TIDMSPT
RNS Number : 0481H
Spirent Communications PLC
08 March 2018
SPIRENT COMMUNICATIONS PLC
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2017
London, UK - 8 March 2018: Spirent Communications plc
("Spirent", the "Company" or the "Group") (LSE: SPT), a leading
communications technology company, today announces its full year
results for the financial year ended 31 December 2017.
Strong growth in earnings and cash generation
-- During 2017 we established a firm platform to realise
Spirent's potential, focusing on specific growth objectives whilst
ensuring our cost base is efficient.
-- As expected, revenue level year-on-year, up 2.4 per cent excluding Connected Devices.
-- Growth of 100G high-speed Ethernet testing slowed during the
year in anticipation of 400G, build up expected in H2 2018.
-- We have a market-leading position in 400G with equipment
manufacturers and service providers.
-- Strong performance from our areas of strategic growth
priority - Lifecycle Service Assurance revenue up 10 per cent and
Application Security business up more than 20 per cent, improving
Group gross margin.
-- Connected Devices - robust turnaround delivered, with
significantly improved profitability, despite revenue decline.
-- Adjusted operating costs reduced by $16.7 million, excluding foreign exchange.
-- Adjusted operating profit up 27 per cent to $58.9 million.
-- Adjusted operating margin up from 10.2 per cent to 13.0 per cent.
-- Strong cash management, free cash flow $56.4 million (2016: $25.9 million).
-- Adjusted basic EPS up 43 per cent to 7.55 cents.
-- Tax benefits from US reform - 2018 estimated Group effective tax rate of circa 17 per cent.
-- Special dividend of 5.00 cents per share, in addition to an
increased final dividend of 2.40 cents per share, to be paid May
2018.
Results summary
$ million 2017 2016
----------------------------------- ------- --------
Revenue 454.8 457.9
Adjusted operating profit(1) 58.9 46.5
Adjusted operating margin(2)
(%) 13.0 10.2
Adjusted profit before tax(3) 59.2 44.2
Adjusted basic earnings per
share(4) (cents) 7.55 5.29
Reported operating profit/(loss) 43.7 (41.1)
Reported profit/(loss) before
tax 46.6 (46.0)
Free cash flow(5) 56.4 25.9
Closing cash 128.4 96.1
Dividend per share(6) (cents) 4.08 3.89
Special dividend per share(6)
(cents) 5.00 -
----------------------------------- ------- --------
Divisional highlights
Networks & Security
-- Strong growth in our Positioning and Application Security
businesses offset some softness in high-speed Ethernet testing as
customers transition to new 400G platforms.
-- We grew our market share in high-speed Ethernet performance
test systems and participated in several first-to-market
demonstrations.
-- We increased the coverage of our flagship security product
(Spirent CyberFlood) with support for ransomware, Internet of
Things (IoT), industrial controls and distributed denial of service
(DDoS) attacks.
-- We remain the world's leading vendor of global navigation
satellite simulators and released the GNSS Vulnerabilities and
Threats test suite.
-- We launched the first Automotive Ethernet protocol conformance and performance test system.
Lifecycle Service Assurance
-- Our Lifecycle Service Assurance revenue grew 10 per cent,
boosted by winning fifteen $1 million+ deals.
-- We expanded our footprint in our three largest Tier 1 mobile
operator customers, winning four new Tier 1 deployments, addressing
critical challenges in the roll out of virtual networks and
business mobile services.
-- We participated in high-profile demonstrations at TM Forum
Live in Nice in a joint demonstration with AT&T, Orange, TIM,
Huawei, IBM, Infosys and Tech Mahindra and at Mobile World Congress
in Shanghai with China Mobile Research Institute.
Connected Devices
-- We delivered a strong performance turnaround, by materially
reducing costs and focusing on our core areas of differentiation,
returning to solid profitability.
-- We divested Device Intelligence (DI) and Developer Tools (DT)
on 30 June 2017 as part of our portfolio review.
-- We released our Spirent Elevate IoT Device Test Solution, a
cellular test solution designed to support a wide range of IoT
applications.
-- China Telecom selected our Spirent Umetrix(R) Voice solution
to measure the voice quality of smartphones.
Outlook
Key strategic wins secured in 2017 demonstrated traction in our
key focus areas: active test and assurance in operational networks
and in cyber security. The demand for high-speed Ethernet,
particularly in 400G, is expected to rebound later this year.
We expect that our 2018 results will once again be weighted to
the second half, owing to our normal seasonality, but amplified by
two additional factors. The first is the expected rebound in
Ethernet testing in the second half and the second is the
expectation that Lifecycle Service Assurance spending is likely to
be second half weighted after the heavy spending flourish at the
end of 2017.
The stronger growth anticipated in our areas of strategic focus
is expected to drive the performance of Spirent again in 2018. The
Board is confident that the Group will show progress in 2018 while
continuing to focus on a balanced approach to operational
efficiency and investment in product development in its core growth
businesses.
Eric Hutchinson, Chief Executive Officer, commented:
"In 2017 we established a firm basis to realise Spirent's full
potential delivering strong growth in earnings and in cash
generation as we did so. We have taken our expertise in network
assurance to deploy innovative new systems, winning new business
with well-established and new customers. In doing so, we gained
market share with the early adopters in the industry, which should
serve Spirent well in 2018 and the long-term."
"Exponential growth in data and the virtualisation of networks
continues at pace. We are well positioned for future growth with
our leading-edge technology, to enable our customers to accelerate
their time to market and increase their quality of service at lower
operating costs."
- ends -
Notes
1 Adjusted operating profit is before charging exceptional
items, acquired intangible asset amortisation, goodwill and
acquired intangible asset impairment and share-based payment
amounting to $15.2 million in total (2016: $87.6 million).
2 Adjusted operating profit as a percentage of revenue in the
period.
3 Before the items set out in note 1, gain on divestment and
impairment of investment in associate.
4 Adjusted basic earnings per share is based on adjusted
earnings as set out in note 7 of Notes to the full year
consolidated financial statements.
5 Operating cash flow after tax, net interest and net capital
expenditure.
6 Dividends are determined in US dollars and paid in sterling at
the exchange rate prevailing when the dividend is proposed.
- The final dividend proposed for 2017 of 2.40 cents per
Ordinary Share is equivalent to 1.73 pence per Ordinary Share.
- The special dividend proposed for 2017 of 5.00 cents per
Ordinary Share is equivalent to 3.60 pence per Ordinary Share.
Enquiries
Eric Hutchinson, Chief Spirent Communications +44 (0)1293
Executive Officer plc 767676
Paula Bell, Chief Financial
Officer
James Melville Ross/Emma
Hall/ +44 (0)20
Adam Davidson FTI Consulting 3727 1000
The Company will host a results presentation today at 9.15am for
9.30am UK time at FTI Consulting, 200 Aldersgate, Aldersgate
Street, London EC1A 4HD. A simultaneous webcast of the presentation
will be available in the Investors section of the Spirent
Communications plc website http://corporate.spirent.com/.
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are
made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. You can
sometimes, but not always, identify these statements by the use of
a date in the future or such words as "will", "anticipate",
"estimate", "expect", "project", "intend", "plan", "should", "may",
"assume" and other similar words. By their nature, forward-looking
statements are inherently predictive and speculative and involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. You should not place
undue reliance on these forward-looking statements, which are not a
guarantee of future performance and are subject to factors that
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company undertakes no
obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future
events or otherwise.
PERFORMANCE REVIEW
Overview - realising our potential
In 2017, we established a firm basis to realise Spirent's full
potential.
We focused on our core expertise to enable our customers to
develop high-performance, high-security systems in a shorter time.
We have taken our expertise in service assurance to deploy
innovative new systems, winning new business with well-established
and new customers. In doing so, we gained market share with the
early adopters in the industry, which should serve Spirent well in
2018 and the long-term.
An essential part of realising potential has been to focus on
our core strategies and take these into the growth opportunities
offered by the global trend to move rapidly from development into
operations. A natural consequence is a reduction in expenditure as
we cease or scale back activities outside this focus area. This, in
turn, has helped to increase profitability of Spirent's operations
and to increase cash generation.
Strategy - enabling the data revolution
Spirent enables its customers to deliver data connectivity which
is faster, has greater capacity and has resilient security. This is
essential to the development and deployment of new technologies
worldwide: from smart industrial processes, smart home management,
autonomous vehicles, smart enterprise business processes to smart
city construction. Add in the digitisation of healthcare, and it is
clear that ultra-reliable, fail safe connectivity at hyper-scale is
necessary to deliver this vision. Spirent has an important role in
enabling its customers to deliver these new smart technologies in
an economic, secure and timely manner.
Spirent's core expertise in data technologies - founded on
high-speed Ethernet, Wi-Fi, cellular wireless, satellite
constellations - combined with automated service assurance and
analytics, offers a differentiated and powerful set of solutions to
our customers. Vital to our customers' success is our ability to
deliver our expertise in test, measurement, validation, assurance
and security in automated, scalable systems that are easy to use.
This will enable our customers to realise their vision of supplying
data connectivity with lower cost, higher reliability and
security.
The dominant market trends are underpinned by relentless traffic
growth. The business imperative is to enable the industry to reduce
operating cost and capital expenditure. Operators cannot afford to
match traffic growth with higher and higher levels of investment in
new data transport and equipment. They also have to reduce their
cost of operations by implementing new network architecture and
operating practices. These imperatives underpin this move to
software defined networks, network virtualisation and automation.
This is why Spirent's strategic focus is to offer enabling
technologies, systems and active service assurance so that our
customers, existing and new, can meet the challenges in building
out virtual networks. Within this broad landscape there are market
disrupters: virtual, virtualisation, the Internet of Things, 5G
wireless and cyber security.
Network virtualisation is the only way to support the
exponential growth in data consumption. Virtualisation allows the
radical reduction in the capital cost of networks; it also allows
rapid deployment of new services. Spirent provides active test
systems to assure performance before deployment, and during
operation, to allow real-time response to changing conditions in
the network. The existing hybrid networks, with their inherent
complexity, will exist for decades to come.
Spirent's strategic direction is to take our deep expertise in
test and assurance in data networking to provide leading-edge
solutions and services that enable the realisation of smart
connectivity at an economic cost, achieved through automation and
lower cost operation. We will extend on our leadership positions in
high-speed Ethernet and in satellite navigation. We will deliver
solutions to meet the challenges of virtualisation and cyber
security. We will deploy systems in live production networks for
active test and management to lower the cost of operations. We will
develop new solutions for this growth in 5G wireless technology and
to meet the requirements for autonomous vehicles.
FINANCIAL REVIEW
Group overview
Strong earnings growth and improved cash generation were
delivered following the implementation of our improvement
programmes, which included a portfolio review of our business and
targeted cost and working capital management initiatives.
The Group delivered a strong increase in both adjusted basic
earnings per share, up by 43 per cent and free cash flow, up by 118
per cent. Adjusted operating profit increased by $12.4 million or
27 per cent, on slightly reduced revenue. The highlights were a
robust performance from Lifecycle Service Assurance, with 10 per
cent revenue growth and adjusted operating margin increased to 16.4
per cent, and the profitability turnaround of Connected Devices,
which delivered an improvement in adjusted operating profit of $9.6
million on lower revenue. Within Networks & Security, there
were strong performances from our Positioning and Application
Security lines of business but this was tempered by some softness
for high-speed Ethernet testing, as we have previously noted, which
is expected to rebound in the second half of 2018.
The adjusted operating cost base of the Group reduced by $16.7
million, excluding foreign exchange and despite inflation, as the
cost saving actions from the portfolio review programme and
restructuring of the sales organisation which commenced in late
2016, began to deliver benefits. These change programmes concluded
at the end of 2017, with $6.7 million of in year exceptional costs
with a very fast cash pay back.
Adjusted basic earnings per share increased by 43 per cent to
7.55 cents reflecting the growth in adjusted operating profit and
reduced tax charge in 2017.
Cash at bank closed at $128.4 million, an increase of $32.3
million on the position at 31 December 2016. Free cash flow more
than doubled as a result of increased profit and a reduced level of
working capital. Free cash flow represented 122 per cent of
adjusted earnings.
Following US tax reform, we expect the Group's effective tax
rate to decrease from 22 per cent in 2017 to an estimated 17 per
cent from 2018 onwards. Further clarification of some of the new
legislation is awaited which may impact this estimate.
As a result of improved financial performance and a review of
our capital allocation policy, we propose a 5 per cent increase to
the full year dividend per share, from 3.89 cents to 4.08 cents,
and a further special dividend of 5.00 cents per share.
The following table shows summary financial performance for the
Group:
$ million 2017 2016
----------------------------------- ------- --------
Order intake 447.8 471.7
Revenue 454.8 457.9
Gross profit 325.0 324.3
Gross margin % 71.5 70.8
Adjusted operating costs(1) 266.1 277.8
Adjusted operating profit(1) 58.9 46.5
Adjusted operating margin(2)
% 13.0 10.2
Reported operating profit/(loss) 43.7 (41.1)
Reported profit/(loss) before
tax 46.6 (46.0)
Adjusted basic earnings per
share(3) (cents) 7.55 5.29
Basic earnings/(loss) per
share (cents) 4.75 (6.93)
Free cash flow(4) 56.4 25.9
Closing cash 128.4 96.1
Final dividend per share(5)
(cents) 2.40 2.21
Special dividend per share(5)
(cents) 5.00 -
----------------------------------- ------- --------
Notes
1 Before exceptional items, acquired intangible asset
amortisation, goodwill and acquired intangible asset impairment and
share-based payment amounting to $15.2 million in total (2016:
$87.6 million).
2 Adjusted operating profit as a percentage of revenue in the
period.
3 Adjusted basic earnings per share is based on adjusted
earnings as set out in note 7 of Notes to the full year
consolidated financial statements.
4 Operating cash flow after tax, net interest and net capital
expenditure.
5 Dividends are determined in US dollars and paid in sterling at
the exchange rate prevailing when the dividend is proposed.
- The final dividend proposed for 2017 of 2.40 cents per
Ordinary Share is equivalent to 1.73 pence per Ordinary Share.
- The special dividend proposed for 2017 of 5.00 cents per
Ordinary Share is equivalent to 3.60 pence per Ordinary Share.
Revenue
% of % of
$ million 2017 total 2016(1) total
------------------------------ ------- -------- --------- --------
Revenue by segment
Networks & Security 261.0 57.4 262.2 57.3
Lifecycle Service Assurance 109.2 24.0 99.2 21.6
Connected Devices 84.6 18.6 96.5 21.1
------------------------------ ------- -------- --------- --------
454.8 100.0 457.9 100.0
------------------------------ ------- -------- --------- --------
Revenue by geography
Americas 248.6 54.7 254.1 55.5
Asia Pacific 160.2 35.2 149.3 32.6
Europe, Middle East
and Africa 46.0 10.1 54.5 11.9
------------------------------ ------- -------- --------- --------
454.8 100.0 457.9 100.0
------------------------------ ------- -------- --------- --------
Note
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
Overall, Group revenue was broadly level compared to last year
and up 2.4 per cent excluding Connected Devices, which continues to
be managed carefully during the decline of the wireless device
testing market.
On 30 June 2017, we divested both the Device Intelligence (DI)
and Developer Tools (DT) lines of business from Connected Devices
which together generated revenue of $12.9 million in 2016 and $5.9
million for the first six months of 2017.
Continuing Group revenue, excluding the DI and DT businesses
divested at the end of the first half of 2017, increased by $3.9
million or 1 per cent. Lifecycle Service Assurance had a
particularly robust finish to the year increasing revenue by 10 per
cent, $10.0 million ahead of last year, Networks & Security was
essentially level after a strong 2016 and Connected Devices
experienced a decline of $11.9 million ($4.9 million excluding DI
and DT), in line with our expectations.
Within Networks & Security, our Positioning and Application
Security test lines of business saw strong demand and good growth
but this was offset by lower demand for high-speed Ethernet
performance test solutions as some customers delayed expenditure as
they transitioned to new technology platforms, and also 2016
represented a strong comparator year. All of our lines of business
within Lifecycle Service Assurance experienced growth on last year;
particular highlights were Mobility Infrastructure and Customer
Experience Management. Connected Devices included our DI and DT
lines of business, which were divested on 30 June 2017. Excluding
these businesses, the operating segment's revenue decline slowed to
6 per cent in 2017, from 25 per cent in 2016.
Geographically, the trends we have experienced in recent years
continued into 2017 with growth in Asia Pacific and decline in
EMEA. Americas remained our largest regional market constituting 55
per cent of total Group revenue but was down marginally in absolute
terms on last year impacted by Cloud and IP, Connected Devices and
the divestment of DI and DT. Asia Pacific again increased its share
of Group revenue, to 35 per cent from 33 per cent, an increase of
$10.9 million. China drove much of the growth in the Asia Pacific
region, contributing $7.3 million of the increase, being 9 per cent
growth. The decline in EMEA reflected continuing softness in
service provider and network equipment manufacturer investment in
the region, as well as the divestment of DI and DT; excluding these
businesses the decrease was $5.4 million or 11 per cent.
Gross margin
$ million 2017 % 2016(1) %
------------------------------ ------- ------ --------- ------
Networks & Security 186.7 71.5 184.9 70.5
Lifecycle Service Assurance 84.7 77.6 77.7 78.3
Connected Devices 53.6 63.4 61.7 63.9
------------------------------ ------- ------ --------- ------
325.0 71.5 324.3 70.8
------------------------------ ------- ------ --------- ------
Note
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
Gross margin increased by 0.7 percentage points to 71.5 per cent
(2016: 70.8 per cent) benefitting from a robust performance from
the Positioning business and growth in our Application Security
business, both reported within the Networks & Security
operating segment.
Operating costs
$ million 2017 2016(1)
------------------------------ ------- ---------
Product development 103.0 111.7
Selling and marketing 116.8 125.4
Administration(2) 46.3 40.7
------------------------------ ------- ---------
Adjusted operating costs(2) 266.1 277.8
------------------------------ ------- ---------
Networks & Security 142.8 137.7
Lifecycle Service Assurance 66.8 66.5
Connected Devices 48.4 66.1
Corporate 8.1 7.5
------------------------------ ------- ---------
Adjusted operating costs(2) 266.1 277.8
------------------------------ ------- ---------
Notes
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
2 Before exceptional items, acquired intangible asset
amortisation, goodwill and acquired intangible asset impairment and
share-based payment amounting to $15.2 million in total (2016:
$87.6 million).
As in 2016, 2017 was another year of material cost reductions.
Despite inflation and excluding foreign exchange charges, total
Group adjusted operating costs reduced by $16.7 million or 6 per
cent compared to 2016, as a result of the cost reduction actions
implemented under the portfolio review programme and sales
reorganisation, and to a lesser extent, the divestment of DI and DT
on 30 June 2017. This follows a similar level of cost reduction in
2016 and reflects management's continuing focus on effective
resource allocation and cost control. Investment is being focused
on high-growth, high-margin areas and this is apparent from the
segmental analysis of operating costs, with the reduction in costs
targeted in Connected Devices and the level of investment
maintained and increased in Lifecycle Service Assurance and
Networks & Security, respectively.
Compared to 2016, the year-on-year movement in foreign exchange
charged in the income statement was a negative impact of $5.0
million. The net change in total operating costs before adjusting
items was therefore $11.7 million.
The total Group investment in product development was reduced by
$8.7 million, despite cost inflation, which reflects our focused
approach to concentrate resources on specific higher growth
potential areas.
Selling and marketing costs decreased by $8.6 million, being the
full year effect of the cost reduction actions commenced at the end
of 2016 following the review of the sales organisation and
remuneration structure undertaken by external consultants. This
programme has continued through 2017 with further actions and
exceptional implementation costs.
Administration costs in 2016 benefitted from $3.4 million of
foreign exchange gains, related to exchange rate volatility between
the US dollar and pound sterling, whereas 2017 includes a foreign
exchange loss of $1.6 million. Therefore the majority of the
movement in administration costs year-on-year is due to foreign
exchange. The current year level of administration costs is
considered more typical.
Looking forward into 2018, we will focus on driving improved
productivity in product development.
Operating profit
Adjusted Adjusted
operating operating
margin(2) margin(2)
$ million 2017 % 2016(1) %
----------------------- ------- ------------ --------- ------------
Networks & Security 43.9 16.8 47.2 18.0
Lifecycle Service
Assurance 17.9 16.4 11.2 11.3
Connected Devices 5.2 6.1 (4.4) NA
Corporate (8.1) (7.5)
----------------------- ------- ------------ --------- ------------
Adjusted operating
profit(2) 58.9 13.0 46.5 10.2
----------------------- ------- ------------ --------- ------------
Exceptional items (6.7) (4.8)
Acquired intangible
asset amortisation (6.3) (12.9)
Goodwill and acquired
intangible asset
impairment - (69.1)
Share-based payment (2.2) (0.8)
----------------------- ------- ------------ --------- ------------
Reported operating
profit/(loss) 43.7 (41.1)
----------------------- ------- ------------ --------- ------------
Notes
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
2 Before exceptional items, acquired intangible asset
amortisation, goodwill and acquired intangible asset impairment and
share-based payment amounting to $15.2 million in total (2016:
$87.6 million).
Adjusted operating profit increased by 27 per cent to $58.9
million, compared with $46.5 million in 2016, and adjusted
operating margin increased to 13.0 per cent from 10.2 per cent in
2016.
Notwithstanding the ongoing reduction in the operating cost
base, we have continued to invest in key growth areas identified
from the portfolio review.
Exceptional items
During the second half of 2016, the Group commenced a portfolio
review with the objective of focusing Spirent's lines of business
on those test technologies and services which will best drive
sustainable earnings growth. In addition, external consultants were
engaged to benchmark the sales organisation and a programme was
implemented to increase our effectiveness and efficiency in this
area. These initiatives resulted in cost reduction actions which
commenced at the end of 2016 and continued throughout 2017,
concluding at the end of the year. In addition, in 2017, the Group
undertook a strategic review of the Connected Devices operating
segment. In total, $6.7 million of exceptional costs were incurred
in the year, including $5.4 million of portfolio review and sales
organisation restructuring costs (2016: $4.8 million) and $1.3
million of costs related to the strategic review of Connected
Devices.
Acquired intangible asset amortisation, impairment and
share-based payment
In 2016, the Group took a total impairment charge of $69.1
million in relation to goodwill and acquired intangible assets
within the DI and DT lines of business and the Connected Devices
cash generating unit. As a result, acquired intangible asset
amortisation has decreased significantly in 2017, from $12.9
million in 2016, to $6.3 million.
Share-based payment has increased to $2.2 million in 2017 (2016:
$0.8 million) reflecting the expected vesting of awards and the
cost associated with the 2017 grant.
Divestments
A consequence of the portfolio review was the decision to not
invest further in the DI and DT lines of business within Connected
Devices and this necessitated the impairment in full of the
goodwill and acquired intangible assets in these businesses in
2016. At 30 June 2017, these businesses were divested to an Israeli
company established by the former General Manager of the business
units, for a total cash consideration of $1. As part of the sale,
Spirent made a $2.0 million interest bearing loan to the divested
subsidiaries to fund working capital requirements. This loan has
been fully provided for by the Group and expensed in the
calculation of the gain on divestments, which amounted to $2.6
million. The businesses combined contributed $12.9 million revenue
in 2016 and $5.9 million for the first six months of 2017.
Currency impact
The Group's revenue and costs are primarily denominated in US
dollars or US dollar-linked currencies. Currency exposures arise
from trading transactions undertaken by the Group in foreign
currencies and on the retranslation of the operating results and
net assets of overseas subsidiaries.
The Group's income statement includes a foreign exchange loss,
included in administration costs, of $1.6 million (2016: $3.4
million gain) arising from:
1) transacting in foreign currencies, primarily US dollars in
the United Kingdom, of $0.9 million (2016: $2.3 million gain);
and
2) translation of foreign currency cash balances of $0.7 million (2016: $1.1 million gain).
Forward foreign currency exchange contracts are entered into to
manage the exposure arising from transacting in US dollars in the
United Kingdom.
Although the most significant currency exposure arises in
relation to movements in pound sterling against the US dollar,
there are other less significant currency exposures, notably the
Euro and Chinese Yuan.
Finance income and costs
Finance income of $0.6 million was earned from cash held on
deposit (2016: $0.3 million). Surplus funds are held principally in
the United Kingdom and United States on short-term deposit and earn
market rates of interest which remain relatively low. Finance costs
of $0.3 million (2016: $0.7 million) comprised mainly of the
interest cost on the defined benefit pension plan.
Share of result of associated company
Spirent's share of the loss incurred by its associate, Jolata,
Inc. (Jolata), was nil in 2017 following the impairment of the full
value of Spirent's investment in Jolata taken at 31 December 2016
(2016: $4.5 million loss, including an impairment charge of $2.6
million).
Tax
The adjusted effective tax rate for 2017 was 22.1 per cent, down
from 26.9 per cent in 2016, primarily reflecting benefits achieved
from the successful introduction of UK Patent Box and a positive
impact from the divestment of the DI and DT lines of business,
which had unrelieved losses.
On 22 December 2017, the US President signed the Tax Cuts and
Jobs Act (the Act) into law. The Act includes a number of
significant changes in the tax law that will have implications for
Spirent. The most significant change is a permanent reduction in
the corporate income tax rate from 35 per cent to 21 per cent with
effect from 1 January 2018. Other changes that will impact the
Group include the repeal of the Domestic Production Activity
deduction (DPAD) and the enactment of a new deduction, the
Foreign-Derived Intangible Income (FDII) deduction. It is estimated
that the impact of the US tax rate reduction together with the
repeal of the DPAD and the addition of the FDII deduction will
decrease the Group's 2018 effective tax rate to circa 17 per cent
and deliver increased earnings and cash benefits. The precise
impact is still to be determined as we are awaiting further
guidance from the US government. We also expect to see cash savings
resulting from the Act's changes.
While the changes highlighted above impact Spirent from 1
January 2018 going forward, there is an adverse impact to the
Group's US deferred tax assets (DTA). These assets have been
previously booked with the expectation of a future US tax benefit
at the pre-2018 35 per cent statutory tax rate. Our 2017 financial
statements reflect a revaluation of these DTA using the new 21 per
cent statutory tax rate. The resulting decrease in the value of DTA
on our balance sheet of $7.9 million is reflected as a
corresponding deferred tax expense in the income statement,
classified as an adjusting item in the year.
Earnings per share
Adjusted basic earnings per share was up 43 per cent at 7.55
cents (2016: 5.29 cents). There were 610.6 million (2016: 610.6
million) weighted average Ordinary shares in issue. Basic earnings
per share was 4.75 cents compared with a loss per share of 6.93
cents for 2016. See note 7 of Notes to the full year consolidated
financial statements on page 32 for the calculation of earnings per
share.
Financing and cash flow
The Group was highly cash generative in 2017. Following a
refreshed focus on working capital management, we were able to more
than double the free cash flow from $25.9 million in 2016 to $56.4
million in 2017, resulting in a free cash flow conversion which
represented 122 per cent of adjusted earnings (2016: 80 per cent).
Working capital levels reduced in the year driven by lower
inventory levels and higher payables. Cash and cash equivalents
were $128.4 million at 31 December 2017, compared with $96.1
million at 31 December 2016, an increase of $32.3 million. There
was no debt.
Free cash flow is set out below:
$ million 2017 2016
--------------------------------- -------- --------
Cash flow from operations 77.7 47.4
Tax paid (8.4) (4.7)
--------------------------------- -------- --------
Net cash inflow from operating
activities 69.3 42.7
Interest received 0.6 0.3
Net capital expenditure (13.5) (17.1)
--------------------------------- -------- --------
Free cash flow 56.4 25.9
--------------------------------- -------- --------
Net capital expenditure of $13.5 million was $3.6 million lower
than last year due to the refit of an engineering lab in the United
States in 2016. The Group exercised careful management of capital
investment to ensure efficient use of capital and maximise return
on investment.
In 2017, the final dividend for 2016 and an interim dividend for
2017 totalling $24.6 million were paid (2016: $24.2 million).
Defined benefit pension plans
The Group operates two funded defined benefit pension plans in
the United Kingdom, both of which were closed to new entrants some
time ago.
The accounting valuation of these plans at the end of 2017
showed a net deficit of $2.2 million, a marked improvement on the
net deficit of $12.8 million at 31 December 2016. The deficit has
reduced because of contributions paid in the year, stronger asset
returns and a beneficial change to the mortality assumption
underpinning the value placed on liabilities, offset to some extent
by a change to commutation factors and a decrease in the discount
rate, both of which increase the value placed on liabilities. In
addition, movements in the US dollar to sterling exchange rate
impacts the deficit expressed in US dollars. The accounting
valuation is based on the actuarial valuation dated 31 March
2015.
The Group has also reported a liability of $0.6 million (31
December 2016: $0.7 million) in respect of UK unfunded plan
liabilities.
The next Triennial Valuation of the plans is due on 31 March
2018. The technical deficit on 31 March 2015, the date of the last
Triennial Valuation was $46.0 million, which is currently being
funded over a seven-year period, which commenced 1 July 2016, by an
annual contribution of $7.0 million (GBP5.0 million).
Balance sheet and dividend policies
The Board currently intends to maintain a cash positive balance
sheet over the medium to long term. This should allow the Company
to maintain a strong capital position in the face of business
risks, trading fluctuations and working capital demands. In
addition, the Board wishes to maintain flexibility to invest in the
business organically and inorganically. Where appropriate, the
Company may take on modest gearing to fund inorganic
investments.
The Board will regularly review the Company's balance sheet in
light of current and expected trading performance and cash
generation, working capital requirements and expected investments.
To the extent the Company has excess cash, it will consider
returning such cash to shareholders. The Board will consider from
time to time the appropriate mechanism for returning surplus cash
to shareholders.
We aim to build cover for the dividend to 2 to 2.5 times
adjusted earnings and follow a progressive dividend policy.
Dividend
The Board is recommending the payment of a final dividend for
2017 of 2.40 cents (1.73 pence) per share which, together with the
interim dividend of 1.68 cents (1.27 pence) per share paid in
September 2017, brings the full year dividend to 4.08 cents (3.00
pence) per share. This is a 5 per cent increase in the full year
dividend for 2017 compared to full year 2016. In sterling terms
this represents a decrease of 2 per cent. The dividend is covered
1.9 times by adjusted earnings.
The Board has also considered the Company's cash position in
line with the policies outlined above. As a result, it has decided
to recommend a special dividend of 5.00 cents (3.60 pence) per
share which equates to a cash distribution of circa $30.5
million.
Subject to approval by shareholders at the Annual General
Meeting on 2 May 2018, the final and special dividends will be paid
on 4 May 2018 to shareholders on the register at 16 March 2018.
Payment to ADR holders will be made on 11 May 2018.
Restatement of operating segments
Full year 2016 operating segment information has been restated
due to changes to the Group's operating segments which came into
effect on 1 January 2017. Further details are disclosed in note 3
of Notes to the full year consolidated financial statements.
BUSINESS REVIEW
Networks & Security - 57% of Group revenue
Networks & Security provides automated functional,
performance and security testing products and services to
accelerate the development of new devices, networks and
applications. Our products generate traffic to simulate real-world
conditions in the lab or in the operating networks. Our portfolio
covers high-speed IP/Ethernet, cloud, virtualisation, applications,
security and global satellite navigation systems.
Change
$ million 2017 2016(1) (%)
---------------------- ------- --------- --------
Revenue 261.0 262.2 (0.5)
Operating profit(2) 43.9 47.2 (7.0)
Operating margin(2) 16.8% 18.0% (1.2)
---------------------- ------- --------- --------
Notes
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
2 Before exceptional items.
In 2017, Networks & Security reported revenue of $261.0
million, broadly level after a strong prior year (2016: $262.2
million). Within the operating segment, strong growth in our
Positioning and Application Security businesses offset some
softness in high-speed Ethernet testing as customers transition to
new 400G platforms, which is expected to rebound during the second
half of 2018. The robust performance from Positioning and growth in
Application Security led to an improved gross margin of 71.5 per
cent (2016: 70.5 per cent).
As previously reported, demand for high-speed Ethernet testing
has been subject to the shifting of major investment plans by our
US customers into the fourth quarter of 2017 and into 2018. In
order to focus on high-growth, high-margin areas Spirent increased
2017 investment in target areas, subsequently growing its market
share in high-speed Ethernet performance test systems and
participating in several first-to-market demonstrations.
Performance highlights
-- Remained the world's leading vendor of high-speed Ethernet
performance test systems. We are leading the market for the
next-generation of high-speed Ethernet with our highest-density
400G test solution.
o Collaboration with Chinese key clients for 400G Ethernet
technologies.
o At Interop Tokyo, in June 2017, we received two awards:
-- Wave 2 wireless local area network (WLAN) solution received
the 2017 Best of Interop Grand Prize.
-- Our cloud and security solutions received the 2017 Best of
Interop Show Special Prize.
-- Participated in several high-profile first-to-market
demonstrations and global navigation satellite simulators and
vulnerability detection and assessment systems.
-- Launched the first Automotive Ethernet protocol performance test system.
-- Delivered strong growth in our Positioning and Application
Security businesses offset by some softness in high-speed Ethernet
testing as customers transition to new platforms.
-- Grew our Application Security business revenue by more than
20 per cent as we introduced new accounts to our security test
products and services.
o Founding member of NetSecOPEN, an industry group focused on
defining a new open standard for testing enterprise network
security performance.
o Achieved global CREST (Council of Registered Ethical Security
Testers) accreditation for our security testing services.
o Expanded the coverage of our flagship security product
(Spirent CyberFlood) with support for ransomware, Internet of
Things (IoT), industrial controls and distributed denial of service
(DDoS) attacks.
-- In Positioning, we remain the world's leading vendor of
global navigation satellite systems (GNSS).
o Released the GNSS Vulnerabilities and Threats test suite.
o Early in 2017, we launched Spirent PT TestBench, a testing,
analysis and reporting application to help developers build more
accurate positioning functions quickly, embodying over 30 years of
Spirent GNSS testing expertise, enabling users to setup, run and
interpret tests with a single mouse click.
-- Continue to support our customers' transition to new 400G
technology platforms - well placed for 2018 momentum.
Strategy
Our strategy is to maintain our position as the leading provider
of performance testing systems for the development and assessment
of Ethernet/IP equipment for data centers and networks, cloud and
virtualisation, applications, mobile infrastructure, security and
global navigation satellite systems. Using our test systems, test
engineers create and transmit complex and high-capacity traffic and
can assess the resilience of their products to security threats and
vulnerabilities.
As part of our strategy we will seek:
-- To lead in high-speed Ethernet/IP performance tests for
emerging standards for data centers and wide area networks.
-- To invest in software-as-a-service, software-defined networks
(SDN) and network functions virtualisation (NFV) test methodologies
and tools.
-- To expand our Application Security test business footprint in
manufacturers, service providers and large enterprises through
enhancing, marketing and selling our security test tool (Spirent
CyberFlood) and our security consulting services (Spirent
SecurityLabs).
-- To extend our lead in global navigation satellite system
simulation and the detection and assessment of products for
security vulnerabilities and threats.
Impact of market dynamics on Spirent business
Accelerate time to market
The primary value we deliver is to accelerate the time to market
for developers and manufacturers to launch their new chipsets,
modules, devices, equipment and applications and to connect to
networks globally, while providing a comprehensive assessment of
the performance and security of their products so they can protect
and strengthen their brand and reputation.
Meet increasing network performance demands
The growth of cloud services, from bandwidth-hungry content and
hosting services and applications to 'always-connected' social
media, drives innovation at an accelerating pace. Service providers
worldwide are investing in their networks to keep up with these
performance demands. We saw strong demand for 100G Ethernet testing
by data center and network equipment suppliers as a consequence of
their move to four 25G lanes from ten 10G lanes for 100G interface.
In 2017, we saw the advent of 200G and 400G development projects.
As network equipment manufacturers develop new routers, switches
and other network equipment for service providers, network
equipment manufacturers and third-party test labs buy our test
systems to measure and validate their performance.
Realise virtualised solutions
The internet protocol network industry is amid a revolutionary
technology transformation, driven by virtualisation enabling
technologies, such as SDN and NFV. As developers and service
providers develop their virtualised products, we provide test tools
and services to measure and benchmark their performance in a range
of operating environments and under different conditions.
Assess resilience against cyber security vulnerabilities and
threats
We see strong demand for our security testing solutions across
network equipment manufacturers, service providers and enterprise
customers. Equipment providers with security capabilities, service
providers, enterprises and government organisations contract our
Spirent SecurityLabs service, in which we have security experts
assess the product or service and provide a report on a one-time
basis or periodically. Additionally, these organisations purchase
our application and security products as they evaluate the
functionality and performance of their products and networks
themselves.
High-speed Ethernet/IP, cloud and virtualisation
Our high-speed Ethernet/IP test systems help our customers to
validate high-speed network infrastructures, up to 400G, ensuring
network functions and services can scale to millions of subscribers
and to assess the security of devices, networks and applications.
Our target customers are developers of devices, network equipment,
applications and data centers, network operators, cloud and service
providers, who want to measure the performance of new products and
equipment for their network. In 2017, we experienced some softness
as customers slowed test spending as they transitioned to new 400G
technology platforms. However, we are well positioned with
market-leading technology, winning a number of important early
stage orders, with momentum building for the second half of
2018.
Lifecycle Service Assurance - 24% of Group revenue
Lifecycle Service Assurance provides active test and analytics
solutions for service turn-up, network performance improvement and
customer experience management. The business includes leading
service assurance products (Lumos), network and customer analytics
systems (InTouch), mobile network test systems for labs and
operational networks (LandSlide), test management and automation
solutions (Velocity and iTest) and active mobile network test
system (VisionWorks). The Spirent solutions enable network
operators to understand their network performance and customer
experience through active testing and analytics. Our solutions
enable customers to radically reduce opex and capex costs, and
reduce the time to deploy new services, provision new subscribers
and troubleshoot problems.
Change
$ million 2017 2016(1) (%)
---------------------- ------- --------- --------
Revenue 109.2 99.2 10.1
Operating profit(2) 17.9 11.2 59.8
Operating margin(2) 16.4% 11.3% 5.1
---------------------- ------- --------- --------
Notes
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
2 Before exceptional items.
Lifecycle Service Assurance delivered a robust finish to the
year increasing revenue by 10 per cent, $10.0 million ahead of last
year, boosted by winning fifteen $1 million+ deals. As a result,
operating profit improved by $6.7 million, up 60 per cent, to $17.9
million (2016: $11.2 million). Operating margin improved to 16.4
per cent (2016: 11.3 per cent) and gross margin was marginally down
at 77.6 per cent (2016: 78.3 per cent). All of our lines of
business within Lifecycle Service Assurance experienced growth on
last year, particular highlights were Mobility Infrastructure and
Customer Experience Management.
For this operating segment, we expected order intake and
resulting revenue to be second half weighted as we built momentum.
At the first half we said that customers were planning to increase
the development of live operation service assurance systems during
the second half of 2017. Securing recent notable Lifecycle Service
Assurance contracts is evidence that our strategy is working and
the transition is underway. Spirent has continued to invest in this
area of the business as the prospects for active test are
significant with the switch to live development moving at pace.
Spirent is benefiting from the investments made and is well
positioned to transition customers from lab testing to active
testing in the live network.
Performance highlights
-- Successfully secured fifteen deals over $1 million, totalling
about $50 million in 2017, as evidence our strategy is working.
-- Expanded our footprint in our three largest Tier 1 mobile
operator customers, winning four new Tier 1 deployments, addressing
critical challenges in the roll out of virtual networks and
business mobile services.
-- Remained the leading global provider of mobile test systems
for development and system testing.
-- Revenue grew by 10 per cent.
-- Operating profit up $6.7 million or 60 per cent and operating
margin improved to 16.4 per cent.
-- Participated in high-profile demonstrations at TM Forum Live
in Nice and Mobile World Congress in Shanghai with complementary
industry-leading companies.
-- Positive momentum into 2018.
Strategy
Our strategy focuses on radically reducing the time and cost to
turn-up new services and to diagnose, troubleshoot and resolve
issues with production networks and services. We enable our
customers to radically reduce time to characterise network
performance and to identify and resolve user experience problems
through automation, visibility and analytics. We will continue to
develop new solutions that capitalise on the benefits that
virtualisation enables. This improves customer satisfaction and
retention while reducing the cost and complexity of operating and
managing the network. We will provide systems to enable 4G/LTE, IoT
and 5G devices and applications to connect to the network
seamlessly, reducing the time and cost of pre-deployment
qualification, and using analytics to manage the on-boarding and
scaling of devices and applications on the network.
As part of our strategy we will:
-- Develop active service assurance systems for Ethernet
business services and mobile network turn-up, troubleshooting and
optimisation, enhancing our ability to win business at Tier 1
carriers.
-- Expand our footprint in our installed-base and in new service providers.
-- Continue to develop new capabilities for mobile
infrastructure tests in the lab to meet emerging requirements in
labs and, as applicable, in the networks.
-- Develop and deploy our test creation, management and automation platform.
Impact of market dynamics on Spirent business
We compete in the service assurance market, estimated size of
about $3.0 billion in 2017 and forecast to grow at a compound
annual rate of 1.7 per cent from 2016 to 2021(1) .
Our current business depends on service providers' investment in
Ethernet/IP services, virtualisation, in-home data services,
carrier Wi-Fi and mobile technologies, such as long-term evolution
(LTE), voice over long-term evolution (VoLTE), and IP multimedia
subsystem (IMS). The current market dynamics and outlook are
favourable for our business. The investment in mobile networks and
their operation and management remains a priority for network
operators. As 4G LTE rolls out globally, there is wider commercial
deployment of VoLTE, more 3G and LTE connected vehicles and an
increase in IoT applications. GSA(2) reported there are 814
operators investing in LTE; 644 operators have commercially
launched LTE or LTE-Advanced networks. There are 125 commercial
VoLTE networks, and 205 operators investing in VoLTE.
Network operators are reducing operating expenses. We reduce
operating costs by accelerating service turn-up, reducing the time
to diagnose problems and helping our customers understand and
improve their network performance and customer experience.
Continued growth in the complexity of networks and services,
coupled with intense competition between service providers and the
fear of customer churn, has led to greater emphasis on customer
experience management. Many operators are evolving from
network-centric to customer-centric operations, and need to support
new technologies, such as VoLTE, voice over Wi-Fi (VoWi-Fi), 5G,
IoT and virtualisation.
Service providers remain cautious as they continue their shift
from legacy networks to virtualisation and as they determine how
best to realise the potential benefits. To manage network
functional virtualisation (NFV) in a complex hybrid network and to
manage new services, network operators require active performance
test systems for service turn-up and troubleshooting. Active test
system can be combined with analytics to measure network
performance and customer experience periodically and to quickly
isolate and diagnose detected or reported network performance and
customer experience problems.
Sources
1 Analysys Mason, "Service Assurance Systems: Worldwide Forecast
2017-2021" (June 2016)
2 GSA, "Evolution from LTE to 5G Update" (October 2017)
Connected Devices - 19% of Group revenue
Connected Devices provides automated test systems to accelerate
the development of connected devices and to connect them to the
network and understand how the device and service performs on the
network.
Change
$ million 2017 2016(1) (%)
----------------------------- ------ --------- --------
Revenue 84.6 96.5 (12.3)
Operating profit/(loss)(2) 5.2 (4.4) NA
Operating margin(2) 6.1% NA NA
----------------------------- ------ --------- --------
Notes
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out in note 3 of Notes to the full
year consolidated financial statements.
2 Before exceptional items.
The ongoing decline in smartphone testing in Connected Devices,
as previously highlighted, has been managed well with a decline in
revenue of $4.9 million on continuing operations, in line with our
expectations. Spirent took action to reduce costs in this operating
segment and exited non-performing business lines. Excluding our DI
and DT lines of business, divested at 30 June 2017, revenue decline
slowed in 2017, now at 6 per cent from 25 per cent in 2016 ($7.0
million year-on-year revenue impact).
A strong turnaround was delivered in 2017, returning the
operating segment to profitability with an operating profit of $5.2
million, an improvement of $9.6 million on last year (2016: $4.4
million loss). Gross margin was broadly flat at 63.4 per cent
(2016: 63.9 per cent).
Performance highlights
-- Strong performance turnaround, operating profit improved by $9.6 million.
-- Exited non-performing businesses, and made further operating cost reductions.
-- Won key deals with our new channel emulator (Spirent Vertex)
with its unprecedented scalability and modularity for wireless
radio frequency (RF) testing and supports future technologies such
as 5G.
-- Released Spirent Elevate IoT Device Test solution, a new
cellular test solution designed to support a wide range of IoT
applications, including end-to-end cloud server connectivity,
security vulnerability assessment and battery life measurement.
-- Demonstrated enhanced voice services (EVS) with China Mobile
at the GSMA Mobile World Congress in Shanghai.
-- China Telecom Corporation Limited selected our Spirent
Umetrix(R) Voice solution for handset call quality testing, making
a higher quality and lower cost service possible.
-- Spirent Umetrix Voice voted "VoLTE Innovation of the Year" at
Telecom Asia Readers' Choice & Innovation Awards 2017 held in
Singapore.
-- The Signals Research Group completed the first study of a
commercial video broadcast service over an LTE network, as
operators worldwide are exploring enhanced multimedia broadcast
multicast service (eMBMS) as an advanced method of delivering video
content.
Strategy
Our strategy focuses on accelerating time to market and reducing
cost to develop and launch new devices and services, while helping
to ensure the highest service quality and user experience.
Developers seek to accelerate the development of connected devices
and to test and qualify devices to ensure they can connect to
networks and operate reliably.
Looking ahead, as part of our strategy we will look:
-- To invest in wireless device test products for development,
location and carrier acceptance, while adapting those products and
offering new services to meet the emerging requirements and
changing customer expectations for video services, 5G and IoT.
-- To provide products and services to test the service
experience on different networks or to benchmark a variety of
devices on the same network.
Impact of market dynamics on Spirent business
Economic pressure and consolidation in smartphone supply
chain
Economic pressure and consolidation of top-tier global
smartphone, chipset and network equipment vendors has led to a
fiercely challenging, competitive and shrinking market. We
anticipate the wireless device test market will transition as
wireless component, module and network equipment manufacturers'
spending changes in the market shift between ongoing 4G
enhancements and the early days of 5G. Spirent continues to manage
this transition.
5G development
The standardisation work for 5G has been accelerated. The
standard as specified in 3GPP Release 15 was finalised in 2017 for
non-standalone 5G new radio (NR) and will be set by mid-2018 for
standalone 5G NR. Early 5G deployments are anticipated in several
markets, including the US, South Korea, Japan and China. The first
commercial networks based on standalone 5G NR are expected to go
live in 2019, with major network deployments from 2020. By the end
of 2023, over one billion 5G subscriptions for enhanced mobile
broadband(1) are forecasted. Spirent is starting to see
opportunities for 5G NR.
Growing opportunities and challenges in the Internet of Things
(IoT)
The importance of wireless IoT connectivity continues to rise in
a variety of segments from connected vehicles, homes and industry
to smart cities. This results in challenges in developing,
connecting and operating IoT devices and applications on mobile and
non-cellular networks, resulting in an attractive new market
opportunity for Spirent. The number of IoT connected devices
worldwide was 11.1 billion in 2015 and is forecasted to reach 32.5
billion by 2020, increasing at a CAGR of 39 per cent(2) .
Sources
1 Ericsson, "Ericsson Mobility Report" (November 2017)
2 Technavio, "GLOBAL 5G EQUIPMENT MARKET 2016-2020" (October
2016)
About Spirent Communications plc
Spirent Communications plc is a global leader in test and
measurement inspiring innovation within development labs,
communication networks and IT organisations. We enable today's
communication ecosystem as well as tomorrow's emerging enterprises
to deploy life enriching communications networks, devices, services
and applications. Further information about Spirent Communications
plc can be found at https://corporate.spirent.com/.
Spirent Communications plc Ordinary Shares are traded on the
London Stock Exchange (ticker: SPT; LEI: 213800HKCUNWP1916L38). The
Company operates a Level 1 American Depositary Receipt (ADR)
programme with each ADR representing four Spirent Communications
plc Ordinary Shares. The ADRs trade in the US over-the-counter
(OTC) market under the symbol SPMYY and the CUSIP number is
84856M209. Spirent ADRs are quoted on the Pink OTC Markets
electronic quotation service which can be found at
http://www.otcmarkets.com/marketplaces/otc-pink.
Spirent and the Spirent logo are trademarks or registered
trademarks of Spirent Communications plc. All other trademarks or
registered trademarks mentioned herein are held by their respective
companies. All rights reserved.
Consolidated income statement
Year ended 31 December Year ended 31 December
2017 2016
----------------------------------- -----------------------------------
Adjusting Adjusting
$ million Notes Adjusted items(1) Reported Adjusted items(1) Reported
Revenue 3,4 454.8 - 454.8 457.9 - 457.9
Cost of sales (129.8) - (129.8) (133.6) - (133.6)
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Gross profit 325.0 - 325.0 324.3 - 324.3
Product development 3 (103.0) - (103.0) (111.7) - (111.7)
Selling and marketing (116.8) - (116.8) (125.4) - (125.4)
Administration (46.3) - (46.3) (40.7) - (40.7)
Other items - (15.2) (15.2) - (87.6) (87.6)
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Operating profit/(loss) 58.9 (15.2) 43.7 46.5 (87.6) (41.1)
Other items charged
in arriving at
operating profit/(loss):
Exceptional items 5 - (6.7) (6.7) - (4.8) (4.8)
Acquired intangible
asset amortisation - (6.3) (6.3) - (12.9) (12.9)
Goodwill and acquired
intangible asset
impairment - - - - (69.1) (69.1)
Share-based payment - (2.2) (2.2) - (0.8) (0.8)
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Finance income 0.6 - 0.6 0.3 - 0.3
Finance costs (0.3) - (0.3) (0.7) - (0.7)
Share of loss of
associate - - - (1.9) (2.6) (4.5)
Gain on divestment 11 - 2.6 2.6 - - -
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit/(loss) before
tax 3 59.2 (12.6) 46.6 44.2 (90.2) (46.0)
Tax 6 (13.1) (4.5) (17.6) (11.9) 15.6 3.7
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit/(loss) for
the year attributable
to owners of the
parent Company 46.1 (17.1) 29.0 32.3 (74.6) (42.3)
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings/(loss)
per share (cents) 7
Basic 7.55 4.75 5.29 (6.93)
Diluted 7.48 4.71 5.29 (6.93)
--------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Note
1 Adjusting items comprise exceptional items, amortisation of
acquired intangible assets, goodwill and acquired intangible asset
impairment, share-based payment, gain on divestment, impairment of
associate, tax on adjusting items, revaluation of deferred tax
assets due to US tax reform and prior year tax.
Consolidated statement of comprehensive income
Year ended 31
December
----------------------
$ million 2017 2016
------------------------------------------------------ ---------- ----------
Profit/(loss) for the year attributable
to owners of the parent Company 29.0 (42.3)
------------------------------------------------------ ---------- ----------
Other comprehensive income/(loss)
Items reclassified to profit or loss:
Reclassification of foreign exchange
on overseas divestments note 11 (3.1) -
Items that may subsequently be reclassified
to profit or loss:
Exchange differences on retranslation
on foreign operations 4.1 (2.9)
------------------------------------------------------ ---------- ----------
1.0 (2.9)
------------------------------------------------------ ---------- ----------
Items that will not subsequently be
reclassified to profit or loss:
Re-measurement of the net defined
benefit pension liability 5.5 (2.2)
Income tax effect of re-measurement
of defined benefit pension liability (1.0) 0.4
Re-measurement of the deferred compensation
liability (0.9) -
Income tax effect of re-measurement
of the deferred compensation liability 0.2 -
------------------------------------------------------ ---------- ----------
3.8 (1.8)
------------------------------------------------------ ---------- ----------
Other comprehensive income/(loss) 4.8 (4.7)
------------------------------------------------------ ---------- ----------
Total comprehensive income/(loss)
for the year attributable to owners
of the parent Company 33.8 (47.0)
------------------------------------------------------ ---------- ----------
Consolidated balance sheet
At 31 December
-----------------------
$ million Notes 2017 2016
----------------------------------- ------ ----------- ----------
Assets
Non-current assets
Intangible assets 163.6 169.8
Property, plant and equipment 42.3 47.3
Trade and other receivables 4.1 4.6
Cash on deposit - 0.1
Defined benefit pension plan
surplus 1.2 0.9
Deferred tax asset 10 23.2 33.1
----------------------------------- ------ ----------- ----------
234.4 255.8
----------------------------------- ------ ----------- ----------
Current assets
Inventories 23.6 27.4
Trade and other receivables 130.1 128.9
Other financial assets 0.1 -
Current tax asset 1.0 0.4
Cash and cash equivalents 128.4 96.1
----------------------------------- ------ ----------- ----------
283.2 252.8
----------------------------------- ------ ----------- ----------
Total assets 517.6 508.6
----------------------------------- ------ ----------- ----------
Liabilities
Current liabilities
Trade and other payables (131.9) (127.2)
Other financial liabilities - (0.1)
Current tax liability (1.4) (1.5)
Provisions (3.6) (4.2)
----------------------------------- ------ ----------- ----------
(136.9) (133.0)
----------------------------------- ------ ----------- ----------
Non-current liabilities
Trade and other payables (20.1) (16.9)
Deferred tax liability 10 (0.1) (0.1)
Defined benefit pension plan
deficit (4.0) (14.4)
Provisions (3.2) (2.6)
----------------------------------- ------ ----------- ----------
(27.4) (34.0)
----------------------------------- ------ ----------- ----------
Total liabilities (164.3) (167.0)
----------------------------------- ------ ----------- ----------
Net assets 353.3 341.6
----------------------------------- ------ ----------- ----------
Capital and reserves
Share capital 27.5 25.3
Share premium account 27.3 25.0
Capital redemption reserve 17.8 16.3
Other reserves 13.4 19.4
Translation reserve 11.3 10.3
Retained earnings 256.0 245.3
----------------------------------- ------ ----------- ----------
Total equity attributable
to owners of the parent Company 353.3 341.6
----------------------------------- ------ ----------- ----------
Consolidated cash flow statement
Year ended
31 December
------------------------
$ million Notes 2017 2016
--------------------------------- ------- ----------- -----------
Cash flows from operating
activities
Cash flow from operations 9 77.7 47.4
Tax paid (8.4) (4.7)
--------------------------------- ------- ----------- -----------
Net cash inflow from operating
activities 69.3 42.7
--------------------------------- ------- ----------- -----------
Cash flows from investing
activities
Interest received 0.6 0.3
Purchase of intangible assets (0.4) (1.1)
Purchase of property, plant
and equipment (14.9) (17.5)
Proceeds from the sale of
property, plant and equipment 1.8 1.5
Net expenses of divestments 11 (0.7) -
Loan to divested subsidiaries 11 (2.0) -
Acquisition of subsidiaries
and businesses net of cash
acquired - (0.1)
--------------------------------- ------- ----------- -----------
Net cash used in investing
activities (15.6) (16.9)
--------------------------------- ------- ----------- -----------
Cash flows from financing
activities
Dividend paid 8 (24.6) (24.2)
Acquisition of non-controlling
interest - (2.6)
--------------------------------- ------- ----------- -----------
Net cash used in financing
activities (24.6) (26.8)
--------------------------------- ------- ----------- -----------
Net increase/(decrease) in
cash and cash equivalents 29.1 (1.0)
Cash and cash equivalents
at the beginning of the year 96.1 102.0
Effect of foreign exchange
rate changes 3.2 (4.9)
--------------------------------- ------- ----------- -----------
Cash and cash equivalents
at the end of the year 128.4 96.1
--------------------------------- ------- ----------- -----------
Consolidated statement of changes in equity
Attributable to the equity holders
of the parent Company
-----------------------------------------------------------------------------------
Share Capital Non-
Share premium redemption Other Translation Retained controlling Total
$ million capital account reserve reserves reserve earnings Total interest equity
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
At 1 January
2016 30.2 29.9 19.5 6.4 13.2 312.6 411.8 0.3 412.1
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Loss for the
year - - - - - (42.3) (42.3) - (42.3)
Other
comprehensive
loss - - - - (2.9) (1.8) (4.7) - (4.7)
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Total
comprehensive
loss - - - - (2.9) (44.1) (47.0) - (47.0)
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Share-based
payment - - - - - 0.8 0.8 - 0.8
Tax charge
on share
incentives - - - - - (0.1) (0.1) - (0.1)
Acquisition
of
non-controlling
interest - - - - - 0.3 0.3 (0.3) -
Equity
dividends - - - - - (24.2) (24.2) - (24.2)
Exchange
adjustment (4.9) (4.9) (3.2) 13.0 - - - - -
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
At 1 January
2017 25.3 25.0 16.3 19.4 10.3 245.3 341.6 - 341.6
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Profit for
the year - - - - - 29.0 29.0 - 29.0
Other
comprehensive
income - - - - 1.0 3.8 4.8 - 4.8
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Total
comprehensive
income - - - - 1.0 32.8 33.8 - 33.8
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Share-based
payment - - - - - 2.2 2.2 - 2.2
Tax credit
on share
incentives - - - - - 0.3 0.3 - 0.3
Equity dividends - - - - - (24.6) (24.6) - (24.6)
Exchange
adjustment 2.2 2.3 1.5 (6.0) - - - - -
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
At 31 December
2017 27.5 27.3 17.8 13.4 11.3 256.0 353.3 - 353.3
----------------- --------- --------- ------------ ---------- ------------- ---------- -------- ------------- --------
Notes to the full year consolidated financial statements
1 Financial information presented
The financial information contained in this document does not
constitute the Group's statutory accounts for the year ended 31
December 2017.
As required by the European Union's IAS Regulation and the
Companies Act 2006, the Group has prepared its consolidated
financial statements for the year ended 31 December 2017 in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and issued by the International
Accounting Standards Board. The comparative financial information
is based on the statutory accounts for the year ended 31 December
2016 which have been delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement made under Section 498 of the Companies Act
2006.
The full year announcement was approved by the Board of
Directors on 6 March 2018.
2 Accounting policies
The accounting policies adopted are consistent with those
applied in the consolidated financial statements for the year ended
31 December 2016.
New accounting standards
No new standards, amendments to standards and interpretations
have been applied by the Group which have resulted in a significant
impact on its consolidated results or financial position.
Going concern
At 31 December 2017, the Group had cash balances of $128.4
million and no debt.
The directors have reviewed the detailed financial projections
for a period of 12 months from the date of this report and the
business plans for the 2019 and 2020 financial years. They have
also considered the principal risks and uncertainties that the
Group faces and its current financial position and are satisfied
that the Group has adequate financial resources to continue in
operational existence for the foreseeable future, a period of not
less than 12 months from the date of this report. Accordingly, the
going concern basis of accounting continues to be used in the
preparation of the financial statements.
3 Operating segments
The Group's organisational structure is based on differences in
the products and services offered by each segment and information
regularly reviewed by the Group's Chief Executive Officer, its
chief operating decision maker, is presented on this basis. The
Group's operating segments follow this structure.
The Group is organised into three reportable operating segments;
Networks & Security, Lifecycle Service Assurance and Connected
Devices. The Group evaluates segment operating profit/(loss) before
exceptional items, acquired intangible asset amortisation, goodwill
and acquired intangible asset impairment and share-based payment.
Finance income, finance costs, gain on divestment and share of loss
of associate are not allocated to the reportable segments.
Corporate is not an operating segment and costs are separately
reported and not allocated to the reportable segments.
Lifecycle
Networks Service Connected
$ million & Security Assurance Devices Corporate Total
------------------------------- ------------- ------------ ----------- ----------- -------
2017
Revenue
External revenue 261.0 109.2 84.6 - 454.8
------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax
Total reportable segment
profit/(loss) before
exceptional items 43.9 17.9 5.2 (8.1) 58.9
Exceptional items note
5 (3.9) (0.1) (1.4) (1.3) (6.7)
------------------------------- ------------- ------------ ----------- ----------- -------
Total reportable segment
profit/(loss) 40.0 17.8 3.8 (9.4) 52.2
Unallocated amounts
Acquired intangible
asset amortisation (6.3)
Share-based payment (2.2)
------------------------------- ------------- ------------ ----------- ----------- -------
Operating profit 43.7
Finance income 0.6
Finance costs (0.3)
Gain on divestment note
11 2.6
------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax 46.6
------------------------------- ------------- ------------ ----------- ----------- -------
Other information
Product development 53.6 30.9 18.5 - 103.0
Intangible asset amortisation
- other - - 0.8 - 0.8
Depreciation 9.6 3.5 4.8 0.1 18.0
------------------------------- ------------- ------------ ----------- ----------- -------
2016 operating segment information has been restated for the
following changes to the Group's operating segments which came into
effect on 1 January 2017:
The operating segments were reorganised to focus certain product
lines and to combine resources and planning efforts in other
product lines. The following changes were made to the former
operating segments:
-- The Networks & Applications operating segment was divided
into five distinct lines of business; Cloud and IP, Application
Security, Automation Platform Technologies, Mobility Infrastructure
and Spirent Technologies.
-- The Service Assurance Broadband line of business was split by
product offering between the core Service Assurance business and
Service Experience line of business.
From 1 January 2017, the new operating segments were as
follows:
-- Networks & Security comprising our Cloud and IP,
Application Security and Positioning lines of business with the aim
of addressing the needs of the lab test market for Ethernet,
Virtual, Data Centre, applications test and timing for critical
infrastructure.
-- Lifecycle Service Assurance comprising our Mobility
Infrastructure, Customer Experience Management, Service Assurance
and Automation Platform Technologies lines of business. All
businesses in this segment target wireless service providers
production networks aimed at reducing operating costs, increasing
service quality and providing real-time analytics to trigger
automatic tests and fixes to network degradation.
-- Connected Devices comprising our Wireless and Service
Experience lines of business together with Device Intelligence and
Developer Tools. Device Intelligence and Developer Tools were
divested by the Group on 30 June 2017 (see note 11). The future
opportunities for this segment are centred around 5G wireless
development, performance and security of connected devices and the
challenges to network providers coming from the Internet of
Things.
Lifecycle
Networks Service Connected
$ million & Security(1) Assurance(1) Devices(1) Corporate Total
------------------------------- ---------------- --------------- ------------- ----------- --------
2016
Revenue
External revenue 262.2 99.2 96.5 - 457.9
Loss before tax
Total reportable segment
profit/(loss) before
exceptional items 47.2 11.2 (4.4) (7.5) 46.5
Exceptional items note
5 (0.9) (1.1) (2.8) - (4.8)
------------------------------- ---------------- --------------- ------------- ----------- --------
Total reportable segment
profit/(loss) 46.3 10.1 (7.2) (7.5) 41.7
Unallocated amounts
Acquired intangible
asset amortisation (12.9)
Goodwill and acquired
intangible asset impairment (69.1)
Share-based payment (0.8)
------------------------------- ---------------- --------------- ------------- ----------- --------
Operating loss (41.1)
Finance income 0.3
Finance costs (0.7)
Share of loss of associate (4.5)
------------------------------- ---------------- --------------- ------------- ----------- --------
Loss before tax (46.0)
------------------------------- ---------------- --------------- ------------- ----------- --------
Other information
Product development 53.0 31.7 27.0 - 111.7
Intangible asset amortisation
- other - - 0.9 - 0.9
Depreciation 9.4 2.9 6.5 0.3 19.1
------------------------------- ---------------- --------------- ------------- ----------- --------
Note
1 Restated for changes to the Group's operating segments
effective 1 January 2017 as set out above.
Inter-segment revenue is eliminated in the above periods.
4 Geographical information
$ million 2017 2016
--------------------------------- ------- -------
Revenue by market
Americas 248.6 254.1
Asia Pacific 160.2 149.3
Europe, Middle East and Africa 46.0 54.5
--------------------------------- ------- -------
454.8 457.9
--------------------------------- ------- -------
Europe, Middle East and Africa includes United Kingdom revenue
of $8.1 million (2016: $7.9 million).
Americas includes United States revenue of $237.8 million (2016:
$244.4 million).
Asia Pacific includes China revenue of $88.3 million (2016:
$81.0 million).
Revenues are attributed to countries based on customer
location.
No one customer accounted for 10 per cent or more of total Group
revenue in either 2017 or 2016.
5 Exceptional items
$ million 2017 2016
-------------------------------- ------ ------
Portfolio review and sales
organisation restructuring 5.4 4.8
Strategic review of Connected
Devices 1.3 -
-------------------------------- ------ ------
6.7 4.8
-------------------------------- ------ ------
In 2016, Spirent undertook a fundamental review of the lines of
business in order to bring more focus to certain product lines and
to combine resources and planning efforts in other product lines.
This resulted in a change to the Group's reported operating
segments. In addition, Spirent reviewed the sales organisation and
compensation structure. The change in product line emphasis and
organisational review resulted in exceptional restructuring costs.
In 2017, the portfolio and sales organisation reviews were
continued and concluded, which resulted in further headcount
reductions, an onerous lease provision and associated other costs.
The Group also incurred a contract amendment fee in relation to
outsourced research and development services. In addition, in 2017
the Group undertook a strategic review of the Connected Devices
operating segment incurring advisors' fees of $1.3 million.
The tax effect of exceptional items is a credit of $1.9 million
(2016: $1.1 million). The total cash outflow in respect of
exceptional items charged in 2017 is anticipated to be $6.8
million, with $3.4 million paid in the year (2016: $3.9 million
with $1.4 million paid in the year). The cash outflow in 2017 in
respect of exceptional items charged in 2016 was $2.5 million
(2016: $7.0 million).
6 Tax
$ million 2017 2016
--------------------------------------- ------- -------
Current income tax
UK tax 0.1 0.1
Foreign tax 7.4 5.3
Amounts underprovided/(overprovided)
in previous years 0.1 (0.2)
--------------------------------------- ------- -------
Total current income tax charge 7.6 5.2
--------------------------------------- ------- -------
Deferred tax
Recognition of deferred tax assets
- US Research and Experimental
tax credit (1.5) (3.0)
Recognition of deferred tax assets
- other (0.8) (0.2)
Write-off of previously recognised
tax assets including rate changes 8.0 0.1
Reversal of temporary differences 3.0 (5.0)
Adjustments in respect of prior
years 1.3 (0.8)
--------------------------------------- ------- -------
Total deferred tax charge/(credit) 10.0 (8.9)
--------------------------------------- ------- -------
Tax charge/(credit) in the income
statement 17.6 (3.7)
--------------------------------------- ------- -------
The tax charge for the year ended 31 December 2017 was $17.6
million (2016: $3.7 million credit). This was after a prior year
tax credit of $1.4 million and a tax charge on the adjusting items
of $3.1 million (2016: prior year credit of $1.0 million and tax
credit on adjusting items of $14.6 million). Excluding the prior
year and tax charge on adjusting items, the effective tax rate was
22.1 per cent (2016: 26.9 per cent).
US tax reform and future changes in tax rates
On 22 December 2017, the US Government enacted 'The Tax Cuts and
Jobs Act' (the Act). The Act has significant tax implications for
the Group. The most significant change made is the reduction in the
statutory corporate tax rate from 35 per cent to 21 per cent with
effect from 1 January 2018. Other changes that will impact the
Group include the repeal of the Domestic Production Activity
deduction (DPAD) and the enactment of a new deduction, the
Foreign-Derived Intangible Income (FDII) deduction. It is estimated
that the impact of the US tax rate reduction together with the
repeal of the DPAD and the addition of the FDII deduction will
decrease the Group's 2018 effective tax rate to circa 17 per cent.
The precise impact is still to be determined as we are awaiting
further guidance from the US government. We also expect to see cash
savings resulting from the Act's changes.
7 Earnings per share
Basic
Earnings per share is calculated by dividing the profit/(loss)
for the year attributable to owners of the parent Company by the
weighted average number of Ordinary Shares outstanding during the
year.
Diluted
Diluted earnings per share is calculated by dividing the
profit/(loss) for the year attributable to owners of the parent
Company by the weighted average number of Ordinary Shares
outstanding during the year plus the weighted average number of
Ordinary Shares that would be issued on the conversion of all
dilutive potential Ordinary Shares into Ordinary Shares.
$ million 2017 2016
----------------------------------------- ------- --------
Profit/(loss) for the year attributable
to owners of the parent Company 29.0 (42.3)
----------------------------------------- ------- --------
Number million
----------------------------------------- ------- --------
Weighted average number of Ordinary
Shares in issue - basic 610.6 610.6
Dilutive potential of employee
share incentives(1) 5.5 -
----------------------------------------- ------- --------
Weighted average number of Ordinary
Shares in issue - diluted 616.1 610.6
----------------------------------------- ------- --------
Note
1 The effect of dilutive employee share incentives
was anti-dilutive in 2016 and was therefore ignored
in calculating diluted EPS. The dilutive potential
of employee share incentives was 2.4 million
in 2016.
Cents
----------------------------------------- ------- --------
Earnings/(loss) per share
Basic 4.75 (6.93)
Diluted 4.71 (6.93)
----------------------------------------- ------- --------
Adjusted
The Group is disclosing adjusted earnings per share for
continuing operations attributable to owners of the parent Company
in order to provide a measure to enable period-on-period
comparisons to be made of its performance. The following items are
excluded from adjusted earnings:
- exceptional items
- acquired intangible asset amortisation
- goodwill and acquired intangible asset impairment
- share-based payment
- gain on divestment
- impairment of investment in associate
- tax effect on the above items
- revaluation of deferred tax assets due to US tax reform
- prior year tax (adjustments made to provisions in respect of prior years)
A reconciliation is provided below:
2017 2016
------------------------------ --------------------- ---------------------
EPS EPS
$ million cents $ million cents
------------------------------ ----------- -------- ----------- --------
Profit/(loss) for
the year attributable
to owners of the parent
Company 29.0 4.75 (42.3) (6.93)
Exceptional items
note 5 6.7 4.8
Acquired intangible
asset amortisation 6.3 12.9
Goodwill and acquired
intangible asset impairment - 69.1
Impairment of investment
in associate - 2.6
Share-based payment 2.2 0.8
Gain on divestment (2.6) -
Tax effect on the
above items (4.8) (14.6)
Revaluation of deferred
tax assets due to
US tax reform 7.9 -
Prior year tax 1.4 (1.0)
------------------------------ ----------- -------- ----------- --------
Adjusted basic 46.1 7.55 32.3 5.29
------------------------------ ----------- -------- ----------- --------
Adjusted diluted 7.48 5.29
------------------------------ ----------- -------- ----------- --------
There were no Ordinary Share transactions that occurred after 31
December that would have significantly changed the number of
Ordinary Shares or potential Ordinary Shares outstanding at the
period end if those transactions had occurred before the end of the
reporting period in either year.
8 Dividends paid and proposed
$ million 2017 2016
----------------------------------------- ------ ------
Declared and paid in the year
Equity dividend on Ordinary Shares
Final dividend 2016 of 2.21 cents
per Ordinary Share (2015: 2.21 cents) 14.2 14.1
Interim dividend 2017 of 1.68 cents
per Ordinary Share (2016: 1.68 cents) 10.4 10.1
----------------------------------------- ------ ------
24.6 24.2
----------------------------------------- ------ ------
Proposed for approval at AGM (not
recognised as a liability at 31
December)
Equity dividend on Ordinary Shares
Final dividend 2017 of 2.40 cents
per Ordinary Share (2016: 2.21 cents) 14.7 13.5
Special dividend 2017 of 5.00 cents
per Ordinary Share 30.5 -
----------------------------------------- ------ ------
45.2 13.5
----------------------------------------- ------ ------
The directors are proposing a final dividend in respect of the
financial year ended 31 December 2017 of 2.40 cents per Ordinary
Share (2016: 2.21 cents), which will absorb an estimated $14.7
million of shareholders' funds (2016: $13.5 million). The directors
are also proposing a special dividend of 5.00 cents per Ordinary
Share, which will absorb an additional circa $30.5 million of
shareholders' funds. The final dividend and special dividend will
be paid on 4 May 2018 to Ordinary shareholders who are on the
Register of Members at close of business on 16 March 2018. Payment
will be made to ADR holders on 11 May 2018. No liability is
recorded in the financial statements in respect of these
dividends.
Dividends are determined in US dollars and paid in pounds
sterling. The exchange rate for determining the amount of the final
and special dividends to be paid for 2017 was $1.39: GBP1 (2016:
$1.23: GBP1).
9 Reconciliation of profit/(loss) before tax
to cash generated from operations
$ million 2017 2016
---------------------------------------------- ------- --------
Profit/(loss) before tax 46.6 (46.0)
Adjustments for:
Finance income (0.6) (0.3)
Finance costs 0.3 0.7
Share of loss of associate - 4.5
Intangible asset amortisation 7.1 13.8
Goodwill and acquired intangible
asset impairment - 69.1
Depreciation of property, plant
and equipment 18.0 19.1
Loss on the disposal of property,
plant and equipment 0.2 0.2
Gain on divestment (2.6) -
Share-based payment 2.2 0.8
Changes in working capital:
Deferred income received/(released) 4.1 (2.6)
Increase in receivables (2.3) (1.7)
Decrease/(increase) in inventories 3.7 (4.5)
Increase in payables 7.0 4.9
Increase/(decrease) in provisions 0.1 (4.5)
Defined benefit pension plan (6.1) (6.1)
---------------------------------------------- ------- --------
Cash flow from operations 77.7 47.4
---------------------------------------------- ------- --------
10 Deferred tax
The movements in the deferred tax assets/(liabilities) are as
follows:
Temporary Tax UK pension
$ million differences Tax losses credits plans Total
-------------------------- -------------- ------------ ---------- ------------ --------
At 1 January 2016 6.0 13.0 2.0 4.0 25.0
Charged/(credited)
in the year 12.7 (4.5) 1.9 (1.2) 8.9
Deferred tax on defined
benefit pension plan - - - 0.4 0.4
Deferred tax on share
incentives recognised
in equity (0.1) - - - (0.1)
Exchange adjustment (0.3) (0.3) - (0.6) (1.2)
-------------------------- -------------- ------------ ---------- ------------ --------
At 1 January 2017 18.3 8.2 3.9 2.6 33.0
Credited in the year (5.3) (1.3) (2.3) (1.1) (10.0)
Deferred tax on defined
benefit pension plan - - - (1.0) (1.0)
Deferred tax on deferred
compensation plan 0.2 - - - 0.2
Deferred tax on share
incentives recognised
in equity 0.3 - - - 0.3
Exchange adjustment 0.1 0.5 - - 0.6
-------------------------- -------------- ------------ ---------- ------------ --------
At 31 December 2017 13.6 7.4 1.6 0.5 23.1
-------------------------- -------------- ------------ ---------- ------------ --------
Amounts on the balance
sheet:
At 31 December 2016
Deferred tax asset 18.5 8.1 3.9 2.6 33.1
Deferred tax liability (0.2) 0.1 - - (0.1)
-------------------------- -------------- ------------ ---------- ------------ --------
18.3 8.2 3.9 2.6 33.0
-------------------------- -------------- ------------ ---------- ------------ --------
At 31 December 2017
Deferred tax asset 13.7 7.4 1.6 0.5 23.2
Deferred tax liability (0.1) - - - (0.1)
-------------------------- -------------- ------------ ---------- ------------ --------
13.6 7.4 1.6 0.5 23.1
-------------------------- -------------- ------------ ---------- ------------ --------
A deferred tax asset of $23.2 million and a liability of $0.1
million have been recognised at 31 December 2017 (2016: $33.1
million and $0.1 million, respectively).
The enactment of the lower tax rate in the United States prior
to the balance sheet date results in a re-measurement of the
Group's US deferred tax assets. As a result, the Group's US
deferred tax assets were written-down by $7.9 million with a
corresponding deferred tax charge to the income statement. This
charge is reflected in the tax on adjusting items.
The Finance Bill 2016 was enacted 15 September 2016 and reduced
the UK rate of corporation tax from 20 per cent as of 1 April 2017
to 19 per cent and by a further 2 per cent to 17 per cent from
April 2020. In line with these rate changes, deferred tax assets
and liabilities being realised or settled before 2020 have been
based on a rate of 19 per cent. Those being realised or settled
after 2020 have been based on a rate of 17 per cent.
11 Divestments
On 16 February 2017, the Group divested of certain assets and
liabilities of Epitiro Group Limited (Epitiro) for consideration of
$0.4 million. Epitiro was reported within the Lifecycle Service
Assurance operating segment.
On 30 June 2017, the Group divested the entire issued share
capital of its subsidiaries, Spirent Communications Israel Limited,
its Developer Tools (DT) line of business, and Spirent Holdings
Denmark ApS and its subsidiaries, its Device Intelligence (DI) line
of business, to Dorfi Limited, an Israeli entity established by the
former General Manager of the business units, for a total cash
consideration of $1. Both DI and DT were reported within the
Connected Devices operating segment.
In 2016, DI and DT reported combined revenue of $12.9 million,
made an adjusted operating loss of $2.1 million and a loss before
tax of $6.8 million (after exceptional items of $1.1 million and
acquired intangible asset amortisation of $3.6 million). In 2017,
DI and DT reported combined revenue of $5.9 million and made an
adjusted operating profit and profit before tax of $1.4
million.
These divestments do not constitute discontinued operations
under IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations'.
The gain on divestments during the year was as follows:
2017
$ million DI/DT Epitiro Total
--------------------------------- ------- --------- --------
Gross consideration - 0.4 0.4
Net liabilities/(assets)
at date of divestment 2.9 (0.5) 2.4
Provision against loan to
divested subsidiaries (2.0) - (2.0)
Expenses of sale (0.8) (0.5) (1.3)
Foreign exchange adjustments 3.1 - 3.1
--------------------------------- ------- --------- --------
Net gain/(loss) on divestments
before and after tax 3.2 (0.6) 2.6
--------------------------------- ------- --------- --------
Accumulated foreign exchange gains of $3.1 million were recycled
to profit or loss on divestment of DI/DT.
As part of the sale of DI and DT, Spirent made a $2.0 million
interest bearing loan to the divested subsidiaries to fund working
capital requirements. This loan has been fully provided for by the
Group and expensed in the calculation of the gain on
divestments.
The net cash impact of divestments in the year was $2.1
million.
The net liabilities divested in the year were $2.4 million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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