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TELENT PLC: UNAUDITED RESULTS FOR SIX MONTHS ENDED 30 SEPTEMBER 2006London – 23 November 2006 – telent plc (LSE: TLNT) today announced results for the first half of the financial year ending 31 March 2007.
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 8) and share option costs (see reconciliation on to ‘Operating (loss)/profit from Continuing Operations’ on page 7.)
Commenting on the first half results, Mark Plato, CEO said, “ As a new business telent has got off to a great start, our first half trading results are in line with our expectations. We have continued to win new business with significant new contracts awarded in three of our chosen sectors. We see a good level of tenders, which supports future revenue growth targets.” “We look forward to an exciting future, in which we are well positioned in growing markets as a leading supplier of technology services with long-term contracts, committed staff and technology heritage.” HIGHLIGHTS
Notes: 1 Representing cash flows from exceptional items, liability management and Discontinued Operations (see table on page 16), excluding interest income in relation to the UK Pension Plan Escrow . IMPORTANT INFORMATION - Investor and Analyst Presentation and Conference Call Management will host a meeting for investors and analysts at 9.00am on Thursday 23 November 2006 at the Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED, which will cover both the financials for the six months ended 30 September 2006 and a full presentation on telent's ongoing business. The meeting can also be accessed via webcast at www.telent.com and on a conference call by dialing +44 (0)20 8974 7900 quoting "telent Interim Results". A replay facility will be available for 14 days by dialling +44 (0) 1296 618676, access code 559496.BUSINESS AND FINANCIAL REVIEW Trading Activity Revenues from Trading Activities were £147 million, an £18 million reduction compared to the six months ended 30 September 2005. Growth in existing and new contracts in the Enterprise sector was offset by a decline in System X volumes, prior year disposals and closures in the Telco sector, and the completion of a large rail contract last financial year. Adjusted operating profit from Trading Activities was £11 million 1 , a £2 million reduction compared to the six months ended 30 September 2005. This reflects the reduction in our System X business, partially offset by new contract wins coming on-line. Operating cash generated by Trading Activities was £9 million 2 . Notes: 1 See page 7 for reconciliation to operating (loss)/profit from Continuing Operations 2 See page 16 for reconciliation to Group cash flow statement Significant New Contract Wins Since the launch of telent, we have been successful in winning new business and securing a number of major contracts and extensions to existing contracts won in previous years. In September 2006 we announced that we had been awarded a further contract with O2 Airwave to support the deployment of its Airwave Communication System as part of the National Firelink Programme. This ten-year, £13 million contract will enable Fire and Rescue Services in the UK to use the new Tetra Radio Communications Service provided by O2 Airwave. We will begin to recognise revenue under this contract in the second half of this financial year. We also won a frame contract with a new customer, Easynet, to support their BSkyB Broadband rollout. This encompasses management and installation and commissioning, including all aspects of inventory control. We booked orders in excess of £6 million under this contract during the six months ended 30 September 2006 , and have booked a further £5 million of orders since that date. In November 2006we were awarded the Northwest Technology Maintaining Agent/Contractor (TechMAC) contract by the Highways Agency. This five-year contract was awarded at an initial value of £12 million to provide maintenance management. We will deliver the contract in partnership with WS Atkins through our 75% share in a joint arrangement. BT is currently retendering its infrastructure services contracts, following the creation of Openreach, BT's regulated local access network business. Our current frame contract covers 3 of 12 regions. Openreach is intending to place new contracts aligned to its amended regional structure. In October 2006, Openreach informed us that we had successfully reached its initial short-list. Final adjudication of new contracts is expected within the coming months Trading Outlook telent is a leading technology services business within the telecommunications and enterprise markets. The combination of our significant UK field force and strong technical and sector expertise, underpinned with robust safety and quality processes, mean we are well positioned to exploit opportunities in our chosen markets. We continue to build on our recent contract wins and are actively pursuing new opportunities through bidding activity across our business units with a particular focus on infrastructure operators such as the railways, highways and utilities, emergency services and network operator transformation programmes. We are also positioning telent to play a key role in the 2012 Olympic infrastructure development and believe we have a strong competitive advantage both from a geographical and capabilities perspective. We expect second half revenues to be broadly in line with the first half. Almost all second half revenues will come through orders already booked as at 30 September 2006 or are covered by existing frame contracts. We are proactively targeting further efficiency improvements through simplification of our operating cost structure and internal business processes. In the medium-term, we expect revenue growth to be the main contributor to profitability improvements in our Trading Activities. We are targeting mid- to high-single digit operating margins from our Trading Activities over the next few years and high profit to cash conversion. Group First Half Results Operating loss from Continuing Operations was £8 million after exceptional costs of £14 million, and liability management costs of £5 million, mainly in support of the eventual liquidation of over 200 non-trading legacy legal entities, retained following the transaction with Ericsson. Group profit for the period was £12 million after total investment income of £84 million, finance costs of £72 million, a tax credit of £5 million, and profit from Discontinued Operations of £3 million. Group cash was £702 million, including £501 million UK Pension Plan Escrow and £44 million other restricted cash. Group cash outflow for the period was £35 million. Board Changes On 5 September 2006, we announced the appointments, with immediate effect, of Mark Plato as Chief Executive Officer and Heather Green as Chief Financial Officer. Kathleen Flaherty retired from the Board following the Annual General Meeting on 20 October 2006. Legacy Update Disposal of businesses to Ericsson We have completed deferred share and asset sales in Central and Latin America and Africa in the six months ended 30 September 2006. These sales were agreed with Ericsson prior to 31 March 2006 and are a principal driver of the £3 million profit from Discontinued Operations recorded for the six months ended 30 September 2006. Work is ongoing to complete legal formalities associated with the sale of shares and assets in a few remaining overseas jurisdictions, principally in relation to entities in China, Malaysia and the Middle East. During the first half of the financial year, we incurred cash spend of approximately £59 million 1 in relation to legacy issues retained by telent following the Ericsson transaction (including restructuring, litigation and environmental issues, legacy pension issues and the unwind of retained creditors). In line with our previous guidance, we expect to spend a total of approximately £80 million on legacy issues during the current financial year. Notes: 1 Representing cash flows from exceptional items, liability management and Discontinued Operations (see table on page 16), excluding interest income in relation to the UK Pension Plan Escrow Offer for telent from Holmar Holdings Limited, now lapsed On 4 August 2006, we announced that, at the shareholder meetings held that day, the requisite majority of shareholders had not voted in favour of the recommended cash acquisition of telent by Holmar Holdings Limited, and consequently this proposal lapsed . Pensions During the six months ended 30 September 2006 we have completed the annuitisation of the US Pension Plan, extinguishing our liabilities for this plan. In the UK, we continued to work closely with the trustees of the UK Pension Plan to ensure that an appropriate investment strategy is put in place for the pension plan assets. The implementation of this investment strategy, whilst subject to regular review, is now largely complete. Further details can be found under ‘UK Pension Plan’ on page 14. REVIEW OF FINANCIALS This ‘Review of Financials’ should be read in conjunction with telent plc’s non-statutory accounts for the six months ended 30 September 2006. Continuing Operations Continuing Operations comprises two operating segments: Telco Services and Enterprise Services. Our Telco Services offering covers a broad range of services for fixed and mobile network operators and Original Equipment Manufacturers (‘OEMs’). This includes network build, optimisation and integration as well as network support, remote monitoring and on-site maintenance for multiple vendors’ equipment. In addition we provide cable installation, repair and maintenance including management of associated civil works for operators’ access networks and telephone exchanges. We also continue to provide maintenance and support services for the installed base of narrowband System X switches. The main customers of our Telco Services segment are UK telecommunications operators including (in alphabetical order) BT, Cable & Wireless, Easynet, Ericsson and ntl. BT remains our largest customer and accounted for 37% of our revenues for the six months ended 30 September 2006 (30 September 2005: 54%). This has reduced from last year partly as a result of lower System X spend and partly as installation and commissioning of ex-Marconi equipment into BT’s network is now contracted through Ericsson. Our revenues with Ericsson accounted for 14% of total revenue. Enterprise Services comprises the provision of a broad portfolio of services ranging from consultancy through to whole-life turnkey management for enterprise network customers particularly in the government, transportation, emergency services and utilities sectors in the UK and Germany. Our Enterprise Services offering covers consultation, design, implementation, maintenance and operational support of mission critical integrated communications infrastructure and systems. These systems include transmission equipment (copper/fibre/radio), telephones, public address, customer information/visual displays, passenger assistance, closed circuit television, private mobile radio, road tolling and command and control systems. The main customers of our Enterprise Services segment are (in alphabetical order) Deutsche Bahn, the Highways Agency (UK), Krone (Toll Collect), Network Rail, O2 Airwave, and Tube Lines. Results for the six months ended 30 September 2006 A summary of our key financial results for our two main operating segments is set out in the table below and discussed in this section. A detailed review of our segmental operations is included in ‘Continuing Operations – Segment Review’ on page 9 below.
Key Financials
Notes: 1 See note 4 to the non-statutory accounts Revenue from Continuing Operations amounted to £147 million in the six months ended 30 September 2006 compared to £165 million in the previous year, as growth in Enterprise Services was offset by reduced revenues from Telco Services. In Telco Services the reduction was primarily due to higher levels of System X hardware and software revenues under last time buy orders in the previous year, as well as revenues from our Payphones business (disposed in March 2006) and Albany Partnership Limited (‘APT’) (a subsidiary closed in March 2006). In Enterprise Services increased revenues from our contracts with Tube Lines, the UK Highways Agency and O2 Airwave in the six months ended 30 September 2006 offset the reduction in revenues due to the completion of the West Coast Main Line contract in the prior year and the one-off sale of spares on the Toll Collect contract in Germany. During the six months ended 30 September 2006, the UK accounted for 85% of revenues from Continuing Operations by territory of origin (30 September 2005: 83%) and Germany 15% (30 September 2005: 17%). Adjusted operating profit from Trading Activities 1 reduced from £13 million (7.9% of sales) in the six months ended 30 September 2005 to £11 million (7.5% of sales) in the six months ended 30 September 2006. This was driven mainly, as expected, by the reduced volumes of legacy System X hardware and software within Telco Services. Notes: 1 See page 7 for reconciliation to operating (loss)/profit from Continuing Operations Adjusted operating costs (excluding share option costs) within our trading business were £20 million (30 September 2005: £24 million), which included a benefit from a discount of £2 million from our IT partner under an agreement signed in 2003. Cost savings were achieved through moving to a more appropriate overhead structure. These adjusted operating costs also included costs associated with the facilities located in Germany and the UK, not sold as part of the Ericsson transaction for which we received £3 million of rental income in the six months ended 30 September 2006. In the six months ended 30 September 2006, £nil million was charged to operating profit from Continuing Operations in respect of share option costs (30 September 2005: £2 million). This comprised the IFRS 2 fair value charge of £3 million (30 September 2005: £6 million) less a £3 million credit in respect of option lapses mainly relating to employees leaving the Group and transferring to Ericsson (30 September 2005: £4 million credit). The reduction in the IFRS 2 fair value charge resulted primarily from the vesting of tranche 4 of options in August 2005. Net costs of liability management activities were £5 million in the six months ended 30 September 2006. Following the disposal of our telecommunications, equipment and international services businesses to Ericsson, which was achieved largely through asset-based transactions, the Group has retained over 200 legal entities (as at 30 September 2006), in the UK and in overseas territories, which hold legacy balances not transferred to Ericsson. These legal entities do not trade and are subject to an ongoing rationalisation programme, the results of which are presented as ‘liability management’. Operating costs of £3 million, associated with liability management, principally comprise salaries and associated costs for staff working on the programme and professional fees. In addition, £3 million of foreign exchange losses were recorded, arising on the intercompany trading balances retained by telent in all territories. The foreign exchange differences arise where trading balances not denominated in the local reporting currency are revalued. The resulting foreign exchange difference is non-cash and is not eliminated on consolidation. These costs were partially offset by £1 million rental income from our Italian facility, not disposed of to Ericsson. Exceptional items within Continuing Operations amounted to a net charge of £14 million for the six months ended 30 September 2006, a significant increase compared to the £3 million exceptional charge in the first six months of the previous year. We recorded a £9 million settlement loss following the finalisation of the annuity purchase to cover all of the benefits owed under our legacy Marconi USA Employees’ Retirement Plan. As a result of this transaction, the Group had fully settled its liabilities under this plan by 30 September 2006 and the remaining assets on the balance sheet were extinguished. A further charge of £4 million was recorded in the period as we incurred professional fees in connection with the proposed scheme of arrangement with Holmar Holdings Limited, which has now lapsed. In addition, £2 million of restructuring costs incurred in relation to employee severance was partially offset by the release of provisions held against onerous leases, now settled. he operating loss from Continuing Operations amounted to £8 million for the six months ended 30 September 2006 compared to an operating profit of £8 million in the six months ended 30 September 2005. Continuing Operations – Segment Review The results of our operating segments within Continuing Operations are set out below. This includes each segment’s share of the Group’s corporate costs.
Telco Services
Notes: 1 See page 7 for reconciliation to operating (loss)/profit from Continuing Operations The £20 million reduction in revenues from Telco Services compared to the previous year was due to a lower level of System X hardware and software revenues, the disposal of the Payphones business and the closure of APT in March 2006. Payphones and APT contributed £7 million of revenues and £1 million operating loss in the six months ended 30 September 2005 and £12 million of revenues and £1 million of operating loss in the year ended 31 March 2006. During the six months ended 30 September 2006, we agreed to meet new customer demand for System X hardware resulting in an order which will be fulfilled over the next 18 months. As disclosed previously, we continue to expect sales of legacy telecommunications equipment and services such as System X to be phased down over the next five years as our customers focus investment on next generation networks. Three recently secured contracts generated additional revenues in the six months ended 30 September 2006. We supported the roll out of a multi-vendor metro ethernet transport network across the UK for ntl. This contract covered the provision of build, installation, commissioning and integration services as well as technical consultancy for network design and planning. We won a contract with Easynet to support their BSkyB Broadband rollout. Under this contract we have r esponsibility for the management, installation and commissioning, including all aspects of inventory control and ongoing first line maintenance support. We have also started some small-scale activities for BT providing project management and infrastructure services for the transitioning of their exchanges for their Next Generation Network. These additional revenues were offset by a reduction in call-off rates under our frame contract for Infrastructure Services with BT as a result of the phasing of network activities. This four-year frame contract, signed in 2004, is currently being re-tendered by BT, following the creation of Openreach, BT's regulated local access network business . Openreach is intending to place new contracts aligned to its amended regional structure . In October 2006, Openreach informed us that we had successfully reached its initial short-list. Final adjudication of new contracts is expected within the coming months We remain Ericsson’s preferred services partner in the UK in support of their wireline activities. Our two-year frame contract with Ericsson, signed in January 2006, covering the provision of installation, commissioning and maintenance services for the former Marconi product base has progressed well in the period, generating significant revenues. We recorded a £3 million reduction in adjusted operating profit from Trading Activities 1 year-on-year. This resulted from the lower volumes of System X hardware and software, partially offset by a reduction in year-on-year selling and marketing costs as a result of putting in place a more appropriate structure for the ongoing telent business. Successful management of a number of contract risks and lower than expected business separation costs post completion of the Ericsson transaction led to contract and other accrual releases. These were partially offset by the write-off of legacy work in progress, resulting in a net benefit of approximately £2 million to operating profit in the period. Enterprise Services
Notes: 1 See page 7 for reconciliation to operating (loss)/profit from Continuing Operations The £2 million increase in Enterprise Services revenues was driven by higher revenues in the UK, offset by a drop in German revenues. The main contributors to the increased revenues in the UK were:
During the past six months we have continued to secure a number of trackside infrastructure upgrade contracts with Network Rail and have seen further growth in orders placed under our five-year Network Rail Communications System and Equipment frame contract. Year on year, these additional revenues were partially offset by the impact of the successful completion early in the previous financial year of the West Coast Main Line contract for Network Rail. Revenues in Germany declined as a result of the one-off sale of spares stock of £4 million under our ongoing Toll Collect maintenance contract last year. At £3 million, adjusted operating profit from Trading Activities 1 increased by £1 million compared to the six months ended 30 September 2005. Increased contribution from higher volumes under our Highways Agency and Tube Lines contracts was partially offset by the completion of the West Coast Main Line contract last year and margin pressure in Germany. Margins in Germany have educed as a result of procuring former Marconi products through Ericsson and reselling them as part of our ongoing service contracts. In addition we benefited from a net £2 million release of contract accruals during the six months ended 30 September 2006 (30 September 2005: £2 million) mainly as a result of the successful management of risks in ongoing projects in the Roads sector and final release of outstanding accruals in relation to the completed West Coast Main Line contract. Other Financial Items Investment income of £84 million principally comprised an expected return on pension scheme assets of £68 million and interest received on the UK Pension Plan Escrow account of £11 million, which increased the cash held in the escrow, held for the benefit of the UK Pension Plan, from £490 million to £501 million, and is subject to its terms. Other interest income amounted to £5 million. Finance costs of £72 million related mainly to notional interest on pension scheme liabilities. The tax credit on ordinary activities mainly arises from the release of tax provisions in respect of prior years as certain historic tax issues are now concluded. As previously reported, as at 31 March 2006, we recorded a deferred tax asset of £50 million. Management remain of the opinion that the anticipated level of profits over the next three financial years supports continued recognition as at 30 September 2006. Discontinued Operations Discontinued Operations comprises the results of our telecommunications equipment and international services businesses sold to Ericsson in January 2006. Discontinued Operations were organised into three operating segments – Optical & Access Networks, Data Networks and Other Network Services. Revenues of £1 million in the six months ended 30 September 2006 relate to the run-down of specific contracts in Central and Latin America not disposed of to Ericsson. We recorded a profit of £3 million from Discontinued Operations in the six months ended 30 September 2006. This primarily relates to disposals agreed with Ericsson prior to 31 March 2006 but completed during the six months ended 30 September 2006. Balance Sheet Our balance sheet at 30 September 2006 can be summarised as set out in the table below.
Net assets reduced from £590 million at 31 March 2006 to £529 million at 30 September 2006. The main movements in balance sheet items related to:
Pensions and Other Retirement Benefits Our net pension scheme deficit as at 30 September 2006 amounted to £135 million compared to £59 million at 31 March 2006. 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 2006. The actuarial assumptions are set out in note 17 to the non-statutory accounts. The movements in the Group net pension scheme deficit since 31 March 2006 are summarised in the table below:
Our Rest of World plans comprise our retained German plan (deficit of £66 million at 30 September 2006) and a US post-retirement medical plan (deficit of £1 million at 30 September 2006). The most significant movement in the period was a net actuarial loss of £76 million, which has been accounted for in the Consolidated Statement of Recognised Income and Expense (‘SORIE’) for the six months ended 30 September 2006. The key elements of the net actuarial loss were as follows:
A 25 basis point increase in the UK inflation rate assumption from 2.75% to 3.00% was adopted for the IAS 19 valuation as at 30 September 2006 to more closely align our assumption with the latest published Bank of England inflation yield curve, resulting in a SORIE loss of £93 million. The discount rate assumption remained unchanged at 5.00% in line with the AA corporate bond yield at 30 September 2006, as prescribed by IAS 19. Following the changes implemented by the Inland Revenue effective from 6 April 2006, we have reviewed and revised the assumption regarding the level of plan members expected to take advantage of tax-free cash commutation, which has resulted in a SORIE gain of £21 million. During the six months ended 30 September 2006 the Group finalised the annuity purchase to cover all of the benefits owed under the Marconi USA Employees’ Retirement Plan. This led to a cash cost of approximately £2 million. Following this purchase, the Group’s liability for this plan was fully settled as at 30 September 2006 and the remaining assets held on the balance sheet were extinguished, giving rise to a settlement loss of £9 million in the income statement. Service costs, plan contributions, benefit payments and net finance costs have been recognised in accordance with the actuarial assumptions set at the beginning of the year and published as at 31 March 2006. The Group also made an additional one-off contribution of £8 million to the UK Pension Plan to cover the costs relating to implementation of a swap arrangement to protect the value of the £490 million UK Pension Plan Escrow between the time the payment was agreed in late 2005 and the actual payment in March 2006. UK Pension Plan We have continued to work with the UK Pension Trustee to ensure the continued financial security of the plan. In particular, we have agreed an investment strategy, which targets for the plan to be fully funded by 2021, using the Trustee’s valuation assumptions and taking into account the Pension Plan Escrow, which, as previously disclosed, was set aside in March 2006 for the potential benefit of the UK Pension Plan. In calculating liabilities, the Trustee has assumed a mortality rate equivalent to current plan experience plus an allowance for future improvements in longevity of 14% of plan liabilities. This equates to additional liabilities of approximately £300 million over our IAS 19 valuation, which assumes a mortality rate equivalent to current plan experience plus 3% of plan liabilities. The investment strategy developed by the Trustee targets an overall portfolio return of 140 basis points above the gilt rate. To achieve this return on assets:
In addition, the Trustee has removed inflation and interest-rate risk from 80% of the plan's assets through the use of inflation and interest-rate swaps and investment in index-linked gilts of an appropriate duration. As a result, the economic exposure of the plan to movements in inflation and real interest rates has been reduced from £5.3 million per basis point to £1.1 million per basis point. The Pension Plan Escrow agreement outlines the basis on which cash may move in or out of the escrow. The IAS 19 valuation is the basis used to determine any movements from the escrow to the pension plan. An annual assessment will be carried out in March each year and a funding plan will be agreed at that time with the Trustee to meet any deficit on an IAS 19 basis. Cash can only be released from the escrow to telent if, in future, the UK Pension Plan (including the escrow) achieves a funding level in excess of 105% on a buy-out basis. At 20 April 2006, the buy-out estimate for the UK Pension Plan was £1,042 million (excluding the escrow). The Board, therefore, continues to believe that any release of funds from the escrow to telent could not happen for many years and may never be possible. Long-term provisions decreased from £89 million at 31 March 2006 to £77 million as at 30 September 2006, mainly as a result of the utilisation of restructuring provisions of £11 million, of which £9 million is associated with the previously announced redundancy programme within the UK. Assets held for sale of £4 million and liabilities associated with these assets of £1 million as at 31 March 2006 have been extinguished in the six months ended 30 September 2006 following the finalisation of disposals agreed with Ericsson prior to March 2006 but completed during this financial year. Liquidity and Capital Resources Cash and cash equivalents as at 30 September 2006 amounted to £702 million compared to £739 million at 31 March 2006. This includes restricted cash balances as follows:
The largest restricted cash balance relates to cash held in an escrow account owned by telent but secured in favour of the Trustees of our UK Pension Plan. The £11 million increase to £501 million (31 March 2006: £490 million) relates to interest income received during the period. We have made good progress during the first six months in releasing previously restricted balances relating to collateral held against bonding facilities. Other restricted amounts relate to cash retained within our captive insurance company 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 £35 million cash spend in the six months ended 30 September 2006. It separates out the cash flows from our ongoing trading activities from those cash flows relating to exceptional items and liability management activities and those incurred within Discontinued Operations.
The Group recorded a net cash outflow from operating activities before exceptional items of £10 million in the period. £9 million of cash generated by our ongoing Trading Activities was offset by cash outflows relating to exceptional items and liability management (£15 million) and Discontinued Operations (£4 million). Operating cash inflow from Trading Activities was £9 million for the six months ended 30 September 2006, giving cash conversion from operating profit of 82%. This reflected the focus placed on working capital management throughout the business. Cash utilised by operating activities within liability management and Discontinued Operations related mainly to the unwind of short-term liabilities retained following the disposal of businesses to Ericsson as well as the cash costs associated with the Legal Entity Rationalisation programme. Cash outflows in relation to exceptional items totalled £30 million. Restructuring and litigation costs of £17 million principally relate to redundancy as we paid £10 million of redundancy costs (of which £4 million was paid to staff previously employed within businesses sold to Ericsson and is therefore recorded within Discontinued Operations) during the six months ended 30 September 2006. Further payments of £5 million were incurred in relation to litigation settlements. Other restructuring payments principally related to onerous leases. A further £10 million of the exceptional cash spend related to one-off pension-related payments; an £8 million special contribution to the UK Pension Plan (discussed further in ‘Pensions and Other Retirement Benefits’ on page 13); and a £2 million payment to finalise the purchase of the annuity for the Marconi USA Employees' Retirement Plan. In addition, cash spend on advisor fees in relation to the proposed acquisition by Holmar Holdings Limited amounted to £3 million. Group cash inflow from investing activities amounted to £4 million. The £13 million cash outflow recorded in relation to the Ericsson transaction included a net £4 million outflow in relation to the close process for the sale of our Chinese subsidiaries to Ericsson, which is expected to generate a cash inflow in the second half of the current financial year when the remaining legal formalities are completed and the sale is concluded. The sale of the principal Chinese subsidiaries is subject to an ongoing formal process under which telent is required to buy out minority interest shareholdings and recapitalise the entities. Finally, prior to sale, the subsidiaries will repay the net intercompany balance owed to the telent Group. A further £8 million outflow was incurred in relation to the payment of advisor fees associated with the Ericsson transaction. Income from loans and deposits of £16 million includes £11 million of interest arising on the Pension Plan Escrow account. Important Notice This report is prepared under International Financial Reporting Standards (IFRS) adopted for use in 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 sectr 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 business 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
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