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Spirent Reviews Business

Findings of Spirent's Strategic Review will be reported to shareholders in October; company to refocus on performance analysis

April 27, 2007

3 Min Read

LONDON -- Spirent Communications plc ('Spirent' or 'theGroup ') (LSE: SPT; NYSE: SPM), a leading communications technology company, isannouncing today the results of the first phase of its previously announcedGroup Review and providing an update on current trading.

As stated in our preliminary results announcement on 1 March 2007, the chiefpurpose of the Group Review was to decide where to focus our resources andhow to be the most efficient and effective competitor in our chosen areas.

The Review is in two parts: an Operating Review encompassing our PerformanceAnalysis business, shared services and corporate functions, and a StrategicReview of the Group, which will also include balance sheet structure andother matters. It is anticipated that the findings of the Strategic Reviewwill be reported to shareholders in October 2007.

Following completion of the Operating Review, the Board is implementing anumber of changes in order to achieve three key objectives:

  • Improve profitability at current sales levels

  • Refocus attention on Performance Analysis, which is the largest business within the Group

  • Optimise future product development investments

Improved profitability

The Operating Review has been focused on Performance Analysis, sharedservices and corporate overheads with the objective to improve the baselevel of earnings in order to reduce volatility and to deliver higheroperational leverage when sales increase. The operational restructuring hasbeen principally centred on items that do not affect future revenue growth.

The restructuring will eliminate duplicated activities and processes,consolidate manufacturing and reduce general overheads. In addition,corporate overheads will be reduced significantly, with a number ofactivities being integrated into business units.

The total annualised cost reductions resulting from the restructuring are£21.5 million (US$43.0 million) representing an approximate 12 per centreduction in costs for Performance Analysis, shared services and corporateoverheads combined. Approximately 70 per cent of the cost reductions willoccur in manufacturing and overhead areas. The benefits will be realisedprogressively through the second quarter and second half of 2007, such thatthe £21.5 million of annualised savings are expected to be fully realised in theyear ending December 2008.

Refocus on Performance Analysis and optimise product development

The Operating Review has confirmed our view of Performance Analysis, thelargest business within the Group, as a very high quality business withsignificant growth potential. While underlying sales growth in thePerformance Analysis business has more recently been obscured by thedeclining sales of legacy broadband products, there are significantopportunities for growth in broadband revenues, Wireless products and inSpirent TestCenter sales. In order to best exploit those opportunities, theallocation of development resources has been adjusted to achieve net salesgrowth and reduce risk by concentrating on the development and adoption ofSpirent TestCenter and investing in the growth of Wireless and positioningproducts. The resulting reduction in product development spending forPerformance Analysis will be achieved in significant part by consolidatingprojects into a smaller number of locations.

One-time charges

As a result of the cost reduction actions, Spirent will record a one-timecharge in 2007 of £15.0 million, of which £4.0 million will be paid in cashfor severance and other reorganisation costs. The balance of £11.0 millionrelates to asset write-downs and a provision for vacant leasehold propertiesresulting from the restructuring.

Current trading

As stated at the time of the preliminary results, market conditions are suchthat only modest growth in Performance Analysis revenue is expected in 2007.It is anticipated that Performance Analysis revenue will be slightly aheadin US dollar terms of the same period in 2006. However, the average dollarexchange rate in the first half of 2006 was approximately 10% higher than atpresent.Accordingly, revenues when translated into sterling are expected to belower.Service Assurance and Systems revenues are anticipated to decline in linewith previous guidance.

Board composition

The Group is seeking additional independent Non-executive Directors.

Commenting on the outcome of the Operating Review, Edward Bramson, ExecutiveChairman, said:

"We anticipate that the actions taken will leave us with a more profitablebusiness, with lower earnings volatility, that is well provided withresources to support future profitable growth. We look forward to reportingthe results of the Strategic Review, which is currently underway, inOctober."

Spirent Communications plc

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