Spirent hit hard by IFRS rules

The company booked a goodwill impairment charge because of declining revenues
at its service assurance division. Impairment charges are a new feature of
company accounting following the introduction of IFRS. Previously, goodwill was
amortised over several years on a straight line basis.

The service assurance division provides network monitoring software, hardware
and accounts for around 20% of the FTSE 250 group’s sales.

Spirent said earnings at its service assurance division would decline over
the rest of the year because of revenue delays on long term contacts.

‘Under IFRS the expected revenue decline in the service assurance division is
likely to necessitate a further goodwill impairment at the interim stage,’ the
company said in a trading statement.

In addition to these revenue delays, Spirent also warned that it needed to
determine the value of intangible assets it owned after acquiring rivals
SwissQual and QuadTex. Spirent finance director Eric Hutchinson will now
amortise these assets, with early indications suggesting the exercise will
result in a further £2.5m charge.

Robert Lea, an analyst at UBS, downgraded Spirent’s EPS forecasts by 34% for
2006 and 7% for 2007 following the announcement. ‘Residual timing and execution
risks remain on both the first half and 2006 final year outcome,’ said Lea.

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Fiona Westwood of Smith and Williamson.