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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Telent | LSE:TLNT | London | Ordinary Share | GB00B0S5CP58 | ORD 87.5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 596.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:3511I Telent PLC 22 November 2007 TELENT PLC: UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 London - 23 November 2007 - telent plc (LSE: TLNT) today announced results for the six months ended 30 September 2007. Summary Financials Six months ended 30 September # million 2007 2006 Revenue from Trading Activities(1) 149 147 Adjusted operating profit(2) from Trading Activities 11 11 Exceptional items, liability management and share option costs 20 (19) Operating profit from Continuing Operations 31 (8) Profit before tax from Continuing Operations 52 4 Basic earnings per share (pence) from Continuing Operations 76.8p 14.6p Basic earnings per share (pence) from Adjusted operating profit(2) from Trading Activities 17.6p 17.8p Company Cash (excluding UK Pension Plan Escrow Account) 253 201 Notes: (1) 'Trading Activities' comprise the results of our Continuing Operating segments - Telco Services and Enterprise Services. (2) Representing operating profit before exceptional items, liability management costs (see page 4) and share option costs (see reconciliation to 'Operating profit from Continuing Operations' on page 3). Recommended Cash Offer by Pension Corporation It was announced on 25 September 2007 that the Board of telent and Co-Investment No. 5 L.P. Incorporated ("CILP") a limited partnership whose general partner is advised by Pension Corporation LLP ("Pension Corporation") had reached agreement on the terms of a recommended cash offer by CILP to acquire the whole of the issued and to be issued share capital of telent at a price of 600 pence per share. The offer document was posted to telent shareholders on 2 October 2007. On 15 November 2007, CILP declared the offer unconditional in all respects. As at 3.45 pm on 15 November 2007, CILP had received valid acceptances in respect of a total of 40,586,442 telent shares, representing approximately 91.90 per cent. of telent's issued share capital to which the Offer relates. CILP has become entitled to acquire compulsorily the remaining telent shares pursuant to the Companies Act 2006 and it intends to exercise that right shortly. Overview We recorded broadly stable revenues (30 September 2007: #149 million; 30 September 2006: #147 million) and adjusted operating profit from Trading Activities (30 September 2007: #11 million; 30 September 2006: #11 million) during the first half of the year, despite challenging conditions in some of our main market sectors. In Germany, we experienced a slowdown in spending by our major Utility customers, while in the UK, our Telco Services business was impacted by lower than expected levels of next generation network build activity. Our UK Enterprise Services business has had a good start to the financial year with major order wins (including Firelink maintenance, FiReControl, South West Trains and Northern Line contract extension - see Contract Wins below) and strong revenue growth particularly in our Emergency Services and Rail sectors. Further significant contract opportunities are in the pipeline. We continue to make good progress in liability management, with the further reduction of some 39 legal entities achieved in the first half of the year and one-off legacy income contributing to Group profit in the period. As previously disclosed, we completed the disposal of our German facility, retained post completion of the Ericsson transaction in 2006, for cash proceeds and profit on disposal of #15 million respectively. Group cash, excluding UK Pension Escrow was #253 million (31 March 2007: #235 million), including #25 million of restricted cash balances (31 March 2007: #34 million). At 30 September 2007 the UK Pension Escrow amounted to #514 million (31 March 2007: #514 million), comprising primarily Sterling corporate bond investments of #506 million and cash deposits of #8 million. Further details are provided under Cash (see page 10). Contract Wins In the six months ended 30 September 2007, we were awarded a number of new contracts, as well as extensions to existing long-term maintenance contracts. We were awarded, successively, two multi-million three-year contracts to support COLT customers' telecommunications IT infrastructure. The first contract was awarded in the UK in May 2007, and the second in Germany in August 2007. These both involve telent employing engineers from COLT's existing staff alongside its own field engineers. The combined workforce is now planning, installing, supporting and maintaining customer communications systems across a multitude of networking platforms. In the Emergency Services sector, we booked the award by EADS in September 2007 of a #25 million eight-year contract to design and install state-of-the art equipment in the English Fire & Rescue Service's Regional Control Centres and 1,440 fire stations, in the framework of the FiReControl project. Further options on the existing contract, which includes ongoing maintenance and support, are currently under discussion. We have also received further orders totalling approximately #8 million under our contract to support deployment of the Airwave Tetra Radio Communication System as part of the National Firelink Programme. Announced in September 2007, the extension brings the total value of telent's framework contract, which will run until December 2016, to #29 million. In September 2007, we were awarded our first contract by a train operating company - Stagecoach's South West Trains. Under the three-year contract, worth over #1 million a year, telent will provide maintenance and support for South West Trains' stations and control rooms. In July 2007, an existing contract with ALSTOM to maintain communications systems on London Underground's Northern Line was extended by five years. Valued at #8 million, the contract extension involves pro-active maintenance on train-to-track CCTV, train and station radio and data systems, alongside management of logistics and asset monitoring. Financial Review A summary of the key financial results for our two main operating segments - Telco Services and Enterprise Services - is set out in the table below and discussed in this section. A detailed review of our segmental operations is included in Segment Review on page 5. Key Financials # million Revenue Adjusted Operating Profit from Trading Activities (1) (see below) Six months ended 30 September 2007 2006 2007 2006 Telco Services 89 89 11 8 Enterprise Services 60 58 - 3 149 147 11 11 Discontinued Operations - 1 Group 149 148 Six months ended 30 September 2007 2006 Adjusted operating profit from Trading Activities(1) 11 11 Share option costs (1) - Segment result(2) 10 11 Liability management credit / (costs) 4 (5) Exceptional items(3) 17 (14) Operating profit / (loss) from Continuing Operations 31 (8) Basic profit per share on adjusted operating profit from Trading 17.6p 17.8p Activities (1) Revenues Revenues amounted to #149 million in the six months ended 30 September 2007 compared to #147 million in the previous year. Revenues in our Telco Services business remained stable at #89 million while revenues in our Enterprise business were up #2 million to #60 million, with reduced volumes in Germany more than offset by good growth in the UK. See Segment Review on page 5 for further details. Profit Group profit for the period amounted to #48 million (30 September 2006: #12 million) and comprised operating profit from Continuing Operations of #31 million (30 September 2006: #8 million loss) and investment income of #91 million (30 September 2006: #84 million), partially offset by finance costs of #70 million (30 September 2006: #72 million) and a tax charge of #4 million (30 September 2006: #5 million credit). The #36 million improvement in Group profit compared to the previous year (30 September 2006: #12 million) was driven by three main factors: i) exceptional profit of #17 million compared to an exceptional charge of #14 million in the previous year; ii) #4 million profit recorded from liability management activities compared to a #5 million charge in the previous year; and iii) increased investment income. Adjusted operating profit from Trading Activities(1) remained stable at #11 million. Overall, Business Unit contribution (defined as gross profit and direct Business Unit costs) was broadly in line with the level recorded in the previous year. Operating cost reductions achieved across central functions were largely offset by a reduction in rental income following completion of the disposal of our facility in Germany and the impact of higher IT costs due to discounts received on our outsourced IT services in the first half of the previous financial year. See Segment Review on page 5 for further details. Share option costs amounted to #1 million. The #nil million charge for share options in the previous year comprised a #3 million charge offset by a #3 million credit in respect of option lapses. We recorded a profit from liability management activities of #4 million, as the costs associated with our ongoing Legal Entity Rationalisation programme were more than offset by legacy income, particularly in relation to a previously completed UK property transaction and the wind-down of legacy operations in the Middle East. In addition, we recorded approximately #2 million of foreign exchange gains on legacy intercompany trading balances retained within the Group compared to a #3 million foreign exchange loss in the previous year. Exceptional items within Continuing Operations amounted to a net credit of #17 million compared to a net charge of #14 million in the previous year. The #17 million credit arose mainly upon completion of the disposal of our facility in Germany (#15 million comprising the net proceeds on disposal and the release of a rental prepayment previously held on the balance sheet). In addition, we closed the remaining legacy US post-retirement benefit plan during the period and recorded an actuarial settlement gain of #1 million. The #14 million charge in the previous year mainly comprised a settlement loss on the annuity purchase of a legacy US pension plan (#9 million) and professional fees associated with the proposed scheme of arrangement by Holmar Holdings, which lapsed in August 2006 (#4 million). Investment income of #91 million (30 September 2006: #84 million) principally comprised an expected return on pension scheme assets of #71 million and interest received on the UK Pension Plan Escrow of #14 million. Interest income on Group cash balances amounted to #6 million. The increase in investment income compared to the previous year arose mainly as a result of the higher value of the Group's cash and investments as well as improved interest rates. Finance costs of #70 million (30 September 2006: #72 million) related mainly to notional interest on pension scheme liabilities. We recorded a tax charge for the period of #4 million. This was partly due to tax payable in Germany on the disposal of our German facility (#2 million) and partly due to the restatement of the deferred tax asset recognised at 31 March 2007 (#2 million) due to reductions in the rates of corporate tax in the UK and Germany, see Note 9 to the non-statutory accounts. The #5 million tax credit in the previous year related to the release of tax provisions upon the successful conclusion of certain legacy tax issues. Segment Review The results of our operating segments within Continuing Operations, Telco Services and Enterprise Services, are set out below. This includes each segment's share of the Group's corporate costs. Telco Services Six months ended 30 September 2007 2006 # million Revenue 89 89 Adjusted operating profit from Trading Activities(1) 11 8 Revenues from Telco Services remained stable at #89 million, despite slower than expected levels of next generation network build activity during the period. The resulting reduction in Installation and Commissioning (I&C) volumes compared to the previous year was offset by increased revenues from External Networks (formerly Infrastructure Services) and System X. The increase in External Networks was due to the onset of a new activity for BT Openreach in the field of heavy cable recovery, where we are providing services to recover redundant cables from Openreach's network in Birmingham, London and Eastern areas. Revenues from System X support and maintenance contracts have begun to decline as expected, but this was more than offset during the first half by deliveries under a customer order for additional equipment supply, previously announced. The main customers of our Telco Services segment are UK telecommunications operators and equipment vendors including (in alphabetical order) BT, Cable & Wireless, Easynet, Ericsson, Thus and Virgin Media. BT remains our largest customer and accounted for 38% of our revenues for the six months ended 30 September 2007 (30 September 2006: 37%). We successfully concluded our contract negotiations with COLT and were awarded two three year contracts to support COLT customers' telecommunications IT infrastructure in the UK and Germany. Adjusted operating profit from Telco Services improved by #3 million to #11 million in the first half of the year. We took immediate action to stem the impact of lower I&C volumes by reducing the level of sub-contract labour employed within our UK fieldforce and by announcing restructuring measures in our Midlands-based Contract Marshalling Centre and these measures are ongoing. The improvement in profit compared to the previous year was driven primarily by the increase in System X equipment deliveries. Enterprise Services Six months ended 30 September 2007 2006 # million Revenue 60 58 Adjusted operating profit from Trading Activities(1) - 3 Revenues from Enterprise Services improved by #2 million to #60 million, with reduced revenues in Germany and the UK Roads sector more than offset by strong growth in the UK Emergency Services and Rail sectors. In Germany, revenues were impacted by capital expenditure constraints amongst major German Utility customers as well as the completion of major re-signalling projects in the previous year, which has resulted in reduced revenues in the German Rail sector. In the UK, we have seen a reduced level of additional-to-contract works in the Roads sector after a particularly high level of activity in the previous year. This however, has been more than offset by strong growth in our Emergency Services business, as we ramp up activity under our recently awarded contracts with Airwave (Ground-Based Network Resilience and National Firelink projects), as well as a significant increase in re-signalling projects for Network Rail. The main customers of our Enterprise Services segment are (in alphabetical order) ADC Krone, Airwave, ALSTOM, Anglian Water, Deutsche Bahn, Highways Agency, Mersey Fire & Rescue Service, Network Rail, RWE, Tube Lines and Westinghouse. In September 2007 we booked a major new contract with EADS to support the FiReControl project with a value of #25 million as well as our first contract with South West Trains for maintenance and support over three years at #4 million. We also secured additional works of #8 million under our Firelink contract for Airwave and extended an existing contract with ALSTOM to maintain communications systems on London Underground's Northern Line. Adjusted operating profit from Enterprise Services dropped from a profit of #3 million to #nil million in the period. This was largely due to the one-off benefit of contract accrual releases (#2 million) recorded and disclosed in the first half of the previous financial year. Profitability in the Enterprise sector was also impacted by i) under-recoveries in Germany due to the lower business volumes - management has now agreed action plans to address this issue during the second half of the year and ii) growth in revenues under a previously disclosed loss-making contract - good progress is being made to address contract delays and to reach commercial settlement with our customer. In addition, we are investing in the future growth of our Enterprise sector, particularly in the UK, with the recruitment of additional resource and the recent opening of a new Network Services Centre in London's Docklands area. Balance Sheet Our balance sheet at 30 September 2007 can be summarised as set out in the table below. # million 30 September 2007 31 March 2007 Fixed assets 11 17 Inventory 13 11 Total debtors 75 80 Total creditors (104) (124) Provisions for liabilities and charges (65) (69) Capital Employed (70) (85) Goodwill and other intangible assets 42 42 Interests in joint ventures 6 6 Net pension deficit (14) (65) Deferred tax asset 53 55 Tax liabilities (54) (52) Available for sale investments - UK Pension Plan Escrow 506 - Cash - UK Pension Plan Escrow 8 514 Cash - other 253 235 Net Assets 730 650 Group Net Assets increased by #80 million to #730 million during the first six months of the financial year. The main movements in balance sheet items related to: * A #51 million reduction in the net pension deficit largely as a result of a #48 million surplus recorded in the UK Pension Plan (31 March 2007: #nil million), see Pensions and Other Retirement Benefits on page 8. * The disposal of our German facility and the corresponding release of an associated accrual for rental prepayment and legacy environmental provisions. We received cash proceeds of #15 million and recorded a profit on disposal of #15 million. Pensions and Other Retirement Benefits IAS 19 valuation at 30 September 2007 Our net pension scheme deficit as at 30 September 2007 amounted to #14 million (31 March 2007: #65 million) comprising a #48 million surplus in our UK Pension Plan and liabilities of #62 million relating entirely to the un-funded legacy pension liabilities we have retained in our German business. Actuarial assessments of our defined benefit pension scheme liabilities and valuation of our pension scheme assets in accordance with IAS 19 were undertaken as at 30 September 2007. The movements in the Group net pension scheme deficit since 31 March 2007 are summarised in the table below: UK Rest of World Total Pension plans # million Plan Net pension scheme deficit at 31 March 2007 - (65) (65) Current service cost (3) - (3) Contributions and benefit payments 2 1 3 Settlement gains - 1 1 Other finance income/(charge) 5 (1) 4 Actuarial gains 44 4 48 Foreign exchange - (2) (2) Net pension scheme surplus/(deficit) at 30 September 48 (62) (14) 2007 The key elements of the net actuarial gain were as follows: # million UK Loss on Plan assets (48) Experience gain arising on scheme liabilities 2 Loss from increase in inflation (2.90% to 3.07%) and Pension increase rates (55) (2.80% to 2.97%) Gain from increase in discount rate (5.37% to 5.89%) 171 Loss from recognition of asset ceiling (26) 44 Germany Gain arising from movement in discount rate 4 Total SORIE movement for the six months ended 30 September 2007 48 The assumptions set for the IAS 19 valuations were subject to a full review as at 31 March 2007 and the basis for setting these assumptions has remained consistent as at 30 September 2007. The principal assumptions for the UK Pension Plan are set out in the table below: Assumption 30/09/07 31/03/07 Basis Discount Rate 5.89% 5.37% Yield on sterling >15 Year AA Corporate bond index at the balance sheet date Inflation & 3.07% 2.90% Bank of England spot rate less allowance for inflation risk Pension premium Increases for Deferred Pensioners Pension 2.97% 2.80% Inflation assumption less allowance for the expected Increases for long-term impact of the minimum (0%) and maximum (5%) Pensions in annual pension increase Payment Life Expectancy See below See below Plan experience plus allowance for future improvements in longevity (equal to 3% of Plan liabilities) The life expectancy basis adopted assumes that males currently aged 65 would expect to live to 84, and females to 85. Full details of the assumptions adopted are set out in Note 19 to the non-statutory accounts. The #48 million loss on assets in the UK Pension Plan was a result of changes in investment market conditions. The investment strategy seeks to protect the Plan by substantially matching movements in the value of assets and the value of liabilities. Accordingly, there was also a net fall in the value of liabilities. A 17 basis point increase in the UK inflation rate assumption from 2.90% to 3.07% and in the UK pension increase assumption for pensions in payment from 2.80% to 2.97% resulted in a net loss of #55 million, recorded through the SORIE. A 52 basis point increase in the discount rate assumption from 5.37% to 5.89% has led to a gain of #171 million, recorded through the SORIE. The impact of the movements in all assumptions has driven the UK Pension Plan into a #74 million surplus position. IAS 19 (paragraph 58b) restricts the surplus that can be recognised in the consolidated accounts to the present value of the economic benefit available to the Group. Therefore, a loss of #26 million has been recognised within the SORIE to affect the asset ceiling as required. Service costs, plan contributions, benefit payments and net finance income have been recognised in accordance with the actuarial assumptions set at the beginning of the year and published as at 31 March 2007. During the six months, the Group terminated its remaining US post-retirement medical benefit plan, which resulted in a settlement gain of #1 million. Cash Cash and cash equivalents as at 30 September 2007 amounted to #261 million compared to #749 million at 31 March 2007 and #702 million at 30 September 2006. This includes restricted cash balances as follows: # million 30 Sept 2007 31 March 2007 UK Pension Plan Escrow 8 514 High Court escrow deposit 10 14 Captive insurance company 9 11 Collateral against bonding facilities 6 9 Total Restricted Balances 33 548 The single largest movement in our cash balances during the period related to the transfer of the majority of the cash held in an escrow account owned by telent but secured in favour of the Trustees of our UK Pension Plan ("UK Pension Plan Escrow"), from cash deposits to the purchase of primarily UK sterling corporate bond investments. These are now recorded as "available for sale investments", marked to market at each balance sheet date and the coupon interest received is re-invested. At 30 September 2007, the total value of the UK Pension Plan Escrow amounted to #514 million (31 March 2007: #514 million) and comprised bond investments of #506 million and cash holdings of #8 million. The bonds are invested through three investment managers whose performance is measured against the IBoxx Sterling Non-Gilt Index. Performance was achieved in line with this benchmark index during the period. Given the recent volatility in the UK credit market, this caused an unrealised loss of #14 million to be charged against Group reserves. See Note 17 to the non-statutory accounts. Excluding cash held in the UK Pension Plan Escrow, Company cash amounted to #253 million at 30 September 2007 (31 March 2007: #235 million; 30 September 2006: #201 million). We made further progress during the first six months of the financial year in releasing previously restricted balances relating to collateral held against bonding facilities and amounts deposited in a High Court escrow account for the protection of creditors not included within the Scheme of Arrangement as part of the Group's financial restructuring in 2003. Cash Flow The following table sets out a summary of the #489 million net cash outflow recorded during the first six months of the financial year. This comprised a net #506 million outflow relating to the UK Pension Plan Escrow account (being the net impact of the purchase of corporate bond investments and the receipt of coupon interest described above) and a net cash inflow of #17 million relating to other Company cash balances. The table separates out the cash flows from our ongoing trading activities from those cash flows relating to exceptional items and liability management activities. For the six months ended Trading Exceptional items and Group Activities liability management 30 September 2007 # million Cash at 1 April 2007 749 Cash generated/(utilised) by operating 8 (6) 2 activities (before exceptional items and UK Pension Admin costs) UK Pension Admin costs (2) (2) Exceptional Items (3) (3) Sale of Backnang facility 15 15 Purchase of bond investments (UK Pension (519) (519) Plan Escrow) Interest received on UK Pension Plan 13 13 Escrow Other interest received 6 6 Capital Expenditure (1) (1) Investing activities (486) Financing activities - Net cash inflow/(outflow) 13 (502) (489) Foreign exchange 1 Cash at 30 September 2007 261 Operating cash inflow from Trading Activities was #8 million (before capital expenditure of a further #1 million) giving cash conversion from adjusted operating profit from Trading Activities(1) of 64%. Operating cash flows utilised within our liability management activities related primarily to costs associated with our ongoing Legal Entity Rationalisation programme (#6 million) and the payment of the administration costs relating to our UK Pension Plan (#2 million). Exceptional cash spend of #3 million related mainly to costs associated with legacy restructuring programmes and litigation. The net cash outflow from investing activities related primarily to the purchase of and interest received on sterling corporate bond investments held in the UK Pension Plan Escrow, described on page 10. In addition, we received cash proceeds of #15 million upon completion of the disposal of our facility in Backnang, Germany. Interest received on Company cash balances (excluding UK Pension Plan Escrow) amounted to #6 million. Financial risks As part of its ordinary activities, telent is exposed to a number of financial risks, including liquidity risk, credit risk, foreign exchange risk and insurance risk management. Other risks and uncertainties As a service company with a large field force working in challenging environments there are a number of other risks and uncertainties that could have an impact on our future performance. These include the following. Market telent is a major supplier of telecommunications services to a number of large customers. A shift in customer strategy towards in-sourcing of their telecommunications services could have a significant impact on our business. We therefore focus on diversity both within our market sectors and customers within the sector, offering a range of services from more basic services right through to more complex and sophisticated services. It is unlikely that such a significant change would be realised across this diverse group of sectors or services within a sector. We also regularly monitor our competitors' positioning and approach to ensure we remain current and cost competitive. Operational telent operates in a number of demanding environments, including tube and main line railways, highways, motorways and customer telephone exchange buildings. We have a field force working 24 hours per day, sometimes using sophisticated heavy equipment. Safe working practices are extremely important to protect everyone affected by our activities. We have highly developed quality and safety processes within our business and are regularly audited by professional bodies and our customers, where specifically necessary. We have long established working practices and controls to minimise the risks of injury and damage to property and carry appropriate insurance to mitigate the potential financial impact associated with these risks. Responsibility statement We confirm that to the best of our knowledge: a. the condensed set of financial statements has been prepared in accordance with IAS 34; b. the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and c. the interim management report includes a fair review of the information required by the DTR 4.2.8R (disclosure of related party transactions and changes therein). By Order of the Board Heather Green Chief Financial Officer 23 November 2007 Enquiries: John Coles tel: +44 (0) 20 7936 9604; email: press.enquiries@telent.com Monica Coull tel: +44 (0) 20 7005 6260; email: press.enquiries@telent.com Important Notice This report is prepared under International Financial Reporting Standards (IFRS) adopted by the European Union and therefore complies with Article 4 of the EU IAS Regulations. Forward Looking Statements It is possible that this announcement could or may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning. Undue reliance should not be placed on any such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and telent's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are delays in obtaining, or adverse conditions contained in regulatory approvals, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities. telent undertakes no obligation to revise or update any forward looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulation. About telent plc: telent plc supplies a broad range of telecommunications and IT network services to enterprises, equipment vendors, public sector organisations and network operators in the UK, Ireland and Germany, leveraging its accumulated knowledge of customers' networks, its expert field force, its scale and reputation for quality. Formerly the UK and German services business of Marconi Corporation plc, the Company was renamed telent plc in January 2006 on the sale of the telecommunications equipment and international services businesses to Ericsson. The Company is listed on the London Stock Exchange under the symbol TLNT. Additional information about telent plc can be found at www.telent.com ENDS/... Copyright (c) telent plc 2007. All rights reserved. All brands and product names and logos are trademarks of their respective holders. TELENT PLC GROUP NON-STATUTORY ACCOUNTS For the six months ended 30 September 2007 CONSOLIDATED INCOME STATEMENT # million Six months ended 30 September Note 2007 2006 (unaudited) (unaudited) Continuing Operations Revenue 3 149 147 Operating profit/(loss) Excluding Exceptional items 14 6 Exceptional items * 5 17 (14) Total operating profit/(loss) ** 6 31 (8) Investment income from UK Pension Plan Escrow 7 14 11 Investment income other 7 77 73 Finance costs 8 (70) (72) Profit on ordinary activities before taxation Excluding Exceptional items 35 18 Exceptional items * 17 (14) 52 4 Taxation 9 (4) 5 Profit for the period from Continuing Operations 48 9 Profit for the period from Discontinued Operations 10 - 3 Profit for the period 48 12 Attributable to: Equity holders of the parent company 48 12 Minority interest - - 48 12 Earnings per share: Continuing Operations Basic profit per share 11 76.8p 14.6p Diluted profit per share 11 74.3p 13.7p Discontinued Operations Basic profit per share 11 - 4.8p Diluted profit per share 11 - 4.6p Group Basic profit per share 11 76.8p 19.4p Diluted profit per share 11 74.3p 18.3p * Exceptional items comprise profit from disposal of investment properties, legacy provision movements, retirement benefit scheme settlements, restructuring costs and in the prior year costs relating to the proposed scheme of arrangement (now lapsed) (see note 5). ** Adjusted operating profit from trading activities for six months ended 30 September 2007 was #11 million (30 September 2006: #11 million). See page 6 of the Business and Financial Review for reconciliation to Operating profit/(loss) from Continuing Operations. CONSOLIDATED BALANCE SHEET 30 31 30 # million September March September Note 2007 2007 2006 (unaudited) (unaudited) Non-current assets Goodwill 42 42 42 Property, plant and equipment 5 5 6 Investment property 12 6 12 13 Interest in associates - - - Interests in joint ventures 6 6 6 Available for sale investments 17 506 - - Trade and other receivables 14 3 3 2 Retirement benefit scheme surpluses 19 48 - - Deferred tax asset 53 55 50 669 123 119 Current assets Inventories 13 13 11 17 Trade and other receivables 14 72 77 104 Cash and cash equivalents 16 261 749 702 346 837 823 Total assets 1,015 960 942 Current liabilities Trade and other payables 15 (101) (116) (121) Tax liabilities (54) (52) (70) (155) (168) (191) Net current assets 191 669 632 Non-current liabilities Trade and other payables 15 (3) (8) (10) Retirement benefit scheme obligations 19 (62) (65) (135) Long-term provisions 18 (65) (69) (77) (130) (142) (222) Total liabilities (285) (310) (413) Net assets 730 650 529 Capital and reserves Called-up share capital 20 55 55 55 Shares to be issued 21 8 9 13 Share premium account 21 10 10 10 Capital reserve 21 9 9 9 Retained earnings 21 648 567 442 Equity attributable to equity holders of parent 730 650 529 company Equity minority interests - - - Total equity 730 650 529 CONSOLIDATED CASH FLOW STATEMENT # million Six months ended 30 September 2007 2006 (unaudited) (unaudited) Net cash outflow from operating activities before exceptional items - (10) Cash outflows from exceptional items (3) (30) Continuing Operations (3) (31) Discontinued Operations - (9) Investing activities Purchases of property, plant and equipment (1) (1) Disposal of investment property 15 - Disposal of interests in subsidiaries and other business units - (13) (Purchases)/disposal of available for sale investments (519) 2 Income from UK Pension Plan Escrow 13 11 Income from other loans and deposits 6 5 Net cash flows from investing activities (486) 4 Continuing Operations (486) 17 Discontinued Operations - (13) Financing activities Issue of ordinary shares - 1 Net cash flows used in financing activities - 1 Continuing Operations - 1 Discontinued Operations - - Cash and cash equivalents at the beginning of the period 749 739 Net decrease in cash and cash equivalents (489) (35) Effect of foreign exchange rate changes 1 (2) Cash and cash equivalents at the end of the period 261 702 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE # million Six months ended 30 September 2007 2006 (unaudited) (unaudited) Exchange (losses)/gains on translation of foreign operations (2) 3 Actuarial gain/(loss) on defined benefit pension schemes 48 (76) Unrecognised loss on available for sale investments (14) - Net gain/(loss) recognised directly in equity 32 (73) Profit for the period 48 12 Total recognised income/(expense) for the year 80 (61) Attributable to: Equity holders of the parent company 80 (61) Minority interests - - 80 (61) 1. Basis of preparation The financial information does not comprise statutory accounts for the purposes of Section 240 of the Companies Act 1985, has been prepared in accordance with IAS 34, 'Interim Financial Reporting' and has not been audited. Additionally, the financial information for the year ended 31 March 2007 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors report was not qualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. 2. Accounting policies The accounting policies and the method of the computation followed in these interim financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2007. 3. Revenue and other income An analysis of the Group's revenue and income from Continuing Operations is as follows: # million Six months ended 30 September 2007 2006 Sale of goods 13 7 Revenue from long-term contracts 136 140 Revenue 149 147 Other operating income (including rental income) 7 1 Investment income on UK Pension Plan Escrow 14 11 Investment income other (excluding expected return on pension scheme assets) 6 5 Continuing Operations 176 164 Discontinued Operations - 1 176 165 4. Segmental analysis In January 2006, the Group sold its telecommunications equipment and international services businesses to Ericsson. Those operations were discontinued with effect from 1 January 2006. Following the disposal, the Group was re-organised into two Continuing Operating segments - Telco Services and Enterprise Services. These segments are the basis on which the Group reports its primary segment information. At 31 March 2006 our Discontinued Operations were organised into three operating segments - Optical & Access Networks, Data Networks and Other Network Services, which we will continue to report against for this financial year in accordance with IAS requirements. Following the disposal to Ericsson, which was achieved largely through asset-based transactions, the Group has retained legal entities in the UK and overseas territories, which hold legacy balances not transferred to Ericsson. These legal entities do not trade and are the subject of an ongoing Legal Entity Rationalisation programme. The results, assets and liabilities associated with these activities are presented as 'liability management'. 4. Segmental analysis (continued) # million Six months ended 30 September 2007 Total Continuing Continuing Operations Operations Telco Enterprise Services Services Revenue 89 60 149 Segment result 10 - 10 Liability management 4 Exceptional items (see note 5) 17 Operating profit 31 Investment income from UK Pension Plan Escrow 14 Investment income other 77 Finance costs (70) Profit on ordinary activities before taxation 52 Taxation (4) Profit for the period from Continuing Operations 48 Profit for the period from Discontinued Operations (see note 10) - Profit for the period 48 4. Segmental analysis (continued) # million Six months ended 30 September 2006 Total Continuing Continuing Operations Operations Telco Enterprise Services Services Revenue 89 58 147 Segment result 8 3 11 Liability management (5) Exceptional items (see note 5) (14) Operating loss (8) Investment income from UK Pension Plan Escrow 11 Investment income other 73 Finance costs (72) Profit on ordinary activities before taxation 4 Taxation 5 Profit for the period from Continuing Operations 9 Profit for the period from Discontinued Operations (see note 10) 3 Profit for the period 12 5. Exceptional items These items have been analysed as follows: # million Six months ended 30 September 2007 2006 Disposal of investment property i) 15 - Legacy provision movements ii) 2 - Retirement benefit scheme settlement gain/(loss) iii) 1 (9) Costs of proposed scheme of arrangement iv) - (4) Restructuring costs v) (1) (1) Continuing Operations 17 (14) Discontinued Operations vi) - 4 17 (10) i) The Group disposed of its investment property in Backnang, Germany on 14 June 2007, which resulted in a #15 million gain (see note 12). ii) Movements on legacy provisions relate primarily to the release of a provision held as a result of a historic acquisition in the US where the Group has now been released of its obligation which gave rise to the provision. iii) During the six months to 30 September 2007 the Group terminated its remaining US post-retirement medical benefit plan, which resulted in a settlement gain of #1 million. In the six months ended 30 September 2006, the Group finalised an annuity purchase in relation to a legacy US employee retirement plan, which resulted in a settlement loss of #9 million. iv) In the six months ended 30 September 2006, the Group incurred #4 million of transaction-related fees in connection with the proposed scheme of arrangement with Holmar Holdings Limited (now lapsed). The proposal was not passed by the requisite majority at the Court Meeting and Extraordinary General Meeting held on 4 August 2006. v) A net charge of #1 million was made in relation to the combined cost of employee severance, onerous leases and professional fees in the six months ended 30 September 2007. In the six months ended 30 September 2006 a #2 million charge relating to employee severance costs was partially offset by the release of provisions held against onerous leases. vi) Discontinued Operations of #4 million for the six months ended 30 September 2006 comprise the gain on disposals agreed with Ericsson prior to 31 March 2006 but completed during this financial year (see note 10). 6. Total operating profit/(loss) Before Exceptional items* Total Exceptional items # million Six months ended 30 September 2007 Revenue 149 - 149 Cost of sales (119) 1 (118) Gross profit 30 1 31 Selling, distribution and other administration expenses (23) 16 (7) Other operating income 7 - 7 Operating profit/(loss) 14 17 31 Before Exceptional items* Total Exceptional items # million Six months ended 30 September 2006 Revenue 147 - 147 Cost of sales (119) (7) (126) Gross profit 28 (7) 21 Selling, distribution and other administration expenses (23) (7) (30) Other operating income 1 - 1 Operating profit/(loss) 6 (14) (8) * Exceptional items comprise profit from disposal of investment properties, legacy provision movements, retirement benefit scheme settlements, restructuring costs and in the prior year costs relating to the proposed scheme of arrangement (now lapsed) (see note 5). 6. Investment income # million Six months ended 30 September 2007 2006 Interest receivable from UK Pension Plan Escrow 14 11 Interest receivable from other loans and deposits 6 4 Other interest receivable - 1 Expected return on pension scheme assets 71 68 77 73 Continuing Operations 91 84 Expected return on pension scheme assets includes pension administration costs for the UK Pension Plan of #2 million, borne by telent plc. 7. Finance costs # million Six months ended 30 September 2007 2006 Notional interest on pension scheme liabilities (69) (71) Other (1) (1) Continuing Operations (70) (72) 8. Taxation The current tax charge on ordinary activities arises from tax in Germany on the sale of the Backnang facility. The deferred tax charge arises from a restatement of the recognised deferred tax asset at 31 March 2007 due to reductions in the rates of corporate tax in the UK and Germany. These rate changes had not been substantively enacted for the purposes of IAS 12 as at 31 March 2007. 9. Discontinued Operations There are no results from Discontinued Operations in the six months ended 30 September 2007. Discontinued Operations for the six months ended 30 September 2006 comprise disposals agreed with Ericsson prior to 31 March 2006 but completed during that financial year. The results of the above Discontinued Operations included in the consolidated income statement were as follows: # million Six months ended 30 September 2007 2006 Revenue - 1 Expenses - (2) - (1) Gain on disposal - 4 Net profit after tax attributable to Discontinued Operations - 3 The segmental analysis of the Discontinued Operations for the six months ended 30 September 2007 and 30 September 2006 are shown below: #million Six months ended 30 September 2007 Total Discontinued Discontinued Operations Operations Optical & Data Networks Other Network Access Services Networks Revenue - - - - Segment result - - - - #million Six months ended 30 September 2006 Total Discontinued Discontinued Operations Operations Optical & Data Networks Other Network Access Services Networks Revenue - - 1 1 Segment result - - (1) (1) 10. Earnings per share Basic and diluted profit per share is calculated by reference to a weighted average of 62.5 million ordinary shares (30 September 2006: 61.8 million ordinary shares) in issue during the period. The effect of share options is dilutive. At 30 September 2007, the undiluted weighted average number of shares has been adjusted by 2.1 million (30 September 2006: 3.8 million) in respect of outstanding share options to give a diluted weighted average of 64.6 million ordinary shares (30 September 2006: 65.6 million). Included within profit for the period from Continuing Operations is #14 million of interest earned on the UK Pension Plan Escrow. Excluding this from the earnings per share calculations gives a net profit from Continuing Operations for the six months ended 30 September 2007 of #34 million and a basic profit per share of 54.4 pence per share and diluted profit per share of 52.6 pence per share. 11. Investment Property The Company disposed of its investment property in Backnang, Germany on 14 June 2007 to an associate of Kenmore Property Group for Euro22.6 million (#15.3 million). A portion of the profit on disposal shown in exceptional items (see note 5) was generated by the release of accruals held for rental income received in advance from Ericsson. The Backnang facility was retained when the Group sold its telecommunication equipment and international services businesses to Ericsson in January 2006 with Ericsson taking a lease over around 90% of the facility and telent's retained German business utilising the remainder of the facility. The facility will continue to be the principal location for telent's German business under the terms of a ten-year lease. 12. Inventories 30 September 31 March # million 2007 2007 Raw materials and bought in components - - Work in progress 2 2 Finished goods 2 3 Long-term contract work in progress 9 6 13 11 Inventories have increased in the six months to 30 September 2007 mainly due to increased levels of activity in our Emergency Services sector as we approach the first significant milestone as part of the National Firelink programme. 13. Trade and other receivables 30 September 31 March # million 2007 2007 Current assets: Trade receivables 56 60 Other receivables 11 11 Prepayments and accrued income 5 6 72 77 Non-current assets: Trade receivables - - Prepayments and accrued income 3 3 3 3 75 80 Trade Receivables have reduced as a result of continued focus on the management of overdue debtors. 14. Trade and other payables 30 September 31 March # million 2007 2007 Current liabilities: Payments received in advance 3 5 Trade payables 36 35 Other taxation and social security 11 11 Other payables 14 23 Accruals and deferred income 37 42 101 116 Non-current liabilities: Accruals and deferred income 3 8 3 8 104 124 The reduction in other payables in the six months to 30 September 2007 is primarily due to the payment of all-employee bonuses relating to the results of the previous financial year. Total accruals and deferred income have also reduced mainly as a result of the release of accruals held for rental prepayments following the disposal of our investment property in Germany. 15. Cash and cash equivalents # million 30 September 31 March 2007 2007 Cash and bank deposits repayable on demand 228 201 Other cash deposits 33 548 Cash at bank and in hand 261 749 Included in the amounts above are restricted cash balances of: UK Pension Plan Escrow account 8 514 High Court escrow deposit 10 14 Collateral against bonding facilities 6 9 Held by captive insurance company 9 11 33 548 Cash held at subsidiary level and cash in transit 26 17 Available treasury deposits 202 184 261 749 By currency: Sterling 202 704 Euros 41 29 US Dollars 16 13 Other 2 3 Cash and cash equivalents 261 749 16. Available for sale investments As at 31 March 2007, telent held #514 million of cash in the UK Pension Plan Escrow. Under agreement with the UK Pension Plan Trustee, the majority of this cash was used to buy primarily UK Sterling Corporate Bonds during May 2007. The #506 million of available for sale investments relates in its entirety to these bonds. All bonds are managed by third party fund managers who make investment decisions on behalf of telent within parameters agreed in the investment management agreements. They are all held at a fair value that is determined with reference to current market prices. During the six months ended 30 September 2007, unrecognised losses on bonds held throughout the period were #14 million. Recognised losses on bonds traded in the period were #nil million. Interest of #14 million has also been earned. The total value of the UK Pension Plan Escrow as at 30 September 2007 was #514 million, comprising #506 million held in available for sale investments and #8 million held in cash (see note 16). The escrow arrangement was set up following the disposal of business to Ericsson in January 2006 and is held for the potential benefit of the G.E.C. 1972 Plan ("UK Pension Plan"). The assets are being held by a nominee on trust for the benefit of the Company, but with security over such amount being provided to the Trustee. 17. Long term provisions Contracts Litigation and and # million Restructuring Warranties commitments indemnities Other Total At 1 April 2007 12 5 5 42 5 69 Charged 1 - - 2 1 4 Released - (1) - (2) (1) (4) Utilised (1) - - (2) - (3) Disposals - - - - - - Exchange rate adjustment - - - (1) - (1) At 30 September 2007 12 4 5 39 5 65 Restructuring provisions mainly comprises costs for employee severance (#7 million at 30 September 2007 and at 31 March 2007) as well as onerous lease and future scheme administration costs (in total #5 million at 30 September 2007 and at 31 March 2007). Of the #7 million provisions for employee severance, #5 million relates mainly to outstanding social security costs associated with compulsory redundancy programmes carried out in Italy in 2003. These amounts fall due for payment between 2007 and 2014. The remaining #2 million relates to previously announced restructuring programmes in the UK, which we expect to complete during the second half of the current financial year. The Group has a number of contracts with warranty obligations, which are covered by the warranty provision. During the six months ended 30 September 2007, the warranty period under an Enterprise contract ended which resulted in a release of #1 million. The associated outflows of the remaining provision are generally expected to occur over the lives of the contracts, which are predominantly long-term in nature. Provisions for contracts and commitments mainly comprise losses on contract work in progress in excess of related accumulated costs. The associated outflows are generally expected to occur over the lives of the contracts, which are long-term in nature. Provisions for litigation and indemnities comprise expected employee related claims, environmental liabilities, mainly in North America, other litigation, captive insurance balances and merger and acquisition balances held against warranties provided on the disposal of businesses. Employee related claims relate principally to industrial diseases. The Group's exposure to these claims, which was last assessed by actuaries at 31 March 2005, amounts to #19 million (31 March 2007: #19 million) after discounting at a rate of 4.5%. Additional provisions were created in the period in relation to existing environmental liabilities and for new potential litigation claims from former Group employees made against us in the period. These were offset by releases of i) environmental provisions on investment properties sold in the period; and ii) the remaining merger and acquisition balances as any claims are now out of time. The litigation outflows are generally expected to occur as and when the relevant claim is settled. Other provisions mainly comprise payroll taxes on share options and other post-retirement agreements. 18. Retirement benefit scheme surpluses/(obligations) UK Rest of Total Pension World Plan plans Net pension scheme deficit at 31 March 2007 - (65) (65) Current service cost (3) - (3) Contributions and benefit payments 2 1 3 Settlement gain on closure of US Pension Plan - 1 1 Other finance income/(charge) 5 (1) 4 Actuarial gains 44 4 48 Foreign exchange - (2) (2) Net pension scheme surplus/ (deficit) at 30 September 2007 48 (62) (14) An actuarial assessment of the Group's defined benefit pension scheme obligations and valuation of pension assets was performed under IAS 19 at 30 September 2007. The following assumptions were adopted for the UK Pension Plan, the Group's largest pension plan: 30 September 2007 31 March 2007 UK Plan % % Inflation assumption 3.07 2.90 Discount rate 5.89 5.37 Rate of general increase in salaries 4.57 4.40 Rate of increase in pensions in payment 2.97 2.80 Rate of increase for deferred pensioners 3.07 2.90 Rate of credited interest 2.50 2.50 There have been no changes to the assumption on expected mortality of the UK Pension Plan members since we last reported at 31 March 2007. The UK Pension Plan experience will continue to be monitored at successive plan valuations. The impact of assumption changes on the UK Pension Plan and other Group plans and the results of the latest actuarial valuations are discussed on page 11 of the Business and Financial Review. 19. Share capital Number of shares # Ordinary shares Allotted, called-up and fully paid at 1 April 2007 at 87.5p each 62,501,962 54,689,217 Shares issued: Warrants exercised 13,128 11,487 Share options exercised 13,998 12,248 Allotted, called-up and fully-paid at 30 September 2007 at 87.5p each 62,529,088 54,712,952 The Company's warrants, which were created at the time of the Group's financial restructuring in May 2003, lapsed on 19 May 2007. 20. Reconciliation of changes in equity Shares Share Share to be premium Capital Retained Minority Total # million capital issued account reserve earnings Total interest equity At 1 April 2007 55 9 1 10 9 567 650 - 650 Total recognised income - - - - 80 80 - 80 for the year Shares Issued - - - - - - - - Shares to be issued - (1) - - 1 - - - At 30 September 2007 55 8 10 9 648 730 - 730 At 30 September 2006 55 13 10 9 442 529 - 529 22. Contingent liabilities # million 30 31 September March 2007 2007 Contingent liabilities 20 20 There have been no changes in contingent liabilities since the last balance sheet date. 23. Related party transactions Transactions and balances between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note, the only material movement in the six months ended 30 September 2007 were sales of #1 million to a subsidiary of AWG plc, which is an entity in which one of our directors has an interest. -------------------------- (1) Representing operating profit before exceptional items, liability management (see page 4) and share option costs. (2) See note 4 to the non-statutory accounts. (3) See note 5 to the non-statutory accounts. (1) See reconciliation to 'Operating profit from Continuing Operations' on page 3. (1) See reconciliation to 'Operating profit from Continuing Operations' on page 3. (1) See reconciliation to 'Operating profit from Continuing Operations' on page 3. (1) See reconciliation to 'Operating profit from Continuing Operations' on page 3. This information is provided by RNS The company news service from the London Stock Exchange END IR BLLLLDFBEFBK
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