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HELPING
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Spirent Communications plc
Annual Report 2013
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SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Spirent is a global leader in communications test and
measurement listed on the London Stock Exchange.
At Spirent we develop innovative hardware and software
solutions and test methodologies for the communications
industry. Our solutions shorten our customers’ product
development lifecycle, improve the quality and reliability
of their new and existing services, whilst reducing their
associated cost and risk.
Spirent employs 1,500+ talented people working in
15 countries who serve our 1,200 customers worldwide.
Cautionary statement regarding forward-looking statements
This Annual Report 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 Annual Report, whether as a result of new information, future events or otherwise.
1
2
3
Spirent VR5 quality assurance
GOVERNANCE
44
Chairman’s introduction
Board of directors
46
Directors’ statement on corporate governance 48
53
Nomination Committee
54
Audit Committee
58
Report on directors’ remuneration
77
Report of the directors
79
Directors’ responsibilities statement
STRATEGIC REPORT
Chairman’s statement
Results and highlights
Spirent at a glance
Chief Executive’s review
Market trends
What we test
Our business model
Our strategy
Key performance indicators
Our principal risks and uncertainties
Financial review
Operational review
Our employees
Corporate social responsibility statement
2
4
6
8
10
12
14
16
18
20
26
30
36
38
CHIEF EXECUTIVE’S REVIEW
8
OUR STRATEGY
16
Our CEO discusses the market trends in 2013
and explains the organisational changes made
following his appointment in September 2013.
In this section we discuss the key components
of our strategy, what we have achieved in
2013 and what we plan to achieve in 2014 in
order to ultimately realise our vision.
80
82
FINANCIAL STATEMENTS
Consolidated financial statements
Independent auditor’s report to the
members of Spirent Communications plc
Consolidated income statement
Consolidated statement of
83
comprehensive income
84
Consolidated balance sheet
Consolidated cash flow statement
85
Consolidated statement of changes in equity 86
Notes to the consolidated financial statements 87
Parent Company financial statements
Independent auditor’s report to the
members of Spirent Communications plc
Parent Company balance sheet
Notes to the parent Company financial
statements
Principal divisions and subsidiaries
OTHER INFORMATION
Financial history
Shareholder information
Glossary
Contact details
121
122
123
135
136
138
140
ibc
1
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Chairman’s statement
The changes made in 2013 will take
time to be fully reflected in the
financial performance of the Company,
but it is planned to restore revenue to
growth in 2014 which will fund the
necessary investment in product
development and in the expansion of
the sales and marketing activities for
the long term growth of the business.
Total dividend
3.54¢
+10%
2
Alex Walker
Chairman
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2013 is a year that marks a turning point for the Company. The impact
on the business due to the significant changes in our markets and
accelerating shifts in the structure of the industry we serve has
been marked. These trends manifested themselves through intense
competition in the data center market, wireless device vendors
seeing lower profitability combined with a lull in new technology and
service launches. In addition, under investment in development of
new test systems in some parts of the business in previous years
and the lack of expansion of our products into new markets has
had a negative impact. In response, we have undertaken a radical
reorganisation of the activities within Spirent with the key strategic
objective to create long term value by harnessing Spirent’s leading
capabilities and talent. It will take time to be fully reflected in the
financial performance of the Company, but it is planned to restore
revenue to growth in 2014 which will fund the necessary investment
in product development and in the expansion of the sales and
marketing activities for the long term growth of the business.
Group revenue reduced to $413.5 million (2012 $472.4 million). This
resulted in a considerable fall in reported profit before tax to $39.1
million (2012 $108.4 million). The first half-year saw revenue fall by
19 per cent, but the rate of decline slowed in the second half-year with
revenues down by 6 per cent and underlying stability in order intake. The
order book increased by $21.4 million in 2013 (2012 a reduction of $14.5
million). Operational highlights included the release of next-generation
products for Ethernet test, the launch of our advanced applications and
security test system Avalanche NEXT and the delivery of test solutions
for China’s regional satellite navigation system, BeiDou.
Return on sales based on adjusted operating profit was 12 per cent for
the Group, down from 25 per cent last year, reflecting the impact of the
fall in revenues and the investment in the business to drive recovery
and long term growth. This investment was in the expansion of our
operating capabilities: product development expenditure has been
increased by $14.4 million and sales and marketing by $4.9 million.
Basic earnings per share for the continuing Group decreased in 2013
to 5.10 cents per share (2012 12.11 cents). Adjusted basic earnings
per share was 5.71 cents (2012 13.02 cents); this is before charging
exceptional items, acquisition related costs, acquired intangible
asset amortisation and share-based payment.
The Group’s free cash flow generation was $43.9 million in 2013,
(2012 $84.0 million); this is a cash conversion ratio of 1.3 times
reported earnings (2012 1.1 times continuing operations). The
Company has no debt and cash balances were $216.2 million at
31 December 2013.
The Board aims to achieve a high return on capital employed in the
business. The operating return on capital employed in the continuing
Group in 2013 was 16 per cent, excluding cash balances. The target
set for return on investment in acquired businesses is 16 per cent.
Returns are low to negligible on cash balances, which are retained to
allow surety of completion for acquisition negotiations. Whilst the
Company continues to expect to invest in acquisitions which are in line
with the strategy, it is also committed to returning surplus capital as
appropriate. To that end, during 2013 the balance of the proceeds of
the divestment of the Systems business, approximately $33 million,
was applied to the repurchase of Spirent shares in the market for
cancellation and the programme extended beyond this. In total
29.2 million shares were repurchased for $55.5 million in 2013.
No further buybacks are currently planned.
I am delighted to report the completion of the acquisition of the
business of DAX Technologies Corp. (“DAX”) for a cash consideration
of $37.0 million. The acquisition of DAX will enable Spirent to combine
measurements and data from its solutions in the lab and in live
networks, delivering high value solutions and expertise that help
customers deploy and manage complex new networks and services
faster and more effectively.
In addition, today we are announcing the completion of the acquisition
of a majority stake of 58 per cent of Testing Technologies IST GmbH
(“Testing Tech”) for a cash consideration of Euro 2.0 million. This
acquisition, although small in size, is an important step in the
progression of Spirent’s strategy to enter the automotive market.
We very much welcome the employees of both these companies into
the Spirent Group.
The final dividend recommended is 2.01 cents per share compared with
1.83 cents per share in 2012. This brings the total dividend for 2013 to
3.54 cents per share compared with 3.22 cents for 2012. The increase in
total dividend per share is 10 per cent. In sterling terms this represents
an increase in the distribution to our shareholders of 5 per cent.
Board changes
September 2013 saw a change in senior management with Bill Burns
stepping down as Chief Executive Officer and replaced in the role by
Eric Hutchinson. Rachel Whiting, who has extensive financial
experience and long service with Spirent, was welcomed to the
Board in February 2014 as Chief Financial Officer.
Outlook
The disruption and structural changes experienced in our markets
in the first half of 2013 stabilised during the second half-year.
The reorganisation of the Group in the fourth quarter of 2013 has
released creativity and energy, which is driving a dynamic change
in the responsiveness and agility of our businesses. We continue to
see opportunities arising through infrastructure investment in the
wireless networks worldwide and in the development and rollout
of virtual and cloud based services.
In 2014, we anticipate that Spirent’s revenue will be linked to recovery in
China, growth in the Americas and expected stability in the European
market and we look to achieve high single digit organic growth.
This year the Group intends to make an additional investment of
around $33.0 million in future growth, in particular through a 15 per
cent increase in product development, extending the sales channel
to break into new areas, expanding Spirent’s capabilities in the
core markets that it serves and by entering new markets including
automotive and enterprise. Whilst there continue to be near term
uncertainties, activity levels at the beginning of 2014 are in line with
our expectations. The Board remain confident that progress will be
achieved and that the Group will benefit from the investment to
create long term strategic value.
3
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Results and highlights
The disruption and structural changes experienced in our markets in the first
half of 2013 stabilised during the second half-year. The reorganisation of the
Group in the fourth quarter of 2013 has released creativity and energy, which is
driving a dynamic change in the responsiveness and agility of our businesses.
Revenue4 ($ million)
Adjusted operating profit1,4 ($ million)
09
10
11
12
13
369.4
422.8
470.5
472.4
413.5
09
10
11
12
13
Basic earnings per share4 (cents)
Adjusted basic earnings per share1,2,4 (cents)
09
10
11
12
13
12.92
10.80
13.07
12.11
5.10
09
10
11
12
13
Dividend per share (cents)
Free cash flow3,4 ($ million)
09
10
11
12
13
1.93
2.50
2.93
3.22
3.54
09
10
11
12
13
Notes
1 Before exceptional items, acquisition related costs, acquired intangible asset
amortisation and share-based payment.
2 Before tax effect of items in note 1 and prior year tax.
3 Operating cash flow after tax, net interest and net capital expenditure.
4 Continuing operations.
4
79.8
104.4
116.1
118.3
50.1
10.39
10.92
12.81
13.02
5.71
76.4
75.5
69.3
84.0
43.9
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 SPIRENT COMMUNICATIONS PLC
ANNUAL REPORT 2013
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Financial
Operational and strategic
Post balance sheet events
• Group revenue of $413.5 million (2012 $472.4 million); with a sequential
improvement of 17% in the second half-year compared with the first half
of 2013.
• Book to bill ratio was 105 (2012 97) reflecting the improving market dynamics
in the second half of 2013 and Spirent’s key product launches.
• Group adjusted operating profit of $50.1 million (2012 $118.3 million)
on lower revenue and after increased investment in product development
and sales and marketing of $19.3 million compared to the prior year.
• Dividend increased by 10%. Final dividend proposed of 2.01 cents per
Ordinary Share, giving a full year dividend of 3.54 cents per Ordinary Share.
• Free cash flow of $43.9 million (2012 $84.0 million); cash closed at
$216.2 million after share buybacks and dividends totalling $76.9 million.
There were strong headwinds in certain market segments and geographies
exacerbated by historical under investment in certain parts of the business
given the significant changes in the industry:
•
Intense competition in the data center market and spending shifting to virtual
and cloud based services.
• Wireless device vendors experienced lower profitability and a lull in new
technology and service launches.
• Adverse macro-economic conditions in Europe coupled with spending caution
by Chinese customers earlier in the year.
In spite of these challenges there were areas of progress:
• Structural reorganisation of the Group into business units to create maximum
focus on meeting customers’ changing needs as reported in January 2014.
• Service providers increased infrastructure spending on high density core
routers and 100G Ethernet.
• Spirent introduced a family of next-generation high speed Ethernet test
solutions, incorporating market leading realism and scale, to address
increasing complexity and the explosion of data traffic in service provider
and data center networks.
• Launched Avalanche NEXT, a powerful, easy-to-use solution that tests the
performance, scalability and security of application-aware network
infrastructures with positive feedback from customers.
• Underscored our industry leadership in GNSS testing with the first
commercially available support for the Chinese BeiDou satellite navigation
system.
• Acquisition of the business of DAX Technologies Corp. (“DAX”) for a cash
consideration of $37.0 million announced on 18 February 2014. DAX is a
leading provider of customer experience management solutions and will
be reported within our Service Assurance division.
• Completion of the acquisition of a majority stake of 58% in Testing
Technologies IST GmbH for a cash consideration of Euro 2.0 million on
20 February 2014. The company, based in Berlin, Germany, develops and
markets standards based and customer-specific software testing tools which
support the development of mission-critical products and workflow steps.
5
Spirent at a glance
Spirent has a broad portfolio of innovative
products and services and is organised into
three operating segments:
Networks & Applications
Spirent’s networks and applications solutions put
innovation to the test within labs, networks and
IT organisations.
We enable our customers’ success in development and deployment
of communications networks, services and applications. Our broad
solutions portfolio addresses data centers, cloud computing,
virtualized environments, security, high speed Ethernet networks
and services, and infrastructure test optimization.
Wireless & Service Experience
Spirent’s wireless and service experience solutions apply
our innovation to functional and performance testing of
4G/LTE and 3G mobile devices, services and infrastructure,
and satellite positioning devices, under real-world
conditions in the lab prior to commercial launch.
The portfolio also includes tools and services for end-to-end
measurement of the mobile experience on live networks, on any
device and on any operating system. These solutions help our
customers to minimise the risks associated with deployment
of new technologies, devices and services.
Service Assurance
Spirent’s service assurance solutions allow service
providers to diagnose, troubleshoot and determine how
to resolve issues with networks and systems within the
live network.
Building on the expertise gained through testing technologies and
systems in the lab, Spirent enables service providers to deploy
and maintain efficient, cost effective and high performing networks,
helping to reduce subscriber churn by providing better quality
of experience.
6
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Divisional focus
– Ethernet
– Data center/cloud computing
– Applications and security
– Test optimization
– Wireless infrastructure
Revenue
$213.4M
(2012 $259.5M)
Page 30 for the full Operational review for Networks & Applications
Divisional focus
– Wireless devices
– Wireless channel emulation
– Satellite navigation and global positioning
– Wireless service experience
Revenue
$167.7M
(2012 $174.5M)
We serve 1,200 customers worldwide and have
built a world-class organisation that enables
Spirent to develop and maintain strong customer
relationships around the globe.
Revenue
$413.5M
(2012 $472.4M)
1
3
2
1 Americas
2 Asia Pacific
3 Europe, Middle
East and Africa 13%
55%
32%
1
Operating profit by division1
3
2
$50.1M
(2012 $118.3M)
Page 32 for the full Operational review for Wireless & Service Experience
24%
1 Networks & Applications
2 Wireless & Service Experience 60%
16%
3 Service Assurance
Divisional focus
– Ethernet business services
– Wireless backhaul
– Field test solutions
– Customer experience management
Revenue
$32.4M
(2012 $38.4M)
Page 34 for the full Operational review for Service Assurance
Employees by location
1,525
(2012 1,486)
1
3
2
Note
1
Before exceptional items, acquisition related
costs, acquired intangible asset amortisation
and share-based payment.
1 Americas
2 Asia Pacific
3 Europe, Middle
East and Africa 12%
63%
25%
7
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Chief Executive’s review
The key objectives in reorganising
the Group are to enable agile decision
making, to unleash the creativity and
innovation of Spirent’s expert and
talented people and to devolve
responsibility and accountability to
customer facing management teams.
The result will be an organisation that
is more effective in delivering expert
solutions that are easy-to-use by
customers to manage and deploy
their complex systems.
Product development
$100.5M
+17%
8
Eric Hutchinson
Chief Executive Officer
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Cloud data center traffic will grow at a faster rate
than traditional data center traffic (zettabytes per year)
CAGR 2012-17
+25%
Cloud data center
(35% CAGR)
Traditional data center
(12% CAGR)
46%
54%
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
69%
31%
Source: Cisco Global Cloud Index.
12
13
14
15
16
17
Market conditions
It has been a challenging year for Spirent; revenues have decreased
and profit has been impacted significantly. The Company has lost
some market share in its core markets. Technologies have been in a
rapid transition and some customers have faced great difficulties,
with the business performance of a number of major customers
declining markedly, reducing demand for our test systems. There has
been a structural change in the shape of the wireless mobile device
industry, resulting in a market characterised by a very small number
of profitable manufacturers. The rapid shift to deployment of a single
global standard for wireless technologies, 4G/LTE, while continuing
to represent an opportunity for Spirent, has also eroded the 3G
technology niches where Spirent had a high market share. Regionally
demand has been weak in Europe, China and in some market
segments in North America. The impact of the market challenges
described above was exacerbated by historical under investment
by Spirent in the development of core technologies, in channels
to market and in customer support.
Strategy and organisational structure
The vision for Spirent is to consolidate its position as the leading
expert in test and measurement for information technology
communications worldwide. In order to achieve this aim, a number
of areas are an important focus of Spirent’s future investment.
These include: the development of new product solutions in its
core businesses in Networks & Applications, Wireless & Service
Experience and Service Assurance; establishment of an enterprise
sales channel; enhancements to Spirent’s cyber security test
offering; and new solutions directed towards automotive
technologies and related connectivity testing.
Furthermore, better alignment of the business internally will allow
Spirent to maximise the growth areas that offer the most significant
future opportunities. To this end, a number of management changes
have been completed to provide a streamlined, decentralised and
simplified organisational structure. These internal changes have
been made to create a more agile and responsive business that better
serves customer needs as well as to sharpen the business’ focus
on anticipating customers’ requirements for the future. The Group
is managed as three operating segments: Networks & Applications,
Wireless & Service Experience and Service Assurance. Each segment
is comprised of business units focused on delivery of particular
technology solutions. Each of these business units are led by a
management team under a general manager responsible for all the
activities required to serve customers.
Networks & Applications
The businesses in Networks & Applications specialise in Ethernet
test, applications test and network performance, cyber security,
Wi-Fi offload and mobile packet core. The development of virtual
test solutions to address the emerging needs of software-defined
networks (“SDN”) and network functions virtualization (“NFV”) are
a key part of the division’s product portfolio. In addition, a new
Infrastructure Test Optimization (“ITO”) & Solutions business unit
has been created to deliver test automation and professional
services. This business unit will address the demands by customers
for greater efficiency and effectiveness through providing lab
management tools, expert analysis of data from test and
measurement systems and testing services. Another new business
unit has been established to apply our test technology expertise,
including cloud based testing-as-a-service, to enterprise customers.
Wireless & Service Experience
Within this division the wireless business unit serves the test needs of
the wireless device ecosystem. This business unit is in transition as the
key served market centred on carrier acceptance test for mobile
devices, 3G CDMA and UMTS mobile test requirements, has moved into
long term decline, being replaced by the development and deployment
of 4G/LTE technologies. Solutions now under development in the
wireless business unit address the needs of those developing and
deploying the next-generation of services enabled by 4G/LTE
technologies and which provide for the evaluation of the mobile user’s
service level of experience. The positioning test business unit designs
the world’s leading satellite navigation simulation systems for use by
equipment manufacturers and system developers that utilise the
various different global and regional satellite navigation and
positioning technologies. The service experience business unit’s focus
is on the performance of devices in the live carrier network, providing
detailed analysis of the subscriber experience that allows wireless
service providers and their suppliers to successfully roll out new
devices and services. A new business unit has also been set up to
develop solutions for emerging needs in the automotive technology
market, including related connectivity challenges.
Service Assurance
For Service Assurance the primary business is the provision of live
network monitoring systems for diagnostics and assurance of service
levels for wireline, wireless service providers and multi-service
cable operators.
The key objectives in reorganising the Group are to enable agile
decision making, to unleash the creativity and innovation of Spirent’s
expert and talented people and to devolve responsibility and
accountability to customer facing management teams. The result
will be an organisation that is more effective in delivering expert
solutions that are easy-to-use by customers to manage and deploy
their complex systems. This will enable the Group to return to growth
and to enhance the long term value of its business.
9
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
SPIRENT COMMUNICATIONS PLC
ANNUAL REPORT 2013
Market trends
2013 was a turning point for our
industry as the shift from network and
transport to applications and services
accelerated, with a renewed focus on
the user experience. We moved
beyond just getting connected towards
the age of hyper-connectivity, the
internet of things and machine-to-
machine (“M2M”) communications,
and global connectedness is just
getting started...
Ethernet cemented its role as the common building block for service
provider, enterprise and critical infrastructure networks. Cloud
moved from being a convenience to an essential part of many
people’s lives as the disruptive business models of cloud service
providers made a major impact. The cloud and data center
segments were also impacted by new technologies such as
software-defined networking (“SDN”).
The move to virtualization accelerated, including strong service provider
interest in the potential for network functions virtualization (“NFV”) to
lower costs, raise efficiency and increase agility. The entire industry
faced continuing escalation of cyber-security threats, with frequent
reports of high profile attacks. Security was also an issue in the
Positioning technologies market, as concern grew over the vulnerability
of Global Navigation Satellite System (“GNSS”) applications.
Although smartphone growth continued, its focus shifted to
emerging markets which caused profitability challenges for all but a
very few device vendors. 4G/LTE networks were deployed at a rapid
pace around the world, as the industry prepared for widespread roll
outs of important new services such as Voice over LTE (“VoLTE”),
looking to ensure a positive experience for users.
As a result, the testing needs of our customers have continued to
increase in complexity. With its broad portfolio of products and
services in the lab and in live networks, Spirent is uniquely
positioned to help address this complexity, enabling the shift to
application and user experience testing.
2000
2005
2008
2011
2012
2013
1ST
smartphone
1BN
people using the
internet
0.4EB
mobile data
traffic
5.6BN
mobile
subscribers
10M
new connected
vehicles
954M
new
smartphones
9BN
connected
devices
2.7BN
people using the
internet
Billion
Exabyte
Gigabyte
Million
Key
BN
EB
GB
M
10
SPIRENT COMMUNICATIONS PLC
ANNUAL REPORT 2013
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Nigel Wright
Vice President International
Sales and Marketing
“ With our expertise,
solutions and
global reach we’re a
strong partner to our
customers, helping
them to address the
internet of things, cloud
and virtual roll outs.”
2020
47%
entertainment
info in the cloud
24BN
connected
devices
3.1
connected
devices per person
2015
2016
2017
2018
300M
smartmeters
1.6BN
new
smartphones
10BN
mobile
subscribers
67M
new connected
vehicles
52EB
mobile data
traffic
1.6GB
monthly per
smartphone user
1.4
mobile devices
per person
Source: Cisco VNI, ITU, GSMA, Gartner, US Census Bureau, Berg Insight,
and others.
11
What we test
The boundaries of how fast, far and
accurately voice and data can be
transmitted have yet to be reached,
or even defined – but Spirent is
leading the way.
Spirent Communications is where the world’s leading communications
companies come to test and evaluate their next-generation devices
and applications. In fact, most of the industry’s significant advances
have been made using our tests as the benchmark.
Spirent addresses the demands of virtualized data centers by testing
performance, availability, security and scalability, emulating the
actions of millions of real-world subscribers and services to help
ensure the quality of experience is maintained.
In an environment where everything is connected, Spirent provides
hardware and software solutions, services and test methodologies
that address customers’ testing needs – from network equipment
in a cloud data center to mobile device performance and user
experience in the lab and on live networks.
Spirent is a leader in testing network equipment which utilises Ethernet
at ever-increasing scale, including switches, routers, firewalls, load
balancers, data center fabrics and intrusion detection/prevention.
Spirent is leading the validation of software-defined networking
(“SDN”)/network functions virtualization (“NFV”) technologies with
unparalleled realism and scale and accelerating their adoption in
service provider, data center and enterprise environments. We
develop test methodologies to deliver business benefits without
impacting the quality of service (“QoS”) of the network or the
user experience.
We address the testing needs of all layers of service provider
networks, including access, Wi-Fi offload, mobility and performance
of the mobile packet core, cloud infrastructure and applications.
Spirent also provides live network monitoring systems for diagnostics
and assurance of service levels for wireline, wireless service
providers and multi-service cable operators, helping them to deploy
and maintain efficient, cost effective and high performing networks
and to reduce subscriber churn.
Spirent’s services help customers around the world
accelerate development and deployment by maximising
their investment in Spirent test solutions through
support, education and professional services.
Spirent’s infrastructure test optimization solutions help
address the challenges of bringing quality products
to market faster in the face of rapid change and
increasing complexity.
With its broad portfolio of solutions and services
Spirent is uniquely positioned to address its customers’
complex testing needs in areas that include:
12
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Networks & Applications
Cloud Computing
Services moving to the cloud require
end user experience to be validated as
data centers are upgraded with high
speed Ethernet and technologies
such as SDN are introduced.
Applications & Security
Addressing the proliferation of
application and vulnerability concerns
for enterprise, government and service
provider networks, Spirent’s security
test solutions offer unprecedented
realism and ease-of-use.
Mobility
Spirent’s unique mobility test
solutions and methodologies
address the mobile data explosion,
growth in applications, and mobility
across LTE, 2G/3G and Wi-Fi with
realism and scale.
Enterprise Business
Spirent’s solutions enable tuning of
enterprise networks across multiple
sites to maintain maximum
performance, reduce IT spending,
enhance scalability and resolve
issues faster.
Wireless & Service Experience
Positioning Technologies
Spirent is the global leader in testing
multiple positioning technologies
such as GPS in mobile devices and
other receivers used in an
ever-increasing range of commercial
and government applications.
Device Performance
Spirent works with the world’s leading
carriers to develop methodologies,
automated solutions and services that
ensure device performance meets
strict acceptance criteria in the lab
and on live networks.
Voice over LTE (“VoLTE”)
Launching complex new 4G services
like VoLTE puts extraordinary
demands on networks and devices.
Spirent is a leader in ensuring the
successful end-to-end deployment of
VoLTE and other IMS services.
Service Experience
In an age of exploding complexity
and growth in mobile services,
Spirent’s solutions objectively
predict end user quality of
experience on any device, any
operating system and any network.
Service Assurance
Network Service Assurance
Spirent’s service assurance solutions
allow service providers around the
world to diagnose, troubleshoot and
determine resolution of issues within
mobile backhaul, business services
and global IP networks to support
Ethernet service delivery.
Field Testing
Spirent’s field test product for service
providers enables qualification of the
service and troubleshooting of
transport and service related issues
within the consumer’s home and in
the outside plant.
Customer Experience
Management
Spirent’s customer experience and
service quality management solution
for service providers, aggregates and
analyses data from sources including
probes, network equipment, end user
devices, and business systems
providing real-time insights into their
customers’ experience.
13
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Our business model
Spirent is an expert in communications
test and measurement technology.
How Spirent creates value
Spirent’s customers are the global network equipment
manufacturers, service providers, mobile device manufacturers,
government and enterprises, all of whom face numerous challenges
to satisfy the ever-increasing demand for data capacity, reliability and
security by all members of society.
Spirent’s solutions enable customers to increase their revenues by
reducing their time to bring new products and services to market,
with higher quality and reliability while reducing associated cost and
risk. Our test solutions, which span the entire product lifecycle from
concept to commercial availability, deliver efficiency and
effectiveness to development engineers to make better use of their
scarce resources. Much of our revenue comes from follow on
business with our customers, who have worked with us for many
years. This is a result of a combination of our ability to innovate to
meet their needs and on our emphasis on providing first class
professional services and support. All of the above, with the optimal
utilisation of our own resources, supports the sustainability of the
margins Spirent achieves. Annual support and maintenance fees are
an important source of continuing revenue for Spirent. Most of our
manufacturing is outsourced to sub-contractors and our business is
not capital intensive; hence the conversion of earnings into cash is
high for the business.
An industry expert
Our highly skilled people are our major resource; it is they who
provide the expert knowledge needed to develop these complex
solutions. Our value-creating culture is critical in providing the right
environment to foster their innovation.
We maintain and build on our expertise through investment in
product development engineering, the extension of our engagement
with industry standards bodies, and close alignment with our
customers who lead innovation in the industries we serve.
Shareholder returns
Our focus on value-creation through investment in the business,
whether that be organically through product development, by
acquisition of technology, or access to new served markets, is
aimed at delivering capital growth and cash generation to service
distributions through dividends and share repurchase.
N
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14
Caroline Lee
EMEA HR Director
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Our key strengths
At the cornerstone of Spirent’s business model are the key strengths which support the strategy and are the enablers for the creation of value
for shareholders and other stakeholders:
Innovation
We innovate through the endeavours
of our highly skilled and creative
people who build on decades of
experience. External inputs are
important through our technology
partners as is being located in the
world’s leading centres for
technological development.
In September 2013 Spirent launched
Avalanche NEXT, a powerful, easy-
to-use solution that tests the
performance, scalability and
security of today’s application-
aware network infrastructures by
generating authentic traffic and
attacks. The new interface is simple
and streamlined, but leverages all
the power of Spirent’s Avalanche
and Studio Performance traffic
generation engines.
Value-creating culture
We have embedded a culture
aimed at creating value for
stakeholders and shareholders,
which encourages rational risk
taking. We attract and retain
talented people, offering career
development, a non-discriminatory
workplace and fair and competitive
remuneration, within a
non-bureaucratic culture.
In 2013 Spirent’s Positioning
operation received the Investors
in People Silver award. This was
achieved through good planning,
strong leadership and people
management, excellent learning and
development support, and good
evaluation processes, all of which
ensure we get the very best from
our employees.
Test in progress using Avalanche NEXT.
Spirent’s Positioning team
Paignton, Devon.
Customer relationships
Customer relationships are key.
Spirent’s customers are the leading
providers of new technologies for
data communications in the world.
Our strategy is focused on providing
our customers with easy-to-use
solutions for testing and measuring
their complex systems. We also
strive to provide our customers with
the highest quality of support and
service possible.
In October 2013 Spirent joined
network equipment vendor, Huawei
and independent testing lab, EANTC
to conduct a large scale, high density
6.4 terabit/second core router test
at Huawei’s IP Technology Gala
and the Broadband World Forum.
This test verified the performance,
scalability and resiliency of Huawei’s
NetEngine 5000E core router with
a fully loaded 400G line card.
Intellectual property
We have created a large body of
intellectual property, patented and
proprietary raising the barriers of entry
to competition. Our new developments
are evolutionary in nature and build
on our existing expertise as well as
expanding our capabilities both
organically and through acquisition.
Successful deployment of VoLTE
requires voice quality and call
performance to be as good as, and
preferably better than, the services
they are replacing. In August 2013 we
launched an integrated test solution
capable of fully quantifying the end
user quality of experience and testing
with realistic scenarios prior to
commercial deployment. This solution
is backed by years of voice quality
measurement expertise in live networks
from Metrico, a market leading company
acquired by Spirent in 2012.
Gene Zhang – VP and General
Manager APAC.
Top: Tech-X Flex in-home test solution
from Service Assurance.
Bottom: Acoustic lab at Service
Experience facility.
15
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Our strategy
Our vision provides a simple definition of Spirent’s ultimate goal
and our strategy describes how we will achieve this vision.
Vision
To be the leading experts in test and
measurement technology in the data
communication market worldwide.
Spirent operates in a rapidly changing business environment and
therefore we regularly review our strategy to ensure it has a clear
focus and direction based on the expected future market trends,
opportunities and the challenges we face. In September 2013 Eric
Hutchinson was appointed as CEO which led Spirent to refresh the
strategy and the key actions for its achievement.
Strategy
To continuously innovate in test and
measurement technologies to develop
leading products and services for fixed
and mobile voice, data and video
applications and networks.
To be recognised by customers for
the ease-of-use and simplicity of our
solutions for testing and measuring
their complex systems.
Key actions
We have identified a number of key actions that we believe are critical
in order for Spirent to achieve the strategy and ultimately the vision,
recognising at the same time that Spirent must utilise its resources as
efficiently as possible.
Progress made during 2013 and what we are aiming to achieve in
2014 are summarised in this section:
16
Expand the markets
we serve
Through extension of our test product portfolio to serve network
and applications security, mobile communications quality of service
in the live network, development of microchip technologies for data
communications, and monitoring systems for live network deployments
for service providers and enterprise.
Key achievements in 2013
We expanded our solutions portfolio and served markets with an
integrated applications and security test platform, as well as innovative
test solutions for software-defined networking (“SDN”)/OpenFlow, Wi-Fi
offload and mobile device R&D. We applied our expertise to the needs of
the enterprise market with a new powerful, easy-to-use network test
platform. We also integrated the measurement tools for live networks
acquired with Metrico with test solutions from our Wireless business to
address the lab-based quality of experience testing requirements of our
mobile device customers.
Plan 2014
We plan to further extend our cloud and data center capabilities in SDN and
network functions virtualization (“NFV”), differentiate in end-to-end testing,
expand into new verticals including machine-to-machine (“M2M”), critical
infrastructure, enterprise and automotive, add value to our customers with
automation and infrastructure test optimization (“ITO”), and offer more
analytics that provide actionable answers from our customers’ “Big Data”.
Acquire new capabilities
and technologies
Through expansion of our portfolio through partnerships, licensing
technologies and/or the purchase of businesses.
Key achievements in 2013
Although there were no acquisitions in 2013, good progress was made
in the integration of technology and expertise acquired in 2012 with Mu
and Metrico. In September 2013 Avalanche NEXT was launched which
combines the powerful performance testing of Spirent Avalanche with
Spirent Studio’s threats and application emulation using capabilities
acquired with Mu. In August an integrated test solution capable of
quantifying the mobile end user quality of experience and testing with
realistic scenarios prior to commercial deployment was released, taking
advantage of the expertise in user experience testing in live networks
acquired with Metrico.
Plan 2014
Further expansion of our partnership programme will take place in 2014
and targeted technology acquisitions are planned in areas of strategic
importance. In 2014 to date, two acquisitions have been announced.
Pages 26 to 29 for Financial review for more details on these acquisitions
Embed a culture of responsible and
sustainable business practices
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Invest in our people
Deepen our customer
relationships
Spirent is its employees. Finding, keeping and engaging highly qualified
and skilled employees is central to our ability to deliver on our strategy
and to the success of our business.
Key achievements in 2013
We established an employee value proposition in order to clearly
communicate our brand to current and prospective employees, and
thereby retain and attract the best people. Leadership bench strength was
developed through various programmes including 360 degree feedback,
succession management, organisational and individual accountability
and financial acumen training. Employees in all regions around the globe
participated in courses, designed to enhance our ability to service the
customer and to create innovative, leading products.
Plan 2014
Expansion of our training and development programmes is included in our
operating budget for 2014. In order to align all levels of the organisation
with our vision and strategy as we respond to the rapidly changing
business environment, emphasis will be placed upon communicating the
Company’s key objectives to every individual, and driving the culture and
technical expertise needed to attain them.
Through emphasis on quality of service, delivery and support. Our
partnership with our customers will be strengthened through new
innovative solutions for their future needs and by extending the
capabilities of our in-house expertise. New relationships will be
established with the expansion of our sales and marketing reach
into new vertical segments and geographic regions.
Key achievements in 2013
A Customer Engagement programme focused on customer satisfaction
and improved alignment with our key service provider and equipment
manufacturer customers and has resulted in market share gains in
some of our most important accounts. Customer satisfaction was also
enhanced through an integrated approach of on-site resources and
collaborative testing that drove improved quality of our solutions.
Plan 2014
We will align our services teams more closely with the critical technology
developments of our customers. We will expand our resources to put
our experts closer to our customers and enhance our response to their
growing challenges with the complexity of systems and networks
through software automation and expert test methodologies.
Establish and maintain
technology leadership
Maintain financial
strength and flexibility
Through investment in product development engineering expertise, the
extension of our engagement with industry standards bodies, and close
alignment with our customers who lead innovation in the industries we
serve. We will expand our competencies in test automation, efficiency and
methodology, high performance test, scalability and in the replication of
and use of live real-world traffic and conditions.
Having a robust balance sheet and strong cash generation gives Spirent
the ability to invest in organic growth, pursue strategic acquisitions and
pay sustainable progressive dividends to shareholders. We operate in
markets that deliver high operating returns and operating performance
and cash generation are closely aligned.
Key achievements in 2013
In 2013 we increased our investment in product development engineering
by $14.4 million over the prior year. In 2013 Spirent released multiple
important new products and additions to functionality in key areas such
as SDN/NFV, applications and security, Ethernet service assurance and
satellite positioning.
Key achievements in 2013
Free cash flow for 2013 was $43.9 million, representing 1.3 times
reported earnings and the closing cash balance was $216.2 million
and there was no debt. Share buybacks and dividends to shareholders
amounted to $76.9 million. The strong balance sheet ensured that
Spirent was still able to meet its product development investment
plans despite the lower levels of trading in 2013.
Plan 2014
We plan to expand our capabilities by increasing investment in product
development by an additional $15 million, by growing our recognition
as experts in test and measurement though enhancing our global
presence and driving more industry standards, through the acquisition
of intellectual property and by the acquisition of new software and
solution capabilities.
Plan 2014
In 2014 Spirent plans to make an additional investment of around
$33 million to support the future organic growth of the business.
This additional expenditure will be funded from cash generated from
operating activities.
It is important that in the execution of our strategy we act responsibly and consider our impact on all of our stakeholders.
In this way Spirent will remain an efficient, well managed and well respected organisation – a business that our employees,
customers and communities delight in engaging with.
Employees pages 36 to 37 and CSR pages 38 to 43 for further information
17
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Key performance indicators
The Board has identified the following
key performance indicators (“KPIs”) to
measure the Group’s strategic progress.
Spirent’s strategy focuses on medium to long term growth and
therefore its achievement cannot just be measured by looking at
performance in 2013 compared to the prior year, trends over a
number of years must also be considered. KPIs relate to continuing
operations only.
To read about the strategic
points associated with
these KPIs go to pages 16
and 17
Book to bill ratio
Revenue ($ million)
09
10
11
12
13
102
105
103
97
105
09
10
11
12
13
369.4
422.8
470.5
472.4
413.5
Description
The ratio of orders booked to revenue
billed is a measure of the visibility of
future revenues at current levels of
activity and provides an indication of
the underlying trend in Spirent’s future
revenue stream.
The Group aims to maintain a book to
bill ratio of 100 or higher.
Commentary
The ratio was 105 for 2013 (2012 97)
which reflects the improving levels
of demand experienced by the Group
during the second half of 2013 as
customers began to increase their
investment in new technologies
and Spirent launched some key new
products.
Description
Growth in revenue measures Spirent’s
ability to expand its markets and
grow its customer base. The goal is
to achieve year-on-year growth in
revenue.
Commentary
Revenue for the Group reduced by 12
per cent in 2013. Trading was mixed
due to changing market dynamics
exacerbated by historical under
investment in some parts of the
business. There was strategic progress
and growth in certain market segments
such as the mobility testing market
and Positioning.
Pages 30 to 35 for Operational review
Adjusted operating profit1 ($ million)
Return on sales1 (%)
09
10
11
12
13
79.8
104.4
116.1
118.3
50.1
09
10
11
12
13
21.6
24.7
24.7
25.0
12.1
Description
Adjusted operating profit is the
measure used to evaluate the overall
performance of the Group as well as
each of our operating segments.
The goal is to achieve year-on-year
growth.
Commentary
Adjusted operating profit fell to $50.1
million in 2013, due to the loss of high
gross margin on reduced revenue,
and increased investment in product
development and sales and marketing
for future growth.
Commentary
Return on sales was lower at 12.1
per cent as a result of the 12 per cent
reduction in revenue in 2013 and the
planned increase in investment in
product development and sales and
marketing of $19.3 million.
Description
This is a measure of our overall
profitability. Spirent operates in
markets which have high operating
returns and we strive to achieve best-
in-class operating returns compared
with our peers. The ability to sustain
these returns is dependent on
maintaining a strong market position
and good cost management, but to
also be mindful of the need to invest for
future growth.
18
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Adjusted basic earnings per share1,2 (cents)
Free cash flow3 ($ million)
09
10
11
12
13
10.39
10.92
12.81
13.02
5.71
09
10
11
12
13
76.4
75.5
69.3
84.0
43.9
Description
Long term growth in EPS is a
fundamental driver to increasing
shareholder value. Consequently,
Spirent’s aim is to achieve growth in
adjusted EPS year-on-year.
Commentary
Adjusted basic EPS was 5.71 cents
down from 13.02 cents for 2012, and
reduced as a result of all the factors
previously discussed.
A component of the executive directors’
incentives is dependent on achieving
an EPS target.
Pages 58 to 76 for Report on directors’ remuneration
Description
Cash generation is a measure of the
quality of Spirent’s earnings. The aim
is to achieve a high conversion of
earnings into cash each year. Having
strong cash generation allows Spirent
to maintain its financial strength and
flexibility.
Commentary
Cash generation reflects the lower
operating result but cash conversion
was good with free cash flow of
$43.9 million for 2013, which represents
1.3 times reported earnings. At
31 December 2013 cash balances
were $216.2 million (31 December 2012
$248.6 million) and there was no debt.
In 2013 Spirent used $22.2 million of
cash for dividends and $54.7 million
for share buybacks.
Engineering and product milestones achieved (%)
Product development as a percentage of revenue (%)
10
11
12
13
09
10
11
12
13
100
94
94
87
19.2
17.9
17.7
18.2
24.3
Description
The Board sets quarterly engineering
milestones and dates by which these
should be achieved. These are selected
to represent the next critical stages in
the achievement of Spirent’s long term
strategic objectives. These milestones
are included as targets in its executive
directors’ incentive plans.
This measure has been tracked
since 2010.
Commentary
Of the 30 milestones set in 2013, 26
were achieved on time. The remaining
four were achieved, but slightly later
than planned mainly due to technical
issues. Many of these engineering
targets are linked to Spirent’s
formalised Gate Process whereby
a development project is split into
individual stages each of which
must be passed before moving
onto the next.
Description
To maintain its competitive position
Spirent must continue to invest in
order to support future organic growth
initiatives in line with the strategic
objectives.
Commentary
We grew our investment in product
development in 2013 by $14.4 million
to $100.5 million. However, under
investment in previous years has
been noted as a contributing factor to
the 2013 performance.
Pages 16 and 17 fo Our strategy
Pages 30 to 35 for Operational
review for discussion on product
launches and development in 2013
Pages 58 to 76 for Report on directors’ remuneration
Voluntary employee turnover (%)
Notes
1 Before exceptional items, acquisition
related costs, acquired intangible asset
amortisation and share-based
payment.
2 Before tax effect of items in note 1 and
prior year tax.
3 Operating cash flow after tax and net
capital expenditure.
10
11
12
13
5.9
6.8
7.7
8.3
Description
Spirent’s success is dependent on
its people, it is therefore important
that we attract and retain talented
employees by appropriately managing
and rewarding them. We monitor our
success in terms of voluntary employee
turnover which is a good indicator of
staff retention. This measure has been
tracked since 2010.
Commentary
Although up on the prior year staff
turnover remained low at 8.3 per cent.
In 2013 succession planning and talent
management processes were further
enhanced to ensure that Spirent has
the right people in order to deliver
on the strategy. At 31 December
2013 there were 1,525 employees
(2012 1,486).
19
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our principal risks and uncertainties
Like all businesses, Spirent is exposed to a number
of risks and uncertainties.
The principal risks and uncertainties which the directors believe are
currently faced by the Spirent Group are discussed below together
with the actions which have been developed to mitigate the effects.
These risks may arise from internal factors, but
some will be a result of external factors over which
the Group has little or no direct control. It is the
effective management of these risks that supports
Spirent in delivering on its strategic objectives,
safeguards the Group’s assets and, over time, will
also enhance shareholder value. The processes
to identify and manage the principal risks and
uncertainties of the Spirent Group are an integral
component of the internal control system and are
described below.
Pages 54 to 57 for Audit Committee for further information on
Spirent’s internal control systems. Pages 48 to 52 for Directors’
statement on corporate governance
Identifying, evaluating and managing risk
It is not possible to identify every risk that could affect the business
and the actions described below to mitigate those risks cannot
provide absolute assurance that the risk will not occur or adversely
affect the operating or financial performance of the Group.
The Board has classified the principal risks by the impact the risk
would be expected to have on the Group should it occur, and the
anticipated likelihood that the risk may occur using the following
classifications:
Impact
Likelihood of occurrence
High/Medium/Low
Likely/Possible/Unlikely
Likelihood of occurrence is based on qualitative factors such as past
experience and current market conditions. Impact is based on the
estimated degree of change in financial KPIs. The Board’s view of
the change in likelihood of occurrence and/or in the impact on the
Group (combined) of each risk compared to the prior year has also
been provided.
The Board
The Board has overall responsibility for internal control and risk management and for reviewing its effectiveness.
Audit Committee
Group Risk Review Committee
Individual business risk committees
The Audit Committee reviews and monitors the
Group’s risk process and reports to the Board
on its effectiveness. Risk is considered by the
Audit Committee at least three times per year, at
which time risk registers for both the Group and
the individual businesses are reviewed by the
Committee. The Audit Committee challenge and
debate the risks with reference to risk tolerance
and appetite, as set by the Board. Progress made
and any further actions to be taken regarding
mitigation plans, as well as any changes to the
risk profile, are discussed in detail.
The risk assessment process starts in the
businesses where up-to-date risk registers are
maintained as an integral part of the normal
operating and control procedures. Each
business identifies its key risks and nominates
a risk owner. The impact and the likelihood of
occurrence of each risk is ranked, which assists
the Group Risk Review Committee in assessing
the importance of each risk to the Spirent Group
as a whole. Once risks have been assessed
an appropriate risk mitigation response is
determined for each risk identified. The individual
businesses are required to update their risk
registers as new or emerging risks are identified.
The risk registers from the businesses are
reviewed regularly by the Group Risk Review
Committee. The purpose of the Committee
is to identify which risks are critical to the
Spirent Group and also to highlight corporate
wide risks that may not have been otherwise
considered. The Committee, which comprises
the Chief Executive Officer, the Chief Financial
Officer, the Executive Vice President (“EVP”)
Networks, Applications & Infrastructure, the
EVP Wireless & Service Experience and the
Vice President Group Finance, challenge and
debate the individual business risks and meet
with each business periodically to discuss the
risk assessment process. The Committee will
assess each risk and rank each according to the
estimated impact on the Group and the likelihood
of occurrence. They are also responsible for
developing and ensuring that appropriate risk
mitigation processes are in place for each risk.
This Committee is responsible for preparing the
Corporate Risk Register to present to the Audit
Committee and to the Board.
Pages 54 to 57 for Audit Committee
20
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Operational
Risk
Potential impact
Macro-economic and industry sector
Spirent is a global business exposed to the current
world economic conditions, over which it has no
control. The business is also exposed to government
spending priorities, principally in the United States. We
are particularly exposed to conditions in the
telecommunications sector into which we sell many of
our products and services and which has experienced
significant downturns in the past.
Deterioration in economic or sector conditions may
lead to a reduction in the level of demand for Spirent’s
products and services and cause customers to delay
their purchasing decisions.
During 2013 disruption and structural changes were
experienced in our markets which have impacted
Spirent’s performance.
Impact/
Likelihood
High/Likely
Change*
Mitigation actions
The Group closely monitors both market and
geographic trends in order to respond to changes in
demand and be in a position to take timely actions to
protect profitability where possible.
In addition, Spirent has a broad product portfolio of
innovative test solutions and a large number of
geographically diverse customers which may mitigate
the impact.
Risk
Potential impact
Competition
All Spirent’s businesses operate in highly competitive
markets which experience rapid technological
changes. The Group faces competition from new
market start-ups as well as the more established and
well-resourced companies.
Industry consolidation amongst our direct competitors
may bring about a shift in competitive advantages.
Actions by competitors and increased competition can
bring about pressure on Spirent’s gross margin. These
factors will also affect Spirent’s competitive position,
thereby reducing revenue and consequently affecting
the financial results.
Mitigation actions
In 2013 we saw intense competition in some of our
markets and lost some market share. The Group’s
broad solution portfolio, market leading capabilities
and customer focus continue to address this risk.
Spirent aims to maintain market leading positions
through significant investment in product development
which is being stepped up in 2014.
Competitor activity is closely monitored with a view to
maintaining clear differentiation based on Spirent’s
products, services and global reach.
Impact/
Likelihood
Medium/
Possible
Change*
* The Board’s view of how the
likelihood of occurrence and/
or impact has changed
compared to the prior year.
21
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Our principal risks and uncertainties continued
Operational
Change*
New
Risk
Risk
Potential impact
Impact/
Likelihood
Customer dependence
The Group sells its solutions and services to a wide
range of companies and seeks to continually expand
its customer base. In 2013 no one customer accounted
for 10 per cent or more of Group revenue although the
top ten customers represented 38 per cent of Group
revenue. In some of our markets certain customers
have a dominant market share, which makes doing
business with these customers 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 and therefore
meeting our development obligations, producing
high quality products, and in an appropriate time
scale, are vital to Spirent’s reputation and success.
The industry continues to experience consolidation
which can disrupt the spending patterns of those
customers affected.
Loss of one or more of Spirent’s major customers could
have a substantial impact on Spirent’s financial results.
Medium/
Possible
Significant failings in either quality or being able to
deliver in the appropriate timescale could cause long
lasting damage to Spirent’s reputation and relationships.
Customer consolidation could result in delays in
spending thereby reducing demand for Spirent’s
solutions and services and also reduce the potential
number of customers to whom those solutions and
services could be sold.
Mitigation actions
Spirent’s strong customer relationships are critical
as is providing innovative solutions which meet
customers’ needs and Spirent’s emphasis on providing
professional service and support. Many customers
have worked with the Group for a number of years.
One of the Group’s strategic objectives is to deepen
our customer relationships. We place engineers on-site
with our customers, undertake site surveys of the use
and intended plans for the use of test solutions in their
business. We seek to establish thought leadership in
our industry through participation in standards bodies
and industry forums, which in turn creates additional
links with customers. Our strategy is to play a key part
in the ecosystem of supply in our served markets by
aligning with early adopters of technology and with
chip developers.
22
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Impact/
Likelihood
High/
Possible
Change*
Operational
Risk
Potential impact
Business continuity risks
Operational risks are present in the Group’s
businesses. These risks include the risk of failed
internal and external processes and systems,
human error and external events, such as a natural
disaster. 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. The
major contract manufacturer is located in Thailand.
A significant natural disaster could disrupt the
Group’s ability to conduct business and impact
adversely revenue and operating results.
Disruption or financial problems of contract
manufacturers or limitations in the manufacturing
capacity at contract manufacturers could either limit
supply or increase cost.
Mitigation actions
An important component of Spirent’s corporate
governance is its integrated risk management strategy
and its regular self-assessment of risks encompassing
all business units.
IT disaster recovery plans are in place for all core
business systems and ensure that the wider operations
are all fully covered. In addition, the Group’s largest
manufacturing subcontractor has worldwide multiple
sites and comprehensive business continuity plans.
Regular meetings are held with contract manufacturers
and a regular on-site presence is maintained. To minimise
the effect on supply that could be caused by disruption at
contract manufacturers there are contingency plans in
place to transfer manufacturing to other locations.
Risk
Potential impact
Impact/
Likelihood
Change*
Intellectual property
Spirent’s success is dependent in part on proprietary
technology which may be infringed by others
inadvertently or otherwise. Protecting the Group’s
proprietary technology is important in enabling Spirent
to compete successfully.
Companies in the telecommunications industry often
aggressively protect and pursue their intellectual
property rights and may assert infringement claims
against Spirent.
Such claims can result in significant defence costs, and
may affect Spirent’s ability to market its products.
Low/
Possible
Mitigation actions
Spirent has active intellectual property protection
programmes in place to obtain appropriate intellectual
property protection in a cost effective manner.
There are procedures in the development of new
products that include consideration of intellectual
property rights of third parties. The Group also
consults internal and external legal counsel
experienced in intellectual property matters.
* The Board’s view of how the
likelihood of occurrence and/or
impact has changed compared
to the prior year.
23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Our principal risks and uncertainties continued
Strategic
Risk
Potential impact
Expand the markets we serve
An important component of the Group’s strategy is
to leverage Spirent’s competencies and capabilities
into new and expanding markets and new vertical
market segments.
Failure to identify, and execute on, these new market
opportunities will limit Spirent’s capability to achieve
its strategy, grow its revenue and maintain its
market share.
Impact/
Likelihood
Medium/
Possible
Change*
New
Risk
Mitigation actions
Organisational changes have been made in 2013 to
better align the businesses internally so that Spirent can
more effectively identify those areas which offer the
most significant growth opportunities. In addition, in
order to further facilitate knowledge of new market
areas outside our served market, individual managers
are designated responsibility for investigation, review
and to develop action plans arising from such initiatives.
Impact/
Likelihood
High/Likely
Change*
Risk
Potential impact
Establish and maintain technology leadership
Spirent sells complex solutions in industries that are
characterised by rapid technological changes. Keeping
at the forefront of these key future technologies is
critical to our success and to ensure that we remain
competitive in our markets.
It is critical that our product development investment
is directed at the right areas to enable Spirent to
develop those solutions that our customers need
in a timely manner.
If product development investment does not keep pace
with the speed of change in technology, or if it is not
directed at the right key areas, our competitive
position and financial performance will suffer.
If Spirent’s solutions take longer to develop than
anticipated or longer to develop than our competitors
then our competitive position and financial
performance will also suffer.
Mitigation actions
Under investment in previous years is one of the
factors that caused revenue to fall in 2013. This is
being addressed by increasing our investment in
product development in order to underpin our organic
growth initiates and by reorganising the structure of
the business, to sharpen our focus on anticipating
our customers’ requirements for the future.
We also intend to grow our recognition as experts
in test and measurement through our increased
engagement with industry standards bodies and
our close alignment with our customers.
24
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Strategic
Risk
Potential impact
Invest in our people
Spirent is its employees. So attracting and retaining
highly qualified and skilled employees is essential in
enabling the Group to deliver on its strategy and to the
success of the business.
Intense competition is faced for personnel from other
companies and organisations and the loss of key
employees, the failure to attract and retain other highly
skilled employees, or the failure to adequately plan
for succession may impair Spirent’s ability to run and
expand the business effectively.
Impact/
Likelihood
Medium/
Possible
Change*
Mitigation actions
Investing in people is at the core of the Group’s strategy.
The aim is to find, keep and engage the highest calibre
of employees and encourage their contribution and
development. An environment that fosters innovation
and collaboration is critical to Spirent’s success as is
ensuring incentive plans are competitive.
Succession planning for senior posts in the Company
is regularly reviewed by the Board.
Appropriate career paths and internal recognition
programmes are developed for both technical and
non-technical staff.
Pages 36 to 37 for further information on Our employees
Risk
Potential impact
Acquire new capabilities and technologies
A key element of Spirent’s strategy is to acquire
new capabilities and technologies, and this may be
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 or sometimes
deficiencies arising in the due diligence processes.
Impact/
Likelihood
Medium/
Possible
Change*
Mitigation actions
Rigorous strategic and financial evaluations of all
acquisition opportunities are carried out. Detailed
financial and commercial due diligence are performed.
The Board will only authorise transactions after all due
diligence has been successfully completed and where
the financial hurdles are within the agreed guidelines.
Integration plans and processes are carefully
considered prior to acquisition.
The Board regularly reviews post-acquisition
performance.
* The Board’s view of how the
* The Board’s view of how the
likelihood of occurrence and/or
likelihood of occurrence and/or
impact has changed compared
impact has changed compared
to the prior year.
to the prior year.
25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Financial review
Rachel Whiting
Chief Financial Officer
Spirent’s policy on capital structure is
to maintain a strong balance sheet to
support operational flexibility and fund
investment for long term growth.
The following table shows the key financial performance indicators monitored by the Board in order to measure the performance of the Group:
Change (%)
20121
2013
Continuing operations
Book to bill ratio2
Revenue ($ million)
Gross profit margin (%)
Operating profit3 ($ million)
Return on sales3 (%)
Adjusted basic earnings per share4 (cents)
Free cash flow5 ($ million)
105
413.5
69.4
50.1
12.1
5.71
43.9
97
472.4
71.3
118.3
25.0
13.02
84.0
(12)
(58)
(56)
(48)
Notes
1 Restated for the implementation of IAS 19 “Employee Benefits”.
2 Ratio of orders booked to revenue billed.
3 Before exceptional items, acquisition related costs, acquired intangible asset amortisation and share-based payment.
4 Adjusted basic earnings per share is based on adjusted earnings as set out in note 13 of Notes to the consolidated financial statements.
5 Operating cash flow after tax, net interest and net capital expenditure.
26
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 A review of the Group’s organisational structure has resulted in a
change to the segmental reporting in 2013 as explained in note 2
of Notes to the consolidated financial statements. Spirent is now
reporting three operating segments: Networks & Applications;
Wireless & Service Experience (previously referred to as Wireless
& Positioning in our 2013 Half-Year Report) and Service Assurance.
Comparatives have been restated accordingly.
Revenue
Group revenue was down 12 per cent compared to the prior year at
$413.5 million (2012 $472.4 million). Although trading was mixed as
a consequence of structural changes in Spirent’s markets, there were
some bright spots, namely an improvement in the mobility testing
market and also for our GNSS products, driven by a recovery in
government spending, new high end testing needs and the BeiDou
Chinese satellite system. Spirent’s professional services and support
revenues also grew year-on-year by 15 per cent and now represents
31 per cent of Group revenue. Market conditions are described in the
operational review which follows. After a poor first half of 2013, in
which revenue was down 19 per cent, trading improved in the second
half-year as customers began to increase their investment in new
technologies and Spirent launched some key new products.
Geographically, the United States is our largest market and accounts
for 52 per cent of Group revenue. Revenue decreased 10 per cent
period-on-period in this region. Asia Pacific is a major market for
Spirent, and one in which we have seen significant growth in previous
years. Revenue in this region declined 12 per cent, being particularly
weak in both China and India. Asia Pacific represents 32 per cent
of Group revenue. Europe represents 12 per cent of Group revenue
and was 24 per cent lower compared with 2012 as difficult macro-
economic conditions persisted in this region, although there was
some improvement towards the end of the year. The rest of the
world represents the remaining 4 per cent.
$ million
United States
Asia Pacific, Rest of
World
Europe
2013
215.8
146.9
50.8
413.5
%
52
36
12
100
2012
239.2
166.0
67.2
472.4
%
51
35
14
100
Order intake was 5 per cent lower overall for the continuing
Group compared with 2012. Order intake from several of our major
customers increased, whilst others did not repeat the high levels
of spend seen in 2012 or deferred projects until 2014. The resulting
book to bill ratio was 105 compared with 97 for 2012, with order book
growing by $21.4 million over the position at 31 December 2012.
Operating profit
Reported operating profit for continuing operations was $39.1 million
compared with $108.1 million in 2012. Operating profit before
exceptional items, acquisition related costs, acquired intangible
asset amortisation and share-based payment (“adjusted operating
profit”), which is the measure of profit used by the Group to evaluate
performance, decreased by 58 per cent to $50.1 million compared
with $118.3 million in 2012 as a result of the loss of high gross
margin on lower turnover as well as a significant increase in product
development investment of $14.4 million to drive future growth.
A reconciliation is set out below:
$ million
Adjusted operating profit
Exceptional items:
Inventory provision – Service Assurance
Reorganisation costs – Service Assurance
Review of Group’s organisational structure
Abortive acquisition costs
Acquisition related costs
Acquired intangible asset amortisation
Share-based payment
2013
50.1
–
–
(3.4)
(0.4)
–
(8.4)
1.2
2012
118.3
(1.4)
(1.5)
–
–
(1.2)
(4.5)
(1.6)
Reported operating profit
39.1
108.1
Return on sales, based on adjusted operating profit was 12.1 per cent
(2012 25.0 per cent).
Cost of sales and operating expenses
Gross margin reduced to 69.4 per cent (2012 71.3 per cent) due to
lower volumes, product mix and also the effect of a full year’s sales
contributed by the former Metrico Wireless business, which attract
slightly lower margins.
Spirent’s strategic priority is to generate growth both organically
as well as through acquisitions. Additional investment is critical for
Spirent to accelerate the development of its existing capabilities as
well as to expand the markets we serve and to ensure that Spirent
brings products to market in a timely manner in order to meet the
needs of its customers. Investment in product development was
increased in 2013 by 17 per cent to $100.5 million, representing
24 per cent of revenue, from $86.1 million and 18 per cent of
revenue in 2012.
Other operating expenses were higher at $147.2 million in 2013
compared with $142.5 million in 2012, 36 per cent of sales (2012
30 per cent). These costs include exceptional items of $3.8 million in
2013 of which $3.4 million relates to a number of management and
structural changes which were made in the period. The balance of
$0.4 million is in respect of abortive acquisition costs. In 2012
exceptional reorganisation expenses of $1.5 million were charged
within Service Assurance.
Other operating expenses also include acquired intangible asset
amortisation of $8.4 million (2012 $4.5 million) which reflects a full
year charge for the 2012 acquisitions of Mu Dynamics and Metrico
Wireless, and in 2012 a charge of $1.2 million for the expenses for
these acquisitions. Share-based payment is a credit of $1.2 million
(2012 charge $1.6 million) as the expense has been reversed for
certain awards which are now not expected to vest.
27
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Financial review continued
Excluding exceptional items, acquisition related costs, acquired
intangible asset amortisation and share-based payment, other
operating costs were $136.2 million compared with $133.7 million
in 2012, an increase of 2 per cent.
tax assets amounting to $18.3 million (31 December 2012 $28.4
million) have been recognised on the balance sheet. At 31 December
2013 there are deferred tax assets amounting to a tax value of $17.7
million (31 December 2012 $16.3 million) which remain unrecognised.
In 2014 Spirent plans to make an additional investment of around
$33.0 million in future growth. This increase comprises of:
For 2014 it is expected that the effective tax rate will be in the region
of 28 per cent.
• Product development – up $15 million.
• Sales and marketing – up $12 million.
• Support services – up $6 million.
Of the total increase $16 million will support our core business and
$17 million is to fund new initiatives.
The areas where this additional spend will be focused include virtual
test systems, software-defined networking solutions, expansion of
the enterprise channel, enhancements to Spirent’s cyber security test
offering as well as advancements in automotive software and related
connectivity testing.
Corporate costs
Corporate costs are those expenses which cannot be attributed to the
Group’s operating segments and comprise the costs of the Board and
other corporate activities. These costs were $5.9 million (2012 $6.5
million) before exceptional items for the year. Corporate costs for
2012 have been restated for the effect of the revised Accounting
Standard IAS 19 “Employee Benefits” which was implemented in
2013. The effect of this standard for Spirent for 2013 has been an
increase in corporate costs of $0.7 million and an increase in net
interest expense of $1.2 million.
Currency impact
The effect of fluctuating exchange rates is relatively minimal as the
Group’s revenue and profits are primarily denominated in US dollars
or US dollar-linked currencies.
Finance income and costs
Finance income for 2013 was $0.9 million compared with $0.8 million
in 2012. Surplus funds are held principally in the United Kingdom
and United States and earn market rates of interest which
remain negligible.
Finance costs comprise $0.9 million (2012 $0.5 million) of net
defined benefit pension plan interest cost.
It is estimated that there will be no net interest expense for the
pension plans for 2014.
Tax
For the Group taxable profits principally arise in the United States. The
tax charge for the continuing Group in 2013 was $6.4 million (2012
$29.0 million), representing a current year effective tax rate of 25.8 per
cent (2012 28.4 per cent) of pre-tax profit, excluding a prior year
tax credit of $3.7 million (2012 $1.8 million). This rate is lower than
the prior year principally due to the benefit of 2012 Research and
Experimental tax credits in the United States which fall into 2013 and
the spread across different territories. At 31 December 2013 deferred
28
Earnings per share
Adjusted basic earnings per share was 5.71 cents compared with
13.02 cents for 2012. There were 640.6 million (2012 655.7 million)
weighted average Ordinary Shares in issue. Basic earnings per share
was 5.10 cents for 2013 compared with 12.11 cents for 2012.
A reconciliation of adjusted profit is provided below for continuing
operations:
$ million
2013
2012
Profit for the period attributable to owners of
the parent Company
Exceptional items
Acquisition related costs
Acquired intangible asset amortisation
Share-based payment
Tax effect on the above items
Prior year tax credit
Adjusted profit for the period attributable to
owners of the parent Company
Adjusted basic earnings per share
32.7
3.8
–
8.4
(1.2)
(3.4)
(3.7)
36.6
5.71
79.4
2.9
1.2
4.5
1.6
(2.4)
(1.8)
85.4
13.02
Financial risk management
The key objective of the Group’s treasury department is to manage
the financial risks of the business and to ensure that sufficient
liquidity is available to the Group. All treasury activity operates
within a formal control framework. The Board has approved treasury
policies and guidelines and periodically reviews treasury activities.
Additionally, it is the Group’s policy that speculative treasury
transactions are expressly forbidden.
Spirent’s financial risk management objectives and policies and
its exposure to risks are discussed in note 26 of Notes to the
consolidated financial statements.
Financing and cash flow
Cash and cash equivalents were $216.2 million at 31 December 2013
compared with $248.6 million at 31 December 2012. Spirent
continues to be debt free. Cash and cash equivalents are held as
cash on demand or in short term bank deposits and 84 per cent of
the balance was denominated in US dollars.
Spirent remains cash generative, despite the lower revenue in 2013,
and this gives Spirent the financial flexibility to invest in organic
growth, pursue strategic acquisitions and pay sustainable,
progressive dividends to shareholders.
In 2013 operating activities generated $73.5 million (2012 $120.3
million continuing operating activities) of cash during the year. Free
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 cash flow conversion represents 1.3 times (2012 1.1 times) reported
earnings. Working capital reduced by $12.1 million (2012 increased
by $6.2 million) during the year.
Free cash flow for continuing operations is set out below:
$ million
Cash flow from operations
Tax paid
Cash inflow from operating activities
Net interest received
Net capital expenditure
Free cash flow
2013
73.5
(6.1)
67.4
0.8
(24.3)
43.9
2012
120.3
(23.1)
97.2
0.6
(13.8)
84.0
Net capital expenditure has increased in 2013 to $24.3 million from
$13.8 million in 2012 in line with investment plans. In 2012 the net
cash outflow from acquisitions and disposal of businesses was $32.1
million. In 2013 there were no acquisitions or disposals.
The cash generated has been utilised to pay dividends to shareholders
and for the return of capital through the share buyback programme.
In 2013 a final dividend for 2012 and an interim dividend for 2013
totalling $22.2 million (2012 $20.3 million) were paid. Share
repurchases during the year have resulted in a cash outflow of
$54.7 million (2012 $31.6 million).
Defined benefit pension plans
The Group operates two funded defined benefit pension plans which
are in the United Kingdom. Both of these schemes were closed some
time ago to new entrants and the main plan now has less than ten
active members.
The accounting valuation of these plans at the end of 2013 was a net
deficit of $2.5 million compared with a net deficit of $24.8 million at
31 December 2012 and was based on the latest triennial actuarial
valuation at 1 April 2012. The improvement in the deficit is a result
of changes in the underlying assumptions and a rise in the value of
the assets.
The triennial actuarial valuation of the plans at 1 April 2012 was
completed in the period. To fund the deficit the Company has agreed
to pay additional contributions of £2.8 million ($4.6 million) per
annum, which will be paid on a monthly basis together with a one-off
contribution of £1.0 million ($1.6 million) which was paid in July 2013.
A further one-time contribution of £2.5 million ($4.2 million) is also
payable no later than 1 July 2016 depending on the funding of the
plan at that time.
The Group has also reported a liability of $0.8 million (31 December
2012 $0.8 million) in respect of United Kingdom unfunded
plan liabilities.
Capital structure
Spirent’s policy on capital structure is to maintain a strong balance
sheet to support operational flexibility and fund investment for long
term growth.
During 2013 the balance of the proceeds from the divestment of the
Systems business, approximately $33 million, were applied to the
repurchase of Spirent shares in the market for cancellation and the
programme extended beyond this. In total during 2013 the Company
repurchased 29.2 million shares at a cost of $55.5 million (2012 13.4
million at a cost of $30.8 million) of which $0.8 million was settled in
2014. Shares were repurchased at an average share price of 119
pence per share. All shares repurchased were cancelled. Since the
period end a further 9.7 million shares have been repurchased at a
cost of $15.6 million. No further buybacks are currently planned.
Dividend
The Board are recommending the payment of a final dividend for 2013
of 2.01 cents (1.20 pence) per Ordinary Share which, with the interim
dividend of 1.53 cents (1.01 pence) per Ordinary Share paid in
September 2013, brings the full year dividend to 3.54 cents (2.21
pence) per Ordinary Share. The dividend is covered 1.6 times by
adjusted earnings. This is an increase of 10 per cent over the full year
dividend for 2012 of 3.22 cents per Ordinary Share.
Subject to approval by the shareholders at the Annual General
Meeting, the final dividend will be paid on 25 April 2014 to Ordinary
shareholders on the register at 7 March 2014. Payment to ADR
holders will be made on 2 May 2014.
Events after the balance sheet date
On 19 February 2014 Spirent completed the acquisition of the
business of DAX Technologies Corp. (“DAX”), privately held by
Dragos Alexe and others, for a cash consideration of $37.0 million.
Based in Matawan, New Jersey, DAX is a leading provider of customer
experience management solution software that enables mobile and
wireline service providers to understand and quantify services as
experienced by their customers.
The addition of DAX positions Spirent well to help service providers
with the unprecedented challenges they face when developing and
managing new services in mobile and wireline network environments
of rapidly increasing complexity. This acquisition will enable us to
strengthen our Service Assurance portfolio, expanding Spirent’s
addressable market in the live network.
On 20 February 2014 Spirent completed the acquisition of 58 per cent
of the share capital of Testing Technologies IST GmbH (“Testing
Tech”) which was in private ownership, for a cash consideration of
Euro 2.0 million. The company develops and markets standardised
and customer-specific software-based testing tools which support
the development of mission-critical products and workflow steps.
Testing Tech also participates in the connected vehicle market which
will facilitate Spirent’s progress in this market. The minority stake of
42 per cent of the share capital is the subject of a put and call option
which expires on 31 March 2016. The consideration is based on the
2015 performance of Testing Tech and set at a minimum amount of
Euro 1.4 million. Testing Tech will be reported within our Wireless &
Service Experience division.
As both acquisitions have only very recently completed neither the
fair values of the assets and liabilities acquired, nor the
consideration, have yet been determined.
29
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operational review
Networks & Applications
Market conditions
Networks & Applications develops innovative
solutions for functional and performance testing of
next-generation networks and applications that
simulate real-world conditions in the lab, before a
commercial launch.
30
– Intense competition in data center
– 4G/LTE driving mobile data and signalling growth
– Virtualization on the rise everywhere
– Intense interest in cyber security, SDN and NFV
In 2013, 4G/LTE network rollouts drove continued rapid growth in
mobile data as well as in signalling traffic, due to the proliferation
of “chatty” applications. We saw access networks evolving to
accommodate the growth, employing small cells and Wi-Fi offload,
which led to new mobility testing needs. Mobile also played a role in
driving service provider infrastructure spending growth, with intense
competition amongst multiple players for next-generation high
density core router and 100G Ethernet optical transport network
(“OTN”) business. In the cloud and data center market we saw the
rise of software-defined networking (“SDN”) and of cloud service
providers with innovative business models, while virtualization and
intense competition led to price erosion in the traditional switch
market. In the applications and security space, cyber security and
bring your own device to work (“BYOD”) continued to grab headlines,
leading to intense interest in the enterprise, government and large
service provider space and to advances in next-generation firewalls.
Virtualization continues to be a major trend across all our markets,
with the move to network virtualization and strong service provider
interest in network functions virtualization (“NFV”).
Performance
– Growth in mobility revenue offset by decline in
data center
– Built leadership in SDN and NFV
– Regional challenges in APAC and EMEA
– Historical under investment in parts of the business
Revenue
On the back of the mobile trends identified above, we saw growth
in our mobility solutions in 2013. Service provider infrastructure
business was also up modestly, while revenue in our application and
security market was flat. However, the growth was more than offset
by a sharp fall in data center revenue, with customer investments
shifting to virtual and intense competition. From a regional perspective,
revenue was flat in North America, slightly down in APAC and
considerably down in EMEA, although we saw a modest rebound in
APAC and EMEA during the fourth quarter. Under investment in
new test systems and lack of expansion into new markets in prior
years also had an effect on the results of this business in 2013.
Our Infrastructure Test Optimization (“ITO”) business saw growth
on the back of Spirent professional services and large service
providers standardising on our iTest® solution. Revenue was down
at $213.4 million from $259.5 million in 2012, while we built the
order book with a book to bill ratio of 105 (2012 94).
Profitability
Operating profit before exceptional items was down to $13.2 million
from $59.7 million in 2012 on the reduced revenue and with an increased
investment in product development of $5.3 million compared with the
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Results
Revenue
$213.4M
(2012 $259.5m)
Operating profit
before exceptional
items
$13.2M
(2012 $59.7m)
Return on sales
before exceptional
items
6.2%
(2012 23.0%)
previous year. Exceptional items of $1.6 million were charged in
relation to reorganisation expenses in the fourth quarter.
Product development
In January 2013 Spirent launched Axon, a new solution for the enterprise
market that enables new applications and services to be deployed more
quickly and with greater confidence. In May, we launched a family of
next-generation high speed Ethernet test solutions, with new high
density 10/40/100G test modules to address increasing complexity and
exploding data traffic in service provider and data center networks with
market leading realism and scale. In September we launched Spirent
Avalanche NEXT, a powerful, easy-to-use solution that tests the
performance, scalability and security of today’s application-aware
network infrastructures by generating realistic traffic and attacks. We
also built a leadership position in SDN/OpenFlow, which included
hosting the Open Networking Foundation PlugFest at our Sunnyvale,
California facility in November.
Strategy in action
Innovation runs
throughout our
organisation.
Page 14 for Our
business model
Strategy
– Invest in mobility, especially VoLTE and Wi-Fi
– Increase investment in application and cyber
security testing
– Gain leadership in virtual, SDN and NFV
For 2014, we plan to shift our investment focus to better align with
that of our customers. For mobility, we will address new opportunities
presented by VoLTE and Wi-Fi. We also plan to increase our investment
in applications and security, building out our Avalanche NEXT solution,
focusing on cyber security and critical infrastructure, developing the
government market, and growing cloud based testing-as-a-service
offerings. Our service provider infrastructure focus will be on next-
generation core routers and SDN/NFV rollouts, with leadership in
coverage and scale. We also plan to play a key role in technology and
standards definition for 400G Ethernet. In cloud and data center we will
target the fast growing cloud service provider space, and gain
leadership in virtual and SDN. We have established a focused ITO &
Solutions business to address key service provider ecosystems and
align with market trends including lab consolidation and agile
development. Our Enterprise business will build out its channels to
market and develop customer demand.
(from left to right ) Ahmed Murad – General Manager
Angus Robertson – Senior Director of Segment Marketing.
31
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operational review continued
Wireless & Service Experience
Market conditions
Wireless & Service Experience develops solutions
for functional and performance testing of next-
generation mobile wireless and satellite positioning
devices in the lab before commercial launch, and
for measurement of the mobile experience on
live networks.
32
– Many smartphone vendors experiencing
business challenges
– New 4G voice services poised for widespread
deployment
– BeiDou and vulnerability concerns drive
Positioning markets
In our Wireless & Service Experience markets, the focus of
smartphone growth shifted to more price sensitive regions which,
coupled with the increasing dominance of a few manufacturers,
led to profitability challenges for many vendors. 2013 saw initial
deployments of important new 4G services and technologies,
including VoLTE and LTE-Advanced, with large scale rollouts expected
in 2014. China awarded its 4G licences in December, mandating the
use of TD-LTE technology. Wireless machine-to-machine (“M2M”)
connectivity continued to expand into everything from domestic
appliances to medical and vehicle applications. In our Positioning
markets, the application of multi-GNSS technologies grew, with the
Chinese BeiDou system joining established GPS and GLONASS.
Another market driver was the growing concern over the vulnerability
of GNSS receivers to jamming and other attacks.
Performance
– Wireless revenue declines on weak carrier driven
business
– Service Experience flat in an integration year
– Positioning benefits from government spending
Revenue
Wireless experienced a sharp decline in its mobile device test
markets as a result of device vendors’ profitability challenges, a lull
in new technology and service launches, fierce competition and
continued investment shift from 3G to 4G/LTE technologies. Service
Experience had a flat year as we focused on integrating the Metrico
business, acquired in September 2012. Positioning experienced
growth in its markets as a result of US government business recovery,
new high end testing needs from applications and the BeiDou
Chinese satellite navigation system. Including a full year contribution
from the Metrico business of $25.8 million (2012 $6.4 million),
overall revenue was down by $6.8 million to $167.7 million from
$174.5 million in 2012. Book to bill ratio grew to 101 from 97 at the
end of 2012.
Profitability
Operating profit was $33.8 million compared with $56.7 million in
2012 due to loss of high gross margin on the reduced revenue
together with an increase in investment in product development of
$8.3 million. The resulting operating margin reduced to 20.2 per cent
compared with 32.5 per cent in 2012.
Product development
Our Wireless & Service Experience businesses invested to address
the industry’s needs as it prepared for large scale deployment of
4G/LTE-enabled services such as VoLTE. We released lab-based test
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Results
Revenue
Operating profit
Return on sales
$167.7M
(2012 $174.5m)
$33.8M
(2012 $56.7m)
20.2%
(2012 32.5%)
Strategy in action
Innovation runs
throughout our
organisation.
Page 16 for Our
strategy
solutions for VoLTE and other IMS services, as well as tools and
services for both the lab and live networks that measure audio
quality (including HD voice and VoLTE), video performance and
battery life as experienced by mobile subscribers. Other new
solutions addressed E911 emergency requirements for VoLTE in the
US, and the TD-LTE technology testing needs of markets such as
China and India. Our Positioning business underscored its industry
leadership with the first commercial release of test solution support
for the Chinese BeiDou satellite navigation system.
Strategy
– Invest in machine-to-machine market opportunities
– Expand our offerings that ensure performance of
new devices and services
– Focus on new positioning technologies and high
end applications
Our Wireless business will focus on enabling our customers to
improve both the realisation and management of their mobility
services through application of technology, expertise, and analytics.
We also will apply the wireless and application expertise gained in
the smartphone cellular market to the M2M connectivity market.
Our Service Experience business will add more analytics to its
portfolio of services and solutions that help network operators ensure
the performance of new devices and services as they come to market,
as well as focusing on business development in Asia Pacific and
Europe. Our Positioning business will focus on the expanding high
end, leading edge technologies that lead to new applications, as
well as on the challenges surrounding the vulnerability of GNSS in
critical infrastructure.
(from left to right)
Pat Petillo – Vice President Sales, Wireless
Rob VanBrunt – General Manager, Wireless
Guy Merritt – Vice President of the Wireless Products Group.
33
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operational review continued
Service Assurance
Market conditions
Service Assurance provides solutions which allow
service providers to diagnose, troubleshoot and
determine how to resolve issues with networks and
systems within live networks and to monitor live
network performance.
– Continued caution by service providers around
legacy spending
– In-home complexity drives more field testing needs
– Downward pressure on support contract renewals
Service providers remain cautious with their spending, particularly
around legacy technologies, and are also applying greater pricing
pressure on support contract renewals. The growth in mobile data
subscribers and 4G/LTE technology is driving Ethernet speeds ever
higher and requiring better data analytics. Increasing in-home
complexity for triple play services resulted in a need for better tools
to manage this, one of the most challenging parts of the distribution
network. The rapid evolution of cloud services, data center
virtualization, SDN and NFV is greatly increasing the importance of
in-network testing.
Performance
– Revenue down due to legacy and service
contract pressure
– Strong growth in Ethernet space
– New field test solution attracts large order,
$12.0 million revenue delayed until 2014
Revenue
Overall revenue was down, primarily due to continued carrier caution
in their legacy TDM, triple play in-network probes and support
contract spend. Ethernet was a strong growth area for Service
Assurance in 2013, particularly in the intelligent software areas.
Although field test revenue fell, 2013 saw a large order from a major
North American service provider for a new version of our Tech-X Flex
product, for which revenue will not be recognised until 2014. Overall
revenue fell $6.0 million to $32.4 million in 2013, compared with
$38.4 million in 2012. The book to bill was 127 due to large revenue
deferrals around field test and Ethernet solutions, hence the outlook
for Service Assurance revenue heading into 2014 is positive.
34
Strategy in action
Innovation runs
throughout our
organisation.
Page 12 for What
we test
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Results
Revenue
$32.4M
(2012 $38.4m)
Operating profit
before exceptional
items
$9.0M
(2012 $8.4m)
Return on sales
before exceptional
items
27.8%
(2012 21.9%)
Profitability
Operating profit increased in Service Assurance to $9.0 million from
$8.4 million in the prior year despite the lower revenue in 2013.
The increase in profit is mainly due to abnormally high gross margin
as a result of a higher proportion of service revenue, as well as lower
overhead costs. Gross margin for 2014 is likely to be in the region of
75 per cent. Our investment in product development has increased in
this division by $0.8 million compared to 2012.
Product development
Development focus remained on Ethernet service assurance as well
as expansion of our field test solutions and an entry into the service
provider data center market. The capabilities of Spirent TestCenter
Live, our Ethernet service assurance solution, are expanding to
include performance monitoring for LTE and VoLTE, as well as a
new 100G Ethernet probe and software to enable testing further
up the protocol stack. We developed a greatly enhanced version of
our Tech-X Flex field test unit which will ship to customers early in
2014. We also invested in development of Data Center Live, our
comprehensive virtual network monitoring and troubleshooting
solution aimed at the latest highly complex and versatile data center
networks, building on Spirent’s wide ranging expertise to test every
aspect of a data center cloud, which we will also bring to market
in 2014.
Strategy
– Invest in solutions for mobile and enterprise services
– Launch new field test tool to address in-home issues
– Enter the service provider data center market
Spirent will invest in our customers’ most pressing operational issues
in the core of the Ethernet network, in the field and with emerging
cloud/data center networks. Spirent TestCenter Live will continue to
benefit from service provider investments that remain focused on
growth areas such as 4G/LTE mobile and higher bandwidth enterprise
business services. We will go to market with our enhanced field test
tool to greatly improve the efficiency and effectiveness of installation
and maintenance teams when addressing in-home network issues.
Lastly, as service providers ramp up their investments in their cloud
services and associated data centers we will introduce a solution
that allows them to dissect problems inside and outside the data
center simultaneously.
(From left to right)
Jeff Schmitz – Executive Vice President, Wireless & Service Experience
Brian Ketchum – Vice President Engineering and Product Development,
Service Assurance.
35
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our 1,500+ talented employees, working in 29 locations in 15
countries, provide a matchless competitive advantage for us creating
innovative products for our customers. To sustain our competitive
advantage and bring together this culturally diverse group of
employees, Spirent has built a global culture based on four values
– being creative, competitive, customer focused and collaborative.
These values form the foundation of Spirent’s ability to inspire
innovation and enrich the lives of millions of people around
the world.
To attract, keep and grow our people, we constantly review and
improve our benefits, retention, development programmes and
career growth opportunities. Our efforts continue to bear positive
fruit, with global voluntary turnover at 8 per cent.
Rewarding our people
Our compensation and benefit schemes are aligned with performance
and are regularly benchmarked to ensure that Spirent rewards
employees competitively in every country in which we operate.
Spirent believes in sharing its success with its employees, with
all employees participating in some form of variable compensation
tied to the achievement of key goals such as revenue growth and
profitability: Growth Sharing Plan for individual contributors through
managers; Sales Commission Plan for sales employees; and
Management Incentive Plan for senior managers and above.
Another way in which we reward and recognise excellence is through
our Global Recognition Programme, which provides Spot, Excellence
and Executive Awards. These awards are one-time cash incentives as
recognition for exemplary contributions that demonstrate one or
more of our key values.
Our employees
Spirent is its employees – it is our highly
skilled, motivated and empowered
employees that drive the success of
the business. For more than 75 years,
Spirent has sustained a globally
effective organisation and provided
a great place to work through career
advancement opportunities,
workforce diversity and transparent
communication.
Our key values
Competitive
Engage and develop our employees to relentlessly
out-execute the competition every time, whilst
maintaining the highest ethical standards.
Creative
Innovation that inspires our customers, our customers’
customers, our employees and shareholders.
Customer focused
Dedicated to every customer’s, every employee’s
and every shareholder’s success.
Collaborative
One global team, sharing knowledge, ideas,
technology, resources and talents to achieve and
sustain profitable growth.
Employees in our
Crawley, West Sussex
Corporate office.
36
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 In addition, we provide project based incentives to recognise and
reward employees for extraordinary work that results in significant
overachievement of critical projects. The Patent Award programme
rewards employees for being innovative, while protecting the
Company’s investment and intellectual property rights. In 2013
Spirent awarded 20 patent based incentives to our employees.
Growing our talent
We recognise that our competitive advantage can only be maintained
by developing our own talent internally as well as recruiting the best
skills from outside of our organisation.
In 2013 we established an Employee Value Proposition in order
to clearly communicate our brand to current and prospective
employees, and thereby retain and attract the best people. Spirent
is large enough to provide a wide range of career possibilities, but
small enough for individuals to be noticed and recognised, we offer
an ideal environment for people to unleash their innovative spirits
and collaborate to discover the future together.
Throughout 2013, we continued to support education by offering
internships and work experience programmes that not only help
students develop professional knowledge, but also to provide
future talent for our entire organisation. In 2013 Spirent offered
28 internships in the US, seven in Europe and 20 in Asia.
Our challenging work environment inspires innovation, with continuous
learning as an essential part of our human resources philosophy.
In 2013 employees in all regions around the globe participated in
courses designed to enhance our ability to service the customer and
to create innovative, leading products. Leadership bench strength
was developed through various programmes including 360 degree
feedback, succession management, organisational and individual
accountability, and financial acumen. Our career development
emphasises tailored, flexible pathways that give employees the
opportunity to explore their potential in the right direction and
at the right speed.
Employee engagement
At Spirent we recognise the importance of two-way communication.
Our employees’ opinions matter to us. We regularly invite our
employees for their views on a wide range of issues. Based on
the feedback, we develop specific action plans to increase the
engagement of our employees and foster a stronger organisational
culture. In addition, informal meetings between many of Spirent’s
executives and small groups of employees continue to be held on a
regular basis, with the aim of sharing perspectives among a broad
cross section of our team members. Other tools aimed at facilitating
two-way communication include regular all employee meetings with
our Chief Executive Officer and other executives, employee focused
group meetings and the continued expansion of our employee intranet.
Diversity
Spirent is committed to upholding human rights and fully believes
that diversity fuels business success in a multicultural world. Our rich
diversity is reflected in our work environment – including ethnicity,
race, gender, age, sexual orientation, faith, culture and global
experiences. We believe that this variety of backgrounds,
experiences, beliefs, personalities, knowledge, skills and ideas not
only creates an enriching experience for our employees, diversity also
yields the innovation and creativity demanded by our customers.
The Group is committed to providing equality of opportunity to all
existing and prospective employees without unlawful discrimination
on the basis of religion, disability, gender, age, marital status, sexual
orientation, race, ethnicity or any other protected status.
1
1
1
2
2
2
Board diversity
1 Male
2 Female
1 Male
2 Female
2013
5
1
83%
17%
2012
5
1
83%
17%
1
Employee diversity
2013
1,194
331
78%
22%
1 Male
2 Female
1 Male
2 Female
2012
1,172
314
79%
21%
Senior manager diversity
1 Male
2 Female
1 Male
2 Female
2013
157
51
75%
25%
2012
160
48
77%
23%
Disabled persons
Disabled persons, whether registered or not, are accorded equal
opportunities when applying for vacancies, with due regard to their
aptitudes and abilities. In addition to complying with legislative
requirements, procedures ensure that disabled employees are fairly
treated in respect of training and career development. With regard
to employees who become disabled during the course of their
employment, the Group is supportive and will take all reasonable steps
to ensure that they can remain in employment wherever practicable.
37
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate social responsibility statement
Corporate responsibility is integral to
the way Spirent conducts its business
and we are committed to advancing
our policies and systems across the
Group to ensure that we address
all aspects of corporate social
responsibility (“CSR”).
The Board takes ultimate responsibility for CSR with a fundamental
commitment to create and sustain long term value for shareholders,
recognising that acting responsibly and sustainably creates value.
Spirent’s CSR strategy covers our accountability to all of our
stakeholders, this includes striving for the highest ethical standards
of business practice; how we support, develop and reward our
employees; how we minimise our impact on the environment; and
how we support and engage in the communities in which we operate.
Our responsibility framework
Ethics
Spirent expects that all of its business is conducted
in compliance with high ethical standards of
business practice. We apply these standards to
all dealings with employees, customers, suppliers
and other stakeholders.
Health and safety
Spirent is committed to continually improving its
health and safety performance and is also committed
to employee wellbeing by encouraging the adoption
of healthier lifestyles by its staff members.
Sustainability and environmental
The Group is committed to the concepts of pollution
prevention, minimising environmental impacts and
eco-efficiency.
Community
Spirent aims to build stronger and healthier global
communities through education, charitable donations
and support of non-profit agencies in the communities
in which we operate.
38
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 The Group Health and Safety Policy places responsibility for the
management of health and safety on local management who are
supported by local external advisers where necessary. It is the
Group’s policy that each business unit should have a senior
individual designated as being responsible for ensuring the business
unit conforms to local statutory health and safety regulations as well
as the Group Policy. An annual questionnaire on health and safety
performance is completed by our business units and any issues
are addressed and resolved. Independent external reviews of the
Company’s health and safety performance are conducted annually
at selected business units. Regular designated health and safety
awareness training programmes are also carried out.
Spirent recognises that it is important that health and safety is
managed to high standards successfully throughout all levels of the
organisation. Successful health and safety management contributes
to Spirent’s overall success by preserving and developing staff and
physical resources, thereby reducing costs and liabilities. It is an
essential element of its corporate responsibility.
Spirent is committed to continually improving its health and safety
performance and to employee wellbeing by encouraging the adoption
of healthier lifestyles by its staff members. Regulatory requirements
and the outline of care form the basis upon which Spirent’s
commitment is achieved. By realistic planning, review and
development, Spirent maintains a successful health and safety
management programme and appropriate resources are made
available for this purpose.
Ethics
Spirent expects that all of its business is conducted in compliance
with high ethical standards of business practice. We apply these
standards to all dealings with employees, customers, suppliers
and other stakeholders.
Spirent has continued to ensure that all its systems, controls and
training comply with the anti-bribery and corruption legislation in all
the countries where we operate and that a culture of prevention and
detection of all forms of bribery and corruption is in place. This policy
applies to Spirent’s subsidiaries and business partners.
The Group’s Ethics Policy, which has been approved by the Board, is
available on our website at http://corporate.spirent.com. Our Ethics
Policy has been developed to ensure that the Group’s business is
conducted in adherence with high ethical and legal principles and
sets standards of professionalism and integrity for all employees and
operations worldwide.
The following is a summary of the Ethics Policy:
• all employees have the right and responsibility to ensure that
Spirent’s business is conducted with high ethical and legal
principles;
• our policy is to operate within applicable laws;
• discrimination or harassment of any kind will not be tolerated;
• as a matter of policy, we do not make political donations;
• no bribes shall be given or received;
• conflicts of interest must be avoided;
• we aim to be a responsible partner within our local communities; and
• employees are encouraged and supported to report, in
confidence, any suspected wrongdoings (“whistleblowing”).
Appropriate ethical behaviour is reviewed as part of the Group’s
internal control process.
Health and safety
The Chief Financial Officer is the director appointed by the Board to
have responsibility for the health and safety performance of the
Group. No major health and safety issues were reported by the Chief
Financial Officer to the Audit Committee and Board during the year.
The health and safety risk profile of the Group remained low during
2013. The main risks of the Group continue to be based around final
test and assembly of products and working environment issues such
as ergonomics and repetitive strain injury.
The Group continued to have very low accident rates in 2013 and no
incidents required any hospitalisation.
39
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate social responsibility statement continued
Sustainability and environmental
The Group continues to make significant progress in integrating
sustainability and environmental strategy into its operations.
Environmental and sustainability performance has improved in a
number of areas throughout 2013 with the focus reflecting the issues
considered material by the Group. Existing initiatives on logistics and
power consumption in products were extended, and several energy
efficient and low-carbon technologies have been installed across the
Group’s global estate. The Group has also continued to implement
the recommendations of a major review of environmental strategy
that was commissioned in 2011.
Environmental policy and compliance
The Group Environmental Policy applies to the Company and to all
subsidiaries worldwide. It commits the Group to prevention and
control of pollution, minimising environmental impacts, eco-
efficiency, and to adopt responsible environmental practices.
The Group is also committed to compliance with all applicable
environmental regulation in all of the jurisdictions in which it operates.
To meet these objectives, the Group endeavours to continuously
improve environmental performance and to make robust
environmental management integral to its overall strategy.
The full policy can be found at: http://corporate.spirent.com.
As in previous years, the Group’s main direct environmental impacts
result from offices, laboratories and assembly sites accommodating
employees, IT systems, and travel. Business units across the Group
continue to take measures to reduce impacts, including installation
of energy efficient and low-carbon technologies, and improved
waste management. There have also been a number of initiatives
at different business units to reduce environmental impacts,
particularly those related to energy consumption. The Group has
also continued to reduce total floor space used:
Floor space reduction (%)
2013
10.4
2012
4.2
Almost all products continue to be produced by external contract
manufacturers and the environmental performance of suppliers
is monitored through audits and surveys. Our largest contract
manufacturer is responsible for 65.5 per cent of our production and
they have an ISO 14001 certified environmental management
system, alongside an extensive carbon reduction programme. The
table below shows their emissions performance for the last two years
for which data is available.
Change in greenhouse gas emissions in CO2e (%)
2012
+11
2011
–9
Product design and manufacturing processes take into consideration
the recycling and disposal of products at the end of their life, as far as
is possible. Product design also seeks to reduce power consumption
in use. For our 10G products, the following reductions in watts per
port have been achieved:
Reduction in 10G product power
consumption (%)
2013
2012
9
33
The Group’s business units comply with the Waste Electrical and
Electronic Equipment Regulations, the Batteries Directive and the
California Electronic Waste Recycling Programme. New products are
designed to meet the Restriction of Hazardous Substances Directive
(“RoHS”), also known as Directive 2011/65/EU, even though Spirent
Communications’ hardware products are classified as Category Nine,
(Monitor and Control Equipment) and are therefore currently out of
scope with the RoHS Directive. All Spirent Communications’ hardware
products will be in compliance with the RoHS Directive at such time
they are brought in to scope.
The Group is not directly required to comply with or report under
Section 1502 of the Dodd-Frank Act, the US Conflict Minerals Law.
However, it has robust procedures to ensure that it would be in
compliance if it were brought in within the scope of this legislation.
Environment strategy and materiality
The Group commissioned external consultants to perform a
comprehensive review of our sustainability strategy and management
in 2011. The review included a materiality assessment identifying the
business critical sustainability issues and this study continues to
inform the Group’s understanding of the impacts that it has on the
environment and on the communities in which it operates.
The following material issues were identified:
• greenhouse gas emissions and climate change;
• energy consumption in offices and manufacturing;
• environmental management; and
• environmental reporting.
The key environmental issues of energy consumption and greenhouse
gas emissions continued to be the main focus of the Group’s efforts
in 2013.
Significant progress was made in 2013 by the Group managing
sustainability issues and improving performance, building on the
work of 2011 and 2012 to act on greenhouse gas emissions in the UK
business and to broaden our sustainability project to cover more of
our global estate.
40
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2013 work progamme
During 2013 the emphasis of the project has been on driving forward
the Group’s strategic sustainability objectives and taking concrete
steps to improve sustainability performance. The Group has also
continued the programme begun in 2012 to develop the Paignton
location as a low carbon centre of excellence.
The 2013 work programme comprised:
Site energy audits and environmental compliance reviews
Energy audits were carried out at the corporate headquarters in
Crawley, UK, and in four of the Group’s largest US sites during the
year. These audits consisted of a thorough review of the buildings,
building services and associated energy use and opportunities to
improve energy efficiency were identified at each site. A preliminary
review of the potential for on-site renewables was also carried out,
based on local climatic, market and regulatory factors.
• continuing performance improvement at the low carbon centre of
excellence at the site at Paignton, UK;
• site energy audits at the Group’s corporate headquarters in the UK
and at four major US sites;
• environmental legal compliance reviews at the Group’s corporate
headquarters in the UK and at four major US sites; and
• participating in the Carbon Disclosure Project for the first time,
completing both the Investor Climate Change return and the
Supply Chain return.
Paignton: low carbon centre of excellence
The Positioning site located in Paignton, UK, has had an ISO 14001
certified environmental management system for several years and
has a good track record in improving environmental performance.
This location was therefore selected to act as a low carbon centre of
excellence for the Group in 2012 and it has since piloted a number of
sustainability initiatives. LED lighting has been installed across the
site and ceiling insulation, voltage optimization and smart metering is
scheduled to occur in early 2014.
The installation of a solar PV array in late 2012 has been successful
in its first full year of operation and the array generated the following
in 2013:
Environmental compliance reviews were also carried for these sites
to ensure that the Group had the necessary understanding of
environmental regulatory requirements and to identify any areas where
practices could be improved. It was found that overall knowledge of
and compliance with environmental requirements was strong with
no material issues noted. Some opportunities to improve current
practices were noted and these are currently being addressed.
The actions resulting from the energy audits and the compliance
reviews form the basis of the 2014 work programme for sustainability
at these sites. The toolkits developed for these reviews will also be
rolled out to the rest of the Group’s material locations over the course
of 2014.
Carbon disclosure project and greenhouse gas reporting
The Group responded to the Carbon Disclosure Project for the first
time in 2013, completing both the Climate Change and Supply Chain
questionnaires for the calendar year 2012.
The Group also reports greenhouse gas emissions for 2012 and 2013
in its Annual Report this year for the first time.
Global GHG emissions data for the year ended 31 December 2013
2013
kWh generated
39,658
% of electricity
consumption
Greenhouse gas
emissions avoided
(kg CO2e)
10.9
17,667
Emissions from:
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased
There has also been a revitalisation of employee engagement and the
employee Green Team at Paignton in 2013. Regular internal reporting
of environmental KPIs and a committed team are in place to ensure
that the position of the Paignton site as a centre of excellence is
maintained and that environmental performance continues to improve.
for own use
Total emissions
Company’s chosen intensity measurements:
Emissions reported above normalised per
square metre of gross internal area of our
facilities
Emissions reported above normalised per
2013 tonnes
of CO2e
2012 tonnes
of CO2e
238
216
6,268
6,506
6,359
6,576
0.15
0.15
£ million of revenues
15.76
13.92
41
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate social responsibility statement continued
Methodology
We have reported on all of the emission sources required under the
Companies Act 2006 (Strategic Report and Directors’ Reports)
Regulations 2013. These sources fall within our consolidated
statements. We do not have responsibility for any emission sources
that are not included in our consolidated statements.
We have used the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition), data gathered to fulfil our requirements
under these Regulations, and emission factors from UK Government’s
GHG Conversion Factors for Company Reporting 2013.
2014 work programme
The work programme for 2014 has three main areas of focus:
•
implementing recommended actions from the 2013 site energy
audits and environmental compliance reviews;
• undertake energy and compliance audits on all other material
sites across the Group’s estate; and
• review and update of environmental strategy and management.
As discussed above, a significant part of the 2014 project will consist
of implementing the recommendations generated from the in-depth
site reviews carried out in 2013 and further driving environmental
performance improvement at these locations.
The toolkits that were developed for these reviews in 2013 will
also be utilised at the Group’s other locations to embed sustainable
business processes across the Group and ensure that potential
environmental impact and cost reductions are identified and realised.
In addition to these specific measures to reduce the impact of the
global estate, the Group will also review and update environmental
strategy. This exercise was last undertaken in 2011 and an update
will enable the Group to incorporate changes in the strategic
landscape and continue to focus on the material issues for the
Group and its key stakeholders.
42
Community
Spirent supports technical education and local charitable
programmes, and encourages employee volunteerism and
participation within the communities where they live and work.
Employees not only donate their time – they enthusiastically embrace
the true spirit of volunteerism in their local communities, where they
support a broad variety of causes. These include organisations, and
activities ranging from health organisations, educational
programmes, food banks and environmental causes. They serve
in many different ways: as fundraisers, board members, coaches
and mentors.
In 2013 we introduced the Voluntary Time Off (“VTO”) policy, part
of the Giving Back programme. The purpose of this programme is
to support activities that enhance and serve communities in which
we live and work. The VTO policy encourages employee involvement
in volunteer efforts supporting the community. At the same time,
participating in these sorts of activities enriches the lives
of employees.
Employees from our Fort Worth office join with the Trinity Habitat for
Humanity programme.
In October, several employees from the Fort Worth, USA office chose
to make a difference in their community by joining forces with the
Trinity Habitat for Humanity programme. The employees spent a full
day framing out the interior and roof of a home already in progress.
The teamwork was grueling and challenging for all involved but the
progress made towards the completed project was worth the reward
of contributing towards a safe and decent place for an
underprivileged family to live.
To help students prepare for the future, Spirent works with local
public and private non-profit educational organisations.
In addition to internships, our managers routinely work with local
universities and industry groups to assist in other ways.
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Employees from the Eatontown office used some of their VTO to
participate in an event coordinated by Jersey Cares, enabling local
corporations to support the community where they live.
In September 21 Spirent employees and family members participated
in one of the largest volunteer events in California, Coastal Cleanup
Day. During the three hour event, volunteers collected tons of rubbish
and debris from shorelines and inland locations.
In total during 2013, Spirent made charitable cash donations
of $104,000.
Spirent supports organisations that serve the local community
in the vicinity of its offices worldwide. In 2013 this included the
sponsorship of the Ashington Cougars Football Club under 13s
football team in Sussex. Ashington Cougars FC is an FA Charter
Development Standard club which provides children from the
ages of 5 to 16 with the opportunity to play football in a safe
and enjoyable environment.
Pages 2 to 43 form part of the Strategic Report.
By Order of the Board
Rachel Whiting
Company Secretary
27 February 2014
43
The Ashington Cougars under 13s football team are supported by Spirent.
Spirent has a long history of helping those in need and throughout
2013, continued to provide aid to charitable and non-profit
organisations through corporate sponsorships and contributions.
Following the devastation of Typhoon Haiyan, we responded with a
donation of $10,000 to the International Committee of the Red Cross
to assist with the disaster relief efforts in the Philippines.
Spirent is proud of its employees, who generously donate their
time, expertise, and money to many different organisations around
the globe.
Our Calabasas team raised $17,434 for the American Cancer Society’s
Relay for Life of Calabasas. Employees and their families from all
departments participated in the 24-hour walk in support of the
Society’s efforts in research, education, advocacy and patient services.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Chairman’s introduction
“Chairmen are encouraged to report
personally in their annual statements
how the principles relating to the role
and effectiveness of the board have
been applied.”
UK Corporate Governance Code, 2012
Alex Walker
Chairman
Dear Shareholder,
In the revised UK Corporate Governance Code issued in September
2012, company chairmen were encouraged to relate the role and
effectiveness of their company’s board to the opening sections of the
Code dealing with leadership and effectiveness so allow me to take this
opportunity of so doing.
During 2013, your Board continued to focus on strategy and
business development, with a dedicated strategy summit held at
our Germantown, MD facility in May. We reviewed and analysed
market conditions and technology trends and openly debated
issues such as risk, strategic direction and allocation of product
development investment. It is critical that as a Board we have a deep
understanding of, and remain close to, our businesses and regular
site visits give us the opportunity to talk directly with Spirent’s
employees and also its customers.
Prior to the start of each financial year the Board reviews and approves
management’s plan for the coming year, making sure that stretching
but realistic targets are put in place. The priorities for discussion this
year were revenue growth, margins, earnings growth and cash
generation (some of our key performance indicators as set out more
fully on pages 18 to 19 as well as ensuring that sufficient investment
is made in product development opportunities so that Spirent’s one
year plan aligns with its long term strategy.
At each Board meeting the executive directors update the Board
on market trends and conditions together with the Company’s
performance against the one year plan and, where necessary, present
revised forecasts which are again openly challenged and debated.
Consideration of the significant risks that affect the Company, both
internal and external, their mitigation and the effectiveness of internal
control is an essential component of corporate governance and these
issues are deliberated by the Board at meetings throughout the year.
Further details of the Board’s activities during the year can be found
on page 49 of this Report.
As discussed in the Strategic Report on pages 2 to 43 of this
Annual Report, 2013 marks a turning point for the Company and in
response to the challenges experienced we have undertaken a radical
reorganisation of the activities within Spirent. Your Board are confident
that, in our Executive Directors, we have two highly-skilled, capable
individuals who we are pleased to have had the opportunity to work
with. Eric and Rachel, while both relatively new to their current roles,
have deep knowledge and experience of the Company, its operations
and history. They are both committed to delivering an agile, responsive
Spirent and I look forward to the Board playing a full and constructive
role in the development and determination of the Group’s strategy and
overall commercial objectives.
44
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 It is a failing of our industry as a whole that technology companies
have a tendency to live in a world of jargon and acronym and every year
we make an extra effort to present our Annual Report in a way that is
accessible to all our stakeholders. The glossary on pages 140 to 142
goes some way to help on the technology side, but we also work to
make our Corporate Governance and Financial Statements clearer.
It is not just in order to comply with the UK Corporate Governance
Code that we strive for our Annual Report to be fair, balanced and
understandable; if we are truly to “help the world connect”, we
must do as we say in all our areas of communications.
Alex Walker
Chairman
27 February 2014
The role of chairman is a vital one. We can provide a sounding board
for our non-executive directors, while also maintaining a dialogue
with our executive directors, so that the board’s focus and debate
can be developed both within the boardroom and also between
meetings. Board effectiveness should not just be about ticking
boxes on a checklist; just as important is a robust culture of
openness and respect, which I have certainly been witness to
at Spirent board meetings.
As a Board, we are conscious of our obligations to think deeply,
thoroughly and on a continuing basis regarding our duties. Our
Non-executive Directors do so from a strong position of independence,
scrutinised on a regular basis by reflecting specifically on the definition
of independence contained within the Code. Our Executive Directors
also must challenge their teams to encourage this positive debate
throughout the Company.
Spirent is fortunate to have Non-executive Board members with
extensive experience in areas critical to the long term future success
of the Company, covering a deep understanding of our industry,
technology, corporate strategy, finance and investment.
This experience enables the Non-executives to add entrepreneurial
leadership, with open and rigorous debate that provides a valuable
external and balanced perspective to the proceedings. We believe that
our Board members complement each other, delivering a broad and
appropriate balance of skills. Biographical details of our directors
can be found on pages 46 to 47 of this Report.
We are well aware that Spirent’s greatest resource is its employees:
Spirent’s people create and drive our innovation. The Board will
continue to follow a policy of ensuring that we appoint the best people
for the relevant roles and recognise the importance and benefits of
greater diversity both at Board level and throughout the Group and will
take this into account when considering any particular appointment.
As I have already mentioned, our new Chief Executive Officer and
new Chief Financial Officer have both been internal promotions who
have extremely detailed knowledge of the Company’s operations.
The Board receives updates on developments in market trends,
developments in law, corporate governance and best practice and are
actively encouraged to ask questions or seek training on any matter
they feel could advantage them and the Board. A fuller description of
induction and development can be found on page 51 of the Report.
The Board are in agreement with the recommendation of the Code that
all directors should be submitted to re-election at regular intervals and,
indeed, all Spirent directors have stood for re-election since 2011.
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Board of directors
1. Alex Walker Chairman
Alex joined the Board in December 2006 and was appointed Chairman
of the Company in March 2010. He chairs the Nomination Committee
and attends other Committee meetings by invitation.
He is responsible for leading the Board and ensuring that it operates in
an effective manner. As Chairman, he sets Board agendas and ensures
sufficient time is available for discussing all agenda items, particularly
key strategic issues. He is also responsible for promoting a culture of
openness and debate within the Board, ensuring constructive relations
between the executive and non-executive directors and encouraging
effective communication with shareholders.
Until August 2006 Alex was Chief Executive of Yule Catto & Co. plc and
until April 2010 he was a Non-executive Director, Chairman of the
Remuneration Committee and member of the Audit and Nomination
Committees of Rotork plc.
Alex is a Non-executive Director of Zotefoams plc.
2. Eric Hutchinson Chief Executive Officer
Eric was appointed to the Board in January 2000 as Chief Financial
Officer and appointed Chief Executive Officer in September 2013.
He is responsible for formulating the Group’s objectives and strategy
for approval by the Board. Working with the Chief Financial Officer, he
sets the annual budget and medium term plan and is responsible for
reporting performance against plan to the Board. Eric also plays a key
role in identifying and executing acquisitions and disposals.
6
5
4
3
7
1
2
46
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Before this appointment, Eric had been Spirent’s Chief Financial Officer
since January 2000, having joined the Company in 1983, working in
various roles within the finance function.
Prior to joining The Carlyle Group, Duncan served as Chief
Executive Officer and President of GTS/Ebone, Managing Director
of Equant NV and Chief Executive Officer at Granada Media Group
and Mercury Communications.
Eric holds a degree in History from the University of Leicester and
undertook postgraduate research in Contemporary History at Trinity
College, Oxford. He is a Fellow of the Association of Chartered Certified
Accountants and a member of the Financial Reporting Review Panel.
After serving in Senegal for Voluntary Service Overseas, Duncan
studied at Cambridge University and was also a visiting Professor
of Business Management at Strathclyde University.
3. Rachel Whiting Chief Financial Officer
Rachel was appointed to the Board in February 2014.
She is responsible for overseeing the financial operations of the Group
and setting its financial strategy in conjunction with the Audit
Committee and the Board. She also oversees the overall framework for
financial forecasting, planning, analysis and reporting.
Before her appointment to the Board, Rachel was Company Secretary
and Head of Group Tax and will continue to be Company Secretary until
a successor can be appointed. She joined the Company in 1986 and
worked in various roles within the finance function, before being
appointed Head of Group Tax in 2003 adding the role of Company
Secretary in 2009.
Duncan is Chairman of NextiraOne EU and Workshare Limited,
Non-executive Director of euNetworks Group Limited and director
of several other companies.
6. Tom Maxwell Independent Non-executive Director
Tom was appointed to the Board in October 2007. He is Chairman
of the Remuneration Committee and a member of the Audit and
Nomination Committees.
He has considerable fund management and investment trust
experience and, as Chairman of the Remuneration Committee, is
responsible for developing the Company’s policy on remuneration
of executive directors and other senior managers.
Rachel holds a degree in Economics from the University of Bristol. She
is a Fellow of the Institute of Chartered Accountants in England & Wales
and an Associate of the Chartered Institute of Taxation and of the
Institute of Chartered Secretaries and Administrators.
Until September 2007, Tom was Investment Director and Head of
the UK Growth & Income Product Group at Martin Currie Investment
Management in Edinburgh. He is a Member of the Chartered Institute
of Bankers in Scotland and a Member of the Society of Investment
Professionals & CFA Institute.
4. Ian Brindle Senior Independent Non-executive Director
Ian was appointed to the Board in December 2006. He is Chairman
of the Audit Committee and serves on the Nomination and
Remuneration Committees.
As Senior Independent Director, he is responsible for meeting with
the other non-executives to review the Chairman’s performance and
is available to shareholders to discuss their concerns.
He was Senior Partner of Price Waterhouse from 1991 to 1998 and
Chairman of Pricewaterhouse Coopers until 2001. Ian was also a
member of the Accounting Standards Board between 1992 and 2001
and Deputy Chairman of the Financial Reporting Review Panel between
2001 and 2008.
Ian serves as a Non-executive Director of Elementis plc.
5. Duncan Lewis Independent Non-executive Director
Duncan was appointed to the Board in July 2007. He is a member of the
Audit, Nomination and Remuneration Committees.
He has wide-ranging experience in the telecommunications industry
and provides advice and counsel to the Board on major strategic issues.
Until March 2011, Duncan was Chief Executive Officer of Vislink plc and
until October 2008 was Senior Adviser to The Carlyle Group, assisting
them in developing strategy and identifying investments in the
telecommunications and media sectors worldwide.
Tom is a Non-executive Director of Foresight 3 VCT plc and is Chairman
of their Audit Committee.
7. Sue Swenson Independent Non-executive Director
Sue was appointed to the Board in February 2012. She is a member
of the Audit, Nomination and Remuneration Committees.
She has a wealth of international experience and expertise in the
telecommunications and technology sector which she brings to the
development of the strategic vision of the Company.
From March 2008 until her retirement in April 2011, Sue served as
President and CEO of Sage Software, Inc., the North American division
of The Sage Group plc. Before joining Sage Software, she held
positions as the COO of Atrinsic, Inc. (formerly known as New Motion,
Inc.), Amp’d Mobile, Inc., and T-Mobile, was President and COO of Leap
Wireless International, Inc., and President and CEO of Cellular One.
Sue is a Non-executive Director of Wells Fargo and sits on their
Audit and Examination Committee and Governance and Nominating
Committee. She also serves as Non-executive Director on the boards
of Harmonic, Inc., serving as Chair of the Nominating and Governance
Committee and sitting on their Audit and Examination Committee,
and Novatel Wireless, Inc., sitting on their Compensation
Committee. In August 2012, Sue was appointed by the US National
Telecommunications and Information Administration as a founding
Board member of the First Responder Network Authority.
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Directors’ statement on corporate governance
Compliance statement
The Board fully supports the principles laid down in the UK Corporate
Governance Code as issued by the Financial Reporting Council in
September 2012, which applies to financial years beginning on or after
1 October 2012 (the “Code”) and is available at www.frc.org.uk.
The Board considers that it has been in compliance with the provisions
of the Code throughout the period under review except for Code
Provision D.1.5 in relation to Eric Hutchinson’s fixed term contract,
as described more fully in the Report on directors’ remuneration
on page 64.
This Report describes how the principles of the Code are applied and
reports on the Company’s compliance with the Code’s provisions.
Governance framework
Shareholders
3,557 shareholders
as at 27 February 2014
Board
Non-executive Chairman
Two executive directors
Four independent
non-executive directors
Nomination
Committee
Non-executive Chairman
Four independent
non-executive directors
Primary responsibility
for succession planning,
Board/director selection and
Board composition
Committee report –
page 53
Audit
Committee
Remuneration
Committee
Four independent
non-executive directors
Provides oversight and
governance over the Group’s
annual reporting, internal controls,
risk management and relationship
with external auditors
Committee report –
pages 54 – 57
Four independent
non-executive directors
Agrees remuneration policy and
sets individual compensation
levels for executive directors
and senior management
Committee report –
pages 58 – 76
48
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Board
Leadership
The Board has a formal schedule of matters reserved for its decision
which was reviewed and updated during the course of the year. The
Board’s primary responsibility is to promote the long term success of
the Company by creating and delivering sustainable shareholder value.
The Board seeks to achieve this through setting out its strategy,
monitoring its strategic objectives and providing oversight and
direction to the management team. The Board considers the impact of
its decisions on wider stakeholders including employees, suppliers and
the environment.
Division of responsibilities
There is a clear division of responsibilities at the Company between the
running of the Board, undertaken by the Non-executive Chairman, and
the executive responsibility for the running of the Company’s business,
which is in the hands of the Chief Executive Officer. This division of
roles is reviewed and approved by the Board.
Senior Independent Director
The role of Senior Independent Non-executive Director (“SID”) provides
a sounding board for the Chairman and an intermediary for the other
non-executive directors, if needed. The SID is also available to meet
with shareholders upon request if they feel that they have concerns
which contact through the normal channels of the Chairman or an
executive director has failed to resolve or for which such contact would
be inappropriate.
Board activity during the period
At each Board meeting, the Chief Executive Officer presents a
comprehensive update on the performance, strategy and business
issues across the Group and the Chief Financial Officer presents a
detailed analysis of the financial performance of the business units.
Senior executives below Board level attend relevant parts of Board
meetings in order to make presentations on their areas of
responsibility; this gives the Board access to a broader group of
executives and helps the directors make assessments of the Group’s
succession plans. The Board has a rolling programme of visits to
business unit locations to deepen its appreciation of the different
opportunities and challenges that each unit faces, in order that
strategy discussions can reflect a greater understanding.
During the period under review, the Board in particular reviewed:
Governance
• the Group’s treasury
policy
• the Group’s tax policy
• the Group’s risk appetite
• Board evaluation
Strategy
• identification and
evaluation of strategic
options for near and long
term
Shareholder relations
• investor feedback
following investor
presentations and
meetings
Values and standards
• updates on legal
developments,
compliance and ethics
training
• development and
update of the Group’s
anti-bribery programme
Board and Committees
Financial
• the Group’s annual
budget and additional
investment in research
and development
Business performance
• operational performance
of each business unit
Diversity and talent
• talent management and
development across the
Group
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Directors’ statement on corporate governance continued
Composition of the Board
At the date of this Report, the Board comprises a non-executive
Chairman, four independent non-executive directors and two
executive directors.
The Chairman and the Non-executive Directors contribute
entrepreneurial leadership and external expertise and experience in
areas of importance to the Company, such as strategic investments,
corporate finance, general finance and corporate governance. They
also contribute independent challenge and rigour to the Board’s
deliberations, and assist in the development of the Company’s
strategy, scrutiny of the performance of management in meeting
agreed goals and targets, and satisfying themselves of the integrity
of the Company’s internal controls and risk management systems.
The Board believes that all of the directors devote sufficient time
and attention as is necessary in order to perform their duties.
Independence
The independence of each director is reviewed on appointment and at
least annually with particular reference to the considerations set out
in Code Provision B.1.1. The Board determined that the non-executive
directors are each independent in character and judgement; none have
been employed by the Company previously in any capacity or have any
material business relationship with any Group company. Non-executive
directors at Spirent receive no remuneration from the Company other
than their fees (detailed in the Report on directors’ remuneration on
page 65), and each non-executive director has confirmed that they
do not represent any significant shareholder in the Company. No
individual or group of individuals dominates the Board’s decision
making and Code Provision B.1.2, stating that at least half of the Board
(excluding the Chairman) should comprise independent non-executive
directors, is satisfied.
Board procedures
During 2013, ten Board meetings were held. The agenda is set by the
Chairman together with the Chief Executive Officer and all members of
the Board are supplied in advance with appropriate, clear and accurate
information in a timely manner covering matters which are to be
considered. Minutes of meetings are circulated to all Board members and,
subject to their agreement, approved at the following Board meeting.
Attendance
The attendance of individual directors at Board meetings held during
2013 was as follows:
Alex Walker (Chairman)
Bill Burns1
Eric Hutchinson
Ian Brindle2
Duncan Lewis
Tom Maxwell
Sue Swenson
Number of
meetings held
10
5
10
10
10
10
10
Number of
meetings
attended
10
5
10
8
10
10
10
Notes
1 Mr Burns stepped down from the Board on 3 September 2013.
2 Mr Brindle was unable to attend two ad hoc meetings of the Board as they conflicted
with meetings already in his diary for other listed companies. Mr Brindle received all
papers relating to the meetings and had the opportunity to discuss issues arising
directly with the Chairman. He also appointed Alex Walker as his proxy for the duration
of the meetings.
Biographical details for each of the directors are set out on pages 46
and 47 and can also be found on the Company’s website at
http://corporate.spirent.com/About-Us/Our_Board_of_Directors.
Re-election of directors
In accordance with Code Provision B.7.1, all directors will be subject
to election or annual re-election by shareholders at the 2014 AGM.
The Board recommends to shareholders the re-appointment of all
directors retiring at the 2014 AGM on the basis that they are all
effective directors of the Company and demonstrate the appropriate
level of commitment in their respective roles.
1
1
1
2
3
2
2
Board composition1
1. Chairman
2. Independent non-executive directors
3. Executive directors
(4)
(2)
Length of tenure of directors1
1. Less than 3 years
(2)
2. More than 5 years (5)
Gender diversity1
1. Male
(5)
2. Female (2)
Note
1 At the date of this Annual Report.
50
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Service contracts and letters of appointment
The terms of executive directors’ service contracts are disclosed in
the Report on directors’ remuneration on pages 58 to 76. Directors’
interests in the shares of the Company are disclosed on page 70.
Executive directors’ service contracts and non-executive directors’
letters of appointment are available for inspection at the Company’s
registered office and will be available at the AGM, which will take place
on 23 April 2014.
Induction and development
Following the appointment of any new director, the Chairman and
Company Secretary ensure that a full, formal and tailored induction to
the Company is made available. The Company Secretary is on hand to
answer any questions which may arise. All directors receive regular
updates on key administrative issues and changes in the law, corporate
governance and best practice. Directors are given the opportunity to
highlight specific areas where they feel their skills or knowledge would
benefit from development as part of the Board evaluation process.
Company Secretary
The Company Secretary, who was appointed by the Board, is
responsible for advising and supporting the Chairman and the Board
on corporate governance matters as well as ensuring that there is a
smooth flow of information to enable effective decision making.
All directors have access to the advice and services of the Company
Secretary and can take independent professional advice in respect
of their duties, at the Company’s expense.
Directors’ indemnification
In accordance with its Articles, the Company has granted a qualifying
third party indemnity, to the extent permitted by law, to each director.
The Company also maintains directors’ and officers’ liability insurance.
These provisions are qualifying third-party indemnity provisions as
defined in section 234 of the Companies Act 2006. Neither the
Company’s indemnity nor the insurance provides cover in the event
that a director is proven to have acted dishonestly or fraudulently.
Board performance evaluation
Every year, the Board and its committees (Audit, Nomination and
Remuneration) evaluate their performance in accordance with Code
Provision B.6.1. In 2012, the evaluation was conducted by Useful
Thinking Ltd. (Useful Thinking Ltd has no other connection with the
Company). The Board reflected on the points raised by the process and
during 2013 focused in particular on the development of strategic
planning and increasing the diversity both on the Board itself and
within the Company’s executive team. This year the process was
managed internally in the form of a confidential questionnaire which
focused on all areas of Board and Committee activities. The results
were discussed by the Board and as a result of this year’s evaluation,
the Board intends to look at the following during 2014:
• to continue to review and advance strategic planning;
• to provide more opportunities for non-executive directors to meet
with executives and senior managers below Board level to assist in
the identification of internal talent for succession planning;
• to build greater visibility and connection with the business units to
develop a mutual understanding of roles and challenges; and
• to strengthen the Board with the appointment of additional
non-executive directors in order to ensure orderly succession for
appointments and to ensure progressive refreshing of the Board.
The Chairman communicates regularly with the non-executive directors
and this contact provides an ongoing opportunity to assess
performance and to discuss the performance of the executive directors
and any other matters. The Chairman has concluded that during the
year under review the commitment and application of the non-
executive directors was of a high standards, including each having
sufficient time to discharge their responsibilities effectively.
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Directors’ statement on corporate governance continued
The Senior Independent Non-executive Director met with the other
independent Non-executive Directors on 6 November 2013, in the
absence of the Chairman, to assess the Chairman’s effectiveness.
After considering and discussing the tasks undertaken by the Chairman
during the period under review, the independent Non-executive
Directors agreed that Mr Walker gave appropriate time and
commitment to his role as Chairman of the Company and was
effective in that role throughout 2013.
Directors’ conflicts
Under the Companies Act 2006, the directors have a statutory duty to
avoid a situation where they have, or could have, a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the
Company. Directors of public companies may authorise conflicts and
potential conflicts where appropriate, if the Articles of Association
contain a provision to this effect.
Presentations are made to analysts, investors and prospective
investors covering the full-year and half-year results and the Company
seeks to maintain a dialogue with the various bodies which monitor the
Company’s governance policies and procedures. The Strategic Report
on pages 2 to 43 details the financial performance of the Company as
well as setting out the risks it faces.
The Company is always keen to hear the views of its private
shareholders and we encourage them to use our shareholder mailbox
– investor.relations@spirent.com – for detailed enquiries and to access
our website – www.spirent.com – for our Company reports and
business information.
Any concerns raised by shareholders, whether directly or expressed
through voting patterns at the Company’s AGM are discussed by the
directors and an appropriate response given.
The Board is aware of the other commitments of its directors and
is satisfied that these do not conflict with their duties as directors
of the Company.
Annual General Meeting
The Company’s AGM will be held at 10.30am on Wednesday 23 April
2014 at the offices of UBS, 1 Finsbury Avenue, London, EC2M 2PP.
The Board believes that the following process shown below and
established to monitor conflicts of interest is operating effectively.
Shareholder engagement
The Board is committed to maintaining good communications with
shareholders. The Chairman, Chief Executive Officer and Chief Financial
Officer have regular dialogue with individual institutional shareholders
in order to develop an understanding of their views which is then
discussed with the Board. All directors are offered the opportunity to
meet with major shareholders to listen to their views and Executive
Directors receive regular reports prepared by an independent capital
markets advisory firm which provides comprehensive information
relating to the Company’s major shareholders.
At the AGM, the Chief Executive Officer gives an update on the
positioning and outlook for the Company. Shareholders are invited
to ask questions formally during the meeting and to follow up these
discussions with directors on a one-to-one basis afterwards. The
Chairmen of each of the committees of the Board and the Senior
Independent Director will be in attendance and will be available
to respond to questions at the AGM.
The Board looks forward to welcoming all our shareholders to our 2014
AGM and to updating them on our business developments.
Directors are responsible for
notifying the Company Secretary
if they become aware of any
actual or potential conflict
situations or a change in
circumstances relating to an
existing authorisation
Any conflicts identified are
presented to the Board for
consideration and, as appropriate,
authorised in accordance with the
Companies Act and the Company’s
Articles of Association
Directors are required to review
and approve a register of potential
conflicts on appointment and
annually thereafter
52
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Nomination Committee
Responsibilities
The Nomination Committee’s main focus is on strengthening, balancing
and understanding the range of skills, experience and diversity of the
Board, its Committees and key roles below Board level.
and that the balance of skills, knowledge and experience on the Board
is maintained. When discussions relate to the appointment of the
Company Chairman, the Senior Independent Non-executive Director
chairs the Committee.
The full terms of reference of the Committee are available at
http://corporate.spirent.com/Governance/Board_Committees or from
the Company Secretary at the registered office.
Composition of the Committee
At the date of this Report, the Nomination Committee comprises the
Company Chairman, who also acts as Committee Chairman, and four
independent Non-executive Directors.
Meetings and attendance
The Committee meets at least two times each year and at other times
as necessary. During 2013, three meetings were held, with individual
members’ attendance as follows:
Alex Walker (Chairman)
Ian Brindle1
Duncan Lewis
Tom Maxwell
Sue Swenson
Number of
meetings held
Number of
meetings attended
3
3
3
3
3
3
2
3
3
3
Note
1 Mr Brindle was unable to attend an ad hoc Committee meeting as it conflicted with a
meeting already in his diary for another listed company. Mr Brindle received all papers
relating to the meeting and had the opportunity to discuss issues arising direct with the
Chairman. In this instance, he also appointed Alex Walker as his proxy for the duration
of the meeting.
Committee activity during the period
The Committee considered and made recommendations to the Board in
respect of:
• the appointment of Eric Hutchinson as Chief Executive Officer;
• the appointment of Rachel Whiting as Chief Financial Officer and to
the Board;
• the appointment of senior executives resulting from the Group’s
internal reorganisation;
• matters relating to succession planning in the light of the tenure of
current non-executive directors; and
• the results of the evaluation of the Board, its Committees and the
directors, including the review of the continued independent status
of the non-executive directors.
Appointment of directors
There is a formal, rigorous and transparent procedure for the
appointment of new directors to the Board under which the Committee
interviews suitable candidates who are proposed either by existing
Board members or by an executive search firm. The search for
candidates is conducted, and appointments made, on merit, against
objective criteria and with due regard for the benefits of diversity.
When the Committee has found a suitable candidate, the Committee
proposes the appointment to the whole Board, which retains
responsibility for all such appointments.
Careful consideration is given to ensure that proposed appointees for
non-executive roles have enough time available to devote to the role
On 3 September 2013, when Bill Burns stepped down as Chief
Executive Officer, the Nomination Committee considered the skills and
experience of the Company’s Chief Financial Officer, Eric Hutchinson, in
particular his knowledge of the Company and its operations, and
unanimously recommended to the Board his appointment as Chief
Executive Officer.
After a period of adjustment and internal reorganisation, the
Committee reviewed the role of Chief Financial Officer and generated a
set of criteria upon which to base recruitment. As an internal candidate,
Rachel Whiting was already well-known to the Board and Committee,
however, in order to validate her skills and experience against the
criteria, the Committee appointed Spencer Stuart to carry out a
benchmarking process on her suitability for the role. On receiving a
formal report substantiating her suitability for the role of Chief Financial
Officer, the Committee was pleased to unanimously recommend her
appointment as Chief Financial Officer and to the Board. Spencer Stuart
has no other connection with Company.
Following the internal reorganisation undertaken by the Chief Executive
Officer in the second half of 2013, the Committee will be developing an
updated succession plan in 2014 to take account of new roles and
reporting lines.
Diversity
The Committee and, indeed, the Board, recognises the benefits of
having diversity across all areas of the Group and believes that this
contributes to the Company’s strategic advantage. Neither the
Committee nor the Board sets specific targets or objectives for
diversity. However, when considering the optimum composition of the
Board, the benefits of a diverse Board are appropriately reviewed and
balanced, where possible, including in terms of differences in skills,
industry experience, business model experiences, gender, race,
disability, age, nationality, background and other contributions that
individuals may bring. The Committee continues to focus on
encouraging diverse skill sets, capabilities and experience, recognising
that directors from different geographical and cultural backgrounds
may enhance the performance of the Board.
When identifying suitable candidates, the Committee will seek
candidates from a range of backgrounds, with the final decision being
based on merit over objective criteria.
With the appointment of Rachel Whiting to the Board on 1 February
2014, women currently represent 29% of our Board; further details of
the gender diversity within the Company can be found in the “Our
Employees” section on pages 36 to 37 of this Annual Report.
Committee performance evaluation
Having reviewed the results of the Board’s and the Committee’s
performance evaluations, the Committee has confirmed to the Board
that the present Board and its Committees continue to operate
effectively and that all of the non-executive directors remained
independent in accordance with the Code and should stand for
re-election at the 2014 AGM.
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Audit Committee
Ian Brindle
Chairman of the Audit Committee
Dear Shareholder,
In this Audit Committee report, you will find details of the work of the
Audit Committee (“the Committee”) during the year and in particular
details of how it has discharged its responsibilities as set out in the UK
Corporate Governance Code in respect of the following three principal
areas of focus:
The Board and Committee consider that the Annual Report for 2013,
taken as a whole, is fair, balanced and understandable, with
appropriate signposting being made throughout the various sections
to assist shareholders and others understand the information and
disclosures contained within them.
The Committee’s focus areas for the rest of 2014 are:
• how the significant accounting issues that the Committee has
considered in relation to the financial statements for the year have
been addressed;
• how the Committee has assessed the effectiveness of the external
• monitoring revenue recognition policy;
• challenging the corporate risk appetite as it moves into
new business areas and testing the risk tolerance of the
Company’s strategy; and
audit process and the approach that has been taken to the
appointment of EY as external auditor; and
• how EY’s objectivity and independence has been safeguarded
in relation to their provision of non-audit services.
In addition, during 2013, the Board and the Committee have been
briefed on and considerable attention has been given to the recently
introduced governance requirements for the Annual Report taken as
a whole to be fair balanced and understandable. The Board and
Committee understand that ‘fair’ should mean reasonable and
impartial, ‘balanced’ should mean even handed in terms of being
positive and negative and ‘understandable’ should mean simple,
clear and free from jargon or unnecessary clutter.
• assessing the Company’s response to the changing regulations
relating to the tendering of the external audit.
Also in 2014, we are welcoming a new Chief Financial Officer, Rachel
Whiting, to the Board. Rachel has worked in several roles at Spirent and
has a deep-rooted understanding of the financial reporting structure
throughout the Company and the Committee is confident that she will
provide a robust approach to the high standards that it has come to
expect from the Finance team.
Ian Brindle
Chairman of the Audit Committee
27 February 2014
54
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Responsibilities
The Board has delegated to the Audit Committee responsibility for
overseeing the financial reporting, internal risk management and
control functions and for making recommendations to the Board in
relation to the appointment of the Company’s external auditors.
• review and consideration of assumptions in relation to the going
concern basis for preparation of financial statements;
• review of the external auditor’s report on the interim review and
year end audit and management’s responses to the issues raised;
• review of the policy on the engagement of EY to supply non-audit
The full terms of reference of the Committee are available at http://
corporate.spirent.com/Governance/Board_Committees or from the
Company Secretary at the registered office.
Composition of the Committee
At the date of this Report, the Audit Committee comprises four
independent non-executive directors, one of whom acts as
Committee Chairman.
The Board considers that two members of the Committee, Ian Brindle
(who acts as Committee Chairman) and Tom Maxwell, provide recent,
significant and relevant financial experience.
services;
• review and recommendation to the Board of the re-appointment of
EY as external auditor and approval of their fees, in particular in
light of the UK Corporate Governance Code’s recommendations
regarding the tender of the external audit contract;
• review of recommendations on segmental reporting in accordance
with IFRS 8 and the impact of IAS19 (revised);
• review and approval of restructuring of the Finance team in light of
business unit reorganisation;
• monitoring and review of internal control and risk management
systems;
• review and approval of the internal audit programme for 2013;
• review of risk assessment of cyber security;
• review of the Company’s Whistleblowing Policy and anti-bribery and
Further biographical details of the Committee members can be found
on pages 46 and 47.
corruption procedures; and
• review of regular reports on taxation, treasury operations and
health and safety.
Meetings and attendance
The Committee meets at least two times each year and at other times
as necessary. During 2013, three meetings were held, with individual
members’ attendance as follows:
The Committee Chairman reports any significant findings or identified
weaknesses to the Board.
Ian Brindle (Chairman)
Duncan Lewis
Tom Maxwell
Sue Swenson
Number of
meetings held
Number of
meetings attended
3
3
3
3
3
3
3
3
Financial reporting and significant financial issues
Following discussions with management with regard to their own review
of accounting policies and internal controls, the Audit Committee
concluded that there were two significant financial issues arising from
the financial statements which would require particular consideration
during the year:
The Company’s external auditor, the Chairman, Chief Executive Officer,
Chief Financial Officer, Group Vice President, Finance, Head of Financial
Reporting and Company Secretary, who is Secretary to the Committee,
were in attendance at each meeting of the Committee.
In addition, the Committee meets regularly with the Company’s
external auditor and with the Group Vice President, Finance without
management present.
Committee activity during the period
The Committee discharged its responsibilities to the Board and
communicated with them on the following matters during the period
under review:
• review of the full-year and half-year financial statements, key
accounting policies and significant financial reporting judgements
contained therein (with particular reference to the critical
accounting assumptions and judgements as set out in Note 2 of the
consolidated financial statements on pages 87 to 93) and
recommendation of such financial statements to the Board for
approval;
• review of whether the Annual Report taken as a whole is fair,
balanced and understandable and forming an opinion thereon prior
to recommending it to the Board;
• Revenue recognition
Having discussed the impact that complex commercial
arrangements entered into by the Group could have on the
recognition of revenue and associated balances, the Committee
noted that a review of current procedures in the light of current
trading should be undertaken. As part of their audit procedures EY
would examine the allocation of revenue and review specific large
and complex transactions to ensure that revenue has been
recognised appropriately.
• Tax accounting
The Committee recognises that the complexity associated with the
Group operating in a number of tax jurisdictions may lead to an
incorrect tax charge being recognised in the income statement for
the period and deferred tax assets being inappropriately
recognised. The Committee noted that EY would be performing a
detailed review of the deferred tax recognised and tax provisions to
ensure the appropriateness of tax disclosures in the Group accounts
as part of their audit review.
The Committee noted that EY had included these areas of significant
risk in the Auditor’s Report on pages 80 to 81 of this Annual Report and
was satisfied with the results of the procedures followed.
55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Audit Committee continued
The Group Vice President, Finance is responsible for ensuring that the
finance department employs a level of management and specialists
appropriate for maintaining financial records and processes that provide
financial information that is relevant, reliable, complies with the
applicable laws and regulations, and is distributed both internally and
externally in a timely manner. A review of the consolidation and financial
statements is undertaken by senior management to ensure that the
financial position and results of the Group are appropriately reflected.
All financial information published by the Group is subject to the
approval of the Audit Committee prior to it being approved by the Board.
Internal control
The Board has overall responsibility for the Group’s system of internal
control and risk management and for reviewing its effectiveness.
The Board, assisted by the Audit Committee, has reviewed the
effectiveness of this system and this review did not reveal any
significant issues or weaknesses. The Board confirms that this system
of internal control and risk management was in place throughout the
year under review and up to the date of approval of this Report.
The primary aim of the Group’s internal controls is to operate a system
which is appropriate to the business and which can support the Group
in delivering its strategic objectives, safeguard the Group’s assets and,
over time, enhance shareholder value. The system is designed to
identify, evaluate and manage the significant risks faced by the
Group rather than to eliminate the risk of failure to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. The Group consists
of a limited number of entities and the Board and Audit Committee
continue to consider that currently there is no need for a dedicated
internal control and risk management department.
As disclosed in the “Our principal risks and uncertainties” section on
pages 20 to 25, the Group risk review committee reviews the key risks
facing the business. Membership of the Group risk review committee,
which includes representation from each of the key business areas,
is currently:
• Chief Executive Officer;
• Chief Financial Officer;
• Executive Vice President, Networks, Applications and
Infrastructure;
• Executive Vice President, Wireless and Service Experience; and
• Group Vice President, Finance
Members of the Group risk review committee meet with each business
unit periodically to challenge and debate the assessment of risk within
each business unit, who then submit local risk registers for the
committee to analyse and rank together with company-wide risks to
form a robust corporate risk register. This corporate risk register is then
presented to the Audit Committee at each of its meetings. Actions
arising from the Audit Committee’s review of the corporate risk register
can then be fed back to the business units for their management.
56
Day-to-day responsibility for effective internal control and risk
management and monitoring rests with senior management at
business unit level. The Group Vice President, Finance attends all Audit
Committee meetings to report on internal control and risk management
and to apprise the Committee of any control weaknesses, control
failings and risks, their impact and the actions taken to deal with the
issues. The Group Vice President, Finance, is independent of any
business unit and is therefore able to provide an objective view and
continual assessment of the effectiveness of internal control and risk
management throughout the Group. Detailed updates on specific
areas, such as cyber security or business continuity, are provided by
the Group Vice President, Finance at the Committee’s request.
Risk management
The Board and Audit Committee consider that having the following key
elements in place are critical to underpinning the overall internal
control environment:
Operating Structure
and Controls
Financial Control Structure
Ethics Policy
Anti-Bribery Policy
Whistleblowing Policy
Acquisitions and Divestments
An organisational structure
with clear operating procedures,
defined lines of responsibility and
delegated levels of authority
A comprehensive strategic
planning, financial control and
budgeting system which is properly
documented and regularly
reviewed
A policy that sets standards of
professionalism and integrity for
all employees and operations
A policy to ensure that all of
Spirent’s systems, controls and
training comply with the
anti-bribery and corruption
legislation in all the countries
where we operate and that a
culture of prevention and detection
of all forms of bribery and
corruption is in place
A whistleblowing procedure
whereby employees may report,
in confidence, suspected
wrongdoings
A disciplined due diligence process
and post-acquisition integration
programme
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Policy on non-audit services
The Committee’s responsibility to monitor and review the objectivity
and independence of the external auditor is supported by a policy in
relation to the provision of non-audit services by the external auditor.
Taking into account relevant ethical guidance this policy precludes
a number of non-audit services including services relating to the
accounting records and financial statements, internal audit, IT
consulting, legal and investment services and other services deemed
by regulators to be precluded. The policy is reviewed and financial
limits for the provision of non-audit services, including audit-related
fees, tax-related fees and other fees, are set on an annual basis (2013
$0.6 million (2012 $0.6 million)). Any amounts in excess of this limit
must be approved in advance by the Audit Committee.
Requests for approval of any permitted non-audit service are reviewed
and, if necessary challenged by the Company Secretary, who reports to
the Committee all non-audit services undertaken at each Committee
meeting so that it can monitor the types of services being provided and
the fees incurred. Details of the fees paid to the external auditor for
non-audit services can be found in Note 5 to the consolidated financial
statements. The Committee considers that notwithstanding the
non-audit services provided during the year totalling $0.2 million (2012
$0.4 million), EY’s objectivity as external auditor was not impaired.
Ian Brindle
Chairman of the Audit Committee
27 February 2014
External audit
The Committee places great importance on ensuring that high
standards of quality and effectiveness are maintained within the
external audit process. It considers a number of areas in relation
to the external auditors: their performance in discharging the audit
and interim review of financial statements, their independence and
objectivity, and their reappointment and remuneration.
Consideration of the effectiveness of the external auditors also forms
part of the Audit Committee’s performance evaluation questionnaire
and is discussed regularly with management to enable prompt
feedback to be given.
The Company’s external auditors, Ernst & Young LLP (“EY”), provided
the Committee with their plan for undertaking the year end audit at
the Committee meeting in November 2013. This highlighted the
proposed approach and scope of the audit for the year and identified
the areas of significant risk and other financial statement risk,
including the audit approach for these areas in some detail. The areas
of significant risk were primarily identified as issues of judgement
and complexity and included revenue recognition and tax accounting.
The Committee reviewed and appropriately challenged the basis for
these before agreeing the proposed approach and scope of the
external audit identified.
EY prepared a detailed report of their audit findings, which was
presented to the Committee at its meeting in February 2014. The findings
were reviewed and discussed in detail by the Committee, in particular in
relation to the areas that had been highlighted at the planning stage. As
part of the review, the external auditor was questioned and challenged
by the Committee about the work undertaken, its findings and what key
assumptions had been made during the audit, especially with regard to
the key areas of audit risk identified.
Prior to recommending their re-appointment as external auditors, the
Committee considers EY’s independence and objectivity in the light of
relevant UK professional and regulatory requirements, specifically in
the light of the Competition Commission’s investigation into the market
for statutory audit services for large companies and also the EU’s
review of the audit services market. EY have been the Company’s
external auditors for more than 25 years and the audit has not been
tendered during that time, although it was noted that as a result of EY’s
policy on rotating audit partners there had been a new Audit Partner in
2011. The Committee determined that given the developing nature of
the regulations relating to audit tendering provisions from the
Competition Commission and the EU, and that there are no contractual
obligations that restrict the Company’s current choice of external
auditor, it would not be appropriate to instigate a tender process at
the present time.
57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration
As outlined earlier in this Annual Report, it has been a challenging year
for Spirent, with decreasing revenues and a significant impact on profit.
2013 also marks a turning point for the Company and this was reflected
in the activities for the Committee which, in addition to routine matters
set out in the report, included:
• reviewing and settling Bill Burns’ termination arrangements in line
with his service agreement; and
• reviewing the future policy for cash incentive arrangements for
executive directors and determining that to drive longer term focus,
cash incentives will now be based on annual performance only with
no quarterly incentive.
With the introduction of the new reporting requirements there
continues to be a significant focus on transparency of reporting on
executive pay. The Committee is strongly committed to open and
transparent dialogue with shareholders on remuneration matters and
takes every opportunity to engage with key shareholders, to
understand their views on our remuneration arrangements and to
discuss our policy going forward. As set out later in this Report, our
2012 Report on directors’ remuneration received a strong level of
support at the Company’s AGM in May 2013 with 98.77 per cent of
shareholders voting in favour of the advisory resolution.
Tom Maxwell
Chairman of the Remuneration Committee
Dear Shareholder,
As Chairman of the Remuneration Committee, I am pleased to present
our Remuneration Report for the year ended 31 December 2013.
Last year’s Remuneration Report anticipated many of the new
remuneration reporting requirements which were in draft form at that
time. This Report has been prepared in accordance with the now
finalised requirements and we hope that you find it comprehensive,
clear and informative.
The Committee aims to operate a simple and transparent remuneration
structure comprising base salary, a cash incentive plan and a long term
incentive plan which provide a clear link between remuneration and the
Group’s strategic priorities. In support of this, the Committee aims to
ensure that remuneration packages are offered which:
• set the total remuneration package at an appropriate level to reflect
•
the competitive markets in which the Group operates;
link a significant proportion of the total remuneration package to
the achievement of demanding performance targets;
• structure the reward of executive directors and senior management
to align their interests with those of shareholders over the long
term;
• encourage the retention and stability of the management team; and
• underpin a high performance culture throughout the Group.
As a Committee, we believe it is essential that directors’ remuneration
is aligned with the Company’s strategic framework, the interests of
shareholders and the external competitive market.
58
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 The main priorities for the Committee for 2014 are:
• to continue to review remuneration policy in the light of evolving
best practice, consulting with shareholders as appropriate;
• to ensure that the executive directors are fairly rewarded for both
individual and Company performance;
• to set incentive targets that support the long term strategy for the
Group, are stretching, appropriate, and achievable;
• to commence a review of our Employee Incentive Plan which is due
to expire in 2015, seeking investor views as appropriate before
seeking shareholder approval in 2015; and
• reviewing malus and clawback provisions to ensure that we are in
Compliance statement
This Report on directors’ remuneration for the year ended 31 December
2013 has been prepared on behalf of the Board by the Remuneration
Committee in accordance with Schedule 8 to the Large and Medium-
sized Companies and Groups (Accounts and Reports) as amended in
2013, the relevant sections of the Companies Act 2006 and meets the
requirements of the Listing Rules of the Financial Conduct Authority.
The Report also describes how, except with regard to Eric Hutchinson’s
service contract, as more fully described on page 64, the Board has
complied with the provisions of the UK Corporate Governance Code
issued in September 2012.
line with best practice.
The Report is presented in two parts:
On behalf of the Committee I hope that you find this Report
comprehensive, clear and informative.
Tom Maxwell
Chairman of the Remuneration Committee
27 February 2014
Part A sets out the Remuneration Policy and provides the details of the
remuneration policy that we propose will apply following the 2014 AGM
subject to obtaining shareholder approval at the AGM on 23 April 2014.
Part B sets out the Directors’ annual remuneration report and includes
details of how our remuneration policy was implemented for the year
ended 31 December 2013 and how it will be applied for the year ended
31 December 2014.
At the Annual General Meeting to be held on 23 April 2014 there will be
two resolutions in respect of this Remuneration Report:
• the Directors’ Remuneration Policy Report set out in Part A on pages
59 to 67 will be put to a binding shareholder vote; and
• the Directors’ Annual Report on Remuneration in Part B on pages 68
to 76 will be put to an advisory shareholder vote.
Part A: Remuneration Policy
Components of executive director remuneration
The Committee’s policy is to set remuneration levels which ensure
that executive directors are fairly and responsibly rewarded in return
for high levels of performance. The remuneration policy set by the
Committee aims to encourage a performance based culture which
reinforces behaviour that will lead to the continued long term
successful development of the business, is sufficient to attract, retain
and motivate high calibre executive directors and senior managers and
aligns their interests with those of shareholders. The Committee
believes that the aims of the policy are achieved by ensuring that a
significant proportion of total remuneration is linked to the
achievement of stretching corporate and individual targets both in the
short and long term.
59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Future policy table
The table below sets out the executive remuneration policy that we intend to apply, subject to shareholder approval, from 24 April 2014 and
summarises the various elements of executive remuneration:
Purpose and link to strategy Operation
Maximum potential value
Performance metrics
Individual and business performance
are considered when determining
salary levels, together with
experience, scope of responsibility
and salary increases of employees in
the country of residence of the
director
To provide fixed
remuneration for each
role which reflects the
size and scope of the
executive director’s
responsibilities and their
individual skills and
experience
Set at levels to attract and
retain the high calibre
talent necessary to
develop and deliver the
Group’s strategy
Base salaries are normally
reviewed annually, with changes
effective from 1 January
Salaries are typically set after
considering the salary levels in
companies of a similar size and
complexity, the responsibilities
of each individual role,
progression within the role,
individual performance and
experience and with regard to
salary levels in the country in
which the executive resides. Our
overall policy, having had due
regard to the factors noted, is
normally to target salaries at the
median market level
Base salary
Salary levels for current incumbents
for the 2014 financial year are:
Chief Executive Officer £400,000 per
annum
Chief Financial Officer £250,000 per
annum
Salaries may be adjusted and any
increase will ordinarily be (in
percentage of salary terms) in line
with those of the wider workforce
having particular regard to the
increases in the country in which the
individual resides
Increases beyond those granted to
the wider workforce (in percentage of
salary terms) may be awarded in
certain circumstances, for example
where there is a change in
responsibility, progression in the role,
experience or a significant increase in
the scale of the role and/or size, value
and/or complexity of the Group
Benefits
Private health care benefits are
provided through third party
providers and therefore the cost to
the Company and the value to the
director may vary from year to year
None
It is intended that the maximum
value of benefits offered will remain
broadly in line with market practice
To provide market levels
of benefits on a cost-
effective basis
To support personal
health and well-being
May include private health cover
for the executive and their family,
life insurance cover, typically up
to four times annual base salary,
permanent health insurance and
a car allowance
Other benefits may be offered
from time to time broadly in line
with local market practice in the
country of residence of the
executive director
Global relocation support and any
associated costs or benefits may
also be provided if considered by
the Committee to be appropriate
and reasonable to meet the
requirements of the business
y
a
p
d
e
x
i
F
60
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
y
a
p
d
e
x
i
F
y
a
p
e
l
b
a
i
r
a
V
Purpose and link to strategy Operation
Maximum potential value
Performance metrics
Pension (or cash allowance)
To provide cost-effective
and competitive
post-retirement benefits
Defined contribution scheme or
cash allowance in lieu of
Company pension contributions
or a combination of both
Other post-retirement benefits
may be offered from time to time
broadly in line with local market
practice in the country of
residence of the executive
director
None
An annual taxable cash allowance of
20% of base salary is provided to
the Chief Executive Officer and 14%
of base salary is provided to the
Chief Financial Officer either as a
contribution to a defined
contribution plan or as a taxable
salary supplement in lieu of pension
Base salary only is pensionable but
the percentage allowance may
increase in line with market practice
Annual incentive
To reward and incentivise
the achievement of annual
financial and strategic
goals
The performance
measures are selected to
align the strategy of the
business with shareholder
value creation
Measures and targets are set
annually, payments are then
determined by the Remuneration
Committee after the year end
based on performance against
those targets
The annual incentive is payable
in cash
On target opportunity of 100% of
base salary for Chief Executive
Officer subject to a cap of 150% of
base salary
On target opportunity of 50% of
base salary for Chief Financial Officer
subject to a cap of 75% of salary
The Remuneration Committee may,
in exceptional circumstances,
amend the payments should this
not, in the view of the Committee,
reflect overall business performance
or individual contribution but they
would not exceed the maximum
opportunity set out above
Long term incentives
To incentivise executives
to achieve enhanced
returns for shareholders
To encourage long term
retention of key
executives
To align the interests of
executives and
shareholders
Discretionary awards of
conditional awards, nil cost
options or stock appreciation
rights (“SARS”) may be granted
annually as a percentage of base
salary. Vesting is based on
performance measured over
three years. The performance
period normally starts at the
beginning of the financial year in
which the grant is awarded in
respect of EPS conditions or
shortly before the date of award
in respect of TSR conditions
Limits of 250% and 125% of base
salary for awards of SARs or share
options and Performance Shares
respectively
Limit of 250% of base salary for
combined awards where one
Performance Share is equivalent to
two SARs or share options
For 2014, the annual incentive is
based on financial targets only,
reflecting the focus for the Group.
Future annual incentives may be
based on a mix of financial and
individual business objectives with
the majority of the weighting being
given to financial metrics
A sliding scale between 0% and 100%
of the maximum incentive applies for
achievement between threshold and
maximum performance under the
annual incentive.
The exact measures, weightings and
targets are determined by the
Remuneration Committee each year
taking into account the Group’s key
strategic priorities and the approved
budget for the year
Award levels and performance
conditions are reviewed before each
award cycle to ensure they remain
appropriate. If employment ceases
during a performance period, awards
may be tested on a pro rata basis
under certain “good leaver”
circumstances at the discretion of the
Remuneration Committee
A full description of the performance
conditions applicable to long term
incentive awards under the Employee
Incentive Plan (“EIP”) can be found
below this table
61
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Report on directors’ remuneration continued
Purpose and link to strategy Operation
Maximum potential value
Performance metrics
All-Employee share plans
Participation by all employees in any
all-employee share plan operated
now or in the future is limited to the
maximum award levels permitted by
relevant legislation
None
To provide all employees
with the opportunity to
become shareholders on
similar terms
Executive directors are eligible to
participate, on the same basis as
other employees, in the
Company’s HMRC-approved
Share Incentive Plan (known as
the Employee Share Purchase
Plan) or any other all-employee
share plan operated in the future
Employee Share Purchase Plan:
All eligible employees in
participating locations are
invited to participate
Partnership shares are held in
trust and can be released at any
time subject to appropriate tax
treatment of proceeds
y
a
p
e
l
b
a
i
r
a
V
To offer assistance to
executive directors who
are required to relocate by
the Company to enable
the Company to attract
and retain talent
Global relocation support and
any associated costs or benefits
may be provided
The Company may also provide
tax equalisation arrangements
Relocation
There are a number of variables
affecting the amount that may be
payable, but the Committee would
pay no more than it judged
reasonably necessary in the light of
all applicable circumstances
None
Share ownership
None
None
To align the interests of
executive directors with
shareholders and promote
a long term approach
Executive directors are expected
to hold shares in the Company to
the value of a minimum of 100%
of base salary over time. These
can include shares and
unfettered share incentive
awards
Except for those sold to cover
subscription costs, income tax
and national insurance
contributions, executive
directors are encouraged to
retain shares arising from share
schemes until the minimum level
of ownership has been achieved
62
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the policy table
Performance conditions for awards under the Employee Incentive Plan (“EIP”)
The Committee reviews the appropriateness of performance parameters for each award under the EIP and sets stretching performance conditions
in the light of the Company’s current and expected performance over the vesting cycle.
2014 Policy on share incentive awards
The Committee expects to approve an award of Performance Shares to Eric Hutchinson and Rachel Whiting equivalent to 125 per cent and
60 per cent of annual base salary respectively.
Performance conditions for awards expected to be made in 2014
Having reviewed the appropriateness of the performance parameters for awards under the EIP, the Committee has determined that for awards to
be made in 2014, the following parameters are apposite:
Performance shares
The performance conditions for Performance shares will be calculated over a three year performance period as set out in the following table:
50% of award:
Growth in EPS1 over the performance period (%)
Below 15
15
Above 15 and below 30
30 or above
Note
1 EPS means Adjusted Basic Earnings per Share after expensing of share-based payments.
50% of award:
Absolute TSR
Up to 25% growth
At 25% growth but below 65% growth
At or above 65% growth
Proportion of Performance shares vesting (%)
0
30
On a straight line basis between 30 and 100
100
Proportion of Performance shares vesting (%)
0
On a straight line basis between 30 and 100
100
In determining TSR for the Company, share prices will be averaged over the 90 day period immediately prior to, and at the end of, the
performance period.
SARs and share options
The performance condition for SARs and share options, where awarded, would continue to be based on the rate of growth in the Company’s EPS
over the three year performance period.
Growth in EPS1 over the performance period (%)
Below 15
15
Above 15 and below 30
30 or above
Note
1 EPS means Adjusted Basic Earnings per Share after expensing of share-based payments.
Proportion of SARs/share options vesting (%)
0
30
On a straight line basis between 30 and 100
100
Shareholder approval for EIP
Shareholder approval was given in 2005 to operate the EIP until 2015, subject to further shareholder approval being required on the use of new
issue shares and any material changes to the plan. No material changes to the EIP are proposed and therefore no specific shareholder approval is
required at the 2014 AGM to continue to operate this plan. However, we expect to seek shareholder approval at the 2015 AGM for an extension to
the EIP’s operating period.
63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Approach to recruitment remuneration
In the event that the Company recruits a new executive director (either from within the organisation or externally), when determining the appropriate
remuneration arrangements, the Committee will take into consideration all relevant factors (including but not limited to quantum, the type of
remuneration being offered and the jurisdiction which the candidate was recruited from) to ensure that arrangements are in the best interests of both
the shareholders and the Company without paying more than is necessary to recruit an executive of the required calibre.
The Committee would generally seek to align the remuneration package offered with our remuneration policy outlined in the table above.
However, the Committee retains discretion to make proposals on hiring a new executive director which are outside the standard policy. In the first
year of appointment, the Committee may offer additional remuneration arrangements that it considers appropriate and necessary to recruit and
retain the individual. Such remuneration may be in the form of cash or share-based awards which may vest immediately or at a future point in
time. Vesting may be subject to performance conditions selected by the Committee.
The Committee may make awards on appointing an executive director to “buy-out” remuneration arrangements forfeited on leaving a previous
employer. In doing so the Committee will take account of relevant factors including any performance conditions attached to those awards, the
form in which they were granted and the time over which they would have vested. Generally buy-out awards would be made on a comparable
basis to those forfeited.
In the event of recruitment, the Committee may also grant an award to a new executive under Listing Rule 9.4.2 which allows for the granting
of awards, specifically to facilitate, in unusual circumstances, the recruitment or retention of an executive director, without seeking prior
shareholder approval.
The maximum level of variable pay which may be awarded to new executive directors would normally be in line with the maximum level of variable
pay set out in the policy table on pages 60 to 62 but in any event would be limited to 400 per cent of base salary, excluding any buy-out awards.
For an internal appointment, any variable pay element awarded in respect of the previous role may either continue on its original terms or be
adjusted to reflect the new appointment.
When recruiting non-executive directors, the remuneration arrangements offered would normally be in line with those paid to existing
non-executive directors, details of which are set out on page 65.
Service contracts
Executive directors
In normal circumstances, it is the Company’s policy that service contracts for executive directors have no fixed term and are capable of termination
on no more than 12 months’ notice from either the Company or the executive director. It is intended that this policy would also apply to new
appointments of executive directors. However, following the termination of Bill Burns’ service agreement on 3 September 2013, the Board
determined that in order to provide certainty and stability, it was in the best interests of promoting the long-term success of the Company not to
comply with Code Provision D.1.5. of the UK Corporate Governance Code with regard to the length of service agreements for executive directors.
The Company therefore entered into a fixed term contract with Eric Hutchinson, which at the date of this Report has an unexpired term of 15 months
and will expire on 31 May 2015. Following its expiration in 2015, and in line with normal policy, the service agreement with Eric Hutchinson would
be renewed on 12 months’ notice.
Both Eric Hutchinson and Rachel Whiting currently have a service agreement with Spirent Communications plc, and, being UK resident, both their
contracts are in line with UK employment practice and are governed by the laws of England. Rachel Whiting’s service agreement, dated 1 February
2014 may be terminated on 12 months’ notice from the Company and six months notice from Rachel. Eric Hutchinson’s service agreement may be
terminated on six months from Eric.
Until his termination on 3 September 2013, Bill Burns had a service agreement with Spirent Communications Inc. governed by the laws of California.
The Company recognises that its executive directors may, from time to time, be invited to become non-executive directors of other companies and
that such appointments can broaden their knowledge and experience, to the benefit of the Company. At the date of this Report, neither Eric
Hutchinson nor Rachel Whiting holds any such external positions.
The service agreements of the executive directors are available for inspection on request and will be available for inspection at the 2014 AGM.
64
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Non-executive directors
All non-executive directors have a letter of appointment with the Company for a period of not more than three years, subject to the Company’s
Articles of Association. However, since 2011 and in accordance with the Code, all directors stand for re-election at each AGM.
Details of individual appointments are as follows:
Director
Ian Brindle
Duncan Lewis
Tom Maxwell
Sue Swenson
Alex Walker
First appointed a director
22 December 2006
1 July 2007
1 October 2007
1 February 2012
22 December 2006
Current appointment due to expire
2015 AGM
2014 AGM
2014 AGM
2015 AGM
2015 AGM
The letters of appointment are available for inspection on request and will be available for inspection at the 2014 AGM. An example of a letter of
appointment for a non-executive director is available on the Company’s website at http://corporate.spirent.com/Governance.
Remuneration policy for Non-executive Directors
The Board aims to recruit high calibre non-executive directors, with broad commercial, international or other relevant experience.
The Company’s remuneration policy with regard to fees for non-executive directors, including the Chairman, is to pay fees which are in line with
market practice for companies of a similar size and complexity. Fees for the non-executive directors are normally reviewed by the Board once
every three years and were last reviewed on 1 January 2012, having been frozen since 1 January 2008. It was determined that the basic annual fee
for non-executive directors would be set at £40,000 per annum for 2012 to 2014 inclusive. Fees for the Chairman, which are determined by the
Remuneration Committee, were set at £160,000 per annum for 2012 to 2014 inclusive, having been frozen since 1 January 2009. The Chairmen of
the Audit and Remuneration Committees each receive additional fees of £11,000 and £9,000 per annum respectively. It is considered that
non-executive director fees are at the median level for comparable companies. Fees for non-executive directors and the Chairman will next be
reviewed on 1 January 2015.
Non-executive directors are not eligible to participate in cash incentive or share incentive arrangements and their service does not qualify for
pension or other benefits. No element of their fee is performance related.
When recruiting non-executive directors, the remuneration arrangements offered will generally be in line with those set out above.
Exit payment policy
The Committee is committed to ensuring that it does not pay more than is necessary when executives leave the Group and its policy on exit
payments is and will continue to be in line with market practice in the country in which the executive director resides:
• Service contracts contain provisions for the removal of the director without compensation for poor performance or material misconduct;
• Payment in lieu of notice may be paid under service contracts if the relevant notice period is not given to the director or if, having received
notice from the director, the employer does not wish him/her to serve it;
• Unless provided for in the service contract, the Company would seek to apply practical mitigation measures to any payment of compensation
on termination, for example by reducing payments to reflect payments received in respect of alternative employment, taking into account all
relevant circumstances;
• Service contracts do not contain provision for additional compensation on termination following a change of control (as detailed in the Change
of Control provisions set out on page 78);
• Service contracts do not contain provision for liquidated damages of any kind;
• Service contracts contain appropriate provisions to protect the legitimate interests of the Company with respect to preventing any terminated
•
director from working in a business which competes against the Company; and
Incentives:
– Cash incentives: unless otherwise provided in the service contract, to be consistent with market practice in the country in which the
executive resides, executives are not entitled to accrued cash incentives payable following termination;
– Employee Incentive Plan (EIP): Leaver provisions were approved by shareholders when they approved the EIP. Unvested awards will
generally lapse at the point of exit. Participants who leave due to special circumstances including redundancy, ill-health, injury or disability,
retirement, death, the Participant’s employing company ceasing to be under the Control of the Group, a transfer of the undertaking in which
the Participant works and any other reason, if the Committee so decides in general or in any particular case may be considered ‘good
leavers’ under the EIP Plan Rules. In such circumstances, performance conditions are assessed by the Committee at the point of exit by
testing the performance conditions up to the date of exit for TSR performance and to the end of the most recent financial period for EPS
performance. Vesting is then pro rated for time and vested awards may be exercised within 12 months following the date of termination
of employment.
65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Illustrations of the application of our remuneration policy in 2014
The charts below show an illustration of the proportion of total remuneration made up of each component of the remuneration policy and the
value of each component.
Three scenarios have been illustrated for each executive director:
Minimum performance
On target performance
Maximum performance
• Fixed remuneration1
• No cash incentive2
• No vesting under the Employee Incentive Plan3
• Fixed remuneration1
• 100% of target cash incentive paid2
• 65% vesting under the Employee Incentive Plan3
• Fixed remuneration1
• 150% of target cash incentive paid2
• Full vesting under the Employee Incentive Plan3
Fixed remuneration comprises salary and benefit provision as set out in the policy table.
Notes
1
2 Cash incentive is annual bonus for 2014 as set out in the policy table.
3 Vesting of awards under the Employee Incentive Plan assumes full vesting for awards subject to EPS performance conditions for on target and maximum performance. The share price
is assumed to increase in line with the implied price earnings ratio at 31 December 2013. For awards subject to Absolute TSR performance conditions, vesting is assumed to be 30 per
cent for on target performance and 100 per cent for maximum performance. The share price is assumed to increase in line with the performance condition required under each
scenario. Depending on share price performance, the actual outcome may be different.
Chief Executive Officer policy for 2014
Fixed
Fixed
Cash incentive
Cash incentive
Long term incentive
Long term incentive
Minimum performance
On target performance
Maximum performance
100%
38%
27%
30%
32%
£000
£000
497
1,310
33%
40%
1,816
Chief Financial Officer policy for 2014
Fixed
Cash incentive
Long term incentive
Minimum performance
On target performance
Maximum performance
100%
54%
42%
23%
23%
27%
31%
£000
286
535
689
Consideration of employee remuneration arrangements elsewhere in the Group
When setting the policy for directors’ remuneration, the Committee has regard to the pay and employment conditions elsewhere within the Group,
particularly in the jurisdictions in which the executive directors are based. The Committee is kept informed on a regular basis of salary increases
for the general employee population and takes these into account when determining salary increases for executive directors. No salary increase
has been awarded for the role of either Chief Executive Officer or Chief Financial Officer for 2014.
While the Committee does not directly consult with employees as part of the process of reviewing executive pay, the Committee does receive
updates and feedback on employee engagement surveys and takes these into account when reviewing executive pay. An employee engagement
survey is scheduled for 2014.
Further details of employee remuneration arrangements can be found in the “Our Employees” section on pages 36 to 37 of this Annual Report.
66
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Consideration of the views of shareholders in setting remuneration policy
The Committee is mindful of the views of shareholders in determining appropriate levels of remuneration and in ensuring that shareholder
and director interests are aligned. The Committee is committed to an ongoing dialogue with shareholders and seeks shareholder views when
any significant changes are proposed to remuneration arrangements. In particular, the Committee consulted with major shareholders regarding
the appropriate performance measures for awards granted under the Employee Incentive Plan in both 2010 and 2013 and will continue to do so
when changes are proposed to ensure both shareholder and directors’ interests are aligned. In particular, the Committee expects to consult key
shareholders in relation to the possible extension of the Employee Incentive Plan’s operating period, prior to making a decision on whether to
seek approval by shareholders at the 2015 AGM.
Dilution
The Committee is strongly committed to managing shareholder dilution in a responsible manner. No new shares were issued during the year, with
all vesting and exercises of share incentives being satisfied by the transfer of shares held by the Company’s ESOT. At the date of this Report, the
ESOT holds 0.7 million Ordinary Shares for the purpose of satisfying the exercises of current and future awards by employees and former
employees of the Group. Overall shareholder dilution resulting from the Company’s share incentive plans (on a rolling ten year basis) has fallen by
0.1 per cent when comparing the positions at 31 December 2013 (8.9 per cent) and 31 December 2012 (9.0 per cent). The overall number of share
incentives outstanding has fallen by 0.3 million during the year to 5.5 million at 31 December 2013 (2012 5.8 million).
Legacy matters
For the avoidance of doubt, in approving this Remuneration Policy, authority is given to the Company to honour any commitments entered into
with current or former directors (such as the payment of pension or the unwinding of legacy share schemes) that have or will have been disclosed
to shareholders in remuneration reports before this Policy takes effect. Details of any payments will be set out in the Annual Report on
Remuneration as they arise.
Committee discretion
The Committee has powers delegated by the Board under which it operates. In addition, it complies with rules which have either been approved
by shareholders (the Employee Incentive Plan) or by the Board (annual cash incentives). These rules provide the Committee with certain
discretions which serve to ensure that the implementation of the Remuneration Policy is fair both to the individual director and to shareholders,
taking overall performance and the position of the Company into account. The Committee also has discretions to set components of remuneration
within a range from time to time. The extent of such discretions are set out in the relevant rules or in the maximum opportunity and performance
metrics sections of the Policy Table.
In addition, the Committee requires discretion to deal with genuinely exceptional or unforeseen circumstances. This form of discretion will only
be applied in the best interests of the Company and is intended to provide for changed circumstances or strategy that has not been provided for
in the Remuneration Policy, when it would be disproportionate to seek specific approval from a general meeting of shareholders.
The Remuneration Committee will not exercise discretion to reward failure and will report on any exercise of discretion that changes the amount
of remuneration paid in any year.
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Part B: Annual Report on Remuneration for 2013
Audited Information
Single figure of total remuneration for 2013
The table below provides a single figure of total remuneration for 2013 and 2012 for the executive directors:
2013
Bill Burns6
Eric Hutchinson7
2012
Bill Burns
Eric Hutchinson
Performance
related cash
incentive3
$000
–
38.1
Performance
related cash
incentive3
$000
425.5
150.2
Benefits2
$000
29.6
27.0
Benefits2
$000
29.2
26.2
Salary1
$000
586.2
540.8
Salary1
$000
700.0
495.1
Long term
incentive4
$000
–
–
Long term
incentive4
$000
307.68
123.68
Pension5
$000
10.2
108.0
Pension5
$000
10.0
98.9
Total
2013
$000
626.0
713.9
Total
2012
$000
1,472.3
894.0
Notes
1 Salary and fees: cash paid in respect of the year.
2 Benefits: taxable value of all benefits in respect of the year which comprise private healthcare, permanent health insurance, life insurance and car allowance.
3 Performance related incentive: cash incentive payable in respect of the year.
4
5 Pension: cash value in lieu of pension or US 401(k) plan contribution.
6 Bill Burns stepped down as CEO on 3 September 2013.
7 Eric Hutchinson became CEO on 3 September 2013.
8 On 30 November 2012, 129,260 and 51,926 Performance Shares vested and were alloted to Bill Burns and Eric Hutchinson respectively, which at a fair market value of 150.6 pence
Long term incentive: value of Performance shares vesting in the year based on the performance condition that ends in the year.
resulted in a gain of £194,666 ($307,572) for Mr Burns and £78,201 ($123,557) for Mr Hutchinson.
Quarterly and annual performance incentives
During 2013, the cash incentive plan continued to be structured so that two-thirds of the incentive target could be earned in respect of quarterly
targets and one-third in respect of annual targets.
Growth targets in the Company’s EPS and order intake, representing 70 per cent and 30 per cent of the incentive respectively, determined the
maximum incentive which could be earned in respect of the annual incentive element.
Quarterly incentives were structured in two stages. Growth targets in the Company’s quarterly EPS and order intake formed the first stage and
determined the maximum incentive which could be earned in respect of each quarter. Performance against key strategic goals including
engineering and product milestones, and other financial targets, determined the actual incentive earned by each executive director in each
quarterly performance period. The engineering and product milestones in particular provide the roadmap to the Group’s long term strategic
direction and success.
The annual growth targets for EPS and order intake for an on target award for 2013 were 5.6 per cent and 10.3 per cent respectively. These targets
were not achieved and accordingly no award was earned. The quarterly targets for EPS, order intake and individual goals are set prior to the
commencement of each quarter. The targets set for EPS and order intake were not met in the first three quarters of 2013 and accordingly, no
award was earned in respect of those quarters. In the fourth quarter, the EPS and order intake goals were partially met and all engineering and
other personal goals were achieved, resulting in an award of £24,400 to Eric Hutchinson. Engineering and product milestone goals were 84 per
cent achieved during the year. Other specific target detail for quarterly incentives is considered to be commercially sensitive. In the prior year,
cash incentive payments of $425,500 and $150,200 were paid to Bill Burns and Eric Hutchinson respectively.
For 2014, cash incentives will only be available to executive directors on an annual basis, with a maximum total cash incentive available for
Eric Hutchinson and Rachel Whiting of 150 per cent and 75 per cent of base salary respectively.
68
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Total pension entitlements
During 2013 and prior to his termination, Bill Burns participated in the Spirent Communications 401(k) Pension Plan (“the Plan”), which is
a defined contribution plan established under the provisions of Section 401(k) of the US Internal Revenue Code (“US IRC”). The Group makes
matching contributions of up to 4 per cent of the maximum compensation permitted for these purposes under the US IRC. For 2013, the maximum
permitted compensation was $255,000 and accordingly the contribution made to the Plan for the period up to Bill Burns’ termination was
$10,200 (2012 contribution $10,000). Eric Hutchinson receives a taxable cash allowance in lieu of pension of 20 per cent of base salary.
For 2013, the allowance paid was £69,233 ($108,000 at an average exchange rate of $1.56:£1) (2012 £62,570 ($98,860 at an average exchange
rate of $1.58:£1)).
Payments to past directors
There were no payments to past directors during the year under review.
Payments for loss of office
Bill Burns stepped down as Chief Executive Officer on 3 September 2013. His termination payments are as set out in his service agreement and as
disclosed in previous Reports on director’s remuneration. He received one month’s base salary ($60,000) as pay in lieu of notice and will receive
11 months’ base salary ($660,000) in ten equal monthly instalments of $66,000 each commencing in December 2013, subject to set-off for any
base salary earned from alternative employment during the 12 month period following termination on 3 September 2013 (the “Severance
Period”). Monthly COBRA premium payments of $1,840 are also being paid for the duration of the Severance Period subject to a set off for health
insurance provided by an alternative employer during the Severance Period. The Company paid $8,000 in respect of Bill Burns’ legal fees. All
outstanding unvested share awards granted to Bill lapsed on termination, however, the Committee exercised its discretion under the Plan Rules
of the EIP to allow Bill’s vested and unfettered share awards to continue to be exerciseable during the 12 month period following termination
as these awards had been retained by Bill as part of his shareholding to meet the Committee’s shareholding guideline for executive directors.
Non-executive director fees
Details of fees paid to non-executive directors in 2013 and 2012 are as follows:
Alex Walker (Chairman)
Ian Brindle
Duncan Lewis
Tom Maxwell
Sue Swenson
Total
2013
£000
160.0
51.0
40.0
49.0
40.0
340.0
2012
£000
160.0
51.0
40.0
49.0
36.6
336.6
Shareholding guidelines for executive directors
The Committee believes that to further align their interests with those of shareholders, executive directors should have a significant shareholding
in the Company equivalent to at least 100 per cent of their base salary in the form of shares and unfettered share incentive awards which may be
built up over time following appointment as an executive director. The table below sets out the holdings of the executive directors who served
during the year at 31 December 2013 and to the date of this Report at their respective date of termination, 31 December 2013 or date of
appointment as applicable.
Bill Burns1
Eric Hutchinson
Rachel Whiting2
Guideline holding
100% of base salary
Beneficially
owned shares
223,484
1,302,775
83,353
Unfettered
share incentives
374,000
56,600
60,348
Guideline met?
n/a
Yes
No
Note
1
2
The holding shown for Bill Burns is as at the date when he stepped down as CEO, 3 September 2013.
The holding shown for Rachel Whiting is as at the date of her appointment to the Board, 1 February 2014.
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Statement of Directors’ share holdings and share interests
The beneficial interests of the directors and their connected persons in the shares of the Company are set out below:
Executive directors
Eric Hutchinson
Rachel Whiting
Bill Burns
Non-executive directors
Ian Brindle
Duncan Lewis
Tom Maxwell
Sue Swenson
Alex Walker
At 31 December 2012
Ordinary Shares1
At 31 December 2013
Ordinary Shares
At 27 February 2014
Ordinary Shares2
1,300,379
n/a
218,850
1,302,775
n/a
223,4844
1,303,285
83,4753
n/a
4,525
–
26,955
–
80,481
4,525
–
50,000
–
180,481
4,525
–
50,000
–
180,481
Notes
1 Directors’ beneficial interests do not form part of the remuneration provided by the Company.
2 Events since 31 December 2013:
On 24 January 2014, Eric Hutchinson acquired 266 Ordinary Shares under the UK Employee Share Purchase Plan at a price of 93.8381 pence per share.
On 24 February 2014, Eric Hutchinson acquired 244 Ordinary Shares and Rachel Whiting acquired 122 Ordinary Shares, both under the UK Employee Share Purchase Plan at a price of
102.46 pence per share.
3 Rachel Whiting joined the Board on 1 February 2014.
4
The holding shown for Bill Burns is as at the date when he stepped down as CEO, 3 September 2013.
70
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Outstanding share incentive awards1
The share incentive interests of executive directors who served during the period 1 January 2013 to the date of this Report are set out below:
Eric Hutchinson
Plan Type
Award Type
Award date
At 1 January 2013 (or at date of appointment)
Granted during the period
Vested during the period
Exercised during the period
Lapsed during the period
Any other adjustments during period
At 31 December 2013 (or at date of cessation)
Market price at date of award (£)
Face value of award granted in period (£)
Exercise price (£)
Subject to performance conditions?
Performance condition
Performance condition testing date3
Result of performance condition testing
Market price at vesting date (£)4
Exercise date
Market price at exercise date (£)
Gain on exercise (£)
Expiry date
Rachel Whiting
Plan Type
Award Type
Award date
At 1 January 2013 (or at date of appointment)5
Granted during the period
Vested during the period
Exercised during the period
Lapsed during the period
Any other adjustments during period
At 31 December 2013 (or at date of cessation)
Market price at date of award (£)
Face value of award granted in period (£)
Exercise price (£)
Subject to performance conditions?
Performance condition
Performance condition testing date3
Result of performance condition testing
Market price at vesting date (£)4
Exercise date
Market price at exercise date (£)
Gain on exercise (£)
Expiry date
EIP
PS
21 March 2012
142,235
–
–
–
–
–
142,235
1.531
–
Nil2
Yes
EIP
PS
23 March 2011
109,366
–
–
–
–
–
109,366
1.432
–
Nil2
Yes
EIP
EIP
PS
SAR
8 May 2013
25 August 2005
–
56,600
172,531
–
–
–
–
–
–
–
–
–
172,531
56,600
1.291
0.53
222,737
–
Nil2
0.53
Yes
Yes
EPS 50% EPS, 50% TSR 50% EPS, 50% TSR 50% EPS, 50% TSR
8 May 2016
–
–
–
–
–
8 May 2016
23 March 2014
–
–
–
–
–
23 March 2014
21 March 2015
–
–
–
–
–
21 March 2015
25 August 2008
100% vest
0.80
–
–
–
24 August 2015
EIP
SAR
8 May 2013
–
86,266
–
–
–
–
86,266
1.291
111,369
1,291
Yes
EPS
8 May 2016
–
–
–
–
–
8 May 2023
EIP
PS
21 March 2012
19,928
–
–
–
–
–
19,928
1.531
–
Nil2
Yes
EIP
PS
23 March 2011
21,873
–
–
–
–
–
21,873
1.432
–
Nil2
Yes
EIP
EIP
PS
SAR
8 May 2013
5 May 2006
–
60,348
24,262
–
–
–
–
–
–
–
–
–
24,262
60,348
1.291
0.475
31,322
–
Nil2
0.475
Yes
Yes
EPS 50% EPS, 50% TSR 50% EPS, 50% TSR 50% EPS, 50% TSR
8 May 2016
–
–
–
–
–
8 May 2016
23 March 2014
–
–
–
–
–
23 March 2014
21 March 2015
–
–
–
–
–
21 March 2015
5 May 2009
100% vest
0.595
–
–
–
5 May 2016
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Bill Burns
Plan Type
Award Type
Award date
At 1 January 2013 (or at date of appointment)
Granted during the period
Vested during the period
Exercised during the period
Lapsed during the period
Any other adjustments during period
At 31 December 2013 (or at date of cessation)6
Market price at date of award (£)
Face value of award granted in period (£)
Exercise price (£)
Subject to performance conditions?
Performance condition
Performance condition testing date3
Result of performance condition testing
Market price at vesting date (£)4
Exercise date
Market price at exercise date (£)
Gain on exercise (£)
Expiry date
EIP
PS
21 March 2012
287,287
–
–
–
287,287
–
–
1.531
–
Nil2
Yes
EIP
PS
23 March 2011
255,859
–
–
–
255,859
–
–
1.432
–
Nil2
Yes
EIP
EIP
PS
SAR
8 May 2013
7 November 2008
–
374,000
360,183
–
–
–
–
–
360,183
–
–
–
–
374,000
1.291
0.505
464,996
–
Nil2
0.505
Yes
Yes
EPS 50% EPS, 50% TSR 50% EPS, 50% TSR 50% EPS, 50% TSR
EIP
SAR
8 May 2013
–
180,091
–
–
180,091
–
–
1.291
232,498
1.291
Yes
EPS
7 November 2011 3 September 2013 3 September 2013 3 September 2013 3 September 2013
0% vest
1.346
–
–
–
3 September 2014 3 September 2013 3 September 2013 3 September 2013 3 September 2013
100% vest
1.246
–
–
–
0% vest
1.346
–
–
–
0% vest
1.346
–
–
–
0% vest
1.346
–
–
–
Notes
An explanation of each share plan and its operation is given in Note 29 to the audited consolidated financial statements of the Group and Note 14 to the parent Company financial statements.
1 Key to share plan and type of award:
EIP SAR – 2005 Employee Incentive Plan Stock Appreciation Rights.
EIP PS – 2005 Employee Incentive Plan Performance Shares awarded as conditional share awards.
2
There is no exercise price payable for a Performance share upon vesting. Further details on Performance shares are provided above.
3 Awards which have passed the date first exercisable have vested and are unfettered, having passed the relevant performance conditions.
4
5 Rachel Whiting was appointed to the Board on 1 February 2014, the awards shown were awarded prior to her appointment as Chief Financial Officer.
6 Bill Burns stepped down from the Board on 3 September 2013.
The market price on date of grant is the price of an Ordinary Share at the close of business on the day before the date of grant.
Scheme interests awarded during the year
In 2013, the Committee approved combined awards of Performance shares and SARs to Mr Burns and Mr Hutchinson equivalent to 250 per cent
and 150 per cent of base salary respectively, with one Performance share being equivalent to two share options or SARs.
Policy for Performance shares granted in 2013
The performance conditions for Performance shares awarded in 2013 under the EIP are calculated over a three year performance period as set out
in the following table:
50% of award:
Growth in EPS1 over the performance period (%)
Below 15
15
Above 15 and below 30
30 or above
Note
1 EPS means Adjusted Basic Earnings Per Share after expensing of share-based payments.
50% of award:
TSR Ranking
Below median
Between median and upper quartile
At or above upper quartile
72
Proportion of Performance shares vesting (%)
0
30
On a straight line basis between 30 and 100
100
Proportion of Performance shares vesting (%)
0
On a straight line basis between 30 and 100
100
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
The comparator group for determining TSR comprises the 30 largest companies by market capitalisation in the FTSE TechMARK 100 Index,
excluding those companies who were also constituents of the FTSE 100 Index at the commencement of the performance period, together with one
non-UK listed direct competitor. The Committee considered that the selected comparator group provided a suitable benchmark for the Company’s
TSR rating. In determining the TSR for the Company and its comparator group, share prices will be averaged over the 90 day period immediately
prior to, and at the end of, the performance period.
Policy for SARs and share options granted in 2013
The performance condition for SARs and share options awarded in 2013 under the EIP is based on the rate of growth in the Company’s EPS over
the three year performance period.
Growth in EPS1 over the performance period (%)
Below 15
15
Above 15 and below 30
30 or above
Note
1 EPS means Adjusted Basic Earnings Per Share after expensing of share-based payments.
Proportion of SARs/share options vesting (%)
0
30
On a straight line basis between 30 and 100
100
Share interests vesting during 2014
Awards which are due to vest on 23 March 2014 and are subject to an EPS performance condition have not passed that condition and will lapse
on that date.
Awards which are due to vest on 23 March 2014 and are subject to a TSR performance condition will have that performance condition tested on
23 March 2014.
Unaudited Information
Total Shareholder Return performance
The graph below shows the TSR performance for the last five financial years of Spirent Communications plc against the FTSE 250 Index and the
FTSE TechMARK 100 Index, excluding those companies who were also constituents of the FTSE 100 Index at the commencement of the period.
The Committee believes that these provide broad equity market indices against which the performance of the Company can be fairly compared,
and that the FTSE TechMARK 100 Index provides a particularly representative collection of comparator companies.
Five-year TSR performance – Spirent vs FTSE TechMARK 1001 and FTSE 250
600
500
400
300
200
100
x
e
d
n
I
d
e
s
a
b
e
R
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Spirent
FTSE 250
FTSE TechMARK 1001
Note
1 As of 1 January 2009, excluding FTSE100 companies.
The middle market price of an Ordinary Share at the close of business on 2 January 2013 and 31 December 2013 (being the first and last days the
London Stock Exchange was open for trading in 2013) was 153.8 pence and 103.8 pence, respectively, and during that period ranged between a
high of 169.2 pence and a low of 98.5 pence.
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Report on directors’ remuneration continued
Percentage change in the remuneration of the
director undertaking the role of CEO compared
to the percentage change in remuneration
of all Group employees1
Remuneration paid to all employees ($m)
during 20132
Returns to shareholders ($m) during 2013
2%
0%
163.6
163.4
Percentage change
in Group employee
cash remuneration
Percentage change
in CEO cash
remuneration
–21%
2012
–25%
2013
Remuneration
paid to all
employees
2013
2012
On-market share
repurchase3
Final dividend
(paid May 2013)4
Interim dividend
(paid September
2013)4
77.7
55.5
12.0
10.2
2013
51.1
30.8
10.9
9.4
2012
Notes
1
The graph shows the change in CEO’s annual cash remuneration, defined as base salary, taxable
benefits and cash incentive, compared to that of the average Group employee for 2012 and 2013.
Total as set out in Note 10 to the consolidated financial statements.
Total as set out in Note 28 to the consolidated financial statements.
Total as set out in Note 14 to the consolidated financial statements.
2
3
4
Table of CEO remuneration
Year
2013
2013
2012
2011
2010
2009
CEO
CEO single figure
of total remuneration
Annual bonus payout against
maximum opportunity %
Long term incentive vesting
rates against maximum
opportunity
Eric Hutchinson
Bill Burns
Bill Burns
Bill Burns
Bill Burns
Bill Burns
291.51
626.02
1,472.3
2,095.4
1,971.1
1,566.5
12.0
–
40.5
93.3
100.0
93.9
–
–
34
84
100
100
Notes
1 Eric Hutchinson took up the position of Chief Executive Officer on 3 September 2013.
2 Earnings disclosed are to 3 September 2013, when Mr Burns stepped down as Chief Executive Officer.
Statement of implementation of remuneration policy in 2014
The following components of remuneration are effective from 1 January 2014 or date of appointment if later:
Salary
Eric Hutchinson
Rachel Whiting
£400,000
£250,000
Benefits
Private healthcare cover for executive and family
Permanent health insurance
Life insurance cover of four times annual base salary
Car allowance (CEO only)
74
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Retirement benefits
Eric Hutchinson will receive a taxable cash sum in lieu of pension at a rate of 20% of base salary.
Rachel Whiting will receive a contribution to a defined contribution arrangement of her choice or a taxable cash sum in lieu of pension at a rate of
14% of base salary.
Annual cash incentive
The Committee has set stretching targets for the year focused on order intake and earnings per share growth. Although the target detail is
considered commercially sensitive, the weightings for the year ended 31 December 2014 are as follows:
Earnings per share
Order intake
20%
80%
On target and maximum annual cash incentive payments are as follows:
Eric Hutchinson
Rachel Whiting
On target performance % of base salary
Maximum % of base salary
100
50
150
75
Award under Employee Incentive Plan (EIP)
It is anticipated that awards will be made under the EIP in 2014 as follows:
Eric Hutchinson
Rachel Whiting
Anticipated value of award £000
500
150
The awards are valued on the basis of performance shares, which are valued at the share price on the date of grant.
The performance measures and targets are set out on page 63 of this Report.
Statement of shareholder voting
At the 2013 AGM on 1 May 2013 the results of the advisory vote regarding the Report on directors’ remuneration for the year to 31 December 2012
were:
Votes for1
Number
512,859,440
%
98.77
Votes against
Number
6,407,015
%
1.23
Votes cast
Votes withheld2
519,266,455
645,149
Notes
1
2 A vote withheld is not a vote in law and is not counted in the calculation of the votes “For” and “Against” the resolution.
The “For” vote includes those giving the Company Chairman discretion.
Votes “For” and “Against” are expressed as a percentage of total votes cast.
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report on directors’ remuneration continued
Remuneration Committee
Responsibilities
The Committee is responsible for determining all elements of the remuneration of the Chairman, executive directors, Company Secretary and
senior executives of the Group, reviewing remuneration policy and overseeing the operation of the Company’s share incentive plans.
The full terms of reference of the Committee are available at http://corporate.spirent.com/Governance/Board_Committees or from the Company
Secretary at the registered office.
Composition of the Committee
At the date of this Report, the Remuneration Committee comprises four independent non-executive directors, one of whom acts as
Committee Chairman.
Meetings and attendance
The Committee meets at least four times each year and at other times as necessary. During 2013, five meetings were held, with individual
members’ attendance as follows:
Number of
meetings held
Number of
meetings attended
Tom Maxwell (Committee Chairman)
Ian Brindle1
Duncan Lewis
Sue Swenson
5
5
5
5
5
4
5
5
Note
1 Mr Brindle was unable to attend an ad hoc Committee meeting as it conflicted with a meeting already in his diary for another listed company. Mr Brindle received all papers relating to the
meeting and had the opportunity to discuss issues arising direct with the Committee Chairman. In this instance, he also appointed Alex Walker as his proxy for the duration of the meeting.
The Company’s Chairman was also in attendance at each of the meetings.
Advisers to the Committee
Kepler Associates Limited, who were appointed by the Committee some years ago, provided the results of TSR testing to determine the vesting
of share incentives.
Kepler Associates Limited is a member of the Remuneration Consultants Group and complies with its voluntary Code of Conduct in respect of
the provision of remuneration consulting services, details of which can be found at www.remunerationconsultantsgroup.com and has no other
connection to the Company. The Committee considers them to be independent in their approach.
The fees paid to Kepler Associates Limited to carry out work during 2013 for the Remuneration Committee totalled £17,460 and were based on
time and materials.
During the year the Committee also consulted with the Company’s Chairman, Chief Executive Officer, Chief Financial Officer and the Company
Secretary but not on matters relating to their own remuneration.
Signed on behalf of the Board
Tom Maxwell
Chairman of the Remuneration Committee
27 February 2014
76
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report of the directors
Pages 44 to 79 inclusive (together with the sections of the Annual
Report incorporated by reference) form part of the Directors’ Report
which is presented in accordance with, and with reliance upon,
applicable English company law. The liabilities of the Directors in
connection with that report shall be subject to the limitations and
restrictions provided by such law.
Other information, which forms part of the Directors’ Report, can be
found in the following sections of the Annual Report:
Information
Acquisitions
Audit Committee Report
Board and Committee Membership
Corporate Governance Report
Directors’ biographies
Directors’ responsibilities statement
Financial risk management
Treasury policy
Future developments
Development costs
Disability
Diversity
Greenhouse gas emissions
Nomination Committee Report
Employees
Pension schemes
Post balance sheet events
Results and dividends
Share capital
Corporate Social Responsibility
Sustainable development
Directors’ indemnity arrangements
Location in
Annual Report
29
54
46
48
46
79
28
28
16
93
37
37
40
53
36
98
120
4
77
38
40
51
Political donations
In accordance with the Group’s Ethics Policy, no political donations
were made during the year (2012 nil).
Share capital
The Company has a single class of share which is divided into Ordinary
Shares of 31/3 pence each. Each Ordinary Share carries one vote and all
of the Ordinary Shares rank pari passu. There are no special control
rights relating to any of the Ordinary Shares. At the date of this Report,
611.9 million Ordinary Shares of 31/3 pence each had been issued
which are fully paid up and are listed on the London Stock Exchange.
The Company also operates a Level 1 American Depositary Receipt
(“ADR”) programme with each ADR representing four Ordinary Shares.
The ADRs trade on the US over-the-counter market and The Bank of
New York Mellon is the authorised depositary bank for the programme.
Further details on share capital are set out in Note 28 to the
consolidated financial statements and Note 14 to the parent
Company financial statements.
The rights, including those relating to voting, obligations and any
restrictions on transfer relating to the Company’s Ordinary Shares,
as well as the powers of the Company’s directors, are set out in the
Company’s Articles of Association, a copy of which can be found on
our website at http://corporate.spirent.com/ or can be obtained from
Companies House or by writing to the Company Secretary. The
Company’s Articles of Association may only be amended by a special
resolution at a general meeting of shareholders. The most recent
changes to the Articles of Association were approved at the 2010 AGM
and became effective at the close of that meeting on 5 May 2010.
The Company has established two employee benefit trusts in
connection with the operation of the Company’s share incentive
plans: the Spirent Employee Share Ownership Trust (“ESOT”) and the
Spirent Sharesave Trust (“SST”). The trustees of both trusts have
waived their right to receive dividends on any Ordinary Shares held by
them except for a nominal amount of 1 pence other than for those
Ordinary Shares held in the ESOT which are the beneficial property of
an employee/shareholder. For further details on the employee benefit
trusts see “Investment in own Ordinary Shares” in Note 28 to the
consolidated financial statements and Note 14 to the parent Company
financial statements. Trustees of both trusts do not vote their
Ordinary Shares, except for those Ordinary Shares held in the ESOT
that are the beneficial property of an employee/shareholder, which
the trustees will vote in accordance with the instructions received
from the beneficial owner.
Restrictions on share transfers
There are no restrictions on the transfer of Ordinary Shares in the
capital of the Company other than certain restrictions which may from
time to time be imposed by law, for example, insider trading law. In
accordance with the Listing Rules of the Financial Conduct Authority,
certain employees are required to seek the approval of the Company
prior to dealing in its securities.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities or on
voting rights. The Company is also not aware of any contract of
significance between itself or any subsidiary undertaking and
a controlling shareholder.
Powers for issue of new shares
During the year to 31 December 2013 and to the date of this Report,
no new Ordinary Shares have been allotted as a result of the exercise
of options and rights pursuant to the Company’s share incentive plans.
At each annual general meeting, the directors seek authority to allot
shares for cash and to disapply pre-emption rights within prescribed
limits. At the 2014 AGM, authority will be sought to allot new Ordinary
Shares up to a nominal value of £6,797,132, which is equal to 33.3 per
cent of the Company’s issued share capital as at 7 March 2014.
Return of capital
The Company was first authorised to repurchase up to 14.99 per cent of
its own issued Ordinary Shares, within certain limits and as permitted
by the Company’s Articles of Association, at the 2006 AGM. This
authority has been renewed at each subsequent AGM, reducing to 9.99
per cent at the 2010 AGM and subsequent AGMs. The authority from
the 2013 AGM remains valid until the earlier of the 2014 AGM or 30
June 2014. Since the Company began returning capital to shareholders
in May 2006, a total of £260.8 million has been returned, through the
repurchase of 387.9 million Ordinary Shares.
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Report of the directors continued
During 2013 29.2 million Ordinary Shares, each with a nominal value
of 31/3 pence were repurchased for an aggregate consideration of
£34.9 million and cancelled immediately following repurchase. This
represents 4.49 per cent of the Company’s issued Ordinary Share
capital at the beginning of 2013. The Company repurchased a further
10.0 million Ordinary Shares between 1 January 2014 and the date of
this Report.
The Company will seek authority to repurchase up to 9.99 per cent of
its own Ordinary Shares at the 2014 AGM to facilitate any further return
of capital if the Board concludes that it is in the best interests of
shareholders to do so.
share incentive plans may cause outstanding unvested options and
awards granted to employees under such plans to vest on a takeover
as follows:
Change
of control
provisions in
the rules
Effect on
vesting
Performance
condition
Share incentive plan
2005 Employee Incentive Plan
Spirent Stock Incentive Plan
Yes
No
Pro-rated Still applies
n/a
None
The Company is not aware of any significant agreements to which it is
party that take effect, alter or terminate upon a change of control of the
Company following a takeover.
Substantial shareholdings
In accordance with Listing Rule 9.8.6(2), the Company has been
notified of the following significant interests in its Ordinary Shares
pursuant to Disclosure and Transparency Rule 5:
Post balance sheet events
Details of post balance sheet events are included in Note 35 to the
consolidated financial statements.
As at 31 December 2013:
Date of notification
Total holding
% of
Company’s
total
voting
rights
Prudential plc
BlackRock Inc.
AXA Investment
Managers SA
Aviva plc
Schroders plc
Artemis Investment
9 September 2013
11 July 2013
70,463,646
64,825,665
11.34
10.43
18 October 2011
16 December 2013
5 August 2013
47,515,946
40,696,410
34,270,136
7.65
6.55
5.52
Management Limited
17 September 2010 32,940,888
5.30
Standard Life
Investments Ltd
27 January 2011
32,370,026
5.21
Ameriprise
Financial, Inc.
Sun Life Assurance
Company of Canada
(UK) Ltd
Norges Bank
11 December 2013
31,590,545
5.08
5 December 2008
30 May 2013
23,382,347
19,516,804
3.76
3.14
The following notifications have been received during the period
1 January 2014 to 27 February 2014:
% of
Company’s
total
voting
rights
Date of notification
Total holding
Aviva plc
Prudential plc
22 January 2014
29 January 2014
40,597,969
67,877,796
6.57
11.00
Change of control provisions
The Company does not have agreements with any director or employee
that would provide compensation for loss of office or employment
resulting from a takeover except that provisions of the Company’s
78
Going concern
After making appropriate enquiries and taking into account the
matters set out in the Principal Risks and Uncertainties section on
pages 20 and 25 of this Annual Report, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis on preparing the
financial statements.
Disclosure of information to auditor
Each of the directors of the Company at the date of this Report
confirms that:
• so far as the director is aware, there is no information needed by the
Company’s auditor in connection with preparing their report of
which the Company’s auditor is unaware; and
• he (she) has taken all the steps that he (she) ought to have taken as
a director in order to make himself (herself) aware of any
information needed by the Company’s auditor in connection with
preparing their report and to establish that the Company’s auditor is
aware of that information.
Independent auditors
As described in more detail on page 57 of the Audit Committee report,
the Board will be proposing a resolution to re-appoint EY as auditiors at
the 2014 AGM.
Annual General Meeting
The 2014 AGM will be held at 10.30am on Wednesday 23 April 2014
at the offices of UBS, 1 Finsbury Avenue, London EC2M 2PP.
By Order of the Board
Rachel Whiting
Company Secretary
27 February 2014
Spirent Communications plc
Company number: 470893
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Directors’ responsibilities statement
The directors are responsible for preparing the Annual Report, the Report
on directors’ remuneration, the consolidated financial statements of the
Group and financial statements of the parent Company.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
to assess the Company’s performance, business model and strategy.
This Annual Report complies with the Disclosure and Transparency
Rules (“DTR”) of the Financial Conduct Authority in respect of the
requirement to produce an annual financial report.
The Annual Report and consolidated financial statements are the
responsibility of, and have been approved by, the directors.
Each of the directors confirms that, to the best of their knowledge:
• the consolidated financial statements of the Group and parent
Company financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and the profit or loss of the
Company and the undertakings included in the consolidation taken
as a whole; and
• the Annual Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
By Order of the Board
Rachel Whiting
Chief Financial Officer
27 February 2014
Company law requires the directors to prepare financial statements
for each financial year. Under that law they are required to prepare the
consolidated financial statements of the Group in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union (“EU”) and have elected to prepare the parent
Company financial statements in accordance with UK Generally
Accepted Accounting Principles and applicable law.
The consolidated financial statements of the Group are required by
law and IFRSs to present fairly for each financial period the financial
position and performance of the Group; the Companies Act 2006
provides, in relation to such financial statements, that references in the
relevant part of that Act to financial statements giving a true and fair
view, are references to their achieving a fair presentation.
The parent Company financial statements are required by law to give
a true and fair view of the state of affairs of the parent Company.
In preparing each of the consolidated financial statements of the
Group and parent Company financial statements, the directors are
required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state for the audited consolidated financial statements of the Group
whether they have been prepared in accordance with IFRSs as
adopted by the EU;
• state for the parent Company financial statements whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the parent
Company financial statements; and
• prepare the financial statements on a going concern basis unless it
is inappropriate to presume the Group and the parent Company will
continue in operational business for the foreseeable future.
The directors confirm that they have complied with the above
requirements in preparing the financial statements.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
that disclose with reasonable accuracy at any time the financial
position of the Group and the parent Company and enable them to
ensure that its financial statements comply with the Companies Act
2006 and, for the Group, Article 4 of the International Accounting
Standards Regulation. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, a directors’ report,
a directors’ remuneration report and a statement on corporate
governance that comply with the law and those regulations. They
are also responsible for the maintenance and integrity of the corporate
and financial information included on the Company’s website.
79
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Independent auditor’s report to the members of Spirent
Communications plc
We have audited the Group financial statements of Spirent
Communications plc for the year ended 31 December 2013 which
comprise the Consolidated income statement, the Consolidated
balance sheet, the Consolidated statement of comprehensive income,
the Consolidated cash flow statement and the Consolidated statement
of changes in equity and the related notes 1 to 35. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ responsibilities statement set
out on page 79, the directors are responsible for the preparation of the
Group financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an opinion on
the Group financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the
financial statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to identify
any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as at
31 December 2013 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
• have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
Our assessment of risks of material misstatement
We identified the following risks that have had the greatest effect on
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team:
• revenue recognition, in relation to correct allocation to components
for multi-element contracts and appropriate cut off; and
• tax accounting, as the Group operates in a number of jurisdictions
with different tax regulations and available credits there is an
increased risk of non-compliance with local tax regulations which
may result in the understatement of tax provisions and liabilities
including those arising from penalties and charges. In addition,
there is a risk that inappropriate use of brought forward tax losses
and volatility in forecast sales may result in incorrect recognition
and risks around recoverability of deferred tax assets.
Our application of materiality
We apply the concept of materiality both in planning and performing
our audit, and in evaluating the effect of misstatements on our audit
and on the financial statements. For the purposes of determining
whether the financial statements are free from material misstatement
we define materiality as the magnitude of misstatement that makes it
probable that the economic decisions of a reasonably knowledgeable
person, relying on the financial statements, would be changed or
influenced. We also determine a level of performance materiality which
we use to determine the extent of testing needed to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality
for the financial statements as a whole.
When establishing our overall audit strategy, we determined a
magnitude of uncorrected misstatements that we judged would be
material for the financial statements as a whole. We determined
materiality for the Group to be $2.25 million (2012 $5.7 million),
which is approximately 5% of profit before tax for the year ending
31 December 2013. On the basis of our risk assessments, together
with our assessment of the Group’s overall control environment, our
judgement is that overall performance materiality for the Group should
be 75% of materiality, namely $1.7 million (2012 $4.3 million). Our
objective in adopting this approach is to ensure that total detected and
undetected audit differences do not exceed our planning materiality of
$2.25 million for the financial statements as a whole. This provided a
basis for determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of
further audit procedures.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of $0.1 million (2012 $0.3
million) and differences below that threshold which, in our view
warranted reporting on qualitative grounds.
An overview of the scope of our audit
Following our assessment of the risk of material misstatement to the
Group financial statements, we have scoped in 10 locations which
present the principal business units within the Group’s three
reportable segments; Networks and Applications, Wireless and Service
80
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Experience and Service Assurance and account for 94% of the Group’s
total assets and 94% of the Group’s profit before tax.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
The audit work at the 10 locations was performed at a materiality level
calculated by reference to a proportion of Group materiality appropriate
to the relative scale of the business concerned.
Under the ISAs (UK and Ireland), we are required to report to you if,
in our opinion, information in the Annual Report is:
The Group audit team continued to follow a programme of planned
visits that has been designed to ensure that senior members of the
audit team including the Senior statutory auditor visit certain material
or high risk locations on a rotational basis. All material or high risk
locations have been visited during the current year aside from Asia
which was visited in the prior year. For all in-scope locations, the Group
audit team participated in the component team’s planning event
including discussion of fraud and error.
The principal ways in which we responded to the risks described
above included:
Revenue recognition:
• we have carried out audit procedures on the allocation of revenue
in relation to sales contracts specifically focusing on the service
element of multiple element sales contracts as well as contracts
with separate components consisting of hardware and subsequent
software upgrades;
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group acquired in the course of
performing our audit; or
is otherwise misleading.
•
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the audit
and the Directors’ statement that they consider the Annual Report is
fair, balanced and understandable and whether the Annual Report
appropriately discloses those matters that we communicated to the
Audit Committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
• we have carried out audit procedures on specific large and complex
require for our audit.
transactions together with a sample of regular transactions at
each location;
• we have carried out audit procedures on deferred revenue and other
revenue associated balances to ensure they have been recognised
in accordance with Group accounting policies and IFRS as adopted
by the EU; and
• we have carried out audit procedures on cut off in relation to
revenue recognised close to year end and with particular focus in
China and India which might be caused by import challenges.
Tax Accounting:
• we have assessed the consistency and robustness of tax
provisions, particularly in the light of any expected resolution of
older issues; and
• we have reviewed the future profit forecasts and the underlying
assumptions and we have assessed the utilisation of unrecognised
brought forward losses to calculate the recognition of deferred
tax assets.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 78, in relation to going
concern; and
• the part of the Corporate governance statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review.
Other matter
We have reported separately on the parent Company financial
statements of Spirent Communications plc for the year ended
31 December 2013 and on the information in the Directors’
remuneration report that is described as having been audited.
Karl Havers (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
27 February 2014
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic report and
the Directors’ report for the financial year for which the Group
financial statements are prepared is consistent with the Group
financial statements.
Notes
1
The maintenance and integrity of the Spirent Communications plc website is the
responsibility of the directors; the work carried out by the auditor does not involve
consideration of these matters and, accordingly, the auditor accepts no responsibility
for any changes that may have occurred to the financial statements since they were
initially presented on the website.
2
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
81
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Consolidated income statement
Year to 31 December 2013
Continuing operations
Revenue
Cost of sales
Gross profit
Product development
Selling and distribution
Administration
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit for the year after tax for continuing operations
Discontinued operations
Profit for the year attributable to owners of the parent Company
Earnings per share (cents)
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total Group
Basic
Diluted
Note
1 Restated for the implementation of IAS 19 “Employee Benefits”.
The notes on pages 87 to 120 and page 135 form part of these financial statements.
Notes
3, 4
4
4
8
9
4, 5
12
6
13
2013
$ million
413.5
(126.7)
286.8
(100.5)
(96.6)
(50.6)
39.1
0.9
(0.9)
39.1
(6.4)
32.7
–
32.7
Restated
20121
$ million
472.4
(135.7)
336.7
(86.1)
(91.7)
(50.8)
108.1
0.8
(0.5)
108.4
(29.0)
79.4
47.1
126.5
5.10
5.09
12.11
12.07
–
–
7.18
7.15
5.10
5.09
19.29
19.22
82
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Consolidated statement of comprehensive income
Year to 31 December 2013
Profit for the year attributable to owners of the parent Company
Other comprehensive income
Items that may subsequently be reclassified to profit or loss:
Exchange differences on retranslation of foreign operations
Exchange differences recycled on disposal
Items that will not subsequently be reclassified to profit or loss:
Re-measurement of the net defined benefit pension liability
Income tax effect
Other comprehensive income
Total comprehensive income for the year attributable to owners of the parent Company
Note
1 Restated for the implementation of IAS 19 “Employee Benefits”.
The notes on pages 87 to 120 and page 135 form part of these financial statements.
Notes
2013
$ million
Restated
20121
$ million
32.7
126.5
33
11
12
(0.7)
–
(0.7)
17.8
(4.2)
13.6
12.9
45.6
3.2
1.2
4.4
(11.7)
2.5
(9.2)
(4.8)
121.7
83
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Consolidated balance sheet
At 31 December 2013
Assets
Non‑current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash on deposit
Defined benefit pension plan surplus
Deferred tax
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax
Provisions and other liabilities
Non‑current liabilities
Trade and other payables
Defined benefit pension plan deficit
Provisions and other liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Other reserves
Translation reserve
Retained earnings
Total equity attributable to owners of the parent Company
The notes on pages 87 to 120 and page 135 form part of these financial statements.
Signed on behalf of the Board
Eric Hutchinson
Director
27 February 2014
84
Notes
2013
$ million
2012
$ million
15
16
20
21
11
23
19
20
21
22
25
24
11
25
28
198.8
39.6
4.4
0.1
0.6
18.3
261.8
31.6
102.7
216.2
350.5
612.3
(130.7)
(3.6)
(6.0)
(140.3)
(15.2)
(3.9)
(0.5)
(19.6)
(159.9)
452.4
34.4
33.5
21.3
(3.2)
23.3
343.1
452.4
207.4
34.1
4.9
0.4
–
28.4
275.2
34.0
95.6
248.6
378.2
653.4
(107.3)
(8.5)
(4.4)
(120.2)
(11.4)
(25.6)
(0.6)
(37.6)
(157.8)
495.6
35.3
32.9
19.4
(1.6)
24.0
385.6
495.6
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Consolidated cash flow statement
Year to 31 December 2013
Cash flows from operating activities
Cash flow from operations
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Transfer from long term deposit
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Acquisition of subsidiaries and businesses
Net proceeds from the disposal of operations
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Dividend paid
Proceeds from the issue of share capital and employee share ownership trust
Share repurchase
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
The notes on pages 87 to 120 and page 135 form part of these financial statements.
Notes
31
15
16
32
33
14
21
2013
$ million
2012
$ million
73.5
(6.1)
67.4
0.8
0.3
(2.4)
(22.9)
1.0
–
–
(23.2)
–
(22.2)
0.2
(54.7)
(76.7)
(32.5)
248.6
0.1
216.2
128.2
(23.1)
105.1
0.9
0.3
–
(16.4)
2.1
(92.0)
59.9
(45.2)
(0.3)
(20.3)
2.2
(31.6)
(50.0)
9.9
236.5
2.2
248.6
85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Consolidated statement of changes in equity
At 1 January 2012
Profit for the year (restated1)
Other comprehensive income (restated1) (a)
Total comprehensive income
Share-based payment note 30
Tax on share incentives note 12
Employee share ownership trust note 28
Share cancellation note 28
Share repurchase note 28
Equity dividends note 14
Exchange adjustment
At 1 January 2013
Profit for the year
Other comprehensive income (b)
Total comprehensive income
Share-based payment note 30
Employee share ownership trust note 28
Share cancellation note 28
Share repurchase note 28
Share buyback obligation note 28
Equity dividends note 14
Exchange adjustment
Capital
redemption
reserve
Other
reserves
Translation
reserve
17.7
2.7
Share
capital
34.3
–
–
–
–
–
–
(0.7)
–
–
1.7
Share
premium
account
31.3
–
–
–
–
–
–
–
–
–
1.6
–
–
–
–
–
–
0.7
–
–
1.0
35.3
32.9
19.4
–
–
–
–
–
(1.5)
–
–
–
0.6
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
1.5
–
–
–
0.4
$ million
Total
equity
422.2
126.5
(4.8)
121.7
1.6
(1.0)
2.2
–
(30.8)
(20.3)
–
Retained
earnings
316.6
126.5
(9.2)
117.3
1.6
(1.0)
2.2
–
(30.8)
(20.3)
–
19.6
–
4.4
4.4
–
–
–
–
–
–
–
24.0
385.6
495.6
–
(0.7)
(0.7)
–
–
–
–
–
–
–
32.7
13.6
46.3
(1.2)
0.2
–
(55.5)
(10.1)
(22.2)
–
32.7
12.9
45.6
(1.2)
0.2
–
(55.5)
(10.1)
(22.2)
–
23.3
343.1
452.4
–
–
–
–
–
–
–
–
–
(4.3)
(1.6)
–
–
–
–
–
–
–
–
–
(1.6)
(3.2)
At 31 December 2013
34.4
33.5
21.3
Note
1 Restated for the implementation of IAS 19 “Employee Benefits”.
(a) The amount included in other comprehensive income for 2012 of $9.2 million represents re-measurement losses of the net defined benefit
pension liability of $11.7 million net of a tax credit of $2.5 million.
The amount included in the translation reserve of $4.4 million represents other comprehensive income related to the translation of foreign
operations of $3.2 million and exchange differences of $1.2 million recycled on the disposal of operations.
(b) The amount included in other comprehensive income for 2013 of $13.6 million represents re-measurement gains of the net defined benefit
pension liability of $17.8 million net of a tax charge of $4.2 million.
The amount included in the translation reserve of $0.7 million represents other comprehensive income related to the translation of
foreign operations.
The notes on pages 87 to 120 and page 135 form part of these financial statements.
86
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the consolidated financial statements
1. Corporate information
The Group’s consolidated financial statements for the year ended 31 December 2013 were authorised for issue by the Board of directors on
27 February 2014. Spirent Communications plc is a public limited company incorporated and domiciled in England and Wales.
The Company’s Ordinary Shares are traded on the London Stock Exchange.
As required by the European Union’s (“EU”) IAS Regulation and the Companies Act 2006, the Group has prepared its consolidated financial
statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the EU and issued by the International
Accounting Standards Board (“IASB”).
The Company has elected to prepare the Company financial statements in accordance with UK Accounting Standards. These are presented
on pages 122 to 135 and the accounting policies in respect of the Company are set out on pages 123 to 126.
2. Summary of significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared under the historical cost convention except unless otherwise indicated.
The Group has prepared its financial statements under IFRSs. The significant accounting policies applied in the preparation of these consolidated
financial statements are set out below and the accounting policies adopted are consistent with those applied in the consolidated financial
statements for the year ended 31 December 2012 other than in relation to IAS 19 “Employee Benefits” discussed below.
Change to segmental reporting
IFRS 8 “Operating Segments” requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating
Decision Maker. The Chief Operating Decision Maker has been determined, in Spirent’s case, to be the Chief Executive Officer, as he is primarily
responsible for the allocation of resources to segments and the assessment of the performance of segments.
A review of the Group’s organisational structure, which was completed in 2013, has resulted in a change to the segmental information provided
to the Chief Operating Decision Maker and this has required a change to Spirent’s segmental reporting structure. Spirent is now reporting three
operating segments: Networks & Applications; Wireless & Service Experience; and Service Assurance. Previously Networks & Applications and
Wireless & Service Experience were reported as one segment, Performance Analysis. Comparatives have been restated accordingly.
New accounting standards
The following new standards, amendments to standards and interpretations have been adopted by the Group with no significant impact on
its consolidated results or financial position other than in relation to IAS 19 “Employee Benefits”.
International Accounting Standards (“IAS/IFRS”)
IAS 1
IAS 1
IAS 16
IAS 19
IAS 32
IAS 36
IFRS 1
IFRS 1
IFRS 7
IFRS 13
Annual Improvements 2009–2011 Cycle
Amendments to IAS 1 – Presentation of Items of Other Comprehensive Income
Amendments to IAS 1 – Clarification of the Requirements for Comparative Information
Amendments to IAS 16 – Classification of Servicing Equipment
Employee Benefits
Amendments to IAS 32 – Tax Effect of Distribution to Holders of Equity Instruments
Amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets
Amendments to IFRS 1 – Borrowing Costs
Amendments to IFRS 1 – Government Loans
Amendments to IFRS 7 – Offsetting Financial Assets and Financial Liabilities
Fair Value Measurement
IAS 19 “Employee Benefits”
With effect from 1 January 2013 the Group has implemented the amendments to the accounting standard IAS 19 “Employee Benefits” in relation
to its United Kingdom defined benefit pension plans. Comparative numbers have been restated accordingly.
87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
2. Summary of significant accounting policies continued
Under the revised accounting standard, the principal change is that the expected returns on defined benefit pension plan assets are not
recognised in profit or loss. Instead, interest on the net defined benefit pension obligation is recognised in profit or loss, calculated using the
discount rate used to measure the pension obligation. For Spirent this change has caused net interest income on the defined benefit pension
plans, under the previous standard, to become a net finance cost, under the revised standard. In addition, certain administrative expenses of
running the plans are expensed to operating costs, having been deducted from the return on assets under the previous standard. Plan asset
administration costs are recognised as re-measurement adjustments in other comprehensive income.
The implementation of IAS 19 has had no effect on the prior year consolidated balance sheet or consolidated cash flow statement.
Impact on total comprehensive income for the year of application
Impact on profit for the year
Increase in administration costs
Decrease in finance income
Increase in finance expense
Tax
Decrease in profit for the year
Impact on other comprehensive income
Increase in re-measurement of the net defined benefit pension liability
Income tax effect
Increase/(decrease) in total comprehensive income for the year
Impact on earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
2013
$ million
2012
$ million
(0.7)
(0.3)
(0.9)
0.4
(1.5)
1.9
(0.4)
–
(1.1)
(0.7)
(0.5)
–
(2.3)
2.3
–
–
(0.23)
(0.23)
(0.35)
(0.35)
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each
year. The financial statements of subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting
policies.
Results of subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group. All intra Group transactions, balances, income and expenses are eliminated on consolidation.
Goodwill
Goodwill arising on the acquisition of subsidiaries, representing the excess of cost over the net fair value of the identifiable assets, liabilities
and contingent liabilities acquired, is capitalised as an intangible asset. Goodwill is carried at cost less any accumulated impairment losses.
Goodwill is subject to an annual review for impairment. For the purpose of impairment testing, goodwill is allocated to the related cash-generating
units monitored by management. Where the recoverable amount of the cash-generating unit is less than its carrying amount, including goodwill,
an impairment loss is recognised in the income statement.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Separately identifiable intangible
assets such as patent fees, licence fees, trademarks and customer lists and relationships are capitalised on the balance sheet only when
the value can be measured reliably, or the intangible asset is purchased as part of the acquisition of a business. Such intangible assets are
amortised over their useful economic lives on a straight line basis. The carrying value of intangible assets is reviewed for impairment if events
or changes in circumstances indicate the carrying value may not be recoverable.
Product development
Research expenditure is recognised in the year in which it is incurred. Intangible assets arising on the Group’s various product development
projects are recognised only if the recognition criteria of IAS 38 “Intangible Assets” are met.
88
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2. Summary of significant accounting policies continued
Product development costs are expensed as incurred until the technological feasibility of the product under development has been established.
Technological feasibility in Spirent’s circumstances occurs when a working model is completed. For software development technological
feasibility is not established until the process of developing the software is complete. After technological feasibility is established, additional
costs are capitalised and amortised on a straight line basis over the estimated useful life.
At 31 December 2013 and 31 December 2012 no amounts have met the recognition criteria.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment. Depreciation is not provided on
freehold land. Depreciation is provided to write off the cost, less estimated residual value, of all other assets over their estimated useful lives on a
straight line basis at rates which take into account commercial conditions at their location. Usual asset lives are as follows:
Freehold buildings
Plant and machinery
Fixtures, fittings and equipment
Building installations
Fittings and equipment
Motor vehicles
Business systems software
50 years
3 to 8 years
20 years or lease period if less
3 to 8 years
3 to 5 years
4 years
The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying
value may not be recoverable.
Impairment of assets
Intangible assets with finite useful lives and property, plant and equipment are tested for impairment at each reporting date where there is an
indication that an asset may be impaired. Goodwill and intangible assets with an indefinite useful life are assessed at least annually. When an
impairment test is performed, the recoverable amount is assessed by reference to the higher of the net present value of the expected cash flows
(value in use) of the relevant cash-generating unit or asset and the fair value less cost to sell. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. Impairment losses are recognised in the income statement in those expense categories consistent with
the function of the impaired asset.
Where an impairment loss has been recognised against an asset, it may be reversed in future periods where there has been a change in the
estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised, but only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment
loss been recognised in prior years. Such a reversal is recognised in the income statement. This does not apply for goodwill, for which an
impairment loss must not be reversed in any circumstances.
Leases
Operating leases are leases where the lessor retains substantially all the risks and rewards of ownership of the asset and are not finance leases.
Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.
Inventories
Inventories are stated at the lower of cost and estimated net realisable value, after provisions for obsolescence. Cost includes all costs incurred in
bringing each product to its present location and condition, being the full manufacturing cost on a first-in-first-out basis, including all attributable
overheads based on a normal level of activity.
Provisions
Provisions are recorded when the Group has a present, legal or constructive obligation as a result of a past event, for which it is probable that the
Group will be required to settle by an outflow of resources and for which a reliable estimate of the amount of the obligation can be made.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Where the effect of the time value of money is material, the amount of the provision shall be the present value of the expenditures expected to be
required to settle the obligation.
89
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
2. Summary of significant accounting policies continued
Foreign currencies
The consolidated financial statements are presented in US dollars, which is the Group’s presentation currency.
Transactions in foreign currencies are initially recorded at the rates ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rates ruling at the balance sheet date. All exchange differences are taken to the
consolidated income statement. Non-monetary assets and liabilities denominated in foreign currencies are measured in terms of historical
costs using the exchange rate at the date of the initial transaction.
The functional currencies of the Group’s operations are principally US dollar, sterling or euro. On consolidation the assets and liabilities of the
Group’s foreign operations are translated into the Group’s presentation currency at exchange rates ruling at the balance sheet date. The results
of foreign operations are translated into US dollars using average rates for the period. The exchange differences arising on retranslation are
classified as a separate component of equity, the translation reserve. Such translation differences are recognised as part of the profit or loss
on disposal should an operation be disposed of. The Group has elected to apply the exemption in IFRS 1 “First Time Adoption of International
Financial Reporting Standards” which allows the cumulative translation differences for all foreign operations to be deemed to be zero at the
date of transition to IFRSs, being 1 January 2003.
Financial instruments
Financial assets and liabilities are recognised on the Group’s balance sheet when it becomes a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are non-interest bearing and are stated at original invoiced amount less an appropriate allowance for estimated irrecoverable
amounts. Such allowances are based on an assessment of debtor ageing, past experience or known customer exposures.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits which usually have an original
maturity of three months or less. For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash
equivalents as defined above. There are no bank overdrafts.
Trade payables
Trade payables are non-interest bearing and are stated at the original invoiced amount.
Equity instruments
Equity instruments are recorded at the proceeds received, net of direct issue costs. Spirent Communications plc Ordinary Shares held by the
Group are classified in equity as treasury shares and are recognised at cost and included as a deduction from retained earnings. Consideration
received for the sale of such treasury shares is also recognised in equity, with any difference between the proceeds from sale and the original cost
being taken to retained earnings.
Derivative financial instruments and hedge accounting
The Group uses forward foreign currency exchange contracts to manage exposures arising on receipts and payments in foreign currencies relating
to firm commitments.
Forward foreign currency exchange contracts are initially recognised at fair value on the date on which the contract is entered into, and are
subsequently re-measured to fair value at each reported balance sheet date. The fair value of forward foreign currency exchange contracts is
calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The Group has not adopted the hedge
accounting rules. Consequently all gains and losses arising from changes in fair value are taken to the income statement.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts.
Retirement benefits
The Group operates two funded defined benefit pension plans which are in the United Kingdom, all other pension plans are defined contribution
in nature. For the defined contribution plans the amount charged to the income statement is the employers’ contributions paid or payable during
the year.
90
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2. Summary of significant accounting policies continued
For defined benefit pension plans full actuarial valuations are carried out every three years using the projected unit credit method, and updates
are performed at each balance sheet date. Re-measurement, comprising actuarial gains and losses, the effect of changes to the asset ceiling (if
relevant) and the return on plan assets (excluding interest), is reflected immediately in the balance sheet liability or asset with a charge or credit
recognised in other comprehensive income in the period in which they occur. Re-measurement recognised in other comprehensive income will
not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of plan amendment. Net interest is calculated by
applying the discount rate at the beginning of the period to the net defined benefit pension liability or asset, taking account of any changes in the
net defined benefit pension liability during the period as a result of contribution and benefit payments. Defined benefit pension costs are
categorised as:
• service cost (including current service cost, past service cost and gains and losses on curtailments or settlements);
• net interest expense or income; and
• re-measurement.
The Group presents the first two components of defined benefit pension costs in profit or loss.
Revenue recognition
Revenue is recognised when it is probable that economic benefits will flow to the Group, the revenue can be reliably measured and when the
Group has transferred to the buyer the significant risks and rewards of ownership. In addition, revenue is only recognised when collectability
is probable.
For the sale of services, revenue is recognised in accounting periods in which the service is rendered. Revenue from maintenance contracts is
recognised over the period of performance on a straight line basis.
Revenue from product sales of hardware and software is recognised at the time of delivery and acceptance and when there are no significant
vendor obligations remaining. It is not until acceptance has occurred that the risks and rewards of ownership are transferred to the buyer. Terms
of acceptance are dependent upon the specific contractual arrangement agreed with the customer.
Contractual arrangements are accounted for as two or more separate transactions only where the commercial substance is that the individual
components operate independently of each other, because they are capable of being provided separately from one another and it is possible
to attribute reliable fair values to every component. To the extent that a separate component comprises a product sale of hardware or software,
revenue is recognised as described above. Revenue is recognised on other components as the Group fulfils its contractual obligations and to the
extent that it has earned the right to consideration.
Employee benefits
When an employee has rendered services to the Group during an accounting period, short term benefits expected to be paid in exchange for
those services are recognised in the same accounting period.
Share-based payment
The Group operates various equity-settled share-based compensation plans and accounts for these awards in accordance with IFRS 2
“Share-based Payment”.
The fair value of these awards is recognised in the income statement on a straight line basis over the vesting period together with a corresponding
change in equity. The fair value is measured using the Hull-White trinomial model by reference to the share price, and taking into account the
terms and conditions of the award, excluding non-market vesting conditions, at the date the awards were granted. The charge is reassessed at
each balance sheet date to reflect the expected and actual levels of vesting, due to achievement or otherwise of non-market conditions. Awards
where vesting is conditional upon satisfying a market condition or non-vesting condition are treated as vesting irrespective of whether the market
or non-vesting condition has been satisified.
The Group has an employee share trust for the granting of certain share incentives to employees. Shares in the Group held by the employee share
trust are treated as treasury shares and presented in the balance sheet as a deduction from equity.
Tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustments to tax payable for previous years.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
2. Summary of significant accounting policies continued
Deferred tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill (taxable temporary differences only) or of an asset or liability
in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing
of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future.
•
A deferred tax asset is recognised only to the extent that it is probable that taxable profits will be available against which the deductible
temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is
realised or the liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Dividends paid
The interim dividend is included in the financial statements in the period in which it is paid, and the final dividend in the period it is approved by
the shareholders at an annual general meeting.
Critical accounting assumptions and judgements
The preparation of financial statements requires the Group to make estimates and assumptions that affect items reported. Such estimates and
assumptions are based on management’s best knowledge of current facts, circumstances and future events, actual results may differ, possibly
significantly, from those estimates. The areas requiring a high degree of judgement or where assumptions and estimates are significant to the
consolidated financial statements are discussed below.
Goodwill impairment
The Group tests annually by cash-generating unit whether goodwill has suffered impairment and more frequently when events or circumstances
indicate that the current carrying value may not be recoverable. The recoverable amounts of cash-generating units have been determined based
on value in use calculations which require the use of estimates and assumptions. These are described in note 15.
Defined benefit pension plans
The pension cost and the defined benefit pension obligation of the Group’s defined benefit pension plans are based on a number of selected
assumptions, these include the discount rate, inflation rate, salary growth and longevity. Differences arising from actual experience or future
changes in assumptions will be reflected in future periods. The effect of changing these assumptions is described in note 11.
Revenue recognition
For revenue recognition purposes contractual arrangements are accounted for as two or more separate transactions only where the commercial
substance is that the individual components operate independently of each other, because they are capable of being provided separately from
one another and it is possible to attribute reliable fair values to every component. To the extent that a separate component comprises a product
sale of hardware or software, revenue is recognised as described above. Revenue is recognised on other components as the Group fulfils its
contractual obligations and to the extent that it has earned the right to consideration. Management exercises a degree of judgement in setting the
criteria used for determining when revenue which involves several elements should be recognised and the fair values allocated to each element.
Income taxes
The Group is subject to income taxes in a number of tax jurisdictions and judgement is applied in determining the worldwide provision for income
taxes. There are many transactions for which the final tax determinability is uncertain. For example liabilities are recognised for anticipated tax
audit issues based on whether additional taxes are likely to be due based on the facts and circumstances known at the time the financial
statements are prepared. Where the final outcome differs from the amounts that were initially recorded the differences will be recorded in the
future period in which the determination is made.
Deferred taxes
The extent to which deferred tax assets can be recognised is based on current forecasts and estimates prepared by management. A change to
these forecasts and estimates could result in a different recognition outcome. Unrecognised deferred tax assets are disclosed in note 23.
92
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2. Summary of significant accounting policies continued
New standards and interpretations not applied
The IASB and IFRIC have issued the following standards and interpretations with an effective date for the Group after the date of these
financial statements:
International Accounting
Standards (“IAS/IFRS”)
IAS 19
IAS 32
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 10,12 and IAS 27
IAS 39 and IFRS 9
IFRIC 21
Annual Improvements
2010–2012 Cycle
2011–2013 Cycle
Amendments to IAS 19 – Employee Contributions
Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities
Financial Instruments
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Amendments to IFRS 10 and 12 and IAS 27 – Investment Entities
Amendments to IAS 39 and IFRS 9 – Novation of Derivatives and Continuation of
Hedge Accounting
Levies
Effective for annual periods
beginning on or after
1 July 2014
1 January 2014
to be confirmed
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 July 2014
1 July 2014
The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial
statements in the period of initial application.
3. Revenue
Sale of goods
Maintenance and support services
Total revenue from continuing operations
2013
$ million
286.2
127.3
413.5
2012
$ million
362.0
110.4
472.4
Revenue for discontinued operations principally relates to the sale of goods.
4. 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.
As explained in note 2 the Group has amended its operating segments for 2013 and comparative information has been restated. The Group’s
continuing reportable operating segments are Networks & Applications, Wireless & Service Experience and Service Assurance. Its Systems
segment was sold during 2012 and is disclosed as a discontinued operation. The Group evaluates segment 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.
The principal activities of each of the continuing reportable operating segments are as follows:
• Networks & Applications develops innovative solutions for functional and performance testing of next-generation networks and applications
that simulate real-world conditions in the lab, before a commercial launch.
• Wireless & Service Experience develops innovative solutions for functional and performance testing of next-generation mobile wireless and
satellite positioning devices in the lab before a commercial launch, and measurement of the mobile experience on live networks.
• Service Assurance provides solutions to allow service providers to diagnose, troubleshoot and determine how to resolve issues with networks
and systems within the live network and to monitor live network performance.
93
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
4. Operating segments continued
Segmental information is provided below for continuing operations, discontinued operations are dealt with in note 6.
Revenue
External revenue
There were no inter-segment sales.
Profit before tax
Total reportable segment profit/(loss) before exceptional items
Exceptional items note 7
Total reportable segment profit/(loss)
Unallocated amounts
Acquired intangible asset amortisation
Share-based payment note 30
Operating profit
Finance income
Finance expense
Profit before tax
Other information
Product development
Expenditure on intangibles note 15
Expenditure on property, plant and equipment
Intangible asset amortisation – other
Depreciation
2013
$ million
Networks &
Applications
Wireless
& Service
Experience
Service
Assurance
Corporate
Total
213.4
167.7
32.4
–
413.5
13.2
(1.6)
11.6
33.8
–
33.8
9.0
–
9.0
(5.9)
(2.2)
(8.1)
50.1
(3.8)
46.3
(8.4)
1.2
39.1
0.9
(0.9)
39.1
55.1
–
10.7
–
8.7
37.6
2.4
11.2
1.5
6.6
7.8
–
1.0
–
1.0
–
–
–
–
0.2
100.5
2.4
22.9
1.5
16.5
94
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 4. Operating segments continued
Revenue
External revenue
There were no inter-segment sales.
Profit before tax
Total reportable segment profit/(loss) before exceptional items
Exceptional items note 7
Total reportable segment profit/(loss)
Unallocated amounts
Acquisition related costs
Acquired intangible asset amortisation
Share-based payment note 30
Operating profit
Finance income
Finance costs
Profit before tax
Other information
Product development
Expenditure on intangibles note 15
Expenditure on property, plant and equipment
Intangible asset amortisation – other
Depreciation
Geographical information
Revenue by market
United States
Asia Pacific, Rest of World
Europe
Europe includes United Kingdom revenue of $9.8 million (2012 $13.4 million).
Revenues are attributed to countries based on customer location.
Non‑current assets
United States
Asia Pacific, Rest of World
Europe
Europe includes United Kingdom non-current assets of $2.1 million (2012 $2.2 million).
No one customer accounted for 10 per cent or more of total Group revenue in either 2013 or 2012.
Restated
2012
$ million
Networks &
Applications
Wireless
& Service
Experience
Service
Assurance
Corporate
Total
259.5
174.5
38.4
–
472.4
59.7
–
59.7
56.7
–
56.7
8.4
(2.9)
5.5
(6.5)
–
(6.5)
49.8
38.6
9.5
–
8.4
29.3
51.4
6.2
1.6
5.0
7.0
–
0.1
–
1.1
–
–
0.1
–
0.1
118.3
(2.9)
115.4
(1.2)
(4.5)
(1.6)
108.1
0.8
(0.5)
108.4
86.1
90.0
15.9
1.6
14.6
2013
$ million
2012
$ million
215.8
146.9
50.8
413.5
239.2
166.0
67.2
472.4
2013
$ million
2012
$ million
228.0
7.1
3.3
238.4
232.4
5.7
3.4
241.5
95
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
5. Profit before tax
The following items have been charged or (credited) in arriving at profit before tax and are disclosed for continuing and discontinued operations:
Employee benefit costs note 10
Costs of inventories recognised as an expense
Write-down of inventories to net realisable value note 19
Amortisation of intangible assets note 15
Depreciation of property, plant and equipment
Owned assets note 16
Loss on disposal of property, plant and equipment
Operating leases
Minimum lease payments
Sublease income
Product development costs
Net foreign exchange charge
Services provided to all of the operations of the Group by the auditor, Ernst & Young LLP, and its associates:
Audit services
Group audit fee
Other fees to auditors
Taxation advisory services
Taxation advisory relating to corporate finance transactions
2013
$ million
183.8
82.3
0.3
9.9
16.5
–
8.4
–
100.5
0.4
Restated
2012
$ million
186.2
119.6
3.7
6.1
15.2
0.1
7.7
(0.1)
90.1
0.8
2013
$ million
2012
$ million
0.8
0.2
–
0.2
1.0
0.8
0.2
0.2
0.4
1.2
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 54 to 57 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
6. Discontinued operations
The assets and liabilities of the Systems division were sold to Curtiss-Wright Corporation on 1 November 2012 for a cash consideration of
$63.2 million.
Revenue
Cost of sales
Gross profit
Expenses
Operating profit
Profit on sale of operations note 33
Profit before tax
Tax note 12
Profit for the year after tax for discontinued operations
96
2013
$ million
2012
$ million
–
–
–
–
–
–
–
–
–
43.9
(27.6)
16.3
(12.0)
4.3
44.5
48.8
(1.7)
47.1
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 6. Discontinued operations continued
The net cash flows for discontinued operations were as follows:
Operating note 31
Investing
Net cash inflow
Revenue by market for discontinued operations was as follows:
Revenue by market
United States
Asia Pacific, Rest of World
Europe
Europe includes United Kingdom revenue of nil (2012 $1.5 million).
Revenues are attributed to countries based on customer location.
7. Exceptional items
Review of the Group’s organisational structure
Reorganisation expenses – Service Assurance
Excess inventory provision – Service Assurance
Abortive acquisition costs
2013
$ million
2012
$ million
–
–
–
7.9
(0.5)
7.4
2013
$ million
2012
$ million
–
–
–
–
17.3
15.6
11.0
43.9
2013
$ million
2012
$ million
3.4
–
–
0.4
3.8
–
1.5
1.4
–
2.9
In the fourth quarter of 2013 the Group undertook a review of its operational structure. This resulted in a number of management and structural
changes being made in order to deliver a streamlined, decentralised and more simplified business. These internal changes have been made to
create a more agile and responsive organisation to better serve Spirent’s customers as well as sharpen the business’s focus on anticipating
customers’ requirements for the future.
The tax effect of exceptional items is a credit of $0.8 million (2012 $1.0 million).
8. Finance income
Bank interest receivable
9. Finance costs
Net defined benefit pension plan interest note 11
10. Employees
The average number of people employed by the Group during the year was:
Manufacturing
Product development
Selling and distribution
Administration
2013
$ million
0.9
2012
$ million
0.8
2013
$ million
0.9
2012
$ million
0.5
2013
Number
2012
Number
339
596
394
185
363
581
419
182
1,514
1,545
97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
10. Employees continued
Employee benefit costs were:
Remuneration
Social security costs
Pension and other related costs
(Credit)/expense of share-based payment note 30
2013
$ million
163.6
14.9
6.5
(1.2)
183.8
Restated
2012
$ million
163.4
14.3
6.9
1.6
186.2
Employee numbers and costs include discontinued operations in 2012.
Please refer to the Report on directors’ remuneration on pages 58 to 76 and note 34 for disclosures relating to the emoluments, share incentives
and pensions of the directors.
11. Pensions
Defined benefit plans
i) Characteristics and risks associated with the Plans
The Group sponsors two funded defined benefit pension plans in the United Kingdom: the Spirent Communications plc Staff Pension & Life
Assurance Plan (“Staff Plan”) and the Spirent Communications plc Retirement Cash & Life Assurance Plan (“Cash Plan”). These plans are funded
and have full UK HM Revenue & Customs (“HMRC”) tax-exempt approval. Both schemes are administered by a trustee board which is comprised
of representatives from the employer, member nominated trustees and an independent trustee. The trustee board operates in accordance with
the Trust Deed and Rules of each Plan and acts in the interests of all of its members.
• The Staff Plan is the Group’s most significant plan, and it provides its members with retirement benefits based on their final salary and length
of service. The Staff Plan was closed to new entrants on 1 October 2002.
• The Cash Plan is primarily a defined contribution arrangement, although there are some legacy defined benefits that have been valued for the
purpose of these accounts in accordance with IAS 19 “Employee Benefits”. Members who left service before 1992 are entitled to a cash lump
sum on retirement that is based on their salary and length of service. Members of the Old Section are entitled to defined contribution benefits,
but with an underpin based on salary and length of service.
There is also a United Kingdom unfunded plan, which consists of a contractual obligation for the Group to top up certain former employees’
benefits whose salaries exceeded the statutory earnings cap.
As with a vast majority of similar arrangements in the United Kingdom, the Group ultimately underwrites the risks relating to the defined benefit
plans. These risks include investment risks and demographic risks, such as the risks of members living longer than expected.
The plans hold a large proportion of their assets in equity and property investments. Strong future equity returns would be expected to reduce
the Group’s future cash contributions (and vice versa).
Expected contributions to the defined benefit plans in 2014 are $4.8 million. This includes the contributions agreed with the funded plans’
trustees in accordance with UK legislation. Following the triennial valuations as at 1 April 2012, the Group has agreed to pay the following
contributions in order to clear the funding deficit as assessed by the trustees’ independent actuary.
• Staff Plan: $4.3 million per annum from 1 July 2013 to 30 June 2019, plus a further contribution of up to $4.2 million by July 2016 if the plan
remains in deficit.
• Cash Plan: $0.3 million per annum from 1 July 2013 to 31 March 2015.
If the contributions currently agreed are insufficient to pay the benefits due, the Group will need to make further contributions.
98
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 11. Pensions continued
ii) Amounts in the financial statements
The assets and liabilities on the balance sheet are as follows:
Assets
UK defined benefit pension plan – Cash Plan
Liabilities
UK defined benefit pension plan – Staff Plan
UK unfunded plan
2013
$ million
2012
$ million
0.6
(3.1)
(0.8)
(3.9)
–
(24.8)
(0.8)
(25.6)
For the purposes of the following disclosures the two plans have been combined as the Cash Plan is immaterial to these financial statements.
a) The assets and liabilities in each plan
Staff Plan
Quoted
Equities
UK Government index linked bonds
Corporate bonds
Unquoted
Inflation only LDI funds
Cash benchmarked bonds
Insured annuities
Property
Cash and other
Fair value of plan assets
Present value of defined benefit pension plan obligations
Deficit in the plan on the balance sheet
Cash Plan
Quoted
Equities
Government bonds
Unquoted
Insured annuities
Cash and other
Fair value of plan assets
Present value of defined benefit pension plan obligations
Surplus in the plan on the balance sheet
The plans are prohibited from investing in Spirent’s own financial instruments.
2013
$ million
2012
$ million
89.4
–
–
23.9
120.4
5.5
25.4
0.8
265.4
(268.5)
(3.1)
4.5
3.3
0.3
4.0
12.1
(11.5)
0.6
72.5
53.5
40.6
–
50.2
5.7
22.8
1.0
246.3
(271.1)
(24.8)
3.7
3.6
0.3
3.3
10.9
(10.9)
–
The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets whereas the fair values
of property and insured annuities are not.
99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
11. Pensions continued
b) Analysis of the amounts charged to the income statement
Plan administration expenses
Current service cost
Curtailment loss on sale of Systems
Amount charged to operating costs
Net interest on the net defined benefit pension liability
Net charge to the income statement
c) Analysis of amount recognised directly in the statement of comprehensive income
Re-measurement gain on plans’ assets
Actuarial gain arising from experience
Actuarial loss arising from the demographic assumptions
Actuarial gain/(loss) arising from changes in financial assumptions
Changes in assumptions underlying the present value of unfunded plan’s liabilities
Re‑measurement of the net defined benefit pension liability
d) Movements in the present value of funded defined benefit obligations
At 1 January
Current service cost
Curtailment loss on sale of Systems
Interest cost
Employee contributions
Benefit payments
Actuarial gain arising from experience
Actuarial loss arising from the demographic assumptions
Actuarial (gain)/loss arising from changes in financial assumptions
Exchange adjustment
Present value of funded defined benefit pension plans’ obligations
e) Movements in the fair value of plans’ assets
At 1 January
Interest income on plans’ assets
Employer contributions
Employee contributions
Benefit payments
Plan administration expenses
Re-measurement gain on plans’ assets
Exchange adjustment
Fair value of plans’ assets
100
2013
$ million
Restated
2012
$ million
0.7
0.2
–
0.9
0.9
1.8
2013
$ million
11.2
–
–
6.6
–
17.8
2013
$ million
282.0
0.2
–
11.4
–
(11.7)
–
–
(6.6)
4.7
280.0
2013
$ million
257.2
10.5
5.3
–
(11.7)
(0.7)
11.2
5.7
277.5
1.1
0.3
1.3
2.7
0.5
3.2
Restated
2012
$ million
9.3
1.1
(13.0)
(8.9)
(0.2)
(11.7)
Restated
2012
$ million
245.5
0.3
1.3
11.4
0.2
(10.9)
(1.1)
13.0
8.9
13.4
282.0
Restated
2012
$ million
233.7
10.9
2.8
0.2
(10.9)
(1.1)
9.3
12.3
257.2
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 11. Pensions continued
f) The key financial assumptions
The assumptions used for both plans using a weighted average were as follows:
Inflation – RPI
Inflation – CPI
Rate of increase in pensionable salaries
Rate of increase for pensions in payment pre 2001 service
Rate of increase for pensions in payment 2001 to 5 April 2005 service
Rate of increase for pensions post 5 April 2005 service
Rate of increase in deferred pensions
Rate used to discount plan liabilities
2013
%
3.3
2.2
3.1
3.6
3.1
2.2
2.2
4.5
2012
%
2.9
2.2
2.9
3.6
2.8
1.9
2.2
4.3
The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are such that
a member currently aged 65 (2012 aged 65) will live on average for a further 23.5 years (2012 23.3 years) if they are male and for a further 25.6
years (2012 25.5 years) if they are female. For a member who retires in 2033 (2012 in 2032) at age 65 (2012 age 65) the assumptions are that they
will live on average for a further 24.3 years (2012 24.2 years) after retirement if they are male and for a further 26.7 years (2012 26.6 years) after
retirement if they are female.
iii) Amount, timing and uncertainty of future cash flows
The approximate impact to the past service liabilities of changing these main assumptions is as follows:
• Reducing the discount rate by 0.1 per cent per annum would increase past service liabilities by $4.0 million.
•
•
Increasing RPI inflation by 0.1 per cent would increase the plans’ liabilities by $1.7 million.
Increasing the life expectancy of a member by one year (by modifying the standard mortality tables using an appropriate scaling factor)
would increase past service liabilities by $10.8 million.
There will also be an impact on the future service cost but given the small active population in these plans this is likely to be insignificant.
The sensitivity figures have been calculated to show the movement in the defined benefit obligation for each assumption change in isolation,
and assuming no other changes in market conditions at the accounting date and may not be representative of the actual change as the changes
in assumptions may not occur in isolation.
The weighted average duration of the defined benefit obligation is 15 years (2012 16 years).
Defined contribution plans
United Kingdom
The Group maintains defined contribution pension plans for employees in the United Kingdom. Employer contributions into these plans for 2013
were $1.4 million (2012 $1.3 million).
United States
The Group maintains a defined contribution pension plan for employees of its United States subsidiaries. This plan, also known as a 401(k) Plan,
allows employees to defer a percentage of their salary for retirement. The investment choices offered by the plan are a selection of diversified
mutual funds offering a broad mix of investment return potential with varying levels of risk. In aggregate, the Group’s contributions to the US plan
totalled $3.3 million for 2013 (2012 $3.4 million). Total assets in the defined contribution plan at the end of 2013 were $204.6 million (2012
$167.0 million). There were no defined benefit plans in the United States in 2013 or 2012.
Other jurisdictions
Outside the United Kingdom and the United States employees are provided with pension arrangements determined in accordance with approved
local practice and regulations. These arrangements are defined contribution plans. Total employer contributions for 2013 in respect of these
plans amounted to $0.9 million (2012 $0.8 million).
Total employer contributions to defined contribution plans were $5.6 million (2012 $5.5 million).
Directors’ pension arrangements
The pension arrangements of the executive directors are described in detail in the Report on directors’ remuneration on pages 58 to 76.
101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
12. Tax
Tax charge in the income statement
Current income tax
UK tax
Foreign tax
Amounts overprovided in previous years – foreign tax
Total current income tax charge
Deferred tax
Recognition of deferred tax assets
Reversal of temporary differences
Total deferred tax charge
Tax charge in the income statement
Attributable to:
Continuing operations
Discontinued operations
Tax charge in the income statement
2013
$ million
2012
$ million
–
5.1
(3.7)
1.4
–
5.0
5.0
6.4
6.4
–
6.4
0.5
23.5
(1.8)
22.2
(1.4)
9.9
8.5
30.7
29.0
1.7
30.7
The tax charge for the year ended 31 December 2013 was $6.4 million (2012 charge $30.7 million) this was after a prior year tax credit of $3.7
million (2012 credit $1.8 million) resulting from the expiration and reassessment of open tax positions for previous years. Excluding the prior year
tax credit the effective tax rate for continuing operations was 25.8 per cent (2012 28.4 per cent).
Tax relating to items charged/(credited) to other comprehensive income or equity:
Deferred tax on share incentives
Current tax on share incentives
Tax charge on share incentives
Deferred tax charge/(credit) on defined benefit pension plan
2013
$ million
2012
$ million
0.6
(0.6)
–
4.2
1.0
–
1.0
(2.5)
Reconciliation of the total tax charge
The tax expense in the income statement for the year is lower than the standard rate of corporation tax in the UK of 23.25 per cent (2012 lower and
24.5 per cent). The differences are reconciled below:
Accounting profit before tax
Accounting profit multiplied by the UK standard rate of corporation tax of 23.25 per cent (2012 24.5 per cent)
Share-based payment
Differences in overseas rates and other adjustments
Tax overprovided in prior years
Recognition of deferred tax assets
Utilisation of previously unrecognised tax losses
Use of pension fund and other UK adjustments
Total tax charge reported in the income statement
2013
$ million
39.1
9.1
–
1.1
(3.7)
–
–
(0.1)
6.4
Restated
2012
$ million
157.2
38.5
(2.5)
8.0
(1.8)
(1.4)
(10.9)
0.8
30.7
102
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
13. Earnings per share
Basic
Earnings per share is calculated by dividing the profit for the year attributable to owners of the parent Company by the weighted average number
of Ordinary Shares outstanding during the year.
Profit for the year attributable to owners of the parent Company ($ million)
Weighted average number of Ordinary Shares in issue (number million)
Basic earnings per share (cents)
2013
Total and
continuing
Continuing
operations
Discontinued
operations
32.7
640.6
5.10
79.4
655.7
12.11
47.1
655.7
7.18
Restated
2012
Total
126.5
655.7
19.29
Diluted
Diluted earnings per share is calculated by dividing the profit for the year attributable to owners of the parent Company by the weighted average
number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the
conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.
Profit for the year attributable to owners of the parent Company ($ million)
Weighted average number of Ordinary Shares in issue (number million)
Diluted earnings per share (cents)
2013
Total and
continuing
Continuing
operations
Discontinued
operations
32.7
642.0
5.09
79.4
658.1
12.07
47.1
658.1
7.15
Restated
2012
Total
126.5
658.1
19.22
Adjusted
The Group is disclosing adjusted earnings per share for continuing operations attributable to owners of the parent Company in order to provide
a measure to enable period-on-period comparisons to be made of its performance. The following items are excluded from adjusted earnings:
• exceptional items.
• acquisition related costs.
• acquired intangible asset amortisation.
• share-based payment.
• tax effect on the above items.
• prior year tax.
A reconciliation is provided below:
Continuing operations
Profit for the year attributable to owners of the parent Company
Exceptional items note 7
Acquisition related costs
Acquired intangible asset amortisation
Share-based payment note 30
Tax effect on the above items
Prior year tax credit note 12
Adjusted basic for continuing operations
Adjusted diluted for continuing operations
$ million
32.7
3.8
–
8.4
(1.2)
(3.4)
(3.7)
36.6
2013
EPS
cents
5.10
5.71
5.70
$ million
79.4
2.9
1.2
4.5
1.6
(2.4)
(1.8)
85.4
Restated
2012
EPS
cents
12.11
13.02
12.97
There were no Ordinary Share transactions that occurred after 31 December that would have significantly changed the number of Ordinary Shares
or potential Ordinary Shares outstanding at the period end if those transactions had occurred before the end of the reporting period in either year.
103
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
14. Dividends paid and proposed
Declared and paid in the year
Equity dividend on Ordinary Shares
Final dividend paid for the year ended 31 December 2012 of 1.83 cents (1.21 pence) per Ordinary Share (31 December
2011 1.67 cents (1.05 pence))
Interim dividend 2013 1.53 cents (1.01 pence) per Ordinary Share (2012 1.39 cents (0.89 pence))
Proposed for approval at AGM (not recognised as a liability at 31 December)
Equity dividend on Ordinary Shares
Final dividend 2013 2.01 cents (1.20 pence) per Ordinary Share (2012 1.83 cents (1.21 pence))
2013
$ million
2012
$ million
12.0
10.2
22.2
10.9
9.4
20.3
12.3
11.9
The directors are proposing a final dividend in respect of the financial year ended 31 December 2013 of 2.01 cents per Ordinary Share (1.20
pence) (2012 1.83 cents (1.21 pence)), which will absorb an estimated $12.3 million of shareholders’ funds (2012 $11.9 million). It will be paid on
25 April 2014 to Ordinary shareholders who are on the Register of Members at close of business on 7 March 2014. Payment will be made to ADR
holders on 2 May 2014. No liability is recorded in the financial statements in respect of this final dividend.
Dividends are determined in US dollars and paid in pounds sterling. The exchange rate for determining the amount of the final dividend to be paid
for 2013 was $1.67:£1 (2012 $1.51:£1).
15. Intangible assets
Cost, net of accumulated amortisation and impairment
losses
At 1 January 2012
Acquisitions note 32
Amortisation for the year
Exchange adjustment
At 1 January 2013
Additions
Amortisation for the year
Exchange adjustment
At 31 December 2013
At 31 December 2012
Cost (gross carrying amount)
Amortisation and accumulated impairment losses
Net carrying amount
At 31 December 2013
Cost (gross carrying amount)
Amortisation and accumulated impairment losses
Net carrying amount
Goodwill
Customer
list
Current
technology
Data-
base
Brand
names
Licences
Total
$ million
114.2
55.6
–
0.3
170.1
–
–
(1.1)
169.0
575.1
(405.0)
170.1
574.0
(405.0)
169.0
1.8
9.2
(1.3)
–
9.7
–
(2.0)
–
7.7
12.6
(2.9)
9.7
11.4
(3.7)
7.7
3.6
21.0
(2.8)
–
21.8
–
(5.1)
–
16.7
31.1
(9.3)
21.8
25.4
(8.7)
16.7
–
2.6
(0.3)
–
2.3
–
(1.0)
–
1.3
2.6
(0.3)
2.3
2.6
(1.3)
1.3
–
1.6
(0.1)
–
1.5
–
(0.3)
–
1.2
1.8
(0.3)
1.5
1.6
(0.4)
1.2
3.6
–
(1.6)
–
2.0
2.4
(1.5)
–
2.9
8.9
(6.9)
2.0
11.3
(8.4)
2.9
123.2
90.0
(6.1)
0.3
207.4
2.4
(9.9)
(1.1)
198.8
632.1
(424.7)
207.4
626.3
(427.5)
198.8
Amortisation and impairment charges
Goodwill is allocated at acquisition to the cash generating units (“CGUs”) that are expected to benefit from that business combination.
The Group identifies CGUs at the lowest level at which cash flows are largely independent of other cash flows.
104
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
15. Intangible assets continued
Following the change to the Group’s reportable segments described in note 2, goodwill has been reallocated to the following CGUs:
• Networks & Applications, an operating segment;
• Wireless & Positioning, product lines within the Wireless & Service Experience operating segment;
• Service Experience, a product line within the Wireless & Service Experience operating segment.
Goodwill has been allocated as follows:
Networks & Applications
Wireless & Positioning
Service Experience
Performance Analysis
2013
$ million
2012
$ million
86.0
52.1
30.9
–
169.0
–
–
–
170.1
170.1
This reallocation was based on the relative values for the Networks & Applications and for the Wireless & Positioning CGUs. For the Service
Experience CGU goodwill has been based on historical cost due to the recent nature of this acquisition.
Acquired intangible assets, being customer list, current technology, database and brand names, are amortised on a straight line basis over
their estimated useful lives which are between two and a half and seven years and the charge is included within administration expenses in the
income statement. Licences are amortised over their useful lives or term, being three to five years, and are expensed within cost of sales or selling
costs. The remaining amortisation periods of the acquired intangible asset balances arising in relation to customer list and current technology are
six and four years, respectively.
Annual impairment test
The cash flows are derived from the most recent financial budgets for the next financial year, as approved by the Board, and the Group’s three
year strategic plan. Cash flows for years four and five are then extrapolated based on long range plans. The key factor in the cash flow forecasts
is the ability to forecast revenue. Cash flows in subsequent years have been extrapolated using a 2.75 per cent growth rate (2012 2.75 per cent)
which management estimates to be the approximate average long term growth rate for the industries in which these units operate.
The cash flows have been discounted using a pre-tax discount rate of 13.8 per cent for all CGUs (2012 14.5 per cent).
The recoverable amount of each CGU was calculated on a value in use basis, and was in excess of its carrying value and consequently no
impairment has been recognised.
Key assumptions for the annual impairment test
The key assumptions used in the value in use calculations were:
• revenue growth rates.
• gross margin.
• operating expenses.
• discount rate.
• growth rate used to extrapolate cash flows beyond the five year period covered by management’s projections.
Projections are denominated in the same currency as the denomination of the goodwill balance to eliminate the effect of fluctuating exchange rates.
Revenue growth rates used in management’s projections are based on management’s estimate of growth in the markets served and take into
account historic levels of growth, expected future developments in products and technology and macro-economic conditions.
The cash flows used in the impairment review have been approved by the Board.
Gross margins and operating expenses are based on historical values adjusted for the effect of revenue growth and recent acquisitions.
105
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
15. Intangible assets continued
The discount rate applied to the cash flows is based on Spirent’s weighted average cost of capital by taking the risk free rate for ten year
government bonds and making an adjustment to reflect both the increased risk of investing in equities and the systematic risk of the specific
cash-generating unit. In making this adjustment, inputs required are the equity market risk premium and the risk adjustment, beta, applied to
reflect the risk of Spirent relative to the market as a whole.
Sensitivity to changes in key assumptions
The directors believe that no reasonable possible change in any of the key assumptions used in isolation would cause the carrying value of the
Networks & Applications, Wireless & Positioning and Service Experience CGUs to exceed their recoverable amount.
16. Property, plant and equipment
Cost, net of accumulated depreciation and accumulated impairment
At 1 January 2012
Additions
Owned assets
Disposals
Acquisitions note 32
Disposal of operations note 33
Inter-class transfers
Depreciation charge for the year
Exchange adjustment
At 1 January 2013
Additions
Owned assets
Disposals
Depreciation charge for the year
Exchange adjustment
At 31 December 2013
At 31 December 2012
Cost
Accumulated depreciation and accumulated impairment
Net carrying amount
At 31 December 2013
Cost
Accumulated depreciation and accumulated impairment
Net carrying amount
Land and
buildings
Plant and
machinery
Fixtures,
fittings and
equipment
$ million
Total
3.7
22.3
9.5
35.5
0.5
–
–
–
–
(1.3)
0.1
3.0
0.5
–
(1.2)
–
2.3
18.7
(15.7)
3.0
19.2
(16.9)
2.3
13.4
(2.1)
0.5
(1.1)
(0.3)
(10.2)
0.1
22.6
18.8
(1.0)
(11.5)
–
28.9
77.0
(54.4)
22.6
77.5
(48.6)
28.9
2.5
(0.1)
–
(0.1)
0.3
(3.7)
0.1
8.5
3.6
–
(3.8)
0.1
8.4
51.1
(42.6)
8.5
54.2
(45.8)
8.4
16.4
(2.2)
0.5
(1.2)
–
(15.2)
0.3
34.1
22.9
(1.0)
(16.5)
0.1
39.6
146.8
(112.7)
34.1
150.9
(111.3)
39.6
None of the property, plant and equipment is held under finance lease arrangements.
17. Capital commitments and contingent liabilities
The Group had capital commitments of $1.3 million at 31 December 2013 (31 December 2012 $1.2 million).
The Group has provided indemnities of $0.1 million (2012 $0.1 million) for certain ongoing business obligations under letters of credit for
subsidiary companies.
18. Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given on
page 135 of these financial statements.
106
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 19. Inventories
Raw materials
Work in progress
Finished goods
2013
$ million
2012
$ million
13.0
1.0
17.6
31.6
14.1
0.6
19.3
34.0
An expense of $0.3 million (2012 $3.7 million) has been recognised in the period for inventory write-downs. There were no reversals of prior
period inventory write-downs (2012 nil).
No inventories are carried at fair value less costs to sell (2012 nil).
20. Trade and other receivables
Non‑current assets
Trade receivables
Other receivables
Prepayments, accrued income and deferred costs
Current assets
Trade receivables
Other receivables
Prepayments, accrued income and deferred costs
The trade receivables are stated net of provisions for doubtful debts. The movement in the provision was as follows:
At 1 January
Charge for the year
Released in the year
At 31 December
2013
$ million
2012
$ million
0.4
3.5
0.5
4.4
89.6
4.2
8.9
102.7
107.1
1.1
3.1
0.7
4.9
84.9
3.4
7.3
95.6
100.5
2013
$ million
2012
$ million
0.8
0.4
(0.2)
1.0
0.9
0.2
(0.3)
0.8
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
The Group has no significant concentration of credit risk attributable to its trade receivables as the exposure is spread over a large number
of customers.
21. Cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
2013
$ million
172.1
44.1
216.2
2012
$ million
204.5
44.1
248.6
Cash at bank and in hand earns interest at floating interest rates. Of this balance $1.2 million (2012 $40.0 million) is callable at notice of between
seven and 35 days.
Short term bank deposits are made for varying periods of between one day and three months depending on the cash requirements of the Group
and earn interest at the short term deposit rates appropriate for the term of the deposit and currency.
107
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the consolidated financial statements continued
21. Cash and cash equivalents continued
At the end of 2013 the currency split of cash and cash equivalents was US dollar 84 per cent (2012 80 per cent), sterling 10 per cent (2012 10 per
cent) and other currencies 6 per cent (2012 10 per cent).
For the purposes of the cash flow statement, cash and cash equivalents comprise the above amounts.
Non‑current
Cash on deposit
2013
$ million
2012
$ million
0.1
0.4
At 31 December 2013 $0.1 million (2012 $0.4 million) is held in a blocked trust account and is available for use by the Company as creditors,
who were outstanding at the date of the cancellation of the share premium account and capital redemption reserve, being 24 November 2004,
are settled. See note 28.
22. Trade and other payables – current
Trade payables
Payments received on account
Other taxes and social security costs
Share buyback obligation note 28
Accruals
Deferred income
2013
$ million
2012
$ million
18.3
0.2
4.5
18.2
38.2
51.3
15.9
0.4
4.1
8.1
36.2
42.6
130.7
107.3
Trade payables are non-interest bearing and are normally settled on 30 to 60 day terms. Other payables are non-interest bearing.
The directors consider that the carrying amount of trade payables approximates to their fair value.
23. Deferred tax
The movements in the deferred tax assets/(liabilities) are as follows:
At 1 January 2012
Recognised in the year note 12
Charged in the year note 12
Deferred tax on defined benefit pension plan note 12
Deferred tax on share incentives recognised in equity note 12
Deferred tax on acquisition note 32
Exchange adjustment
At 1 January 2013
Charged in the year note 12
Deferred tax on defined benefit pension plan note 12
Deferred tax on share incentives recognised in equity note 12
Exchange adjustment
At 31 December 2013
Temporary
differences
Tax losses
UK pension
plans
11.4
–
(3.7)
–
(1.0)
(3.7)
(0.1)
2.9
(0.9)
–
(0.6)
–
1.4
14.9
1.4
(6.2)
–
–
9.0
0.5
19.6
(3.4)
–
–
–
16.2
3.1
–
–
2.5
–
–
0.3
5.9
(0.7)
(4.2)
–
(0.3)
0.7
$ million
Total
29.4
1.4
(9.9)
2.5
(1.0)
5.3
0.7
28.4
(5.0)
(4.2)
(0.6)
(0.3)
18.3
A deferred tax asset of $18.3 million has been recognised at 31 December 2013 (2012 $28.4 million). $5.2 million is in the United Kingdom
(2012 $11.8 million), $12.0 million is in the United States (2012 $15.9 million) and $1.1 million is in the rest of the world (2012 $0.7 million).
108
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
23. Deferred tax continued
The deferred tax asset includes $0.7 million (2012 $2.0 million) in respect of the tax deduction which may be available on the future exercise of
share incentives.
Deferred tax assets on temporary differences arising in Canada of $4.7 million (2012 $1.6 million) have not been recognised.
The Group has tax losses arising in the United Kingdom of $65.1 million (2012 $64.0 million) that are available for offset against suitable future
taxable profits. A deferred tax asset has not been recognised in respect of these losses as their future recovery is uncertain. United Kingdom tax
losses can be carried forward indefinitely. In total deferred tax assets amounting to $17.7 million (2012 $16.3 million) have not been recognised.
The Group also has capital losses carried forward of $1,366.6 million (2012 $1,340.3 million) for which no deferred tax asset is recognised on the
balance sheet. These capital losses have no expiry date.
Future changes in tax rates
The UK current tax rate was reduced from 24 per cent to 23 per cent with effect from 1 April 2013. Under the Finance Act 2013, the UK current tax
rate will reduce to 21 per cent with effect from 1 April 2014, and then to 20 per cent with effect from 1 April 2015. This will reduce future tax rates
accordingly. These reductions in the current tax rate were substantively enacted on 2 July 2013.
In line with these rate changes, deferred tax assets and liabilities being realised or settled before 1 April 2014 have been based on the existing
23 per cent rate; those being realised or settled between 1 April 2014 and 1 April 2015 have been based on the new 21 per cent rate; and those
being realised or settled after 1 April 2015 have been based on the new 20 per cent rate.
24. Trade and other payables – non-current
Other payables
Accruals
Deferred income
25. Provisions and other liabilities
At 1 January 2012
Charged in the year
Released in the year
Utilised in the year
Exchange adjustment
At 1 January 2013
Charged in the year
Released in the year
Utilised in the year
At 31 December 2013
Current
Non-current
2013
$ million
2012
$ million
2.2
0.4
12.6
15.2
Lease
provisions
Restructuring
provisions
Other
provisions
3.2
1.3
(0.2)
(1.3)
0.1
3.1
0.5
(0.2)
(0.7)
2.7
–
–
–
–
–
–
3.1
–
(1.2)
1.9
1.3
0.6
–
–
–
1.9
–
–
–
1.9
1.9
0.9
8.6
11.4
$ million
Total
4.5
1.9
(0.2)
(1.3)
0.1
5.0
3.6
(0.2)
(1.9)
6.5
2013
$ million
2012
$ million
6.0
0.5
6.5
4.4
0.6
5.0
109
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
25. Provisions and other liabilities continued
The lease provisions are for the continuing obligations under leases in respect of properties which have been vacated by the Group. Where
material, lease obligations are discounted. The Group expects these provisions to be utilised over the next two years.
Restructuring provisions relate to severance costs which are expected to be utilised within one year.
Other provisions are mainly environmental provisions related to property disposed of and dilapidation provisions. The Group expects these
provisions to be utilised in less than one year.
26. Financial instruments and financial risk management
The main purpose of the Group’s financial instruments, other than trade receivables, trade payables and provisions, is to fund the Group’s
liquidity requirements.
All of the Group’s financial assets and liabilities are categorised as loans and receivables and these are shown in the following table:
Non-current cash on deposit note 21
Non-current trade and other receivables note 20
Cash and cash equivalents note 21
Current trade and other receivables note 20
Financial assets
Non-current other payables and accruals note 24
Current trade payables and accruals note 22
Share buyback obligation note 22
Provisions note 25
Financial liabilities
2013
$ million
2012
$ million
Loans and
receivables
at amortised
cost
Loans and
receivables
at amortised
cost
0.1
3.9
216.2
93.8
314.0
2.6
56.5
18.2
6.5
83.8
0.4
4.2
248.6
88.3
341.5
2.8
52.1
8.1
5.0
68.0
The Group enters into derivative transactions, forward foreign currency exchange contracts, for the management of the Group’s foreign currency
exposures when deemed appropriate. These derivative financial instruments are measured at fair value, however the fair values at 31 December
2013 and 2012 were immaterial to these accounts.
The key objective of the Group’s treasury department is to manage the financial risks of the business and to ensure that sufficient liquidity is
available to the Group. All treasury activity operates within a formal control framework. The Board has approved treasury policies and guidelines
and periodically reviews treasury activities. Additionally, it is the Group’s policy that speculative treasury transactions are expressly forbidden.
a) Market risk
The main types of market risk that affect the Group are interest rate risk and exchange rate risk.
Interest rate risk
The Group has no external debt and has limited exposure to interest rate risk.
The Group’s excess funds are principally held in the United Kingdom and the United States and invested in on demand or short term bank
deposits. It therefore has some exposure to interest rate risk arising on changes in sterling and US dollar interest rates.
Cash and cash equivalents, long term cash on deposit and forward foreign currency exchange contracts are the Group’s financial instruments
which are exposed to interest rate risk.
110
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 26. Financial instruments and financial risk management continued
Short term bank deposits all mature within three months. Forward foreign currency exchange contracts all mature within three months. The
financial instruments bear the following interest rates:
Fixed rate
Fixed deposits
Floating rate
Cash at bank and in hand
Effective
interest rate
%
2013
$ million
Effective
interest rate
%
2012
$ million
0.27
44.1
0.42
44.1
172.1
204.5
Interest rates on financial instruments classified as fixed rate are fixed until the maturity of the instrument. All fixed rate deposits mature within
three months after which date they will be exposed to floating rates of interest.
In addition, $0.1 million (2012 $0.4 million) was held in a blocked trust account and was earning interest of 0.44 per cent at 31 December 2013
(2012 0.44 per cent). The maturity of the deposit is three months, at maturity the interest rate will be reset. This cash must be retained in the
blocked trust account in accordance with the terms of the undertakings made at the time of the cancellation of the share premium account and
capital redemption reserve (the “Cancellation”) in 2004. The funds must remain in this account until creditors which existed at the date of the
Cancellation have been repaid and therefore the maturity of this account is uncertain.
Interest receivable for the year was $0.9 million (note 8) (2012 $0.8 million) and is under the effective interest method.
The other financial instruments of the Group that are not included in the above table are non-interest bearing and are therefore not subject to
interest rate risk.
A movement of 25 basis points in interest rates based on levels of investment at 31 December 2013 would increase or reduce interest income and
equity by $0.5 million (2012 $0.5 million).
Exchange rate risk
Currency exposures arise from trading transactions undertaken by the Group in foreign currencies and on the translation of the operating results
and net assets of overseas subsidiaries.
The Group has the majority of its operations in the United States and presents its consolidated financial statements in US dollars. The Company’s
functional currency is sterling and its share capital is denominated in pounds sterling, the Group also has operations in Europe and Asia and
therefore its results and assets and liabilities are affected on translation by movements in exchange rates in relation to the US dollar. The Group
does not enter into instruments to hedge the translation exposure of the operating results or net assets of its overseas subsidiaries since these
are considered accounting and not cash exposures.
The Group is not exposed to significant transactional foreign currency risk at 31 December 2013, nor at 31 December 2012, because the majority
of its businesses do not enter into non-functional currency transactions. Where such transactions do occur the Group typically enters into forward
foreign currency exchange contracts as appropriate.
Group treasury, by means of forward foreign currency exchange contracts, carries out the transaction hedging activity in relation to normal
trading activity. At 31 December 2013 the Group has hedged the majority of its financial assets and liabilities in relation to trading which are
denominated in non-functional currencies. However, the Group holds cash balances in non-functional currencies which are exposed to US dollar
to sterling exchange rates.
At 31 December 2013 these balances amounted to $1.1 million (2012 $0.9 million). A 10 per cent appreciation or depreciation of sterling against
the US dollar would increase or reduce profit before tax by $0.1 million (2012 $0.1 million) based on the balance at the reporting dates.
b) Credit risk
Investment counterparties are subject to pre-approval by the Board with pre-approved limits set for each bank to avoid any concentrations of
credit risk.
The maximum credit exposure at the balance sheet date under financial instruments in relation to cash and bank deposits is equal to the carrying
value of $216.3 million (2012 $249.0 million).
111
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
26. Financial instruments and financial risk management continued
Trade receivables, which generally have 30 to 90 day terms, are carried at original invoice amount less an allowance for uncollectable amounts
where appropriate. Trade receivable exposures are managed in the business units where they arise. Allowance is made for bad and doubtful
debts based on management’s assessment of the risk taking into account ageing profile, experience and circumstance.
The Group has no significant concentration of credit risk attributable to its trade receivables as the exposure is spread over a large number of
customers with no one customer accounting for more than 10 per cent of total Group revenue. The maximum credit exposure at the balance sheet
date in relation to trade receivables is equal to the carrying value of $90.0 million (2012 $86.0 million).
The composition of trade receivables at 31 December is as follows:
Neither impaired nor past due
Past due but not impaired:
Less than 30 days overdue
30 to 60 days
Over 60 days
Trade receivables
2013
$ million
59.9
15.5
5.1
9.5
90.0
2012
$ million
58.8
14.1
5.2
7.9
86.0
The Group closely monitors amounts due from customers and performs activities such as credit checks and review of payment history and has
put in place appropriate credit approval limits. Based on these procedures management assessed the quality of those receivables that are past
due but not impaired as low risk.
The movement on the receivables provision during the year is given in note 20. The value of impaired trade receivables is $1.0 million (2012 $0.8
million). For all other financial assets the maximum exposure to credit risk is represented by the carrying amount.
c) Liquidity risk
The Group’s objective is to ensure that there are sufficient sources of funding to meet projected requirements. Its operations are financed through
cash and cash equivalents held centrally and cash generated from operations.
At 31 December 2013 the Group had cash and cash equivalents of $216.2 million (2012 $248.6 million) of which $170.9 million (2012 $164.5
million) is available on demand and $45.3 million (2012 $84.1 million) of which is on one month’s notice or matures within three months.
During 2013 the Group generated $67.4 million of cash from operating activities (2012 $105.1 million) and considers that with current cash
resources, no debt and positive cash flow from its operating activities it has adequate resources available to it to remain in operational existence
for the foreseeable future.
The Group has entered into forward foreign currency exchange contracts all of which mature within three months. The gross settlement amounts
of these contracts are as follows:
Sale of US dollars against sterling
2013
$ million
3.5
2012
$ million
3.6
The Group is debt free and does not have loans payable. Financial liabilities are trade and other payables, the majority of which are all due to be
settled within one year, and provisions (note 25).
The Group does not have any other material financial contractual commitments.
d) Fair value of financial instruments
The carrying value of all financial assets and liabilities is a reasonable approximation of fair value.
Derivative financial instruments are stated at fair value although the amounts at 31 December 2013 and 2012 were immaterial.
The fair value of currency derivatives is determined by reference to forward foreign currency exchange rates for contracts with similar maturity
profiles, and is therefore determined to be a level 2 financial instrument as its value is based on observable market inputs.
112
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
26. Financial instruments and financial risk management continued
e) Capital management
The primary objective of the Group’s capital management is to support its business and maximise shareholder value. The Group’s capital is its
total shareholders’ funds.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions. During 2013 and 2012 the
Company has been operating an on market share repurchase programme. In 2013 the Company repurchased 29.2 million of its Ordinary Shares at
a cost of $55.5 million (2012 13.4 million at a cost of $30.8 million). The Group intends to continue to repurchase shares on a one-off basis as it
deems appropriate.
Spirent’s policy on the payment of dividends to shareholders is to maintain a sustainable, progressive dividend.
27. Operating lease commitments
At 31 December, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall
due as follows:
Within one year
In the second to fifth years
Over five years
2013
$ million
2012
$ million
8.2
12.3
3.2
23.7
7.9
9.9
0.3
18.1
The Group leases certain land and buildings under non-cancellable operating lease agreements with a variety of terms. The Group also leases
certain plant and equipment under non-cancellable operating lease agreements.
28. Equity
a) Issued share capital
Issued and fully paid Ordinary Shares of 3 1/3 pence each.
At 1 January 2012
Cancelled during the year1
Exchange adjustment
At 1 January 2013
Cancelled during the year1
Exchange adjustment
At 31 December 2013
Number of
Ordinary
Shares
million
664.0
(13.4)
650.6
(29.2)
621.4
$ million
34.3
(0.7)
1.7
35.3
(1.5)
0.6
34.4
Note
1 During 2013, under the programme of returning capital to shareholders, the Company repurchased 29.2 million (2012 13.4 million) Ordinary Shares on market which were
subsequently cancelled.
During 2013 and 2012 no Ordinary Shares were transferred from the Spirent Sharesave Trust (“SST”) to satisfy options exercised under the UK all
employee share schemes and in 2013 1.4 million Ordinary Shares were transferred from the Spirent Employee Share Ownership Trust (“ESOT”) to
satisfy options exercised under the Spirent Stock Incentive Plan and 2005 Employee Incentive Plan (2012 5.6 million Ordinary Shares).
There has been no material increase in the issued Ordinary Share capital, whether by exercise of share incentives or otherwise, between
31 December 2013 and 27 February 2014, the date on which these financial statements have been signed.
113
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the consolidated financial statements continued
28. Equity continued
b) Equity and reserves
The nature and purpose of each reserve within equity is as follows:
i) Share premium account: this reserve records the consideration premium for shares issued at a value that exceeds their nominal value;
ii) Capital redemption reserve: this reserve arises in relation to share capital cancellation;
iii) Other reserves: share capital, share premium account and capital redemption reserve are translated into US dollars at the rates of exchange
at the balance sheet date and the resultant exchange differences are included in other reserves; and
iv) Translation reserve: this reserve is used to record exchange differences arising from the translation of the financial statements of
foreign subsidiaries.
Investment in own Ordinary Shares
At 31 December 2013, the ESOT held 0.9 million Ordinary Shares (2012 2.3 million Ordinary Shares) to satisfy awards under various share
incentive plans. At 31 December 2013, the SST held 0.5 million Ordinary Shares (2012 0.5 million Ordinary Shares) to satisfy awards made to
United Kingdom based employees under an all employee share scheme. The market value of own Ordinary Shares held in trust, being in total
1.4 million Ordinary Shares (2012 2.8 million Ordinary Shares), at 31 December 2013 was $2.5 million (2012 $6.9 million).
Cancellation of share premium account and capital redemption reserve
On 24 November 2004, Spirent Communications plc was granted an order of the High Court for the approval of the cancellation of the
share premium account and capital redemption reserve (the “Cancellation”) which stood at that date at $1,321.1 million (£702.7 million)
and $1.3 million (£0.7 million), respectively.
The Cancellation created a reserve in the financial statements of the Company which was applied to eliminate the deficit in distributable reserves.
The balance of this reserve, created after the deficit in distributable reserves had been eliminated, was transferred to a special non-distributable
reserve. During 2006 the Company transferred funds equal to the aggregate amount due to any creditors of Spirent Communications plc, who
were creditors on 24 November 2004, and who still remained creditors, to a blocked trust account. Placing these funds in a blocked trust account
in accordance with the undertakings made at the time of the Cancellation allowed the special reserve to be released to distributable reserves.
Capital redemption reserve
During 2013 the Company cancelled 29.2 million Ordinary Shares (2012 13.4 million Ordinary Shares) that had been the subject of the on market
share repurchase programme, and transferred $1.5 million (2012 $0.7 million) to the capital redemption reserve.
Share repurchase
During 2013 the Company repurchased 29.2 million (2012 13.4 million) Ordinary Shares on market at a cost of $55.5 million (2012 $30.8 million)
which were subsequently cancelled.
Share buyback obligation
On 31 December 2012 the Company entered into an irrevocable agreement with UBS Limited to purchase up to a maximum of 3.4 million Ordinary
Shares at no more than 105 per cent of the average market value of a share for the five business days immediately preceding the day on which the
share is purchased, and at a maximum price of 145 pence per share, from 10 January 2013 to 27 February 2013, on their behalf. This agreement
entered into in respect of share buybacks during the close period was recognised as a financial liability of $8.1 million.
As at the close of business on 27 February 2013, 0.1 million shares had been repurchased under this buyback programme at 145 pence per share
for a total consideration of $0.3 million. The remaining liability expired at close of business on 27 February 2013.
On 23 December 2013 the Company entered into an irrevocable agreement with UBS Limited to purchase Ordinary Shares up to a maximum value
of $18.2 million at no more than 105 per cent of the average market value of a share for the five business days immediately preceding the day on
which the share is purchased, with the maximum number of shares acquired on any dealing day not to exceed 250,000 shares, from 2 January
2014 to 26 February 2014, on their behalf. This agreement entered into in respect of share buybacks during the close period has been recognised
as a financial liability of $18.2 million.
As at the close of business on 26 February 2014, 9.7 million shares had been repurchased under this buyback programme at an average price of
97 pence per share for a total consideration of $15.6 million. The remaining liability expired at close of business on 26 February 2014.
114
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 29. Employee share plans
Movements in share incentives over a two year period ending on 31 December 2013 are shown below:
Incentives outstanding at 31 December 2011
Exercised
Granted
Forfeited
Incentives outstanding at 31 December 2012
Exercised
Granted
Forfeited
Incentives outstanding at 31 December 2013
Incentives exercisable
At 31 December 2012
At 31 December 2013
2005 Employee Incentive Plan1
Spirent Stock Incentive Plan2
1995 Executive Share
Option Scheme
Number
of share
incentives
million
Weighted
average
exercise price
pence
Number
of share
incentives
million
Weighted
average
exercise price
pence
Number
of share
incentives
million
Weighted
average
exercise price
pence
3.9
(0.6)
2.0
(1.4)
3.9
–
3.3
(1.8)
5.4
0.5
0.5
24
2
59
2
53
–
73
7
82
50
50
7.5
(5.7)
–
–
1.8
(1.7)
–
–
0.1
1.8
0.1
51
51
–
–
50
50
–
–
60
50
60
1.2
(1.1)
–
–
0.1
(0.1)
–
–
–
0.1
–
117
123
–
–
69
69
–
–
–
69
–
Notes
1
2
Figures for the 2005 Employee Incentive Plan include share options, stock appreciation rights and Performance shares in aggregate.
Figures for the Spirent Stock Incentive Plan show both share options and stock appreciation rights in aggregate.
The weighted average share price at exercise date was 143.7 pence (2012 155.4 pence).
The following information relates to outstanding share incentives at 31 December 2013:
Share plan
2005 Employee
Incentive Plan
Spirent Stock
Incentive Plan
1995 Executive Share
Option Scheme
Total
Range of
exercise
prices
pence
Weighted
average
exercise
price
pence
Number
of share
incentives
outstanding
million
Exercise period
(as at 31 December)
25.08.08–08.05.23
23.03.14–08.05.23
0–53
129–169
12.01.07–13.11.15
04.11.05–12.08.16
37–57
59–79
11
137
53
–
30.06.07–29.06.14
69
–
2.4
3.0
0.1
–
–
5.5
Weighted
average
exercise
price
pence
Number
of share
incentives
outstanding
million
2013
Weighted
average
remaining
contractual
life
years
7.4
8.8
1.9
–
10
150
48
73
–
69
2.7
1.2
1.6
0.2
0.1
5.8
2012
Weighted
average
remaining
contractual
life
years
8.0
8.9
0.4
2.4
1.5
Description of employee share plans
Discretionary plans
2005 Employee Incentive Plan (“EIP”)
The EIP, which was approved by shareholders and introduced in 2005, is available for selected employees, including executive directors,
on a discretionary basis.
Under the EIP, the Company is able to grant share options, including HMRC-approved options, share-settled stock appreciation rights (“SARs”)
and Performance shares. No price is payable on the grant of an award.
In normal circumstances, EIP awards vest three years following the date of grant provided the relevant performance conditions have been met.
For share options and SARs, the performance conditions relate to the Company’s earnings per share (“EPS”). For Performance share awards made
prior to 2011, performance conditions related to Total Shareholder Return (“TSR”). For awards made since 2011, performance conditions relate
to the Company’s EPS and TSR.
115
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
29. Employee share plans continued
Further information on the performance conditions for EIP share incentives is set out in the Report on directors’ remuneration on pages 58 to 76.
Options and SARs granted under the EIP expire on the tenth anniversary of their grant unless they have previously lapsed or been exercised.
Spirent Stock Incentive Plan (“SSIP”)
The SSIP is now closed for new awards and has been replaced by the EIP referred to above.
The SSIP was introduced in 2000. This discretionary plan was primarily targeted at US employees with grants normally determined by reference
to the seniority and contribution of the individual, together with the performance of the relevant business and prevailing local market practice.
Grants were also permitted to selected newly hired and promoted employees on a monthly basis. Under the SSIP, the Company was able to grant
share options and share-settled SARs. No price was payable on the grant of an award.
Most awards made pursuant to the SSIP vest over four years, provided that the participant remains in employment. Vesting is not normally
subject to a performance condition and awards become 25 per cent exercisable on the first anniversary of the date of grant and thereafter in
equal tranches on a monthly basis over a further 36 months. Any award not exercised by the seventh anniversary of the date of grant will lapse.
The vesting of some SSIP awards were subject to the Company meeting EPS growth targets over the vesting periods. All outstanding awards have
now passed their EPS performance conditions and remain exercisable until they expire on the seventh anniversary of their respective grant dates.
SARs granted under the EIP and SSIP will deliver the appreciation value (ie the increase in market value of an Ordinary Share over the base price
of the SAR) in the form of Ordinary Shares. This “SARs approach” helps the Company manage its dilution headroom more efficiently as only the
SAR gain needs to be funded. Using a SARs approach, it is not possible to determine the precise level of dilution until the SARs are exercised.
At 31 December 2013, 2.8 million EIP SARs and 0.1 million SSIP SARs with an average base price of 127 pence and 60 pence respectively were
outstanding (2012 1.7 million EIP SARs and 1.8 million SSIP SARs with an average base price of 118 pence and 50 pence respectively). During
2013, 1.6 million EIP and SSIP SARs were exercised resulting in the transfer of 1.1 million Ordinary Shares (2012 3.9 million Ordinary Shares were
issued or transferred on the exercise of 5.6 million EIP and SSIP SARs).
1995 Executive Share Option Scheme (“ESOS”)
The ESOS is now closed for new grants and has been replaced by the EIP referred to above.
Under the ESOS awards of share options, including HMRC-approved options, were on a discretionary basis. No price was payable on the grant of
an option and no options were granted at a discount to the market price.
The normal exercise period for options granted under the ESOS is between the third and tenth anniversary of the date of grant. Options awarded
under the ESOS were subject to the achievement of an EPS performance condition before they could be exercised. All outstanding options have
now passed their EPS performance conditions and remain exercisable until they expire on the tenth anniversary of their respective grant dates.
All Employee plans
UK Employee Share Purchase Plan (“UK ESPP”)
The UK ESPP, which is an HMRC-approved share incentive plan, was approved by shareholders in 2005 and is available to all UK employees.
The UK ESPP offers three ways to provide Ordinary Shares to employees: free shares, partnership shares and matching shares. The UK ESPP
operates in conjunction with a trust, which holds the shares on behalf of participants.
In November 2010, the Company commenced making invitations to all UK employees to acquire partnership shares on market using deductions
from payroll.
US Employee Stock Purchase Plan (“US ESPP”)
The US ESPP was initially approved by shareholders in 2000, with amendments being approved by shareholders in 2005 and 2011. The US ESPP
enables the Company to invite all US employees to acquire Ordinary Shares in the Company on market using deductions from payroll. In
November 2010, the Company commenced making six-monthly invitations to employees.
The US ESPP also enables the Company to grant eligible US employees the right to acquire Ordinary Shares in the Company using the proceeds
of a savings contract. If such a grant were made, when joining the US ESPP, participants would enter into a 12 month contract to save up to 15 per
cent of base salary subject to an individual limit of $1,000 per month. No grants of this nature have been made since 2003.
116
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 29. Employee share plans continued
Global All Employee Share Purchase Plan (“GAESPP”)
The GAESPP was initially approved by shareholders in 2001 with amendments being approved by shareholders in 2005 and 2011. The GAESPP
enables the Company to invite employees in countries other than the US or UK to acquire Ordinary Shares in the Company on market using
deductions from payroll. In September 2011, the first such invitation was made to all employees in Canada, Hong Kong, France and Germany
and subsequent invitations have been made in 2012.
The GAESPP can also be operated on similar terms to the US ESPP above, with participants entering into a 12 month contract to save up to 15 per
cent of base salary subject to an individual limit. No grants of this nature have been made since 2003.
2005 Sharesave Scheme
The 2005 Sharesave Scheme was approved by shareholders in 2005 and was introduced following the expiry of the Savings Related Share Option
Scheme. The scheme is an HMRC-approved Save-As-You-Earn scheme open to all UK employees, subject to a qualifying service period. No price is
payable on the grant of an option. The option exercise price is calculated by reference to the middle market closing price of an Ordinary Share on
the business day prior to the beginning of the invitation period, discounted by up to 20 per cent at the Board’s discretion. Options are normally
exercisable within six months of the third, fifth or seventh anniversary of the contract commencement date as elected by the option holder at
the start of the contract. No invitations have yet been made under this scheme.
30. Share-based payment
The total (credit)/charge for the year relating to employee share-based payment plans is as follows:
2005 Employee Incentive Plan
All schemes are equity-settled.
2013
$ million
(1.2)
2012
$ million
1.6
3.3 million share incentives were granted during 2013 (2012 2.0 million). The fair value of share incentives has been estimated as at the date of
grant using the Hull-White trinomial model. The following table gives the assumptions made in arriving at the share-based payment charge and
the fair value:
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value (pence)
Expected volatility (%)
Option life (years)
Performance shares
Options and SARs
Suboptimal exercise factor
Risk free rate (%)
Dividend yield (%)
2013
129.1
73.3
59.0
33
3
10
1.5
1.6
1.3
2012
153.2
59.3
78.1
35
3
10
1.5
1.5–2.4
1.6
The expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous two years which
management considers to be the period which is likely to be most representative of future volatility. The risk free rate is calculated by reference
to UK government bonds.
117
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the consolidated financial statements continued
31. Reconciliation of profit to cash generated from operations
Profit for the year
Adjustments for:
Tax
Profit on the sale of operations
Finance income
Finance costs
Intangible asset amortisation
Depreciation of property, plant and equipment
Loss on the disposal of property, plant and equipment
Share-based payment
Changes in working capital
Deferred income received/(released)
(Increase)/decrease in receivables
Decrease in inventories
Increase/(decrease) in payables
Increase in provisions
Defined benefit pension plan
Cash flow from operations
Cash flow from operations comprises:
Continuing operating activities
Discontinued operating activities
Cash flow from operations
32. Business combinations
The Group made no acquisitions during 2013.
Prior year acquisitions
In 2012 the Group acquired 100 per cent of the share capital of Mu Dynamics, Inc. and Metrico Wireless, Inc.
The following table summarises the consideration paid and the assets and liabilities acquired at the acquisition date:
2013
$ million
32.7
6.4
–
(0.9)
0.9
9.9
16.5
–
(1.2)
12.9
(6.0)
2.4
2.8
1.5
(4.4)
73.5
73.5
–
73.5
Restated
2012
$ million
126.5
30.7
(44.5)
(0.8)
0.5
6.1
15.2
0.1
1.6
(3.4)
7.0
1.6
(11.4)
0.4
(1.4)
128.2
120.3
7.9
128.2
2012
$ million
Total
34.4
0.5
10.2
0.1
4.6
(8.5)
(4.9)
36.4
55.6
92.0
Mu Dynamics
Metrico
Wireless
13.9
–
9.3
0.1
1.3
(4.6)
(4.9)
15.1
24.7
39.8
20.5
0.5
0.9
–
3.3
(3.9)
–
21.3
30.9
52.2
39.8
52.2
92.0
Net assets acquired
Intangible fixed assets
Tangible fixed assets
Deferred tax asset
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liability
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash
118
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 33. Disposals
Systems division
On 1 November 2012 the Group completed the disposal of the assets and liabilities of its Systems division to Curtiss-Wright Corporation.
The assets and liabilities sold, the proceeds and the resulting profit on disposal are shown below:
Cash consideration
Less:
Net assets sold
Tangible fixed assets
Inventories
Trade and other receivables
Trade and other payables
Total net assets sold
Other items:
Disposal costs
Curtailment loss note 11
Exchange differences transferred from equity
Profit on sale of operations
Cash flows in respect of the disposal of operations are as follows:
Cash consideration
Cash disposal costs
2012
$ million
63.2
1.2
8.5
7.9
(4.7)
12.9
(3.3)
(1.3)
(1.2)
44.5
63.2
(3.3)
59.9
119
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the consolidated financial statements continued
34. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories
specified in IAS 24 “Related Party Disclosures”.
Short term employee benefits
Contribution to defined contribution scheme (post employment benefits)
Compensation for loss of office (termination benefits)
Statutory disclosures
Share-based payment
2013
$000
1,666
10
136
1,812
(350)
1,462
2012
$000
2,457
10
–
2,467
673
3,140
In 2013 Eric Hutchinson made gains on the exercise of share incentives of nil (2012 $468,000) and Bill Burns made gains on the exercise of share
incentives of nil (2012 $691,000).
35. Post balance sheet events
On 19 February 2014 Spirent completed the acquisition of the business of DAX Technologies Corp. (“DAX”), privately held by Dragos Alexe and
others, for a cash consideration of $37.0 million. Based in Matawan, New Jersey, DAX is a leading provider of customer experience management
solution software that enables mobile and wireline service providers to understand and quantify services as experienced by their customers.
The addition of DAX positions Spirent well to help service providers with the unprecedented challenges they face when developing and managing
new services in mobile and wireline network environments of rapidly increasing complexity. This acquisition will enable us to strengthen our
Service Assurance portfolio, expanding Spirent’s addressable market in the live network.
On 20 February 2014 Spirent completed the acquisition of 58 per cent of the share capital of Testing Technologies IST GmbH (“Testing Tech”)
which was in private ownership, for a cash consideration of Euro 2.0 million. The company develops and markets standardised and customer-
specific software-based testing tools which support the development of mission-critical products and workflow steps. Testing Tech also
participates in the connected vehicle market which will facilitate Spirent’s progress in this market. The minority stake of 42 per cent of the share
capital is the subject of a put and call option which expires on 31 March 2016. The consideration is based on the 2015 performance of Testing
Tech and set at a minimum amount of Euro 1.4 million. Testing Tech will be reported within our Wireless and Service Experience division.
As both acquisitions have only very recently completed neither the fair values of the assets and liabilities acquired, nor the consideration,
have yet been determined.
120
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Independent auditor’s report to the members of
Spirent Communications plc
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
• the information given in the Strategic and the Directors’ report for
the financial year for which the financial statements are prepared
is consistent with the parent Company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent Company financial statements and the part of the
Directors’ remuneration report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the Group financial statements of
Spirent Communications plc for the year ended 31 December 2013.
Karl Havers (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
27 February 2014
Notes
1
The maintenance and integrity of the Spirent Communications plc website is the
responsibility of the directors; the work carried out by the auditor does not involve
consideration of these matters and, accordingly, the auditor accepts no responsibility
for any changes that may have occurred to the financial statements since they were
initially presented on the website.
2
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
We have audited the parent Company financial statements of Spirent
Communications plc for the year ended 31 December 2013 which
comprise the parent Company balance sheet and the related notes 1
to 18. The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ responsibilities statement set
out on page 79, the directors are responsible for the preparation of the
parent Company financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and express an
opinion on the parent Company financial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the parent Company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all the
financial and non-financial information in the Annual Report to identify
material inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect based
on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion the parent Company financial statements:
• give a true and fair view of the state of the Company’s affairs as at
31 December 2013;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
121
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes
2013
£ million
2012
£ million
4
5
6
7
8
9
10
3
14
2.4
1.1
310.2
313.7
1.6
7.0
14.2
22.8
(18.4)
4.4
318.1
(75.0)
243.1
(1.6)
241.5
20.7
20.2
12.8
187.8
241.5
3.1
1.1
302.0
306.2
2.5
5.4
17.2
25.1
(10.1)
15.0
321.2
(66.7)
254.5
(12.1)
242.4
21.7
20.2
11.8
188.7
242.4
Parent Company balance sheet
At 31 December 2013
Fixed assets
Intangible assets
Tangible assets
Investments
Current assets
Stocks
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Trade and other creditors
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets (excluding defined benefit pension plan (deficit)/surplus)
Defined benefit pension plan deficit
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Shareholders’ funds – equity
The notes on pages 123 to 135 form part of these financial statements.
Signed on behalf of the Board
Eric Hutchinson
Director
27 February 2014
122
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Notes to the parent Company financial statements
1. Significant accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost convention modified for measurement of derivative financial instruments
at fair value and in accordance with applicable UK law and UK Generally Accepted Accounting Principles (UK GAAP).
As the Company is included in the consolidated financial statements, made up to 31 December each year, it is not required to present a separate
profit and loss account as provided by Section 408 of the Companies Act 2006. Information on fees for non-audit services in respect of the parent
Company accounts have not been disclosed as the Company prepares Group accounts which disclose information on fees for non-audit services
on a consolidated basis.
Cash flow statement
The Company is exempt under the terms of FRS 1 “Cash Flow Statements” from the requirement to publish its own cash flow statement, as its
cash flows are included within the consolidated cash flow statement of the Group.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. The carrying value of intangible assets
is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
Purchased goodwill, representing the excess of cost over the fair value of assets acquired, is written off on a straight line basis from the date of
acquisition over 20 years, being its anticipated useful life.
Tangible assets
Depreciation is not provided on freehold land. Depreciation is provided to write off the cost of all other assets, less residual value, on a
straight line basis over their estimated useful lives at rates which take into account commercial conditions at their location. Usual asset
lives are as follows:
Freehold buildings
Plant and machinery
Fixtures, fittings and equipment
Building installations
Fittings and equipment
Motor vehicles
Business systems software
50 years
3 to 8 years
20 years or lease period if less
3 to 8 years
3 to 5 years
4 years
The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not
be recoverable.
Investments
Fixed asset investments, including investment in subsidiaries, are stated at cost and reviewed for impairment if there are indications that the
carrying value may not be recoverable.
Leases
Operating lease rentals are charged to the profit and loss account over the period of the lease on a straight line basis.
Inventories
Inventories are valued at the lower of cost and estimated net realisable value. Cost includes all costs in bringing each product to its present
location and condition, being the full manufacturing cost on a first-in-first-out basis, including all attributable overheads based on a normal level
of activity. Net realisable value represents the selling price less further costs to be incurred to completion and on sale.
Trade and other debtors
Trade debtors, which generally have 30 to 90 day terms, are recognised and carried at original invoice amount less an allowance for any
uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written
off when identified.
123
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
1. Significant accounting policies continued
Provisions
Provisions are recorded when the Company has a present, legal or constructive obligation as a result of a past event for which it is probable that it
will be required to settle by an outflow of resources and for which a reliable estimate of the amount of the obligation can be made. Provisions are
reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Where the effect of the time value of money is material, the amount of the provision shall be the present value of the expenditures expected to be
required to settle the obligation.
Revenue recognition
Revenue is recognised when it is probable that economic benefits will flow to the Company, the revenue can be reliably measured and when the
Company has transferred to the buyer the significant risks and rewards of ownership. In addition, revenue is only recognised when collectability
is probable.
For the sale of services, revenue is recognised in accounting periods in which the service is rendered.
Foreign currencies
Transactions in foreign currencies are recorded at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at the balance sheet date. All exchange gains
and losses are taken to the profit and loss account.
Product development
Expenditure is charged to the profit and loss account in the year in which it is incurred.
Financial instruments
Financial assets and liabilities are recognised on the Company’s balance sheet when it becomes a party to the contractual provisions of
the instrument.
Equity instruments
Equity instruments are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Company uses forward foreign currency exchange contracts to manage exposures arising on receipts and payments in foreign currencies
relating to firm commitments.
Forward foreign currency exchange contracts are initially recognised at fair value on the date on which the contract is entered into, and are
subsequently re-measured to fair value at each reported balance sheet date. The fair value of forward foreign currency exchange contracts is
calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The Company has not adopted the hedge
accounting rules. Consequently, all gains and losses arising from changes in fair value are taken to the profit and loss account.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts.
Pensions
The Company operates two funded defined benefit pension plans. All other plans are defined contribution in nature where the amount charged to
the profit and loss account is the contributions paid or payable during the year.
For defined benefit pension plans full actuarial valuations are carried out every three years using the projected unit credit method, and updates
are performed at each balance sheet date. The cost of providing benefits under these plans is determined separately for each plan, and attributes
entitlement to benefits to the current period (to determine current service cost), and to the current and prior periods (to determine the present
value of defined benefit obligations).
Past services are recognised in the profit and loss account on a straight line basis or immediately if the benefits have vested. When a settlement
(eliminating all obligations for benefits already accrued), or a curtailment (reducing future obligations as a result of a material reduction in the
plan membership or a reduction in future entitlement) occurs, the obligation and related plan assets are re-measured using current actuarial
assumptions and the resultant gain or loss recognised in the profit and loss account during the period in which the settlement or
curtailment occurs.
124
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 1. Significant accounting policies continued
The interest element of the defined benefit pension plan cost represents the change in present value of plan obligations resulting from the
passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account
material changes in the obligation during the year.
The expected return on plan assets is based on an assessment made at the beginning of the year of long term market returns on plan assets,
adjusted for the effect on the fair value of plan assets of contributions received, and benefits paid during the year. The difference between the
expected return on plan assets and the interest cost is recognised in the profit and loss account as finance costs or finance income.
Actuarial gains and losses arising from differences between actual and expected returns on plan assets, experience adjustments on liabilities
and changes in actuarial assumptions, are recognised immediately in the statement of total recognised gains and losses.
The defined benefit pension plan asset or liability in the balance sheet comprises the total for each plan of the present value of the defined benefit
obligation (using a discount rate based on high quality corporate bonds denominated in the same currency and whose term is consistent with the
estimated term of the obligation). Fair value is based on market price information and, in the case of quoted securities, is the published bid price.
The value of a net pension benefit asset is restricted to the sum of any unrecognised past service costs and the present value of any amount the
Company expects to recover, by way of reductions in the future contributions or refunds from the plan that have been agreed by the trustees.
Treasury shares
Spirent Communications plc Ordinary Shares held by the Company are classified in shareholders’ equity as treasury shares and are recognised at
cost and shown as a deduction from retained earnings. Consideration received for the sale of such Ordinary Shares is also recognised in equity,
with any difference between the proceeds from sale and the original cost being taken to retained earnings.
Employee benefits
When an employee has rendered service to the Company during an accounting period, short term benefits expected to be paid in exchange for
that service are recognised in the same accounting period.
Dividends paid
The interim dividend is included in the financial statements in the period in which it is paid, and the final dividend in the period it is approved by
the shareholders at an annual general meeting.
Share-based payment
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair
value is determined using the Hull-White Trinomial model.
The cost of equity-settled transactions is recognised as a cost to the Company or as an addition to the cost of investment in the subsidiary in
which the relevant employees work, over the vesting period of the equity-settled transactions with a corresponding adjustment to reserves. Any
payments received from the Company’s subsidiaries in respect of these share-based payments result in a reduction in the cost of investment.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which
are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other vesting conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In
addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of
modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the
award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the
date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous
paragraph.
The Company has an employee share trust for the granting of certain share incentives to employees. Shares are held by the employee share trust,
treated as treasury shares and presented in the balance sheet as a deduction from equity.
Tax
The tax expense represents the sum of the tax currently payable and deferred tax.
125
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
1. Significant accounting policies continued
The tax currently payable represents the amount expected to be paid or recovered in respect of taxable profit for the year and is calculated using
tax rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is provided on an undiscounted basis on all timing differences that have originated but not reversed at the balance sheet date except
as referred to below. Amounts provided are calculated with reference to tax rates that are expected to apply in the periods in which the timing
differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets are recognised only to the extent that it is considered more likely than not that there will be suitable taxable profits from
which the future reversal of the underlying timing differences can be deducted.
Deferred tax is not provided on gains on the disposal of fixed assets that have been rolled over into replacement assets, unless there is a binding
agreement to dispose of the assets concerned. Provision will not be made where it is considered more likely than not that the taxable gain will be
rolled over into replacement assets and charged to tax only when the replacement assets are sold.
2. Employees
Please refer to the Report on directors’ remuneration on pages 58 to 76 for disclosures relating to the emoluments, share incentives and long term
incentive interests and pensions of the directors.
3. Pensions
Defined benefit plans
The funded defined benefit pension plans are in the United Kingdom and comprise the Spirent Communications plc Staff Pension & Life
Assurance Plan (“Staff Plan”) and the Spirent Communications plc Retirement Cash & Life Assurance Plan (“Cash Plan”). The Staff Plan is the
Company’s most significant plan. There is in addition an unfunded plan.
The valuation used for these disclosures has been based on a full assessment of the liabilities of the plans as at 1 April 2012. The present
values of the defined benefit obligation, the related current service cost and any past service costs were measured using the projected unit
credit method.
i) The key financial assumptions
The assumptions used for both plans were as follows:
Inflation – RPI
Inflation – CPI
Rate of increase in pensionable salaries
Rate of increase for pensions in payment pre 2001 service
Rate of increase for pensions in payment 2001 to 5 April 2005 service
Rate of increase for pensions post 5 April 2005 service
Rate of increase in deferred pensions
Rate used to discount plan liabilities
Expected rate of return on plan assets (weighted for both plans)
2013
%
3.3
2.2
3.1
3.6
3.1
2.2
2.2
4.5
4.6
2012
%
2.9
2.2
2.9
3.6
2.8
1.9
2.2
4.3
5.0
Spirent Communications plc employs a building block approach in determining the long term rate of return on plans’ assets. Historical markets
are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles.
The assumed long term rate of return on each class of asset is set out within this note. The overall expected rate of return on assets is then
derived by aggregating the expected return of each asset class over the actual asset allocation for the plans.
The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are such that
a member currently aged 65 (2012 aged 65) will live on average for a further 23.5 years (2012 23.3 years) if they are male and for a further 25.6
years (2012 25.5 years) if they are female. For a member who retires in 2033 (2012 in 2032) at age 65 (2012 age 65) the assumptions are that they
will live on average for a further 24.3 years (2012 24.2 years) after retirement if they are male and for a further 26.7 years (2012 26.6 years) after
retirement if they are female.
126
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 3. Pensions continued
The approximate impact to the past service liabilities of changing these main assumptions is as follows:
• Reducing the discount rate by 0.1 per cent per annum would increase past service liabilities by £2.4 million.
•
Increasing the RPI inflation assumption by 0.1 per cent would increase the plans’ liabilities by £1.0 million.
Increasing the life expectancy of a member by one year (by modifying the standard mortality tables using an appropriate scaling factor) would
•
increase past service liabilities by £6.5 million.
There will also be an impact on the future service cost but given the small active population in these plans this is likely to be insignificant.
ii) The assets and the liabilities in the plans were as follows:
Staff Plan
Equities
Government bonds
Inflation-only LDI funds
Corporate bonds
Cash benchmarked bonds
Insured annuities
Property
Cash and other
Fair value of plan assets
Present value of defined benefit pension plan obligations
Deficit in the plan
Cash Plan
Equities
Government bonds
Insured annuities
Cash and other
Fair value of plan assets
Present value of defined benefit pension plan obligations
Surplus in the plan
Total net deficit recognised
Unfunded plan
Present value of unfunded obligations
Net pension plan deficit
Deferred tax asset note 11
Net pension plan deficit on the balance sheet
Long term
rate of return
expected
%
Long term
rate of return
expected
%
2013
£ million
8.3
2.5
–
3.6
3.5
4.3
7.3
1.0
5.1
8.3
2.5
4.3
1.0
4.0
7.4
–
1.3
–
3.0
4.5
5.5
1.3
4.6
7.4
3.2
4.5
1.3
4.2
53.9
–
14.4
–
72.5
3.3
15.3
0.5
159.9
(161.8)
(1.9)
2.7
2.0
0.2
2.4
7.3
(6.9)
0.4
(1.5)
(0.5)
(2.0)
0.4
(1.6)
2012
£ million
44.5
32.8
–
24.9
30.8
3.5
14.0
0.6
151.1
(166.3)
(15.2)
2.3
2.2
0.2
2.0
6.7
(6.7)
–
(15.2)
(0.5)
(15.7)
3.6
(12.1)
The plans are prohibited from investing in Spirent’s own financial instruments.
For the purposes of the following disclosures the two plans have been combined as the Cash Plan is immaterial to these financial statements.
127
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
3. Pensions continued
iii) Analysis of the amounts (credited)/charged to the profit and loss account
Analysis of amount charged to operating costs
Current service cost
Curtailment loss
Amount charged to operating costs
Expected return on pension plans’ assets
Interest on pension plans’ liabilities
Finance income
Net profit and loss (credit)/charge
iv) Analysis of amount recognised directly in equity
Actual return on pension plans’ assets
Less expected return on pension plans’ assets
Experience gains on plans’ assets
Experience gains arising on plans’ liabilities
Changes in assumptions underlying the present value of plans’ liabilities
Changes in assumptions underlying the present value of unfunded plan’s liabilities
Movement in surplus restriction
Actuarial gains/(losses) recognised directly in equity
2013
£ million
2012
£ million
0.1
–
0.1
7.5
(7.3)
0.2
(0.1)
0.2
0.8
1.0
7.6
(7.2)
0.4
0.6
2013
£ million
2012
£ million
13.5
7.5
6.0
–
4.2
–
–
10.2
12.0
7.6
4.4
0.7
(13.9)
(0.1)
0.2
(8.7)
The cumulative amount of actuarial gains and losses recognised since 1 January 2003 in the Company’s statement of total recognised gains and
losses is £22.1 million loss (2012 £32.3 million loss). The directors are unable to determine how much of the pension plan deficit recognised on
1 January 2003 and taken directly to equity of £41.9 million in the Company is attributable to actuarial gains and losses since inception of those
pension plans. Consequently, the directors are unable to determine the amount of actuarial gains and losses that would have been recognised in
the Company’s statement of recognised gains and losses before 1 January 2003.
v) Movements in the present value of funded defined benefit obligations
At 1 January
Current service cost
Curtailment loss
Interest cost
Employee contributions
Benefit payments
Actuarial (gain)/loss
Present value of funded defined benefit pension plans’ obligations
vi) Movements in the fair value of plans’ assets
At 1 January
Expected return on plans’ assets
Employer contributions
Employee contributions
Benefit payments
Actuarial gain
Fair value of plans’ assets
128
2013
£ million
173.0
0.1
–
7.3
–
(7.5)
(4.2)
168.7
2013
£ million
157.8
7.5
3.4
–
(7.5)
6.0
167.2
2012
£ million
158.4
0.2
0.8
7.2
0.1
(6.9)
13.2
173.0
2012
£ million
150.8
7.6
1.8
0.1
(6.9)
4.4
157.8
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
3. Pensions continued
vii) History of experience gains and losses
Present value of defined benefit pension plans’ obligations
Fair value of plans’ assets
Net (deficit)/surplus in plans
Experience gain/(loss) on plans’ liabilities
Amount (£ million)
Percentage of plans’ liabilities (%)
Experience gain/(loss) on plans’ assets
Amount (£ million)
Percentage of plans’ assets (%)
2013
£ million
(168.7)
167.2
(1.5)
2012
£ million
(173.0)
157.8
(15.2)
–
–
6.0
3.6
0.7
0.4
4.4
2.8
2011
£ million
(158.4)
150.8
(7.6)
(1.7)
(1.1)
0.7
0.5
2010
£ million
(140.6)
146.9
6.3
(0.4)
(0.3)
7.1
4.8
2009
£ million
(137.4)
137.9
0.5
(2.5)
(1.8)
7.5
5.4
Expected cash contributions for 2014 for these plans are £2.9 million.
The above plans are funded and have full UK HM Revenue & Customs (“HMRC”) tax-exempt approval. Certain members, whose salaries were in
excess of the HMRC statutory earnings cap, had their benefits increased through unapproved unfunded arrangements, to the level that would
otherwise have applied in respect of basic salary only. The Company has contractually agreed to pay the additional retirement benefits itself and
a provision is made in respect of this obligation in the balance sheet at 31 December 2013 of £0.5 million (2012 £0.5 million). This represents the
actuarial value, as confirmed by the Company’s pension advisers, of the unapproved benefit entitlements accrued at that date. The value is
assessed and reviewed on a market value basis in line with the main plan valuation and adjusted each year. There were no experience gains or
losses on the unfunded plan in the period from 2009 to 2013.
Defined contribution schemes
The Company also maintains defined contribution pension plans for employees. Employer contributions into these plans for 2013 were
£0.9 million (2012 £0.8 million).
4. Intangible assets
Cost
At 1 January 2013 and 31 December 2013
Amortisation
At 1 January 2013
Provided during the year
At 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2013
£ million
Goodwill
6.8
3.7
0.7
4.4
3.1
2.4
129
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
5. Tangible fixed assets
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
Depreciation and impairment
At 1 January 2013
Provided during the year
Disposals
At 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2013
6. Investments
Cost
At 1 January 2013
Additions
Share-based payment
At 31 December 2013
Provisions
At 1 January 2013
Increase in provision
At 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2013
7. Stocks
Work in progress
Finished goods
8. Debtors
Due within one year
Trade debtors
Owed by subsidiaries
Other debtors
Prepayments and accrued income
Due after more than one year
Deferred tax asset note 11
130
Freehold land
and buildings
Plant and
machinery
Fixtures,
fittings and
equipment
0.7
–
–
0.7
0.2
–
–
0.2
0.5
0.5
2.3
0.3
–
2.6
2.0
0.3
(0.1)
2.2
0.3
0.4
1.2
–
(0.1)
1.1
0.9
0.1
(0.1)
0.9
0.3
0.2
Shares in
subsidiaries
Loans to
subsidiaries
1,019.4
7.4
(0.5)
1,026.3
720.3
0.6
720.9
299.1
305.4
3.2
3.0
–
6.2
0.3
1.1
1.4
2.9
4.8
£ million
Total
4.2
0.3
(0.1)
4.4
3.1
0.4
(0.2)
3.3
1.1
1.1
£ million
Total
1,022.6
10.4
(0.5)
1,032.5
720.6
1.7
722.3
302.0
310.2
2013
£ million
2012
£ million
0.3
1.3
1.6
0.2
2.3
2.5
2013
£ million
2012
£ million
1.7
2.7
0.7
0.5
5.6
1.4
7.0
1.3
1.7
0.2
0.3
3.5
1.9
5.4
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 9. Trade and other creditors: amounts falling due within one year
Trade creditors
Owed to subsidiaries
Accruals and deferred income
Share buyback obligation
Other taxes and social security costs
10. Creditors: amounts falling due after more than one year
Owed to subsidiaries
Deferred income
11. Deferred tax
At 1 January 2013
Reversed in the year
At 31 December 2013
2013
£ million
2012
£ million
1.0
1.0
5.1
10.9
0.4
18.4
0.5
0.3
4.0
5.0
0.3
10.1
2013
£ million
2012
£ million
75.0
–
75.0
66.4
0.3
66.7
£ million
1.9
(0.5)
1.4
The deferred tax asset is in relation to short term timing differences of £0.2 million (2012 £0.2 million) and tax losses of £1.2 million (2012
£1.7 million). The Company has tax losses of £28.8 million (2012 £37.1 million) that are available for offset against suitable future taxable
profits. A deferred tax asset has not been recognised in respect of these losses as their future recovery is uncertain. These losses can be
carried forward indefinitely.
There is a deferred tax asset at 31 December 2013 of £0.4 million (2012 asset of £3.6 million) in relation to the pension plans (note 3).
The Company also has capital losses carried forward of £823.3 million (2012 £822.3 million) for which no deferred tax asset is recognised on the
balance sheet. These capital losses have no expiry date.
12. Operating lease commitments
At the balance sheet date, the Company had annual commitments which expire as follows:
In the second to fifth years
2013
£ million
0.2
2012
£ million
0.1
13. Derivative financial instruments
The Company has taken advantage of the exemption under FRS 29 “Financial Instruments: Disclosures” for parent Company financial statements.
The disclosures in respect of the Group are included in the consolidated financial statements.
131
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
14. Capital and reserves
At 1 January 2013
Share cancellation
Profit for the year2
Share-based payment3
Actuarial gain recognised on defined benefit pension plans
Deferred tax on defined benefit pension plans
Share repurchase
Share buyback obligation
Equity dividends
Employee share ownership trust
At 31 December 2013
Called up
share capital
Share
premium
account
Capital
redemption
reserve
Profit and
loss
account
21.7
(1.0)
–
–
–
–
–
–
–
–
20.7
20.2
–
–
–
–
–
–
–
–
–
20.2
11.8
1.0
–
–
–
–
–
–
–
–
12.8
188.7
–
47.4
(0.8)
10.2
(2.7)
(34.9)
(5.9)
(14.3)
0.1
187.8
£ million
Total
242.4
–
47.4
(0.8)
10.2
(2.7)
(34.9)
(5.9)
(14.3)
0.1
241.5
Notes
1 The Company has taken advantage of the exemption given in section 408 of the Companies Act 2006 not to publish its profit and loss account.
2 The profit for the year dealt with in the financial statements of the Company was £47.4 million (2012 £49.6 million) which after dividends of £14.3 million (2012 £12.7 million),
gave a retained profit of £33.1 million (2012 £36.9 million).
3 Share-based payment has been recorded for subsidiary companies whose incentives are satisfied by the Company’s shares.
Changes during the year in the issued Ordinary Share capital were as follows:
Issued and fully paid Ordinary Shares of 31/3 pence each at 1 January 2013
Cancelled during the year1
Issued and fully paid Ordinary Shares of 31/3 pence each at 31 December 2013
Number of
Ordinary
Shares
million
650.6
(29.2)
621.4
Note
1 During 2013, under the programme of returning capital to shareholders, the Company repurchased 29.2 million (2012 13.4 million) Ordinary Shares on market which were
subsequently cancelled.
During 2013 and 2012 no Ordinary Shares were transferred from the Spirent Sharesave Trust (“SST”) to satisfy options exercised under the UK all
employee share schemes and in 2013 1.4 million Ordinary Shares were transferred from the Spirent Employee Share Ownership Trust (“ESOT”)
to satisfy options exercised under the Spirent Stock Incentive Plan and 2005 Employee Incentive Plan (2012 5.6 million Ordinary Shares).
There has been no material increase in the issued Ordinary Share capital, whether by exercise of share incentives or otherwise, between
31 December 2013 and 27 February 2014, the date on which these financial statements have been signed.
Investment in own Ordinary Shares
At 31 December 2013, the ESOT held 0.9 million Ordinary Shares (2012 2.3 million Ordinary Shares) to satisfy awards under various share
incentive plans. At 31 December 2013, the SST held 0.5 million Ordinary Shares (2012 0.5 million Ordinary Shares) to satisfy awards made to
United Kingdom based employees under an all employee share scheme. The market value of own Ordinary Shares held in trust, being in total
1.4 million Ordinary Shares (2012 2.8 million Ordinary Shares), at 31 December 2013 was £1.5 million (2012 £4.2 million).
Capital redemption reserve
During 2013 the Company cancelled 29.2 million Ordinary Shares (2012 13.4 million Ordinary Shares) that had been the subject of the on market
share repurchase programme and transferred £1.0 million (2012 £0.5 million) to the capital redemption reserve.
Share repurchase
During 2013 the Company repurchased 29.2 million Ordinary Shares on market at a cost of £34.9 million (2012 13.4 million Ordinary Shares
at a cost of £19.3 million). All shares repurchased in 2013 and 2012 were subsequently cancelled.
132
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 14. Capital and reserves continued
Share buyback obligation
On 23 December 2013 the Company entered into an irrevocable agreement with UBS Limited to purchase Ordinary Shares up to a maximum value
of £10.9 million at no more than 105 per cent of the average market value of a share for the five business days immediately preceding the day on
which the share is purchased, with the maximum number of shares acquired on any dealing day not to exceed 250,000 shares, from 2 January
2014 to 26 February 2014, on their behalf. This agreement entered into in respect of share buybacks during the close period has been recognised
as a financial liability of £10.9 million.
As at the close of business on 26 February 2014, 9.7 million shares had been repurchased under this buyback programme at an average price
of 97 pence per share for a total consideration of £9.4 million. The remaining liability expired at close of business on 26 February 2014.
Employee share plans
The Company operates a number of employee share incentive plans which are described in note 29 of Notes to the consolidated financial
statements. The following share incentives over Ordinary Shares under these plans have been granted and remain outstanding, held by
employees of the parent Company.
Movements in share incentives during the year to 31 December 2013 are shown below:
Incentives outstanding at 31 December 2011
Granted
Exercised
Cancelled
Incentives outstanding at 31 December 2012
Granted
Exercised
Cancelled
Incentives outstanding at 31 December 2013
Incentives exercisable at 31 December 2012
Incentives exercisable at 31 December 2013
2005
Employee
Incentive Plan
Weighted
average
exercise price
pence
Number
of share
incentives
million
1.9
0.6
(0.3)
(0.6)
1.6
1.1
–
(0.9)
1.8
0.5
0.5
16
8
4
–
21
55
–
–
53
50
50
Number
of share
incentives
million
0.6
–
(0.6)
–
–
–
–
–
–
–
–
Spirent Stock
Incentive Plan
Weighted
average
exercise price
pence
1995
Executive
Share Option
Scheme
Number
of share
incentives
million
Weighted
average
exercise price
pence
50
–
50
–
–
–
–
–
–
–
–
1.1
–
(1.0)
–
0.1
–
(0.1)
–
–
0.1
–
116
–
123
–
69
–
69
–
–
69
–
The weighted average share price at exercise date was 145.9 pence (2012 154.8 pence).
The following information relates to outstanding share incentives at 31 December 2013:
Exercise period
(as at 31 December)
Range of
exercise
prices
pence
25.08.08–08.05.23
23.03.14–08.05.23
0–53
129–153
Weighted
average
exercise
price
pence
21.0
131.0
Share plan
2005 Employee Incentive Plan1
1995 Executive Share Option
Scheme
30.06.07–29.06.14
69
–
Number
of share
incentives
outstanding
million
2013
Weighted
average
remaining
contractual
life years
Weighted
average
exercise
price
pence
Number
of share
incentives
outstanding
million
6.6
9.3
–
18
–
69
1.3
0.5
–
1.8
1.6
–
0.1
1.7
2012
Weighted
average
remaining
contractual
life years
7.4
–
1.5
Note
1 Figures for the 2005 Employee Incentive Plan include share options, stock appreciation rights and Performance shares in aggregate. No exercise price is payable on the vesting of
a Performance share.
133
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes to the parent Company financial statements continued
15. Share-based payment
The total charge for the year relating to employee share-based payment plans is as follows:
2005 Employee Incentive Plan
All schemes are equity-settled.
The fair value of share incentives has been estimated as at the date of grant using the Hull-White trinomial model.
The following table gives the assumptions made in arriving at the share-based payment charge and the fair value:
Weighted average share price (pence)
Weighted average exercise price (pence)
Weighted average fair value (pence)
Expected volatility (%)
Option life (years)
Performance shares
Options and SARs
Suboptimal exercise factor
Risk free rate (%)
Dividend yield (%)
2013
£ million
(0.3)
2012
£ million
0.6
2013
2012
129.1
54.7
65.1
33.0
3.0
10.0
1.5
1.6
1.3
153.1
7.6
92.6
35.0
3.0
10.0
1.5
2.4
1.6
The expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous two years which
management considers to be the period which is likely to be most representative of future volatility. The risk free rate is calculated by reference
to UK government bonds.
16. Related party transactions
The Company has taken advantage of the exemption under FRS 8 “Related Party Disclosures” in relation to disclosing transactions with its
subsidiaries.
17. Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given
on page 135 of this Annual Report.
18. Capital commitments and contingent liabilities
There were no capital commitments at 31 December 2013 or 31 December 2012.
Spirent Communications plc has provided indemnities of £0.1 million (2012 £0.1 million) for certain ongoing business obligations under letters
of credit for subsidiary companies.
134
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Principal divisions and subsidiaries
Canada
Spirent Communications of Ottawa Limited (Nepean, Ontario)
France
Spirent Communications SAS (Paris)
Hong Kong
Spirent Communications (Asia) Limited
India
Spirent Communications (India) Pvt Limited (Bangalore)
Japan
Spirent Communications Japan KK (Tokyo)
People’s Republic of China
Spirent Communications Technology (Beijing) Limited*
Republic of Korea
Spirent Communications Korea Inc
Singapore
Spirent Communications Singapore Pte Limited
Taiwan
Spirent Communications Taiwan Limited (Taipei)
United Kingdom
Spirent Communications (International) Limited (Crawley, West Sussex)*
Spirent Communications Positioning (Paignton, Devon)†
United States
Spirent Communications Hawaii, LLC (Honolulu, Hawaii)
Spirent Communications Inc
Calabasas, California
Sunnyvale, California
Eatontown, New Jersey
Germantown, Maryland
% held at
31 December
2013
100
100
100
100
100
100
100
100
100
100
100
100
Notes
The above companies operate and are incorporated in the countries listed. All shareholdings in the companies are held indirectly by Spirent Communications plc, except where indicated
by an asterisk (*) where the shareholding is held directly by Spirent Communications plc. A full list of subsidiary companies will be attached to the Company’s Annual Return, which will be
filed with Companies House in due course.
† Spirent Communications Positioning operates as a division of Spirent Communications plc.
135
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 2013
Restated
2012
Restated
2011
Restated
2010
413.5
39.1
–
39.1
(6.4)
32.7
–
32.7
198.8
39.6
(10.8)
227.6
–
216.3
(6.5)
18.3
(3.3)
452.4
452.4
67.4
0.8
(24.3)
43.9
–
(54.5)
(22.2)
0.3
(32.5)
472.4
108.1
0.3
108.4
(29.0)
79.4
47.1
126.5
207.4
34.1
7.3
248.8
–
249.0
(5.0)
28.4
(25.6)
495.6
495.6
105.1
0.6
(14.3)
91.4
(32.1)
(29.4)
(20.3)
0.3
9.9
470.5
112.2
1.4
113.6
(26.4)
87.2
6.7
93.9
123.2
35.5
13.8
172.5
–
237.2
(4.5)
29.4
(12.4)
422.2
422.2
98.7
0.9
(23.5)
76.1
(14.5)
(33.0)
(17.5)
0.4
11.5
422.8
102.6
0.9
103.5
(30.9)
72.6
6.6
79.2
112.0
29.1
10.4
151.5
(0.2)
225.0
(7.6)
31.3
7.1
407.1
407.1
99.4
0.8
(17.6)
82.6
–
(15.0)
(13.7)
0.6
54.5
$ million
Restated
2009
369.4
77.8
(0.1)
77.7
8.5
86.2
5.7
91.9
112.4
23.6
8.3
144.3
0.8
175.7
(11.4)
42.5
(0.1)
351.8
351.8
96.1
0.6
(10.2)
86.5
–
2.7
(12.1)
2.2
79.3
Financial history
Summary income statement
Continuing operations
Revenue
Operating profit
Net finance income/(costs)
Profit before tax
Tax
Profit from continuing operations after tax
Discontinued operations
Profit attributable to owners of the parent Company
Summary balance sheet
Intangible assets
Property, plant and equipment
Working capital (excluding cash and deferred tax)
Operating assets
Derivative financial instruments (net)
Net funds including long term cash
Provisions and other liabilities
Deferred tax
Defined benefit pension plan (deficit)/surplus
Net assets
Total equity
Summary cash flows
Cash flow from operating activities
Net interest received
Net capital expenditure
Free cash flow
Acquisitions and disposals
Share capital and share repurchase
Dividends paid
Transfer from long term deposit
Net increase/(decrease) in cash and cash equivalents
136
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Other information – continuing operations
Expenditure on property, plant and equipment
Depreciation
Product development
Share information
Earnings per share from continuing operations (cents)
Basic
Diluted
Adjusted basic1,2
Total dividend per Ordinary Share (cents)
Fully paid Ordinary Shares in issue at year end (number million)
Segmental analysis – continuing operations
Revenue
Networks & Applications
Wireless & Service Experience
Service Assurance
Operating profit
Networks & Applications
Wireless & Service Experience
Service Assurance
Corporate – non-segmental
Operating profit1
Exceptional items
Acquisition related costs
Acquired intangible asset amortisation
Share-based payment
Geographical information – continuing operations
Revenue by market
United States
Asia Pacific, Rest of World
Europe
2013
22.9
16.5
100.5
5.10
5.09
5.71
3.54
621.4
213.4
167.7
32.4
413.5
13.2
33.8
9.0
(5.9)
50.1
(3.8)
–
(8.4)
1.2
39.1
215.8
146.9
50.8
413.5
Restated
2012
Restated
2011
Restated
2010
15.9
14.6
86.1
12.11
12.07
13.02
3.22
650.6
259.5
174.5
38.4
472.4
59.7
56.7
8.4
(6.5)
118.3
(2.9)
(1.2)
(4.5)
(1.6)
108.1
239.2
166.0
67.2
472.4
20.1
12.7
83.3
13.07
12.96
12.81
2.93
664.0
254.6
161.8
54.1
470.5
56.6
58.5
7.0
(6.0)
116.1
–
(1.2)
(1.6)
(1.1)
112.2
238.8
159.1
72.6
470.5
17.5
11.4
75.8
10.80
10.70
10.92
2.50
674.9
242.0
123.8
57.0
422.8
58.2
39.7
13.0
(6.5)
104.4
–
–
(1.4)
(0.4)
102.6
230.0
126.3
66.5
422.8
Notes
1 Before exceptional items, acquisition related costs, acquired intangible asset amortisation and share-based payment.
2 Before tax effect of items in note 1 and prior year tax.
The five year history has been restated to reflect the effect of IAS19 “Employee Benefits” on all years.
$ million
Restated
2009
9.8
12.9
70.8
12.92
12.86
10.39
1.93
678.1
198.1
118.7
52.6
369.4
36.6
41.7
7.5
(6.0)
79.8
–
–
(1.4)
(0.6)
77.8
195.9
117.9
55.6
369.4
137
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Shareholder information
Financial calendar 2014
27 February 2014
5 March 2014
7 March 2014
23 April 2014
25 April 2014
2 May 2014
30 June 2014
August
August
August
September
September
November
31 December 2014
February/March 2015
Preliminary results and final dividend announcement
Final dividend – ex-dividend date
Final dividend – record date
Annual General Meeting and interim management statement
Final dividend – payment date (Ordinary shareholders)
Final dividend – payment date (ADR holders)
Half-year end
Half-year results and interim dividend announcement
Interim dividend – ex-dividend date
Interim dividend – record date
Interim dividend – payment date (Ordinary shareholders)
Interim dividend – payment date (ADR holders)
Interim management statement
Financial year end
2014 Preliminary results and final dividend announcement
Ordinary Shares and American depositary receipts
The Company’s Ordinary Shares are traded on the London Stock Exchange (ticker: SPT). The Company operates a Level 1 American Depositary
Receipt (“ADR”) programme with each ADR representing four Ordinary Shares. The ADRs trade on the US over-the-counter market (symbol:
SPMYY; CUSIP: 84856M209). The Bank of New York Mellon is the authorised depositary bank for the Company’s ADR programme. The ADRs are
quoted on the OTC Pink electronic quotation service which can be found at www.otcmarkets.com/otc-pink/home.
Annual General Meeting
The Company’s 2014 Annual General Meeting (“2014 AGM”) will be held at 10.30am on 23 April 2014 at the offices of UBS, 1 Finsbury Avenue,
London EC2M 2PP.
Dividends
Shareholders are able to choose how they receive their dividends:
• direct to their bank account;
• reinvested in Ordinary Shares through the Company’s Dividend Reinvestment Plan (see below);
• paid by cheque; or
• paid in foreign currencies.
The quickest and most efficient way to receive your dividends is to have them paid direct to your bank account. It saves waiting for funds to clear
and reduces the paper and postage we use. To change how you receive your dividends please contact the Company’s registrar, Equiniti, on
0871 384 2268 or log on to www.shareview.co.uk.
Dividend reinvestment plan
The Company has a Dividend Reinvestment Plan (“DRIP”) delivered by Equiniti Financial Services Limited. The DRIP allows eligible shareholders
to use their cash dividend to buy additional shares in the Company, so increasing their shareholding. If you would like additional information,
please contact the Company’s registrar, Equiniti, on 0871 384 2268 or log on to www.shareview.co.uk.
Electronic communications
All of the Company’s communications with shareholders are conducted in line with our environmental approach. We hold the majority of our
events via webcast and conference calls and we encourage all of our investors to receive communications electronically. Shareholders who do not
currently receive Company mailings electronically but wish to do so should notify the Company’s registrar, Equiniti, on 0871 384 2126 or via
www.shareview.co.uk.
Company’s registrar
Enquiries concerning shareholdings, change of address or other particulars should be directed in the first instance to the Company’s registrar,
Equiniti, on 0871 384 2126. Equiniti also provide a range of online shareholder information services at www.shareview.co.uk, where
shareholders can check their holdings and find practical help on transferring shares or updating their details.
138
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013
Share dealing services
Equiniti Shareview Dealing is a service that provides a simple and convenient way of buying and selling the Company’s Ordinary Shares. For
telephone services call 08456 037 037 between 8.00am and 4.30pm, Monday to Friday and for internet services visit www.shareview.co.uk/dealing.
A postal share dealing service for buying and selling Ordinary Shares is also available and a dealing form can be obtained by calling 0871 384 2248
or at www.shareview.co.uk.
Individual savings accounts
Information about investing in the Company’s Ordinary Shares through an Individual Savings Account (“ISA”) may be obtained from Equiniti on
0845 300 0430 or at www.shareview.co.uk. ISAs are also offered by other organisations.
Shareholder security
Shareholders are advised to be wary of any unsolicited advice, offers to buy shares at a discount or offers of free reports about the Company.
Details of any share dealing facilities that the Company endorses will be included in the Company’s mailings or on our website. More detailed
information can be found at www.fsa.gov.uk/consumerinformation.
Unsolicited mail
The Company is obliged by law to make its share register publicly available, subject to a “proper purpose” test, should a request be received. As a
consequence, some shareholders may receive unsolicited mail. To limit the amount of unsolicited mail received, please contact: The Mailing
Preference Service (MPS), DMA House, 70 Margaret Street, London W1W 8SS or register online at www.mpsonline.org.uk. The Mailing Preference
Service is an independent organisation which offers a free service to the public within the UK. Registering with them will help stop most
unsolicited consumer advertising material.
Company’s website
The directors are responsible for the maintenance and integrity of the Company’s website. Financial information published on the website is
based on legislation in the UK governing the preparation and dissemination of financial statements that may be different from comparable
legislation in other jurisdictions.
Shareholder analysis
At 27 February 2014, the number of registered shareholders was 3,557 and the number of Ordinary Shares in issue was 611.9 million.
Number of Ordinary Shares held
1–5,000
5,001–10,000
10,001–50,000
50,001–100,000
100,001–250,000
250,001–500,000
500,001–1,000,000
1,000,001–highest
Total
Individuals
Institutions
Total
Number of
shareholders
% of total
shareholders
Number of
Ordinary Shares
% of share
capital
2,539
365
379
58
63
38
47
68
3,557
3,578,441
71.38
2,720,729
10.26
8,202,761
10.66
4,051,420
1.63
9,804,957
1.77
13,585,189
1.07
1.32
33,861,599
1.91 536,089,534
0.59
0.45
1.34
0.66
1.60
2.22
5.53
87.61
100.00 611,894,630
100.00
Number of
shareholders
% of total
shareholders
Number of
Ordinary Shares
% of share
capital
2,803
754
3,557
78.80
13,536,330
21.20 598,358,300
2.21
97.79
100.00 611,894,630
100.00
139
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Glossary
2G (Second Generation)
3G (Third Generation)
3GPP (Third Generation Partnership Project)
4G (Fourth Generation)
Application
Attacks
BeiDou (formerly Compass)
Cloud
Code Division Multiple Access (“CDMA”)
Core Router
Cyber Security (aka IT Security)
Data Center
Ethernet
Gigabit Ethernet (“G”)
Global Navigation Satellite Systems (“GNSS”)
Global Positioning System (“GPS”)
140
Second generation remains the most common type of wireless cellular communication in use
globally. Although its primary focus has been voice service and short message service (“SMS”),
it has also been enhanced to allow low rate data communication.
Third generation of mobile communications that delivers data rates of hundreds of kilobits per
second to tens of megabits per second.
A collaboration between groups of telecommunications associations from around the world, the
scope of which is primarily to establish globally applicable third generation and beyond mobile
phone system specifications.
Fourth generation of mobile communications that delivers data rates of tens to hundreds of
megabits per second. Future 4G technologies promise data rates in excess of one gigabit
per second.
A software programme designed to perform a specific function for the end user which uses the
services of the computer’s operating system and other supporting programmes. Applications
include database programmes, spreadsheets, web browsers, graphics programmes and word
processors.
Attempts to damage, disrupt, or gain unauthorised access to a computer, computer system, or
electronic communications network.
China’s second generation global satellite navigation system, which is under construction but
eventually planned to consist of 35 satellites. Service was launched in China during 2011, with
plans to provide service globally by 2020.
A variety of computing concepts that involve a large number of computers connected through a
real-time communication network such as the internet. Often used in reference to network-based
services served up by virtual hardware, simulated by software running on one or more physical
machines.
A digital cellular technology standard which allows numerous signals to occupy a single
transmission channel, thus increasing network capacity; used in 2G and 3G radio
communications.
A router designed to operate in the internet backbone, able to support multiple
telecommunications interfaces of the highest speed in use in the core internet, and to forward
IP packets at full speed on all of them. It must also support the routing protocols being used in
the core.
The body of technologies, processes and practices designed to protect networks, computers,
programmes and data from attack, damage or unauthorised access. In an IT context, the term
security implies cyber security.
A centralised location where computing resources critical to an organisation are maintained in a
highly controlled environment.
A family of networking technologies originally developed for local area networks, which migrated
to metro area networks and eventually became the dominant standard in wireline networks
worldwide.
A transmission technology based on the Ethernet frame format and protocol used in local area
networks that provides a data rate of 1 billion bits per second (one gigabit) and which is used as
the backbone in many enterprise networks.
The standard generic term for satellite navigation systems that provide autonomous geo-spatial
positioning with global coverage. GNSS allows users’ receivers to determine their location to
within a few metres by employing a triangulation technique that uses information from multiple
satellites.
A global navigation satellite system operated by the United States government for determining a
user’s location and height at any point on the earth’s surface. A receiver uses minute differences
in measured time signals from clocks on satellites to calculate these positions and altitudes.
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 GLONASS (The Russian Global Navigation
Satellite System)
A global navigation satellite system operated by the Russian Federation. Deployment began in
1976 and, although the system fell into disrepair in the 1990s, full global service was restored
in 2011.
High Definition Voice (“HD Voice”)
A technology, based on standards from the International Telecommunication Union (“ITU”), that
delivers high definition voice quality compared to standard digital telephony.
Infrastructure Test Optimization (“ITO”)
The practices required to ensure that infrastructures meet a defined quality of service and quality
of experience that are necessary to meet strategic business objectives.
Internet Protocol (“IP”)
The primary network protocol used on the internet and on other network devices to facilitate and
control the flow of data.
Internet Protocol Multimedia Subsystem
(“IMS”)
A standardised next-generation architecture for telecoms operators who want to provide mobile
and fixed multimedia services.
Intrusion Detection/Prevention
A technology that gathers and analyses information across gateways, servers and desktops
to identify possible security breaches that can occur from within or outside an organisation.
Load Balancer
Long Term Evolution (“LTE”)
LTE-Advanced
Machine-to-Machine (“M2M”)
Mobile Packet Core
Network Functions Virtualization (“NFV”)
OpenFlow
A piece of hardware (or virtual hardware) for distributing network and/or application traffic
across multiple computing resources, with the aim of optimizing resource use, maximising
throughout and improving overall reliability of applications.
An advanced wireless data communications technology standard (sometimes called “4G”) which
is an evolution of 3G UMTS standards. In addition to a new wireless interface specification, LTE
uses a simplified flat IP-based network architecture.
An evolution of LTE technology, specified in 3GPP Release 10 and later specifications, regarded
by some as the first true 4G technology.
A technology that enables automated wireless (or wired) communication between mechanical
or electronic devices.
An integrated IP-based mobile transport network with the ability to support 2G, 3G and LTE
coexistence.
An initiative to provide a new network production environment which lowers cost, raises
efficiency and increases agility by hosting network functions previously carried out by
proprietary, dedicated hardware on virtual machines running on industry-standard commodity
hardware.
An open standard network protocol from the Open Network Foundation (“ONF”). OpenFlow
enables software-defined networking for programmable networks.
Open Networking Foundation (“ONF”)
A non-profit, mutually beneficial trade organisation to improve networking through software-
defined networking (“SDN”) and standardising the OpenFlow protocol and related technologies.
Optical Transport Network (“OTN”)
Small Cells
An efficient and globally-accepted approach, standardised by the ITU, to multiplexing
communication services onto optical light paths, which can provide significant cost benefits
to carriers.
A generic term for microcells, picocells and femtocells. Small cells provide network coverage in
dead zones within a macrocell (the coverage area of a traditional cellular base station) and extra
network capacity by offloading mobile data traffic from macrocells.
Software-Defined Networking (“SDN”)
An approach to networking in which control is decoupled from hardware and given to a software
application called a controller.
Switch
Testing-as-a-Service (“TaaS”)
A computer networking device used to connect many devices together on a computer network.
Switches manage the flow of data across a network by only transmitting a received message to
the device for which the message was intended.
An outsourcing model in which testing activities associated with some of an organisation’s
business activities are performed by a test service provider rather than employees. Services
suited to a TaaS model include automated regression testing, performance testing, security
testing, and monitoring/testing of cloud-based applications.
141
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Glossary continued
Time Division LTE (“TD-LTE”)
LTE standards accommodate cellular network and subscriber transmissions in different
frequency bands (Frequency Division Duplex), as well as in the same frequency band (Time
Division Duplex, often referred to as “TD-LTE”). TD-LTE is expected to be widely deployed in
major Asian markets such as China, India and Japan, as well as parts of the United States
and Europe.
Time Division Multiplexing (“TDM”)
A digital transmission method that combines signals from multiple sources on a common path
increasing capacity.
Triple Play
Voice, video and data transmitted over a single transport medium.
Universal Mobile Telecommunications System
(“UMTS”)
The most common 3G wireless technology globally, which uses WCDMA on its underlying air
interface and offers support for data transfer rates from hundreds of kilobits per second to tens
of megabits per second.
Virtualization
Voice over LTE (“VoLTE”)
Technologies designed to provide a layer of abstraction from the physical characteristics of
computing resources to simplify the way in which other systems, applications, or end users
interact with those resources.
A standards-based scheme adopted by the GSMA, the cellular industry’s association, to provide
voice service over data-only LTE networks. VoLTE’s use of an IP Media Subsystem enables voice
to be offered as part of a rich communications solution, integrated with services such as
messaging, live video sharing and file transfer.
Wideband CDMA (“WCDMA”)
An ITU standard derived from CDMA which is used globally in 3G mobile communications.
Wi-Fi
A mechanism that enables devices such as personal computers, video game consoles,
smartphones or digital audio players to exchange data wirelessly over a computer network and
connect to network resources, such as the internet. Coverage ranges from a few rooms to several
square miles, depending on the number of access points used.
Wireless Backhaul
The portion of a mobile network that provides connectivity between cellular base stations and
the core network over wireline, fibre or radio links.
Wireline
Communication services provided over a physical connection, which may be copper or fibre.
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SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes
143
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Notes
144
SPIRENT COMMUNICATIONS PLC ANNUAL REPORT 2013 Contact details
Registered office
Spirent Communications plc
Northwood Park
Gatwick Road
Crawley
West Sussex RH10 9XN
United Kingdom
Tel: +44 (0)1293 767676
Fax: +44 (0)1293 767677
Email: investor.relations@spirent.com
Website: http://corporate.spirent.com
Registered in England No: 470893
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom
Tel: +44 (0)20 7951 2000
Website: www.ey.com
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Tel: 0871 384 2126 (UK)
Tel: +44 (0)121 415 7047 (overseas)
Text phone (for shareholders with hearing difficulties):
0871 384 2255 (UK) +44 (0)121 415 7028 (overseas)
Website: www.shareview.co.uk
ADR Depositary
The Bank of New York Mellon Corporation
PO Box 30170
College Station
TX 77842-3170
USA
Tel: +1 888 269 2377 (toll free – US)
Tel: +1 (201) 680 6825 (outside US)
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Brokers (Joint)
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
United Kingdom
Tel: +44 (0)20 7029 8000
Website: www.jefferies.com
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
United Kingdom
Tel: +44 (0)20 7567 8000
Website: www.ubs.com
Financial PR Advisers
FTI Consulting Limited
200 Aldersgate
Aldersgate Street
London EC1A 4HD
United Kingdom
Tel: +44 (0)20 3727 1000
Website: www.fticonsulting.com
Spirent Communications plc
Northwood Park
Gatwick Road
Crawley
West Sussex RH10 9XN
United Kingdom
Tel: +44 (0)1293 767676
Fax: +44 (0)1293 767677
Email: investor.relations@spirent.com
Website: http://corporate.spirent.com
Registered in England No: 470893
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.
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