5th Oct 2006 07:00
Spirent Communications PLC05 October 2006 SPIRENT COMMUNICATIONS PLC UPDATE ON STRATEGY AND CURRENT TRADING: MARGIN IMPROVEMENT PLAN PROPOSED ADDITIONAL RETURN OF CAPITAL REVIEW OF US LISTING London, UK - 5 October 2006: Spirent Communications plc ("Spirent" "the Company"or "the Group") (LSE: SPT; NYSE: SPM), a leading communications technologycompany, is today issuing an update on current trading together with an updateon its strategy, which includes plans for a further return of capital and itsintention to seek a US de-listing. Highlights: • Current trading in line with expectations with important new customer wins • Target to improve operating margin in Performance Analysis Broadband to a 15% run rate by the end of 2007 - additional restructuring actions announced across Communications • Proposed additional return of capital of £50 million • Intention to pursue US de-listing and SEC de-registration Trading update Trading in the third quarter has been consistent with the outlook indicated atthe time of the interim results reported on 10 August 2006. The introduction ofnew products and enhancements to existing products, together with thecontribution from acquisitions, is expected to lead to a modest increase inrevenue for 2006 compared with 2005. Combined with the benefits of therestructuring actions taken in June 2006, this is expected to result in animproved performance for the year as a whole although, as in recent years, thiswill be dependent on the performance in Spirent's critical fourth quarter. Spirent continues to show good momentum gaining market share in its key markets,with continuing strong sales performance from Spirent TestCenterTM, which hasbeen purchased by more than 125 customers worldwide including all Spirent's top10 customers to date. Other new and enhanced products continue to perform well,as do Spirent's faster growing regions such as Asia Pacific. Spirent has alsowon strategically important orders for its recently acquired products, such asSwissQual's new high-end Diversity platform for GSM/UMTS & HSDPA wirelessbenchmarking, which recently won a contract with O2 Germany, marking asignificant step in Spirent's growth in the wireless market. Update on strategy Background At the time of the disposal of HellermannTyton, the Board reiterated thatSpirent's strategy is to focus on its telecommunications business and oncreating shareholder value. It also stated that the proceeds from the disposalwould in part be applied to growing Spirent by means of organic investment andselective acquisitions. In addition, we will continue to review Spirent's non-core business and how we might maximise its value for the benefit ofshareholders. This fundamental strategic direction remains unchanged. Margin improvement plan The Board continues to carefully manage the balance between Spirent's cost baseand maintaining the capability to generate long term growth against a backgroundof significant product transition in its two core communications businesses,Performance Analysis and Service Assurance. It therefore continues to focus onthe realignment of resources and reduction in operating expenses whereappropriate across all divisions, whilst continuing to invest for the longerterm in Spirent's existing and new products. This strategy positions Spirent togrow organically by gaining market share for next-generation products andsolutions in triple play, wireless and fixed/mobile convergence. Performance Analysis has two main product areas, Broadband and WirelessPositioning, being 71 per cent of sales and 29 per cent of sales, respectively.The strategic objective is to expand both the Broadband and Wireless Positioningbusinesses, whilst improving margins to targeted levels in the former andmaintaining existing best in class returns in the latter. In Performance Analysis Broadband, the Board is targeting a long termimprovement in operating margin. The interim goal aims to deliver a run rate of15 per cent by the end of 2007, with scope for further expansion in the future.Spirent continues to make significant organic investment in this division, mostnotably in its new platform, Spirent TestCenter. Spirent TestCenter wasdeveloped to change the game in testing by consolidating a host of solutions ona single platform. It is expected that 2006 will be the peak year in developmentspending on the platform and as its success grows, Spirent expects to be able torationalise its product portfolio. This in turn is expected to realisesignificant operating efficiencies in product development, sales and marketingand other areas within the division. As previously announced, significant restructuring actions were undertaken inthe first half of 2006, the majority of which were within Service Assurance.This strategy will allow Service Assurance to target a break-even position inthe short term while continuing to invest in the future of next-generationtriple play IP monitoring solutions. Actions taken in the first half withinPerformance Analysis included changes to senior management and a reduction inwork force. Restructuring actions Spirent announces further restructuring plans across its Communicationsbusinesses to help achieve its divisional margin targets; these are in additionto the restructuring actions announced in June 2006. In Performance Analysis operating costs will be reduced by around a further £6 million on an annualised basis at a one-time cost of around £1 million (to beexpensed in the current financial year). The benefit of these savings will takeeffect during the fourth quarter of 2006. In Service Assurance, consultationshave begun with regard to the closure of Spirent's loss making Glasgow andBelfast locations. This process will take some six months to conclude, with aprojected annualised saving of £1 million identified at a one-time cost ofaround £1.5 million, plus a provision for vacant property of £1.5 million. Theseactivities are expected to be transferred elsewhere within the division. Proposed additional return of capital As part of its growth plan, Spirent has this year also completed four small, butstrategic acquisitions it had identified as attractive additions to PerformanceAnalysis, enhancing the capabilities of both the Broadband and WirelessPositioning businesses, for an initial total consideration of £39.7 million.Whilst the Board will continue to review opportunities for value enhancingacquisitions the priority for the immediate future is to grow market shareorganically, taking advantage of the industry's anticipated future increase inspending on next-generation networks worldwide. Accordingly, the Communications businesses are not expected to need significantcash resources for acquisitions in the near future and the Board also believesthat now is the time to make the Group's capital structure more efficient. TheBoard therefore proposes to return an additional £50 million of the Group'scurrent cash balance to shareholders. The existing rolling buy back programmehas to date returned £28.6 million through the purchase of some 68.4 millionshares and it is anticipated that the remaining £21.4 million will be returnedto shareholders before the end of the current financial year. The additionalreturn of capital will require shareholder approval in due course and togetherwith the current programme will result in a total return of capital of £100million. Review of US listing and SEC registration The Company has for a number of years been listed on both the London StockExchange and the New York Stock Exchange, with its primary listing in London.The US listing has however become significantly more costly and onerous inrecent years, not least due to the imposition of the Sarbanes Oxley regulations.The current annual costs are some £3 million; the Board believes that this isdisproportionate to the actual or potential benefit in maintaining the USlisting and therefore has initiated a review to explore an efficient process bywhich the Company can de-list its shares and de-register in the United States.As a significant proportion of US employees are beneficiaries of share basedincentive schemes, it is likely that as part of the review alternative incentiveplans will need to be put in place. A further update on progress towards de-listing and de-registration will be madeas appropriate. Anders Gustafsson, Chief Executive, commented: "I am pleased to report that Spirent's current trading is in line withexpectations and that we are on track to report an improved overall performancefor 2006. "The Board's annual strategy review has resulted in a proposed additional returnof capital, reiteration of our margin improvement plans and an intention to de-list our shares and de-register in the US. These actions are in line with ourplan to deliver shareholder value." - ends - Anders Gustafsson, Spirent Communications plc +44 (0)1293 767676Chief ExecutiveEric Hutchinson, Chief Financial Officer Reg Hoare/ Katie Hunt/ Libby Young Smithfield +44 (0)20 7360 4900 Photography is available from UPPA (Universal Pictorial Press & Agency) - www.uppa.co.uk or tel: +44 (0)20 7421 6000 About Spirent Communications plc Spirent Communications plc is a leading communications technology companyfocused on delivering innovative systems and services to meet the needs ofcustomers worldwide. We are a global provider of performance analysis andservice assurance solutions that enable the development and deployment of next-generation networking technologies such as broadband services, Internettelephony, 3G wireless and web applications and security testing. The Systemsgroup develops power control systems for specialist electrical vehicles in themobility and industrial markets. Further information about SpirentCommunications plc can be found at www.spirent.com. Spirent Communications plc Ordinary shares are traded on the London StockExchange (ticker: SPT) and on the New York Stock Exchange (ticker: SPM; CUSIPnumber: 84856M209) in the form of American Depositary Shares ("ADS"),represented by American Depositary Receipts, with one ADS representing fourOrdinary shares. Spirent and the Spirent logo are trademarks or registered trademarks of SpirentCommunications plc. All other trademarks or registered trademarks mentionedherein are held by their respective companies. All rights reserved. This press release may contain forward-looking statements (as that term isdefined in the United States Private Securities Litigation Reform Act of 1995)based on current expectations or beliefs, as well as assumptions about futureevents. You can sometimes, but not always, identify these statements by the useof a date in the future or such words as "will", "anticipate", "estimate","expect", "project", "intend", "plan", "should", "may", "assume" and othersimilar words. By their nature, forward-looking statements are inherentlypredictive and speculative and involve risk and uncertainty because they relateto events and depend on circumstances that will occur in the future. You shouldnot place undue reliance on these forward-looking statements, which are not aguarantee of future performance and are subject to factors that could cause ouractual results to differ materially from those expressed or implied by thesestatements. Such factors include, but are not limited to: the extent to whichcustomers continue to invest in next-generation technology and deploy advancedIP-based services; our ability to manage a significant transition in productrevenues to new product solutions incorporating latest technology; our abilityto successfully expand our customer base; continuing variable market conditions;pace of economic recovery; our ability to improve efficiency, achieve thebenefits of our cost reduction goals and adapt to economic changes and otherchanges in demand or market conditions; our ability to develop and commercialisenew products and services, extend our existing capabilities in IP services andexpand our product offering internationally; our ability to attract and retainqualified personnel; the effects of competition on our business; fluctuations inexchange rates and heavy exposure to the US dollar; changes in the business,financial condition or prospects of one or more of our major customers; risks ofdoing business internationally; risks relating to the acquisition or sale ofbusinesses and our subsequent ability to integrate businesses; our reliance onproprietary technology; our exposure to liabilities for product defects; ourreliance on third party manufacturers and suppliers; and other risks describedfrom time to time in Spirent Communications plc's Securities and ExchangeCommission periodic reports and filings. The Company undertakes no obligation toupdate any forward-looking statements contained in this press release, whetheras a result of new information, future events or otherwise. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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