 in 27 countries compared to 20 countries in the same period last year.

In the period we have continued to deliver products that meet our customers' needs and to build our routes to market:

- New products

Our new generation of STP8000 rugged portable radios, with the largest display, most powerful loudspeaker and furthest range in its class, went into production in September. Customer take-up has been rapid, and between launch and the end of the period we sold 5,000 radios into 18 countries to both public safety and commercial customers.

- Developing distribution relationships in new markets

We continued to aggressively develop our International distribution network during the period, and signed distribution agreements with 18 new partners. These broaden our penetration across a number of geographies and industry segments. During the period we sold into 57 countries, including three countries where we had not previously made sales. The most significant of these new territories during the period was in the Baltics, which saw the first major sales success of our STP8000 range.

 

UK Business

The volume of radios shipped in the UK increased by 6% from 16,600 to 17,500, although revenues fell 32% as ARPUS decreased to £605 from £945. The decline in ARPUS was due mainly to a lower mix of surveillance products compared to those sold during the first half of FY2008. A major part of the decline in UK revenue was forecast as a result of the second half loading of revenues relating to the police replacement cycle, due in large part to the November availability of our SRH3900 refresh product. In addition, revenue was adversely affected by a delay in receiving a major order from a new customer for surveillance products, which we have now received for delivery in the second half of the current financial year.

We have resumed delivery of radios for the Department of Health's Airwave Ambulance contract, following the delays experienced at the end of the previous financial year. We have also started receiving orders for a second surveillance contract which was also delayed at the end of last year, with the majority of this revenue coming through in the second half of the year.

The UK remains the world's most mature TETRA market, and in addition to new users joining the Airwave network we are now seeing the original users refreshing their radio fleets. Eight police forces started taking delivery of replacement radios during the period, and orders have been received from a further three forces since the end of the period. To date we have retained all our customers who have replaced their radios.

 

Gross Margin

Our gross margin on International sales increased from 48% to 57% as a result of product and customer mix and from the impact of the stronger Euro on Sterling product costs. The margin in the UK fell from 67% to 61% as a result of reduced surveillance business, the impact of the stronger Euro on our product costs and the impact of the police replacement cycle.  Margins in both our UK and International businesses benefitted from our ongoing product cost reduction programme.  Central costs increased to approximately 5% of revenues, mainly as a result of IPR and depreciation costs previously included in the International / UK gross margins being allocated to central costs. The overall margin was 53%, down slightly from 54% compared to the same period last year, mainly driven by the increasing proportion of International business.

 

Research and Development

We have continued to invest in extending our product range, and the gross expenditure during the period on R&D of £7.5m represented an increase of 13% over the equivalent period in 2007. We completed the development of the new STP8000 hand-held range, and continued development work on both our SRH3900 range and the ongoing delivery of new software features, functionality and upgrades. We capitalised 73% (2007: 79%) of R&D expenditure in the period, and, after amortisation of previously capitalised costs, our net R&D charge in the income statement was £4.5m (2007: £3.5m), an increase of 27%.

 

Selling, Marketing and Distribution Costs and Administrative Expenses

Selling, marketing and distribution costs increased 9% to £4.8m (2007: £4.4m), reflecting the investment we have made in our sales and sales support team over the last year as we develop our routes to market. In addition to the full year of costs for our established offices in Germany and China, we have opened an office in Amman, Jordan, to support our activities in the Middle East. We continue to recruit additional business development managers to address the next wave of TETRA markets.

Administrative expenses were 48% higher at £3.2m (2007: £2.2m, excluding IPO costs); excluding the impact of £0.2m of foreign exchange gains in 2007 and £0.2m of foreign exchange losses in the current period the increase would have been 25%. The increase was the result of the additional personnel recruited and the extra costs commensurate with our status as a listed company following our IPO last August, together with additional costs incurred on enhancing our purchasing and project management functions and establishing our manufacturing capability in China.

 

Taxation

The Group continues to enjoy the benefit of research and development credits, which reduce the tax charge in the income statement to 21% relative to the standard UK rate of Corporation Tax of 28%. This charge is fully covered by our historic tax losses, generated by the exercise of employee share options on IPO last year, and hence we do not expect to pay UK Corporation Tax in respect of the full year to 31 March 2009.

 

Earnings Per Share

Our basic and diluted EPS for the period was 2.7p, compared to 4.2p in 2007 (excluding IPO costs). After excluding the impact of capitalising our research and development costs, diluted EPS was 1.1p (2007: 2.6p, excluding IPO costs).

 

Dividends

The Board has declared a dividend of 0.42p per Ordinary share. This interim dividend will be payable on 8 January 2009 to those shareholders registered on 5 December 2008.

 

Cashflow and Financing

We generated £7.7m of operating cash during the period under review (2007: £12.7m, including a significant reduction in receivables in that period of £7.0m). The Group continued to invest for the future with £5.5m being spent on capitalised R&D costs and £1.3m on capital expenditure.  Other significant cash outflows during the half-year included: £1.7m of scheduled repayments and interest on our borrowings, the second payment of £1m on the buy-out of one of our IPR licences and £1.2m in relation to last year's final dividend. We have maintained our focus on managing our working capital in the current economic environment, and have reduced our debtor days to 28 from 53 at 31 March 2008. Inventory levels are consistent with those at year end, due to us holding stock in anticipation of the UK surveillance and other contracts scheduled for the second half. Our trade creditors are primarily related to inventory; inventory purchases in the period were less than those in the second half of last year resulting in a reduction of £3.5m from the year end trade creditors' position.

We had cash balances of £12.5m at 30 September 2008 (2007: £14.2m), and, after deducting our outstanding borrowings, our net funds were £0.6m (2007: net debt of £1m). Our borrowings comprise a term loan, of which £12m was outstanding at 30 September 2008 with scheduled capital repayments of £3m a year for the next 4 years, and we have £15m of undrawn committed credit facilities which are available until October 2012. Net interest cover was 17 times (2007: 24, excluding IPO costs), and the Group was ungeared at the end of the period.

 

RETAINED EARNINGS

During the period under review retained earnings increased by £2.9m to £31.4m.

 

Share Capital

During the half-year under review employees exercised options over a total of 123,060 Ordinary shares of £0.0005 each and two employee share incentive schemes were introduced. The Group launched its Long Term Incentive Plan for senior executives and management in July 2008, which could result in a maximum of 2.4m shares being delivered following the approval of the FY11 accounts if certain performance targets are met. Following shareholder approval at this year's AGM the Company launched an all-employee SAYE scheme in September, although the options arising under this scheme were not formally granted until after the end of the period.

 

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group for the first six months and the remaining six months of the financial year continue to be those stated on Page 12 of the Group's 2008 Annual Report, which are summarised as follows:

- The risk that customers delay issuing tenders or orders, as a result of changes in political and economic conditions, with a consequential delay in the timing of our revenues.

- The risk that the Group fails to secure a market-leading position in emerging markets, with a detrimental effect on future revenue opportunities and profitability.

- The risk that alternative products and technologies are developed by our competitors, which threaten our future profitability.

- The risk that we are unable to manage our rapid growth profitably, with reduced margins and inefficiencies adversely affecting our future profitability and financial position.

- The risk that a material customer defaults on outstanding receivables.

The risks previously identified reflect many of the possible effects on the Group that the ongoing economic uncertainty and turbulence in the global financial markets may have on the government organisations which are the Group's principal customers. Similarly, there is a risk that in the current environment important suppliers may cease to trade and the Group may be unable to find a timely alternative replacement.

CONDENSED CONSOLIDATED HALF-YEAR INCOME STATEMENT

 

	Note	Half-year ended 30 September 2008 £'000 (Unaudited)	Half-year ended 30 September 2007 £'000 (Unaudited)	Year ended 31 March 2008 £'000 (Audited)
Revenue		32,897	32,998	68,105
Cost of sales		(15,449)	(15,195)	(32,193)
Gross profit		17,448	17,803	35,912
Selling, marketing and distribution costs		(4,806)	(4,416)	(8,770)
Research and development costs		(4,458)	(3,504)	(7,821)
Administrative expenses excluding IPO costs		(3,271)	(2,209)	(4,675)
IPO costs		-	(2,104)	(2,141)
Total administrative expenses		(3,271)	(4,313)	(6,816)
Other gains		45	-	28
Operating profit		4,958	5,570	12,533
Financial income		250	274	654
Financial expense		(534)	(588)	(1,200)
Net financial expense		(284)	(314)	(546)
Profit before income tax		4,674	5,256	11,987
Income tax expense	5	(979)	(1,527)	(3,319)
Profit for the period attributable to equity holders		3,695	3,729	8,668
Earnings per share (p)
Basic	6	2.7	2.7	6.8
Diluted	6	2.7	2.7	6.3

The results above relate to continuing operations.

CONDENSED CONSOLIDATED-HALF YEAR STATEMENT OF CHANGES IN EQUITY

 

For the half-year ended 30 September 2008 (Unaudited)	Share capital £'000	Retained earnings £'000	Total £'000
At 1 April 2008	68	28,520	28,588
Excess tax on share option scheme	-	246	246
Net income recognised directly in equity	-	246	246
Profit for the period	-	3,695	3,695
Total recognised income and expense	-	3,941	3,941
Employee share option scheme: value of employee services	-	103	103
Dividends paid to shareholders	-	(1,160)	(1,160)
At 30 September 2008	68	31,404	31,472

For the half-year ended 30 September 2007 (Unaudited)
At 1 April 2007	-	13,249	13,249
Excess tax on share option scheme	-	7,167	7,167
Reversal of excess tax on share option scheme on exercise of options	-	(10,397)	(10,397)
Excess tax deductions from share option exercises carried forward as a deferred tax asset	-	10,117	10,117
Net income recognised directly in equity	-	6,887	6,887
Profit for the period	-	3,729	3,729
Total recognised income and expense	-	10,616	10,616
Employee share option scheme: value of employee services	-	164	164
Share capital issued from equity	68	(68)	-
At 30 September 2007	68	23,961	24,029

CONDENSED CONSOLIDATED HALF-YEAR BALANCE SHEET

	Note	30 September 2008 £'000 (Unaudited)	30 September 2007 £'000 (Unaudited)	31 March 2008 £'000 (Audited)
Assets
Non-current assets
Intangible assets	8	21,660	14,073	18,762
Property, plant and equipment	8	4,493	3,694	4,270
Deferred tax asset		2,876	5,501	3,596
Total non-current assets		29,029	23,268	26,628
Current assets
Inventories		8,689	6,930	8,497
Trade and other receivables		13,383	13,005	16,134
Derivative financial instruments		45	-	28
Cash and cash equivalents		12,538	14,221	15,597
Total current assets		34,655	34,156	40,256
Total assets		63,684	57,424	66,884
Liabilities
Current liabilities
Borrowings	9	(2,952)	(2,951)	(2,952)
Finance lease liabilities		(126)	(291)	(273)
Trade and other payables		(12,645)	(14,016)	(18,959)
Income tax payable		(442)	(98)	(429)
Provisions		(427)	(276)	(327)
Total current liabilities		(16,592)	(17,632)	(22,940)
Non-current liabilities
Borrowings	9	(8,853)	(11,806)	(10,330)
Finance lease liabilities		-	(126)	-
Trade and other payables		(6,119)	(3,407)	(4,418)
Provisions		(648)	(424)	(608)
Total non-current liabilities		(15,620)	(15,763)	(15,356)
Total liabilities		(32,212)	(33,395)	(38,296)
Net assets		31,472	24,029	28,588
Shareholders' equity
Ordinary share capital	10	68	68	68
Retained earnings		31,404	23,961	28,520
Total shareholders' equity		31,472	24,029	28,588

The condensed consolidated financial statements were approved by the Board and authorised for issue on 26 November 2008 and are signed on its behalf by:

S Crowther G Watling Director Director

CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF CASH FLOWS

 

	Note	Half-year ended 30 September 2008 £'000 (Unaudited)	Half-year ended  30 September 2007 £'000 (Unaudited)	Year ended 31 March  2008 £'000 (Audited)
Profit before income tax		4,674	5,256	11,987
Adjustments for:
Depreciation charges		825	578	1,257
Loss on disposal of property, plant and equipment		1	-	-
Amortisation charges		2,633	2,047	4,640
Equity settled share based payment charge		103	164	204
Gain on derivative financial instruments		(45)	-	(28)
Financial income		(250)	(274)	(654)
Financial expense		534	588	1,200
Increase in inventories		(192)	(969)	(2,536)
Decrease in trade and other receivables		2,737	7,013	3,850
(Decrease) increase in trade and other payables		(3,462)	(893)	4,097
Increase in provisions		140	-	235
Cash generated from operations		7,698	13,510	24,252
Income taxes paid		-	(811)	(813)
Net cash generated from operating activities		7,698	12,699	23,439
Cash flow from investing activities
Interest received		250	274	654
Purchase of property, plant and equipment		(1,313)	(1,573)	(2,467)
Capitalised development costs		(5,463)	(5,210)	(10,380)
Purchase of other intangible assets		(956)	-	(1,241)
Proceeds on disposal of property, plant and equipment		1	-	-
Net cash used in investing activities		(7,481)	(6,509)	(13,434)
Cash flow from financing activities
Repayments of borrowings		(1,500)	-	(1,500)
Interest paid		(511)	(476)	(1,324)
Dividends paid to shareholders		(1,160)	-	-
Repayment of capital element of finance leases		(105)	(98)	(201)
Issue of share capital		-	-	12
Net cash used in financing activities		(3,276)	(574)	(3,013)
Net (decrease) increase in cash and cash equivalents		(3,059)	5,616	6,992
Cash and cash equivalents at the beginning of the period		15,597	8,605	8,605
Cash and cash equivalents at the end of the period	11	12,538	14,221	15,597

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFOR THE HALF-YEAR ENDED 30 SEPTEMBER 2008

1. General information

Sepura plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose Ordinary shares of £0.0005 each are traded on the Main Market of the London Stock Exchange. The Company's registered office is Radio House, St Andrew's Road, Cambridge, CB4 1GR, England.

The condensed consolidated financial statements were approved for issue on 26 November 2008.

The condensed consolidated financial statements do not constitute the statutory accounts of the Company within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 March 2008 have been delivered to the Registrar of Companies. The auditors have reported on those accounts and their report was not qualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

 

2. Basis of preparation

The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 "Interim financial reporting" as adopted by the European Union. The condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2008, which have been prepared in accordance with IFRS as adopted by the European Union. The methods of computation and presentation applied in the preparation of the most recent Annual Report have been followed in the preparation of these condensed consolidated financial statements.

 

3. Significant accounting policies

The accounting policies adopted are consistent with those of the financial statements for the year ended 31 March 2008, as described in those financial statements. 

 

4. Segment reporting

The Group has a single business segment, being the design, development and distribution of secure digital radios for use on public safety networks operating on the TETRA standard. Distribution is either directly to end-users (or their managed service providers) in the UK, or through our international distribution partners to end-users overseas.

The Group's primary reporting format is by geographical segment, namely UK and International, which is determined by reference to the geographical location of the Group's customers and reflects the distribution channels referred to above. The segments are organised and managed separately according to the sales focus of the management involved, with each segment representing a strategic business unit that serves a different market. All revenue is derived from external operations arising in the UK, and there is no inter-segmental revenue.

With the exception of its sales offices in Germany, the Group does not maintain facilities overseas. As a result, all of the Group's assets and liabilities are located in the UK, with the exception of those associated with its German sales offices, inventories in transit to or from customers or suppliers, and test and manufacturing equipment located at suppliers overseas. In order to provide further information on the activities of the Group, the following tables allocate the results, assets and liabilities of the Group between the following segments:

- UK

Revenues and costs incurred in servicing end-user customers in the UK, together with those assets and liabilities exclusively associated with those customers;

- International

Revenues and costs incurred in servicing our international distribution partners and their end-user customers around the world, together with those assets and liabilities exclusively associated with those customers, such as inventory lines designed for specific frequencies used by a particular overseas market; and

- Unallocated

Costs, assets and liabilities which do not relate exclusively to either specific UK or International customers or relate to the operations of the Group as a whole. For example, many individual inventory lines may be utilised by either UK or International customers and are categorised as "unallocated" until such time as they are modified for the exclusive use of, or are despatched to, a particular customer.

4. Segment reporting (continued)

For the half-year ended 30 September 2008 (Unaudited)	United Kingdom £'000	International £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	10,607	22,290	-	32,897
Segmental gross profit	6,455	12,751	(1,758)	17,448
Operating profit	6,523	10,444	(11,739)	4,958
Net financial expense	-	-	(284)	(284)
Income tax expense	-	-	(979)	(979)
Profit for the year	6,523	10,444	(13,002)	3,695
Balance sheet information
Segment assets
Intangible assets	--	1,077	20,583	21,660
Property, plant and equipment	5	537	3,951	4,493
Deferred tax asset	-	-	2,876	2,876
Inventories	-	881	7,808	8,689
Trade and other receivables	2,280	10,264	839	13,383
Derivative financial instruments	-	-	45	45
Cash and cash equivalents	-	173	12,365	12,538
	2,285	12,932	48,467	63,684
Segment liabilities
Borrowings	-	-	(11,805)	(11,805)
Finance lease liabilities	-	-	(126)	(126)
Trade and other payables	(6,659)	(3,514)	(8,591)	(18,764)
Income tax payable	-	-	(442)	(442)
Provisions	(583)	(492)	-	(1,075)
	(7,242)	(4,006)	(20,964)	(32,212)
Other segment information
Balance sheet items
Capital expenditure:
- Property, plant and equipment	-	9	1,041	1,050
- Intangible fixed assets	-	805	4,726	5,531
Profit and loss items
Depreciation	7	121	697	825
Amortisation	-	83	2,550	2,633
Share-based payment charge	2	5	96	103

  4. Segment reporting (continued)

 

For the half-year ended 30 September 2007 (Unaudited)	United Kingdom £'000	International £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	15,696	17,302	-	32,998
Segmental gross profit	10,576	8,376	(1,149)	17,803
Operating profit	10,114	6,294	(10,838)	5,570
Net financial expense	-	-	(314)	(314)
Income tax expense	-	-	(1,527)	(1,527)
Profit for the year	10,114	6,294	(12,679)	3,729
Balance sheet information
Segment assets
Intangible assets	-	319	13,754	14,073
Property, plant and equipment	-	341	3,353	3,694
Deferred tax asset	-	-	5,501	5,501
Inventories	-	99	6,831	6,930
Trade and other receivables	5,943	6,279	783	13,005
Cash and cash equivalents	-	-	14,221	14,221
	5,943	7,038	44,443	57,424
Segment liabilities
Borrowings	-	-	(14,757)	(14,757)
Finance lease liabilities	-	-	(417)	(417)
Trade and other payables	(5,097)	(1,238)	(11,088)	(17,423)
Income tax payable	-	-	(98)	(98)
Provisions	-	-	(700)	(700)
	(5,097)	(1,238)	(27,060)	(33,395)
Other segment information
Balance sheet items
Capital expenditure:
- Property, plant and equipment	-	-	1,573	1,573
- Intangible fixed assets	-	-	5,210	5,210
Profit and loss items
Depreciation	-	-	578	578
Amortisation	-	-	2,047	2,047
Share-based payment charge	17	-	147	164
Impairment of inventories	-	10	366	376

  4. Segment reporting (continued)

 

For the year ended 31 March 2008 (Audited)	United Kingdom £'000	International £'000	Unallocated £'000	Total £'000
Income statement information
Segmental revenue	26,839	41,266	-	68,105
Segmental gross profit	17,604	21,442	(3,134)	35,912
Operating profit	16,578	16,977	(21,022)	12,533
Net financial expense	-	-	(546)	(546)
Income tax expense	-	-	(3,319)	(3,319)
Profit for the year	16,578	16,977	(24,887)	8,668
Balance sheet information
Segment assets
Intangible assets	--	355	18,407	18,762
Property, plant and equipment	12	649	3,609	4,270
Deferred tax asset	-	-	3,596	3,596
Inventories	-	1,430	7,067	8,497
Trade and other receivables	4,381	10,846	907	16,134
Derivative financial instruments	-	28	-	28
Cash and cash equivalents	-	27	15,570	15,597
	4,393	13,335	49,156	66,884
Segment liabilities
Borrowings	-	-	(13,282)	(13,282)
Finance lease liabilities	-	-	(273)	(273)
Trade and other payables	(6,125)	(2,899)	(14,353)	(23,377)
Income tax payable	-	-	(429)	(429)
Provisions	(507)	(428)	-	(935)
	(6,632)	(3,327)	(28,337)	(38,296)
Other segment information
Balance sheet items
Capital expenditure:
- Property, plant and equipment	27	731	2,070	2,828
- Intangible fixed assets	-	146	12,346	12,492
Profit and loss items
Depreciation	15	82	1,160	1,257
Amortisation	-	165	4,475	4,640
Share-based payment charge	1	64	139	204
Impairment of inventories	-	-	401	401

  5. Income tax expense

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full year. The tax charge for the period is lower than the standard rate of corporation tax in the UK, which is 28% (2007: 30%). The differences are explained below:

	Half-year ended 30 September 2008 £'000 (Unaudited)	Half-year ended 30 September 2007 £'000 (Unaudited)	Year ended 31 March 2008 £'000 (Audited)
Profit before income tax	4,674	5,256	11,987
At standard rate of corporation tax in the UK	1,309	1,577	3,596
Effects of:
Research and development enhanced expenditure	(362)	(644)	(672)
Expenses not deductible for tax purposes (principally IPO costs during the prior year)	28	594	560
Effect of overseas tax rates	4	-	5
Exercise of employee share options	-	-	(748)
Remeasurement of deferred tax due to change in UK tax rate	-	-	373
Adjustments in respect of prior years	-	-	205
Total tax charge	979	1,527	3,319

6. Earnings per share

Basic earnings per share has been calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares of the Company. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the conversion of all dilutive equity instruments.

	Half-year ended 30 September 2008 (Unaudited)	Half-year ended 30 September 2007 (Unaudited)	Year ended 31 March 2008 (Audited)
Earnings attributable to ordinary shareholders (£'000)	3,695	3,729	8,668
Number of shares
Basic weighted average number of shares ('000)	136,412	136,353	128,036
Effect of dilutive securities:
Employee incentive plans ('000)	1,063	1,139	9,350
Diluted weighted average number of shares ('000)	137,475	137,492	137,386
Basic EPS (p)	2.7	2.7	6.8
Diluted EPS (p)	2.7	2.7	6.3

 

6. Earnings per share (continued)

Adjusted earnings per share

The Group presents adjusted earnings per share figures which exclude the impact of IPO costs incurred in the prior period, and the capitalisation of R&D costs (together with associated amortisation and net of UK Corporation Tax at the standard rate of 28% for the current period and 30% for previous periods). Adjusted earnings per share has been based on adjusted basic earnings for each financial period and on the same number of diluted weighted average shares in issue as the GAAP earnings per share calculation.

	Half-year ended 30 September 2008 £'000(Unaudited)	Half-year ended 30 September 2007 £'000 (Unaudited)	Year ended 31 March 2008 £'000 (Unaudited)
Earnings attributable to ordinary shareholders	3,695	3,729	8,668
IPO costs	-	2,104	2,141
Earnings attributable to ordinary shareholders excluding IPO Costs	3,695	5,833	10,809
Reversal of capitalised R&D and associated amortisation, net of UK Corporation Tax at 28% (2007: 30%)	(2,159)	(2,214)	(4,202)
Adjusted earnings attributable to ordinary shareholders excluding capitalised R&D and IPO costs	1,536	3,619	6,607
	Half-year ended 30 September 2008 (Unaudited)	Half-year ended 30 September 2007 (Unaudited)	Year ended 31 March 2008 (Unaudited)
Adjusted diluted EPS excluding IPO costs (p)	2.7	4.2	7.9
Adjusted diluted EPS excluding capitalised R&D and IPO costs(p)	1.1	2.6	4.8

7. Dividends

During the period the Company paid a final dividend in respect of the financial year ended 31 March 2008 of 0.85p per Ordinary share, totalling £1,160,000.

An interim dividend for the financial year ending 31 March 2009 of 0.42p per Ordinary share has been declared payable by the Company on 8 January 2009 to shareholders registered at the close of business on 5 December 2008. The declared dividend has not been included as a liability in these condensed financial statements.

  8. Capital expenditure

Half-year ended 30 September 2008(Unaudited)	Capitalisation of development costs £'000	Software and similar licences £'000	Total intangible assets £'000	Property, plant and equipment £'000
Net book value at 1 April 2008	16,913	1,849	18,762	4,270
Additions	5,463	68	5,531	1,050
Amortisation or depreciation charge	(2,464)	(169)	(2,633)	(825)
Disposals	-	-	-	(2)
Net book value at 30 September 2008	19,912	1,748	21,660	4,493

Major additions to property, plant and equipment comprised test equipment together with IT equipment.

Half-year ended 30 September 2007(Unaudited)	Capitalisation of development costs £'000	Software and similar licences £'000	Total intangible assets £'000	Property, plant and equipment £'000
Net book value at 1 April 2007	10,910	-	10,910	2,699
Additions	5,210	-	5,210	1,573
Amortisation or depreciation charge	(2,047)	-	(2,047)	(578)
Net book value at 30 September 2007	14,073	-	14,073	3,694
Year ended 31 March 2008(Audited)	Capitalisation of development costs £'000	Software and similar licences £'000	Total intangible assets £'000	Property, plant and equipment £'000
Net book value at 1 April 2007	10,910	-	10,910	2,699
Additions	10,380	2,112	12,492	2,828
Amortisation or depreciation charge	(4,377)	(263)	(4,640)	(1,257)
Net book value at 31 March 2008	16,913	1,849	18,762	4,270

9. Borrowings

On 27 October 2006 the Group entered into a £30,000,000 multi-currency term loan and revolving facilities agreement with a floating interest rate of 1.5% over LIBOR. £15,000,000 was drawn down against the facility on 27 October 2006, and is repayable in 60 equal quarterly instalments commencing in December 2007. The outstanding capital at 30 September 2008 was £12,000,000 (30 September 2007: £15,000,000;31 March 2008: £13,500,000), and unamortised issue costs were £195,000 (30 September 2007: £243,000;31 March 2008: £218,000).

The unused facility of £15,000,000 expires on 25 October 2012.

10. Share capital

During the period the Company issued 123,060 Ordinary shares of £0.0005 each in relation to the exercise of employee share options. At the end of the period the Company's issued share capital comprised 136,476,200 Ordinary shares of £0.0005 each (30 September 2007 and 31 March 2008: 136,353,140).

  11. Reconciliation of cash flows to movements in net funds (debt)

	Half-year ended 30 September 2008 £'000 (Unaudited)	Half-year ended 30 September 2007 £'000 (Unaudited)	Year ended 31 March 2008 £'000 (Unaudited)
Net (decrease) increase in cash and cash equivalents	(3,059)	5,616	6,992
Repayment of borrowings	1,500	-	1,500
Repayment of finance lease liabilities	105	98	201
Changes in net (debt) funds resulting from cash flows	(1,454)	5,714	8,693
Amortisation of debt issue costs	(23)	(24)	(28)
Loss on disposal and repurchase of financial assets amortised over the course of the finance lease	42	42	82
Net movements in net funds (debt)	(1,435)	5,732	8,727
Net funds (debt) at the beginning of the period	2,042	(6,685)	(6,685)
Net funds (debt) at the end of the period	607	(953)	2,042
Net funds (debt) comprises:
Cash and cash equivalents	12,538	14,221	15,597
Borrowings	(11,805)	(14,757)	(13,282)
Finance lease liabilities	(126)	(417)	(273)
	607	(953)	2,042

 

12. Seasonality

The Group's financial results have not historically been subject to any significant seasonal trends.

 

13. Contingent liabilities

During the period the Group issued performance bonds to customers totalling £340,000 and which have not been provided for in these accounts since no actual liability is expected to arise.

 

14. Related party transactions

The Directors consider Kelso Place Asset Management LLP ("Kelso Place") to be a related party by virtue of the fact that Sion Kearsey is a Director of both Kelso Place and Sepura plc. Kelso Place was paid £98,000 during the year ended 31 March 2008 for management services during the period up to Listing, at which point such fees ceased. The Directors consider this transaction to have been on an arm's length basis.

 

15. Post balance sheet events

There have been no post balance sheet events of any significance.

  Statement of Directors' responsibilities

A copy of the condensed consolidated financial statements of the Group is placed on the Company's website. The Directors are responsible for the maintenance and integrity of information on the Company's website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

The Directors of the Group are listed in the Group's Annual Report for the year ended 31 March 2008 with the exception of the following changes in the period: Graham Matthews resigned on 1 October 2008 and Gordon Watling was appointed on 1 October 2008.

On behalf of the Board,

Gordon Watling

Chief Executive Officer

Stephen Crowther

Chief Financial Officer

26 November 2008

INDEPENDENT REVIEW REPORT TO SEPURA PLC

Introduction

We have been engaged by the Company to review the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 September 2008, which comprises the condensed consolidated half-year income statement, condensed consolidated half-year statement of changes in equity, condensed consolidated half-year balance sheet, condensed consolidated half-year statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated financial statements.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

Cambridge

26 November 2008

ENDIR FQLLLVFBEFBX

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