TIDMSPT
RNS Number : 8497U
Spirent Communications PLC
04 August 2022
SPIRENT COMMUNICATIONS PLC
Results for the six months ended 30 June 2022
Strong performance, record orderbook, well positioned to deliver
growth in the short and long-term
First half First half Change
$ million 2022 2021 (%)
-------------------------------- ------------ ------------ --------------
Order intake(1) 295.5 263.8 +12
Orderbook(2) 283.6 218.2 +30
Revenue 280.1 255.1 +10
Gross margin (%) 72.0 72.1 * 0.1pp
Adjusted operating profit(3) 49.0 44.7 +10
Adjusted operating margin(4)
(%) 17.5 17.5 -
Adjusted profit before tax(5) 49.2 44.5 +11
Adjusted basic earnings per
share(6) (cents) 6.97 6.23 +12
Reported operating profit 40.1 35.0 +15
Reported profit before tax 40.3 34.8 +16
Reported basic earnings per
share (cents) 5.70 4.87 +17
Closing cash 188.8 156.4 +21
Interim dividend per share(7)
(cents) 2.63 2.39 +10
-------------------------------- ------------ ------------ --------------
Eric Updyke, Chief Executive Officer, commented:
"Spirent delivered another half year of strong performance with
double-digit growth in orders, revenue and profit. We are executing
well on our strategy of moving deeper into the exciting structural
growth areas of our industry, from wireless 5G networks to the
Internet of Things (IoT) and Cloud assurance."
"The launch of our next-generation Live Assurance solution,
Vantage, is a great example of our relentless innovation,
positioning us well to take advantage of current and future
opportunities among our growing customer base. We continue to make
investment in both product development and sales resource to meet
increasing demand globally, and driving increased software-based
services and managed solutions."
"Operating in a market underpinned by sustainable, long-term
growth dynamics and committed, highly visible non-discretionary
spend, our customers are seeking faster, safer, more reliable and
innovative connectivity solutions. We enter the third quarter with
strong momentum and an increased orderbook. The Board remains
confident in our ability to deliver on our growth plan for the
year."
Performance highlights
-- A strong performance across all our end markets, with a
record orderbook bringing greater revenue visibility.
-- 5G once again proved to be a strong, enduring growth driver,
with over 350 new contracts from more than 130 customers in the
first half.
-- We increased our sales investment, developing our focus on
strategic growth sectors such as hyperscaler providers and chipset
vendors while further expanding our successful key account
programme, resulting in strong order intake growth.
-- Services and managed solutions growth continued with multiple
large wins, delivering revenue growth of 17 per cent over the first
half of 2021.
-- Resilient and experienced supply chain management enabled the
Group to handle component delays well with minimal impact to
delivery schedules. We anticipate further active management of
supply chain risks will be required through the remainder of the
year.
-- 10 per cent growth in interim dividend reflects a strong
balance sheet and confidence in the Group's prospects.
-- Revenue in our Lifecycle Service Assurance segment, which
accounts for 45 per cent of Group revenue in the first half of
2022, grew 10 per cent.
-- We launched our next-generation Live Assurance solution
(Vantage - the next-generation of VisionWorks, our 5G mobility
service assurance solution) to meet growing demand outside of North
America.
-- Networks & Security revenue up 9 per cent as increases in
data traffic and Cloud growth drove data centre upgrades.
-- Good growth in Wi-Fi test following our successful
acquisition, octoScope, last year, reaffirming our position as the
market leader.
Current trading and outlook
-- The strength of the Group's results in the first half
demonstrates the enduring resilience of Spirent's highly cash
generative business model and differentiated growth strategy.
-- We continue to grow our orderbook. Opportunities in the live
network continue to grow above market rate, where we see higher
levels of software and higher gross margin.
-- We remain confident in the Group's ability to deliver value
through the cycle.
-- While vigilant of the macro-economic backdrop, the Board
remains confident in the Group's long-term prospects and the
outlook for the full year remains unchanged.
Notes
1. Order intake represents commitments from customers in the
period to purchase goods and/or services that will ultimately
result in recognised revenue.
2. Orderbook is an alternative performance measure as defined in the appendix on page 37.
3. Adjusted operating profit is before acquired intangible asset
amortisation, share-based payment and other adjusting items
totalling $8.9 million (first half 2021: $9.7 million).
4. Adjusted operating profit as a percentage of revenue in the period.
5. Before items set out in note 3.
6. Adjusted basic earnings per share is based on adjusted
earnings as set out in note 6 of Notes to the half year condensed
consolidated financial statements.
7. Dividends are determined in US Dollars and paid in Sterling
at the exchange rate prevailing when the dividend is proposed. The
interim dividend proposed for 2022 of 2.63 cents per Ordinary Share
is equivalent to 2.16 pence per Ordinary Share (first half 2021:
1.72 pence).
- ends -
Enquiries
Eric Updyke, Chief Executive Spirent Communications +44 (0)1293 767676
Officer plc E: investor.relations@spirent.com
Paula Bell, Chief Financial
& Operations Officer
James Melville-Ross/James Dentons Global +44 (0)20 7664 5095
Styles/Humza Vanderman/Leah Advisors E: spirent@dentonsglobaladvisors.com
Dudley
The Company will host an in-person results presentation for
sell-side analysts today at 9.15am for 09.30am UK time at UBS
Limited, 5 Broadgate, London EC2M 2QS. A simultaneous webcast of
the presentation will be available on the Investors section of the
Spirent Communications plc website https://corporate.spirent.com/
.
About Spirent Communications plc
Spirent Communications plc (LSE: SPT) is the leading global
provider of automated test and assurance solutions for networks,
cybersecurity and positioning. The Company provides innovative
products, services and managed solutions that address the test,
assurance and automation challenges of a new generation of
technologies, including 5G, SD-WAN, Cloud, autonomous vehicles and
beyond. From the lab to the real world, Spirent helps companies
deliver on their promise to their customers of a new generation of
connected devices and technologies. 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
https://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.
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.
Chief Executive Officer review
An attractive industry with long-term structural growth
drivers
We are exposed to attractive, structural market drivers, which
present an exciting opportunity to deliver long-term growth and
value for our shareholders through the cycle. Our addressable
market continues to grow, driven by enduring secular drivers and we
are likely to benefit from continued investment in innovation and
committed non-discretionary spending as faster, more resilient,
more reliable networks become ever more critical today and in
tomorrow's world. Attractive market trends include:
-- 5G - the enduring driver: with its disaggregated,
cloud-native architecture, 5G is a dramatically more complex
technology than 4G. With 5G network rollouts still in their
infancy, especially standalone ("true") 5G, it is imperative that
operators monetise their 5G networks through agile and innovative
new services and business models and assure the quality of their
customers' experience. Major updates to the standards that drive 5G
technology are expected at regular intervals throughout this decade
and will require ongoing validation and certification in the lab.
The deployment of 5G private networks is gathering pace, with new
entrants looking to take advantage of this trend.
-- Expansion of hyperscalers: hyperscalers are focusing on the
telco space, assembling new ecosystems with the ambition to disrupt
5G core, edge computing, open RAN and private networks. Meanwhile,
growth in traffic and demand for bandwidth in their data centres is
driving a need for higher-speed (800G) Ethernet deployments.
-- Work from anywhere: as the world adjusts to the new paradigm
of working from anywhere, ensuring the performance and security of
fixed, mobile and satellite broadband (including Wi-Fi) has never
been more critical.
-- Emergence of the metaverse: AR/VR and other advances are
driving innovation in devices and IoT and associated cloud-native
platforms and placing a new emphasis on optimising the latency
performance of networks, all of which need to be validated.
-- Location awareness as a key enabler: innovation in devices,
drones and automotive relies not only on GNSS to determine location
but also makes use of other sensors. Spirent is a global leader in
testing applications that rely on this "sensor fusion".
The consequence of these attractive and strong market trends
are:
-- Our customers are dealing with increasing complexity, needing
to release new services faster. As a result, they require more
assurance and testing from Spirent to support their investment
plans.
-- Growing demand for assurance solutions in the live network
(rather than the development lab) is resulting in increasing demand
for software solutions with attractive gross margins.
-- Growth in large deals as customers buy a business solution with additional services content.
-- The opportunity to sell to a new category of customers such as hyperscalers.
Spirent's unique strengths
We are uniquely positioned to seize these opportunities due to
the strength of our differentiated model and proposition. We have a
number of core strengths which provide distinct competitive
advantages in our chosen markets and position us strongly to build
on our track record of long-term growth.
-- We are a critical enabler in the accelerated shift to a more
connected and digitised world in a vast and growing mobile
communications market.
-- Our deep customer focus means we are a trusted partner to
some of the world's most innovative companies in the
telecommunications and networking industries.
-- Our business is exposed to non-discretionary and committed
spending decisions by companies delivering critical connectivity
solutions for their own customers.
-- We are deeply embedded in the supply chains of our clients,
with our live network solutions securing larger, longer-term,
multi-year contracts that enhance our revenue visibility and
predictability.
-- As the pace of technological advancement accelerates for our
clients, resulting in increased software assurance solutions
particularly in the live network, we have evolved our offering and
routes to market to focus more on high-quality, high-growth,
high-margin, software-centric solutions.
-- We operate a disciplined investment policy and are focused on
growing the business organically and through highly-selective,
earnings accretive acquisitions.
-- In summary, we are very well positioned, both operationally
and strategically, to continue our proven track record of
sustainable value creation, reliable and highly visible recurring
revenue growth and strong cash generation.
Our strategy to drive sustainable, profitable growth
The strength of our strategy was once again in evidence during
the first half of 2022 and is focused around three core
pillars:
1. Customer Centricity
Our focus on customer centricity means we put the customer
first, and our deep understanding and relationship with our
customers has proven essential. To deepen our customer
relationships further, we continue to invest in our world-class
sales team. Our focus on winning new business with hyperscalers -
operators of data centres, such as Amazon Web Services (AWS) that
offer scalable Cloud computing services - is resulting in strong
growth in this strategically-important segment. Our Key Account
Management programme enables us to become a more strategic partner
to our biggest customers and to solve mission-critical business
problems on their behalf. We continue to expand our partner
ecosystem to broaden our reach, including with global systems
integrators. Our focus on solutions and services is delivering
differentiated value across the customer lifecycle.
2. Innovation for Growth
Innovation is vital to our market leadership. We continue to
invest in R&D across the business, developing new, easy-to-use
solutions to the business problems of today and tomorrow. We were
first to market with our 800G solution for high-speed Ethernet. Our
newest live network solution, Vantage (the next-generation of
VisionWorks), utilises our market leading expertise in active
assurance in an easy-to-deploy, scalable solution which is expected
to drive increased demand at customers outside of North
America.
3. Operational Excellence
Spirent's operational excellence has been vital to our
resilience. We continue to expertly navigate global external
challenges. Our superior supply chain management has enabled us to
continue to deliver for our customers while managing component
shortages and extended lead times. We have minimised disruption to
customer orders while also handling growing demand and an
increasing orderbook.
FuturePositive
Sustainability is a key priority for Spirent and is fundamental
to our operational excellence and the overall success of our
business. FuturePositive, our sustainability programme, made great
progress over the first half. Our solutions help our customers to
deliver a sustainable future for us all and we are committed to
operating with integrity. For us, this means acting on energy
efficiency and climate change, promoting diversity, investing in
people, and prioritising sustainability in our product design,
operations, and supply chain.
Business review
Relentless execution of our strategy continued to yield
sustainable, profitable growth in the first half of 2022, with our
markets proving to be resilient in the face of increased global
uncertainty. Coming out of the first half of 2022, we continue to
see strong momentum across the business.
-- Our live network portfolio continued to grow with multiple
large deals secured, including a first win with a leading European
telecoms operator. We also completed the development of a
next-generation active assurance solution for live networks,
Vantage, which was successfully launched in July.
-- Our services and managed solutions business grew once again.
Leading with services, we won multiple large 5G-related deals and
extended our geographic footprint.
-- We saw renewed growth in our high-speed Ethernet testing
business as relentless data traffic and Cloud growth drove the need
for network and data centre upgrades, and we established 800G
Ethernet test leadership.
-- We continued the investment in our sales organisation to
support our growth. In H1 we increased our focus on hyperscalers
and chipset vendors, added another two global accounts to our
successful key account programme, and enhanced sales enablement and
our partnership capacity with global system integrators.
-- Thanks to our experienced and agile supply chain management,
we demonstrated continued strong resilience with very little impact
to customer delivery schedules.
Lifecycle Service Assurance - Strong momentum in our lab to live
journey
First half First half
$ million 2022 2021
----------------------------------- ------------ ------------
Revenue 125.6 113.8
Adjusted operating profit(1) 21.3 22.6
Adjusted operating margin(2) (%) 17.0 19.9
----------------------------------- ------------ ------------
Notes
1. Before other adjusting items of $0.1 million charged in the
first half of 2022 (first half 2021: $0.3 million).
2. Adjusted operating profit before other adjusting items as a
percentage of revenue in the period.
Lifecycle Service Assurance grew revenue by $11.8 million or
10.4 per cent over the first half of 2021, with good growth across
the portfolio including a key first win with a leading European
telecom operator, resulting in orderbook growth in the first half
of 2022.
Strong demand continued for our VisionWorks live network
assurance offering and our 5G device test solutions. We also
continued to benefit from our leadership position in the Wi-Fi test
market following the acquisition of octoScope in the prior year. We
saw accelerated growth in our hyperscaler accounts as we supported
innovation in 5G core and edge networks and devices. We delivered
21 per cent growth in our services and managed solutions offerings,
winning large 5G-related deals in areas such as network
benchmarking, network fault isolation, device certification, and
emergency service (E911) performance. We also expanded our North
American services-led footprint in Canada.
Adjusted operating profit was held back after a temporary
increase of product development resource, predominantly incurred in
developing our new Vantage solution. This next-generation live
network assurance solution is a powerful, Cloud-native platform
that is easy to deploy and use, and which was commercially released
in July.
Networks & Security - Cloud growth drives strong demand for
high-speed Ethernet testing
First half First half
$ million 2022 2021
----------------------------------- ------------ ------------
Revenue 154.5 141.3
Adjusted operating profit(1) 32.0 26.8
Adjusted operating margin(2) (%) 20.7 19.0
----------------------------------- ------------ ------------
Notes
1. Before other adjusting items of $0.6 million charged in the
first half of 2022 (first half 2021: $0.6 million).
2. Adjusted operating profit before other adjusting items as a
percentage of revenue in the period.
Networks & Security delivered revenue growth of $13.2
million or 9.3 per cent over the first half of 2021 driven by
strong growth in our high-speed Ethernet testing business. Adjusted
operating profit increased by $5.2 million, benefitting from both
higher revenue and robust and effective cost management, with the
adjusted operating margin up 1.7 percentage points to 20.7 per
cent.
We delivered solid growth in our high-speed Ethernet test
business, with relentless data traffic and Cloud growth driving the
need for network and data centre upgrades. We expanded our
leadership in 800G high-speed Ethernet test with the release of the
industry's first test platform and won several new deals, including
a large deal at a leading global network equipment vendor.
We saw success with our Security Solutions portfolio, taking
share at leading network equipment providers and securing a large
5G security Test-as-a-Service deal at a top-tier North American
operator.
Our Positioning business saw good bookings growth in its US
Government and hyperscaler markets. Positioning also broadened its
footprint in commercial space applications, benefiting from large,
well-publicised investments in low earth orbit (LEO) satellite
constellations.
Financial review
Group financial performance
We are focused on driving an agenda to deliver sustainable
profitable growth by improving the visibility of our business as we
move from lab to live network assurance and deliver good growth in
our managed solutions and services contracts. Embedding ourselves
within our customers' live networks will create opportunities for
larger, longer-term contracts and we continue to secure multi-year
deals.
The financial performance in the first half of 2022 was strong
with order intake growth of 12 per cent and revenue growth of 10
per cent. Book to bill of 105 means strong growth in our orderbook,
positioning us well as we enter the second half of the year.
Adjusted operating profit grew 10 per cent to $49.0 million in
first half of 2022 and effective supply chain management meant
gross margins were maintained at 72 per cent. Adjusted operating
margin for the first half of 2022 was broadly consistent with the
comparator period, reflecting our disciplined approach to
investments and strong cost base management.
Reported operating profit was $40.1 million in the first half of
2022 (first half 2021: $35.0 million), after charging adjusting
items of $8.9 million (first half 2021: $9.7 million).
The effective tax rate decreased slightly from 14.8 per cent to
14.0 per cent as a result of an increase in the US FDII (foreign
derived intangible income) deduction resulting from the US R&D
Capitalization rules coming into effect on 1 January 2022 as well
as the mix of locations of profit generation by region.
Adjusted basic earnings per share increased by 12 per cent to
6.97 cents. Reported basic earnings per share was up by 17 per cent
from 4.87 cents to 5.70 cents.
Cash conversion continued to be robust, resulting in closing
cash of $188.8 million on 30 June 2022 (first half 2021: $156.4
million), following payment of the ordinary dividend of $25.0
million.
As in previous years, our usual trading performance seasonality
is expected to be weighted to the second half of the financial
year, in particular for Lifecycle Service Assurance, to align with
key customers' investment cycles.
The following table shows the summary financial performance for
the Group:
First half First half Change
$ million 2022 2021 (%)
-------------------------------- ------------ ------------ --------------
Order intake(1) 295.5 263.8 +12
Orderbook(2) 283.6 218.2 +30
Revenue 280.1 255.1 +10
Gross profit 201.6 184.0 +10
Gross margin (%) 72.0 72.1 * 0.1pp
Adjusted operating costs(3) 152.6 139.3 +10
Adjusted operating profit(3) 49.0 44.7 +10
Adjusted operating margin(4)
(%) 17.5 17.5 -
Reported operating profit 40.1 35.0 +15
Reported profit before tax 40.3 34.8 +16
Effective tax rate(5) (%) 14.0 14.8 * 0.8pp
Adjusted basic earnings per
share(6) (cents) 6.97 6.23 +12
Reported basic earnings per
share (cents) 5.70 4.87 +17
* 3
Free cash flow(7) 46.7 48.1
Closing cash 188.8 156.4 +21
Interim dividend per share(8)
(cents) 2.63 2.39 +10
-------------------------------- ------------ ------------ --------------
Notes
1. Order intake represents commitments from customers in the
period to purchase goods and/or services that will ultimately
result in recognised revenue.
2. Orderbook is an alternative performance measure as defined in the appendix on page 37.
3. Before acquired intangible asset amortisation, share-based
payment and other adjusting items totalling $8.9 million (first
half 2021: $9.7 million).
4. Adjusted operating profit as a percentage of revenue in the period.
5. Effective tax rate is the adjusted tax charge, before tax on
adjusting items, expressed as a percentage of adjusted profit
before tax.
6. Adjusted basic earnings per share is based on adjusted
earnings as set out in note 6 of Notes to the half year condensed
consolidated financial statements.
7. Cash flow generated from operations, less tax and net capital
expenditure, after interest paid and/or received, payment of lease
liabilities, finance lease payments received and excluding
acquisition related other adjusting items and one-off contributions
to the UK pension scheme.
8. Dividends are determined in US Dollars and paid in Sterling
at the exchange rate prevailing when the dividend is proposed. The
interim dividend proposed for 2022 of 2.63 cents per Ordinary Share
is equivalent to 2.16 pence per Ordinary Share (first half 2021:
1.72 pence).
Note on Alternative Performance Measures (APM)
The performance of the Group is assessed using a variety of
performance measures, including APMs which are presented to provide
users with additional financial information that is regularly
reviewed by management. These APMs are not defined under IFRS and
therefore may not be directly comparable with similarly identified
measures used by other companies.
The APMs adopted by the Group are defined in the appendix. The
APMs which relate to adjusted income statement lines are presented
and reconciled to GAAP measures using a columnar approach on the
face of the income statement and can be identified by the prefix
'adjusted' in the commentary. All APMs are clearly identified as
such, with explanatory footnotes to the tables of financial
information provided, and reconciled to reported GAAP measures in
the Financial Review or Notes to the consolidated financial
statements. The reported GAAP measures give the complete measure of
financial performance.
Revenue
First First
half half
$ million 2022 % 2021 %
--------------------------------- ------- ------- ------- -------
Revenue by segment
Lifecycle Service Assurance 125.6 44.8 113.8 44.6
Networks & Security 154.5 55.2 141.3 55.4
--------------------------------- ------- ------- ------- -------
280.1 100.0 255.1 100.0
--------------------------------- ------- ------- ------- -------
Revenue by geography
Americas 151.0 53.9 140.1 54.9
Asia Pacific 99.7 35.6 90.0 35.3
Europe, Middle East and Africa 29.4 10.5 25.0 9.8
--------------------------------- ------- ------- ------- -------
280.1 100.0 255.1 100.0
--------------------------------- ------- ------- ------- -------
Overall Group revenue increased by 10 per cent, with Lifecycle
Service Assurance and Networks & Security up 10 per cent and 9
per cent, respectively, compared to the same period last year.
Lifecycle Service Assurance revenue growth was driven by demand for
our VisionWorks live network solution offering, as customers
invested to verify and assure their 5G networks. In addition, we
experienced strong demand for our 5G device test solutions and in
our Wi-Fi business following the acquisition of octoScope in the
first half of 2021. The growth in Networks & Security primarily
came from our core high-speed Ethernet business driven by network
and data centre upgrades and strong 800G demand.
Geographically, we saw progress in all regions driven by
continued investment in 5G and increased data traffic and Cloud
growth and as a percentage of total revenue the regions are similar
compared to the same period last year.
Gross margin
First First
half half
$ million 2022 % 2021 %
------------------------------ ------- ------ ------- ------
Lifecycle Service Assurance 92.9 74.0 83.5 73.4
Networks & Security 108.7 70.4 100.5 71.1
------------------------------ ------- ------ ------- ------
201.6 72.0 184.0 72.1
------------------------------ ------- ------ ------- ------
Gross profit increased by 10 per cent to $201.6 million and
gross margin was maintained at 72 per cent despite supply chain
cost increases which were managed effectively.
Adjusted operating costs
First half First half
$ million 2022 2021
------------------------------ ------------ ------------
Product development 57.2 52.5
Selling and marketing 67.1 61.8
Administration(1) 28.3 25.0
------------------------------ ------------ ------------
Adjusted operating costs(1) 152.6 139.3
------------------------------ ------------ ------------
Lifecycle Service Assurance 71.6 60.9
Networks & Security 76.7 73.7
Corporate 4.3 4.7
------------------------------ ------------ ------------
Adjusted operating costs(1) 152.6 139.3
------------------------------ ------------ ------------
Notes
1. Before acquired intangible asset amortisation, share-based
payment and other adjusting items totalling $8.9 million (first
half 2021: $9.7 million).
We continued to exercise strong financial management of our cost
base and a disciplined approach to our investment spend to drive
our growth agenda. Adjusted operating costs in the first half of
2022 increased by $13.3 million compared to the same period last
year. The cost increase included salary inflation, additional sales
resource to support our revenue growth plans and product
development, focusing on our high growth areas.
Administration costs reflected investment into our support
functions and infrastructure to support our growth agenda. As
usual, we would expect second half costs to reflect higher levels
of sales commissions, bonus accruals and travel expenses.
Cost inflation is being managed carefully. We have enhanced our
family friendly benefits and worked to support the welfare of our
employees, resulting in a higher than industry average employee
retention rate.
Operating profit
Adjusted Adjusted
First operating operating
half Margin(1,2) First half Margin(1,2)
$ million 2022 (%) 2021 (%)
------------------------------ ------- -------------- ------------ --------------
Lifecycle Service Assurance 21.3 17.0 22.6 19.9
Networks & Security 32.0 20.7 26.8 19.0
Corporate (4.3) (4.7)
------------------------------ ------- -------------- ------------ --------------
Adjusted operating profit(1) 49.0 17.5 44.7 17.5
------------------------------ ------- -------------- ------------ --------------
Adjusting items charged
in arriving at operating
profit:
Acquired intangible asset
amortisation (2.4) (1.8)
Share-based payment (4.1) (2.6)
Other adjusting items (2.4) (5.3)
------------------------------ ------- -------------- ------------ --------------
Reported operating profit 40.1 35.0
------------------------------ ------- -------------- ------------ --------------
Notes
1. Before acquired intangible asset amortisation, share-based
payment and other adjusting items totalling $8.9 million (first
half 2021: $9.7 million).
2. Adjusted operating profit as a percentage of revenue in the period.
Adjusted operating profit improved by 9.6 per cent in the first
half of 2022, an increase of $4.3 million to $49.0 million with a
consistent adjusted operating margin of 17.5 per cent. There was
continued investment in product development and selling at both our
business segments in the first half of 2022, but to a greater
extent at Lifecycle Service Assurance where we completed our
next-generation live network assurance solution, Vantage, which
held back adjusted operating margin in the period. In the second
half of the year we plan for reduction of the additional temporary
subcontracted resource that we deployed to deliver this. Also, the
investment in 2021 was more second half weighted, representing a
lower cost comparator in the period.
Other items charged in arriving at operating profit of $8.9
million (first half 2021: $9.7 million) includes an increased
share-based payment expense due to an expansion of employee share
schemes and increased acquired intangible asset amortisation in
respect of the octoScope acquisition that completed in March 2021.
Additionally, other adjusting items charged in the first half of
2022 were $2.4 million (first half 2021: $5.3 million) and
comprised $0.6 million (first half 2021: $0.5 million) in relation
to continuation of our global R&D engineering facility plan and
$1.8 million (first half 2021: $4.8 million) for acquisition
related items, mostly relating to the acquisition and integration
of octoScope.
Reported operating profit for the first half of 2022 increased
by $5.1 million to $40.1 million, from $35.0 million in the first
half of 2021.
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.
In the first half, the Group's income statement included a
foreign exchange loss of $0.1 million arising from transactional
exposure, reflected in administration costs, compared to a $0.4
million loss over the same period in 2021.
Finance income and costs
Finance income in the first half of 2022 comprised bank interest
received of $0.3 million (first half 2021: $0.2 million) and $0.4
million (first half 2021: $0.2 million) of interest income in
relation to the UK defined benefit pension plans.
Finance costs in the first half were $0.5 million (first half
2021: $0.6 million), being interest on lease liabilities.
Tax
The reported tax charge for the Group for the first half of 2022
was $5.7 million (first half 2021: $5.2 million). The adjusted tax
charge, excluding the tax credit on the adjusting items of $1.2
million, was $6.9 million (first half 2021: $6.6 million),
resulting in an effective tax rate of 14.0 per cent of adjusted
pre-tax profit. This compared with an effective tax rate of 14.8
per cent for the first half of 2021. As expected, for the full year
2022 the effective tax rate will be in the region of 14-15 per
cent.
Earnings per share
Adjusted basic earnings per share grew 12 per cent to 6.97
cents, reflecting the improvement in trading performance. There
were 607.0 million weighted average shares in issue (first half
2021: 608.4 million). Reported basic earnings per share was 5.70
cents compared with 4.87 cents for the first half of 2021. See note
6 of Notes to the half year condensed consolidated financial
statements on page 27 for the calculation of earnings per
share.
Financing and cash flow
Cash flow from operations increased by $12.9 million to $67.4
million in the first half of 2022 driven by the higher profit
before tax and a reduction in deficit contributions to the UK
pension scheme during the period.
Cash flow conversion remained strong in the first half of 2022
at 110 per cent which gave rise to a free cash flow of $46.7
million, slightly down on the comparative period which was 127 per
cent. Improved cash flow from operations was partially offset by
increased tax payments due to R&D cost capitalisation rules in
the US coming into effect on 1 January 2022. The new rules require
that, for tax purposes, product development costs are deferred and
unwound over a number of years rather than deducted in the year in
which they are incurred. This results in a timing difference only
so does not directly impact the Group's effective tax rate.
Free cash flow is set out below:
First half First half
$ million 2022 2021
-------------------------------------------------- ------------ ------------
Cash flow from operations 67.4 54.5
Tax paid (14.1) (5.8)
-------------------------------------------------- ------------ ------------
Net cash inflow from operating activities 53.3 48.7
Interest received 0.2 0.2
Net capital expenditure (4.1) (5.3)
Payment of lease liabilities, principal
and interest (4.8) (5.2)
Lease payments received from finance
leases 0.3 0.3
Acquisition related other adjusting
items (note 4):
* Direct acquisition transaction costs 0.6 1.8
* Acquisition related performance payments 1.1 2.5
* Acquisition integration costs 0.1 0.5
One-off employer contribution to
UK pension scheme - 4.6
-------------------------------------------------- ------------ ------------
Free cash flow 46.7 48.1
-------------------------------------------------- ------------ ------------
Free cash flow includes a cash outflow in respect of
non-acquisition related other adjusting items charged in the first
half of 2022 and the second half of 2021 of $0.1 million in total
(first half 2021 and second half of 2020: $1.0 million).
Net capital expenditure of $4.1 million was marginally lower
than over the same period last year and was predominantly incurred
on demonstration and test equipment.
In the first half of 2022, the final dividend for 2021 of $25.0
million was paid and 0.6 million shares were purchased and placed
into the Employee Share Ownership Trust (ESOT) at a cost of $1.6
million (first half 2021: 0.9 million shares at a cost of $3.1
million).
Following these payments, cash and cash equivalents closed at
$188.8 million at 30 June 2022, compared with $174.8 million at 31
December 2021. There continues to be no bank debt.
Defined benefit pension plans
The Group operates two funded defined benefit pension plans in
the United Kingdom which are closed to new entrants.
The accounting valuation of the funded defined benefit pension
plans at 30 June 2022 gave rise to a net surplus of $39.7 million,
compared with a net surplus of $37.8 million at 31 December 2021.
The 30 June 2022 position reflects a re-assessment of the
underlying assumptions generating a reduction in liabilities
together with cash contributions to the scheme during the first
half in line with the previously agreed deficit funding plan,
partially offset by a remeasurement loss on plans' assets. S ee
note 8 of Notes to the half year condensed consolidated financial
statements on page 29 for more information on the defined benefit
pension plans and key financial assumptions. C ontributions to the
plans paid under the deficit reduction plan were $1.2 million
during the first half of 2022 (first half 2021: $3.6 million). The
reduction is due to the scheme reaching self-sufficiency at certain
points in the first half of 2022.
During the period, agreement was reached with the Pension
Trustee in relation to the 2021 triennial valuation, performed as
at 31 March 2021. The triennial valuation concluded that on a
funding basis a deficit of GBP12.5 million existed at the valuation
date. As a result, the Company will make deficit funding
contributions of GBP5.4 million per annum, increasing at CPI on an
annual basis, until funding self-sufficiency is reached.
There is also a liability for an unfunded plan in the UK of $0.6
million (31 December 2021: $0.7 million).
The Group operates a deferred compensation plan for employees in
the United States. At 30 June 2022, the deficit on this deferred
compensation plan amounted to $6.5 million (31 December 2021: $6.6
million).
Balance sheet and dividend
The consolidated balance sheet is set out on page 19.
Net assets increased by $7.1 million to $454.6 million at 30
June 2022, from $447.5 million at 31 December 2021, largely as a
result of the operating performance in the period, partially offset
by payment of the final dividend.
Inventories increased by $13.6 million in the first half of 2022
to $39.6 million driven by the business need to hold higher levels
of materials in order to navigate supply chain challenges and
fulfil customer demand. Current trade and other receivables at 30
June 2022 have decreased by $36.6 million to $127.5 million from
$164.1 million at 31 December 2021 as customer invoices from the
year end have been collected during the period.
Current trade and other payables have decreased by $13.8 million
at 30 June 2022 to $73.8 million (31 December 2021: $87.6 million),
resulting from payment of the 2021 year end accrued compensation
costs and sales commissions during the period.
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 gearing to fund inorganic investments.
The Board continues to regularly review the Company's balance
sheet in light of current and expected trading performance and cash
generation, working capital requirements and expected investments,
and principal risks and uncertainties. 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.
The Board has declared an interim dividend of 2.63 cents per
Ordinary Share, a 10 per cent increase over the dividend declared
for the first half 2021 of 2.39 cents. This is equivalent to 2.16
pence per Ordinary Share at an exchange rate of $1.22:GBP1 (first
half 2021: 1.72 pence). The payment will be approximately $15.9
million. The dividend will be paid to Ordinary shareholders on 16
September 2022 and to ADR holders on 23 September 2022. The
dividend is payable to all shareholders on the Register of Members
at the close of business on 12 August 2022.
The Board is continuing to pursue a progressive dividend policy
targeting cover of 2 to 2.5 times adjusted earnings.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group for the
remainder of the year are unchanged from those reported in the
Annual Report 2021. The uncertainties arising from the
macro-economic backdrop and inflationary pressures are covered by
existing risks and these continue to be closely monitored.
The Group's principal risks and uncertainties at 31 December
2021 were detailed on pages 59 to 64 of the Annual Report 2021, and
related to the following areas: macro-economic change; technology
change; business continuity; customer dependence/customer
investment plans; competition, acquisitions; and employee skill
base. A copy of the Annual Report 2021 is available on the
Company's website at https://corporate.spirent.com/
Condensed consolidated income statement
First half 2022 First half 2021
----------------------------------- -----------------------------------
Adjusting Adjusting
$ million Notes Adjusted items(1) Reported Adjusted items(1) Reported
Revenue 3 280.1 - 280.1 255.1 - 255.1
Cost of sales (78.5) - (78.5) (71.1) - (71.1)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Gross profit 201.6 - 201.6 184.0 - 184.0
Product development 3 (57.2) - (57.2) (52.5) - (52.5)
Selling and marketing (67.1) - (67.1) (61.8) - (61.8)
Administration (28.3) (8.9) (37.2) (25.0) (9.7) (34.7)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Operating profit 49.0 (8.9) 40.1 44.7 (9.7) 35.0
Adjusting items:
Acquired intangible asset
amortisation - (2.4) (2.4) - (1.8) (1.8)
Share-based payment - (4.1) (4.1) - (2.6) (2.6)
Other adjusting items 4 - (2.4) (2.4) - (5.3) (5.3)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Adjusting items - (8.9) (8.9) - (9.7) (9.7)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Finance income 0.7 - 0.7 0.4 - 0.4
Finance costs (0.5) - (0.5) (0.6) - (0.6)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit before tax 49.2 (8.9) 40.3 44.5 (9.7) 34.8
Tax 5 (6.9) 1.2 (5.7) (6.6) 1.4 (5.2)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit for the period attributable
to owners of the parent Company 42.3 (7.7) 34.6 37.9 (8.3) 29.6
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings per share (cents) 6
Basic 6.97 5.70 6.23 4.87
Diluted 6.90 5.65 6.16 4.81
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Note
1. Adjusting items comprise amortisation of acquired intangible
assets, share-based payment, other adjusting items and tax on
adjusting items.
The performance of the Group is assessed using a variety of
non-GAAP alternative performance measures which are presented to
provide additional financial information that is regularly reviewed
by management. Adjusting items are identified and excluded by
virtue of their size, nature or incidence as they do not reflect
management's evaluation of the underlying trading performance of
the Group. The alternative performance measures are presented in
the appendix. The reported GAAP measures give the complete measure
of financial performance.
Condensed consolidated statement of comprehensive income
First
half First half
$ million Note 2022 2021
---------------------------------------------------------- ------ ------- ------------
Profit for the period attributable to owners
of the parent Company 34.6 29.6
---------------------------------------------------------- ------ ------- ------------
Other comprehensive (loss)/income
Items that may subsequently be reclassified
to profit or loss:
* Exchange differences on retranslation of foreign
operations (8.1) 1.1
---------------------------------------------------------- ------ ------- ------------
Items that will not subsequently be reclassified
to profit or loss:
* Re-measurement of the net defined benefit pension
asset 8 4.7 11.0
* Income tax effect of re-measurement of the net
defined benefit pension asset (1.3) (4.0)
---------------------------------------------------------- ------ ------- ------------
3.4 7.0
---------------------------------------------------------- ------ ------- ------------
Other comprehensive (loss)/income (4.7) 8.1
---------------------------------------------------------- ------ ------- ------------
Total comprehensive income for the period attributable
to owners of the parent Company 29.9 37.7
---------------------------------------------------------- ------ ------- ------------
Condensed consolidated balance sheet
Audited
30 June 30 June 31 December
$ million Note 2022 2021 2021
----------------------------------------- ------ --------- --------- --------------
Assets
Non-current assets
Intangible assets 205.2 211.8 208.2
Property, plant and equipment 21.8 25.6 23.7
Right-of-use assets 22.2 22.5 26.0
Trade and other receivables 6.4 7.3 7.6
Assets recognised from costs to obtain
a contract 0.5 0.5 0.8
Defined benefit pension plan surplus 8 39.7 32.6 37.8
Deferred tax asset 24.4 18.1 18.6
----------------------------------------- ------ --------- --------- --------------
320.2 318.4 322.7
----------------------------------------- ------ --------- --------- --------------
Current assets
Inventories 39.6 25.5 26.0
Trade and other receivables 127.5 119.8 164.1
Assets recognised from costs to obtain
a contract 0.7 0.6 1.1
Other financial assets - - 0.1
Current tax asset 4.0 4.0 2.5
Cash and cash equivalents 188.8 156.4 174.8
----------------------------------------- ------ --------- --------- --------------
360.6 306.3 368.6
----------------------------------------- ------ --------- --------- --------------
Total assets 680.8 624.7 691.3
----------------------------------------- ------ --------- --------- --------------
Liabilities
Current liabilities
Trade and other payables (73.8) (65.2) (87.6)
Contract liabilities (76.2) (75.0) (72.1)
Lease liabilities (8.2) (8.2) (8.4)
Other financial liabilities - (0.1) -
Current tax liability (2.3) (0.5) (3.2)
Provisions (4.2) (6.8) (5.4)
----------------------------------------- ------ --------- --------- --------------
(164.7) (155.8) (176.7)
----------------------------------------- ------ --------- --------- --------------
Non-current liabilities
Trade and other payables (0.5) (0.8) (0.4)
Contract liabilities (24.3) (22.9) (27.5)
Lease liabilities (17.3) (18.5) (21.4)
Deferred tax liability (9.0) (7.1) (8.0)
Defined benefit pension plan deficit 8 (7.1) (6.8) (7.3)
Provisions (3.3) (2.3) (2.5)
----------------------------------------- ------ --------- --------- --------------
(61.5) (58.4) (67.1)
----------------------------------------- ------ --------- --------- --------------
Total liabilities (226.2) (214.2) (243.8)
----------------------------------------- ------ --------- --------- --------------
Net assets 454.6 410.5 447.5
----------------------------------------- ------ --------- --------- --------------
Capital and reserves
Share capital 24.7 28.3 27.5
Share premium account 24.5 28.0 27.2
Capital redemption reserve 16.0 18.3 17.8
Other reserves 20.8 11.4 13.5
Translation reserve 2.7 12.2 10.8
Retained earnings 365.9 312.3 350.7
----------------------------------------- ------ --------- --------- --------------
Total equity attributable to owners
of the parent Company 454.6 410.5 447.5
----------------------------------------- ------ --------- --------- --------------
Condensed consolidated statement of changes in equity
Attributable to the equity holders of the
parent Company
-----------------------------------------------------------------------------------------
Share Capital
Share premium redemption Other Translation Retained Total
$ million Notes capital account reserve reserves reserve earnings equity
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 1 January 2021
(audited) 27.9 27.6 18.0 12.5 11.1 345.7 442.8
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Profit for the
period - - - - - 29.6 29.6
Other
comprehensive
income - - - - 1.1 7.0 8.1
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Total
comprehensive
income - - - - 1.1 36.6 37.7
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Share-based
payment(1) - - - - - 2.6 2.6
Tax credit on
share
incentives - - - - - 0.1 0.1
Equity dividends 7 - - - - - (69.6) (69.6)
Employee Share
Ownership
Trust 12 - - - - - (3.1) (3.1)
Exchange
adjustment 0.4 0.4 0.3 (1.1) - - -
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 30 June 2021 28.3 28.0 18.3 11.4 12.2 312.3 410.5
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 1 January 2022
(audited) 27.5 27.2 17.8 13.5 10.8 350.7 447.5
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Profit for the
period - - - - - 34.6 34.6
Other
comprehensive
income - - - - (8.1) 3.4 (4.7)
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Total
comprehensive
income - - - - (8.1) 38.0 29.9
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Share-based
payment(1) - - - - - 4.2 4.2
Tax charge on
share
incentives - - - - - (0.4) (0.4)
Equity dividends 7 - - - - - (25.0) (25.0)
Employee Share
Ownership
Trust 12 - - - - - (1.6) (1.6)
Exchange
adjustment (2.8) (2.7) (1.8) 7.3 - - -
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 30 June 2022 24.7 24.5 16.0 20.8 2.7 365.9 454.6
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Note
1. Includes $0.2 million (first half 2021: $0.2 million) in
respect of deferred shares for Executive Directors' Annual
Incentive which is charged to administration expenses in the income
statement.
Condensed consolidated cash flow statement
First half First half
$ million Notes 2022 2021
------------------------------------------------ ------- ------------ ------------
Cash flows from operating activities
Cash flow from operations 10 67.4 54.5
Tax paid (14.1) (5.8)
------------------------------------------------ ------- ------------ ------------
Net cash inflow from operating activities 53.3 48.7
------------------------------------------------ ------- ------------ ------------
Cash flows from investing activities
Interest received 0.2 0.2
Purchase of property, plant and equipment (4.3) (5.6)
Proceeds from sale of property, plant
and equipment 0.2 0.3
Lease payments received from finance leases 0.3 0.3
Acquisition of subsidiary, net of cash
acquired 9 - (51.3)
------------------------------------------------ ------- ------------ ------------
Net cash used in investing activities (3.6) (56.1)
------------------------------------------------ ------- ------------ ------------
Cash flows from financing activities
Lease liability principal repayments (4.3) (4.6)
Lease liability interest paid (0.5) (0.6)
Dividend paid 7 (25.0) (69.1)
Hedge contracts relating to dividend payments 7 - (0.5)
Share purchase into Employee Share Ownership
Trust 12 (1.6) (3.1)
------------------------------------------------ ------- ------------ ------------
Net cash used in financing activities (31.4) (77.9)
------------------------------------------------ ------- ------------ ------------
Net increase/(decrease) in cash and cash
equivalents 18.3 (85.3)
Cash and cash equivalents at the beginning
of the period 174.8 241.2
Effect of foreign exchange rate changes (4.3) 0.5
------------------------------------------------ ------- ------------ ------------
Cash and cash equivalents at the end
of the period 188.8 156.4
------------------------------------------------ ------- ------------ ------------
Notes to the half year condensed consolidated financial
statements
1 General information
The half year condensed consolidated financial statements do not
constitute statutory accounts within the meaning of the Companies
Act 2006. The statutory accounts for the year ended 31 December
2021 were approved by the Board of Directors on 10 March 2022 and
have been delivered to the Registrar of Companies. The auditor's
report 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(2) or (3) of the Companies Act 2006.
The half year condensed consolidated financial statements have
been reviewed, not audited, by the Group's auditor pursuant to the
Auditing Practices Board guidance on Review of Interim Financial
Information. A copy of their review report is included at the end
of this report.
The half year condensed consolidated financial statements for
the period ended 30 June 2022 were approved by the Directors on 4
August 2022.
2 Accounting policies
The accounting policies adopted and methods of computation used
are consistent with those applied in the consolidated financial
statements for the year ended 31 December 2021. The annual
financial statements of the Group are prepared in accordance with
United Kingdom adopted International Financial Reporting Standards
(IFRS).
Basis of preparation
The half year condensed consolidated financial statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards
Board and endorsed by and adopted for use in the United Kingdom.
This condensed set of half year financial statements has also been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Conduct Authority.
Presentation
The line item "Other items", as presented in the first half 2021
consolidated income statement, has been included within
"Administration" expenses as this more appropriately represents the
nature of the costs. "Other items" has been renamed to "Adjusting
items". The presentation of the comparative amounts in the
consolidated income statement has also been amended to reflect this
change. This reclassification had no impact on the Group's income
statement reported in the first half 2021.
Critical accounting estimates and judgements
The preparation of the half year condensed consolidated
financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these half year condensed consolidated financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 December
2021.
The Group is required to perform an impairment review on
goodwill annually and where there are indicators of impairment. The
Group has an annual impairment testing date of 30 November. At 30
June 2022, management have reviewed goodwill for indicators of
impairment and have considered the trading performance, the Group's
principal risks and uncertainties and the other assumptions used in
the value in use calculations. Management have also considered
sensitivities in respect of potential downside scenarios. There are
no indicators of impairment at any of the cash generating
units.
Going concern
In adopting the going concern basis for preparing the condensed
consolidated financial statements, the Directors have considered
the Group's principal risks and uncertainties as set out on page
16.
The Directors have also considered sensitivities in respect of
potential downside scenarios, including stress testing the latest
cash flow projections that cover a period of 12 months from the
date of approval of these condensed consolidated financial
statements. In these scenarios, the Group has more than sufficient
headroom in its available resources.
At 30 June 2022, the Group had cash balances of $188.8 million
and external debt only in relation to its lease liabilities.
The Directors have reviewed the detailed financial projections
for the period ending 31 December 2022, as well as the business
plan and cash flows for the six months ending 30 June 2023. The
Directors have also considered the period to the end of 2025 which
forms part of the Group's longer term viability assessment. In
addition, they have considered the principal risks faced by the
Group, the sensitivity analysis and the Group's significant
financial headroom and are satisfied that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future, a period of at least 12 months from the date of
approval of this report. Accordingly, the going concern basis of
accounting continues to be used in the preparation of the condensed
consolidated financial statements.
New standards and interpretations
There have been no new standards or amendments to existing
standards effective from 1 January 2022 that are applicable to the
Group or that has had any material impact on the financial
statements and related notes as at 30 June 2022.
The Directors do not anticipate that the adoption of any of the
new standards and interpretations issued by the IASB and IFRIC with
an effective date for the Group after the date of these interim
financial statements will have a material impact on the Group's
interim financial statements in the period of initial
application.
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's reportable operating segments are Lifecycle Service
Assurance and Networks & Security. The Group evaluates adjusted
operating profit before acquired intangible asset amortisation,
share-based payment and other adjusting items. Finance income and
finance costs 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. Information
on segment assets and segment liabilities is not regularly provided
to the Group's Chief Executive Officer and is therefore not
disclosed below. There is no aggregation of operating segments.
The Group disaggregates revenue from contracts with customers by
nature of products and services and primary geographical markets,
as management believe this best depicts how the nature, amount,
timing and uncertainty of the Group's revenue and cash flows are
affected by economic factors.
Lifecycle
Service Networks
$ million Assurance & Security Corporate Total
----------------------------------------------- ------------ ------------- ----------- -------
First half 2022
Revenue
Nature of products and services
Sale of hardware and software 68.0 122.1 - 190.1
Maintenance and support services 57.6 32.4 - 90.0
----------------------------------------------- ------------ ------------- ----------- -------
125.6 154.5 - 280.1
----------------------------------------------- ------------ ------------- ----------- -------
Primary geographical markets
Americas 83.2 67.8 - 151.0
Asia Pacific 29.5 70.2 - 99.7
Europe, Middle East and Africa 12.9 16.5 - 29.4
----------------------------------------------- ------------ ------------- ----------- -------
125.6 154.5 - 280.1
----------------------------------------------- ------------ ------------- ----------- -------
Profit before tax
Adjusted operating profit 21.3 32.0 (4.3) 49.0
Other adjusting items note 4 (0.1) (0.6) (1.7) (2.4)
----------------------------------------------- ------------ ------------- ----------- -------
Total reportable segment profit 21.2 31.4 (6.0) 46.6
Unallocated amounts:
* Acquired intangible asset amortisation (2.4)
* Share-based payment (4.1)
----------------------------------------------- ------------ ------------- ----------- -------
Operating profit 40.1
Finance income 0.7
Finance costs (0.5)
----------------------------------------------- ------------ ------------- ----------- -------
Profit before tax 40.3
----------------------------------------------- ------------ ------------- ----------- -------
Other information
Product development 27.9 29.3 - 57.2
Intangible asset amortisation
- other 0.3 - - 0.3
Depreciation of property, plant
and equipment 2.4 3.1 0.1 5.6
Depreciation of right-of-use
assets 1.7 1.9 0.2 3.8
----------------------------------------------- ------------ ------------- ----------- -------
Lifecycle
Service Networks
$ million Assurance & Security Corporate Total
----------------------------------------------- ------------ ------------- ----------- -------
First half 2021
Revenue
Nature of products and services
Sale of hardware and software 66.0 112.2 - 178.2
Maintenance and support services 47.8 29.1 - 76.9
----------------------------------------------- ------------ ------------- ----------- -------
113.8 141.3 - 255.1
----------------------------------------------- ------------ ------------- ----------- -------
Primary geographical markets
Americas 77.3 62.8 - 140.1
Asia Pacific 29.2 60.8 - 90.0
Europe, Middle East and Africa 7.3 17.7 - 25.0
----------------------------------------------- ------------ ------------- ----------- -------
113.8 141.3 - 255.1
----------------------------------------------- ------------ ------------- ----------- -------
Profit before tax
Adjusted operating profit 22.6 26.8 (4.7) 44.7
Other adjusting items note 4 (0.3) (0.6) (4.4) (5.3)
----------------------------------------------- ------------ ------------- ----------- -------
Total reportable segment profit 22.3 26.2 (9.1) 39.4
Unallocated amounts:
* Acquired intangible asset amortisation (1.8)
* Share-based payment (2.6)
----------------------------------------------- ------------ ------------- ----------- -------
Operating profit 35.0
Finance income 0.4
Finance costs (0.6)
----------------------------------------------- ------------ ------------- ----------- -------
Profit before tax 34.8
----------------------------------------------- ------------ ------------- ----------- -------
Other information
Product development 24.7 27.8 - 52.5
Intangible asset amortisation
- other 0.4 - - 0.4
Depreciation of property, plant
and equipment 2.3 3.8 0.1 6.2
Depreciation of right-of-use
assets 1.7 2.1 0.2 4.0
----------------------------------------------- ------------ ------------- ----------- -------
Inter-segment revenue is eliminated in the above periods. All of
the Group's revenue arose from contracts with customers.
Generally, revenue from the sale of hardware and software is
recognised at a point in time and revenue from maintenance and
support services is recognised over time.
Europe, Middle East and Africa includes United Kingdom revenue
of $8.0 million (first half 2021: $5.4 million).
Americas includes United States revenue of $144.6 million (first
half 2021: $131.9 million).
Asia Pacific includes China revenue of $56.7 million (first half
2021: $50.8 million).
Revenues are attributed to regions and countries based on
customer location.
No one customer accounted for 10 per cent or more of total Group
revenue in either the first half of 2022 or 2021.
The Group's activities are seasonal and are typically weighted
towards the second half of the year.
4 Other adjusting items
First
half First half
$ million 2022 2021
------------------------------------------- ------- ------------
R&D engineering plan 0.6 0.5
Direct acquisition transaction costs 0.6 1.8
Acquisition related performance payments 1.1 2.5
Acquisition integration costs 0.1 0.5
------------------------------------------- ------- ------------
Total charge in the income statement 2.4 5.3
------------------------------------------- ------- ------------
In the first half of 2021, the Group commenced implementation of
a global R&D engineering plan to rationalise the number of
sites and extend the Group's flexibility to serve its global
customers, incurring $0.5 million of employee severance costs. This
plan continued through 2021 into the first half of 2022, where $0.6
million was incurred in relation to employee retention bonuses.
On 4 March 2021, the Group completed the acquisition of
octoScope, Inc. Acquisition related performance payments of $1.1
million and $0.1 million in relation to post acquisition
integration were incurred during the first half of 2022 (first half
2021: $2.5 million and $0.5 million, respectively). The acquisition
related performance payments to key employees of the former
octoScope business are contingent on meeting revenue growth targets
for 2021 and 2022 and a continuing employment requirement. In
addition, direct transaction related costs of $0.6 million (first
half 2021: $1.8 million) were incurred comprising advisor fees. See
note 9 for further details.
The tax effect of other adjusting items is a credit of $0.5
million (first half 2021: $0.9 million credit). The total cash
outflow in respect of other adjusting items charged in the first
half of 2022 is anticipated to be $2.4 million, $0.1 million of
which was paid in the period (first half 2021: $5.3 million total
cash outflow with $2.1 million paid in the period). The cash
outflow in the first half of 2022 in respect of other adjusting
items charged in 2021 was $0.8 million (first half 2021: $0.5
million).
The total cash outflow in respect of other adjusting items is
reported within cash flows from operating activities in the
condensed consolidated cash flow statement.
5 Tax
First
half First half
$ million 2022 2021
------------------------------------- ------- ------------
Current income tax
UK tax 1.7 1.1
Foreign tax 10.5 0.6
------------------------------------- ------- ------------
Total current income tax charge 12.2 1.7
------------------------------------- ------- ------------
Deferred tax
Recognition of deferred tax assets (1.0) (1.5)
Reversal of temporary differences (5.5) 5.0
------------------------------------- ------- ------------
Total deferred tax (6.5) 3.5
------------------------------------- ------- ------------
Tax charge in the income statement 5.7 5.2
------------------------------------- ------- ------------
The effective tax rate for the first half of 2022 is 14.0 per
cent (first half 2021: 14.8 per cent), being the current period tax
charge, excluding tax on adjusting items, as a percentage of
adjusted profit before tax.
6 Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit
for the period attributable to owners of the parent Company by the
weighted average number of Ordinary Shares outstanding during the
period.
Diluted
Diluted earnings per share is calculated by dividing the profit
for the period attributable to owners of the parent Company by the
weighted average number of Ordinary Shares outstanding during the
period plus the weighted average number of Ordinary Shares that
would be issued on the conversion of all dilutive potential
Ordinary Shares into Ordinary Shares.
First
half First half
$ million 2022 2021
-------------------------------------------------- ------- ------------
Profit for the period attributable to owners
of the parent Company 34.6 29.6
-------------------------------------------------- ------- ------------
Number million
-------------------------------------------------- ------- ------------
Weighted average number of Ordinary Shares
in issue - basic 607.0 608.4
Dilutive potential of employee share incentives 5.7 6.4
-------------------------------------------------- ------- ------------
Weighted average number of Ordinary Shares
in issue - diluted 612.7 614.8
-------------------------------------------------- ------- ------------
Cents
-------------------------------------------------- ------- ------------
Earnings per share
Basic 5.70 4.87
Diluted 5.65 4.81
-------------------------------------------------- ------- ------------
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:
- acquired intangible asset amortisation;
- share-based payment;
- other adjusting items; and
- tax effect on the above items
First half First half
2022 2021
----------------------------- --------------------- ---------------------
EPS EPS
$ million cents $ million cents
----------------------------- ----------- -------- ----------- --------
Profit for the period
attributable to owners
of the parent Company 34.6 5.70 29.6 4.87
Acquired intangible asset
amortisation 2.4 1.8
Share-based payment 4.1 2.6
Other adjusting items note
4 2.4 5.3
Tax effect on the above
items (1.2) (1.4)
----------------------------- ----------- -------- ----------- --------
Adjusted basic 42.3 6.97 37.9 6.23
----------------------------- ----------- -------- ----------- --------
Adjusted diluted 6.90 6.16
----------------------------- ----------- -------- ----------- --------
7 Dividends paid and proposed
First half First half
2022 2021
-------------------------------- ------------------------ ------------------------
Cents per Cents per
Ordinary Ordinary
Share $ million Share $ million
-------------------------------- ----------- ----------- ----------- -----------
Amounts recognised as
distributions to equity
in the period
Final dividend paid for
previous year 4.37 25.0 3.87 23.7
Special dividend paid for
previous year - - 7.50 45.9
-------------------------------- ----------- ----------- ----------- -----------
Amounts approved by the
Directors (not recognised
as a liability at the balance
sheet date) 2.63 15.9 2.39 14.5
-------------------------------- ----------- ----------- ----------- -----------
An interim dividend of 2.63 cents per Ordinary Share (2021: 2.39
cents per Ordinary Share) was declared by the Board on 4 August
2022 and will be paid to Ordinary shareholders on 16 September 2022
and to ADR holders on 23 September 2022. This dividend has not been
included as a liability in these financial statements. The dividend
is payable to all shareholders on the Register of Members at the
close of business on 12 August 2022.
Dividends are declared or proposed in US Dollars and will be
paid in Pound Sterling at the exchange rate prevailing when the
dividend is declared or proposed. The exchange rate used for
determining the amount of interim dividend to be paid was
$1.22:GBP1.
Reconciliation of dividends charged to equity to cash flow
statement:
First First
half half
$ million 2022 2021
--------------------------------------------------- ------- -------
Dividends charged to equity 25.0 69.6
Hedge contracts relating to payment of dividends
(cash flow statement) - (0.5)
--------------------------------------------------- ------- -------
Dividends paid (cash flow statement) 25.0 69.1
--------------------------------------------------- ------- -------
8 Defined benefit pension plans
The Group has ongoing obligations in relation to two funded
defined benefit pension plans in the United Kingdom. In addition,
there is a United Kingdom unfunded plan and a deferred compensation
plan in the United States.
The most recent actuarial valuations, at 31 March 2021, of the
plans' assets and the present value of the plans' obligations,
using the projected unit credit method, have been used and updated
at 30 June 2022 as the basis for the accounting valuation.
The assets and liabilities on the balance sheet are as
follows:
First First
half half Year
$ million 2022 2021 2021
--------------------------------------------- ------- ------- -------
Schemes in net asset position
UK defined benefit pension plan - Staff
Plan 38.6 30.8 35.8
UK defined benefit pension plan - Cash Plan 1.1 1.8 2.0
--------------------------------------------- ------- ------- -------
39.7 32.6 37.8
--------------------------------------------- ------- ------- -------
Schemes in net liability position
UK unfunded plan (0.6) (0.7) (0.7)
US deferred compensation plan (6.5) (6.1) (6.6)
--------------------------------------------- ------- ------- -------
(7.1) (6.8) (7.3)
--------------------------------------------- ------- ------- -------
Net pension plan surplus on the balance
sheet 32.6 25.8 30.5
--------------------------------------------- ------- ------- -------
The assets and liabilities in the funded defined benefit pension
plans were as follows:
First First
half half Year
$ million 2022 2021 2021
---------------------------------------------- --------- --------- ---------
Fair value of defined benefit pension plans'
assets 238.3 328.7 330.3
Present value of defined benefit pension
plans' obligations (198.6) (296.1) (292.5)
---------------------------------------------- --------- --------- ---------
Net UK funded defined benefit pension plan
surplus on the balance sheet 39.7 32.6 37.8
---------------------------------------------- --------- --------- ---------
The key financial assumptions in respect of the funded plans are
as follows:
First
First half half Year
% 2022 2021 2021
------------------------------------------ ------------ ------- ----------
Inflation - RPI 3.4 3.3 3.5
RPI less RPI less
Inflation - CPI (pre-2030) 1.0% pa 2.5 1.0% pa
RPI less RPI less
Inflation - CPI (post-2030) 0.1% pa 2.5 0.1% pa
Rate of increase in pensionable salaries CPI 2.5 CPI
Rate of increase for pensions in payment
* Pre 2001 service 3.8 3.7 3.8
* 2001 to 5 April 2005 service 3.2 3.2 3.3
* Post 5 April 2005 service 2.1 2.2 2.2
Rate of increase in deferred pensions CPI 2.5 CPI
Rate used to discount plan liabilities 3.8 1.8 1.8
------------------------------------------ ------------ ------- ----------
There was no charge to operating costs (first half 2021: nil)
and finance income of $0.4 million (first half 2021: $0.2 million)
has been recognised.
The Group also operates a deferred compensation plan for
employees in the United States. The plan has elements of a defined
benefit pension retirement obligation and therefore is required to
be valued in accordance with IAS 19 'Employee Benefits'. At 30 June
2022, the deferred compensation deficit amounted to $6.5 million
(31 December 2021: $6.6 million). There was no re-measurement at 30
June 2022 (31 December 2021: $0.2 million loss recognised directly
in the statement of comprehensive income).
9 Business combinations
There were no business combinations in the first half of
2022.
On 4 March 2021, Spirent acquired 100 per cent of the issued
share capital of octoScope, Inc (octoScope), a company based in the
United States for an initial cash consideration of $57.9 million.
Additionally, there are acquisition related performance payments of
up to $17.8 million payable based on revenue growth targets for
2021 and 2022 and retention of key staff. The transaction was
funded by surplus cash in the Group.
octoScope provides market-leading accurate, repeatable and
automated wireless test solutions and methodologies to the wireless
industry. Its test solutions leverage patented technology to
provide automated Wi-Fi and 5G testing in emulated real-world
environments, including the Wi-Fi 6 and 6E technologies. The
acquisition will enable the Group to consolidate its leadership in
Wi-Fi test. octoScope has been incorporated into our Lifecycle
Service Assurance operating segment.
Of the acquisition related performance payments, amounts of up
to $16.2 million are linked to post-acquisition service and
therefore will be charged to the income statement in the relevant
post-acquisition period, and amounts up to $1.6 million, which are
not linked to post acquisition service and only to revenue growth
targets, have been included as contingent consideration on
acquisition and a liability recorded.
In the first half of 2022, $1.3 million (first half 2021: $2.4
million) of acquisition related performance payments have been
charged to other adjusting items in the income statement (note 4).
On acquisition date, the fair value of the contingent consideration
was estimated at $0.7 million and a liability recorded for this
amount. In the first half of 2022, the liability was remeasured
down by $0.2 million (first half 2021: $0.1 million remeasurement
up) through other adjusting items in the income statement (note 4).
On 30 June 2022, the liability had a fair value of $0.3 million (31
December 2021: $0.5 million).
The fair values of the identifiable net assets acquired are set
out below:
Fair
Book value Fair
$ million value adjustment value
---------------------------------- -------- ------------- --------
Intangible assets - 26.8 26.8
Property, plant and equipment 0.8 - 0.8
Right-of-use assets 1.2 - 1.2
Inventories 1.7 - 1.7
Trade and other receivables 3.1 0.9 4.0
Current tax asset 0.4 - 0.4
Cash and cash equivalents 6.6 - 6.6
Trade and other payables (3.7) - (3.7)
Contract liabilities (2.2) - (2.2)
Lease liabilities (1.2) - (1.2)
Deferred tax asset/(liability) 3.0 (5.4) (2.4)
---------------------------------- -------- ------------- --------
Total identifiable net assets 9.7 22.3 32.0
Goodwill on acquisition 26.6
---------------------------------- -------- ------------- --------
Total consideration 58.6
---------------------------------- -------- ------------- --------
Satisfied by
Initial cash consideration 57.9
Contingent consideration accrued 0.7
---------------------------------- -------- ------------- --------
58.6
---------------------------------- -------- ------------- --------
Cash flows:
Initial cash consideration 57.9
Cash acquired (6.6)
---------------------------------- -------- ------------- --------
The fair value adjustments arose in relation to the recognition
of acquired intangible assets net of the associated deferred tax
liability, and on the recognition of a receivable in relation to an
indemnification asset in respect of a loan that existed on
acquisition date. The trade and other receivables acquired were
mainly trade receivables due from customers and the book value on
acquisition date approximated the fair value. All of the
receivables acquired are expected to be collected.
The intangible assets acquired represent current technology,
customer relationships and brand. These intangible assets have been
assigned a useful life of between three and six years.
The goodwill arising of $26.6 million consists largely of the
synergies and economies of scale expected from the combination
together with intangible assets not qualifying for separate
recognition, such as workforce in place. The goodwill recognised is
not expected to be deductible for income tax purposes.
Acquisition related costs of $1.8 million were expensed to other
adjusting items within the income statement in the first half of
2021 (note 4).
From the date of acquisition to 30 June 2021, octoScope
contributed $6.1 million of revenue and $1.4 million of profit
before tax to the results of the Group before charging $1.8 million
of acquisition related costs and $1.5 million of acquired
intangible asset amortisation. If the combination had occurred at
the beginning of the financial year, revenue of $8.1 million and a
profit before tax of $0.1 million would have been included in the
Group result before charging $1.8 million of acquisition related
costs and $2.3 million of acquired intangible asset
amortisation.
10 Reconciliation of profit before tax to cash generated from
operations
First
half First half
$ million 2022 2021
------------------------------------------------------- -------- ------------
Profit before tax 40.3 34.8
Adjustments for:
Finance income (0.7) (0.4)
Finance expense 0.5 0.6
Intangible asset amortisation 2.7 2.2
Depreciation of property, plant and equipment 5.6 6.2
Depreciation of right-of-use assets 3.8 4.0
Loss on the disposal of property, plant and
equipment - 0.1
Share-based payment 4.3 2.8
Changes in working capital:
Increase in inventories (14.3) (1.5)
Decrease in receivables 36.5 14.8
Decrease in payables (12.4) (12.3)
Increase in contract liabilities 2.6 11.8
Decrease in provisions (0.2) (0.8)
Defined benefit pension plan employer contributions (1.2) (8.2)
Deferred compensation plan (0.1) 0.4
------------------------------------------------------- -------- ------------
Cash flow from operations 67.4 54.5
------------------------------------------------------- -------- ------------
11 Fair value
The Directors consider that the carrying amounts of the
financial instruments included within trade and other receivables,
trade and other payables and contractual provisions approximates
their fair value.
Corporate owned life insurance, included within trade and other
receivables, is designated as financial assets at fair value
through profit or loss, and is at Level 1 in the fair value
hierarchy as the valuation of the linked investments is based on
quoted prices in active markets, amounted to $3.3 million at 30
June 2022 (31 December 2021: $4.0 million).
12 Employee Share Ownership Trust
During the first half of 2022, 0.6 million shares were purchased
and placed into the Employee Share Ownership Trust (ESOT) at a cost
of $1.6 million (first half 2021: 0.9 million shares at a cost of
$3.1 million) and 2.3 million shares were transferred from the ESOT
to satisfy options exercised under the Spirent employee share plans
(first half 2021: 2.0 million transferred). At 30 June 2022, the
ESOT held 2.8 million Ordinary Shares (31 December 2021: 4.5
million Ordinary Shares).
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
The condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as issued by
the IASB and endorsed and adopted by the United Kingdom.
The half year management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the 2021 Annual Report.
The Directors of Spirent Communications plc are listed below and
are unchanged from the Spirent Communications plc Annual Report at
31 December 2021.
Sir William Thomas
Eric Updyke
Paula Bell
Jonathan Silver
Gary Bullard
Margaret Buggie
Wendy Koh
Edgar Masri
By order of the Board of Spirent Communications plc.
E A Updyke
Chief Executive Officer
4 August 2022
Independent review report to Spirent Communications plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the income statement,
the statement of other comprehensive income, the balance sheet, the
statement of changes in equity, the cash flow statement, and
related notes 1 to 12.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the Directors have inappropriately
adopted the going concern basis of accounting or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the Company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
4 August 2022
Appendix
Alternative Performance Measures (APM)
The performance of the Group is assessed using a variety of
alternative performance measures (APMs) which are presented to
provide users with additional financial information that is
regularly reviewed by management. The APMs presented are not
defined under IFRS and therefore may not be directly comparable
with similarly identified measures used by other companies.
In management's view, the APMs reflect the underlying
performance of the Group and provide an alternative basis for
evaluating how the Group is managed and measured on a day-to-day
basis. Such APMs are non-GAAP measures and should not be viewed in
isolation or as an alternative to the equivalent GAAP measure.
The APMs and key performance indicators are aligned to the
Group's strategy and collectively are used to measure the
performance of the Group and form the basis of the metrics for
Director and management remuneration. The Group's key performance
indicators are presented within the Strategic Report of its 2021
Annual Report.
Order intake
Order intake represents commitments from customers to purchase
goods and/or services from Spirent during the period that will
ultimately result in recognised revenue. Where there can reasonably
be changes to the scope or duration of an order, the Group
exercises judgement on the amount of the order that is booked.
Order intake is a measure of operating performance used by
management to assess whether future activity levels are increasing
or slowing and therefore how effective we have been in the
execution of our strategy. Order intake is a key performance
indicator used to measure Group, operating segment and regional
performance for internal reporting purposes.
Orderbook
Orderbook comprises the value of all unsatisfied orders from
customers and provides an indication of the amount of revenue that
has been secured and will be recognised in future periods.
Orderbook represents the transaction price allocated to wholly and
partially unsatisfied performance obligations, including amounts
held in contract liabilities at the period end. There is no
comparable IFRS measure.
Book to bill
Book to bill is the ratio of orders booked to revenue recognised
in the period and is a measure of the visibility of future revenues
at current levels of activity. Book to bill is a key performance
indicator used to measure Group and operating segment performance
for internal reporting purposes.
Adjusted operating profit
Adjusted operating profit is reported operating profit excluding
amortisation of acquired intangible assets, share-based payment and
other adjusting items. Management uses adjusted operating profit,
in conjunction with other GAAP and non-GAAP financial measures, to
evaluate the overall operating performance of the Group as well as
each of the operating segments and believes that this measure is
relevant to understanding the Group's financial performance, as
specific items (adjusting items) are identified and excluded by
virtue of their size, nature or incidence, as they do not reflect
the underlying trading performance of the Group and therefore can
lead to period-on-period fluctuations that can make it difficult to
assess financial performance.
Specifically, items are excluded from adjusted operating profit
if they are acquisition related in nature, including acquired
intangible asset amortisation which is dependent on being able to
identify intangible assets and assessing their useful economic
lives, or if their exclusion allows for more meaningful comparisons
with peer companies such as share-based payment which can fluctuate
from period to period. The exclusion of adjusting items from
adjusted operating profit is consistent from period to period.
Adjusted operating profit is also used in setting Director and
management remuneration targets and in discussions with the
investment analyst community.
Adjusted operating margin
Adjusted operating margin is adjusted operating profit as a
percentage of revenue. It is a measure of the Group's overall
profitability and how successful we are in executing on our overall
strategy, and demonstrates our ability to improve margin through
efficient operations and cost management, whilst being mindful of
the need to invest for the future.
Effective tax rate
Effective tax rate is the adjusted tax charge, before tax on
adjusting items, expressed as a percentage of adjusted profit
before tax. The adjusted tax charge is the reported tax charge
excluding the tax effect on adjusting items and adjustments made to
provisions in respect of prior year tax.
Adjusted basic earnings per share
Adjusted basic earnings per share (EPS) is adjusted earnings
attributable to owners of the parent Company divided by the
weighted average number of Ordinary Shares outstanding during the
year. Adjusted earnings is reported profit before tax excluding
amortisation of acquired intangible assets, share-based payment,
other adjusting items, tax on adjusting items and over/under
provisions in respect of prior year tax.
Adjusted basic EPS is a measure of how successful we are in
executing on our strategy and ultimately delivering increased value
for shareholders. Adjusted basic EPS is also used in setting
Director and management remuneration targets and in discussions
with the investment analyst community. The Group sets out the
calculation of adjusted basic EPS in note 6 of Notes to the
consolidated financial statements.
Product development spend as a percentage of revenue
Product development as a percentage of revenue in the period. It
is a measure of how much the Group is investing to support further
organic growth initiatives in line with the strategic objectives,
whilst driving improved productivity and effectiveness.
Free cash flow
Free cash flow is cash flow generated from operations, less tax
and net capital expenditure, lease liability principal repayments
and lease liability interest paid, add interest received and lease
payments received from finance leases, excluding acquisition
related other adjusting items and one-off employer contributions to
the UK pension scheme.
Free cash flow is a measure of the quality of the Group's
earnings and reflects the ability to convert profits into cash and
ultimately to generate funds for future investment. It gives us
financial strength and flexibility and the ability to pay
sustainable dividends to our shareholders. Free cash flow is an
important indicator of overall operating performance as it reflects
the cash generated from operations after capital expenditure,
financing and tax which are significant ongoing cash flows
associated with investing in the business and financing
operations.
Free cash flow excludes corporate level cash flows that are
independent of ongoing trading operations such as dividends,
acquisitions and disposals and share repurchases and therefore is
not a measure of the funds that are available for distribution to
shareholders.
A reconciliation of cash generated from operations, the closest
equivalent GAAP measure, to free cash flow is provided within the
Financial review on page 14.
Free cash flow conversion
Free cash flow conversion is the ratio of free cash flow to
adjusted earnings, presented as a percentage.
Free cash flow conversion is a measure used in conjunction with
free cash flow to assess the Group's ability to convert profit into
cash and ultimately to generate funds for future investment.
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