TIDMSPT
RNS Number : 2666V
Spirent Communications PLC
06 August 2020
SPIRENT COMMUNICATIONS PLC
Results for the six months ended 30 June 2020
First half First half Change
$ million 2020 2019 (%)
----------------------------------- ------------ ------------ ---------
Order intake(1) 232.1 219.5 +6
Revenue 233.7 217.4 +7
Gross margin (%) 73.4 72.0 +1.4
Adjusted operating profit(2) 39.5 20.7 +91
Adjusted operating margin(3)
(%) 16.9 9.5 +7.4
Reported operating profit 35.6 18.1 +97
Reported profit before tax 36.0 18.7 +93
Adjusted basic earnings per
share(4) (cents) 5.70 3.03 +88
Basic earnings per share (cents) 5.28 2.72 +94
Closing cash 221.4 141.8 +$79.6m
Interim dividend per share(5)
(cents) 2.17 1.94 +12
----------------------------------- ------------ ------------ ---------
Strong H1 performance
-- Good result despite challenging Q2 environment, order intake
growth of 6 per cent.
-- Revenue up 7 per cent driven by strong uptick in 400G Ethernet
test solutions and continued 5G acceleration, particularly
in APAC.
-- Strong orders and revenue growth from our Lifecycle Service
Assurance business.
-- Gross margin improvement as software content grew.
-- Cost benefit from some deferred discretionary investment
into H2.
-- Material increase in adjusted operating profit to $39.5
million (H1 2019: $20.7 million).
-- Interim dividend up 12 per cent to 2.17 cents.
-- Continued strong cash conversion, cash closed at $221.4
million.
Operational highlights
-- Resilient supply chain and agile assembly planning with
no disruption to customer shipments.
-- Business operations carefully managed during challenging
environment with no staff reduction or furlough.
-- Secured more than 250 5G-related wins from across the portfolio
to support the market's acceleration.
-- Released a number of new products and solutions, increasing
our R&D investment and its effectiveness.
-- Our strategic initiatives are gaining traction:
Further strengthened senior leadership team.
Expanded the customer Key Account programme and sales leadership
skillset.
Reorganised our Global marketing function to develop stronger
go to market channels.
Networks & Security
-- Strong uptick in 400G Ethernet test performance, driven
by 5G, Cloud, IoT and internet traffic growth.
-- Significant wins at service providers and leading network
equipment manufacturers (NEMs) in North America, China
and India.
-- We benefited from the expansion of SD-WAN as the exclusive
partner of the industry consortium for certification testing
to its new global SD-WAN standard.
-- Our Security Solutions business focused on important areas
of threat growth, including 5G, critical infrastructure
and emergency services.
-- Whilst we benefited from continued revenue growth in our
Positioning business in the second quarter, we also started
to experience some slowing of order placement from US government
related customers.
Lifecycle Service Assurance
-- Landslide (lab-based 5G network testing) continued its
industry leadership, growing strongly as service providers
in multiple regions and the world's leading NEMs invested
to validate 5G core networks in the lab.
-- Landslide was chosen by Japan's Rakuten Mobile for core
testing of the world's first fully-virtualised, cloud-native
mobile network.
-- Our VisionWorks (live network testing) operational network
assurance solutions saw good growth in the period, including
a large probe order from a tier-1 US service provider.
-- We continued our transition to an outcome-driven service
delivery model, delivering on existing commitments and
developing multiple new opportunities.
Connected Devices
-- Demand for our device test services on live networks in
North America remained robust.
-- 5G device launch delays by our customers impacted our test
growth plans.
-- We were selected by Amazon as one of only two Authorised
Test Labs in the US for Alexa Built-in devices, leveraging
our deep audio and acoustic test expertise.
Outlook
We had a strong start to the year in Q1, while in early Q2 we
did experience some softness in order intake which rebounded in
June. Overall, the first six month's trading resulted in continued
top line growth and significantly increased profitability, driven
by prudent discretionary cost management. As we look forward, we
remain vigilant about the impact COVID-19 may have on customer
spending.
Our performance is expected to be weighted to the second half of
the year. The Board remains confident of continued progress and the
outlook for the year remains unchanged . As an evolving
organisation, Spirent maintains a relentless focus on its
customers. We continue to innovate for growth by investing across
our portfolio and maintain an acute focus on driving operational
excellence.
Eric Updyke, Chief Executive Officer, commented:
"Spirent has demonstrated a resilient business model at a time
when remote connectivity is critical. We delivered progress across
the portfolio and materially improved our profitability.
"Since the crisis began, our talented, agile staff have
seamlessly fulfilled customer demand with no disruption or supply
chain issues. I would like to recognise their excellent service to
our customers.
"While there is much to deliver in the second half, our
fundamentals, operational platform and balance sheet remain strong.
Spirent will continue to manage through the crisis, executing on
our strategy, with a relentless focus on customer centricity,
innovation for growth and operational excellence."
Notes
1. Order intake represents commitments from customers to purchase
goods and/or services that will ultimately result in recognised
revenue.
2. Adjusted operating profit is before charging exceptional items,
acquisition related costs, acquired intangible asset amortisation
and share-based payment amounting to $3.9 million in total
(first half 2019: $2.6 million).
3. Adjusted operating profit as a percentage of revenue in the
period.
4. 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.
5. 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 2020 of 2.17 cents per Ordinary
Share is equivalent to 1.67 pence per Ordinary Share (first
half 2019: 1.59 pence).
- ends -
Enquiries
Eric Updyke, Chief Executive Spirent Communications
Officer plc +44 (0)1293 767676
Paula Bell, Chief Financial &
Operations Officer
James Melville-Ross/Dwight Burden/Emma +44 (0)20 3727
Hall FTI Consulting Limited 1000
The Company will publish a recorded presentation today at 7.00am
UK time on its website. The Company will also host a live, virtual
results Q&A session for the analyst community today at 12.30pm
UK time. A recording of the presentation will be available in the
Investors section of the Spirent Communications plc website
https://corporate.spirent.com/.
About Spirent Communications plc
Spirent Communications plc (LSE: SPT) offers test, measurement,
analytics and assurance solutions for next-generation devices and
networks. Spirent provides products, services and information
solutions for high-speed Ethernet, positioning, and network
infrastructure markets, with expanding focus on service assurance,
cybersecurity and 5G. Spirent is accelerating the transition of
connected devices, network equipment and applications from
development labs to the operational network, as it continues to
innovate toward fully-automated testing and autonomous service
assurance solutions. Further information about Spirent
Communications plc can be found at
https://corporate.spirent.com/.
Spirent Communications plc Ordinary Shares are traded on the
London Stock Exchange (ticker: SPT; LEI: 213800HKCUNWP1916L38). The
Company operates a Level 1 American Depositary Receipt (ADR)
programme with each ADR representing four Spirent Communications
plc Ordinary Shares. The ADRs trade in the US over-the-counter
(OTC) market under the symbol SPMYY and the CUSIP number is
84856M209. Spirent ADRs are quoted on the Pink OTC Markets
electronic quotation service which can be found at
http://www/otcmarkets.com/marketplaces/otc-pink.
Spirent and the Spirent logo are trademarks or registered
trademarks of Spirent Communications plc. All other trademarks or
registered trademarks mentioned herein are held by their respective
companies. All rights reserved.
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
Spirent has a resilient business that supports critical
infrastructure. Our fundamental drivers remain the same despite the
global disruption due to COVID-19. In fact, the reliance on
technology to stay connected has only increased and our testing
solutions remain mission critical, enabling businesses to connect
remotely and seamlessly. I'm proud of the job that we have done in
the face of such turmoil.
COVID-19 Update
During the period we have taken a number of actions in light of
COVID-19. Employee safety remains our number one priority and at
the beginning of March we took swift action to move over 95 per
cent of our employees to full-time remote work. At Spirent, we
benefited from our strong, agile supply chain management and
financial discipline and have been fortunate to avoid furloughs or
lay-offs due to COVID-19. Our talented team quickly innovated the
way we work, sell and collaborate remotely. Strategic initiatives
underway to evolve our sales team to a more solutions-based mindset
have enabled us to engage in deeper conversations and strengthen
relationships with our customers. We continue to monitor the
situation closely and have a phased plan for our return to onsite
work.
Market Overview
The COVID-19 crisis has created uncertainty and unforeseen
challenges for all industries, including for our customers.
Customer spending patterns remain uncertain, particularly for our
lab and government markets. The unprecedented impact on society has
forced many people to stay at home, to virtually work, learn and
connect with friends and family. The need for connectivity has
highlighted the essential services and infrastructure that we
support.
Despite this disruption, our major drivers for growth remain
unchanged, including 5G Momentum, High-Speed Ethernet, Cloud and
Network Virtualization, Cybersecurity Threats and Connected Devices
Proliferation.
Although we have seen some customer 5G device launch delays, the
5G market remains robust, with China and the US accelerating their
5G plans. We are seeing new opportunities for government and
private network applications, with organisations increasingly
adopting SD-WAN to support their work-from-home workforce. Spirent
has again been nominated as a finalist for the Leading Lights
Awards 2020 in the "Outstanding Test & Measurement Vendor"
category due to our 5G business. We have won the award the last two
years in a row.
To seize these market opportunities, our strategy is focused
around three pillars: Customer Centricity, Innovation for Growth
and Operational Excellence.
Customer Centricity
We strive to create a more agile collaborative organisation,
capable of solving bigger business problems for our customers.
Deepening and expanding our customer reach is a key focus. Due
to our understanding and connection to our customers, we are
expanding Spirent's footprint by diversifying our customers as well
as increasing our share with existing customers. Our end-to-end
solutions supporting the entire customer lifecycle continue to
deliver competitive wins across regions.
To strengthen customer relationships, the team has worked hard
to refresh and instil a solutions-based selling mindset. Within the
North American market, we have seen progress across the Canadian
service providers, and in the US, we are making important inroads
with the large cable and multiple-system operators ( MSOs). We
performed well and drove solid growth in the Asia-Pacific region,
despite the global pandemic and turmoil in international trade. As
Asian countries, especially China, begin to rebound from COVID-19,
we are seeing heavy investment in 5G by our customers. Going
forward, we will continue to manage a dynamic, challenging
geopolitical landscape. In the European market, we continued to win
in 5G wireless and SD-WAN at service providers and network
equipment manufacturers (NEMs). We enhanced our digital outreach
across all regions, as we continue to broaden and deepen our
customer engagements.
To increase our customer reach, targeting new geographies and
market segments, we are expanding into more enterprise customers
while increasing share of wallet with our key service provider and
NEM accounts. To ensure Spirent makes a broader impact, our Key
Account Management Programme continues to deliver excellent results
as we strengthen our relationships with key accounts and
strategically partner with them.
By focusing on solutions and services, we are delivering value
across the customer lifecycle. We established a cross-company
services approach to formalise and govern our strategic services
offerings.
Innovation for Growth
We continue to invest in product innovation, making our products
even easier for customers to use and our leading 5G portfolio
continues to be a winning advantage across our business. The market
for 5G continues to be robust, with China and the US accelerating
deployments. Our investment in 5G is reaping rewards as we continue
to win new business, with strong growth in 5G orders over last
year. From 5G device testing and accelerating time-to-market, to
assuring and securing live networks, our portfolio offers
award-winning solutions to customer challenges.
Through our leading Position, Navigation and Timing (PNT)
solutions, Spirent enables innovation and development in global
navigation satellite system (GNSS) technologies that are
influencing more and more areas of our lives. From the development
of new satellites to positioning and navigation systems for
miniature drones, Spirent solutions are working behind the scenes
to improve accuracy, reliability, and robustness. Our PNT business
maintained growth and in the first half of 2020, released the
innovative SimHIL, an integrated software for realistic testing of
the scenarios that power advanced automotive systems. We are
growing from our leadership to expand into new markets, focused on
the next evolution of PNT simulation and assurance.
Our service assurance solutions are making good progress in the
transition to an outcome-driven service delivery model. Our
innovative collaboration with Rakuten Mobile in Japan will support
the rollout of 5G non-standalone and standalone, for Rakuten's
world-first fully virtualized, cloud-native mobile network. In
addition to an ongoing, large Testing-as-a-Service (TaaS) project
at a tier-1 provider, we are managing several additional service
delivery opportunities.
Our innovation in cloud and our CloudSure solution is driving
opportunities across a spectrum of customers. Continued investments
into the CloudSure platform will enable us to grow into new
customer segments including enterprise private and hybrid clouds
and the emerging edge cloud market.
Spirent was the first to launch a WiFi6 test solution, which
enables us to tap into the planned mass-deployments of WiFi6
networks for traditional network access as well as 5G hand-off.
In addition to technology innovation, we are establishing new
business models to grow recurring revenues, including services and
software, providing the Group with enhanced visibility.
Operational Excellence
Operational excellence is vital to support Spirent's growth. We
maintained our operational and financial strength during the global
pandemic due to our operational discipline, supply chain management
and strong balance sheet. We closed out the first half of 2020 with
a cash balance of $221.4 million.
Throughout the pandemic, the resilience of our supply chain
operations underpinned our success and helped ensure all customer
shipments were made during a very challenging environment. The
agility and proactiveness of the team was exemplary.
Our leadership team has stayed connected with our employees.
Communicating through email updates, video messages and townhalls,
we strive to keep our staff constantly up to date on the latest
safety guidelines and state of the business. In May, we completed
an employee engagement survey and, with over 92 per cent of
employees responding, we received an improved score of highly
engaged.
We continue to invest in talent and to develop our processes and
business systems to support our continued growth.
In the period, as part of evolving our sales and marketing
structure to pivot to a more customer-centric organisation, we
benchmarked our global marketing function and established a new
operating model to increase the effectiveness of our routes to
market and to improve focus on our strategic growth priorities.
We are working hard to improve the overall efficiency and
effectiveness of our global teams. We have further strengthened our
sales team during the period and continue to evolve our salesforce,
expanding our key account programme where we are engaging on bigger
business problems with our customers.
We have built a new central services team which will enable us
to drive more cross-company service offerings. As we look to
enhance security across our portfolio, we have appointed a new
leader for our Security Solutions business. In addition, we
continue to drive our corporate development activities as we
continue to explore opportunities to grow our portfolio both
organically and inorganically to seize market opportunities and
have appointed a new leader for this vital area.
Sustainability and corporate responsibility are fundamental to
our operational excellence and the overall success of our business.
As we continue to innovate and grow, our ESG programme,
FuturePositive, focuses on embedding sustainability across our
products, procurement, people and property. We continue to look for
new ways to embed sustainable thinking across Spirent and have
reduced our total energy usage by 19 per cent over the last five
years, sourcing 90 per cent of our electricity from renewable
sources. In addition, our Global STEM Ambassador Programme is
focused on bridging the skills gaps in the STEM world and aims to
inspire, support and encourage students of all ages in their
learning and development of STEM subjects.
Business review
Spirent focuses on three strategic business segments: Networks
& Security, Lifecycle Service Assurance and Connected Devices.
This structure positions the Group to meet the needs and
expectations of our customers and to capitalise on the business
opportunities created as they:
-- develop innovative devices, applications, network equipment and networks; and
-- operate those networks and services.
We improve network performance and end user experience in our
connected world and help create our smarter future.
Networks & Security - 61% of Group revenue
Networks & Security is a world leader in high-speed
Ethernet/IP performance testing, in Wi-Fi and automotive Ethernet,
and develops test methodologies, tools and services for virtualised
networks and cloud. We provide consulting services, test tools,
methodologies and proactive security validation solutions. We
continue to be the world leader for global navigation satellite
system (GNSS) simulation products and tailored solutions as we
expand into the Position, Navigation and Timing (PNT) market.
First half First half
$ million 2020 2019
----------------------------------- ------------ ------------
Revenue 142.0 131.0
Adjusted operating profit(1) 25.5 16.0
Adjusted operating margin(1) (%) 18.0 12.2
----------------------------------- ------------ ------------
Note
1. Before exceptional items of $0.7 million charged in the first half of 2020.
Networks & Security delivered revenue growth of $11.0
million or 8.4 per cent over the first half of 2019, primarily
driven by 400G Ethernet test and Positioning business. Adjusted
operating profit increased by $9.5 million, benefiting from both
the higher revenue and improved gross margin, with adjusted
operating margin up 5.8 percentage points to 18.0 per cent.
Performance highlights
-- Against a background of strong half-on-half growth in our
400G Ethernet test business, Spirent partnered with H3C
to assure that large-scale data centres can confidently
transition to 400G Ethernet connections triggered by 5G,
cloud computing, IoT and the explosive growth in internet
traffic. With 72 ports of 400GE, this collaboration became
the industry's largest-scale 400G test with SRv6 (segment
routing over IPv6 data plane) capabilities;
-- Spirent has certified multiple vendors and service providers
for MEF 3.0 SD-WAN services since the introduction of the
MEF 3.0 SD-WAN Certification Program in November 2019. As
MEF's SD-WAN Authorised Certified Test Partner, Spirent
certified the SD-WAN products and managed services to validate
their conformance to the industry-leading SD-WAN Service
Attributes and Services (MEF 70) global standard;
-- Our Security Solutions business focused on supporting proactive
security concerns with critical infrastructure and emergency
services. We spoke at RSA 2020 on "SCADA/ICS Inherited Insecurity:
From Nuclear Power Plants to Oil Rigs". We also tested the
security of more than two dozen devices for critical infrastructure
and emergency service systems;
-- We applied our 5G security expertise to engagements with
the UK and US governments in an advisory capacity on key
5G security issues such as secure supply chains, and we
opened several new 5G security consulting services engagements
with leading service providers;
-- The Positioning business continued to show good progress
despite orders from US government contractors softening
in the second quarter; and
-- In the Positioning businesses commercial segments, its mid-range
simulation platform (GSS7000) and record playback solution
(GSS6450) all saw half-on-half sales growth. The latter
was the result of a successful transfer of technology acquired
in late 2019. The business also continued to operate a full
manufacturing capability throughout the COVID-19 pandemic
to ensure all customers were engaged and served.
Lifecycle Service Assurance - 25% of Group revenue
Our Lifecycle Service Assurance solutions radically reduce the
time and cost to turn-up new services and to rapidly diagnose,
troubleshoot and resolve issues with production networks and
services. We lead the market in pre-deployment testing of mobile
core networks, and our cloud-native active test and assurance
solutions automate service turn-up, monitoring and troubleshooting
of 5G, LTE, Ethernet, SD-WAN and cloud networks in NetDevOps
environments.
First half First half
$ million 2020 2019
----------------------------------- ------------ ------------
Revenue 58.5 51.0
Adjusted operating profit(1) 12.8 4.0
Adjusted operating margin(1) (%) 21.9 7.8
----------------------------------- ------------ ------------
Note
1. Before exceptional items of $0.7 million charged in the first half of 2020.
Lifecycle Service Assurance grew revenue by $7.5 million or 14.7
per cent over the first half of 2019, with strong demand for our
mobility, automation and service assurance test solutions. Adjusted
operating profit benefited from the higher revenue, improved gross
margin and lower operating costs, coming in $8.8 million higher
than over the same period last year. The increased sales volume
drove an adjusted operating margin increase to 21.9 per cent.
Performance highlights
-- We continue to set the pace for 5G verification and assurance
in the lab. Customer demand for our Landslide lab solution
remained strong in the Americas, with an increasing opportunity
landscape in the APAC region;
-- We saw good half-on-half orders growth for our VisionWorks
live network solution in the first half, especially in top-tier
accounts in the Americas;
-- We made good progress in our transition from a vendor of
traditional test tools to an outcome-driven service delivery
model. In addition to an ongoing large Testing-as-a-Service
(TaaS) project at a tier-1 provider in the Americas, Lifecycle
Service Assurance is currently managing several additional
service delivery opportunities;
-- We revealed our extensive collaboration with Japan's Rakuten
Mobile in support of current LTE services, as well as planned
5G non-standalone and standalone rollouts, for the world's
first fully virtualized cloud native mobile network. Rakuten
selected Spirent Landslide for its demanding core network
test needs; and
-- We announced our work with China Telecom on system-wide performance
verification and assessment efforts for 5G standalone network
equipment. China Telecom used Spirent Landslide to rapidly
test 5G core network commercial equipment from four vendors,
conducting end-to-end system function verification and interoperability.
Connected Devices - 14% of Group revenue
Connected Devices helps those who build wireless devices and
networks to meet their promise of delivering the very best end-user
experience. Our automated test systems and services offerings test
mobile devices and supported voice, video and location services in
the lab or on operational networks. Our solutions for 5G air
interface technology testing and digital twins for network and
radio systems let manufacturers and service providers get to market
faster with peak performance.
First half First half
$ million 2020 2019
----------------------------------- ------------ ------------
Revenue 33.2 35.4
Adjusted operating profit(1) 4.5 5.2
Adjusted operating margin(1) (%) 13.6 14.7
----------------------------------- ------------ ------------
Note
1. Before exceptional items of $0.2 million charged in the first half of 2020.
Revenue at Connected Devices was down marginally half-on-half,
however effective management of the cost base almost mitigated the
impact on adjusted operating profit. Adjusted operating margin was
broadly maintained, coming in at 13.6 per cent in the first half of
2020, compared to 14.7 per cent over the same period last year.
Performance highlights
-- While demand for our device test capabilities on live networks
remained robust in the first half, we saw softness in lab
solutions at some key chipset and device customers as a
result of program delays which we expect to return later
this year;
-- 5G device launch delays by our customers impacted our test
growth plans;
-- We won new 5G device testing business at tier-1 accounts,
spanning chipset vendors, device manufacturers and test
labs, and we saw continued expansion in demand for 5G device
testing on live networks as 5G deployment ramps and 5G standalone
networks go into service;
-- We expanded into new addressable markets with wins into
the automotive ecosystem for development of next-generation
Cellular Vehicle-to-Everything communication technology;
and
-- Connected Devices was approved by Amazon as an Authorised
Test Lab for Alexa Built-in devices, with our state-of-the-art
lab providing a range of audio and acoustic test services
for devices seeking Amazon certification.
Financial review
Group financial performance
Spirent delivered a strong financial performance in the first
half of 2020, despite the global impact of COVID-19, with order
intake growth of 6 per cent and revenue growth of 7 per cent.
Adjusted operating profit almost doubled, from $20.7 million in the
first half of 2019 to $39.5 million in first half 2020, an increase
of $18.8 million. The strong operating profit performance was due
to a number of factors; we not only benefited from good revenue
growth but increased software content continued, driving our 1.4
percentage point increase in gross margin; and we carefully managed
our cost base, deferring discretionary expenditure to later in the
year, when we may have improved visibility. These benefits had the
result of delivering a strong operating margin at the end of the
first half, and as we make investment into our operational plans in
the second half of the year, the full year operating margin outlook
remains unchanged as 'high teens'.
The increment in adjusted operating profit was reflected in
profit before tax, which increased by $17.3 million, to $36.0
million. With the effective tax rate unchanged at 13.0 per cent,
adjusted basic earnings per share came in at 5.70 cents, up from
3.03 cents in first half 2019. Cash conversion continued to be
robust, resulting in closing cash of $221.4 million.
As in previous years, our usual trading performance seasonality
is expected to be weighted to the second half of the financial year
but this year it is particularly difficult to predict the impact of
COVID-19 on customer spending over the rest of the year.
The following table shows the summary financial performance for
the Group:
First half First half Change
$ million 2020 2019 (%)
---------------------------------- ------------ ------------ ------------
Order intake(1) 232.1 219.5 +5.7
Revenue 233.7 217.4 +7.5
Gross profit 171.5 156.5 +9.6
Gross margin (%) 73.4 72.0 +1.4
Adjusted operating costs(2) 132.0 135.8 * 2.8
Adjusted operating profit(2) 39.5 20.7 +90.8
Adjusted operating margin(3)
(%) 16.9 9.5 +7.4
Reported operating profit 35.6 18.1 +96.7
Effective tax rate(4) (%) 13.0 13.1 * 0.1
Reported profit before tax 36.0 18.7 +92.5
Adjusted basic earnings per
share(5) (cents) 5.70 3.03 +88.1
Basic earnings per share (cents) 5.28 2.72 +94.1
Free cash flow(6) 65.5 44.6 +46.9
Closing cash 221.4 141.8 +79.6m
Interim dividend per share(7)
(cents) 2.17 1.94 +12.0
---------------------------------- ------------ ------------ ------------
Notes
1. Order intake represents commitments from customers to purchase
goods and/or services that will ultimately result in recognised
revenue.
2. Before charging exceptional items, acquisition related costs,
acquired intangible asset amortisation and share-based payment
amounting to $3.9 million in total (first half 2019: $2.6
million).
3. Adjusted operating profit as a percentage of revenue in the
period.
4. Effective tax rate is the adjusted tax charge, before tax
on adjusting items, expressed as a percentage of adjusted
profit before tax.
5. 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.
6. Cash flow generated from operations, less tax and net capital
expenditure, after interest paid and/or received, payment
of lease liabilities and finance lease payments received.
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 2020 of 2.17 cents per Ordinary
Share is equivalent to 1.67 pence per Ordinary Share (first
half 2019: 1.59 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.
Revenue
First First
half half
$ million 2020 % 2019 %
--------------------------------- ------- ------- ------- -------
Revenue by segment
Networks & Security 142.0 60.8 131.0 60.2
Lifecycle Service Assurance 58.5 25.0 51.0 23.5
Connected Devices 33.2 14.2 35.4 16.3
--------------------------------- ------- ------- ------- -------
233.7 100.0 217.4 100.0
--------------------------------- ------- ------- ------- -------
Revenue by geography
Americas 119.9 51.3 117.3 54.0
Asia Pacific 90.3 38.6 75.7 34.8
Europe, Middle East and Africa 23.5 10.1 24.4 11.2
--------------------------------- ------- ------- ------- -------
233.7 100.0 217.4 100.0
--------------------------------- ------- ------- ------- -------
Overall Group revenue increased by 7.5 per cent, with Networks
& Security and Lifecycle Service Assurance up 8.4 and 14.7 per
cent, respectively, and Connected Devices 6.2 per cent lower,
compared to the same period last year. The growth in Networks &
Security primarily came from strong demand for 400G Ethernet test
driven by 5G roll out, particularly in APAC, and continuing demand
for satellite simulators provided by our Positioning business.
Lifecycle Service Assurance revenue growth was driven by demand for
both our Landslide lab solution and VisionWorks live network
solution offerings, as customers invested to verify and assure 5G.
Connected Devices experienced some softness as our customers
delayed their launches of 5G devices.
Regionally we experienced strong growth in APAC, particularly
China, driven by investment in 5G. Revenues generated in the
Americas and EMEA remained essentially flat, despite the impact of
COVID-19 in these regions
Gross margin
First First
half half
$ million 2020 % 2019 %
------------------------------ ------- ------ ------- ------
Networks & Security 103.9 73.2 93.8 71.6
Lifecycle Service Assurance 45.5 77.8 38.9 76.3
Connected Devices 22.1 66.6 23.8 67.2
------------------------------ ------- ------ ------- ------
171.5 73.4 156.5 72.0
------------------------------ ------- ------ ------- ------
Gross margin for the total Group increased by 1.4 percentage
points, compared to the same period last year, due to product mix
and the continuing trend of growth in software content.
Adjusted operating costs
First half First half
$ million 2020 2019
------------------------------ ------------ ------------
Product development 50.7 48.5
Selling and marketing 56.7 63.1
Administration(1) 24.6 24.2
------------------------------ ------------ ------------
Adjusted operating costs(1) 132.0 135.8
------------------------------ ------------ ------------
Networks & Security 78.4 77.8
Lifecycle Service Assurance 32.7 34.9
Connected Devices 17.6 18.6
Corporate 3.3 4.5
------------------------------ ------------ ------------
Adjusted operating costs(1) 132.0 135.8
------------------------------ ------------ ------------
Note
1. Before charging exceptional items, acquisition related costs,
acquired intangible asset amortisation and share-based payment
amounting to $3.9 million in total (first half 2019: $2.6 million).
Adjusted operating costs in the first half of 2020 decreased by
$3.8 million compared to the same period last year, benefiting in
the main from timing of discretionary type expenditure which is
deferred to the second half year. This benefit is primarily
reflected in selling and marketing costs in the above table.
Investment into product development has increased across all of our
operating segments and overall by more than inflation, as we
continue to invest in 5G. Administration costs reflect an
inflationary increase. We expect a catch up in expenditure in the
second half of the year as we continue to invest to underpin our
growth agenda.
Operating profit and other items
Adjusted Adjusted
operating operating
First half margin(1) First half margin(1)
$ million 2020 (%) 2019 (%)
--------------------------------- ------------ ------------ ------------ ------------
Networks & Security 25.5 18.0 16.0 12.2
Lifecycle Service Assurance 12.8 21.9 4.0 7.8
Connected Devices 4.5 13.6 5.2 14.7
Corporate (3.3) (4.5)
--------------------------------- ------------ ------------ ------------ ------------
Adjusted operating profit(1) 39.5 16.9 20.7 9.5
--------------------------------- ------------ ------------ ------------ ------------
Other items charged in arriving
at operating profit:
Exceptional items (2.0) -
Acquisition related costs - (0.1)
Acquired intangible asset
amortisation (0.2) (0.8)
Share-based payment (1.7) (1.7)
--------------------------------- ------------ ------------ ------------ ------------
Reported operating profit 35.6 18.1
--------------------------------- ------------ ------------ ------------ ------------
Note
1. Before charging exceptional items, acquisition related costs,
acquired intangible asset amortisation and share-based payment
amounting to $3.9 million in total (first half 2019: $2.6 million).
Adjusted operating margin for first half 2020, based on adjusted
operating profit, increased by 7.4 percentage points to 16.9 per
cent, from 9.5 per cent over the same period last year.
Other items charged in arriving at operating profit, being
exceptional items, acquired intangible asset amortisation and
share-based payment, amounted to $3.9 million in total (first half
2019: $2.6 million, including acquisition related costs of $0.1
million).
Exceptional costs charged in the first half of 2020 of $2.0
million (first half 2019: nil) were associated with the
continuation of the CEO strategic review initiated in the second
half of 2019 (second half 2019: $1.8 million). This program
involves a number of initiatives designed to evolve the strategic
direction of Spirent to maximise market opportunities by creating a
more agile, customer-focused organisation, including a strategic
focus on recurring revenue streams over time; a strengthened
leadership team and development of our sales and marketing
structure to drive improved effectiveness to exploit our leading
technologies. See note 4 to Notes to the half year condensed
consolidated financial statements on page 29 for more information
on exceptional items.
The acquired intangible asset amortisation charge continues to
reduce because more of the assets have reached the end of their
useful economic lives and are no longer being amortised.
Reported operating profit for the first half of 2020 increased
by $17.5 million to $35.6 million, from $18.1 million in the first
half of 2019.
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 year, 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 2019.
Finance income and costs
Finance income in the first half of 2020 comprised bank interest
received of $1.0 million (first half 2019: $1.4 million) and $0.1
million (first half 2019: $0.1 million) of interest income in
relation to the UK defined benefit pension plans. The decrease in
bank interest received half-on-half reflected the decrease in US
dollar fixed term deposit rates.
Finance costs in the first half were $0.7 million (first half
2019: $0.9 million), being interest on lease liabilities.
Tax
The reported tax charge for the Group for the first half of 2020
was $3.8 million (first half 2019: $2.1 million). The normalised
tax charge, excluding the tax credit on the adjusting items of $0.6
million and the credit in respect of adjustments to prior year tax
of $0.8 million, was $5.2 million (first half 2019: $2.8 million),
resulting in an effective tax rate of 13.0 per cent of adjusted
pre-tax profit. This compared with an effective tax rate of 13.1
per cent for the first half of 2019. For the full year 2020 it is
expected that the effective tax rate will be in the region of 13-14
per cent.
Earnings per share
Adjusted basic earnings per share was 5.70 cents, compared with
3.03 cents for the first half of 2019, reflecting the significant
improvement in trading performance. There were 609.3 million
weighted average shares in issue (first half 2019: 609.9 million).
Basic earnings per share was 5.28 cents compared with 2.72 cents
for the first half of 2019. See note 6 to Notes to the half year
condensed consolidated financial statements on page 30 for the
calculation of earnings per share.
Financing and cash flow
Cash generated from operations in the first half year of 2020
was $74.8 million, compared to $57.2 million in the first half of
2019. The increase was primarily due to the higher operating
profit, as the net change in working capital in both half years was
similar. We continue to benefit from a focus on debt collection and
are pleased to report that we have seen no significant impact from
COVID-19 on our ability to collect trade receivables on a timely
basis. To a small extent we have built inventory to mitigate any
potential supply chain risk as a result of COVID-19. Payables
naturally unwind during the first half year, following the increase
in activity levels at year end, and in the first half of 2020 we
sought to ensure our suppliers continued to be paid on a timely
basis to support them and lessen the impact of COVID-19 on their
businesses.
Free cash flow is set out below:
First half First half
$ million 2020 2019
------------------------------------------ ------------ ------------
Cash flow from operations 74.8 57.2
Tax paid (1.2) (2.7)
------------------------------------------ ------------ ------------
Cash inflow from operating activities 73.6 54.5
Interest received 1.1 1.2
Net capital expenditure (4.4) (6.2)
Payment of lease liabilities, principal
and interest(1) (4.8) (4.9)
------------------------------------------ ------------ ------------
65.5 44.6
------------------------------------------ ------------ ------------
Note
1. Net of lease payments received from finance leases of $0.2
million (first half 2019: nil).
Free cash flow includes a cash outflow in respect of exceptional
items charged in the first half of 2020 and the second half of 2019
of $1.9 million in total (first half 2019: nil).
Net capital expenditure of $4.4 million was marginally lower
than over the same period last year due to the timing of investment
in 5G.
In the first half of 2020, the final dividend for 2019 of $20.5
million was paid (first half 2019: $16.7 million) and 2.0 million
shares were purchased and placed into the Employee Share Ownership
Trust (ESOT) at a cost of $4.7 million (first half 2019: 3.0
million shares at a cost of $6.1 million).
Following these payments, cash and cash equivalents closed at
$221.4 million at 30 June 2020, compared with $183.2 million at 31
December 2019. 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 2020 gave rise to a net surplus of $8.6 million,
compared with a net surplus of $11.6 million at 31 December 2019.
The 30 June 2020 position reflects the fact that positive
investment returns have substantially offset an increase in
liabilities due to a reduction in the rate used to discount those
liabilities. S ee note 8 to Notes to the half year condensed
consolidated financial statements on page 32 for more information
on the defined benefit pension plans and key financial assumptions.
In addition, c ontributions to the plans paid under the deficit
reduction plan put in place following the latest triennial
valuation at 31 March 2018, were $3.3 million during the first half
of 2020 (first half 2019: $3.3 million).
There is also a liability for an unfunded plan in the UK of $0.6
million (31 December 2019: $0.7 million).
The Group operates a deferred compensation plan for employees in
the United States. At 30 June 2020, the deficit on this deferred
compensation plan amounted to $5.0 million (31 December 2019: $4.8
million).
Balance sheet and dividend
The Board currently intends to maintain a cash positive balance
sheet over the medium to long-term. This should allow the Company
to maintain a strong capital position in the face of business
risks, trading fluctuations and working capital demands. In
addition, the Board wishes to maintain flexibility to invest in the
business organically and inorganically. Where appropriate, the
Company may take on modest gearing to fund inorganic
investments.
The Board 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 COVID-19 related risks. 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 2.17 cents per
Ordinary Share, a 12 per cent increase over the dividend declared
for the first half 2019 of 1.94 cents. This is equivalent to 1.67
pence per Ordinary Share at an exchange rate of $1.30:GBP1 (first
half 2019: 1.59 pence). The payment will be approximately $13.3
million. The dividend will be paid to Ordinary shareholders on 11
September 2020 and to ADR holders on 18 September 2020. The
dividend is payable to all shareholders on the Register of Members
at the close of business on 14 August 2020.
The Board is continuing to pursue a progressive dividend policy
targeting cover of 2 to 2.5 times adjusted earnings.
Risks and uncertainties
The principal risks and uncertainties affecting the Spirent
Communications Group in respect of the remaining six months of the
year to 31 December 2020 remain those as identified on pages 40 to
45 of the Annual Report 2019. A copy of the Annual Report 2019 is
available on the Company's website at
https://corporate.spirent.com/. In addition, the Group continues to
monitor the impact of the COVID-19 virus outbreak and has conducted
an assessment of the potential impacts of COVID-19 on the principal
risks and uncertainties. In summary, the principal risks and
uncertainties are as follows:
Risk Description
Macro-economic change Spirent is a global business exposed to current
world economic conditions and political and
trade embargo uncertainties over which it has
no control. The business is also exposed to
government spending priorities, principally
in the United States.
The COVID-19 crisis has created uncertainty
to current world economic conditions and government
spending priorities. The Group continues to
monitor the impact to the global economy.
-----------------------------------------------------------
Technology change Spirent sells complex solutions in industries
that can be subject to rapid technological
changes. Testing new technologies drives our
business, but the opportunity also brings high
risk since keeping at the forefront of these
key future technologies is critical to our
success and to ensuring that we remain competitive
in our markets.
It is critical that our product development
investment is directed at the right areas in
order to deliver the solutions that our customers
need, when they need them.
Spirent's success is dependent in part on proprietary
technology which may be infringed by others.
Open-source tools become more prevalent providing
some of the functionality of our products.
Due to COVID-19, there is an increased risk
that technology changes may take longer to
occur.
-----------------------------------------------------------
Customer dependence The Group sells its products and services to
/ customer investment a wide range of companies and continually seeks
plans to expand its customer base. In 2019, no one
customer accounted for more than 10 per cent
of Group revenue, although the top ten customers
represented 42 per cent of Group revenue (2018:
40 per cent).
In some of our markets certain customers have
a dominant market share, which makes doing
business with these customers and their suppliers
critical to the success of our business.
In addition, many of the companies with which
we do business are some of the largest global
telecommunications corporations. Therefore
meeting our development obligations, producing
high quality products and being on time are
vital to Spirent's reputation and success.
Changes in our major customers' priorities
in technology investments can also have a significant
impact on their spending on Spirent products
and on those in the customers' supply chain.
The industry continues to experience consolidation
which does disrupt the spending patterns of
affected customers.
As a result of COVID-19, customer spending
patterns remain uncertain, particularly for
lab and government markets. The Group has taken
steps to evolve the sales team in order to
strengthen relationships with customers.
-----------------------------------------------------------
Business continuity Operational risks are present in the Group's
businesses, including the risk of failed internal
and external processes and systems, human error
and external events, such as a natural disaster,
a global pandemic or cybersecurity attacks.
For example, a significant portion of our communications
operations are located in California which
has in the past experienced natural disasters,
including earthquakes and wildfires.
Contract manufacturers are used for the manufacture
of a substantial amount of Spirent's products.
Spirent's major contract manufacturer is located
in Thailand.
The incidence of cybercrime continues to rise.
Spirent is dependent on its information technology
systems for both internal and external communications
as well as for its day-to-day operations.
The Group has taken steps to manage the increase
to business continuity risk as a result of
the COVID-19 pandemic, including invoking business
continuity plans in each location, closely
monitoring the impact to the supply chain with
additional inventory procured on key components
and by adding secondary suppliers, and by boosting
the global Spirent information technology systems
to enable the workforce to work remotely.
-----------------------------------------------------------
Competition Spirent operates in a range of highly competitive
niche markets which experience rapid technological
change. In order to compete effectively, it
is necessary to establish and maintain technological
differentiation in our solutions.
The Group faces competition from new market
start-ups as well as more established and well-resourced
companies.
Industry consolidation amongst our direct competitors
may bring about a shift in competitive advantage.
-----------------------------------------------------------
Acquisitions A key emerging element of Spirent's strategy
is to develop new capabilities and technologies,
sometimes through acquisition.
Integration of acquisitions can be a complex
process and the results expected from acquisitions
may not be achieved due to problems encountered
in integration, changes in market conditions,
the rate of adoption of new technologies, or
sometimes deficiencies arising in the due diligence
processes.
-----------------------------------------------------------
Employee skill base Employees are crucial to the success of our
business. Attracting and retaining highly qualified
and skilled employees is essential to enable
the Group to deliver on its strategy and to
the success of the business.
-----------------------------------------------------------
Condensed consolidated income statement
First half 2020 First half 2019
----------------------------------- -----------------------------------
Adjusting Adjusting
$ million Notes Adjusted items(1) Reported Adjusted items(1) Reported
Revenue 3 233.7 - 233.7 217.4 - 217.4
Cost of sales (62.2) - (62.2) (60.9) - (60.9)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Gross profit 171.5 - 171.5 156.5 - 156.5
Product development 3 (50.7) - (50.7) (48.5) - (48.5)
Selling and marketing (56.7) - (56.7) (63.1) - (63.1)
Administration (24.6) - (24.6) (24.2) - (24.2)
Other items - (3.9) (3.9) - (2.6) (2.6)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Operating profit 39.5 (3.9) 35.6 20.7 (2.6) 18.1
Other items charged in arriving
at operating profit:
Exceptional items 4 - (2.0) (2.0) - - -
Acquisition related costs 9 - - - - (0.1) (0.1)
Acquired intangible asset
amortisation - (0.2) (0.2) - (0.8) (0.8)
Share-based payment - (1.7) (1.7) - (1.7) (1.7)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Other items - (3.9) (3.9) - (2.6) (2.6)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Finance income 1.1 - 1.1 1.5 - 1.5
Finance costs (0.7) - (0.7) (0.9) - (0.9)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit before tax 39.9 (3.9) 36.0 21.3 (2.6) 18.7
Tax 5 (5.2) 1.4 (3.8) (2.8) 0.7 (2.1)
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Profit for the period attributable
to owners of the parent Company 34.7 (2.5) 32.2 18.5 (1.9) 16.6
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Earnings per share (cents) 6
Basic 5.70 5.28 3.03 2.72
Diluted 5.63 5.23 3.00 2.69
----------------------------------- ------- ---------- ----------- ---------- ---------- ----------- ----------
Note
1. Adjusting items comprise exceptional items, acquisition
related costs, amortisation of acquired intangible assets,
share-based payment, tax on adjusting items and adjustments in
respect of prior year tax.
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.
Condensed consolidated statement of comprehensive income
First half First half
$ million Note 2020 2019
-------------------------------------------------------------- ------ ------------ ------------
Profit for the period attributable to owners
of the parent Company 32.2 16.6
-------------------------------------------------------------- ------ ------------ ------------
Other comprehensive (loss)/income
Items that may subsequently be reclassified
to profit or loss:
* Exchange differences on retranslation of foreign
operations (3.6) 0.7
-------------------------------------------------------------- ------ ------------ ------------
Items that will not subsequently be reclassified
to profit or loss:
* Re-measurement of the net defined benefit pension
asset (5.5) 5.4
* Income tax effect of re-measurement of the net
defined benefit pension asset 1.0 (1.0)
* Re-measurement of the deferred compensation liability 8 - (0.4)
* Income tax effect of re-measurement of the deferred
compensation liability - 0.1
-------------------------------------------------------------- ------ ------------ ------------
(4.5) 4.1
-------------------------------------------------------------- ------ ------------ ------------
Other comprehensive (loss)/income (8.1) 4.8
-------------------------------------------------------------- ------ ------------ ------------
Total comprehensive income for the period attributable
to owners of the parent Company 24.1 21.4
-------------------------------------------------------------- ------ ------------ ------------
Condensed consolidated balance sheet
Audited
30 June 30 June 31 December
$ million Note 2020 2019 2019
----------------------------------------- ------ --------- --------- --------------
Assets
Non-current assets
Intangible assets 159.0 159.5 160.3
Property, plant and equipment 27.4 32.6 29.5
Right-of-use assets 22.3 24.9 26.0
Trade and other receivables 7.0 7.3 6.9
Assets recognised from costs to obtain
a contract 0.2 0.3 0.3
Defined benefit pension plan surplus 8 8.6 10.9 11.6
Deferred tax asset 22.3 21.2 22.4
----------------------------------------- ------ --------- --------- --------------
246.8 256.7 257.0
----------------------------------------- ------ --------- --------- --------------
Current assets
Inventories 30.1 28.0 20.6
Trade and other receivables 89.2 105.8 142.8
Assets recognised from costs to obtain
a contract 0.4 0.5 0.5
Other financial assets - - 0.1
Current tax asset 2.6 2.3 0.5
Cash and cash equivalents 221.4 141.8 183.2
----------------------------------------- ------ --------- --------- --------------
343.7 278.4 347.7
----------------------------------------- ------ --------- --------- --------------
Total assets 590.5 535.1 604.7
----------------------------------------- ------ --------- --------- --------------
Liabilities
Current liabilities
Trade and other payables (59.4) (56.3) (81.8)
Contract liabilities (58.4) (57.8) (55.5)
Lease liabilities (8.3) (9.2) (8.5)
Current tax liability (7.2) (0.4) (3.8)
Provisions (5.7) (10.4) (4.8)
----------------------------------------- ------ --------- --------- --------------
(139.0) (134.1) (154.4)
----------------------------------------- ------ --------- --------- --------------
Non-current liabilities
Trade and other payables (1.5) (2.7) (1.0)
Contract liabilities (17.3) (14.5) (13.6)
Lease liabilities (20.5) (23.7) (24.5)
Defined benefit pension plan deficit 8 (5.6) (4.9) (5.5)
Provisions (3.4) (2.8) (3.4)
----------------------------------------- ------ --------- --------- --------------
(48.3) (48.6) (48.0)
----------------------------------------- ------ --------- --------- --------------
Total liabilities (187.3) (182.7) (202.4)
----------------------------------------- ------ --------- --------- --------------
Net assets 403.2 352.4 402.3
----------------------------------------- ------ --------- --------- --------------
Capital and reserves
Share capital 25.0 25.9 26.8
Share premium account 24.8 25.7 26.6
Capital redemption reserve 16.2 16.7 17.4
Other reserves 20.0 17.7 15.2
Translation reserve 6.5 8.9 10.1
Retained earnings 310.7 257.5 306.2
----------------------------------------- ------ --------- --------- --------------
Total equity attributable to owners
of the parent Company 403.2 352.4 402.3
----------------------------------------- ------ --------- --------- --------------
Condensed consolidated statement of changes in equity
Share Capital
Share premium redemption Other Translation Retained Total
$ million Notes capital account reserve reserves reserve earnings equity
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 1 January 2019
(audited) 26.0 25.7 16.8 17.5 8.2 257.7 351.9
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Profit for the
period - - - - - 16.6 16.6
Other
comprehensive
income - - - - 0.7 4.1 4.8
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Total
comprehensive
income - - - - 0.7 20.7 21.4
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Share-based
payment - - - - - 1.7 1.7
Tax credit on
share
incentives - - - - - 0.2 0.2
Equity dividends 7 - - - - - (16.7) (16.7)
Employee Share
Ownership
Trust 12 - - - - - (6.1) (6.1)
Exchange
adjustment (0.1) - (0.1) 0.2 - - -
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 30 June 2019 25.9 25.7 16.7 17.7 8.9 257.5 352.4
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 1 January 2020
(audited) 26.8 26.6 17.4 15.2 10.1 306.2 402.3
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Profit for the
period - - - - - 32.2 32.2
Other
comprehensive
loss - - - - (3.6) (4.5) (8.1)
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Total
comprehensive
(loss)/income - - - - (3.6) 27.7 24.1
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Share-based
payment(1) - - - - - 1.9 1.9
Tax credit on
share
incentives - - - - - 0.1 0.1
Equity dividends 7 - - - - - (20.5) (20.5)
Employee Share
Ownership
Trust 12 - - - - - (4.7) (4.7)
Exchange
adjustment (1.8) (1.8) (1.2) 4.8 - - -
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
At 30 June 2020 25.0 24.8 16.2 20.0 6.5 310.7 403.2
------------------ ------- ---------- ---------- ------------- ----------- ------------- ----------- ---------
Note
1. Includes $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 2020 2019
----------------------------------------------- ------- ------------ ------------
Cash flows from operating activities
Cash flow from operations 10 74.8 57.2
Tax paid (1.2) (2.7)
----------------------------------------------- ------- ------------ ------------
Net cash inflow from operating activities 73.6 54.5
----------------------------------------------- ------- ------------ ------------
Cash flows from investing activities
Interest received 1.1 1.2
Purchase of intangible assets - (0.3)
Purchase of property, plant and equipment (4.7) (6.1)
Proceeds from sale of property, plant
and equipment 0.3 0.2
Lease payments received from finance leases 0.2 -
Acquisition of business 9 - (1.9)
----------------------------------------------- ------- ------------ ------------
Net cash used in investing activities (3.1) (6.9)
----------------------------------------------- ------- ------------ ------------
Cash flows from financing activities
Lease liability principal repayments (4.3) (4.1)
Lease liability interest paid (0.7) (0.8)
Dividend paid 7 (20.5) (16.7)
Share purchase into Employee Share Ownership
Trust 12 (4.7) (6.1)
----------------------------------------------- ------- ------------ ------------
Net cash used in financing activities (30.2) (27.7)
----------------------------------------------- ------- ------------ ------------
Net increase in cash and cash equivalents 40.3 19.9
Cash and cash equivalents at the beginning
of the period 183.2 121.6
Effect of foreign exchange rate changes (2.1) 0.3
----------------------------------------------- ------- ------------ ------------
Cash and cash equivalents at the end of
the period 221.4 141.8
----------------------------------------------- ------- ------------ ------------
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
2019 were approved by the Board of Directors on 5 March 2020 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 2020 were approved by the directors on 6
August 2020.
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 2019. The annual
financial statements of the Group are prepared in accordance with
International Financial Reporting Standards as adopted by the
EU.
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 EU. 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
A new line item, 'Contract liabilities', has been added to the
Group's balance sheet in order to present the Group's contract
liabilities arising under IFRS 15 'Revenue from Contracts with
Customers'. Deferred income, a separate line item in the Group's
balance sheet, has been reclassified to 'Contract liabilities'
together with the 'Payments received on account' balance from
'Trade and other payables - current'. The presentation of the
comparative amounts in the Group's balance sheet has also been
amended to reflect this change. The impact of the reclassifications
is set out below.
Decrease/(increase)
Decrease/(increase) at Decrease/(increase)
at 31 December at 1 January
$ million 30 June 2019 2019 2019
--------------------------- --------------------- --------------------- ---------------------
Current liabilities
Deferred income 54.8 53.2 55.2
Trade and other payables 3.0 2.3 1.0
Contract liabilities (57.8) (55.5) (56.2)
--------------------------- --------------------- --------------------- ---------------------
- - -
--------------------------- --------------------- --------------------- ---------------------
Non-current liabilities
Deferred income 14.5 13.6 14.4
Contract liabilities (14.5) (13.6) (14.4)
--------------------------- --------------------- --------------------- ---------------------
- - -
--------------------------- --------------------- --------------------- ---------------------
The related cash flow movement in the first half of 2019 was
also reclassified using the appropriate corresponding line item
within the 'Cash flow from operating activities' category in the
Group's condensed consolidated cash flow statement. This
reclassification had no impact on the Group's net assets, income
statement or net cash flow from operating activities reported in
2019.
As at 31 December 2019, the Group reclassified its deferred
costs balance from 'Trade and other receivables - current' to
'Inventories' as this classification more appropriately represented
the nature of the balance. Accordingly, the presentation of the
comparative amounts in the Group's condensed consolidated balance
sheet was also amended to reflect this change. This resulted in a
reclassification of $0.7 million at 30 June 2019. The related cash
flow movement in the first half of 2019 was also reclassified using
the appropriate corresponding line item within the 'Cash flow from
operating activities' category in the Group's condensed
consolidated cash flow statement. This reclassification had no
impact on the Group's net assets, income statement or net cash flow
from operating activities reported in 2019.
Critical accounting estimates and judgements
The preparation of the half year 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 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 2019.
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 2020, management have reviewed the goodwill for indicators of
impairment and have considered the trading performance, the Group's
principal risks and uncertainties, the impact of the COVID-19
pandemic on the Group's cash flow forecasts 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 half year
condensed financial statements, the directors have considered the
Group's principal risks and uncertainties as set out on page 17,
including the potential impact of the COVID-19 pandemic on the
Group and any longer-term impact to the global economy. In the
first half of 2020, the COVID-19 pandemic has not had a significant
impact on the Group's trading performance and the Group has
continued to operate effectively.
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 18 months from the
date of these half year condensed financial statements. In these
scenarios, the Group has more than sufficient headroom in its
available resources.
At 30 June 2020, the Group had cash balances of $221.4 million
and external debt only in relation to its lease liabilities.
Having assessed and considered the principal risks faced by the
Group, the potential impact of COVID-19, the sensitivity analysis
and the Group's significant financial headroom, the directors 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 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 2020 that are applicable to the
Group or that has had any material impact on the financial
statements and related notes as at 30 June 2020.
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 Networks &
Security, Lifecycle Service Assurance and Connected Devices. The
Group evaluates adjusted operating profit before exceptional items,
acquisition related costs, acquired intangible asset amortisation
and share-based payment. 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
Networks Service Connected
$ million & Security Assurance Devices Corporate Total
----------------------------------------------- ------------- ------------ ----------- ----------- -------
First half 2020
Revenue
Nature of products and services
Sale of hardware and software 117.7 37.7 12.2 - 167.6
Maintenance and support services 24.3 20.8 21.0 - 66.1
----------------------------------------------- ------------- ------------ ----------- ----------- -------
142.0 58.5 33.2 - 233.7
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Primary geographical markets
Americas 62.8 41.3 15.8 - 119.9
Asia Pacific 62.5 12.3 15.5 - 90.3
Europe, Middle East and Africa 16.7 4.9 1.9 - 23.5
----------------------------------------------- ------------- ------------ ----------- ----------- -------
142.0 58.5 33.2 - 233.7
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax
Total reportable segment profit
before exceptional items 25.5 12.8 4.5 (3.3) 39.5
Exceptional items note 4 (0.7) (0.7) (0.2) (0.4) (2.0)
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Total reportable segment profit 24.8 12.1 4.3 (3.7) 37.5
Unallocated amounts:
* Acquired intangible asset amortisation (0.2)
* Share-based payment (1.7)
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Operating profit 35.6
Finance income 1.1
Finance costs (0.7)
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax 36.0
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Other information
Product development 29.5 14.3 6.9 - 50.7
Intangible asset amortisation
- other - - 0.5 - 0.5
Depreciation of property,
plant and equipment 4.0 1.2 1.0 0.1 6.3
Depreciation of right-of-use
assets 2.5 0.9 0.6 0.1 4.1
Inventory write-down 1.0 0.3 - - 1.3
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Lifecycle
Networks Service Connected
$ million & Security Assurance Devices Corporate Total
----------------------------------------------- ------------- ------------ ----------- ----------- -------
First half 2019
Revenue
Nature of products and services
Sale of hardware and software 107.6 29.2 14.4 - 151.2
Maintenance and support services 23.4 21.8 21.0 - 66.2
----------------------------------------------- ------------- ------------ ----------- ----------- -------
131.0 51.0 35.4 - 217.4
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Primary geographical markets
Americas 58.8 39.4 19.1 - 117.3
Asia Pacific 55.0 6.1 14.6 - 75.7
Europe, Middle East and Africa 17.2 5.5 1.7 - 24.4
----------------------------------------------- ------------- ------------ ----------- ----------- -------
131.0 51.0 35.4 - 217.4
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax
Total reportable segment profit 16.0 4.0 5.2 (4.5) 20.7
Unallocated amounts:
* Acquisition related costs note 9 (0.1)
* Acquired intangible asset amortisation (0.8)
* Share-based payment (1.7)
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Operating profit 18.1
Finance income 1.5
Finance costs (0.9)
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Profit before tax 18.7
----------------------------------------------- ------------- ------------ ----------- ----------- -------
Other information
Product development 28.0 13.9 6.6 - 48.5
Intangible asset amortisation
- other - - 0.4 - 0.4
Depreciation of property,
plant and equipment 4.5 1.4 1.5 0.1 7.5
Depreciation of right-of-use
assets 2.3 0.9 0.5 0.1 3.8
Inventory write-down 0.1 - - - 0.1
----------------------------------------------- ------------- ------------ ----------- ----------- -------
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 $2.8 million (first half 2019: $4.1 million).
Americas includes United States revenue of $113.2 million (first
half 2019: $112.2 million).
Asia Pacific includes China revenue of $50.1 million (first half
2019: $41.2 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 2020 or 2019.
The Group's activities are seasonal and are typically weighted
towards the second half of the year.
4 Exceptional items
First half First half
$ million 2020 2019
---------------------- ------------ ------------
CEO strategic review 2.0 -
---------------------- ------------ ------------
In the second half of 2019, the Group incurred $1.8 million of
costs associated with a strategic review, instigated by Spirent's
new CEO, involving a number of initiatives designed to evolve the
strategic direction of Spirent to maximise market opportunities by
creating a more agile, customer-focused organisation. These include
a strategic focus on recurring revenue streams over time; a
strengthened leadership team and development of our sales and
marketing structure to drive improved effectiveness to exploit our
leading technologies. This review has continued into 2020 with a
further $2.0 million being incurred. This charge comprised employee
severance costs of $1.5 million, recruitment costs of $0.2 million
and consulting costs of $0.3 million.
The tax effect of exceptional items is a credit of $0.4 million.
The total cash outflow in respect of exceptional items charged in
the first half of 2020 is anticipated to be $2.0 million, with $1.3
million paid in the period. The cash outflow in the first half of
2020 in respect of exceptional items charged in 2019 was $0.6
million.
The total cash outflow in respect of exceptional items is
reported within cash flows from operating activities in the
condensed consolidated cash flow statement.
5 Tax
First half First half
$ million 2020 2019
---------------------------------------- ------------ ------------
Current income tax
UK tax 0.4 -
Overseas tax 3.4 1.3
---------------------------------------- ------------ ------------
Total income tax 3.8 1.3
---------------------------------------- ------------ ------------
Deferred tax
Recognition of deferred tax assets (1.2) (1.7)
Reversal of temporary differences 2.0 2.5
Adjustments in respect of prior years (0.8) -
---------------------------------------- ------------ ------------
Total deferred tax - 0.8
---------------------------------------- ------------ ------------
Tax charge in the income statement 3.8 2.1
---------------------------------------- ------------ ------------
The effective tax rate for the first half year is 13.0 per cent
(first half 2019: 13.1 per cent), being the current period tax
charge, excluding tax on adjusting items and the adjustment in
respect of prior year tax, 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 2020 2019
-------------------------------------------------- ------------ ------------
Profit for the period attributable to owners
of the parent Company 32.2 16.6
-------------------------------------------------- ------------ ------------
Number million
-------------------------------------------------- ------------ ------------
Weighted average number of Ordinary Shares
in issue - basic 609.3 609.9
Dilutive potential of employee share incentives 6.5 7.6
-------------------------------------------------- ------------ ------------
Weighted average number of Ordinary Shares
in issue - diluted 615.8 617.5
-------------------------------------------------- ------------ ------------
Cents
-------------------------------------------------- ------------ ------------
Earnings per share
Basic 5.28 2.72
Diluted 5.23 2.69
-------------------------------------------------- ------------ ------------
The Group is disclosing adjusted earnings per share for
continuing operations attributable to owners of the parent Company
in order to provide a measure to enable period-on-period
comparisons to be made of its performance. The following items are
excluded from adjusted earnings:
- exceptional items;
- acquisition related costs;
- acquired intangible asset amortisation;
- share-based payment;
- tax effect on the above items; and
- prior year tax (adjustments made to provisions in respect of prior years).
First half First half
2020 2019
------------------------------------ --------------------- ---------------------
EPS EPS
$ million cents $ million cents
------------------------------------ ----------- -------- ----------- --------
Profit for the period attributable
to owners of the parent Company 32.2 5.28 16.6 2.72
Exceptional items note 4 2.0 -
Acquisition related costs
note 9 - 0.1
Acquired intangible asset
amortisation 0.2 0.8
Share-based payment 1.7 1.7
Tax effect on the above items (0.6) (0.7)
Prior year tax credit (0.8) -
------------------------------------ ----------- -------- ----------- --------
Adjusted basic 34.7 5.70 18.5 3.03
------------------------------------ ----------- -------- ----------- --------
Adjusted diluted 5.63 3.00
------------------------------------ ----------- -------- ----------- --------
7 Dividends paid and proposed
First half First half
2020 2019
------------------------------------- ------------------------ ------------------------
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 3.45 20.5 2.73 16.7
------------------------------------- ----------- ----------- ----------- -----------
Amounts approved by the directors
(not recognised as a liability
at the balance sheet date) 2.17 13.3 1.94 11.9
------------------------------------- ----------- ----------- ----------- -----------
An interim dividend of 2.17 cents per Ordinary Share (2019: 1.94
cents per Ordinary Share) was declared by the Board on 6 August
2020 and will be paid to Ordinary shareholders on 11 September 2020
and to ADR holders on 18 September 2020. 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 14 August 2020.
Dividends are declared or proposed in US dollars but will be
paid in pounds 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
$1.30:GBP1.
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 2018, 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 2020 as the basis for the accounting valuation.
The assets and liabilities on the balance sheet are as
follows:
First First
half half Year
$ million 2020 2019 2019
------------------------------------------ ------- ------- -------
Schemes in net asset position
UK funded defined benefit pension plan 8.6 10.9 11.6
------------------------------------------ ------- ------- -------
Schemes in net liability position
UK unfunded plan (0.6) (0.6) (0.7)
US deferred compensation plan (5.0) (4.3) (4.8)
------------------------------------------ ------- ------- -------
(5.6) (4.9) (5.5)
------------------------------------------ ------- ------- -------
Net pension plan surplus on the balance
sheet 3.0 6.0 6.1
------------------------------------------ ------- ------- -------
The assets and liabilities in the funded defined benefit pension
plans were as follows:
First First
half half Year
$ million 2020 2019 2019
---------------------------------------------- --------- --------- ---------
Fair value of defined benefit pension plans'
assets 286.5 275.1 291.1
Present value of defined benefit pension
plans' obligations (277.9) (264.2) (279.5)
---------------------------------------------- --------- --------- ---------
Net UK funded defined benefit pension plan
surplus on the balance sheet 8.6 10.9 11.6
---------------------------------------------- --------- --------- ---------
The key financial assumptions are as follows:
First First
half half Year
% 2020 2019 2019
------------------------------------------ ------- ------- -------
Inflation - RPI 2.9 3.2 3.0
Inflation - CPI 2.1 2.1 2.2
Rate of increase in pensionable salaries 2.1 2.1 2.2
Rate of increase for pensions in payment
Pre 2001 service 3.6 3.7 3.6
2001 to 5 April 2005 service 2.8 3.1 2.9
Post 5 April 2005 service 2.0 2.1 2.0
Rate of increase in deferred pensions 2.1 2.1 2.2
Rate used to discount plan liabilities 1.4 2.3 2.1
------------------------------------------ ------- ------- -------
An operating charge of $0.2 million (first half 2019: $0.4
million) and finance income of $0.1 million (first half 2019: $0.1
million) have 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
2020, the deferred compensation deficit amounted to $5.0 million
(31 December 2019: $4.8 million). There was no re-measurement at 30
June 2020 (31 December 2019: $0.4 million loss recognised directly
in the statement of comprehensive income). The key financial
assumptions include a discount rate used to discount plan
liabilities of 2.6 per cent and an investment yield of 6.4 per cent
(31 December 2019: 2.9 per cent discount rate and 6.4 per cent
investment yield).
9 Business combinations
There were no business combinations in the first half of
2020.
On 31 May 2019, Spirent acquired a key business from Integrated
Navigation Systems Limited (INS), a company based in United
Kingdom, for cash consideration of $1.9 million. The acquired
business was reported within the Group's Networks & Security
operating segment. INS develops and supplies the Group with a
system for recording GNSS and Wi-Fi signals. The business
acquisition enabled Spirent to streamline its supply chain process
and improve gross margin on the product line. The acquisition gave
rise to a current technology intangible asset of $1.0 million and
goodwill of $0.9 million. Acquisition related costs were $0.1
million and were expensed to other items within the income
statement.
10 Reconciliation of profit before tax to cash generated from operations
First half First half
$ million 2020 2019
------------------------------------------------- ------------ ------------
Profit before tax 36.0 18.7
Adjustments for:
Finance income (1.1) (1.5)
Finance expense 0.7 0.9
Intangible asset amortisation 0.7 1.2
Depreciation of property, plant and
equipment 6.3 7.5
Depreciation of right-of-use assets 4.1 3.8
Loss on the disposal of property, plant
and equipment - 0.4
Share-based payment 1.9 1.7
Changes in working capital
Increase in inventories (9.6) (0.5)
Decrease in receivables 52.7 32.3
Decrease in payables (21.4) (5.8)
Increase in contract liabilities 6.8 1.6
Increase/(decrease) in provisions 0.7 (0.1)
Defined benefit pension plan employer
contributions net of administration
expenses paid by the plan (3.1) (3.3)
Deferred compensation plan 0.1 0.3
------------------------------------------------- ------------ ------------
Cash flow from operations 74.8 57.2
------------------------------------------------- ------------ ------------
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 $2.8 million at 30
June 2020 (31 December 2019: $3.0 million).
12 Employee Share Ownership Trust
During the first half of 2020, 2.0 million shares were purchased
and placed into the Employee Share Ownership Trust (ESOT) at a cost
of $4.7 million (first half 2019: 3.0 million shares at a cost of
$6.1 million) and 2.7 million shares were transferred from the ESOT
to satisfy options exercised under the Spirent employee share plans
(first half 2019: 2.6 million transferred). At 30 June 2020, the
ESOT held 0.9 million Ordinary Shares (31 December 2019: 1.6
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 EU.
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 2019 Annual Report.
The directors of Spirent Communications plc are listed below and
are unchanged from the Spirent Communications plc Annual Report at
31 December 2019.
Sir William Thomas
Eric Updyke
Paula Bell
Jonathan Silver
Gary Bullard
Wendy Koh
Edgar Masri
By order of the Board of Spirent Communications plc.
E A Updyke
Chief Executive Officer
6 August 2020
Independent review report to Spirent Communications plc
Introduction
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 2020 which comprises the condensed
consolidated income statement, condensed consolidated statement of
comprehensive income, condensed consolidated balance sheet,
condensed consolidated cash flow statement, condensed consolidated
statement of changes in equity and the related notes 1 to 12. We
have read the other information contained in the half yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, 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.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, 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.
Conclusion
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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
6 August 2020
Appendix
Alternative Performance Measures (APM)
The performance of the Group is assessed using a variety of 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 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 2019
Annual Report.
Order intake
Order intake represents commitments from customers to purchase
goods and/or services from Spirent that will ultimately result in
recognised revenue.
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.
Order intake is a non-GAAP measure and as such should not be
considered in isolation or as a substitute for GAAP measures of
operating performance.
Book to bill
Book to bill is the ratio of orders booked to revenue billed 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.
Book to bill is a non-GAAP measure and as such should not be
considered in isolation or as a substitute for GAAP measures of
operating performance.
Adjusted operating profit
Adjusted operating profit is reported operating profit excluding
exceptional items, acquisition related costs, amortisation of
acquired intangible assets and share-based payment. 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. 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.
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
period. Adjusted earnings is reported profit before tax excluding
exceptional items, acquisition related costs, amortisation of
acquired intangible assets, share-based payment, tax on adjusting
items and adjustments 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 half
year condensed 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, and interest received and lease
payments received from finance leases.
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 15.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KKPBPNBKDQFK
(END) Dow Jones Newswires
August 06, 2020 02:00 ET (06:00 GMT)
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