Spirent tumbles on profits and dividend warning

Spirent, which sells kit that tests telecoms networks, saw £176m wiped off its stock market value yesterday after it warned profits would fall short of expectations this year, forcing it to cut about 230 jobs.

The company added it might scrap its final dividend this year as it expected to take a goodwill impairment charge to cover the fall in value of some of its businesses.

Shares in the company slumped 67 per cent to close at 9.25p after Spirent admitted its telecoms customers had reined in their spending. It now expects operating profits in the second half to be "signficantly lower" than the £35.2m profit achieved in the first half.

"The continued decline in spending from network equipment manufacturers and service providers has adversely affected the prospects for our communications group for the remainder of 2002," the chief executive, Nicholas Brookes, said.

Worse still, he predicted a recovery was still some way off. "The likelihood is that challenging conditions in the telecommunications market will continue into 2003."

Almost all the job cuts from its 4,500-strong workforce are expected to fall in the US where its communications business employs about 2,200.

Spirent estimated the cost-cutting action would produce savings of about £24m a year and warrant an exceptional charge of £19m in the second half.

"In the third quarter, conditions in the market have remained challenging. Due to further broad ranging cuts and deferrals in capital expenditure by our major customers, our communications group has experienced a decrease in demand during the third quarter," the company said.

While City analysts had been preparing themselves for bad news, given the dire state of the telecoms market, they said the slump was even worse than feared and slashed their profit estimates for Spirent for both this year and next.

"Market context suggested that trading would be weakening further but the trading update suggests the decline has been worse than feared," analysts at Schroder Salomon Smith Barney said. They cut their earnings estimates for Spirent to 2.7p a share from 4.5p for this year and to 1.4p from 4.5p for 2003.

Robin Hardy, an analyst at WestLB Panmure, thought Spirent's pre-tax profits for 2002 would now be nearer the £35m level compared with previous estimates of about £50m.

Spirent also warned that declining market values would force it to reassess the carrying value of some of its communications businesses. The SSSB analysts thought much of the £970m of goodwill currently on Spirent's balance sheet might have to be written off.

"We anticipate that a further significant goodwill impairment charge will have to be taken," Spirent said, noting that could make it difficult to recommend paying a final dividend for the year.

Nevertheless, Mr Brookes remained confident for the longer term. "The underlying growth in data traffic will eventually result in a market recovery," he said.