Q1 press release - draft 7

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Q1 press release - draft 7

  1. 1. 2 May, 2007 = CSR PLC UNAUDITED RESULTS FOR THE QUARTER ENDED 30 MARCH 2007 STRONG RESULTS AND CASH FLOW, INCREASED INVESTMENT IN R&D = = CSR plc [LSE: CSR], the wireless solutions provider and the leader in Bluetooth technology, today announces its unaudited financial results for the quarter ended 30 March 2007. = Financial Highlights • Revenue: $160.1m (Q1 2006: $134.9m) • Gross margin: 45.1% (Q1 2006: 47.3%) • R&D expenditure (excluding amortisation of acquired intangible assets): $33.2m (Q1 2006: $22.4m) • SG&A expenditure (excluding the patent dispute settlement): $18.5m (Q1 2006: $16.5m) • Underlying operating profit*: $20.4m (Q1 2006: $24.8m) • Underlying operating margin*: 12.8% (Q1 2006: 18.4%) • Underlying diluted earnings per share*: $0.11 (Q1 2006: $0.14) • Operating profit: $3.9m (Q1 2006: $24.3m) • Profit before tax: $4.6m (Q1 2006: $25.8m) • Diluted earnings per share: $0.02 (Q1 2006: $0.14) • Net cash inflow from operating activities: $57.7m (Q1 2006: outflow $9.0m) Note*: Excluding the $15.0m patent dispute settlement and $1.5m amortisation of acquired intangible assets First Quarter 2007 Operational Highlights • Design win momentum strong across all applications • Important Nokia and Samsung handset design wins in both GSM and CDMA • BlueCore5 MM and BlueVox QFN (low cost headset) now in volume production • GPS technology acquisitions: product offering well received by customers Outlook = CSR has had a good start to the year with first quarter seasonality being less pronounced than in prior years. Strong customer demand, supported by bookings, gives us the expectation of $195 million to $220 million of revenue in Q2 2007. With expectations of growing mobile phone attach rates and continued Bluetooth growth beyond the mobile phone market, CSR remains on track to meet its expectations for the full year. 1
  2. 2. Commenting on the results, John Scarisbrick, CEO said: “CSR has made a good start to the year as we retain and build upon our position as the unequivocal Bluetooth market leader. Net operating cash flow remains very strong, inventory has returned to normal levels and we have increased our rate of investment in research and development to ensure we continue to capitalise on the growing market for wireless applications. The outlook for 2007 remains positive. We expect mobile handset attach rates to grow to 40% – 50% this year. The market beyond the mobile phone, which now accounts for over 50% of our revenues, will continue to grow. This, together with our first quarter results and forward bookings to date, places CSR on track to meet its expectations for the full year”. Enquiries: Investors = Paul Goodridge Andrew Farmer Finance Director, CSR IR Director, CSR +44 1223 692 000 +44 1223 692 000 Media Tom Buchanan/ Chris Blundell Brunswick +44 207 404 5959 A conference call for analysts and investors will be held at 08.00 UK time today. To access this call dial +44 (0) 1452 561 263, password: CSR. The call will be available later today for replay on +44 (0) 1452 55 00 00; Passcode: 7391066#. = A recording of the analyst and investor call will also be available on the investor relations pages of the CSR website (www.csr.com) for six months.= 2
  3. 3. Operating Review Marketplace In 2006, the Bluetooth market grew to over half a billion units from around 320 million units in 2005. CSR expects continued strong development of the Bluetooth market in 2007. Bluetooth is increasingly being incorporated into applications beyond the traditional cellular segment including PCs, gaming, music and automotive. Mobile phones CSR continues to expect that the attach rate for Bluetooth in mobile phones will increase to between 40% and 50% in 2007, up from over 35% in 2006. CSR also expects that 2007 will see increased incorporation of Bluetooth into higher volume, lower end handsets. CSR once again performed strongly with top tier OEMs (Original Equipment Manufacturers) in the higher volume GSM (Global System for Mobile Communications) handsets. Notable GSM design wins for CSR included the Nokia N95, Nokia 6300 and Samsung’s GSM flagship SGH-U600 handset (the SGH-U900 replacement). CSR was also selected for four CDMA Samsung handsets based on the Qualcomm 6000 chipset. CSR’s BlueCore5 FM, our integrated single chip Bluetooth with a high performance FM stereo tuner, is a competitively superior product offering and it continues to generate significant design-in activity with multiple phone OEMs. BlueCore5 FM will start shipping in volume in H2 2007. Design activity has continued to be strong for UniVOX Mobile, our Voice over Internet Protocol (VoIP) product, based on our UniFi WiFi chip. We continue to enjoy a strong position in the mobile handset sector and for the full year expect to see revenue growth, despite ASP declines in this segment around the upper end of the annual 15% to 20% range. Headsets Our design win record in the headset business continued to be very strong in Q1 2007. CSR enjoys an undisputed leadership position across all segments of the headset market. Only CSR has mature product offerings which address the demanding customer requirements of each segment of the headset market, from very high-end headsets with full feature functionality to low cost headsets with lower functionality. At the low-end, we recently launched a reference design for low-cost headsets with an eBOM (electronic bill of materials) of less than $6. Design activity has been encouraging with more than 25 customers adopting CSR’s reference design. Customers range from Tier 1 branded headset OEMs to operator white-label branded headsets manufactured by Chinese OEM’s. BlueVox QFN, our low cost headset chip, has now entered volume production, CSR continues to expect the first of these low cost headsets to be available in shops in Q2 2007. At the high-end, BlueCore5 MultiMedia, our fifth generation headset chip, is now shipping in volume and has the lowest power consumption in the industry. Our open standard eXtension Partner Programme continues to attract innovative third party companies who specialise in writing DSP (Digital Signal Processor) software which further differentiates CSR from the competition. CSR’s eXtension network partners already provide echo cancellation, noise cancellation and text to speech software which is embedded on CSR’s 24-bit programmable DSP. With the continued rise in the number of mobile phones designed to support Bluetooth stereo audio streaming, consumer adoption of stereo headsets is increasing. In addition, new applications for stereo headsets such as with Bluetooth MP3 players, PCs and gaming consoles, are driving stereo headset demand. Notable design wins in Q1 2007 included the innovative Motorola S9 headset. Consumer, Automotive and PC CSR continues to be the wireless connectivity provider of choice in the non-cellular segment, achieving the majority of all product qualifications in Q1 2007. In the automotive segment, following tougher penalties for people who drive while using a mobile phone in the UK, strong demand has been seen for after-market hands-free car kits. CSR continues to win the majority of all automotive qualifications. In the music segment, CSR is established as the technology provider of choice in the growing MP3 market with CSR working alongside the majority of the major MP3 reference design providers, including PortalPlayer, to stimulate the adoption of Bluetooth in MP3 players. Design activity in the music segment remains strong with many 3
  4. 4. new applications for Bluetooth in development including MP3s and the streaming of stereo music from HiFi devices to personal media players (PMPs). CSR was once again designed into the majority of PC laptops in Q1 2007. CSR’s non-cellular businesses is expected to provide an increasing proportion of revenue growth in 2007 and beyond. GPS CSR acquired NordNav Technologies AB and Cambridge Positioning Systems Ltd in January 2007. These acquisitions will enable us to deliver software-based high performance GPS (Global Positioning System) suitable for mass-market mobile handsets, PNDs (Personal Navigation Devices), PCs and other portable devices for an incremental cost of less than $1 of the overall bill of materials when used with CSR’s Bluetooth. Our GPS product offering has been well received by customers. Product Qualification Summary The Bluetooth SIG (Special Interest Group) has changed the basis on which it reports the supplier of Bluetooth for Bluetooth product qualifications, so it is no longer possible for CSR to provide independently verifiable design win market share data at present. In Q1 2007, CSR continued to achieve significant design-wins across all Bluetooth applications. In the mobile phone segment, notable design-wins included a number of high-end phones from Nokia, the Samsung SGH-U600 GSM phone and four Samsung CDMA phones. In the headset segment, notable design wins included the Motorola S9 stereo headset. People Headcount has increased by 46 (Q4 2006: 19) to 969 at the end of Q1 2007 from 923 at the end of Q4 2006. Of these, the acquisition of NordNav Technologies AB and Cambridge Positioning Systems Limited added 37 new employees, predominantly engineers based in Cambridge, UK and Sweden. In reaction to prevailing market conditions, recruitment was moderated in Q4 2006 and Q1 2007. With the trading environment now more positive, to support CSR’s continued business growth, we expect to increase headcount in 2007. Patent Dispute Settled As previously announced, CSR has reached agreement with Washington Research Foundation (WRF) to settle the patent infringement suit regarding the use of Bluetooth chips issued against twelve of CSR’s customers. Although CSR maintain’s the view that WRF’s patent infringement suit against its Bluetooth chips was without merit, we took the view that an early resolution of the suit was in both our own and our customers’ best interests. We have paid WRF $15.0 million in return for an undertaking from WRF not to sue CSR, its suppliers, customers or end users for alleged infringement by CSR products of the patents asserted in the suit. Outlook= CSR has had a good start to the year with first quarter seasonality being less pronounced than in prior years. Strong customer demand, supported by bookings, gives us the expectation of $195 million to $220 million of revenue in Q2 2007. With expectations of growing mobile phone attach rates and continued Bluetooth growth beyond the mobile phone market, CSR remains on track to meet its expectations for the full year. 4
  5. 5. Financial Review First Quarter ended 30 March 2007 Revenue Revenue for Q1 2007 amounted to $160.1 million, representing an 8% decrease from the seasonally stronger fourth quarter (Q4 2006: $173.3 million), and a 19% increase over Q1 2006 revenue of $134.9 million. In common with prior years, revenue from handsets and non-cellular applications were lower in the first quarter than in the fourth quarter, reflecting the established seasonal impact of lower levels of business between Christmas and Chinese New Year. Headset revenue however increased in the first quarter over the fourth quarter and this reflected the lower levels of inventory in the supply chain after lower than expected headset shipments in H2 2006. Revenue from CSR’s top five customers in the quarter represented 65% of total revenue (Q4 2006: 58%, Q1 2006: 62%) with the largest customer representing 31% of total revenue (Q4 2006: 29%, Q1 2006: 27%). In 2007, CSR continues to expect ASP’s in the high volume mobile phone segment to decline at the high end of the average 15% to 20% per year. Despite this increased price pressure, we expect the blended ASP reduction across all applications to be around the low end of this range. Gross Profit Gross profit for the quarter was $72.1 million compared to $80.4 million in Q4 2006 (Q1 2006: $63.8 million). Gross margin was 45.1% of revenue, down from 46.4% in Q4 2006 (Q1 2006: 47.3%) largely as a result of the high proportion of inventory shipped in Q1 2007 which was built in anticipation of higher customer demand in H2 2006 at higher cost. Gross margin expectations for 2007 remain around the upper end of CSR’s long term model of 42% to 45%. Operating Expenses Underlying operating expenses (excluding the patent dispute settlement and amortisation of acquired intangible assets) were $51.7 million for Q1 2007 compared to $48.1 million in Q4 2006, an increase of 7% (Q1 2006: $39.0 million). Operating expenses were $68.2 million for Q1 2007 compared to $48.6 million in Q4 2006 (Q1 2006: $39.5 million). Research and development (R&D) expenditure (excluding the amortisation of acquired intangible assets) was $33.2 million in Q1 2007 compared to $29.7 million in Q4 2006, an increase of 12% predominantly due to costs related to acquired GPS technology and higher pre-production engineering costs (Q1 2006: $22.4 million). Selling, general and administrative (SG&A) expenses (excluding the patent dispute settlement) were $18.5 million for Q1 2007 compared to $18.4 million in Q4 2006, an increase of 1% (Q1 2006: $16.5 million). Share based payment charges, recorded under IFRS 2, were $2.2 million for Q1 2007 representing a decrease of $0.2 million when compared to Q4 2006. Operating Profit Underlying operating profit for Q1 2007 (excluding the patent dispute settlement and amortisation of acquired intangible assets) was $20.4 million compared to $32.4 million in Q4 2006 (Q1 2006: $24.8 million). Operating profit for Q1 2007 was $3.9 million compared to $31.8 million in Q4 2006 (Q1 2006: $24.3 million). Underlying operating margin was 12.8% compared to 18.7% in Q4 2006 (Q1 2006: 18.4%). Operating margin was 2.4% in Q1 2007 compared to 18.4% in Q4 2006 (Q1 2006: 18.0%). Earnings and Taxation For Q1 2007 profit before taxation was $4.6 million compared to $33.1 million for Q4 2006 (Q1 2006: $25.8 million). Included within finance costs in Q1 2007 was $0.4 million related to the unwinding of the discount applied to the contingent deferred consideration for the acquisition of NordNav Technologies AB. The effective tax rate for Q1 2007 is 28%. This is below the statutory rate of 30% principally due to the availability of enhanced tax relief on UK R&D expenditure. CSR expects an effective tax rate of in the region of 26.5% for 2008, provided the proposals in the Chancellor’s recent budget are enacted. 5
  6. 6. Underlying diluted earnings per share for Q1 2007 (excluding the patent dispute settlement and amortisation of acquired intangible assets) were $0.11 per share compared to $0.18 per share for Q4 2006 (Q1 2006: $0.14). Diluted earnings per share for Q1 2007 were $0.02 compared to $0.18 in Q4 2006 (Q1 2006: $0.14). Balance Sheet and Cash Flow The aggregate of cash and cash equivalents and treasury deposits was $124.2 million at 30 March 2007, compared to $147.5 million at 29 December 2006 and $111.8 million at 31 March 2006. Net cash inflow from operating activities was $57.7 million in Q1 2007 compared to an outflow of $5.5 million in Q4 2006 and an outflow of $9.0 million in Q1 2006. Cash outflow on capital expenditure was $9.1 million in Q1 2007. The improvement in the net operating cash flow was due to a significant decrease in the level of working capital. Closing inventory was $78.7 million at 30 March 2007 compared to $106.5 million at 29 December 2006 and $74.1 million at 31 March 2006. Inventory levels which were built in anticipation of higher customer demand in H2 2006, have been managed down from 15 weeks of historic cost of sales at 29 December 2006 to 12 weeks at 30 March 2007. CSR expects to manage inventory at between 10 and 13 weeks in the longer term. Accounts receivable decreased to $78.7 million at 30 March 2007 from $87.2 million at 29 December 2006 reflecting the lower levels of revenue and an improvement in days sales outstanding to 42 days compared to 45 days at 29 December 2006. Cash outflow on acquisitions in the quarter was a total of $74.3 million from the acquisitions of NordNav Technologies AB and Cambridge Positioning Systems Limited. About CSR CSR is the leading global provider of personal connectivity, wireless technology with a product portfolio covering Bluetooth, FM receivers and WiFi (IEEE802.11). CSR offers developed hardware/software solutions based around its silicon platforms that incorporate fully integrated radio, baseband and microcontroller elements. CSR has already launched its fifth generation BlueCore suite and is in volume manufacture of its fourth generation BlueCore devices. BlueCore4 supports the Enhanced Data Rate (EDR) standard which was ratified at the end of 2004. Outside of Bluetooth, CSR has also developed UniFi, the first single chip 802.11a/b/g embedded solution specifically targeting the mobile phone and consumer electronics markets. BlueCore features in over 60 per cent of all qualified Bluetooth enabled products and modules listed on the Bluetooth website with industry leaders including Apple, Dell, LG, Motorola, NEC, Nokia, Panasonic, RIM, Samsung, Sharp, Sony, Tom Tom and Toshiba using BlueCore devices in their range of Bluetooth products. CSR has its headquarters and offices in Cambridge, UK, and offices in Japan, Korea, Taiwan, China, India, France, Denmark, Sweden and both Texas and Detroit in the USA. More information can be found at www.csr.com. Forward looking statements With the exception of historical information, the matters set forth in this news release are forward looking statements that involve risks and uncertainties. A number of important factors could cause actual results to differ materially from those implied by the forward looking statements. These factors include consumer and market acceptance of the Company’s products and the products that use the Company’s products; decreases in the demand for the Company’s products; excess inventory levels at the Company’s customers; declines in average selling prices of the Company’s products; cancellation of existing orders or the failure to secure new orders; the Company’s failure to introduce new products and to implement new technologies on a timely basis; the Company’s failure to anticipate changing customer product requirements; the Company’s failure to deliver products to its customers on a timely basis; the timing of significant orders; increased expenses associated with new product introductions, masks, or process changes; the commencement of, or developments with respect to, any future litigation; the cyclicality of the semiconductor industry; and overall economic conditions, the lengthy design cycle for CSR’s products, CSR’s ability to secure sufficient capacity from third-parties that manufacture, assemble and test its products, the potential for any disruption in the supply of wafers or assembly or testing services due to changes in business conditions, natural disasters, terrorist activities, public health concerns or other factors, the yields that CSR’s subcontractors achieve with respect to CSR’s products, possible errors or failures in the hardware or software components of CSR’s products, CSR’s ability to successfully manage its recent expansion and growth, CSR’s ability to protect its intellectual property, CSR’s ability to attract and retain key personnel including engineers and technical personnel, competitive developments in CSR’s markets, difficulty in predicting future results, CSR’s ability to successfully and efficiently integrate any recent or future acquisitions. These forward looking statements speak only at the date of this news release and CSR undertakes no obligation to up-date the forward looking statements contained in this news release or any other forward looking statements it may make.= 6
  7. 7. Consolidated income statement Q1 2007 Q4 2006 Q1 2006 2006 Note (unaudited) (unaudited) (unaudited) (audited) $’000 $’000 $’000 $’000 Revenue 160,115 173,258 134,938 704,695 Cost of sales (87,972) (92,827) (71,160) (376,036) __________ __________ __________ __________ Gross profit 72,143 80,431 63,778 328,659 Operating expenses 4 (68,244) (48,593) (39,487) (179,664) Underlying operating profit 20,437 32,353 24,806 151,056 Patent dispute settlement (15,000) - - - Amortisation of acquired intangible assets (1,538) (515) (515) (2,061) Operating profit 3,899 31,838 24,291 148,995 Investment income 1,433 1,764 1,196 6,106 Finance costs (686) (481) 271 (704) Underlying profit before tax 21,184 33,636 26,273 156,458 Patent dispute settlement (15,000) - - - Amortisation of acquired intangible assets (1,538) (515) (515) (2,061) Profit before tax 4,646 33,121 25,758 154,397 Tax on underlying profit (6,283) (9,333) (7,109) (43,818) Tax on exceptional items 4,961 155 155 618 Tax (1,322) (9,178) (6,954) (43,200) Underlying profit for the period 14,901 24,303 19,164 112,640 Exceptional items (11,577) (360) (360) (1,443) Profit for the period 3,324 23,943 18,804 111,197 __________ __________ __________ __________ Earnings per share $ $ $ $ Basic 2 0.03 0.18 0.15 0.86 Underlying diluted 2 0.11 0.18 0.14 0.83 Exceptional items 2 (0.09) - - (0.01) Diluted 2 0.02 0.18 0.14 0.82 7
  8. 8. Consolidated balance sheet 30 March 2007 29 December 2006 31 March 2006 (unaudited) (audited) (unaudited) $’000 $’000 $’000 Non-current assets Goodwill 144,333 51,952 52,697 Other intangible assets 51,965 31,686 24,843 Property, plant and equipment 48,607 45,454 23,394 Deferred tax asset 3,298 11,350 26,316 _________ _________ _________ 248,203 140,442 127,250 _________ _________ _________ Current assets Inventory 78,670 106,470 74,105 Cash flow hedges 3,468 4,522 - Trade and other receivables 91,468 101,822 87,129 Treasury deposits 22,214 30,000 20,000 Cash and cash equivalents 102,026 117,494 91,808 _________ _________ _________ 297,846 360,308 273,042 _________ _________ _________ Total assets 546,049 500,750 400,292 _________ _________ _________ Current liabilities Trade and other payables 81,543 64,801 74,923 Tax liabilities 5,995 19,023 5,105 Obligations under finance leases 2,704 3,384 3,262 Cash flow hedges - - 1,726 Short-term provisions 3,703 4,100 3,635 Contingent deferred consideration 16,935 - - _________ _________ _________ 110,880 91,308 88,651 _________ _________ _________ Net current assets 186,966 269,000 184,391 _________ _________ _________ Non-current liabilities Obligations under finance leases 2,968 3,233 1,576 Contingent deferred consideration 15,677 - - Deferred tax liability 5,928 - - _________ _________ _________ 24,573 3,233 1,576 _________ _________ _________ Total liabilities 135,453 94,541 90,227 _________ _________ _________ Net assets 410,596 406,209 310,065 _________ _________ _________ Equity Share capital 234 232 230 Share premium account 85,417 84,111 82,014 Capital redemption reserve 950 950 950 Merger reserve 61,574 61,574 61,574 Hedging reserve 1,538 2,220 (839) Share based payment reserve 13,173 11,003 4,531 Retained earnings 247,710 246,119 161,605 _________ _________ _________ Total equity 410,596 406,209 310,065 _________ _________ _________ 8
  9. 9. Consolidated statement of changes in shareholders’ equity Q1 2007 Q4 2006 Q1 2006 2006 (unaudited) (unaudited) (unaudited) (audited) $’000 $’000 $’000 $’000 At beginning of period 406,209 378,506 277,037 277,037 Profit for the period 3,324 23,943 18,804 111,197 Issue of share capital 1,308 83 855 2,954 Share-based payments 2,170 2,399 1,364 7,836 Deferred tax (liability) benefit on share option gains (4,685) (1,920) 9,198 (5,404) Current tax benefit on share options 2,960 2,267 1,465 8,188 (Losses) gains on cash flow hedges (1,054) 2,106 2,102 8,350 Net tax on items taken directly to equity 284 (401) (574) (1,886) Transferred to income statement in respect of cash flow hedges 80 (774) (186) (2,063) __________ __________ __________ __________ At end of period 410,596 406,209 310,065 406,209 __________ __________ __________ __________ Consolidated Cash Flow Statement Q1 2007 Q4 2006 Q1 2006 2006 (unaudited) (unaudited) (unaudited) (audited) Note $’000 $’000 $’000 $’000 Net cash from operating activities 5 57,678 (5,462) (8,997) 65,499 __________ __________ __________ __________ Investing activities Interest received 1,442 1,840 1,164 6,047 Sale (purchase) of treasury deposits 7,786 20,000 5,000 (5,000) Purchases of property, plant and equipment (6,758) (9,458) (4,313) (35,874) Purchases of intangible assets (1,077) (4,946) (964) (9,797) Acquisition of subsidiaries (74,270) - - - __________ __________ __________ __________ Net cash (used in) from investing activities (72,877) 7,436 887 (44,624) __________ __________ __________ __________ Financing activities Repayments of obligations under finance leases (1,218) (1,380) (512) (5,235) Proceeds on issue of shares 1,197 78 733 2,959 __________ __________ __________ __________ Net cash (used in) from financing activities (21) (1,302) 221 (2,276) __________ __________ __________ __________ Net (decrease) increase in cash and cash equivalents (15,220) 672 (7,889) 18,599 Cash and cash equivalents at beginning of period 117,494 117,237 99,386 99,386 Effect of foreign exchange rate changes (248) (415) 311 (491) __________ __________ __________ __________ Cash and cash equivalents at end of period 102,026 117,494 91,808 117,494 __________ __________ __________ __________ 9
  10. 10. Notes 1. Basis of preparation and accounting policies The financial information contained in this statement does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The dates for the financial periods referred to are as follows: Period Duration Dates Q1 2007 13 weeks 30 December 2006 to 30 March 2007 Q4 2006 13 weeks 30 September 2006 to 29 December 2006 Q1 2006 13 weeks 31 December 2005 to 31 March 2006 2006 52 weeks 31 December 2005 to 29 December 2006 Statutory accounts for the 52 weeks ended 29 December 2006 will be delivered following the company’s annual general meeting and are available on CSR’s website at www.csr.com. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s. 237(2) or (3) Companies Act 1985. The financial information for the quarters Q1 2007, Q4 2006 and Q1 2006 is unaudited. The financial information is prepared on the basis of accounting policies as stated in the statutory accounts for the 52 weeks ended 29 December 2006. Whilst the financial information included in this statement has been prepared in accordance with International Financial Reporting Standards, this announcement does not itself contain sufficient information to comply with IAS 34 ‘Interim Financial Reporting’. 2. Earnings per ordinary share The calculation of earnings per share is based upon the profit for the period after taxation (see income statement) and the weighted average number of shares in issue during the period. Weighted Average Diluted Weighted Average Period Number of Shares Number of Shares 2006 129,513,071 135,832,242 Q1 2006 128,173,649 135,876,275 Q4 2006 130,196,585 135,474,095 Q1 2007 130,435,753 135,415,620 The diluted weighted average number of shares differs from the weighted average number of shares due to the dilutive effect of share options. 3. Changes in share capital 677,520 Ordinary Shares were issued from employee option exercises in Q1 2007. Consideration was $1,307,763 at a premium of $1,306,447. 10
  11. 11. 4. Operating Expenses Q1 2007 Q4 2006 Q1 2006 2006 (unaudited) (unaudited) (unaudited) (audited) $’000 $’000 $’000 $’000 Underlying research and development (33,169) (29,696) (22,448) (107,252) Amortisation of acquired intangible assets (1,538) (515) (515) (2,061) Research and development (34,707) (30,211) (22,963) (109,313) Underlying selling, general and administrative (18,537) (18,382) (16,524) (70,351) Patent dispute settlement (15,000) - - - Selling, general and administrative (33,537) (18,382) (16,524) (70,351) Underlying operating expenses (51,706) (48,078) (38,972) (177,603) Patent dispute settlement (15,000) - - - Amortisation of acquired intangible assets (1,538) (515) (515) (2,061) Operating expenses (68,244) (48,593) (39,487) (179,664) 5. Reconciliation of operating profit to net cash from operating activities Q1 2007 Q4 2006 Q1 2006 2006 (unaudited) (unaudited) (unaudited) (audited) $’000 $’000 $’000 $’000 Operating profit 3,899 31,838 24,291 148,995 Adjustments for: Amortisation of intangible assets 3,967 2,718 1,629 8,481 Depreciation of property, plant and equipment 3,828 4,117 2,252 11,183 Loss on disposal of property, plant and equipment 74 3 - 27 Deferred tax adjustment to goodwill - 745 - 745 Share related charge 2,170 2,399 1,364 7,836 (Decrease) increase in provisions (525) 634 (421) 172 __________ __________ __________ __________ Operating cash flows before movements in working capital 13,413 42,454 29,115 177,439 Decrease (increase) in inventories 27,905 12,488 (4,433) (36,798) Decrease (increase) in receivables 12,007 15,930 (11,216) (28,684) Increase (decrease) in payables 12,505 (67,518) (20,783) (28,478) __________ __________ __________ __________ Cash generated by operations 65,830 3,354 (7,317) 83,479 Foreign tax paid (200) (234) (46) (312) Corporation tax paid (7,863) (8,518) (1,594) (17,461) Interest paid (89) (64) (40) (207) __________ __________ __________ __________ Net cash from operating activities 57,678 (5,462) (8,997) 65,499 __________ __________ __________ __________ 11
  12. 12. 6. Acquisition of subsidiaries On 12 January 2007, the Group acquired 100% of the issued share capital of Cambridge Positioning Systems Limited for consideration of $35.0 million. On the same day, the Group also acquired 100% of the issued share capital of NordNav Technologies AB for cash consideration of $40.0 million and contingent deferred consideration of $35.0 million. 12

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