Sprout Social, Inc. Annual Report 2017

FY2017 Annual Report · Sprout Social, Inc.

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Connecting a
smarter future

Spirent Communications plc
Annual Report 2017

Our purpose

We help the
world connect

We innovate to help the world communicate and
collaborate faster, better and more securely.

We help our customers develop new and better
products and networks and ensure, in turn,
that their customers get the best performance.

Contents

Strategic Report
1
Results and highlights
2 Connecting a smarter future
10 Business at a glance
12 Chairman’s statement
14 Chief Executive Officer’s strategic review
18 Market trends
20 Our business model
22 Strategy at a glance
24 Key performance indicators
26 Risk management
28 Principal risks and uncertainties
32 Operating review
44 Financial review
50 Sustainability

Corporate Governance
55 Chairman’s introduction to governance
56 Board of Directors
58 Directors’ statement on corporate governance
66 Nomination Committee Report
68 Audit Committee Report
74 Report on Directors’ Remuneration
94 Directors’ Report
98 Directors’ responsibilities statement

111 Consolidated cash flow statement
112 Consolidated statement of changes in equity
113 Notes to the consolidated

financial statements

150 Parent Company balance sheet
151 Parent Company statement

of changes in equity

152 Notes to the parent Company

financial statements

166 Full list of subsidiary undertakings

Financial Statements
99 Independent auditor’s report
108 Consolidated income statement
109 Consolidated statement of
comprehensive income
110 Consolidated balance sheet

Other Information
168 Financial history
170 Shareholder information
171 Glossary
IBC Contact details

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.

Strategic Report
Results and highlights

Financial highlights

Revenue

Adjusted operating profit1

Adjusted operating margin1

Profit/(loss) before tax

$454.8m

$58.9m

13.0%

$46.6m

-1%

2016 $457.9m

Free cash flow²

$56.4m

+118%

2016 $25.9m

Performance highlights

+27%

2016 $46.5m

Adjusted basic
earnings per share³

7.55c

+43%

2016 5.29c

+2.8

2016 10.2%

percentage
points

Dividend
per share

4.08c

+5%

2016 3.89c

+$92.6m

2016 $46.0m loss

Special dividend
per share

5.00c

2016 Nil

Networks & Security
• Strong growth in our Positioning and
Application Security businesses was
offset by some softness in high-
speed Ethernet testing as customers
transition to new 400G platforms.

• We grew our market share in high-
speed Ethernet performance test
systems and participated in several
first-to-market demonstrations.
• We increased the coverage of
our flagship security product
(Spirent CyberFlood) with support for
ransomware, Internet of Things (IoT),
industrial controls and distributed
denial of service (DDoS) attacks.

• We remain the world’s leading

vendor of global navigation satellite
simulators and released the GNSS
Vulnerabilities and Threats test suite.

• We launched the first Automotive
Ethernet protocol conformance
and performance test system.

Lifecycle Service Assurance
• Lifecycle Service Assurance

revenue grew 10 per cent, boosted
by winning fifteen $1 million+ deals.

• We expanded our footprint in our

three largest Tier 1 mobile operator
customers, winning four new
Tier 1 deployments, addressing
critical challenges in the roll
out of virtual networks and
business mobile services.
• We participated in high-profile

demonstrations at TM Forum Live in
Nice in a joint demonstration with
AT&T, Orange, TIM, Huawei, IBM,
Infosys and Tech Mahindra and at
Mobile World Congress in Shanghai
with China Mobile Research Institute.

Connected Devices
• We delivered a strong performance
turnaround, by materially reducing
costs and focusing on our core
areas of differentiation, returning
to solid profitability.

• We divested Device Intelligence (DI)

and Developer Tools (DT) on
30 June 2017 as part of our
portfolio review.

• We released our Spirent Elevate IoT
device test solution, a cellular test
solution designed to support a wide
range of IoT applications.

• China Telecom selected our Spirent
Umetrix® Voice solution to measure
the voice quality of smartphones.

Read more on page 23

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Risk management

Strong risk management
underpins everything we do.

Identifying and assessing risks

Risk Assessment

Review

Identify

Group Executive Committee

Assess

Audit Committee

Mitigate

Board

Like all businesses, Spirent is exposed to a
number of risks and uncertainties. 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 enhance shareholder value.
The process to identify and manage the
principal risks and uncertainties of the
Group is an integral component of the
internal control system.

The risk assessment process starts in the
businesses, where up-to-date risk registers
are maintained and updated as part of the
normal operating and control procedures
and is facilitated by the Head of Risk &
Internal Audit. Each business identifies
its key risks and mitigating factors and
nominates a risk owner. The impact and the
likelihood of occurrence of each risk is
ranked, which assists the Group Executive
Committee in assessing the likely impact
in aggregate of each risk to the Group as
a whole. The individual businesses are
required to update their risk registers
periodically to reflect new or emerging
risks as they are identified.

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 that risk may
occur using the following classifications:

Risk
Impact

Likelihood of occurrence

Impact
High
Medium
Low
Likely
Possible
Unlikely

The Board takes the view that a High
impact risk could lead to a ten per cent
or more reduction in revenue, a Medium
impact risk a five to ten per cent reduction
in revenue and a Low impact risk a
reduction of up to five per cent in revenue.

Spirent Communications plc Annual Report 2017The Audit Committee reviews and monitors
the Group’s risk processes and reports to
the Board on their effectiveness. Risk is
considered by the Audit Committee at least
twice each year, at which time risk registers
for both the Group and the material
business units within the Group are
reviewed. The Audit Committee challenges
and debates 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 Board has identified the following
principal risks, each of which is discussed
on pages 28 to 31:

Risk
Macro-
economic
change
Technology
change
Customer
dependence/
Customer
investment plans
Business
continuity
Competition

Impact
High

Likelihood Change
Likely

High

Likely

High

Likely

High

Likely

Medium Possible

Acquisitions

Medium Possible

Employee
skillbase

Medium Possible

Risk appetite and developing the Viability Statement
Provision C.2.2 of the 2016 UK Corporate Governance Code requires the Board to
assess the viability of the Group over a suitable period. The Board has determined
that a three-year period should be used when assessing viability, as explained on
page 97 of this Annual Report.

The Board has sought to frame its risk appetite in terms of the markets and
technologies in which it is prepared to make significant investments, and those in
which it would expect its scale of investment to be more modest. Except where
very attractive opportunities were to present themselves to achieve greater scale in
well-known markets, the Board would expect to maintain a healthy net cash position.

Management, together with members of the Board, considered which of the principal
risks, either alone or in combination, might threaten the Group’s viability. The expected
aggregate impact of Macro-economic change, Technology change, Customer
dependence and Competition were modelled based on historical trends experienced
across the Group. A severe but plausible combination of those risks was considered
for the purposes of deciding what turnover and free cash flow scenarios should be
stress-tested. The impacts were modelled over the three-year period, with emphasis
on a stressed scenario in years two and three, given management’s view that such risks
were unlikely to materialise in year one, as the Group had just completed a detailed full
year budget for 2018. Assumptions were made about the ability of the Group to take
successful mitigating actions, including the ability to make significant reductions in its
non-fixed operating costs. The Board took into account the Company’s healthy cash
balance of $128.4 million at 31 December 2017 and the ability of the Company to
continue to generate positive free cash flow even in stressed scenarios.

The Board reviewed and discussed with management:

•
•

•

the process undertaken by management to decide which scenarios to stress test;
the results of the stress testing performed, including an illustration on the
reduction in turnover and availability of cash; and
the ability of management to successfully take the mitigating actions identified.

The resulting Viability Statement is set out in the Directors’ report on page 97.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Principal risks and uncertainties

Risk
Macro-economic change
Spirent is a global business exposed to current
world economic conditions and political
uncertainties over which it has no control.
The business is also exposed to government
spending priorities, principally in the United States.

Technology change
Spirent sells complex solutions in industries
that can be subject to rapid technological
changes. Testing new technologies drives
our business, but the opportunity also
brings high risk since keeping at the forefront
of these key future technologies is critical to
our success and to ensuring that we remain
competitive in our markets.

It is critical that our product development
investment is directed at the right areas
in order to deliver the solutions that our
customers need, when they need them.

Spirent’s success is dependent in part
on proprietary technology which may be
infringed by others.

Protecting the Group’s proprietary
technology is important to enable
Spirent to compete successfully.

Potential impact

Mitigating actions

Deterioration in economic conditions and
a change to the terms of conventional
international trade may lead to a reduction
in the level of demand for Spirent’s products
and services and cause customers to delay
their purchasing decisions.

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 large number
of geographically diverse customers,
which may mitigate the impact of
issues in any one area.

If product development investment does
not keep pace with the speed of change in
technologies, 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.

Changes in technologies may lead to
a short-term pause by our customers
investing in our solutions.

Intellectual property claims can result in
significant defence costs, and may affect
Spirent’s ability to market its products.

All Spirent’s businesses work very
closely with customers and remain
focused on their requirements.

Each business makes investment
decisions specifically related to
their solutions portfolio based
on market needs.

Spirent continues to focus its
investment into areas that offer
the most potential for sustainable
earnings growth. In 2017 the product
development investment was
$103.0 million (2016 $111.7 million).

Spirent has active intellectual property
protection programmes in place to
obtain appropriate protection in a
cost-effective manner.

Spirent Communications plc Annual Report 2017Potential impact

Risk
Customer dependence / customer investment plans
The Group sells its products and services to
a wide range of companies and continually
seeks to expand its customer base. In 2017,
no one customer accounted for more than
ten per cent of Group revenue, although the
top ten customers represented 41 per cent of
Group revenue (2016 40 per cent).

Loss of one or more of Spirent’s major
customers could have a significant
impact on Spirent’s financial results.

Spend on Spirent’s products is often capital
in nature and so customer spend can
fluctuate significantly from year-to-year.

In some of our markets certain customers have
a dominant market share, which makes doing
business with these customers and their
suppliers critical to the success of our business.

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.

In addition, many of the companies with which
we do business are some of the largest global
telecommunications corporations. Therefore
meeting our development obligations, producing
high quality products, and being on time are
vital to Spirent’s reputation and success.

Changes in our major customers’ priorities
in technology investments can also have a
significant impact on their spending on
Spirent products and on those in the
customers’ supply chain.

The industry continues to experience
consolidation which does disrupt the
spending patterns of affected customers.

Over recent years there has been
significant consolidation in our customer
base amongst service providers and
network equipment manufacturers. This
trend continues and often results in delays
in spending, thereby reducing demand for
Spirent’s solutions and services. It also
reduces the potential number of customers
to whom those solutions and services
could be sold.

Changes in our customers’ technology
investments can result in reduced
spending on our existing solutions
before customers and those in the
customer’s supply chain increase
spending on new technologies.

Business continuity
Operational risks are present in the Group’s
businesses, including the risk of failed internal
and external processes and systems, human
error and external events, such as a natural
disaster or cyber security attacks. For example,
a significant portion of our communications
operations are located in California which has in
the past experienced natural disasters, including
earthquakes and wildfires.

Contract manufacturers are used for the
manufacture of a substantial amount of
Spirent’s products. Spirent’s major contract
manufacturer is located in Thailand.

The incidence of cyber-crime continues to
rise. Spirent is dependent on its information
technology systems for both internal and
external communications as well as for its
day-to-day operations.

A significant natural disaster could
disrupt the Group’s ability to conduct
business and adversely impact
revenue and operating results.

Failed internal and external processes,
systems or human error could lead to
compliance issues.

Disruption, financial problems of contract
manufacturers or limitations in their
manufacturing capacity could limit
supply and/or increase cost.

If a cyber-attack were to be successful it
could result in loss of data, confidential
information and damage to Spirent’s
intellectual property, causing major
disruption to the business. There would
also be a potential impact on Spirent’s
credibility in the security market.

Mitigating actions

Strong customer relationships are
critical to Spirent. We aim to provide
innovative solutions which meet
customers’ needs and we place great
emphasis on providing professional
service and support.

One of the Group’s strategic
objectives is to invest in deepening
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
approach is to play a key part in the
wider supply chain to our key service
provider customers by aligning with
early adopters of technology.

An important component of Spirent’s
corporate governance is its risk
management strategy. IT disaster
recovery plans are in place for all
core business systems and ensure
that the wider operations are all fully
covered. In 2017, we developed and
implemented a new Group Business
Continuity and Disaster Recovery
Policy and Procedure.

Regular meetings are held with contract
manufacturers and a regular on-site
presence is maintained. In addition,
the Group’s largest manufacturing
subcontractor has multiple worldwide
sites and comprehensive business
continuity plans.

During 2017, we continued with a
programme of work to develop
processes and procedures in the
area of cyber security.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Principal risks and uncertainties continued

Risk
Competition
Spirent operates in a range of highly competitive
niche markets which experience rapid
technological change. In order to compete
effectively, it is necessary to establish and maintain
technological differentiation in our solutions.

The Group faces competition from new
market start-ups as well as more established
and well-resourced companies.

Industry consolidation amongst our direct
competitors may bring about a shift in
competitive advantage.

Potential impact

Mitigating actions

Actions by competitors and increased
competition can bring about pressure on
Spirent’s gross margin. These factors
could also affect Spirent’s competitive
position, thereby reducing revenue and
consequently affecting financial results.

In the last two years, significant
consolidation has been announced in our
sector. The consolidation of competitors
may bring opportunities for Spirent but can
also change the competitive landscape as
competitors are able to leverage product
capabilities or sales channels.

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 the development of
differentiated products.

Competitor activity is closely
monitored with a view to maintaining
clear differentiation based on
Spirent’s products, services and
global reach.

Acquisitions
A key element of Spirent’s strategy is to
develop new capabilities and technologies,
sometimes through acquisition.

Integration of acquisitions can be a complex
process and the results expected from
acquisitions may not be achieved due to
problems encountered in integration, changes
in market conditions, the rate of adoption of
new technologies, or sometimes deficiencies
arising in the due diligence processes.

Underperformance by acquisitions
will impact the Group’s results and
may lead to impairment of goodwill
and/or intangible assets.

Rigorous strategic and financial
evaluations of all acquisition
opportunities are carried out. Detailed
financial and commercial due diligence
is 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 reviews post-acquisition
performance.

Spirent Communications plc Annual Report 2017Risk
Employee skillbase
Spirent is its employees. Attracting and retaining
highly qualified and skilled employees is
essential to enable the Group to deliver on its
strategy and to the success of the business.

Potential impact

Mitigating actions

Intense competition for personnel is faced
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.

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 reviewed
periodically by the Board.

Appropriate career paths and
internal recognition programmes
are developed for both technical
and non-technical staff.

Regular reviews are performed
to ensure that all elements of
compensation across the Group
are competitive with the market.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Operating review

Networks & Security
We delight in knowing our products
and expertise keep people and
companies connected, communicating
and safe online. It’s all part of what
we do. Our products enable vendors
to accelerate their time to get their
products to market while ensuring
the quality and performance of
their product protects their brand.

Strategy
Our strategy is to maintain our position as the leading
provider of performance testing systems for the
development and assessment of Ethernet/IP
equipment for data centers and networks, cloud and
virtualisation, applications, mobile infrastructure,
security and global navigation satellite systems.
Using our test systems, test engineers create and
transmit complex and high-capacity traffic and can
assess the resilience of their products to security
threats and vulnerabilities.

Our business strategy can be summarised as follows:

• To lead in high-speed Ethernet/IP performance
testing of emerging standards for data centers
and wide area networks.

• To invest in software-as-a-service, software-

defined networks (SDN) and network functions
virtualisation (NFV) test methodologies and tools.
• To expand our Application Security test business
footprint in manufacturers, service providers and
large enterprises through enhancing, marketing
and selling our security test tool (Spirent
CyberFlood) and our security consulting
services (Spirent SecurityLabs).

• To extend our lead in global navigation satellite

system simulation and the detection and
assessment of products for security vulnerabilities
and threats.

Notes
1. Before exceptional items as set out in note 4 of Notes
to the full year consolidated financial statements.
2. Segment operating profit before exceptional items
as a percentage of segment revenue in the period.

Revenue

$261.0m
$262.2m
2016

Operating profit¹

$43.9m

2016 $47.2m

Operating margin²

16.8%

2016 18.0%

Ahead of the cloud
The rise of cloud computing and
streaming high definition video services
means that internet traffic is increasing by
almost 25 per cent per year – a technical
challenge if ever there was one. But
along with China Telecom and Huawei,
Spirent completed the world’s first
400Gbps Ethernet (400G) test to verify
short and long-range technologies using
test cases based on real-world network
applications. In other words, Spirent is
keeping the internet running!

“As various international bodies are
accelerating the standardisation
process of 400G, the perfection and
establishment of these standards will rely
on early and sufficient testing to verify
their performance” said Zhu Yongqing,
director for IP technology research of
the China Telecom Research Institute.
“The collaborative test marks the first
of its kind and is a landmark step for
the adoption of standardised 400G
medium and long-range technologies.”

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Operating review continued

Performance highlights
• Strong growth in our Positioning and

Application Security businesses offset
by some softness in high-speed
Ethernet testing as customers transition
to new platforms.

• Remained the world’s leading vendor of
high-speed Ethernet performance test
systems. Participated in several high-
profile first-to-market demonstrations.
• Launched the first automotive Ethernet
protocol performance test system.

• Grew our Application Security business
revenue by more than 20 per cent.
• Founding member of NetSecOPEN.
• Achieved global CREST (Council of
Registered Ethical Security Testers)
accreditation.

• Remained the world’s leading vendor
of global navigation and satellite
test systems.

What we test
We develop performance and security
testing systems for networks and
applications, simulating real-world high-
capacity conditions in the lab and on the
network. Our portfolio covers high-speed
Ethernet/IP for data centers and networks,
cloud, virtualisation, applications, security,
and global navigation satellite systems.

High-speed Ethernet/IP,
cloud and virtualisation
Our high-speed Ethernet/IP test systems
help our customers to validate high-speed
network infrastructures, up to 400G,
ensuring network functions and services
can scale to millions of subscribers and to
assess the security of devices, networks
and applications. Our target customers are
developers of devices, network equipment,
applications and data centers, network
operators, cloud and service providers,
who want to measure the performance of
new products and equipment for their
network. In 2017, we experienced some
softness as customers slowed test
spending as they transitioned to new 400G
technology platforms. We expect to see
growth from these new speeds pick up in
the second half of 2018.

Applications and security
We offer security test tools (Spirent
CyberFlood) and security consulting
services (Spirent SecurityLabs). Our
application and security test products and
services offer unprecedented realism,
threat modelling and ease of use,

addressing the proliferation and complexity
of applications and vulnerability concerns
of manufacturers, service providers,
enterprises and government.

Positioning, navigation and timing
We have a portfolio of test systems and
services to support the development of
positioning, navigation and timing systems
for military, space, research and other
high-precision applications.

• Our Spirent GSS9000 global positioning

system/global navigation satellite
system (GPS/GNSS) simulator is the
world’s leading global navigation
satellite system test solution, giving the
very best in performance, flexibility and
capability of any GNSS test solution.

• Our Spirent GSS7000 multi-GNSS

constellation simulator targets R&D,
verification and integration testing
of location-enabled civilian and
consumer products.

• We have an interference detection

system and vulnerability assessment
products and services.

Revenue
Strong growth in our Positioning and
Application Security products and services
did not quite offset a decline in high-speed
Ethernet revenue as some customers
delayed expenditure as they transitioned
to new technology platforms. 2017 revenue
was $261.0 million, compared to
$262.2 million in 2016.

Profitability
Operating profit before exceptional items
for 2017 was $43.9 million, compared to
$47.2 million in 2016, reflecting some
softness in the year for our high-speed
Ethernet testing products.

Accomplishments
We are the leading provider of high-speed
Ethernet performance test systems.

• We supported New H3C Group by

demonstrating the industry’s highest
density 100 Gigabit Ethernet data center
switch performance with a density of 768
100-gigabit per second ports per chassis.

• At Interop Tokyo, in June 2017, we
received two awards. Our Wave 2
wireless local area network (WLAN)
solution received the 2017 Best of
Interop Grand Prize. Our cloud and
security solutions received the 2017
Best of Interop Show Special Prize.
• Using Spirent’s high-speed Ethernet

performance test system, Network World

conducted the largest port test of unicast
switching capability on a Cisco Nexus
9516 core router switch. The scale of
this test at 50G used 1,024 ports. Our
Spirent TestCenter generated traffic to
fully load the switch’s control and data
planes at line-rate with full stateful traffic.

• We collaborated with China Telecom
China Co. Ltd., Guangzhou Research
Institute and Huawei to verify 400Gbps
Ethernet (400G) short and long-range
technologies. The test, which is the
first of its kind, included the verification
of 400G port functions such as
line-speed forwarding, multi-service
stacking, and fault reporting for
short and long-range technologies.

We are the leading provider of
global navigation satellite simulators
and vulnerability detection and
assessment systems.

• Early in 2017, we announced the Spirent
PT TestBench, a testing, analysis and
reporting application to help developers
build more accurate positioning
functions quickly, embodying over 30
years of Spirent GNSS testing expertise,
enabling users to setup, run and
interpret tests with a single mouse click.

• We released the GNSS vulnerabilities
and threats test suite, a continuously-
updated cloud-based library of real-
world GNSS threats. The test suite
contains ‘real-world’ intentional
interference waveforms, GNSS
segment errors and receiver transitions,
jamming and spoofing events, and
the latest observed space weather
and scintillation, as observed and
captured in the field, so that they
can be simulated in the lab.

We grew our Application Security business
revenue by more than 20 per cent as we
penetrated new accounts.

• We expanded the security coverage of
our flagship security product (Spirent
CyberFlood), including ransomware, IoT,
industrial controls and DDoS attacks.
We provided near-zero-day testing
for the latest application scenarios,
attacks and malware. CyberFlood
was the first platform to offer proactive
testing for WannaCry ransomware,
demonstrated at Black Hat.

• We are a founding member of the

industry group NetSecOPEN, focused on
defining open standards for testing
enterprise network security performance.

Spirent Communications plc Annual Report 2017• We earned global CREST accreditation

for penetration testing. UK-based
CREST is an accreditation and
certification body that supports
the information security market.

We developed specialised products
for the automotive Ethernet market.

• We launched the first automotive

Ethernet protocol conformance and
performance test system with the new
1000BASE-T1 physical layer standard.
This solution enables automobile
manufacturers and suppliers to
determine if their data traffic is
transmitted correctly and on time
over the industry’s highest in-vehicle
connectivity bandwidth.

• We developed the first conformance

test solution for WAVE-DSRC
(wireless access in vehicular
environments – dedicated short-range
communications) that includes a set of
tests required for U.S. Department of
Transportation certification.

Impact of market dynamics
on Spirent business
Accelerate time to market
The primary value we deliver is to
accelerate the time to market for
developers and manufacturers to launch
their new chipsets, modules, devices,

equipment and applications and to connect
to networks globally, while providing a
comprehensive assessment of the
performance and security of their products
so they can protect and strengthen their
brand and reputation.

Meet increasing network
performance demands
The growth of cloud services, from
bandwidth-hungry content and hosting
services and applications to ‘always-
connected’ social media, drives innovation
at an accelerating pace. Service providers
worldwide are investing in their networks
to keep up with these performance
demands. We saw strong demand for 100G
Ethernet testing by data center and
network equipment suppliers as a
consequence of their move to four 25G
lanes from ten 10G lanes for 100G interface.
In 2017, we saw the advent of 200G and
400G development projects. As network
equipment manufacturers develop new
routers, switches and other network
equipment for service providers, network
equipment manufacturers and third-party
test labs buy our test systems to measure
and validate their performance.

Realise virtualised solutions
The internet protocol network industry
is amid a revolutionary technology
transformation driven by virtualisation
enabling technologies, such as SDN and
NFV. As developers and service providers
develop their virtualised products, we
provide test tools and services to measure
and benchmark their performance in a
range of operating environments and
under different conditions.

Assess resilience against cyber
security vulnerabilities and threats
We see strong demand for our security
testing solutions across network equipment
manufacturers, service providers and
enterprise customers. Equipment providers
with security capabilities, service
providers, enterprises and government
organisations contract our Spirent
SecurityLabs service, in which we have
security experts assess the product or
service and provide a report on a one-time
basis or periodically. Additionally, these
organisations purchase our application
and security products as they evaluate
the functionality and performance of their
products and networks themselves.

Threat protection
As use of the internet grows, so does
the number of attempts to hack into, or
otherwise disrupt, its use. Spirent is at
the forefront of data security protection
methodologies and has earned global
CREST accreditation for penetration testing,
strengthening the company’s commitment
to providing best-in-class security solutions
to customers around the world.

“This is a critical time for the cyber security
industry,” said CREST President Ian Glover.
“Spirent’s commitment and proactive
support of global standards assist with
further expansion of CREST’s efforts to
drive both the quality and standards of
global cyber security providers, with
alignment to the needs of enterprises
and public-sector organisations.”

CREST accreditation provides confidence
to customers who rely on Spirent’s security
expertise, including compliance guidance
for the EU General Data Protection
Regulations (GDPR).

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Operating review continued

Lifecycle Service Assurance
Our service assurance solutions
accelerate the turn-up of new
services and measure network and
service performance to understand
and improve customer experience.
We get excited when our service
provider customers reduce their
costs while radically reducing the
time to isolate problems and
improve their network performance
and customer experience.

Strategy
Our strategy focuses on radically reducing the time
and cost to turn-up new services and to diagnose,
troubleshoot and resolve issues with production
networks and services. We enable our customers
to radically reduce time to characterise network
performance and to identify and resolve user
experience problems through automation, visibility and
analytics. We will continue to develop new solutions
that capitalise on the benefits that virtualisation
enables. This improves customer satisfaction and
retention while reducing the cost and complexity of
operating and managing the network.

Our strategy is to provide the leading active test
assurance platform for hybrid networks by integrating
physical and virtual test functions. Spirent’s patented
active test technology provides unprecedented
visibility of the customer’s true service experience
for complex IP services that flow across providers,
domains and hybrid networks. Our active test solutions
provide superior ability to isolate and resolve issues
in virtualised network environments where traditional
passive approaches are less effective. By bringing
these capabilities together in the Spirent
VisionWorksTM platform, we expect to win business
at multiple Tier 1 carriers, expanding their mobile
networks and deploying SDN, NFV and next-
generation services.

Revenue

$109.2m
$99.2m
2016

Operating profit¹

$17.9m

2016 $11.2m

Operating margin²

16.4%

2016 11.3%

Eyes over London
“What’s that building, mum?” must be one of
the most asked, and occasionally dreaded,
questions posed on the London Eye. Not
anymore, thanks to Spirent’s Landslide test
platform. When the Coca-Cola London Eye
planned to launch London Eye Guide, their
augmented reality app of the London skyline,
they wanted to be sure that the Telefónica
O2 Wi-Fi service would be up to the job.
Landslide units were placed in eight cabins
to test customer reception and reliability
and also to emulate the kind of user load
anticipated with an enthusiastic complement
of passengers. Landslide verified the service
was good to go live with the Eye stationary
and in rotation, all without putting the client’s
brand reputation at the kind of risk real-life
customer testing can entail.

“Digital communications have become a
vital service, and customers want seamless
connectivity no matter where they are,”
said Robert Franks, Digital Director at O2.
“Spirent’s test platform allows us to test the
overall network experience so that we can
be certain the end user experience is the
best it can be.”

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationService assurance systems
Our service assurance systems help
service providers turn-up new services
and diagnose and troubleshoot issues
within mobile backhaul, business services
and global networks to support Ethernet
service delivery.

Customer experience management
Our customer experience management
solutions help service providers to identify
critical network issues affecting customers.
They reduce churn by aggregating and
analysing data from multiple sources to
provide real-time insights into the
customers’ experience.

Mobile lab test systems
Our mobility lab test systems emulate
subscribes and adjacent nodes to enable
active testing of mobile network equipment
and networks, including mobile core,
wireless LAN, internet protocol multimedia
subsystems and Diameter networks, in the
lab and in the network. Network equipment
manufacturers buy our test systems to
develop and test their products. Service
providers buy our test systems to qualify
and validate network equipment in their
vendor selection and acceptance testing
and to actively test the functionality and
performance of their network and services.

Test automation
Our industry leading Lab-as-a-Service and
automation solutions deliver efficient,
scalable and cost-effective physical
and virtual build, test and deployment
environments for wireline and wireless
service providers, network equipment
manufacturers or anyone actively developing
software-enabled virtual networks.

Strategic Report
Operating review continued

Performance highlights
• Sucessfully secured fifteen deals
over $1 miilion, totalling about
$50 million in 2017, as evidence
our strategy is working.

• Expanded our footprint in our three

largest Tier 1 mobile operator
customers, winning four new Tier 1
deployments, addressing critical
challenges in the roll out of virtual
networks and business mobile services.

• Remained the leading global provider

Our strategy can be summarised as follows:

• To develop active service assurance

systems for Ethernet business service,
mobile network turn-up, troubleshooting
and optimisation, enhancing our ability to
win business at Tier 1 carriers.

• To expand our footprint in our installed-
base and in new service providers.
• To continue to develop new capabilities
for mobile infrastructure tests to meet
emerging requirements in the labs and,
as applicable, in the networks.

of mobile test systems for development
and system testing.

• To develop and deploy our test creation,
management and automation platform.

• Grew revenue by 10 per cent.
• Operating profit before exceptional

items up $6.7 million or 60 per cent and
operating margin improved to 16.4 per cent.
• Participated in high-profile demonstrations
at TM Forum Live in Nice and Mobile World
Congress in Shanghai.

What we test
We develop products and services that
enable service providers to turn-up new
service, measure service quality and
customer experience, and diagnose
and troubleshoot network performance
and customer experience problems.

Speed up, costs down!
The sheer scale of mobile phone use, requires infrastructure that
few users ever contemplate. The load on that infrastructure is set to
massively increase with the arrival of 5G services. With that in mind,
Nokia deployed a first-of-a-kind 5G Lab-as-a-Service (LaaS) at their
network infrastructure testing labs in Oulu, Finland and chose the
aptly named Spirent Velocity as their LaaS platform. Spirent Velocity
enables unprecedented automation of 5G testing to significantly
accelerate Nokia’s releases of virtual network functions and
physical infrastructure. The 5G LaaS also streamlines the use of
shared lab resources across teams and geographies. The system
is accessible by hundreds of simultaneous users across the globe,
offering engineers unprecedented flexibility. Nokia envisage
Spirent Velocity will speed up their 5G lifecycle tests while bringing
down the costs.

Needless to say, Nokia were impressed and have further plans.
“Our goals for the 5G LaaS include automation of 5G lifecycle
testing and more efficient sharing of physical and virtual test
resources across teams,” said Rauno Jokelainen, Vice President
of Radio and Advanced Antennas, Nokia.

Spirent Communications plc Annual Report 2017operators investing in LTE; 644 operators
have commercially launched LTE or
LTE-Advanced networks. There are
125 commercial VoLTE networks, and
205 operators investing in VoLTE².

Network operators are reducing operating
expenses. We reduce operating costs
by accelerating service turn-up,
reducing the time to diagnose problems
and helping our customers understand
and improve their network performance
and customer experience.

Continued growth in the complexity of
networks and services, coupled with intense
competition between service providers
and the fear of customer churn, has led to
greater emphasis on customer experience
management. Many operators are evolving
from network-centric to customer-centric
operations and need to support new
technologies, such as VoLTE, voice over
Wi-Fi (VoWi-Fi), 5G, IoT and virtualisation.

Service providers remain cautious as they
continue their shift from legacy networks
to virtualisation and as they determine how
best to realise the potential benefits. To
manage NFV in a complex hybrid network
and to manage new services, network
operators require active performance
test systems for service turn-up and
troubleshooting. Active test systems can
be combined with analytics to measure
network performance and customer
experience periodically and to quickly
isolate and diagnose detected or reported
network performance and customer
experience problems.

Revenue
Lifecycle Service Assurance revenue in
2017 was $109.2 million, an increase of
$10.0 million on 2016. The growth in
revenue reflects multiple key strategic
contract wins with expansion of our
footprint in our largest Tier 1 mobile
operator customers and new deployments
at different Tier 1 mobile operators.

Profitability
Operating profit before exceptional items
improved significantly, from $11.2 million
in 2016 to $17.9 million, as a result of the
increase in revenue.

Accomplishments
We enable network operators to rapidly
on-board and proactively assure critical
virtual, mobile and IoT services. In 2017, the
Spirent VisionWorksTM solutions have been
deployed by four Tier 1 North American
mobile network operators to address
critical challenges stemming from the roll
out of virtual and business mobile services.

We participated in several high-profile
demonstrations:

• At the TM Forum Live in Nice in May

2017, Spirent collaborated with industry
leaders to demonstrate rapid service
innovation in virtual networks. In the
Catalyst Project sponsored by AT&T,
Orange and TIM, and working with
Huawei, IBM, Infosys and Tech
Mahindra, Spirent developed and
demonstrated the automated validation
of service enhancements in virtual
networks using Spirent VisionWorks.
The project demonstrates how network
functions virtualisation (NFV) and open
interfaces enable radically faster service
innovation with fewer resources. The
project addresses the core need for
rapid service innovation, streamlining
and automating the process by which
virtual network functions (VNFs)
are enhanced, validated and then
deployed to the production network.
• At Mobile World Congress in Shanghai
in June 2017, Spirent and China Mobile
Research Institute demonstrated

automated testing for virtual core
networks. The demonstration is part
of a joint programme to develop a
methodology for automated testing of
the functionality and performance of
China Mobile’s Telecom Infrastructure
Cloud. The test methodology will be
incorporated into an automated testing
system developed by China Mobile
Research Institute. The system will
fully automate testing of services in
operational virtual core networks and
will be part of the complete virtual
evolved packet core (vEPC) environment
built by the Institute. Spirent provided
the virtualised mobile core network
emulation and performance testing
tool, called Landslide Virtual, and the
automated testing platform, called iTest.
These test engines automate various
types of performance and functionality
tests used to develop, spin-up and
monitor the vEPC. DevOps models
have been developed for the test
methodologies, allowing tests to
be completely automated and
incorporated into the operation
of the virtualised network.

Impact of market dynamics
on Spirent business
We compete in the service assurance
market, estimated size of about $3.0 billion
in 2017 and forecast to grow at a compound
annual rate of 1.7 per cent from 2016 to 2021¹.

Our current business depends on service
providers’ investment in Ethernet/IP
services, virtualisation, in-home data
services, carrier Wi-Fi and mobile
technologies, such as long-term evolution
(LTE), voice over long-term evolution
(VoLTE), and IP multimedia subsystem
(IMS). The current market dynamics and
outlook are favourable for our business.
The investment in mobile networks and
their operation and management remains
a priority for network operators. As 4G LTE
rolls out globally, there is wider commercial
deployment of VoLTE, more 3G and LTE
connected vehicles and an increase in IoT
applications. GSA reported there are 814

Sources
1. Analysys Mason “Service Assurance Systems: Worldwide Forecast 2017–2021” (June 2016).
2. GSA, “Evolution from LTE to 5G Update” (October 2017).

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Operating review continued

Connected Devices
Today, everyone wants to do things
faster. Our test systems reduce the
time to develop and test new devices
and connect them to networks.
Using our products or services,
service providers can understand
how new mobile devices operate
on their network.

Strategy
Our strategy focuses on accelerating time to market
and reducing cost to develop and launch new devices
and services, while helping to ensure the highest
service quality and user experience. Developers
seek to accelerate the development of connected
devices and to test and qualify devices to ensure
they can connect to networks and operate reliably.

Our strategy can be summarised as follows:

• To invest in wireless device test products for

development, location and carrier acceptance,
while adapting those products and offering new
services to meet the emerging requirements
and changing customer expectations for video
services, 5G and Internet of Things (IoT).

• To provide products and services to test the service
experience on different networks or to benchmark a
variety of devices on the same network.

What we test
We develop automated test systems and offer
services to test new devices in the lab or in the
field on real networks.

Revenue

$84.6m
$96.5m
2016

Operating profit¹

$5.2m

2016 $4.4m loss

Operating margin²

6.1%

Loud and clear
It’s all too easy to take smartphone call quality
for granted, but extensive testing has been
conducted to achieve the high-standard
calls we enjoy today. To ensure that their
smartphones deliver the best possible
voice quality, China Telecom uses VoLTE
(Voice over LTE) on their network and Spirent’s
Umetrix® Voice solution to measure the
performance of every new smartphone
against stringent quality requirements.

China Telecom tests how well each
smartphone carries voice and how
successful they are at establishing and
maintaining calls. These tests are performed
while simulating realistic network conditions,
such as when handsets are moving between
cells, when they are in low signal areas,
when networks are congested, and while
the handset is simultaneously sending and
receiving data.

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Operating review continued

Performance highlights
• Strong performance turnaround,

operating profit before exceptional
items improved by $9.6 million.

• Exited non-performing businesses, and
made further operating cost reductions.

• Won key deals with our new channel
emulator (Spirent Vertex) with its
unprecedented scalability and
modularity for wireless RF testing.
• Released Spirent Elevate IoT Device

Test solution.

• Demonstrated enhanced voice

services (EVS) with China Mobile at
Mobile World Congress in Shanghai.
• China Telecom Corporation Limited
selected our Spirent Umetrix® Voice
solution for handset call quality testing.

• Spirent Umetrix Voice solution voted

“VoLTE Innovation of the Year” at Telecom
Asia Readers’ Choice & Innovation
Awards 2017 held in Singapore.

Wireless device test
We develop systems for testing
functionality and measuring performance
of 3G, 4G LTE and 5G mobile devices
and services, applicable to the stages
of the wireless device lifecycle:

• Research and development: Spirent
offers a range of innovative industry-
leading test systems that are easy
to configure and use for testing LTE
technology, including LTE-Advanced,
frequency division duplex and time
division duplex.

• Conformance and certification: Spirent

helps manufacturers, application
developers and operators address
signalling, data throughput, mobility,
and other cellular specification
conformance requirements for LTE,
universal mobile telecommunications
system, code-division multiple access
or evolution-data optimised standards.

• Carrier Acceptance: Leading carriers
demand performance that goes far
beyond industry-standard conformance.
Spirent’s solutions enable carriers
to validate the most stringent
requirements, including internet
protocol multimedia subsystem
signalling themes, mobility scenarios,
and user experience evaluation.

Location test
Our location technology solution (Spirent
8100 LTS), is the most comprehensive,
cutting-edge solution for wireless device
and chipset location technology testing,
addressing both indoor and outdoor
testing, scenarios covering E911, eCall,
A-GNSS, OTDOA, and cellular positioning.
The platforms span conformance,
certification and carrier acceptance of
mobile devices and chipset design.

Our C2K-ATS is an automated, easy to use,
accurate, and scalable single-platform
solution for testing wireless 1X and
EV-DO Rev. 0/Rev. A/Rev. B handsets
and terminal devices.

Our eCall/ERA-GLONASS in-vehicle test
system (IVS) is a complete system for
verifying the functionality and conformance
of the eCall and ERA-GLONASS IVS
emergency call systems.

Channel emulation
We enhanced our Spirent Vertex
channel emulator, which provides an
unprecedented level of scalability and
modularity for wireless RF testing. Vertex
can scale in the field from two to 32
channels to address a wide range of uses
from basic RF device tests to complex
multiple-input multiple-output beamforming
base station antenna tests. Vertex
addresses the high-density channel
requirements that the market has been
struggling to meet and supports
configurations to evaluate future
technologies such as 5G.

Experience high-definition-voice quality
China Mobile showcased the Spirent Umetrix
Voice solution at the GSMA Mobile World
Congress in Shanghai to demonstrate the
benefits of enhanced voice services (EVS)
bringing high-definition voice to devices
operating over 4G networks, as well as
compensating for issues such as speech
distortions and latency.

The EVS codec is increasingly being deployed
on mobile devices as global operators recognise
the improvements possible in speech quality for
their customers as well as efficiencies gained in
managing network resources.

Spirent experts are at the forefront of voice and
video services deployment, in both the network
and lab environment, working with industry
leaders to deliver high quality.

Spirent Communications plc Annual Report 20175G development
The standardisation work for 5G has been
accelerated. The standard as specified in
3GPP Release 15 was finalised in 2017 for
non-standalone 5G new radio (NR) and will
be set by mid-2018 for standalone 5G NR.
Early 5G deployments are anticipated in
several markets, including the United States,
South Korea, Japan and China. The first
commercial networks based on standalone
5G NR are expected to go live in 2019, with
major network deployments from 2020.
By the end of 2023, over one billion
5G subscriptions for enhanced mobile
broadband are forecasted². Spirent is
starting to see opportunities for 5G NR.

Growing opportunities and challenges
in the Internet of Things
The importance of wireless IoT connectivity
continues to rise in a variety of segments
from connected vehicles, homes and
industry to smart cities. This results in
challenges in developing, connecting and
operating IoT devices and applications on
mobile and non-cellular networks, resulting
in an attractive new market opportunity for
Spirent. The number of IoT connected
devices worldwide was 11.1 billion in 2015
and is forecasted to reach 32.5 billion by
2020, increasing at a CAGR of 39 per cent³.

Service experience
Our Umetrix platform accelerates user
experience evaluation for new devices and
services (VoLTE, VoWi-Fi, etc.). Umetrix
assess the launch readiness of services
and providers, device acceptance and
pre-testing. Fit4Launch is our service to
make these tests. We have evaluated over
1,300 devices; over 450 of these devices
required some changes due to serious user
experience issues detected during the
Fit4Launch tests.

Revenue
Connected Devices revenue decreased
by $11.9 million to $84.6 million in 2017.
The previously flagged decrease was due to
the ongoing decline in the wireless device
test market and the divestment of DI and DT,
which accounted for $4.9 million and
$7.0 million of the decrease, respectively.

Profitability
The profitability of Connected Devices
turned from a loss before exceptional
items of $4.4 million in 2016 to a profit of
$5.2 million. This was achieved despite
the revenue decline. $3.5 million of the
improvement was due to the exit from DI
and DT, with the remainder due to cost
saving actions and expense control.

Accomplishments
• We won key deals with our new

channel emulator (Spirent Vertex).
• We released our Spirent Elevate IoT

Device Test solution, a new cellular test
solution designed to support Internet
of Things applications, including
end-to-end cloud server connectivity,
security vulnerability assessment and
battery life measurement. The compact
and flexible device test solution
addresses critical areas that are
affected when designing 3G, LTE
and upcoming narrowband wireless
technologies into IoT devices.
• We demonstrated EVS with China
Mobile at the GSMA Mobile World
Congress in Shanghai. The EVS codec
is increasingly being deployed on
mobile devices as global operators
recognise the improvements possible
in speech quality for their customers
and efficiencies gained in managing
network resources.

• The Signals Research Group completed
the first study of a commercial video
service over an LTE network. With video
content increasing rapidly worldwide,
operators are exploring enhanced
multimedia broadcast multicast service
(eMBMS) as an advanced method of
delivering that content. The study was
conducted on a commercial LTE network
in Australia and the Spirent Umetrix
Video test platform was used to
evaluate how the eMBMS network
streamed video content and benchmark
these results against the traditional
unicast transmission.

• China Telecom Corporation Limited, one
of the world’s largest mobile telephone
operators, selected our Spirent Umetrix
Voice solution to help ensure that
handsets are able to deliver superior
call quality by setting stringent quality
requirements and by measuring the
performance of every new smartphone.
• Our Spirent Umetrix Voice solution was
voted “VoLTE Innovation of the Year”.
The prestigious award was presented at
the 2017 Telecom Asia Readers’ Choice
& Innovation Awards held in Singapore.

Impact of market dynamics
on Spirent business
Economic pressure and consolidation
in smartphone supply chain
Economic pressure and consolidation of
top-tier global smartphone, chipset and
network equipment vendors has led to
a fiercely challenging, competitive and
shrinking market. We anticipate the
wireless device test market will transition
as wireless component, module
and network equipment manufacturers’
spending changes in the market shift
between ongoing 4G enhancements
and the early days of 5G. Spirent
continues to manage this transition.

4G LTE services growth
Spirent benefits from the development
phase of 4G LTE services, such as
VoLTE and Wi-Fi, and the focus on user
experience. GSA reported in December
2017 that there are 9,544 LTE user devices
from 570 suppliers in existence; this is
almost 60 per cent more than the number
of devices in September 2016¹.

Sources
1. GSA, “Snapshot LTE Ecosystem” (December 2017).
2. Ericsson, “Ericsson Mobility Report” (November 2017).
3. Technavio, “Global 5G Equipment Market 2016–2020” (October 2016).

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Financial review

2017 saw effective cost control,
very strong cash management and
improved profitability. We are transitioning
to provide services that fundamentally
reduce our customers’ cost base.

Group overview
Strong earnings growth and improved
cash generation were delivered following
the implementation of our improvement
programmes, which included a portfolio
review of our business and targeted cost
and working capital management initiatives.

The Group delivered a strong increase in
both adjusted basic earnings per share,
up by 43 per cent and free cash flow, up
by 118 per cent. Adjusted operating profit
increased by $12.4 million or 27 per cent,
on slightly reduced revenue. The highlights
were a robust performance from Lifecycle
Service Assurance, with 10 per cent
revenue growth and adjusted operating
margin increased to 16.4 per cent, and the
profitability turnaround of Connected
Devices, which delivered an improvement
in adjusted operating profit of $9.6 million
on lower revenue. Within Networks &
Security, there were strong performances
from our Positioning and Application
Security lines of business but this was
tempered by some softness for high-speed
Ethernet testing, as we have previously
noted, which is expected to rebound in the
second half of 2018.

The adjusted operating cost base of the
Group reduced by $16.7 million, excluding
foreign exchange and despite inflation, as
the cost saving actions from the portfolio
review programme and restructuring of the
sales organisation which commenced in late
2016, began to deliver benefits. These
change programmes concluded at the end of
2017, with $6.7 million of in year exceptional
costs with a very fast cash pay back.

Adjusted basic earnings per share increased
by 43 per cent to 7.55 cents reflecting the
growth in adjusted operating profit and
reduced tax charge in 2017.

Cash at bank closed at $128.4 million, an
increase of $32.3 million on the position at
31 December 2016. Free cash flow more

Free cash flow⁴

$56.4m

up 118%

Cost savings

$16.7m

Paula Bell
Chief Financial Officer

than doubled as a result of
increased profit, and a reduced
level of working capital. Free cash
flow represented 122 per cent of
adjusted earnings³.

Following US tax reform, we expect
the Group’s effective tax rate to
decrease from 22 per cent in 2017
to an estimated 17 per cent from 2018
onwards. Further clarification of some
of the new legislation is awaited
which may impact this estimate.

As a result of improved financial
performance and a review of our capital
allocation policy, we propose a 5 per cent
increase to the full year dividend per share,
from 3.89 cents to 4.08 cents, and a further
special dividend of 5.00 cents per share.

Spirent Communications plc Annual Report 2017The following table shows summary financial performance for the Group:

$ million
Order intake
Revenue
Gross profit
Gross margin %
Adjusted operating costs1
Adjusted operating profit1
Adjusted operating margin² %
Reported operating profit/(loss)
Reported profit/(loss) before tax
Adjusted basic earnings per share3 (cents)
Basic earnings/(loss) per share (cents)
Free cash flow4
Closing cash
Final dividend per share5 (cents)
Special dividend per share⁵ (cents)

2017
447.8
454.8
325.0
71.5
266.1
58.9
13.0
43.7
46.6
7.55
4.75
56.4
128.4
2.40
5.00

2016
471.7
457.9
324.3
70.8
277.8
46.5
10.2
(41.1)
(46.0)
5.29
(6.93)
25.9
96.1
2.21
–

Notes
1. Before exceptional items, acquired intangible asset amortisation, goodwill and acquired intangible asset impairment and share-based payment amounting to

$15.2 million in total (2016 $87.6 million).

2. Adjusted operating profit as a percentage of revenue in the period.
3. Adjusted basic earnings per share is based on adjusted earnings as set out in note 12 of Notes to the full year consolidated financial statements.
4. Operating cash flow after tax, net interest and net capital expenditure. See reconciliation on page 49.
5. Dividends are determined in US dollars and paid in sterling at the exchange rate prevailing when the dividend is proposed.
- The final dividend proposed for 2017 of 2.40 cents per Ordinary Share is equivalent to 1.73 pence per Ordinary Share.
- The special dividend proposed for 2017 of 5.00 cents per Ordinary Share is equivalent to 3.60 pence per Ordinary Share.

Revenue

$ million
Revenue by segment
Networks & Security
Lifecycle Service Assurance
Connected Devices

Revenue by geography
Americas
Asia Pacific
Europe, Middle East and Africa

2017

% of total

20161

% of total

261.0
109.2
84.6
454.8

248.6
160.2
46.0
454.8

57.4
24.0
18.6
100.0

54.7
35.2
10.1
100.0

262.2
99.2
96.5
457.9

254.1
149.3
54.5
457.9

57.3
21.6
21.1
100.0

55.5
32.6
11.9
100.0

Note
1. Restated for changes to the Group’s operating segments effective 1 January 2017 as set out in note 4 of Notes to the full year consolidated financial statements.

Overall, Group revenue was broadly level
compared to last year and up 2.4 per cent
excluding Connected Devices which
continues to be managed carefully
during the decline of the wireless device
testing market.

On 30 June 2017, we divested both the
Device Intelligence (DI) and Developer
Tools (DT) lines of business from Connected
Devices which together generated revenue
of $12.9 million in 2016 and $5.9 million for
the first six months of 2017.

Continuing Group revenue, excluding the
DI and DT businesses divested at the
end of the first half of 2017, increased by
$3.9 million or 1 per cent. Lifecycle Service
Assurance had a particularly robust
finish to the year increasing revenue by
10 per cent, $10.0 million ahead of last year,
Networks & Security was essentially

level after a strong 2016 and Connected
Devices experienced a decline of
$11.9 million ($4.9 million excluding DI
and DT), in line with our expectations.

Within Networks & Security, our Positioning
and Application Security test lines of business
saw strong demand and good growth but this
was offset by lower demand for high-speed
Ethernet performance test solutions as some
customers delayed expenditure as they
transitioned to new technology platforms, and
also 2016 represented a strong comparator
year. All of our lines of business within
Lifecycle Service Assurance experienced
growth on last year; particular highlights
were Mobility Infrastructure and Customer
Experience Management. Connected Devices
included our DI and DT lines of business,
which were divested on 30 June 2017.
Excluding these businesses, the operating
segment’s revenue decline slowed to 6 per
cent in 2017, from 25 per cent in 2016.

Geographically, the trends we have
experienced in recent years continued
into 2017 with growth in Asia Pacific and
decline in EMEA. Americas remained
our largest regional market constituting
55 per cent of total Group revenue but
was down marginally in absolute terms
on last year impacted by Cloud and IP,
Connected Devices and the divestment
of DI and DT. Asia Pacific again increased
its share of Group revenue, to 35 per cent
from 33 per cent, an increase of $10.9
million. China drove much of the growth in
the Asia Pacific region, contributing $7.3
million of the increase, being 9 per cent
growth. The decline in EMEA reflected
continuing softness in service provider
and network equipment manufacturer
investment in the region, as well as the
divestment of DI and DT; excluding
these businesses the decrease was
$5.4 million or 11 per cent.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Financial review continued

Gross margin

$ million
Networks & Security
Lifecycle Service Assurance
Connected Devices

2017
186.7
84.7
53.6
325.0

%
71.5
77.6
63.4
71.5

20161
184.9
77.7
61.7
324.3

%
70.5
78.3
63.9
70.8

Note
1. Restated for changes to the Group’s operating segments effective 1 January 2017 as set out in note 4 of Notes to the full year consolidated financial statements.

Gross margin increased by 0.7 percentage points to 71.5 per cent (2016 70.8 per cent) benefitting from a robust performance from the
Positioning business and growth in our Application Security business, both reported within the Networks & Security operating segment.

Operating costs

$ million
Product development
Selling and marketing
Administration2
Adjusted operating costs2
Networks & Security
Lifecycle Service Assurance
Connected Devices
Corporate
Adjusted operating costs2

2017
103.0
116.8
46.3
266.1
142.8
66.8
48.4
8.1
266.1

20161
111.7
125.4
40.7
277.8
137.7
66.5
66.1
7.5
277.8

Notes
1. Restated for changes to the Group’s operating segments effective 1 January 2017 as set out in note 4 of Notes to the full year consolidated financial statements.
2. Before exceptional items, acquired intangible asset amortisation, goodwill and acquired intangible asset impairment and share-based payment amounting to

$15.2 million in total (2016 $87.6 million).

As in 2016, 2017 was another year of
material cost reductions. Despite inflation
and excluding foreign exchange charges,
total Group adjusted operating costs
reduced by $16.7 million or 6 per cent
compared to 2016, as a result of the cost
reduction actions implemented under the
portfolio review programme and sales
reorganisation, and to a lesser extent,
the divestment of DI and DT at 30 June
2017. This follows a similar level of
cost reduction in 2016 and reflects
management’s continuing focus on
effective resource allocation and cost
control. Investment is being focused on
high-growth, high-margin areas and this is
apparent from the segmental analysis of
operating costs, with the reduction in costs
targeted in Connected Devices and the
level of investment maintained and
increased in Lifecycle Service Assurance
and Networks & Security, respectively.

Compared to 2016, the year-on-year
movement in foreign exchange charged
in the income statement, was a negative
impact of $5.0 million. The net change
in total operating costs before adjusting
items was therefore $11.7 million.

The total Group investment in product
development was reduced by $8.7 million,
despite cost inflation, which reflects our
focused approach to concentrate
resources on specific higher growth
potential areas.

Selling and marketing costs decreased by
$8.6 million, being the full year effect of the
cost reduction actions commenced at the
end of 2016 following the review of the
sales organisation and remuneration
structures undertaken by external
consultants. This programme has continued
through 2017 with further actions and
exceptional implementation costs.

Administration costs in 2016 benefitted
from $3.4 million of foreign exchange
gains, related to exchange rate volatility
between the US dollar and pound sterling,
whereas 2017 includes a foreign exchange
loss of $1.6 million. Therefore, the majority
of the movement in administration costs
year-on-year, is due to foreign exchange.
The current year level of administration
costs is considered more typical.

Looking forward into 2018, we will focus
on driving improved productivity in
product development.

Spirent Communications plc Annual Report 2017Operating profit

$ million
Networks & Security
Lifecycle Service Assurance
Connected Devices
Corporate
Adjusted operating profit²
Exceptional items
Acquired intangible asset amortisation
Goodwill and acquired intangible asset impairment
Share-based payment
Reported operating profit/(loss)

Adjusted
operating
margin2
%
18.0
11.3
NA

10.2

Adjusted
operating
margin2
%
16.8
16.4
6.1

13.0

2017
43.9
17.9
5.2
(8.1)
58.9
(6.7)
(6.3)
–
(2.2)
43.7

20161
47.2
11.2
(4.4)
(7.5)
46.5
(4.8)
(12.9)
(69.1)
(0.8)
(41.1)

$15.2 million in total (2016 $87.6 million).

Adjusted operating profit increased by
27 per cent to $58.9 million, compared
with $46.5 million in 2016, and adjusted
operating margin increased to 13.0 per cent
from 10.2 per cent in 2016.

Notwithstanding the ongoing reduction
in the operating cost base, we have
continued to invest in key growth areas
identified from the portfolio review.

Exceptional items
During the second half of 2016, the Group
commenced a portfolio review with the
objective of focusing Spirent’s lines of
business on those test technologies and
services which will best drive sustainable
earnings growth. In addition, external
consultants were engaged to benchmark
the sales organisation and a programme
was implemented to increase our
effectiveness and efficiency in this area.
These initiatives resulted in cost reduction
actions which commenced at the end of
2016 and continued throughout 2017,
concluding at the end of the year. In

addition, in 2017, the Group undertook a
strategic review of the Connected Devices
operating segment. In total, $6.7 million of
exceptional costs were incurred in the year,
including $5.4 million of portfolio review
and sales organisation restructuring costs
(2016 $4.8 million) and $1.3 million of costs
related to the strategic review of
Connected Devices.

Acquired intangible asset amortisation,
impairment and share-based payment
In 2016, the Group took a total impairment
charge of $69.1 million in relation to goodwill
and acquired intangible assets within the DI
and DT lines of business and the Connected
Devices cash generating unit. As a result,
acquired intangible asset amortisation has
decreased significantly in 2017, from
$12.9 million in 2016 to $6.3 million.

Share-based payment has increased to
$2.2 million in 2017 (2016 $0.8 million)
reflecting the expected vesting of awards
and the cost associated with the 2017 grant.

Divestments
A consequence of the portfolio review
was the decision to not invest further in
the DI and DT lines of business within
Connected Devices and this necessitated
the impairment in full of the goodwill and
acquired intangible assets in these
businesses in 2016. At 30 June 2017, these
businesses were divested to an Israeli
company established by the former
General Manager of the business units,
for a total cash consideration of $1. As part
of the sale, Spirent made a $2.0 million
interest bearing loan to the divested
subsidiaries to fund working capital
requirements. This loan has been fully
provided for by the Group and expensed in
the calculation of the gain on divestments
which amounted to $2.6 million. The
businesses combined contributed
$12.9 million revenue in 2016 and
$5.9 million for the first six months of 2017.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Financial review continued

Currency impact
The Group’s revenue and costs are
primarily denominated in US dollars or
US dollar-linked currencies. Currency
exposures arise from trading transactions
undertaken by the Group in foreign
currencies and on the retranslation
of the operating results and net assets
of overseas subsidiaries.

The Group’s income statement includes
a foreign exchange loss, included in
administration costs, of $1.6 million
(2016 $3.4 million gain) arising from:

1) transacting in foreign currencies, primarily

US dollars in the United Kingdom, of
$0.9 million (2016 $2.3 million gain); and

2) translation of foreign currency
cash balances of $0.7 million
(2016 $1.1 million gain).

Forward foreign currency exchange
contracts are entered into to manage the
exposure arising from transacting in US
dollars in the United Kingdom.

Although the most significant currency
exposure arises in relation to movements in
pound sterling against the US dollar, there
are other less significant currency exposures,
notably the Euro and Chinese Yuan.

Finance income and costs
Finance income of $0.6 million was earned
from cash held on deposit (2016 $0.3
million). Surplus funds are held principally in
the United Kingdom and United States on
short-term deposit and earn market rates of
interest which remain relatively low. Finance
costs of $0.3 million (2016 $0.7 million)
comprised mainly of the interest cost on
the defined benefit pension plan.

Share of result of associated company
Spirent’s share of the loss incurred by its
associate, Jolata, Inc. (Jolata), was nil in
2017 following the impairment of the full
value of Spirent’s investment in Jolata
taken at 31 December 2016 (2016
$4.5 million loss, including an impairment
charge of $2.6 million).

Tax
The adjusted effective tax rate for 2017 was
22.1 per cent, down from 26.9 per cent in
2016, primarily reflecting benefits achieved
from the successful introduction of UK
Patent Box and a positive impact from
the divestment of the DI and DT lines of
business, which had unrelieved losses.

On 22 December 2017, the US President
signed the Tax Cuts and Jobs Act (the Act)
into law. The Act includes a number of
significant changes in the tax law that will
have implications for Spirent. The most
significant change is a permanent reduction
in the corporate income tax rate from 35 per
cent to 21 per cent with effect from 1 January
2018. Other changes that will impact the
Group include the repeal of the Domestic
Production Activity Deduction (DPAD) and
the enactment of a new deduction, the
Foreign-Derived Intangible Income (FDII)
deduction. It is estimated that the impact of
the US tax rate reduction together with the
repeal of the DPAD and the addition of the
FDII deduction will decrease the Group’s
2018 effective tax rate to circa 17 per cent
and deliver increased earnings and cash
benefits. The precise impact is still to be
determined as we are awaiting further
guidance from the US government.

While the changes highlighted above
impact Spirent from 1 January 2018 going
forward, there is an adverse impact to the
Group’s US deferred tax assets (DTA).
These assets have been previously
booked with the expectation of a future US
tax benefit at the pre-2018 35 per cent
statutory tax rate. Our 2017 financial
statements reflect a revaluation of these
DTA using the new 21 per cent statutory tax
rate. The resulting decrease in the value of
DTA on our balance sheet of $7.9 million is
reflected as a corresponding deferred tax
expense in the income statement,
classified as an adjusting item in the year.

Earnings per share
Adjusted basic earnings per share was up
43 per cent at 7.55 cents (2016 5.29 cents).
There were 610.6 million (2016 610.6
million) weighted average Ordinary shares
in issue. Basic earnings per share was 4.75
cents compared with a loss per share of
6.93 cents for 2016. See note 12 of Notes
to the full year consolidated financial
statements on page 130 for the calculation
of earnings per share.

Treasury 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 perodically 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 27 of Notes
to the consolidated financial statements.

Spirent Communications plc Annual Report 2017Financing and cash flow
The Group was highly cash generative in
2017. Following a refreshed focus on
working capital management, we were
able to more than double the free cash flow
from $25.9 million in 2016 to $56.4 million
in 2017, resulting in a free cash flow
conversion which represented 122 per cent
of adjusted earnings (2016 80 per cent).
Working capital levels reduced in the year
driven by lower inventory levels and higher
payables. Cash and cash equivalents
were $128.4 million at 31 December 2017
compared with $96.1 million at 31 December
2016, an increase of $32.3 million. There
was no debt.

Free cash flow is set out below:

$ million
Cash flow from
operations
Tax paid
Net cash inflow
from operating
activities
Interest received
Net capital
expenditure
Free cash flow

2017

2016

77.7
(8.4)

69.3
0.6

(13.5)
56.4

47.4
(4.7)

42.7
0.3

(17.1)
25.9

Net capital expenditure of $13.5 million
was $3.6 million lower than last year due
to the refit of an engineering lab in the
United States in 2016. The Group exercised
careful management of capital investment
to ensure efficient use of capital and
maximise return on investment.

In 2017, the final dividend for 2016 and
an interim dividend for 2017 totalling
$24.6 million were paid (2016 $24.2 million).

Defined benefit pension plans
The Group operates two funded defined
benefit pension plans in the United
Kingdom, both of which were closed
to new entrants some time ago.

The accounting valuation of these plans at
the end of 2017 showed a net deficit of
$2.2 million, a marked improvement on the
net deficit of $12.8 million at 31 December
2016. The deficit has reduced because of
contributions paid in the year, stronger
asset returns and a beneficial change to
the mortality assumption underpinning the
value placed on liabilities, offset to some
extent by a change to commutation factors
and a decrease in the discount rate, both
of which increase the value placed on
liabilities. In addition, movements in the
US dollar to sterling exchange rate impacts
the deficit expressed in US dollars. The
accounting valuation is based on the
actuarial valuation dated 31 March 2015.

The Group has also reported a liability
of $0.6 million (31 December 2016
$0.7 million) in respect of UK unfunded
plan liabilities.

The next Triennial Valuation of the plans
is due on 31 March 2018. The technical
deficit on 31 March 2015, the date of the
last Triennial Valuation was $46.0 million,
which is currently being funded over a
seven-year period, which commenced 1
July 2016, by an annual contribution of
$7.0 million (£5.0 million).

Balance sheet and dividend policies
The Board currently intends to maintain
a cash positive balance sheet over the
medium to long term. This should allow
the Company to maintain a strong capital
position in the face of business risks,
trading fluctuations and working capital
demands. In addition, the Board wishes to
maintain flexibility to invest in the business
organically and inorganically. Where
appropriate, the Company may take on
modest gearing to fund inorganic
investments.

The Board will regularly review the
Company’s balance sheet in light of
current and expected trading performance
and cash generation, working capital
requirements and expected investments.
To the extent the Company has excess
cash, it will consider returning such cash to
shareholders. The Board will consider from
time to time the appropriate mechanism for
returning surplus cash to shareholders.

We aim to build cover for the dividend
to 2 to 2.5 times adjusted earnings and
follow a progressive dividend policy.

Dividend
The Board is recommending the payment
of a final dividend for 2017 of 2.40 cents
(1.73 pence) per share which, together with
the interim dividend of 1.68 cents (1.27
pence) per share paid in September 2017,
brings the full year dividend to 4.08 cents
(3.00 pence) per share. This is a 5 per cent
increase in the full year dividend for 2017
compared to full year 2016. In sterling
terms this represents a decrease of 2 per
cent. The dividend is covered 1.9 times by
adjusted earnings.

The Board has also considered the
Company’s cash position in line with the
policies outlined above. As a result, it has
decided to recommend a special dividend
of 5.00 cents (3.60 pence) per share which
equates to a cash distribution of circa
$30.5 million.

Subject to approval by shareholders at the
Annual General Meeting on 2 May 2018,
the final and special dividends will be paid
on 4 May 2018 to shareholders on the
register at 16 March 2018. Payment to
ADR holders will be made on 11 May 2018

Restatement of operating segments
Full year 2016 operating segment
information has been restated due
to changes to the Group’s operating
segments which came into effect on
1 January 2017. Further details are
disclosed in note 4 of Notes to the full
year consolidated financial statements.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationStrategic Report
Sustainability

FuturePositive:
Our sustainability approach
The way we do business matters to our
long-term success. Our approach is
focused on identifying and managing
the material sustainability issues and
opportunities for the Group through
our FuturePositive programme.

Our commitment to improved corporate
responsibility drives business performance
by ensuring we meet our legal obligations,
drive efficiency, and unlock sustainability
performance for our customers with our
products and services.

The key areas of management and
performance are set out below, but we
also publish a comprehensive report on
our corporate responsibility activities
which is available on our website
https://corporate.spirent.com.

Helping to revolutionise R&D labs: dramatically
reducing test times and environmental impacts
Hardware R&D labs are energy intensive, with test
equipment and development hardware mounted
in racks in a noisy, air-conditioned environment.
Labs can be inefficient with unused equipment
left on, equipment duplicated across teams and
sites, and equipment configured manually.

Spirent’s product Velocity helps companies to
revolutionise their labs, dramatically reducing
the time taken to complete tests whilst
significantly reducing environmental impacts.

Using Velocity, Spirent has helped companies to:

• Reduce testing time: Velocity has helped

complete tests four times quicker;

• Reduce equipment needed: Velocity allows
global sharing of equipment and automates
test scheduling, improving utilisation by up to
77 per cent;

• Consolidate labs: Velocity allows engineers to
use and configure equipment from anywhere
in the world, which means fewer labs;
• Automate power controls for each device:

Velocity can automatically switch
off equipment when not needed;

• Reduced energy use and carbon emissions:
The improved equipment utilisation can
reduce energy use and carbon emissions
by up to 63 per cent.

Sustainability at Spirent
We are committed to embedding the
highest standards of environmental
management, social practices and
governance into our operations,
products and across our supply chain.

We look to create long term value for
our shareholders by:

• protecting our reputation and ability

to grow;

• helping us to win business from
customers who value strong
environmental, social and
governance (“ESG”) performance;

• enhancing our efficiency;
• enabling our people to work
productively in a safe and
ethical environment;

• helping us to attract and retain talent,
and encouraging employees to take
pride in working for us; and
reducing the risk of incidents and
their associated costs.

•

Our material sustainability issues
Our material sustainability issues were
identified in 2016 using the AA 1000
standard. The 2016 revision reaffirmed the
importance of anti-corruption and business
ethics for the business and identified the
importance of our product functionality in
unlocking sustainability performance for
our customers.

Policies
Spirent is governed by its suite of
responsible business policies. The
policies commit the Group to compliance
with high standards of ethics and business
integrity, environmental management and
employee and community welfare.

The Group Sustainability Policy sets out
our overarching approach to manage all
sustainability issues and is supported by
issue specific policies for business ethics
and environmental management.

The Group is also committed to compliance
with all applicable regulations in each of the
jurisdictions in which it operates, including
environmental, health and safety, labour
practices and fair business practices.

All policies are available on our website at
https://corporate.spirent.com.

Spirent Communications plc Annual Report 2017Progress in 2017
Key achievements
Reporting: Continual Improvement
We have continued to make improvements
in our sustainability performance and
reporting this year, with our improvements
recognised and rewarded by our inclusion
in the FTSE4Good index in December 2017.

We have achieved a B score in the 2017
CDP ratings, received a silver ESG rating
following a supplier assessment
undertaken by EcoVadis and were finalists
at this year’s QuEST Sustainability Awards.

Sustainability in our products
We expanded the coverage of our
sustainable product development
processes during the period under review,
introducing the processes at two additional
business units.

Our focus areas
Our FuturePositive programme has
four main focus areas: Product, People,
Property and Procurement. Full details
of our programmes are set out in our
2017 Sustainability Report available at
https://corporate.spirent.com

Product
Electronic waste and use
of hazardous materials
Spirent’s business units comply with
the EU’s Waste Electrical and Electronic
Equipment Regulations 2013 and Batteries
Directive and the California Electronic
Waste Recycling Programme.

Spirent’s hardware products came into
scope of the EU’s Restriction of Hazardous
Substances Directive (“RoHS”) in June
2017 and all comply with the requirements
of the Directive.

Significant power reduction in Spirent’s
latest 100Gb Ethernet test solutions
We have reduced the power consumption
per port of the latest version of our 100Gb
ethernet test module, the mX3, by 27 per cent
compared to the previous model.

The multi-speed mX3 modules are used
to test the performance of datacenter and
service provider network infrastructure,
mounted in Spirent’s N11U or 4U chassis.

Energy performance has been an important
consideration during the design process, and
the mX3 benefits from the latest semi-conductor
technology, with smaller components and more
ports per board. We have also made significant
improvements in heat management, improving
air-flow and heat sink design. We have
introduced intelligent power controls that shut
down unused test modules, along with variable
speed fans and more efficient power supplies.

As a result, we have reduced power
consumption from 200 Watts per slot per port
in the MX-100G-P2 to 145 Watts in the mX3.

Conflict minerals
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 in place to ensure that it would
be in compliance if it were brought within
the scope of this legislation. The Group will
be subject to the EU Directive on Conflict
Minerals when it is enacted into national
policy in the UK. We are monitoring the
development of the standards and are
confident our existing practices will meet
the specifications required.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationGender Pay Gap
Under the current criteria, Spirent is not
required to comply with the Gender Pay
Gap reporting regulations but is looking
at this issue and expects to publish its
findings when they are available.

Spirent have procedures to restrict
the type and quantity of confidential
information collected and stored
and there are robust procedures in
place to protect customer data from
unauthorised access and disclosure.

Health and Safety
The Board has designated the Chief
Financial Officer as being responsible for
health and safety performance within the
Group and procedures are in place for
incidents to be reported through the Audit
Committee to the Board as necessary.

Periodic information security risk
assessments are performed, and training
is provided to staff to prevent information
security breaches. Our internal controls
are audited, and we have a whistleblower
procedure in place for staff to report
information security or any other concerns.

The health and safety risk profile for the
Group remained low during 2017, with
14 reportable accidents, none of which
required hospitalisation.

Spirent has implemented a response
procedure to manage breaches of
confidential information if they were
to occur.

Confidential waste is shredded if in
hard copy and certificates of destruction
are provided for any electronic storage
devices disposed of at end-of-life.

STEM initiatives and
community impact projects
Spirent actively encourages its employees
to become STEM ambassadors around
the globe. Our ambassadors work with
students in local schools and institutions
to help them develop STEM skills and
help them in their professional journey.

We also provide our employees in the
US and EMEA with volunteering time
off to make a positive contribution to
the communities in which they work.

Through financial donations and staff
volunteering, Spirent has continued to
support community projects worldwide.
Projects include ongoing initiatives to
rebuild homes after hurricanes Sandy
and Harvey in the US, and supporting
education projects in India and China.

Training and skills
Spirent provides all its employees with
a wide range of technical and business
training opportunities. We manage training
through personal development plans
which are assessed by all managers
and updated periodically.

Higher education and schools
Through knowledge transfer partnerships,
we continue to promote STEM skills and
innovation in early career development and
young students. Our work in this area has
been recognised by the BITC with Spirent
being short-listed for their “Supporting
Young Talent” award in 2016 and
reaccredited in 2017.

Information security
Spirent takes data security and privacy
seriously and we continually review
the security of our data systems and
procedures in order that we can react
to areas of heightened risk promptly
and effectively.

In preparation for the introduction of
the General Data Protection Regulation
(GDPR) in 2017, Spirent has undertaken
a full review of its data protection policies
and procedures in order to comply with
the new regulation.

Strategic Report
Sustainability continued

People
Business ethics and human rights
Spirent’s core values and principles and
the standards of behaviour to which every
employee across the Group is expected
to work are set out in the Group’s Ethics
Policy. These values and principles are
applied to all dealings with our customers,
suppliers and other stakeholders, not only
forming part of our pre-contract due
diligence, but also being monitored through
our ongoing supplier audit programme.

The Group has a zero-tolerance approach
to all forms of bribery and corruption.
As a UK registered company, Spirent
Communications plc is bound by the laws
of the UK, including the Bribery Act 2010,
in respect of our conduct both at home
and abroad. In addition, we will uphold
all laws relevant to countering bribery
and corruption, including the US Foreign
Corrupt Practices Act as well as human
rights, in all jurisdictions in which we operate.

During the period under review, anti-
bribery and anti-corruption training
was undertaken by all employees
with customer-facing roles, with this
training scheduled to be rolled out
to all employees during 2018.

Equality and diversity
The Group employs a diverse workforce
and prides itself in providing equal
opportunities for all. High value is placed
on rewarding our people for their
commitment, their integrity and their
service. We aim to ensure that no
employee is discriminated against,
directly or indirectly, on the grounds of
colour, race, ethnic and national origins,
sexual orientation or gender, marital status,
disability, religion or belief, being a part
time employee or on the grounds of age.

These practices are governed by our
Business Ethics and HR policies.

At 31 December 2017, Spirent employed
1,477 employees of whom 316 were female
(21.4 per cent) and 1,161 were male (78.6 per
cent). 31 of the Group’s senior management
were female (16.2 per cent) and 160 were
male (83.8 per cent), with one female
member of the Board (20 per cent) and
four male (80 per cent).

Spirent Communications plc Annual Report 2017Property
Energy use
Energy use is an important environmental
impact for Spirent. Our properties, which
house engineering and development labs,
are key energy-using processes within
the scope of our direct operations.

Spirent’s energy use fell in 2017 by
16.5 per cent to 14,023MWh. This is
predominantly due to a 60 per cent
decrease in gas use across our UK and
US sites and a 12.5 per cent reduction in
electricity use across our global estate.

Greenhouse gas emissions
Greenhouse gas emissions are a material
issue for Spirent and we are committed to
reporting emissions and acting to combat
climate change. The group once again
reported to the Carbon Disclosure Project
in 2017, completing the Climate Change
and Supply Chain questionnaire. In 2017
we achieved a B rating.

Methodology
Reporting on emission sources is required
under the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations
2013 and these sources fall within our
consolidated financial statements. We
have reported on all the emission sources
that fall within our consolidated financial
statements. We do not have responsibility
for any emission sources that are not
included in our consolidated financial
statements. We have used the GHG
Protocol Corporate Accounting and
Reporting Standard (Revised Edition),
along with data gathered to fulfil our
requirements under these Regulations, and
emission factors from the UK Government’s
GHG Conversion Factors for Company
Reporting 2017 for all countries except the
United States, where US EPA 2016 eGrid
emissions factors for the applicable
individual states was used.

Supplier audit programme expanded in 2017
Spirent’s supply chain team conducted audits
on 18 of our key suppliers in 2017, which
represents 52 per cent of our supply chain spend.

The on-site audits review the management and
performance of the suppliers, and cover quality,
health and safety, business ethics, labour and
human rights, and environmental management.

Since the introduction of the supplier
sustainability audit programme in 2016, around
70 per cent of components now come from
suppliers who have been audited by Spirent
directly, or by our contract manufacturer or
as part of the EICC VAP audit programme,
exceeding our year-end target of 60 per cent.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationPerformance against target
The Group set a target to reduce carbon
emissions by five per cent relative to
revenue from 2016 figures. We have
achieved this target, having reduced
carbon emissions per $m of revenues
by 5.8 per cent. 19 of our 39 sites have
achieved absolute reductions in GHG
emissions of five per cent or more.

Compliance
The Group is not required to comply
with stage 1 of the UK Energy Savings
Opportunity Scheme (ESOS) Regulations
2014. We will review whether we are
required to comply with stage 2 of
the scheme at the qualification date,
31 December 2018. If the Group meets
the qualification criteria, Spirent has a
compliance plan in place to ensure
compliance by the deadline of
5 December 2019.

We also make use of industry-body
audit programmes to determine the
compliance status of our suppliers.

Compliance
We comply with the requirements of the UK
Modern Slavery Act 2015 and the California
Transparency in Supply Chains Act 2010.
We require slavery and human trafficking
to be eradicated from our direct supply
chain for the products we sell and monitor
suppliers by performing regular evaluation
surveys to assure ourselves of each
supplier’s commitment in this area.
Spirent’s full statement on Modern
Slavery and Human Trafficking can
be found on the Company’s website
at https://corporate.spirent.com.

Pages 1 to 54 form part of the Strategic
Report which has been reviewed and
approved by the Board.

Angus Iveson
Company Secretary
8 March 2018

Procurement
Vendor assessment and auditing
Vendors are required to abide by our Code
of Conduct which sets out our expectations
for environmental management, labour and
human rights, health and safety, and business
ethics. They are assessed using a detailed
questionnaire. The questionnaire was
revised in 2016 and again in 2017 to include
enhanced disclosures of environmental,
social and business ethics management.

Priority suppliers are audited by Spirent’s
procurement team: 18 supplier audits were
conducted in 2017 at contract manufacturers
and component suppliers, representing
52 per cent of our supply chain spend.
No material issues were identified.

Strategic Report
Sustainability continued

Greenhouse gas emissions 2017 have
been assured using the AA 1000 AS (2008)
standard. The assurance statement can
be found in our 2017 Sustainability Report
at https://corporate.spirent.com.

Year

2017

2016

2015

2014

Programme
Climate
Change
2017
Climate
Change
2016
Climate
Change
2015
Climate
Change
2014

Emissions from:
Combustion of
fuel & operation
of facilities
(scope 1)
Electricity,
heat, steam
and cooling
purchased
for own use
(scope 2)
Total emissions
Emissions
intensity
metrics:
Normalised
per square
metre of gross
internal area of
our facilities
Normalised
per $ million
of revenues

Disclosure
Score

Performance
Band

N/A

A-

2017
Tonnes of
CO2e

2016
Tonnes of
CO2e

100.5

139.3

6,099.7
6,200.2

6,487.4
6,626.7

0.137

0.146

13.63

14.47

Spirent Communications plc Annual Report 2017Corporate Governance
Chairman’s introduction to governance

Accountability, integrity and
respect are the cornerstones
for a healthy business.

My first priority has been to expand the
Board with new members who could bring strong
technical backgrounds, international experience
in our industry and who have specific knowledge
of working with our customer base.

Dear Shareholder
I am pleased to report to you the Governance
section of our Annual Report 2017.

the skillset and experience of the Board
which will, in turn, help us to support our
management team and build a platform
for Spirent to grow in a sustainable way.

I stepped into the role of Chairman in May
2017 having joined the Board in December
2016. During 2017 I have met with a large
cross section of the stakeholders in our
business to solicit a wide range of views
on the opportunities and challenges that
Spirent faces. I will continue to maintain that
dialogue with as wide a cross section of the
stakeholders in our business as possible as
I aim to ensure that Spirent delivers not only
on its financial goals, but also on its wider
responsibilities as an employer in the
communities in which it operates.

From a governance perspective, my first
priority has been to expand the Board with
new members who could bring strong
technical backgrounds, international
experience in our industry and who have
specific knowledge of working with our
customer base. In appointing Edgar Masri
and Wendy Koh at the beginning of 2018,
the Board and I are confident that we have
found people with just the right profiles.
They will help to supplement and develop

Just as important as the set of skills and
experience of the Board is that we have the
appropriate governance framework in place
to ensure we meet our obligations. I am
pleased to confirm that this year Spirent has
complied in full with the principles of the UK
Corporate Governance Code 2016. As you
will see from reading our Remuneration and
Audit Committee reports, we have sought
to build on the existing strong governance
framework in order that the Board can be
confident that it has full visibility of issues
within Spirent’s businesses and that we are
fully considering the changing expectations
of our stakeholders with regard to matters
such as executive pay. I note our inclusion
on the Investment Association register of
companies with a significant vote against
our Directors’ report on remuneration at the
2016 AGM and, as explained by our Chair
of Remuneration Committee in his letter on
page 74, we are engaging with all investors
to understand their points of view and,
where possible, address their concerns.

Finally, I would like to extend my thanks
and appreciation to my colleagues on the
Spirent Board who stood down in the year
under review. The composition of the Board
changed significantly during the course of
2017 and I would like to acknowledge in
particular the contribution that Alex Walker
made, serving on the Spirent Board for a
total of 10 years, including seven years as
Chairman. In that time, he led the Board
with distinction as Spirent expanded into
profitable and fast-growing markets and
dealt with the challenges of rapid technology
change. We wish him well in his retirement.

I look forward to meeting any shareholders
who are able to attend our AGM in
May and thank you for your continued
support as we look to the year ahead.

Bill Thomas
Chairman
8 March 2018

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Board of Directors

An experienced and strengthened
Board providing the right mix of
skills and knowledge.

Eric Hutchinson
Chief Executive Officer
Appointed: CEO in
September 2013;
Chief Financial Officer
in January 2000

Skills and experience
Eric has extensive experience in
the technology industry worldwide.
He joined the Company in 1983
and was appointed to the Board
as Chief Financial Officer in 2000,
stepping up to the role of
Chief Executive Officer in
September 2013.

Eric is a Fellow of the Association
of Chartered Certified Accountants.

Other roles
Member of the Financial
Reporting Review Panel.

Bill Thomas
Chairman
Appointed: Chairman
in May 2017;
Non-executive Director
in December 2016
Committees: Nomination (Chair)

Skills and experience
Bill brings strong commercial and
management experience to the
Board. His extensive international
technology experience, together
with his track record in leading
major change in large organisations
provide valuable insight. Bill is a
former Senior Vice President at
Hewlett Packard and was on the
executive committee of EDS plc
as Executive Vice President.

Other roles
Member of the Council and
President of the Alumni Association
at Cranfield University School of
Management; Chair of Node4, a
private equity-owned IT services
firm; Chair of the Royal Navy
and Royal Marines Charity;
non-executive director of The
Co-operative Bank; member of
Advisory Board of FireEye, Inc.

Paula Bell
Chief Financial Officer
Appointed: Chief Financial Officer
in September 2016

Skills and experience
Paula joined Spirent in 2016, bringing
extensive board experience of
working with global technology
and engineering businesses. Paula
has demonstrable experience of
effective financial and commercial
management, driving cost-efficient
organisations and improved cash
management whilst driving a
strategic agenda. Paula was
previously CFO at John Menzies Plc
from 2013 and CFO at Ricardo Plc
from 2006 to 2013. Paula has held
senior management roles at BAA
plc, AWG plc and Rolls-Royce,
leading business development for
international growth underpinned
by extensive M&A activity.

Paula is a Fellow of the Chartered
Institute of Management
Accountants and a Chartered
Global Management Accountant.

Other roles
Non-executive director and Chair
of Audit Committee of Laird plc.

Jonathan Silver
Senior Independent
Non-Executive Director
Appointed: Senior Independent
Non-executive Director
November 2016;
Chair of Audit Committee:
August 2015;
Non-executive Director: June 2015;
Committees: Audit (Chair),
Nomination, Remuneration

Skills and experience
Jonathan brings experience
in finance, risk, control, governance
and international business
expertise. He was Chief Financial
Officer at Laird plc until 2015,
having held a variety of roles in
his 30 years with the company.

Jonathan is a Member of
the Chartered Accountants
of Scotland.

Other roles
Non-executive director and Chair
of Audit Committee of Invesco
Income Growth Trust; non-
executive director and Chair
of Audit Committee of East and
North Hertfordshire NHS Trust.

Spirent Communications plc Annual Report 2017Gary Bullard
Independent
Non-Executive Director
Appointed: Chair of Remuneration
Committee May 2017;
Non-executive Director
December 2016
Committees: Remuneration (Chair),
Audit, Nomination

Skills and experience
Gary brings extensive experience
in senior management positions,
including sales and marketing
roles, at IBM and BT Group plc and
was a non-executive director of
Chloride Group plc. Until 2012
he was President at Logica UK
and a member of the Executive
Committee of Logica plc.

Other roles
Non-executive chairman of Gooch
& Housego PLC; non-executive
director and Chair of Remuneration
Committee of Rotork plc.

Wendy Koh
Non-Executive Director
Appointed: Non-executive Director
January 2018
Committees: Audit, Nomination,
Remuneration

Edgar Masri
Non-Executive Director
Appointed: Non-executive Director
January 2018
Committees: Audit, Nomination,
Remuneration

Skills and experience
Wendy brings strong technology
sector experience from various
strategic and sales roles she has
undertaken in the APAC region with
Juniper Networks, most recently as
Senior Vice President Global GTM
Strategy and Business Development,
a global role focused on leading
transformational strategy and
establishing partnerships to increase
value proposition for customers.
Wendy also previously worked for
Cisco Systems from 1998 to 2003.

Wendy holds a Bachelor of
Engineering in Electrical and
Electronics from Nanyang
Technological University and a
Graduate Diploma in Marketing
management from the Singapore
Institute of Management.

Other roles
Vice President, Pathways,
Alliance & Strategy APAC
at NetApp Singapore.

Skills and experience
Edgar brings to the Board
wide-ranging experience of
managing companies across the
technology sector with a focus on
driving investment and profitability.
Edgar was President and Chief
Executive Officer of Qualtré, Inc.,
a US-based startup acquired
by Panasonic Corporation in
December 2016 at the same time
as acting as a member of the board
of Calient Technologies until its
acquisition by Chunxing Precision
Mechanical Co., Ltd. Prior to this,
Edgar was President and CEO of
3Com Corporation, a leading global
data networking company, bringing
the company to record revenue and
gross margins before it was taken
into private ownership.

Edgar holds a Diplome d’Ingenieur
from Ecole Centrale de Paris,
a Master of Science degree in
Electrical Engineering from
the University of California
at Berkeley, and a Master of
Business Administration with
distinction (Arjay Miller Scholar)
from Stanford University.

Other roles
Director of Kollective Technology,
Inc; Board adviser and
senior consultant to Accton
Technology Corporation

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ statement on corporate governance

Compliance with the
UK Corporate Governance Code
As a premium listed company on the
London Stock Exchange, the Company
is reporting in accordance with the UK
Corporate Governance Code (the “Code”)

published in April 2016 which sets out
standards of good practice in relation
to board leadership and effectiveness,
remuneration, accountability and relations
with shareholders. The Code is published
by the UK Financial Reporting Council

(“FRC”) and a copy of the Code is available
from the FRC website at www.frc.org.uk.

The Board confirms that the Company
has complied in full with the Code
throughout the period under review.

Every company should be headed by an effective board
which is collectively responsible for the long-term success
of the company.
There should be a clear division of responsibilities at the head
of the company between the running of the board and the
executive responsibility for running of the company’s business.
The chairman is responsible for leadership of the board
and ensuring its effectiveness on all aspects of its role.
As part of their role as members of a unitary board,
non-executive directors should constructively
challenge and help develop proposals on strategy.
The board and its committees should have the appropriate
balance of skills, experience, independence and knowledge
of the company to enable them to discharge their respective
duties and responsibilities effectively.
There should be a formal, rigorous and transparent procedure
for the appointment of new directors to the board.

All directors should be able to allocate sufficient time to
the company to discharge their responsibilities effectively.
All directors should receive induction on joining the board and
should regularly update and refresh their skills and knowledge.
The board should be supplied in a timely manner with
information in a form and of a quality appropriate to
enable it to discharge its duties.
The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees
and individual directors.
All directors should be submitted for re-election at regular
intervals, subject to continued satisfactory performance.
The board should present a fair, balanced and understandable
assessment of the company’s position and prospects.
The board is responsible for determining the nature and
extent of the principal risks it is willing to take in achieving
its strategic objectives. The board should maintain sound
risk management and internal control systems.
The board should establish formal and transparent
arrangements for considering how they should apply
the corporate reporting, risk management and internal
control principles and for maintaining an appropriate
relationship with the company’s auditors.
Executive directors’ remuneration should be designed
to promote the long-term success of the company.
Performance-related elements should be transparent,
stretching and rigorously applied.
There should be a formal and transparent procedure for
developing policy on executive remuneration and for fixing
the remuneration packages of individual directors. No director
should be involved in deciding his or her own remuneration.
These should be a dialogue with shareholders based on
the mutual understanding of objectives. The board as a
whole has responsibility for ensuring that a satisfactory
dialogue with shareholders takes place.
The board should use general meetings to communicate
with investors and to encourage their participation.

Board of Directors
The Board

Chairman and Chief Executive Officer

Non-executive Directors
Board Composition

Board of Directors
Nomination Committee Report

Election and Re-election of Directors
Appointments to the Board
Nomination Committee Report
Commitment

Board development

Information flow

Board performance evaluation

Election and re-election of directors
Re-election of directors
Strategic Report
Directors’ Report
Risk Management
Internal control and risk management
Audit Committee Report

Audit Committee Report

Page
56-57
59

59
62

56-57
66-67

60
62
66-67
62

60
67
1-54
94-97
26-27
64
68-73

68-73

Directors’ report on remuneration

74-93

Directors’ report on remuneration

74-93

Relations with shareholders

Stakeholder engagement

Index to
Code disclosures
Leadership

Effectiveness

Accountability

Remuneration

Relations with
shareholders

Spirent Communications plc Annual Report 2017Leadership
The Board
The Board of Directors is collectively
responsible to the Company’s shareholders
for the direction and oversight of the
Company to ensure its long-term success.

The Board met regularly throughout the
year to approve the Group’s strategic
objectives, to lead the Group within a
framework of effective controls which
enable risk to be assessed and managed
and to ensure that sufficient resources
are available to meet the objectives set.

There are a number of matters which
are specifically reserved for the Board’s
approval. These are set out in a clearly
defined schedule which includes: matters
relating to the Group’s strategic plan;
approving the annual business strategy
and objectives; the nature and extent of
principal risks to be taken to achieve the
strategic objectives; changes relating to
structure and capital; approval of trading
statements, half year results, final results
and annual report and accounts; declaring
interim dividends and recommending
final dividends; the Group’s policies
and systems of internal control and risk
management, approving capital projects,
acquisitions and disposals valued at over
$2 million; and provision of adequate
succession planning.

The schedule of matters reserved for the
Board was reviewed during the year and
approved and adopted at the March 2017
Board meeting.

Certain specific responsibilities are
delegated to the committees of the Board,
notably the Audit, Nomination and
Remuneration Committees, which operate
within clearly defined terms of reference
and report regularly to the Board. For
further details, please see the reports of
each Committee that follow this statement.

Chairman and Chief Executive Officer
The roles of the Chairman and the Chief
Executive Officer are separately held
and the division of their responsibilities
is clearly established, set out in writing,
and agreed by the Board to ensure that
no one person has unfettered powers of
decision. The Chairman is responsible for
the operation and leadership of the Board,
ensuring its effectiveness and setting its
agenda. The Chief Executive Officer is
responsible for leading and managing
the Group’s business within a set of
authorities delegated by the Board
and the implementation of Board
strategy and policy.

Authority for the operational management of
the Group’s business has been delegated to
the Chief Executive Officer for execution or
further delegation by him for the effective
day-to-day running and management of the
Group. The Group Executive Committee,
led by the Chief Executive Officer, consists
of the Chief Financial Officer, the Chief
Operating Officer, the EVP Global Sales,
the EVP Strategic Marketing and the
Company Secretary & General Counsel.

Senior Independent Director
The role of Senior Independent Director
is to act as a sounding board for the
Chairman and to serve as an intermediary
for other directors as necessary. He is
also available to shareholders to convey
concerns to the Board which they have
been unable to convey through the
Chairman or through the executive
directors. During the year, led by the Senior
Independent Director, the non-executive
directors have met without the presence
of the Chairman (including to appraise the
Chairman’s performance).

Non-executive Directors
In addition to their responsibilities
for strategy and business results, the
non-executive directors play a key role
in providing a solid foundation for good
corporate governance and ensure that no
individual or group dominates the Board’s
decision making. They each occupy, or
have occupied, senior positions in industry,
bringing valuable external perspective to
the Board’s deliberations through their
experience and insight from other sectors
enabling them to contribute significantly to
Board decision making. The formal letters
of appointment of the non-executive
directors are available for inspection
at the Company’s registered office.

Board
Non-executive Chairman, two executive directors, four independent non-executive directors

Audit Committee
Four independent
non-executive directors

Provides oversight and governance
over the Group’s financial reporting,
internal controls, risk management and
relationship with external auditor

Committee report pages 68 to 73

Nomination Committee
Non-executive Chairman

Four independent
non-executive directors

Primary responsibility for succession planning,
director selection and Board composition

Committee report pages 66 and 67

Remuneration Committee
Four independent
non-executive directors

Agrees remuneration policy
and sets individual compensation
levels for executive directors
and senior management

Committee report pages 74 to 93

Executive Directors
Chief Executive Officer, Chief Financial Officer

Group Executive Committee
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, EVP Global Sales, EVP Strategic Marketing, Company Secretary & General Counsel

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ statement on corporate governance continued

Board Committees
The Board has established three principal
Board committees, to which it has
delegated certain of its responsibilities.
These are the Audit Committee, the
Nomination Committee and the
Remuneration Committee. The
membership, responsibilities and activities
of these committees are described later
in this corporate governance statement
and, in the case of the Remuneration
Committee, in the Report on directors’
remuneration beginning on page 74.
Membership of these committees is
reviewed annually and minutes of
committee meetings are made available
to all directors on a timely basis.

The chairmen of the Audit, Nomination
and Remuneration Committees intend
to be present at the Annual General

Meeting to answer questions on the
work of their respective committees.

long-term interests of the Company, while
also having regard to other stakeholders.

The written terms of reference for the Audit,
Nomination and Remuneration Committees,
all of which were reviewed, updated where
necessary and approved during the year,
are available on the Company’s website
at https://corporate.spirent.com.

Election and re-election of Directors
In accordance with the Code’s
recommendations, all directors who wish to
continue in their roles will be proposed for
election or re-election at the 2018 Annual
General Meeting to be held in May.

The Board confirms that each of the
directors standing for re-election has been
subject to a formal performance evaluation
in relation to their duty to act in the

Company Secretary
In his role of Company Secretary and General
Counsel, Angus Iveson 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.

Board meetings
The Board held seven meetings during
the year, including a two-day strategy
meeting held at the Company’s site in
Paignton, UK.

Alex Walker1
Bill Thomas2, 3
Paula Bell
Eric Hutchinson
Gary Bullard
Tom Lantzsch4
Tom Maxwell5
Jonathan Silver
Sue Swenson6

Board
3/3
6/7
7/7
7/7
7/7
1/1
3/3
7/7
1/1

Audit
Committee
–
2/2
–
–
4/4
1/1
2/2
4/4
1/1

Nomination
Committee
1/1
1/2
–
–
2/2
1/1
1/1
2/2
1/1

Remuneration
Committee
–
2/3
–
–
6/6
1/1
1/1
6/6
1/1

Notes
1. Alex Walker stepped down from the Board following the AGM on 3 May 2017.
2. Bill Thomas was appointed Chairman of the Board with effect from 19 May 2017, and therefore ceased to be a member of the Audit and Remuneration

Committees on that date.

3. Bill Thomas did not attend the Nomination Committee, Board and Remuneration Committee meetings held on 18 May 2017 as the meetings dealt with the

recommendation and approval of his appointment as Chairman of the Board and his remuneration in the new role.

4. Tom Lantzsch stepped down from the Board on 3 March 2017.
5. Tom Maxwell stepped down from the Board following the AGM on 3 May 2017.
6. Sue Swenson stepped down from the Board on 8 March 2017.

Senior executives below Board level are
invited, when appropriate, to attend Board
meetings and to make presentations
relating to the results and strategies of
their business units and Group-wide
responsibilities. Papers for Board and
Committee meetings are provided to
directors in advance of the meeting.
The attendance of the directors at Board
and Committee meetings during the year
under review is shown in the table above.
If a director is unable to participate in a
meeting either in person or remotely,
the Chairman will solicit their views on
key terms of business in advance of the
relevant meeting, so that that these
can be shared with the meeting.

Directors’ indemnity provisions
In accordance with its Articles of
Association, 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 activities during 2017
At each Board meeting, the Chief Executive
Officer presents an 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 ongoing 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.

Spirent Communications plc Annual Report 2017Key issues considered by the Board during 2017

March

Governance / Compliance
• Stakeholder engagement
• 2016 Full Year compliance
and Annual Report review

• Diversity review
• Legal review
• NED and Chairman
succession planning

Finance
• 2016 Full Year results review
• Viability statement review
• Dividend policy review
• Tax update
• Capital policy review
• Receive Audit Committee
report on internal controls
and risk management

Business / Strategy
• Group performance review
• Sector / industry review
• Portfolio review update

March (2)

• Stakeholder engagement update

May

• AGM voting review
• NED and Chairman succession

planning update

May (2)

• Approval of appointment

of Chairman

• 2017 Q1 results review

• Group performance review
• Strategy presentations

August

• 2017 Half-year compliance review
• Board evaluation kick-off
• Regulatory and legal review
• NED succession planning

• 2017 Half-year results review
• CFO update
•

Insurance review

• 2017 Q3 results review
• Treasury policy review

November

• Board evaluation results review
• Governance compliance review
• CSR review
• Legal review
• NED succession planning update

December

• Governance compliance review
• Talent management review
• NED succession planning update

• Group performance review
• Business initiatives review
•
• Operations / Supply chain review
• Business segment review

IT strategy review

• Group performance review
• Business initiatives update

and review

• Future investments review

• Return on investment review
• Budget 2018

• Group performance review
• Business initiatives update

and review

• Future investments review

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ statement on corporate governance continued

Effectiveness
Board composition
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.

The Chairman holds regular discussions
with the non-executive directors without
the executive directors present to ensure
a free and frank exchange of views on the
effectiveness of the executive directors
and senior management.

Independence
The independence of each non-executive
director is reviewed on appointment and
at least annually. The Board determined that
the current non-executive directors are each
independent in character and judgement,
save for the Chairman who was deemed
independent by the Board at the date of his
appointment. None have been employed
by the Company previously in any capacity
or have any current 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 80) 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 the Code
requirement stating that at least half of the
Board (excluding the Chairman) should
comprise independent non-executive
directors is satisfied.

Appointments to the Board
There is a formal, rigorous and transparent
procedure for the appointment of new
directors to the Board. Details are available
in the Nomination Committee report on
pages 66 and 67 which also provides details
of the Committee’s role and activities.

Commitment
The letters of appointment for the
Chairman and non-executive directors
set out the expected time commitment
required of them and are available for
inspection at the Company’s registered
office and at the Annual General Meeting.
Other significant commitments of the
Chairman and non-executive directors
are disclosed on appointment and
require approval thereafter.

Board development
On appointment, directors are offered an
induction programme on the operations
and activities of the Group, the role of
the Board and the matters reserved
to its decision, the Group’s corporate
governance practices and procedures and
their duties, responsibilities and obligations
as directors of a listed public limited
company. This may be supplemented by
visits to key locations and meetings with,
and presentations by, senior executives.

Further training for directors is available as
required and can be provided by means of
external courses, internal computer-based
training, briefings from specific consultants
or in-house presentations. In addition,
directors’ knowledge of the legal and
regulatory environment is updated through
the provision of information by the Group’s
advisers and by means of regular updates
from the Company Secretary.

New directors are encouraged to take
advantage of opportunities to meet
with major shareholders and attend
presentations to analysts where possible.

Spirent Communications plc Annual Report 2017Board performance evaluation
An evaluation to assess the performance
of the Board as a whole, its committees
and that of the individual directors is
conducted annually.

In accordance with the Code
requirement that the evaluation should
be conducted by an external facilitator
at least every three years, in 2015 Useful
Thinking Limited (“UTL”) was engaged to
undertake a review of the Board and its
Committees. UTL is independent, with
no other connection with the Company.
During the final quarter of 2017, an
internally-led review took place.

Process
Following a scoping exercise with the
Chairman and the Company Secretary to
agree the priority areas and issues to be
addressed in the review, the directors
completed an online questionnaire,
centring on themes including the
strengths and values of the Board, the
quality of succession planning, the
interaction of the Board members with
the Group’s various business units, the
process of managing strategic planning
and the management of risk.

During the year, the implementation of a
number of recommended action points
arising from the 2016 evaluation was
overseen by the Chairman and included
the following actions:

2017 actions
• More clearly articulate Spirent’s

strategic vision;

• Strengthen knowledge of emerging

sectors in order to better understand
allocation of research and
development resources;

• Review appropriateness of KPIs;
• Assess senior leadership depth in

more detail;

• Review existing internal control
procedures in the light of the
recent appointment of a new
Chief Financial Officer.

All respondents to the 2017 evaluation
agreed that the conduct of Board
meetings allows for an open and
constructuve communication style
and that the appointment of new
non-executive directors would continue
to expand the breadth of market
and sector experience to the benefit
of the Company.

The Board members agreed that the
Board and its principal committees
continued to perform effectively.

The Board concluded that the actions
arising from the 2017 review would
continue to be developed through 2018,
with the addition of the following areas
of focus:

2018 Objectives
• Further explore the articulation of

Spirent’s strategic vision;

• Continue to review the effectiveness
of research and development spend;

• Deepen visibility of product

development investment decisions
and understanding of progress of
such investments;
Increase exposure to senior
management for the purposes of
developing internal talent pipeline;

•

• Monitor effectiveness of revised
internal control procedures; and
• Review ‘Go To Market’ approach.

Information flow
The Company Secretary manages the
provision of information to the Board at
appropriate times in consultation with the
Chairman and Chief Executive Officer. In
addition to formal meetings, the Chairman
and Chief Executive Officer maintain
regular contact with all directors. The
Chairman also holds informal meetings
with non-executive directors, without any
of the executives being present, to discuss
any issues affecting the Group, if this is
thought necessary. Regular management
updates are sent to directors to keep the
non-executive directors informed of events
throughout the Group between Board
meetings and to ensure that they are kept
fully advised of the latest issues affecting
the Group.

Conflicts of interest procedures
The Company has procedures in place,
which were reviewed and updated
during the year, to deal with the situation
where a director has a conflict of interest.
As part of this process, the Board:

• considers each potential conflict situation

separately on its particular facts;

• considers the potential conflict situation

in conjunction with the rest of the
directors’ duties under the Companies
Act 2006;

• keeps records and Board minutes as to
authorisations granted by directors and
the scope of any approvals given; and
regularly reviews conflict authorisation.

•

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ statement on corporate governance continued

Accountability
Financial and business reporting
The Board recognises its responsibility to
present a fair, balanced and understandable
assessment of Spirent in all of its reporting
obligations. This responsibility covers the
Annual Report and extends to the half year
report and other regulatory announcements.
The Directors consider this Annual Report,
taken as a whole, to be fair, balanced and
understandable, providing the information
necessary for shareholders to assess the
Company’s performance, business model
and strategy. In arriving at this position,
the Board asked the Audit Committee to
review and confirm a process is in place
to support this assessment. The Audit
Committee confirmed that a robust
approach is in place to support the fair,
balanced and understandable assessment,
details of which can be found in the Audit
Committee’s report on pages 68 to 73.

Business model
A description of the Company’s business
model for sustainable growth is set out in
“Our business model” on pages 20 and 21.
This section provides an explanation of the
basis on which the Group generates value
and preserves it over the long-term and its
strategy for delivering its objectives.

Going concern
After making enquiries, the directors have a
reasonable expectation that the Company
and the Group have adequate resources
to continue in operational existence for
the foreseeable future. Accordingly, and
consistent with the guidance contained
in the document titled ‘Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting’ published
by the FRC, they continue to adopt the
going concern basis in preparing the annual
financial statements.

Internal control and risk management
The Board acknowledges its responsibilities
for the Group’s system of internal control
to facilitate the identification, assessment
and management of risk, the protection of
shareholders’ investments and the Group’s
assets. The directors recognise that they
are responsible for providing a return to
shareholders which is consistent with
the responsible assessment and
mitigation of risks.

Effective controls ensure that the Group’s
exposure to avoidable risk is minimised,
that adequate accounting records are
maintained, that the financial information
used within the business is reliable and
that the consolidated accounts preparation
and financial reporting processes comply
with all relevant regulatory reporting
requirements. The dynamics of the Group
and the environment within which it
operates are continually evolving, together
with its exposure to risk. Internal controls
can only provide reasonable and not
absolute assurance against material
misstatement or loss.

The directors confirm that there is an
ongoing, robust process for identifying,
evaluating and managing the principal risks
faced by the Group and the operational
effectiveness of the related controls, which
has been in place for the year under review
and up to the date of approval of the annual
report and accounts. They also confirm that
they have regularly reviewed the system
of risk management and internal controls
utilising the review process set out below.

The directors confirm that a robust
assessment of the principal risks facing the
Company has been carried out, including
those risks that would threaten its business
model, future performance, solvency or
liquidity. More details are set out in the
Principal risks and uncertainties section
on pages 28 to 31 of this Annual Report.

Standards
Guidelines on the minimum Group-wide
requirements for health and safety and
environmental standards are set out in
policy documents and procedures. There
are also guidelines on the minimum level
of internal control that each of the business
units should exercise over specified
processes. Each business has developed
and documented policies and procedures
to comply with the minimum control
standards established, including
procedures for monitoring compliance
and taking corrective action.

High level controls
All businesses prepare annual operating
plans and budgets which are supplemented
by regular forecasts throughout the year.
Performance against budget is monitored
at operational level and centrally, with
variances being reported promptly. The
cash position at Group and operational level
is monitored constantly and variances from
expected levels are investigated thoroughly.

Clearly defined guidelines have been
established for capital expenditure and
investment decisions. These include the
preparation of budgets, appraisal and
review procedures, and delegated
authority levels.

Financial reporting
Detailed management accounts are
prepared every month, consolidated in
a single system and reviewed by senior
management and the Board. They include
a comprehensive set of financial reports
and key performance indicators covering
commercial and operational issues.
Performance against budgets and forecasts
is discussed regularly at Board meetings
and at meetings between operational and
Group management. The adequacy and
suitability of key performance indicators is
reviewed regularly.

Internal audit
All of the internal audit activities are
co-ordinated by the Head of Risk &
Internal Audit, who has direct access
to the Board Chairman and to the
Audit Committee Chairman and is
accountable to the Audit Committee.

All Group businesses are required to
comply with the Group’s financial control
framework that sets out minimum control
standards. A key function of the Group’s
internal audit resource is to undertake
audits to ensure compliance with the
financial control framework and make
recommendations for improvement in
controls where appropriate.

Senior members of the Group finance
team meet with the Chairman of the
Audit Committee as appropriate but
at least annually, without the presence
of executive management, and have
direct access to the Chairman.

Remuneration
The Directors’ report on remuneration is
set out on pages 74 to 93 and provides
details of our remuneration policy and how
it has been implemented, together with the
activities of the Remuneration Committee.

Articles of Association and share capital
Information in relation to share capital, the
appointment and powers of directors and
the issue and buy back of shares and
significant interests in share capital is set out
in the Directors’ report on pages 94 to 97.

Spirent Communications plc Annual Report 2017Relations with shareholders
The Board is committed to maintaining
good communications with shareholders.
The Chairman, Chief Executive Officer and
Chief Financial Officer have regular face
to face contact with individual institutional
shareholders in order to develop an
understanding of their views which are
then discussed with the Board. Key themes
for discussion in 2017 have included the
appointment processes for the new
Chairman and non-executive directors
and the Remuneration Committee’s
approach to executive remuneration.

All directors are offered the opportunity
to develop a dialogue 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.

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. On 5 May 2017,
the Company held a Capital Markets
Day for analysts and investors, with all
presentations being made available to all
shareholders via the Company’s website.

The Company is always keen to hear the
views of its private shareholders and we
encourage them to access our website
at https://corporate.spirent.com for our
Company reports and business information
and to use our shareholder mailbox at
investor.relations@spirent.com for
detailed enquiries.

Any concerns raised by shareholders or
their representatives, whether expressed
directly or through voting patterns at the
Company’s AGM, are discussed by the

directors and an appropriate response
given either specifically to the concerned
party or, if it is felt to be of wider benefit,
made available to all shareholders
via the Company’s website.

Annual General Meeting
The Company’s 2018 Annual General
Meeting (“2018 AGM”) will be held at
10.30am on 2 May 2018 at the offices
of FTI Consulting, 200 Aldersgate,
Aldersgate Street, London EC1A 4HD.

The Board views the AGM as a valuable
opportunity to communicate with private
shareholders in particular, for whom it
provides the opportunity to hear about
the general development of the business
and to ask questions of the Chairman
and, through him, the chairmen of the
key Committees and other directors.

The Board looks forward to welcoming all
our shareholders to our 2018 AGM and to
updating them on our business developments.

Stakeholder engagement

Stakeholder
Customers

Colleagues

Suppliers

Investors

Why is it important to engage?
Understanding our customers’ needs and behaviours
allows us to deliver relevant products and services,
retain customers and also attract new ones. It also
identifies opportunities for growth.

Interactions with our colleagues are the main
ways that customers experience the brand of the
Company. Our colleagues are fundamental to
the achievement of our customer experience
ambitions and are the cornerstone of our service
and services proposition.
Engaging with our supply chain means that we
can ensure security of supply and speed to market.
Our brand relies heavily on the high standards of
our carefully selected suppliers, in order for us to
deliver market-leading products and services.
As a publicly listed company we need to provide
fair, balanced and understandable information
to instil trust and confidence and allow informed
investment decisions to be made.

Communities Ensures continued viability of the business into the

long-term. We aim to contribute positively to the
communities and environment in which we operate.
Ensures transparency of information on the business
and Spirent’s brand position in the various markets
we serve.

Media and
industry
analysts

Government

Policies and regulatory changes may provide
opportunities and pose risk to our operations.

Ways Spirent engages
• Social media engagement
• Product website
• Customer relevant events
•

Industry forums and
customer groups

• Training and

development programme

• Recognition and reward
• Apprenticeship and
intern programmes

Stakeholders’ key interests
• Value for money
• Customer service
• Reliability

• Career opportunities
• Pay and conditions
• Training and development
•
• Colleague engagement

Innovation

• Logistics efficiencies and

environmental management

• Supplier audits

• Quality management
• Cost efficiency
• Ethical business model

• Annual reports
• Regulatory news releases
• Annual General Meetings
•
Investor presentations
• Corporate website
• One-on-one meetings
• Community investment

initiatives

• Future-oriented information
• Risk information
• Operating and

financial performance

• Dividend
• Access to management
•

Impact of Group activities
on the wider community

• Press releases
• Media and analyst events
• Participation in
industry reports

• Reliable product information
• Transparency of reliable and
timely Group information

• Participation in government
funded / sponsored smart
technology initiatives

• CO2 reduction strategies
• Ethical business model
• Socially responsible strategy

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Nomination Committee Report

We set out to recruit directors with strong technical
backgrounds, with international experience and
specific knowledge of our customers. Our new
Non-executive Directors meet all these criteria.

As part of its ongoing assessment of senior leadership
depth, the Committee and the Board continue to work
towards developing a diverse internal pipeline for future
succession to the Board and senior management.

Members
During the year and at the date of this report:

• Bill Thomas (Chairman from 19 May 2017)
• Alex Walker (Chairman, retired

3 May 2017)

• Jonathan Silver (Chairman from

3 May 2017 to 19 May 2017)

• Gary Bullard
• Tom Lantzsch (retired 3 March 2017)
• Tom Maxwell (retired 3 May 2017)
• Sue Swenson (retired 8 March 2017)
• Wendy Koh (appointed 11 January 2018)
• Edgar Masri (appointed 11 January 2018)

Key duties
In accordance with its terms of reference,
the Nomination Committee’s key
duties include:

•

leading the search process and
making recommendations to the Board
for the appointment of new directors;
regularly reviewing the Board structure,
size and composition (including the
skills, knowledge, independence,
experience and diversity),
recommending any necessary
changes and considering plans
for orderly succession; and

• making recommendations to the Board
about suitable candidates for the role
of Senior Independent Director, and
membership of the Audit and
Remuneration Committees in
consultation with the chairmen
of the relevant Committees.

How the Committee operates
Members of the Nomination Committee are
appointed by the Board from the directors
of the Company. The Committee comprises
a minimum of three independent non-
executive directors. A quorum consists
of two members, being either two
independent non-executive directors
or one independent non-executive
director and the Chairman.

Only members of the Committee have
the right to attend Committee meetings.
Other individuals, such as the Chief
Executive Officer and external advisers,
may be invited to attend meetings
when appropriate.

When dealing with the appointment of
the Chairman, the Committee is chaired
by the Senior Independent Director.

The terms of reference of the Nomination
Committee, which were updated as
necessary and approved during the year,
are available on the Company’s website
at https://corporate.spirent.com.

Spirent Communications plc Annual Report 2017Meetings
The Nomination Committee met three
times during the year under review and has
met once in 2018 to the date of this Report.

Committee activities during 2017
Board appointments process
The Chairman leads the process for new
appointments with external, independent
consultants engaged to conduct a search
for potential candidates. These are
considered on the basis of their skills,
experience and fit with the existing
members of the Board. Procedures for
appointing a non-executive or an executive
director are set out in the Committee’s
terms of reference.

Appointment of new Chairman
Following the announcement in November
2016 of Alex Walker’s intention to retire
as both Chairman and Non-executive
Director at the conclusion of the 2017 AGM,
the Senior Independent Director was
asked by the Committee to initiate a
search for a replacement.

The services of external executive search
firm Spencer Stuart were retained to
assist with the process. Spencer Stuart is
independent, with no other connection
to the Company and is a signatory to the
“Voluntary Code of Conduct for Executive
Search Firms” on diversity and best practice.

Following an extensive process of interviews
and assessments with both external and
internal candidates for the role, on 18 May
2017 the Board approved the appointment
of Bill Thomas, an existing non-executive
director of the Company, as Chairman.

Appointment of new Independent
non-executive directors
During the year, the Chairman led the
process for the appointment of two new
independent non-executive directors as part
of the progressive refreshing of the Board.

The services of external executive
consulting firm Russell Reynolds Associates
were retained to identify candidates. Russell
Reynolds Associates is independent, with
no other connection to the Company, and
is a signatory to the “Voluntary Code of
Conduct for Executive Search Firms”
on diversity and best practice.

Performance review
The performance of the Committee was
evaluated as part of the annual Board
performance evaluation and the Committee
was found to be operating effectively.

Re-election of Directors
The Committee reviews the results of the
annual Board performance evaluation that
specifically relate to the composition of the
Board and whether the time commitment
of those who fulfil the roles of Chairman,
Senior Independent Director and
non-executive director was appropriate.

The Committee was satisfied that all
non-executive members of the Board
devote sufficient time to their duties
and remain independent in nature and
recommends all continuing directors
for re-election by shareholders at the
forthcoming AGM.

Following a rigorous process of
interviews and assessments and, on
the recommendation of the Nomination
Committee, the Board approved the
appointments of Wendy Koh and Edgar
Masri with effect from 11 January 2018.

Diversity policy at Board level
The Board does not currently set specific
aspirations in respect of diversity at
Board level but supports fully the Code’s
principles in respect of this key issue.

As part of its ongoing assessment of
senior leadership depth, the Committee
and the Board continue to work towards
developing a diverse internal pipeline
for future succession to the Board and
senior management.

Spirent as a whole recognises the benefits
of diversity beyond that of gender, taking
account of diversity of social and ethnic
backgrounds and cognitive and personal
strengths when considering appointments
at all levels whilst ensuring appointments
are made on merit and ability to enhance
the performance of the business.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Audit Committee Report

The Committee remains fully committed
to championing good financial and risk
reporting and to ensuring we have in
place the appropriate internal controls.

Alongside the investment in our approach to Internal
Audit, we have augmented our approach to the internal
reporting of any ethics or integrity breaches by employees
through the appointment of an independent third party
offering a confidential whistleblowing hotline.

Dear Shareholder
On behalf of the Audit Committee,
I am pleased to present its report for
the period ending 31 December 2017.

In 2017 the Committee completed its
review of the Company approach to
internal audit. We have now introduced
a co-sourced function consisting of a
Head of Risk & Internal Audit employed
by the Company, supported by external
professional advisers to assist with delivery
of an internal audit programme. We believe
that this will give the Committee greater
assurance that internal controls operate as
intended and provide greater visibility of
potential enhancements that could be
introduced. Alongside the investment in
our approach to Internal Audit, we have
augmented our approach to the internal
reporting of any ethics or integrity
breaches by employees through the
appointment of an independent third party
offering a confidential whistleblowing

hotline. In addition, in 2017 there was a
thorough review and subsequent refresh
of the delegated levels of authority which
was subject to review by the Committee
and recommended to the Board.

Looking ahead, the Committee is aware
that under the EU Audit Regulations it will
be necessary to change the Company
external auditors in time for the new
auditor’s term to begin in 2021. The
Committee will begin preparation for formal
tendering of the external audit during 2019.

As stated in last year’s Audit Committee
report, the Group will report in accordance
with IFRS 15 with effect from the period
beginning on 1 January 2018. The
Committee has received several reports
on the preparations being made to report
under IFRS 15 and understand that this
new standard will not result in a material
impact to our financial results.

Further details on the Committee’s
activities during the year under review
are set out in the report to follow.

As you would expect, the Committee
remains fully committed to championing
good financial and risk reporting and
to ensuring we have in place the
appropriate internal controls.

I look forward to meeting any shareholders
who attend our AGM this year to answer
any questions shareholders may have on
this report or on the Committee’s activities.

Jonathan Silver
Chairman, Audit Committee
8 March 2018

Spirent Communications plc Annual Report 2017Fair, balanced, understandable
In making its recommendation to the
Board that the Annual Report, taken
as a whole, is fair, balanced and
understandable, the Committee
applied robust governance
arrangements, including:

• clear guidance and instruction
of the disclosure requirement
provided to contributors;

• comprehensive Group and subsidiary
accounts processes, with written
confirmations provided by business
unit management teams on the health
of the financial control environment;

• a verification process applied to
factual content with the aim of
providing the information
necessary to assess the
Company’s performance,
business model and strategy;
reviews of the Annual Report
undertaken at different levels
of the Group and by the senior
management team that aim to ensure
consistency and overall balance;

•

• additional scrutiny by senior

management including focused
review of risk registers;

• additional Committee reviews
of the draft Annual Report in
advance of final sign-off; and

• external audit review.

Final approval of the Annual Report
is provided by the Board, on the
recommendation of the Committee.

Members
During the year and at the date of this
report, Committee members were:

• Jonathan Silver (Committee Chairman)
• Gary Bullard
• Wendy Koh (appointed 11 January 2018)
• Tom Lantzsch (until 3 March 2017)
• Edgar Masri (appointed 11 January 2018)
• Tom Maxwell (until 3 May 2017)
• Sue Swenson (until 8 March 2017)
• Bill Thomas (until 18 May 2017)

It is intended that the Audit Committee is
comprised of at least three members, all
of whom are independent non-executive
directors of the Company who have
the necessary range of financial and
commercial expertise to challenge
management. Two members constitute a
quorum. For much of 2017, following the
resignation of non-executive directors from
the Board, the Committee comprised only
two members until successors were
appointed in January 2018.

The Code requires the inclusion of one
financially qualified member (as recognised
by the Consultative Committee of
Accountancy Bodies) with recent and
relevant financial experience. Currently, the
Committee Chairman fulfils this requirement.

Key duties
In accordance with its terms of reference,
the Audit Committee’s key duties include:

• monitoring the integrity of the Group’s
financial statements and any formal
announcements relating to the
Company’s performance, reviewing
significant financial reporting
judgements contained in them
before their submission to the Board
for approval;

• on matters of financial reporting

reviewing and challenging where
necessary the consistency of and any
changes to accounting and treasury
policies; for example whether the Group
has followed appropriate accounting
policies and made appropriate
estimates and judgements, the clarity
and completeness of disclosure,
significant adjustments resulting from
the audit, and the going concern
assumption and compliance with
auditing standards;

• at the request of the Board, reviewing
the content of the Annual Report and
Accounts and advising the Board on
whether, taken as a whole, it is fair,
balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy;

•

• as requested by the Board, assisting in
relation to the Board’s assessment of
the principal risks facing the Company
and the prospects of the Company for
the purposes of disclosures required
in the Annual Report and Accounts;
reviewing the effectiveness of the
Group’s internal financial controls,
including the policies and overall
process for assessing established
systems of internal financial control and
timeliness and the effectiveness of
corrective action taken by management;
reviewing the most appropriate
fulfilment of the internal audit function,
agreeing and assessing the annual
internal audit plan and its effectiveness
in the context of the Company’s overall
risk management system;

•

• overseeing the Group’s policies,

procedures and controls for preventing
bribery, identifying money laundering,
and the Group’s arrangements for
whistleblowing; and

• overseeing the relationship with the
Group’s external auditors, reporting
to the Board each year whether it
considers the audit contract should
be put out to tender taking into account
any legal requirements for tendering or
rotation of the audit contract, reviewing
and monitoring their objectivity and
independence including seeking
information from the external auditor
on an annual basis about its policies
and procedures for maintaining
independence, agreeing the scope
of their work and fees paid to them
for audit, assessing the effectiveness
of the audit process, and agreeing the
policy in relation to the provision of
non-audit services.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Audit Committee Report continued

How the Committee operates
All Committee members are expected
to be financially literate and to have an
understanding of the following areas:

Meetings
The Audit Committee met four times during
the year, with the Committee agenda linked
to events in the Group’s financial calendar.

•

the principles of, and developments in,
financial reporting including applicable
accounting standards and statements
of recommended practice;
• key aspects of the Company’s
operations including corporate
policies and the Group’s internal
control environment;

• matters which may influence the

•

presentation of accounts and key figures;
the principles of, and developments in,
company law, sector-specific laws and
other relevant corporate legislation;
the role of internal and external
auditing and risk management; and
the regulatory framework for the
Group’s businesses.

The Committee invites the Chief Executive
Officer, Chief Financial Officer and senior
representatives of the external auditor
to attend its meetings in full, although
it reserves the right to request any of
these individuals to withdraw.

During the year, the Committee held
two meetings with the external auditor
without any executive members of the
Board being present.

The Committee has unrestricted access
to Company documents and information,
as well as to employees of the Company
and the external auditor.

The Committee’s effectiveness is
reviewed on an annual basis as part of
the Board’s performance evaluation
process and the Committee was found
to be operating effectively.

The terms of reference of the Audit
Committee were reviewed and updated
during the year and can be viewed
on the Company’s website at
https://corporate.spirent.com.

Activities during 2017
The Audit Committee’s activities principally
related to financial reporting, internal
control and risk management, the
preparation for publishing a viability
statement and the external audit. In
addition, the Audit Committee considered
other specific matters such as the Group’s
approach to IT controls and cyber security.

Financial reporting and significant issues
During the year, the Audit Committee:

•

reviewed the full year and half year
financial statements, trading updates,
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) and recommended
the financial statements to the Board
for approval;
reviewed whether the Annual Report
taken as a whole is fair, balanced
and understandable and formed
an opinion thereon prior to
recommending it to the Board;
reviewed and monitored risk management
processes and their potential to impact on
the viability of the Group;
reviewed and considered assumptions
in relation to the going concern basis for
preparation of financial statements; and
reviewed the external auditor’s report
on the interim review and year end audit
and management’s responses to the
issues raised.

The Committee Chairman reports
any significant findings or identified
weaknesses to the Board.

Significant financial issues considered
The Audit Committee has reviewed each of
the following key significant financial risks by:

•

reviewing papers and
management updates;

• holding discussions with management
and key finance staff to challenge
assumptions made;

• debating alternative treatments;
•

receiving periodic reports on key areas
of judgement;

• discussing with the external auditor; and
• considering presentations to analysts
to assess for inconsistencies or areas
of bias.

Revenue recognition
The Committee is aware that pressure on
management to meet certain targets, and
to respond to specific customer requests
may drive additional deal complexity which
in turn could lead to complex accounting.
This may result in inappropriate recognition
of revenue and associated balances. The
Committee has been briefed on the finance
organisation’s implementation of the new
revenue recognition standard (IFRS 15),
which will apply to the Company’s financial
statements for the period beginning
1 January 2018.

As part of their audit procedures agreed
with the Committee, Ernst & Young LLP
(“EY”) would examine the allocation of
revenue, reviewing specific large and
complex transactions and contracts
containing non-standard acceptance
clauses to ensure that revenue has
been recognised appropriately. EY has
also tested the allocation of revenue to
the service element of multi-element
contracts to ensure that deferred revenue
and other associated balances have been
recognised in accordance with Group
accounting policies and IFRS.

Spirent Communications plc Annual Report 2017Misstatements
Management reported to the Committee
that they were not aware of any material
or immaterial misstatements made
intentionally to achieve a particular
outcome. The auditor reported to the
Committee that all misstatements they had
found in the course of their work had been
corrected. After due consideration, the
Committee concurred with management
that no adjustments were required.

Internal control and risk management
During the year, the Audit Committee:

• monitored and reviewed internal

•

control and risk management systems;
reviewed and approved the internal
audit programme for 2017; and
reviewed regular reports on taxation,
treasury operations, health and safety
and cyber security.

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 has
enhanced the approach to Internal
Control and Raising Concerns at Work
as described below during 2017.

Internal Audit
During 2017 the Group further developed
its assurance approach and resource
and a Head of Risk & Internal Audit was
appointed alongside an outsourced
provider for financial control activities,
with an Internal Audit Charter being
approved by the Committee.

The Committee approved the programme of
work for the Internal Audit function, which
was focused on addressing both financial
and overall risk management objectives
across the Group. The Committee oversees
and monitors the work of the Internal Audit
function, which reviews key controls and
processes throughout the Group on a
rolling basis, including resources, scope
and effectiveness of the function.

The Head of Risk & Internal Audit has direct
access to the Board Chairman and to the
Committee Chairman, is accountable to the
Committee and meets regularly with both
the Committee and its Chairman, without
the presence of management, to consider
the work of Internal Audit.

Raising Concerns at Work
In 2017 the whistleblowing procedure in
place across the Group was reviewed. The
Committee aims to ensure that employees
are able to raise any concern about any
possible improprieties in business practices,
or other matters, in confidence. In January
2018 an external third party was appointed
to receive any concerns raised by
employees. Going forward, the disclosures
under this arrangement will be investigated
promptly by the Company Secretary, with
the support of the Head of Risk & Internal
Audit, and escalated to the Executive
Directors and the Committee as appropriate,
with follow-up action being taken as soon
as practicable thereafter. With the revised
procedure now in place, the Committee is
satisfied that the means for employees to
raise concerns at work are approporiate to
the size and scale of the Group.

Deferred tax assets
The Committee recognises there is a
risk that inappropriate use of brought
forward tax losses and volatility in forecast
sales may result in incorrect recognition
of deferred tax assets. In addition, following
the significant reduction in US Federal tax
rates in 2017, due consideration has been
given to the change in the measurement
and resulting disclosures of these assets.
Anticipated restrictions on the utilisation
of carry forward losses in the UK may
also increase the risk and uncertainty.

The Committee noted that EY has
performed a detailed review of the
recognition of deferred tax assets in
the Group accounts as part of their audit
review, with a good level of challenge of
management’s underlying assumptions.

Goodwill impairment
Following the review of the lines of business
by management in 2016 to focus on key
areas for sustainable growth, changes
were introduced to the Group’s operating
segments which resulted in a reorganisation
of the cash generating units for goodwill
impairment purposes and some reallocations
of goodwill to the new cash generating units.
At the end of 2016, management performed
an impairment review and a $69.1 million
charge was made against goodwill and
acquired intangible assets to reflect the
reorganisation of reporting segments, the
intended reduction of investment in certain
business units, the changing outlook
for certain areas of the business, the
reassessment of value in use and a more
competitive landscape. The Committee
noted that as a result of this review, some
areas of the business had limited remaining
headroom for goodwill purposes.

Management undertook its annual review
of impairment at the end of 2017 and the
Committee challenged the assumptions
made and concluded that management’s
assessment of goodwill is appropriate.

As part of its audit process, EY undertook
a review of the procedures followed
and judgements made by management
and agreed that management’s
conclusions related to the impairments
were reasonable.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Audit Committee Report continued

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. This is in accordance
with the Guidance on Risk Management,
Internal Control and Related Financial and
Business Reporting issued by the Financial
Reporting Council in September 2014.

The Chief Financial Officer is responsible
for internal control and 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 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.

Risk Management
Members of the Group Executive
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 analysis and ranking together with
Company-wide risks to form a robust
corporate risk register. This corporate risk
register is presented to the Audit Committee
at least twice each year. Actions arising
from the Audit Committee’s review of the
corporate risk register are fed back to the
business units for their management.

Committee Oversight
Day-to-day responsibility for effective
internal control and risk management and
monitoring rests with senior management
at business unit level. During the year, the
Chief Financial Officer has attended all
Audit Committee meetings to report on
internal control and risk management and
to notify the Committee of any control
weaknesses, control failings and risks,
their impact and the actions taken to deal
with the issues. Detailed updates on
specific areas, such as cyber security
or business continuity, are provided
by the Chief Financial Officer at the
Committee’s request.

The Board and Audit Committee consider
that having the following key elements
in place is critical to underpinning the
overall internal control environment:

Operating structure and controls
An organisational structure with clear
operating procedures, defined lines
of responsibility and delegated levels
of authority which were subject to a
thorough review and refresh during 2017.

Financial control structure
A comprehensive strategic planning,
financial control and budgeting system
which is properly documented and
regularly reviewed.

Ethics Policy
A policy that sets standards of
professionalism and integrity for all
employees and operations. The Ethics
Policy includes sections relating to bribery
and corruption to ensure that all of
Spirent’s systems, controls and training
comply with the anti-bribery and corruption
legislation in the countries in which we
operate and that a culture of prevention
and detection of all forms of bribery and
corruption is in place.

Acquisitions and divestments
A disciplined due diligence process and
post-acquisition integration programme.

Fraud
The Group’s Ethics Policy has been
communicated to all employees and states
that all employees have a responsibility
for fraud prevention and detection.
Any suspicion of fraud will be reported
immediately and investigated vigorously.

External audit
The Committee is responsible for
overseeing the Company’s relations
with the external auditor.

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
auditor: their performance in discharging
the audit and interim review of financial
statements, their independence and
objectivity, and their re-appointment
and remuneration.

Auditor appointment
Each year the Committee assesses and
reports to the Board on the qualification,
expertise and resources, and
independence of the external auditor
and the effectiveness of the audit process,
with a recommendation on whether to
propose to the shareholders that the
external auditor be re-appointed.

The Committee notes and confirms
compliance with the Competition
and Markets Authority Order 2014
(“CMA Order”) in respect of statutory
audit services for large companies.

Following the recommendation of the
Board, EY was appointed (as predecessor
firm Lindsay, Jamieson & Haldane) by the
Company at its Annual General Meeting
on 9 May 1950 to audit the financial
statements of the Company for the period
ending 31 December 1949 and subsequent
financial periods. EY’s total uninterrupted
period of engagement, covering the period
from appointment to the period currently
under review, is 68 years.

Spirent Communications plc Annual Report 2017The Committee is aware that the
transitional provisions of the CMA Order
and the EU Audit Regulations (which
became effective on 17 June 2016) will
require the Company to change its external
auditor no later than 2021. The Committee
further affirms that its current intention is
to change the external auditor no later
than the expiry of the five-year term of the
external audit partner (ie by 2021) and that
on that basis, a competitive tender process
will commence for the new auditor’s term to
begin in 2021.

The Committee will continue to monitor
legislative developments and will continue
to review its conclusions on an annual basis,
however it believes it is appropriate to
recommend the re-appointment of the
incumbent external auditor at the 2018 AGM.

There are no contractual obligations in
existence that restrict the Company’s
choice of auditor.

Auditor effectiveness
The Committee assesses the effectiveness
of the audit process on an ongoing basis,
with particular attention to the mindset and
culture, skills, character and knowledge,
quality control and judgement of the external
auditor in their handling of key judgements,
responsiveness to the Committee and in
their commentary where appropriate on
the systems of internal control.

The Committee reviewed and appropriately
challenged the basis for these before
agreeing the proposed approach and the
scope of the external audit was identified.

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.

Auditor independence
The Committee assesses the independence
and objectivity of the external auditor
annually, taking into consideration relevant
UK law, regulation, the FRC Revised
Ethical Standard and other professional
requirements. EY has provided a letter
confirming its belief that it remained
independent throughout 2017 and has
discussed with the Committee the threats
to its independence and the safeguards
applied to mitigate those threats.

As part of this review, the Committee
examined in particular:

• a report from the external auditor

describing its arrangements to identify,
report and manage any conflicts of
interest; and
the extent of non-audit services
provided by the external auditor.

•

The Committee holds regular private
meetings with the external auditor to
assist with their assessment, including
discussion of:

• how the auditor has identified and

•

addressed potential risks to audit quality;
the controls in place within the audit firm
to identify risks to audit quality, including
the results of internal and external
inspections of the audit team and firm;
• whether the auditor has met the agreed

audit plan, in particular how it has
responded to any changes that have
been required during the process;
feedback from the key people involved
in the audit;
the content of the auditor’s
management letter.

•

Policy on non-audit services
The Committee is responsible for
approving non-audit services, with the
objective of ensuring that the provision
of such services by the external auditor
does not impair its independence or
objectivity. Taking into account relevant
ethical guidance, the Committee’s policy
precludes a number of non-audit services,
including those 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 Committee
accepts that certain work of a non-audit
nature may be best undertaken by the
external auditor. The policy is reviewed
annually and financial limits for the
provision of non-audit services, including
audit-related fees and other fees, are set
on the same annual basis (2017 $0.3 million
(2016 $0.6 million)) and were one-third
of the Group’s Audit fee of $0.9 million
(2016 $0.9 million). In accordance with
the Revised Ethical Standard issued by
the FRC in June 2016, the lead audit
engagement partner is required to notify
the Audit Committee Chairman in advance
for pre-approval of any proposed non-audit
services. The Committee can confirm that
no such non-audit services were provided
by EY during the period under review
(2016 $0.1 million).

In response to the introduction of further
measures under the EU Audit Reform
Directive, the Committee reviewed its
policy regarding the provision of non-audit
services. Tax-related services previously
provided by the external auditor were
re-tendered and, as a result of that
process, these services are now provided
by Deloitte LLP (“Deloitte”). The Committee
is satisfied that Deloitte is independent,
thoughtful and challenging; fees paid
to Deloitte during the period totalled
$0.1 million (2016 $0.1 million) based
on time and materials.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration

We will seek to bring our executive
reward model into alignment with
the evolving expectations of investors.

The Committee is striving to respond to
the increasing requests for transparency
on the breadth and depth of our disclosure.

Dear Shareholder
I am pleased to present our Report on
Directors’ remuneration for the year ended
31 December 2017. This Report has been
prepared on behalf of the Board by the
Committee and has been approved by
the Board.

Investor expectations and the
Committee’s approach to remuneration
I took on the Chairmanship of the
Committee after the AGM in May 2017.
There has been considerable change in
the recent past in investor expectations
both in terms of the breadth and depth of
disclosures related to remuneration and
to the structure of long term incentives.
Although a clear direction of travel has
been established with respect to certain
matters, there is not yet alignment across
all those with investments in Spirent on
the preferred model of executive reward.

The Committee last presented its
Remuneration Policy for approval at
the 2016 AGM, with 96.7 per cent of
shareholders voting in its favour. The
advisory vote on the Remuneration Report
at the 2017 AGM resulted in a vote in
favour of 79.27 per cent. Accordingly, the
Company was added to the Investment
Association’s list of those companies who
had received more than a 20 per cent vote
against their remuneration reports. For
Spirent, the vote against reflected what
are currently irreconcilable differences
in views between certain significant
investors. While the Committee is keen to
respond to shareholder views, there is also
recognition that a balance needs to be
struck where there are disparate views
amongst our major investors.

Against that background, the Committee
is striving to respond to the increasing
requests for transparency on the breadth
and depth of our disclosures and we
believe this Remuneration Report
achieves that goal.

During 2018 the Committee will undertake
a full review of Spirent’s remuneration
policy in preparation for seeking
shareholder approval of a revised policy at
the 2019 AGM. Where we believe it is in the
best interests of the Company, we will seek
to bring our executive reward model into
alignment with the evolving expectations
of investors, for example with regard to the
deferral of bonuses and the introduction
of post-vesting holding periods for the
Long-term Incentive Plan.

Committee’s activities in 2017
In 2017 the Committee focused on:

• Reviewing the fees for the new

Chairman of the Board;

• Reviewing the base salary of the

Executive Directors;

• Reviewing metrics and setting

targets for annual cash incentives;
• Reviewing metrics and targets for

long term incentives;

• Monitoring the changing landscape
of investor expectations with regard
to remuneration; and

• Consulting with shareholders on
remuneration proposals for 2018.

Spirent Communications plc Annual Report 2017Variable Remuneration for 2017
Cash incentives in 2017 were based on
achievement of targets for profitability,
revenue and personal and strategic
objectives. Details of achievements against
targets can be found on page 78; this
reflected a very good profit performance
in the period, the achievement of a good
proportion of personal and strategic
objectives and reasonable performance
against the revenue targets for the period.

Long-term incentives that were due to
vest during 2017 failed to reach threshold
for earnings per share or total shareholder
return performance conditions, and
therefore lapsed.

Shareholder engagement
At the end of 2017 I wrote to a number of
our major shareholders explaining our
proposed approach to base salary, cash
incentive and long-term incentive awards
for 2018 and sought their views. We did not
propose material changes to the approach
taken in 2017. The Committee and I believe
that the metrics we will measure our
executive directors against are appropriate,
the targets challenging, and that reward is
strongly linked to corporate performance
for the benefit of Spirent and its
shareholders. The Committee remains
committed to engaging in regular,
meaningful dialogue with shareholders
and, where appropriate, investor
representative bodies.

Remuneration in 2018
Base salaries of Executive directors
were increased by three per cent over
the prior year. This reflected the general
increase awarded to the larger employee
population. It should be noted that for
the CEO, no increase in base salary had
been made since his appointment in 2013.

For the annual cash incentive, on-target
opportunities for the CEO and CFO will be
reduced to 90 per cent of base salary and
60 per cent of base salary respectively.
As explained on page 76, the metrics used
to determine any payout will be revenue
(30 per cent), adjusted operating profit
(50 per cent) and strategic and operational
priorities (20 per cent). Although the
financial metrics have not changed from
2017, the weightings have been adjusted
as we seek to increase the proportion
of the incentive related to revenue and
growth in the top line. The Committee
believe the targets set are challenging
and appropriate. In 2018, the Executive
directors will, in addition to meeting what
the Board believe are key operational
priorities to drive the performance of the
business, also need to deliver demanding
profitability targets and restore the
business to significant top line growth
to achieve significant payouts in 2018.

Long-term incentive awards in 2018 will be
at the same level as in 2017. The Committee
has retained the earnings per share (“EPS”)
and Absolute Total Shareholder Return
(“TSR”) metrics and weightings at 50 per
cent. The EPS targets reflect significant
growth in the EPS of the company over the
performance period; threshold vesting
requires high single digit growth over the
2017 outcome, with vesting at the upper
end of the range requiring a significant
outperformance of current consensus
forecasts. The Committee acknowledges
that the use of an Absolute TSR measure
is relatively unusual, but we continue to
be of the view that due to the limited
number of true comparator companies,
it remains an appropriate metric and
retains the advantage of providing
alignment with shareholders.

Finally, I would like to give my thanks to Tom
Maxwell who chaired the Committee with
distinction for the last seven years prior to
my taking up the post. I would like to thank
him for his valuable contribution to the
Company and the work of the Committee.

I hope you find this Report clear and
informative. I will be available at the 2018
AGM to respond to any questions that
shareholders may have with respect to
the work of the Committee.

Gary Bullard
Chairman, Remuneration Committee
8 March 2018

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Compliance statement
This Report on Directors’ remuneration for the year ended 31 December 2017 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) (Amendment) Regulations 2013 and 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 the Board has complied with the provisions of the
2016 UK Corporate Governance Code.

The Report is presented in two parts: the Directors’ Annual Remuneration Report and the Directors’ Remuneration Policy.

The Directors’ Annual Remuneration Report sets out details of how our remuneration policy was implemented for the year ended
31 December 2017 and how it will be applied for the year ended 31 December 2018. At the 2018 AGM to be held on 2 May 2018
the Directors’ Annual Remuneration Report on pages 76 to 87 will be put to an advisory shareholder vote.

The current Directors’ Remuneration Policy was approved by a binding vote at the 2016 AGM and became effective on 5 May 2016.

Directors’ Annual Remuneration Report 2017
Statement of implementation of Remuneration Policy in 2018 (unaudited)
Information on how the Company intends to implement the Directors’ Remuneration Policy in 2018 is set out below.

Salary

Eric Hutchinson
Paula Bell

Benefits
• Life insurance cover of four times annual base salary
• Permanent health insurance
• Private healthcare cover for executive and family
• Car allowance

2018
£412,000
£339,900

2017
£400,000
£330,000

Retirement benefits
Eric Hutchinson and Paula Bell will each receive a taxable cash sum in lieu of pension at a rate of 20 per cent of base salary.

Annual cash incentive
The Committee has set targets for the year focused on adjusted operating profit, revenue and strategic and operational priorities.
Although the target detail is considered commercially sensitive, the weightings for the year ended 31 December 2018 are as follows:

Adjusted Operating Profit
Revenue
Strategic and Operational Priorities

On-target and maximum annual cash incentive payments are as follows:

Eric Hutchinson
Paula Bell

50%
30%
20%

On target
performance
% of base
salary
90
60

Maximum
% of base
salary
150
100

Details of these targets and their achievement will be disclosed in the Directors’ Annual Remuneration Report 2018.

Spirent Communications plc Annual Report 2017
Award under Spirent Long-term Incentive Plan
It is anticipated that the following award will be made under the LTIP in 2018:

Eric Hutchinson
Paula Bell

Anticipated
value
of award
£618,000
£339,900

The awards are made in the form of performance shares, which are valued at the share price on the date of grant.

Having reviewed the performance targets for awards under the LTIP, the Committee has determined that for the Performance
Shares awards to be made in 2018, the following parameters are appropriate, calculated over a three-year performance period:

50 per cent of award:

The EPS performance period starts at the beginning of the financial year in which the award is made, in this case on 1 January 2018,
and ends after three years, in this case on 31 December 2020.

Target EPS (adjusted) at the conclusion of the performance period
Below 9.3 cents
9.3 cents
Above 9.3 cents and below 10.6 cents
10.6 cents
Above 10.6 cents and below 13.5 cents
13.5 cents and higher

Proportion of Performance shares vesting (%)
0
25
On a straight-line basis between 25 and 50
50
On a straight-line basis between 50 and 100
100

50 per cent of award:

In determining TSR growth for the Company, share prices will be averaged over 90-day periods immediately prior to the announcement
of the 2017 Full Year results on 8 March 2018 and the 2020 Full Year results.

Absolute TSR1

Below 17% growth
17% growth
Above 17% growth but below 25% growth
25% growth
Above 25% growth but below 42% growth
42% growth or higher

Note
1. Share price including reinvested dividends.

Proportion of Performance shares vesting (%)

0
25
On a straight-line basis between 25 and 50
50
On a straight-line between 50 and 100
100

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Audited information
Single figure of total remuneration for 2017
The table below provides a single figure of total remuneration for 2017 and 2016 for the executive directors1.

Eric Hutchinson
Paula Bell

Eric Hutchinson
Rachel Whiting7
Paula Bell8

Salary2
£000
400.0
330.0

Salary2
£000
400.0
163.9
107.9

Benefits3
£000
17.0
16.2

Annual cash
incentive4
£000
520.8
310.6

Benefits3
£000
16.9
1.1
182.2

Annual cash
incentive4
£000
135.7
27.8
111.3

Long-term
incentive5
£000
–
–

Long-term
incentive5
£000
–
–
–

Pension6
£000
80.0
66.0

Total 2017
£000
1,017.8
722.8

Pension6
£000
80.0
23.0
21.6

Total 2016
£000
632.6
215.8
423.0

Notes
1. All executive directors who served during 2016 and 2017 are UK based and paid in sterling, therefore the data is presented in this currency.
2. Salary and fees: cash paid in respect of the year.
3. Benefits: taxable value of all benefits in respect of the year which comprise relocation expenses, private healthcare, permanent health insurance,

life insurance and car allowance.

4. Annual cash incentive: cash incentive payable in respect of the year.
5. Long-term incentive: value of Performance Shares vesting in the year based on the performance condition that ends in the year.
6. Pension: cash value in lieu of pension.
7. Rachel Whiting stepped down from the Board on 4 May 2016 and retired from the Company on 6 September 2016; the figures shown represent the amounts

earned until the date of her retirement in September 2016.
8. Paula Bell was appointed to the Board on 5 September 2016.

Annual performance incentives
During 2017, cash incentives were available to executive directors on an annual basis, with a maximum total cash incentive available
of 150 per cent of base salary and 100 per cent for Eric Hutchinson and Paula Bell respectively.

The maximum annual incentive which could be earned was determined by reference to growth targets in the Company’s adjusted
operating profit and revenue, representing 60 per cent and 20 per cent of the incentive respectively, with performance against
an agreed set of strategic and operational priorities linked to improving Spirent’s operational effectiveness in the areas of sales,
engineering and finance representing the remaining 20 per cent of the incentive.

Adjusted operating profit element (60 per cent of annual incentive)

Target Achievement

$43.0m
$53.0m
$57.0m

$58.9m

Target Achievement

$451.5m
$454.6m
$464.6m

$454.8m

Entry point
On-target
Maximum

Revenue (20 per cent of annual incentive)

Entry point
On-target
Maximum

Spirent Communications plc Annual Report 2017

Strategic and Operational Priorities (20 per cent of annual incentive)

Eric Hutchinson
Paula Bell

Total annual incentive

Eric Hutchinson
Paula Bell1
Rachel Whiting2

Achievement
66.7 per cent
100.0 per cent

% of on-target
annual
incentive
130.2
134.5
–

2017

2016

% of base
salary
130.2
94.1
–

£
520,800
310,596
–

% of base
salary
33.9
33.9
33.9

£
135,680
25,331
27,804

Note
1. Paula Bell was appointed to the Board on 5 September 2016; her cash incentive payment for 2016 was pro-rated for time served in role.
2. Rachel Whiting stepped down from the Board on 4 May 2016 and retired from the Company on 6 September 2016; her cash incentive payment for 2016 was

pro-rated for time served until the date of her retirement.

Relocation expenses
No relocation expenses were paid to either Executive Director during 2017.

Following her appointment as Chief Financial Officer in 2016, Paula Bell received £176,940 in cash as relocation expenses.
The amount reimbursed is subject to a three-year clawback from her start date (5 September 2016), with the balance of the clawback
reducing by one-third on each anniversary of that start date.

Total pension entitlements
Eric Hutchinson receives a taxable cash allowance in lieu of pension of 20 per cent of base salary. For 2017, the allowance paid was
£80,000 (2016 £80,000).

Paula Bell receives a taxable cash allowance in lieu of pension of 20 per cent of base salary. For 2017, the allowance paid was £66,000
(2016 £21,500).

External appointments
Eric Hutchinson held no external positions during the year under review or to the date of this Report.

On appointment in 2016, the Board agreed that it was acceptable for Paula Bell to continue with her non-executive role with Laird plc.
Fees in respect of this directorship are paid directly to and retained by Ms Bell.

Payments to past directors
There were no payments made to past directors during the year under review.

Payments for loss of office
There were no payments for loss of office during the year under review.

Payments of advances, credits or guarantees
There were no payments of advances, credits or guarantees to directors during the year under review.

Non-executive director fees
Details of individual appointments are as follows:

Director
Gary Bullard
Wendy Koh
Edgar Masri
Jonathan Silver
Bill Thomas

First appointed
as a director
1 December 2016
11 January 2018
11 January 2018
25 June 2015
1 December 2016

Current
appointment
due to expire
2020 AGM
2018 AGM
2018 AGM
2019 AGM
2020 AGM

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Corporate Governance
Report on Directors’ Remuneration continued

During 2017, fees for the non-executive directors were reviewed with effect from 1 January 2018. Having been frozen since 1 January
2008, it was determined that the basic annual fee for non-executive directors should increase to £50,000 per annum for 2018 (2017
£40,000). Fees for the Chairman, which are determined by the Remuneration Committee, will remain at £160,000 per annum for 2018,
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 in recognition of the increased time commitment of these roles (2017 £11,000 and £9,000
respectively). During the period under review, the person who filled the role of Senior Independent Director was entitled to receive an
additional fee of £7,500 per annum in recognition of the increased time commitment associated with the role but chose to waive the
additional fee during the period under review.

Fees for non-executive directors and the Chairman will be reviewed again in 2020 for the period from 1 January 2021.

Details of fees paid to non-executive directors in 2017 and 2016 are as follows:

Bill Thomas (Chairman)1
Alex Walker (Chairman)2
Gary Bullard3
Tom Lantzsch4
Duncan Lewis5
Tom Maxwell6
Jonathan Silver
Sue Swenson7
Total

2017
£000
114.2
55.2
45.9
7.1
–
16.9
51.0
7.4
297.7

2016
£000
3.3
160.0
3.3
40.0
10.0
49.0
51.0
46.3
362.9

Notes
1. Bill Thomas was appointed to the Board on 1 December 2016 and was appointed Chairman on 19 May 2017.
2. Alex Walker stepped down as Chairman and from the Board on 3 May 2017.
3. Gary Bullard was appointed to the Board on 1 December 2016 and was appointed Chairman of the Remuneration Committee on 3 May 2017.
4. Tom Lantzsch stepped down from the Board on 3 March 2017.
5. Duncan Lewis served as a director until his death in March 2016.
6. Tom Maxwell stepped down as Chairman of the Remuneration Committee and from the Board on 3 May 2017.
7. Sue Swenson stepped down from the role of Senior Independent Director and from the Board on 8 March 2017.

Statement of directors’ shareholdings 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
Paula Bell
Eric Hutchinson
Non-executive directors
Gary Bullard
Tom Lantzsch3
Tom Maxwell4
Jonathan Silver
Sue Swenson5
Bill Thomas
Alex Walker6

At 31
December
2016
Ordinary
Shares1

At 31
December
2017
Ordinary
Shares1

At 8 March
2018
Ordinary
Shares2

–
1,727,324

150,000
2,007,219

150,000
2,007,707

–
60,000
100,000
70,000
–
–
342,458

40,000
60,000
100,000
70,000
–
46,199
417,458

40,000
n/a
n/a
70,000
–
46,199
n/a

Notes
1. Directors’ beneficial interests do not form part of the remuneration provided by the Company.
2.

Events since 31 December 2017:
On 24 January 2018, Eric Hutchinson acquired 246 Ordinary Shares under the UK Employee Share Purchase Plan at a price of 101.6 pence per share.
On 24 February 2018, Eric Hutchinson acquired 242 Ordinary Shares under the UK Employee Share Purchase Plan at a price of 103.0 pence per share.

3. Tom Lantzsch stepped down from the Board on 3 March 2017; the figures shown represent his beneficial interests on that date.
4. Tom Maxwell stepped down from the Board on 3 May 2017; the figures shown represent his beneficial interests on that date.
5. Sue Swenson stepped down from the Board on 8 March 2017; the figures shown represent her beneficial interests on that date.
6. Alex Walker stepped down from the Board on 3 May 2017; the figures shown represent his beneficial interests on that date.

Spirent Communications plc Annual Report 2017Shareholding 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 2017 or the date they left
the Company:

Paula Bell1
Eric Hutchinson

Guideline holding
100% of base salary
100% of base salary

Beneficially owned shares
150,000
2,007,219

Unfettered share incentives
–
–

Guideline met?
No
Yes

Note
1. Paula Bell is a recent hire, having joined the Board in September 2016, and is in the process of building up a shareholding to meet this guideline.

Outstanding share incentive awards1
The share incentive interests of executive directors who served during the period 1 January 2017 to the date of this Report are set out below:

Paula Bell

Plan Type
Award Type
Award Date
At 1 January 2017 (or date of appointment)
Granted during the period
Vested during the period
Lapsed during the period
Any other adjustments during the period
At 31 December 2017 (or at date of cessation)
Market price at date of award (£)2
Face value of award granted in period (£)
Exercise price (£)3
Subject to performance conditions?
Performance condition
Performance condition testing date4
Result of performance condition testing
Market price at vesting date (£)
Exercise date
Market price at exercise date (£)
Gain on exercise (£)
Expiry date

LTIP
PS

268,293
–
–
–
–
268,293
0.8200
–
Nil
Yes
50% EPS, 50% TSR

LTIP
PS
30 September 2016 30 September 2016
292,683
–
–
–
–
292,683
0.8200
–
Nil
Yes
50% EPS, 50% TSR
08 March 20185 30 September 2019
–
–
–
–
–
23 March 20185 30 September 2019

–
–
–
–
–

LTIP
PS
04 May 2017
–
279,661
–
–
–
279,661
1.1800
330,000
Nil
Yes
50% EPS, 50% TSR
04 May 2020
–
–
–
–
–
04 May 2020

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Eric Hutchinson

Plan Type
Award Type
Award Date
At 1 January 2017 (or date of appointment)
Granted during the period
Vested during the period
Lapsed during the period
Any other adjustments during the period
At 31 December 2017
(or at date of cessation)
Market price at date of award (£)2
Face value of award granted in period (£)
Exercise price (£)3
Subject to performance conditions?
Performance condition
Performance condition testing date4
Result of performance condition testing
Market price at vesting date (£)
Exercise date
Market price at exercise date (£)
Gain on exercise (£)
Expiry date

EIP
PS
28 April 2014
493,583
–
–
493,5836
–

–
1.0130
500,000
Nil
Yes
50% EPS, 50% TSR
28 April 2017
0% vest
1.1725
–
–
–
28 April 2017

EIP
PS
18 May 2015
578,035
–
–
–
–

LTIP
PS
16 June 2016
781,758
–
–
–
–

LTIP
PS
04 May 2017
–
508,474
–
–
–

578,035
0.8650
500,000
Nil
Yes
50% EPS, 50% TSR
18 May 2018
–
–
–
–
–
18 May 2018

781,758
0.7675
600,000
Nil
Yes
50% EPS, 50% TSR
16 June 2019
–
–
–
–
–
16 June 2019

508,474
1.1800
600,000
Nil
Yes
50% EPS, 50% TSR
04 May 2020
–
–
–
–
–
04 May 2020

Notes
An explanation of each share plan and its operation is given in note 30 to the audited consolidated financial statements of the Group.
1.

Key to share plan and type of award:
EIP PS – 2005 Employee Incentive Plan Performance Shares awarded as conditional share awards.
LTIP PS – 2016 Long-term Incentive Plan Performance Shares awarded as conditional share awards.

2. 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.
3. There is no exercise price payable for a Performance Share upon vesting.
4. Awards which have passed the date first exercisable have vested and are unfettered, having passed the relevant performance conditions.
5. The performance conditions for this award are based on (i) an EPS growth target based on performance reported for 31 December 2017 and (ii) a TSR growth

target based on the Company share price averaged over a 90 day period immediately prior to the announcement of the 2017 Full Year results. Full Year results
for 2017 and EPS performance to 31 December 2017 will be reported on 8 March 2018, not 5 March 2018 as previously anticipated and therefore the
performance condition testing date for this award has been updated accordingly.

6. The awards of EIP Performance Shares granted on 28 April 2014 were due to vest on 28 April 2017. However, after the testing of performance conditions
attached to these awards the Remuneration Committee confirmed that the performance condition thresholds (15 per cent growth in EPS and 25 per cent
growth in Absolute TSR) had not been met, resulting in the lapsing of the awards in full.

Spirent Communications plc Annual Report 2017Share incentive interests awarded during the year
In 2017, the Committee approved an award of Performance Shares to Mr Hutchinson and Ms Bell equivalent to 150 per cent and 100 per
cent of base salary respectively.

50 per cent of award:

Target annual compound growth rates in EPS (adjusted)
Below 15% growth
15% growth
Above 15% growth and below 20% growth
20% growth
Above 20% growth and below 32% growth
32% growth and higher

Proportion of Performance shares vesting (%)
0
25
On a straight-line basis between 25 and 50
50
On a straight-line basis between 50 and 100
100

The EPS performance period normally starts at the beginning of the financial year in which the award is made.

50 per cent of award:

Absolute TSR
Up to 17% growth
At 17% growth but below 42% growth
42% growth or higher

Proportion of Performance shares vesting (%)
0
On a straight-line basis between 25 and 100
100

In determining TSR growth for the Company, share prices will be averaged over 90 day periods immediately prior to the announcement
of the 2016 Full Year results on 2 March 2017 (91.92 pence) and the 2019 Full Year results.

Share incentive interests vesting during 2018
Ms Bell’s award which is due now to vest on 23 March 2018 is subject to an EPS performance condition and a TSR performance
condition. The EPS condition has passed the growth threshold required for partial vesting, but has not achieved the growth required
for full vesting. The TSR condition will be tested after the conclusion of the performance period.

Mr Hutchinson’s award which is due to vest on 18 May 2018 is subject to an EPS performance condition and a TSR performance
condition. The EPS condition has passed the growth threshold required for partial vesting, but has not achieved the growth required
for full vesting. The TSR condition will be tested after the conclusion of the performance period.

No new shares were issued during the year, with all exercises of share incentives being satisfied by the transfer of shares held by
the Company’s Employee Share Ownership Trust (“ESOT”). At the date of this Report, the ESOT holds 0.6 million Ordinary Shares
for the purpose of satisfying the exercises of current and future awards by employees and former employees of the Group.

Dilution
Overall shareholder dilution resulting from the Company’s share incentive plans (on a rolling ten-year basis) has fallen by 1.4 per cent
when comparing the positions at 31 December 2017 (5.1 per cent) and 31 December 2016 (6.5 per cent). The overall number of share
incentives outstanding has decreased by 0.6 million during the year to 10.0 million at 31 December 2017 (2016 10.6 million).

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Unaudited information
Total shareholder return performance
The graph below shows the TSR performance for the last nine 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.

Nine-year TSR performance – Spirent vs FTSE TechMARK1 and FTSE 250

500

400

300

200

100

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Spirent

FTSE 250

FTSE TechMARK 1001

Note
1. As of 1 January 2009, excluding FTSE 100 companies.

The middle market price of an Ordinary Share at the close of business on 3 January 2017 and 29 December 2017 (being the first and
last days the London Stock Exchange was open for trading in 2017) was 100.75 pence and 102.00 pence respectively, and during that
period ranged between a high of 127.50 pence and a low of 90.50 pence.

Percentage change in the remuneration
of the director undertaking the role of
CEO compared to the percentage change
in remuneration of average employee1

Remuneration paid to all employees
$ million4

Returns to shareholders
$ million

%
0
7
9
6

7
1

%
0
3
4
1

7
1

%
0
5
2
3

6
1

%
0
3
5

6
1

4
7
0
2

4
2
9
1

1
.
4
1

2
4
1

1
.
0
1

4
0
1

6
1

7
1

6
1

7
1

CEO2

Average employee3

Final dividend5

Interim dividend5

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

employee for 2016 and 2017.

2. As explained on pages 75 and 76, the CEO did not receive a base salary increase in 2016 or in 2017. The increase shown in this graph represents the payout of

the CEO’s annual cash incentive relating to 2017, compared to the annual cash incentive payout received in 2016.

3. As set out in note 9 to the consolidated financial statements.
4. Total as set out in note 9 to the consolidated financial statements.
5. Total as set out in note 13 to the consolidated financial statements.

Spirent Communications plc Annual Report 2017Table of CEO remuneration1

Year
2017
2016
2015
2014
2013
2013
2012
2011
2010
2009

CEO
Eric Hutchinson
Eric Hutchinson
Eric Hutchinson
Eric Hutchinson
Eric Hutchinson2
Bill Burns3
Bill Burns
Bill Burns
Bill Burns
Bill Burns

Annual bonus
payout
against
maximum
opportunity
%
86.8
22.6
–
–
12.0
–
40.5
93.3
100.0
93.9

CEO single
figure of total
remuneration
£000
1,017.8
632.6
497.1
521.6
186.9
401.3
931.8
1,309.6
1,279.9
997.8

Long-term
incentive
vesting rates
against
maximum
opportunity
%
–
–
–
–
–
–
34
84
100
100

Notes
1. Prior year data in this table has been recalculated from US dollars to be presented in sterling at the following average exchange rates: 2014 $1.65:£1;

2013 $1.56:£1; 2012 $1.58:£1; 2011 $1.60:£1; 2010 $1.54:£1; 2009 $1.57:£1.

2. Eric Hutchinson took up the position of Chief Executive Officer on 3 September 2013.
3. Earnings disclosed are to 3 September 2013, when Bill Burns stepped down as Chief Executive Officer.

Statement of shareholder voting
At the 2017 AGM on 3 May 2017 the results of shareholder’s voting on remuneration matters were as follows:

Advisory vote regarding the Report on directors’ remuneration for the year to 31 December 2016:

Votes For1
317,265,182

% Votes Against
79.27 82,964,588

% Votes Cast
20.73 400,229,770

Votes Withheld2
95,959,142

The most recent binding vote for the Company’s Remuneration Policy, approved by shareholders at the 2016 AGM and effective
from 5 May 2016:

Votes For1
461,594,887

% Votes Against

96.70 15,772,687

% Votes Cast
3.30 477,367,574

Votes Withheld2
28,531

Notes
1. The “For” vote includes those giving the Company Chairman discretion.
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.

Votes “For” and “Against” are expressed as a percentage of total votes cast.

At its Annual General Meeting on 3 May 2017, Spirent Communications plc received a significant shareholder vote against the
resolution seeking shareholder approval of the Company’s 2016 Report on directors’ remuneration, equating to 20.73% of the total
voting rights in the Company. As required, the Company noted the votes against in its announcement of the Annual General Meeting
results released on 3 May 2017.

The 20.73% of votes against largely reflected the views of two investors, representing 11.18% (“Investor A”) and 9.42% (“Investor B”)
of total votes cast respectively.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information
Corporate Governance
Report on Directors’ Remuneration continued

Investor A (11.18% of total votes cast on the resolution)
The Company’s Remuneration Committee (the “Committee”) has engaged with Investor A since the Annual General Meeting,
and has been given two reasons for their vote against:

(i) Investor A’s primary concern is that it does not consider the Company’s long-term incentive plan as currently designed to be

sufficiently generous to incentivise management.

While the Committee understands Investor A’s perspective, it believes it would be difficult to reconcile this with the views of other
institutional investors. The use of long-term incentive plans will continue to be reviewed by the Committee on an ongoing basis.

(ii) Investor A considered the buy-out awards and relocation package granted to the CFO on appointment in September 2016 to be

unreasonable in magnitude.

As stated in the 2016 Report on directors’ remuneration, the Committee sought to reassure shareholders that, even including the
buy-out awards granted to the CFO, the maximum level of variable pay awarded was in accordance with the Remuneration Policy
and represented only a proportion of the actual value of the awards forfeited by the CFO upon her appointment to Spirent.

We continue an active dialogue with our shareholders on a wide range of issues and seek to strike a balance between the differing
views amongst our investor base.

Investor B (9.42% of total votes cast on the resolution)
Investor B has a policy of voting against all remuneration reports where vesting of long-term incentive plans is not based on a minimum
period of five years or three years plus a two-year holding period post-vesting.

The Committee will continue to keep under review and consider the views of shareholders on the issue of holding periods post vesting
of LTIP awards.

Remuneration Committee
Responsibilities
The Remuneration Committee is responsible to the Board for determining:

remuneration policy for the executive directors and Chairman taking into account remuneration trends across the Company;

•
• specific terms and conditions of employment of each individual executive director;
• overall policy for remuneration for the executive directors’ direct reports;
• design and monitoring of the operation of any Company share incentive plans;
• setting stretching incentive targets to encourage enhanced performance;
• determining an approach that rewards fairly and responsibly contribution to the Company’s long-term success; and
• other provisions of the executive directors’ service agreements and ensuring that contractual terms on termination, and

payments made, are fair to the individual and the Company and that failure is not rewarded and loss is mitigated.

The Committee’s remit is set out in detail in its terms of reference, which are reviewed regularly and were approved in March 2017.
They are available on the Company’s website at https://corporate.spirent.com.

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. The Company Secretary serves as Secretary to the Committee. All members are considered independent
within the meaning of the 2016 UK Corporate Governance Code (the “Code”).

Spirent Communications plc Annual Report 2017Advisers to the Committee
During the period under review the Committee consulted with the Company’s Chairman, Chief Executive Officer, Chief Financial Officer
and the Company Secretary & General Counsel but not on matters relating to their own remuneration.

Deloitte LLP was appointed by the Committee in 2015 to undertake a market review of executive remuneration practices and assist
with the design and introduction of a new long-term incentive plan. The Committee is satisfied that Deloitte LLP is independent,
thoughtful and challenging. Deloitte LLP is also 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. The Committee considers Deloitte LLP to be independent in its approach.

The fees paid to Deloitte LLP to carry out work for the Remuneration Committee during the period under review totalled £25,380
(2016 £65,880) and were based on time and materials.

Kepler Associates Limited, who were acquired in June 2015 by Mercer Limited, were appointed by the Committee some years ago to
provide the results of TSR testing to determine the vesting of share incentives. The Committee has retained Mercer Limited in this role
because it values the robust data provided and continuity of advice from the consultants involved. The Committee is satisfied that
Mercer Limited is independent, thoughtful and challenging. Mercer 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 Mercer
Limited to be independent in its approach.

The fees paid to Mercer Limited to carry out work for the Remuneration Committee during the period under review totalled £11,325
(2016 £7,260) and were based on time and materials.

Directors’ Remuneration Policy (unaudited)
This section sets out the Remuneration Policy for executive and non-executive directors. This Remuneration Policy was subject
to a binding vote at the 2016 AGM on 4 May 2016 and, having received 96.7% of all votes cast in favour, became effective on
5 May 2016. The full policy as approved by shareholders has been included below for ease of reference, however the illustration
of application of policy has been updated for 2018. The Policy will be put to shareholders again no later than the 2019 AGM.

The most significant change from the policy approved at the Company’s 2014 AGM was the introduction of the new Spirent Long-term
Incentive Plan (the “LTIP”).

The Company’s previous Remuneration Policy was approved by shareholders at the Company’s 2014 AGM held on 23 April 2014 with
99.02 per cent of all votes cast in favour and it had a binding effect on the Company from 24 April 2014.

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 promote value creation through
transparent alignment with the agreed corporate strategy, supporting performance and encouraging the underlying sustainable
financial health of the business while promoting sound risk management for the benefit of all stakeholders. The Committee
believes that the aims of the policy are achieved by ensuring that a significant proportion of executive remuneration is tied to
the achievement of the agreed corporate strategy and long-term value creation.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Fixed pay
Purpose and link to strategy
Base salary
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

Benefits
To provide market levels of benefits
on a cost-effective basis

Retirement benefits
To provide cost-effective and
competitive post-retirement benefits

Variable pay
Annual incentive
To reward and incentivise the achievement of
annual financial and strategic goals which are
selected to align the strategy of the business
and support enhancement of shareholder value

Long-term incentive
To incentivise executives to achieve
the Company’s long-term strategy and
enhance sustainable shareholder value

Key features

Maximum potential value

Performance metrics

Base salaries are normally reviewed annually, with changes effective from
1 January

Set at levels to recruit and retain the high calibre talent needed to deliver
the Group’s strategy without paying more than is considered necessary

Salaries are typically set after considering various factors including
the salary levels in companies of a similar size and complexity, the
responsibilities of each individual role, progression within the role,
individual performance and an individual’s experience and with regard
to market 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

While there is no defined maximum salary, any increase

None

in salary will ordinarily be (in percentage 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 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

Details of current salary levels are set out in the

Annual report on remuneration

May include private health cover for the executive and their family,
life insurance cover of up to four times annual base salary, permanent
health insurance and a car allowance

The overall value of benefits will depend on the

None

individual’s circumstances and therefore there is

no formal maximum

Executive directors may participate in any all-employee share plans which
may be operated by the Company on the same terms as other employees

Participation in all-employee share plans will be in

line with relevant statutory limits

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

It is intended that the maximum value of benefits offered

will remain broadly in line with market practice in the

location in which the executive director operates

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

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

It is intended that the maximum value of retirement

None

benefits offered will remain broadly in line with

market practice in the location in which the executive

director operates

Pension arrangements for current executive directors

are set out in the Annual report on remuneration

The annual incentive is normally payable in cash and is not pensionable

The annual incentive starts accruing from threshold

Annual incentives may be based on a mix of financial and individual

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. Any such amendment
would be reported to shareholders

Clawback provisions apply to any annual incentive payments made.
Prior to payment of any cash incentive, the Committee could exercise
its discretion and make no payment due to a malus event

Discretionary awards of conditional awards (or economic equivalent) may
be granted to executive directors annually, calculated as a percentage of
base salary

levels of performance

and business objectives with the majority of the weighting being given

CEO: On target opportunity of 100 per cent base

to financial metrics

salary, subject to cap of 150 per cent base salary

Measures, weightings and targets are determined by the Remuneration

CFO: On target opportunity of 70 per cent of base

salary, subject to cap of 100 per cent base salary

Committee each year taking into account the Group’s key strategic

priorities and the approved budget for the year and are set out in the

Annual report on remuneration

Maximum plan limit for awards is 200 per cent of

Award levels and performance conditions are reviewed before each

base salary

award cycle to ensure they remain appropriate

Details of proposed award levels for 2018 are set

Vesting is based on performance measured over three years

Malus and clawback provisions will apply to all awards made under the new
Spirent Long-term Incentive Plan

out in the Annual report on remuneration

A full description of the performance conditions applicable to long-term

incentive awards are set out in the Annual report on remuneration

Spirent Communications plc Annual Report 2017Fixed pay

Purpose and link to strategy

Base salary

which reflects the size and scope of the

executive director’s responsibilities and

their individual skills and experience

Key features

1 January

To provide fixed remuneration for each role

Base salaries are normally reviewed annually, with changes effective from

Set at levels to recruit and retain the high calibre talent needed to deliver

the Group’s strategy without paying more than is considered necessary

Salaries are typically set after considering various factors including

the salary levels in companies of a similar size and complexity, the

responsibilities of each individual role, progression within the role,

individual performance and an individual’s experience and with regard

to market 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

Maximum potential value

Performance metrics

While there is no defined maximum salary, any increase
in salary will ordinarily be (in percentage terms) in line
with those of the wider workforce, having particular
regard to the increases in the country in which the
individual resides

None

Increases beyond those granted to the wider workforce
(in percentage 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

Details of current salary levels are set out in the
Annual report on remuneration

Benefits

To provide market levels of benefits

May include private health cover for the executive and their family,

on a cost-effective basis

life insurance cover of up to four times annual base salary, permanent

health insurance and a car allowance

The overall value of benefits will depend on the
individual’s circumstances and therefore there is
no formal maximum

None

Executive directors may participate in any all-employee share plans which

may be operated by the Company on the same terms as other employees

Participation in all-employee share plans will be in
line with relevant statutory limits

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

It is intended that the maximum value of benefits offered
will remain broadly in line with market practice in the
location in which the executive director operates

Retirement benefits

To provide cost-effective and

competitive post-retirement benefits

Variable pay

Annual incentive

annual financial and strategic goals which are

selected to align the strategy of the business

and support enhancement of shareholder value

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

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

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. Any such amendment

would be reported to shareholders

Clawback provisions apply to any annual incentive payments made.

Prior to payment of any cash incentive, the Committee could exercise

its discretion and make no payment due to a malus event

To reward and incentivise the achievement of

The annual incentive is normally payable in cash and is not pensionable

It is intended that the maximum value of retirement
benefits offered will remain broadly in line with
market practice in the location in which the executive
director operates

None

Pension arrangements for current executive directors
are set out in the Annual report on remuneration

The annual incentive starts accruing from threshold
levels of performance

CEO: On target opportunity of 100 per cent base
salary, subject to cap of 150 per cent base salary

CFO: On target opportunity of 70 per cent of base
salary, subject to cap of 100 per cent base salary

Annual incentives may be based on a mix of financial and individual
and business objectives with the majority of the weighting being given
to financial metrics

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 and are set out in the
Annual report on remuneration

Long-term incentive

To incentivise executives to achieve

the Company’s long-term strategy and

enhance sustainable shareholder value

base salary

Discretionary awards of conditional awards (or economic equivalent) may

be granted to executive directors annually, calculated as a percentage of

Maximum plan limit for awards is 200 per cent of
base salary

Award levels and performance conditions are reviewed before each
award cycle to ensure they remain appropriate

Malus and clawback provisions will apply to all awards made under the new

Spirent Long-term Incentive Plan

Details of proposed award levels for 2018 are set
out in the Annual report on remuneration

Vesting is based on performance measured over three years

A full description of the performance conditions applicable to long-term
incentive awards are set out in the Annual report on remuneration

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

Notes to the policy table
Performance conditions for awards under the Spirent Long-Term Incentive Plan (“LTIP”)
The Committee reviews the appropriateness of performance parameters for each award under the LTIP and sets stretching
performance conditions in the light of the Company’s current and expected performance over the performance cycle.

2018 Policy on share incentive awards
The Committee expects to approve awards of Performance Shares to the CEO and CFO equivalent to 150 per cent and 100 per cent
of annual base salary respectively.

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 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 on a like-for-like basis. 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.

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 above but in any event would be limited to 400 per cent of base salary, excluding any buy-out
awards. Any additional cash or share-based awards on recruitment of an executive director which may fall outside the policy statement
would be performance-related and would therefore be regarded as variable remuneration and fall within the Company’s standard
400 per cent cap.

For an internal appointment, any remuneration terms 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 in the Annual report on remuneration.

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.

Both Eric Hutchinson and Paula Bell currently have a service agreement with Spirent Communications plc, and, being UK residents,
both their contracts are in line with UK employment practice and are governed by the laws of England and Wales. Eric Hutchinson’s
service agreement dated 8 December 2014 may be terminated on 12 months’ notice from the Company and six months’ notice from
Mr Hutchinson. Paula Bell’s service agreement, dated 12 April 2016 may be terminated on 12 months’ notice from the Company and
six months’ notice from Ms Bell.

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. Details of any
such appointments are set out in the Annual report on remuneration.

The service agreements of executive directors are available for inspection on request and will be available for inspection at the 2018 AGM.

Spirent Communications plc Annual Report 2017Non-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 who are not stepping down
from the Board will stand for re-election at each AGM.

The letters of appointment of non-executive directors are available for inspection on request and will be available for inspection
at the 2018 AGM. An example of a letter of appointment for a non-executive director is available on the Company’s website at
https://corporate.spirent.com.

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. Individual fees reflect responsibility and commitment.
Additional fees may be paid for further responsibilities, such as chairmanship of committees.

Non-executive directors are not eligible to participate in cash incentive or share incentive arrangements and their service does not
qualify for pension. No element of their fee is performance-related. Travel and other reasonable expenses (including fees incurred in
obtaining professional advice in the furtherance of their duties and any associated taxes) incurred in the course of performing their
duties may be paid by the Company or reimbursed to non-executive directors.

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 Spirent 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. The current
exit payment policy is:

• Service contracts contain provisions for the removal of the director without compensation for not performing their duties to the

standard required by the Board 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 in the Report of the directors on page 95)

• 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
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 unless the individual
is determined by the Committee to be a good leaver (defined as an individual leaving employment due to redundancy, ill-health,
injury or disability, retirement, death, the individual’s employing company ceasing to be under the control of the Group, or a
transfer of the undertaking in which the individual works (“Good Leaver”));

– Spirent Long-term Incentive Plan: Leaver provisions were approved by shareholders when they approved the LTIP in 2016.

Unvested awards will generally lapse at the time of exit. For individuals determined by the Committee to be a Good Leaver, the
Committee has discretion to either (i) assess performance conditions 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, or (ii) assess
performance conditions at the end of the applicable vesting period or such earlier date as may be appropriate. Any shares
which vest would then normally be pro-rated to reflect the proportion of the vesting period actually served by the individual;

– Employee Incentive Plan (EIP): Leaver provisions were approved by shareholders when they approved the EIP in 2005 and

2015. Unvested awards generally lapse at the time of exit. For individuals determined by the Committee to be a Good Leaver,
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
the proportion of the performance period actually served and the individual has 12 months following the date of termination of
employment in which to exercise them.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Report on Directors’ Remuneration continued

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. An increase in base salary of three per cent has been awarded for the roles of Chief Executive Officer and Chief
Financial Officer for 2018, reflecting the general increase awarded to the larger employee population.

The Committee is aware of the FRC’s consultation on changes to the Corporate Governance Code and its proposals for increasing
engagement with stakeholders including employees. While the Committee does not currently consult directly with employees as part
of the process of reviewing executive pay, the Committee does take into account views expressed through employee surveys and will
look to enhance this engagement in line with future Code requirements when finalised.

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. The Committee consulted with major
shareholders and shareholder representatives in January 2016 regarding the introduction of the new LTIP and again in December 2017
regarding the Committee’s approach to base salary, cash incentives and LTIP awards in 2018.

Legacy matters
For the avoidance of doubt, in approving this Remuneration Policy, authority is given to the Company to make payments and honour
any commitments entered into with current or former directors (such as the payment of pension or the unwinding of legacy share
schemes) where the terms were agreed either prior to 24 April 2014 (the effective date of the first directors’ remuneration policy)
or at a time when a previous remuneration policy was in force. Details of any payments will be set out in the Annual Report on
Remuneration as they arise.

Illustrations of the application of Remuneration Policy in 2018
The following charts 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 remuneration (salary, benefits and retirement benefits)
• No payment under the Annual Cash Incentive
• No vesting under the Spirent Long-term Incentive Plan

• Fixed remuneration (salary, benefits and retirement benefits)
• On-target payment under the Annual Cash Incentive (two-thirds of maximum)
• 25 per cent vesting under the Spirent Long-term Incentive Plan

• Fixed remuneration (salary, benefits and retirement benefits)
• Maximum payment under the Annual Cash Incentive
• Full vesting under the Spirent Long-term Incentive Plan

Chief Executive Officer policy for 2018

Minimum performance

100%

On-target performance

49.30%

35.79%

14.91%

£000

510.8

1,036.1

Maximum performance

29.24%

35.38%

1,746.8

Fixed

Cash incentive

Long-term incentive

Spirent Communications plc Annual Report 2017Chief Financial Officer policy for 2018

Minimum performance

100%

On-target performance

59.36%

28.69%

11.95%

£000

422.0

711.0

Maximum performance

38.30%

30.85%

1,101.9

Fixed

Cash incentive

Long-term incentive

Dilution
The Committee is strongly committed to managing shareholder dilution in a responsible manner. Details of the Company’s dilution is
set out in the Annual report on remuneration on page 83.

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 long-term incentive plans) or previously by the Committee (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.

The Committee may make adjustments to awards to reflect corporate events, such as a change in the Company’s capital structure.
The Committee may adjust the calibration of performance measures and vesting outcomes, or substitute or amend any vesting
condition (eg due to a significant acquisition or disposal) provided that the resulting condition is appropriate.

The Committee may make minor amendments to the Remuneration Policy to aid its operation or implementation without seeking
shareholder approvals (eg for regulatory, exchange control, tax or administrative purposes).

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 when, in the view of the Committee, it would be disproportionate to
seek specific approval from shareholders in general meeting. It is intended that this discretion be used only in the event of changed
circumstances or strategy that has not been provided for in the Remuneration Policy.

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.

The Remuneration Committee can confirm that no discretion was used either during the period or to the date of this Report and in
particular that it does not envisage any cash payment being offered which could be construed as a “golden hello”.

Signed on behalf of the Board

Gary Bullard
Chairman, Remuneration Committee
8 March 2018

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ Report

This section contains additional information which the Directors are required by law and regulation to include within the Annual Report.

This section along with the information from the Board of directors and the Directors’ statement on corporate governance on pages 56
to 65 (which are incorporated herein by reference) constitutes the Directors’ Report for the purposes of the Companies Act 2006.

Future developments
The Company has chosen, in accordance with the Companies Act 2006 section 414C(II), to include the disclosure of likely future
developments in the Strategic Report on pages 1 to 54.

Research and development
The Company has chosen, in accordance with the Companies Act 2006 section 414C(II), to include the disclosure of research and
development in the Strategic Report on pages 1 to 54.

Greenhouse gas emissions and gender diversity
Information on environmental matters and disclosures relating to diversity, gender and human rights are contained in the Sustainability
Report on pages 50 to 54.

Results and dividends
The consolidated income statement is on page 108. Profit for the financial year attributable to equity shareholders amounted to $29.0 million.

The directors recommend a final dividend of 2.40 cents per Ordinary share to be paid. In addition, the directors also recommend
a special dividend of 5.00 cents per Ordinary share. Subject to approval by shareholders at the 2018 AGM, the final and special
dividends will be paid, in aggregate, on 4 May 2018 to shareholders on the Register of Members at close of business on 16 March 2018.

These final and special dividends, together with the interim dividend paid in September 2017, will represent a total dividend of
9.08 cents per Ordinary share for the year ended 31 December 2017 (2016 3.89 cents).

Directors
The names of the persons who were directors of the Company during the period under review and as at 8 March 2018 appear on
page 60. All current directors are standing for election or re-election at the 2018 AGM.

Appointment of directors
The Company’s Articles of Association (the “Articles”) give the directors power to appoint and replace directors. Under the terms of
reference of the Nomination Committee, an appointment must be recommended by the Nomination Committee for approval by the
Board. The Articles require directors to submit themselves for election at the first AGM following their appointment and all directors
who held office at the time of the two preceding AGMs to submit themselves for re-election. The Articles notwithstanding, all directors
will stand for election or re-election at the AGM this year in compliance with the UK Corporate Governance Code. Details of unexpired
terms of directors’ service contracts are set out in the Directors’ report on remuneration on page 79.

Powers of directors
The directors are responsible for managing the business of the Company and may exercise all the powers of the Company subject
to the provisions of relevant statutes, to any directions given by special resolution and to the Company’s Articles. Powers relating to
the issuing of shares are included in the Articles and such authorities are renewed by shareholders at the AGM each year.

Directors’ share interests
Details regarding the share interests of directors and their connected persons in the share capital of the Company, including any
interests under long-term incentive plans, are set out in the Directors’ report on remuneration on page 80.

Employees
The average number of Group employees during 2017 was 1,505 worldwide (2016 1,599). The Group strives to maintain the
following principles:

Equal opportunities
The Group is committed to offering equal opportunities in recruitment, training, career development and promotion to all people,
including those with disabilities, having regard for their particular aptitudes and abilities. As a matter of policy, full and fair consideration
is given to applicants with disabilities and every effort is made to give employees who become disabled whilst employed by the Group
an opportunity for retraining and continuation in employment. It is Group policy that the training, career development and promotion of
disabled persons should, as far as possible, be the same as that of other employees.

Spirent Communications plc Annual Report 2017Health and safety
Health and safety are considered as equal in importance to that of any other function of the Group and its business objectives and
the Group is committed to providing a safe and healthy workplace to protect all employees, visitors and the public from foreseeable
work hazards.

Harassment
Sexual, mental or physical harassment in the workplace will not be tolerated. It is expected that incidents of harassment are reported
to the appropriate Human Resources director.

Human rights
The Group provides opportunities that promote human rights and dignity every day through the employment created, both directly
and indirectly in its global supply chains and through the positive contribution its products make to people’s lives. Further details on
the Group’s approach to human rights can be found in the Sustainability section on pages 50 to 54.

Communication
Employees are briefed on all relevant matters on a regular basis to achieve a common awareness of all the financial and economic
factors affecting the performance of the Group. Information relevant to employees will be provided to them.

Employees are provided with information on the performance of their business unit and their involvement is encouraged in a variety
of ways, such as through engagement surveys, “town hall” meetings and management presentations.

The Group encourages an open culture in all its dealings between employees and people with whom it comes into contact.
The Group’s whistleblowing procedure sets out guidelines for individuals who feel they need to raise issues in confidence with
the Company or their own business unit or through an independent third party. Every effort is made to protect the confidentiality
of those who raise concerns and employees may come forward without fear for their position.

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 share incentive plans may cause outstanding
unvested options and awards granted to employees under such plans to vest on a takeover as follows:

Share incentive plan
2005 Employee Incentive Plan
Spirent Long-term Incentive Plan

Change of control
Yes
Yes

Effect on vesting provisions in the rules
Pro-rated
Pro-rated

Performance condition
Still applies
Still applies

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 Guidance and Transparency Rule 5:

The following notifications have been received during the period 1 January 2017 to 31 December 2017 or earlier as applicable:

Ameriprise Financial, Inc
Prudential plc
AXA Investment Managers SA
Standard Life Investments Ltd
Neptune Investment Management Ltd
PrimeStone Capital LLC
Aberforth Partners
Brandes Investment Partners LP
Artemis Investment Management Ltd
Schroders plc
Sun Life Assurance Company of Canada (UK) Ltd
Kames Capital

Date of notification
15 March 2017
5 April 2017
18 October 2011
27 January 2011
8 August 2017
13 November 2015
17 August 2017
3 March 2016
6 November 2017
9 October 2014
5 December 2008
6 February 2012

Total holding
92,804,839
61,809,617
47,515,946
32,370,026
31,634,171
31,215,569
31,012,618
30,537,440
29,195,146
26,986,598
23,382,347
18,507,514

% of Company’s
total voting rights
15.17
10.10
7.77
5.29
5.17
5.10
5.07
4.99
4.77
4.41
3.82
3.03

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
Directors’ Report continued

The following notifications have been received during the period 1 January 2018 to 8 March 2018:

Teleios Capital Partners LLC

Date of notification
Total holding
15 January 2018 30,853,155

% of
Company’s
total voting
rights
5.04

Share capital
The Company has a single class of share which is divided into Ordinary Shares of 3⅓ 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, 611.7 million Ordinary Shares of 3⅓ 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 BNY Mellon is the authorised depositary
bank for the programme. Further details on share capital are set out in note 29 to the consolidated financial statements and note 15
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 https://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 29 to the consolidated financial statements and note 15 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 Market Abuse Regulation,
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 2017 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 AGM, the directors seek authority to allot shares for cash and to disapply pre-emption rights within prescribed limits. At the
2018 AGM, authority will be sought to allot new Ordinary Shares up to a nominal value of £6,797,132, which is equal to approximately
33.3 per cent of the Company’s issued share capital as at 9 March 2018.

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 2017 AGM remains valid until the earlier of the 2018 AGM or 30 June 2018. Since the Company began returning
capital to shareholders in May 2006, a total of £270.2 million has been returned, through the repurchase of 397.6 million Ordinary Shares.

No shares were repurchased during 2017 or to 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 2018 AGM to facilitate any further
return of capital if the Board concludes that it is in the best interests of shareholders to do so.

Political donations
In accordance with the Group’s Ethics Policy, no political donations were made during the year (2016 nil).

Spirent Communications plc Annual Report 2017Financial risk management
Details of the Group’s use of financial instruments, together with information on our risk objectives and policies and our exposure
to price, credit, liquidity, cash flow and interest rate risks, can be found in note 27 to the consolidated financial statements.

Going concern
After making appropriate enquiries and taking into account the matters set out in the Principal risks and uncertainties section on pages
28 to 31 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 when preparing the financial statements.

Viability statement
In accordance with provision C.2.2 of the 2016 Code, the directors have assessed the prospects of the Company over a period
significantly longer than 12 months from the date of approval of the financial statements. The Board has concluded that the most
appropriate period for this assessment should be three years.

This period was selected for the following reasons:

the Group’s strategic planning cycle covers a three-year period;
the Board reviews a three-year financial corporate plan; and

•
•
• when considering a major investment in product development, three years is considered by the Board to be a reasonable time

horizon in which the product should achieve meaningful sales.

The Board’s assessment has been made with reference to the Company’s current position and prospects, the Group’s strategy,
the Board’s risk appetite and the Group’s principal risks and uncertainties as set out on pages 28 to 31 of this Annual Report.

The plans and cash flow projections used as the basis for the assessment were the 2018 budget and the three-year strategic plan.
They were drawn up on the basis that the Group maintains a cash balance sufficient to fund normal operations and that there will be
no material changes to the business structure over the review period.

The Board has reviewed plausible and severe stress tests based on the occurrence of a mix of the principal risks to which the Company is
exposed, considering the potential impact of these risks on the business model, future performance, solvency and liquidity over the period.

Based on this assessment and the expected successful impact of mitigating actions, the directors have a reasonable expectation
that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period.

Post balance sheet events
No post balance sheet events are required to be disclosed in the consolidated 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 Auditor
As described in more detail on page 73 of the Audit Committee report, the Board will be proposing a resolution to re-appoint EY as
auditor at the 2018 AGM.

Annual General Meeting
The 2018 AGM will be held at 10.30am on Wednesday 2 May 2018 at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street,
London EC1A 4HD.

By Order of the Board

Angus Iveson
Company Secretary
8 March 2018

Spirent Communications plc
Company number 470893

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationCorporate Governance
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 the financial statements of the parent Company.

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 (IFRS) 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 (including FRS 101) and applicable law.

The consolidated financial statements of the Group are required by law and IFRS 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 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 IFRS 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 (IAS) 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.

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

Paula Bell
Chief Financial Officer
8 March 2018

Spirent Communications plc Annual Report 2017Financial Statements
Independent auditor’s report to the members of Spirent Communications plc

Opinion
In our opinion:

• Spirent Communications plc’s Group financial statements and parent Company financial statements (the “financial statements”) give
a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2017 and of the Group’s profit
for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the
Group financial statements, Article 4 of the IAS Regulation.

•
•

•

We have audited the financial statements of Spirent Communications plc which comprise:

Group
Consolidated balance sheet as at 31 December 2017
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year
then ended
Consolidated cash flow statement for the year then ended
Consolidated statement of changes in equity for the year then ended
Related notes 1 to 34 to the financial statements, including
a summary of significant accounting policies

Parent Company
Balance sheet as at 31 December 2017
Statement of changes in equity for the year then ended
Related notes 1 to 17 to the financial statements including
a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has
been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report below. We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of our report
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.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs(UK) require us to
report to you whether we have anything material to add or draw attention to:

•

the disclosures in the Annual Report set out on page 28 that describe the principal risks and explain how they are being managed
or mitigated;
the directors’ confirmation set out on page 97 in the Annual Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
the directors’ statement set out on page 97 in the financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to
continue to do so over a period of at least twelve months from the date of approval of the financial statements;

• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule

•

9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
the directors’ explanation set out on page 97 in the Annual Report as to how they have assessed the prospects of the entity,
over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Independent auditor’s report to the members of Spirent Communications plc continued

Overview of our audit approach

Key audit matters

Audit scope

•
Inappropriate revenue recognition
• Recoverability of deferred tax assets
• Carrying value of goodwill and investments in subsidiary undertakings (parent Company only)
• We performed an audit of the complete financial information of three components and audit procedures

on specific balances for a further five components.

• The components where we performed full or specific audit procedures accounted for 90 per cent of

profit before tax adjusted for non-recurring items, 93 per cent of revenue and 94 per cent of total assets.

Materiality

• Overall Group materiality of $2.5 million which represents 5 per cent of profit before tax adjusted for

non-recurring items.

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Key observations communicated
to the Audit Committee
Based on the procedures
performed, we did not identify
any evidence of material
misstatement in the revenue
recognised in the year nor
in amounts deferred at
31 December 2017.

Risk
Inappropriate Revenue Recognition
Refer to the Audit Committee Report
(page 68); Accounting policies (page
117); and Note 3 of the Consolidated
Financial Statements (page 120).

The Group has reported revenue of
$454.8 million (2016 $457.9 million).
There is a risk of inappropriate revenue
recognition of bundled contracts
comprising of software, hardware and
post contract support services which
can require separate recognition.

The complexity of accounting, as
well as the potential pressure on
management to meet certain targets,
may result in inappropriate recognition
of revenue and associated balances.

Our response to the risk
We performed full and specific scope audit procedures
over this risk area in four locations, which covered
93 per cent of Group reported revenue. For revenue
in each full and specific scope audit location:

• We performed walkthroughs of each significant class
of revenue transactions and assessed the design
effectiveness of key controls.

• We performed procedures to identify and audit large

or unusual transactions, as well as a sample of regular
transactions at each in scope location during the year.
• For the transactions selected, we agreed the revenue
recognised and associated balance sheet accounts to
supporting evidence, focusing on the accounting for the
service element of bundled products, where applicable.
• We tested that customer acceptance clauses had been

met and, where appropriate, revenue had been deferred
at year end.

• We evaluated the appropriateness of journal entries
impacting revenue, as well as other adjustments
made in the preparation of the financial statements.

We also considered the adequacy of the Group’s
disclosures in respect of the accounting policies for
revenue recognition in notes 2 and 3 respectively.

100

Spirent Communications plc Annual Report 2017Key observations communicated
to the Audit Committee
We concluded that
management’s judgements
in relation to the extent of
recognition of deferred tax
assets is appropriate.

We concluded the
methodology in testing for
impairment is appropriate and
the assumptions relating to the
impairment models fell within
acceptable ranges. We also
concluded that management’s
disclosure is appropriate.

Risk
Recoverability of deferred tax assets
Refer to the Audit Committee Report
(page 68); Accounting policies (page
119); and Note 24 of the Consolidated
Financial Statements (page 139).

The Group has deferred tax assets
of $23.2 million (2016 $33.1 million).
There is a risk that inappropriate use of
brought forward tax losses and volatility
in forecast profit may result in incorrect
recognition of deferred tax assets.

Carrying value of goodwill (Group),
and investments in subsidiary
undertakings (Parent Company)
Refer to the Audit Committee Report
(page 68); Accounting policies (page
118); and Note 14 of the Consolidated
Financial Statements (page 132).

The Group has goodwill of $156.8
million (2016 $155.7 million) and
investments in subsidiary undertakings
of £351.8 million (2016 £338.7 million).

Given the continuing uncertain
economic environment there remains a
risk that goodwill in the Group financial
statements and investments in the
Parent Company financial statements
may be impaired including in the
Connected Devices Cash Generating
Unit (CGU) where a goodwill impairment
charge of $61.4 million was recognised
in 2016.

Our response to the risk
Procedures on the deferred tax assets were performed
centrally by the Group team supported by overseas teams
including specialists:

• We performed walkthroughs of the tax process and
assessed the design effectiveness of key controls.
• We reviewed and challenged the future profit forecasts

against current period profitability and historic
performance and through consideration of the
consistency of the projections with other forecasts
made by management and approved by the Board.
• We considered the appropriateness of the utilisation
of unrecognised losses based on our assessment of
the impact evolving tax legislation in the jurisdictions
in which the Group operates.

We also considered the adequacy of the Group’s
disclosure and offsetting of deferred tax balances in
the Group financial statements.
Procedures on the carrying value of goodwill and
investments in subsidiary undertakings were performed
centrally by the Group team supported by specialists
where necessary:

• We reviewed the appropriateness of management’s
methodology for identifying CGUs, the associated
goodwill and the carrying value allocation to each CGU.

• We assessed the methodology as compared to the

requirements of IAS 36, Impairment of Assets, and the
mathematical accuracy of management’s model.

• For the CGU with low headroom, we assessed the key
information and assumptions used in determining the
valuation including the discount rate, cash flow forecasts
and the implicit growth, utilising our specialist support as
necessary. We also conducted a sensitivity analysis to
understand how much these projections would need to
change by for there to be an impairment.

We considered the appropriateness of the related disclosures
provided in note 14 to the Group financial statements.

101

An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We
take into account size, risk profile, the organisation of the Group and effectiveness of group-wide controls, changes in the business
environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the reporting components of the Group, we selected components covering
entities within the United Kingdom, North America and Asia, which represent the principal business units within the Group.

Of the eight components selected, we performed an audit of the complete financial information of three components (“full scope
components”) which were selected based on their size or risk characteristics. For the remaining five components (“specific scope
components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the
greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.

2017

% of Group
adjusted
profit before
tax*
95%

Number
3

% of Group
Revenue
84%

% of Group
Assets
61%

See Note
1,2

Number
4

2016

% of Group
adjusted
profit before
tax*
78%

% of Group
Revenue
51%

% of Group
Assets
67%

(5%)

33%

3, 4, 5

22%

32%

22%

90%

10%

93%

94%

100%

83%

17%

89%

11%

100%

Reporting
Components
Full Scope
Specific
Scope
Full and
Specific
scope
coverage
Remaining
components
Total
Reporting
components

* Profit before tax adjusted for non-recurring items as defined in the ‘Our application of materiality’ section of this report
Note 1
The Group audit risk in relation to the carrying value of goodwill was subject to full scope audit procedures by the primary audit team on the entire balance.
Note 2
The Group audit risk in relation to the recoverability of deferred tax assets was subject to full scope audit procedures by the primary audit team on the entire balance.
Note 3
One of the five specific scope components relates to the corporate division of the parent Company which includes consolidation and elimination adjustments.
Note 4
The specific scope loss before tax adjusted for non-recurring items coverage of 5 per cent represents four specific scope components having a positive
contribution of 20 per cent offset by the corporate component having a negative contribution of 25 per cent.
Note 5
The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of the
significant account tested for the Group.
Note 6
Of the remaining components that together represent 10 per cent of the Group’s profit before tax adjusted for non-recurring items, none are individually greater
than 6 per cent of the Group’s profit before tax adjusted for non-recurring items. For these components, we performed other procedures, including analytical
review procedures and specified procedures to respond to any potential risks of material misstatement to the Group financial statements.

102

Spirent Communications plc Annual Report 2017Changes from the prior year
Changes from the prior year include increasing two components from specific scope to full scope due to their relative contribution to
revenue and profit and combining two full scope components to reflect how management operates the business. We have also
increased the number of specific scope locations due to our risk focused approach which considered relative sizes of certain accounts
or other qualitative considerations.

Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the Group audit engagement team, or by component auditors from other EY global network firms operating
under our instruction. Of the three full scope components, audit procedures were performed on one of these directly by the primary
audit team and two by component audit teams. Of the five specific scope components, audit procedures were performed on two of
these directly by the primary audit team and three by component audit teams. Where the work was performed by component auditors,
we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a
basis for our opinion on the Group as a whole.

At the start of the audit, a Global Team Planning event was held in the UK with representatives from all full and specific scope
component audit teams in attendance. Detailed instructions were sent to all auditors in these locations. These instructions covered the
significant areas that should be addressed by the component team auditors (which included the relative risks of material misstatement
detailed above) and set out the information to be reported back to the Group audit team. In addition the Group audit team continued
to follow a programme of planned visits that has been designed to ensure that the Senior Statutory Auditor visits certain material or
high risk locations on a rotational basis. During the current year’s audit cycle, visits were undertaken by the Group audit team to the
component teams in North America and Asia. These visits involved meeting with our component team to discuss and direct their
planned audit approach, holding meetings with local management and reviewing interim procedures performed to date on the Group
risk areas.

The primary team interacted regularly with the component teams where appropriate during various stages of the audit, including
attendance at all closing meetings by phone, review of key working papers and were responsible for the scope and direction of the
audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion
on the Group financial statements.

103

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.

We determined materiality for the Group to be $2.5 million (2016 $1.5 million), which is 5 per cent (2016 5 per cent) of profit before tax
adjusted for non-recurring items, of $50.7 million (2016 $30.5 million). We believe that profit before tax adjusted for non-recurring items
provides us with a consistent year on year basis for determining materiality and is the most relevant performance measure to the
stakeholders of the entity. Detailed audit procedures are performed on material non-recurring items.

We determined materiality for the Parent Company to be £2.8 million (2016 £2.8 million), which is 1 per cent (2016 1 per cent) of net
assets. Parent Company materiality is higher than Group materiality as it is calculated on a different basis as it is primarily a head office
company rather than the trading group.

Starting basis
• Profit before tax $46.6 million (2016 loss before tax $46.0 million)

Adjustments
Adjusted for non-recurring items:
• Exceptional costs of $6.7 million (2016 $4.8 million)
• Gain on divestments of $2.6 million (2016 $nil)
• Goodwill, intangible asset and investment in share of associate impairment of $nil (2016 $71.7 million)

Materiality
• Profit before tax adjusted for non-recurring items $50.7 million (basis for materiality) (2016 $30.5 million)
• Materiality of $2.5 million (2016 $1.5 million) (5 per cent of materiality basis)

Management make further adjustments to the profit before tax adjusted for non-recurring items (basis for materiality) to arrive at adjusted
operating profit, the measure used by the directors to evaluate the overall performance of the Group. These adjustments include
intangible asset amortisation of $6.3 million (2016 $12.9 million), share-based payment expense of $2.2 million (2016 $0.8 million),
net interest income of $0.3 million (2016 $0.4 million expense) and share in loss of associate of $nil (2016 $1.9 million). Adjusting for
these items gives adjusted operating profit of $58.9 million (2016 $46.5 million).

The $1.0 million increase in materiality is in proportion to the $20.2 million increase of profit before tax adjusted for non-recurring
items (2017 $50.7 million, 2016 $30.5 million). That increase is a result of the $12.4 million increase in adjusted operating profit
(2017 $58.9 million, 2016 $46.5 million), the $6.6 million reduction in intangible asset amortisation (2017 $6.3 million, 2016 $12.9 million),
the $1.9 million reduction in share in loss of associate (2017 $nil, 2016 $1.9 million), partially offset by a $0.7 million increase in net
finance income.

During the course of our audit, we reassessed initial materiality and the only change in final materiality was to reflect the actual
increase in net finance income reported performance of the Group in the year.

104

Spirent Communications plc Annual Report 2017Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 75 per cent (2016 75 per cent) of our planning materiality, namely $1.8 million (2016 $1.1 million).
We have set performance materiality at this percentage to ensure that total detected and undetected audit differences do not
exceed our planning materiality of $2.5 million (2016 $1.1 million) for the financial statements as a whole.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based
on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated to components was $0.3 million to $1.1 million
(2016 $0.2 million to $0.9 million).

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $0.12 million
(2016 $0.08 million), which is set at 5 per cent of planning materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the Annual Report, including the strategic report (set out on pages 1 to 54),
corporate governance and directors’ report (set out on pages 94 to 97), and other information (set out on pages 170 to 172) other than
the financial statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information,
we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet
the following conditions:

• Fair, balanced and understandable set out on page 69 – the statement given by the directors that they consider the Annual Report

and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or

• Audit committee reporting set out on page 68 – the section describing the work of the audit committee does not appropriately

address matters communicated by us to the audit committee or is materially inconsistent with our knowledge obtained in the audit; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 58 – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance Code.

105

Opinions 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.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which 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.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 98, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

106

Spirent Communications plc Annual Report 2017Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud,
through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified
during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with
governance of the entity and management.

Our approach was as follows:

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the
most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to
the reporting framework (IFRS, FRS 101, the Companies Act 2006 and the UK Corporate Governance Code) and the relevant tax
compliance regulations in the jurisdictions in which the Group operates.

• We understood how Spirent Communications plc is complying with those legal and regulatory frameworks by making enquires of

management, Internal Audit, those responsible for legal and compliance procedures and the Company Secretary. We corroborated
our enquires through our review of Board minutes and papers provided to the Audit Committee.

• We assessed the susceptibility of the Group’s ﬁnancial statements to material misstatement, including how fraud might occur, by

meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud.
We also considered performance targets and their propensity to inﬂuence eﬀorts made by management to manage earnings.
We considered the programmes and controls that the Group has established to address risks identiﬁed, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those programmes and controls.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations

identiﬁed in the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual consolidation journals
and journals indicating large or unusual transactions based on our understanding of the business; enquiries of Legal Counsel,
Group management, Internal Audit, and component management. Where the risk was considered to be higher, we performed
audit procedures to address the identiﬁed fraud risk as referred to in the key audit matters section above. In addition, we completed
procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with the requirements of the
relevant accounting standards, UK legislation and the UK Corporate Governance Code 2016.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address
• We were appointed by the company on 3 August 2017 to audit the financial statements for the year ending 31 December 2017 and

subsequent financial periods.

• Following the recommendation of the board we were appointed (as predecessor firm Lindsay, Jamieson & Haldane) by the Group

at its annual general meeting on 9 May 1950 to audit the financial statements of the Group for the period ending 31 December 1949
and subsequent financial periods. Our total uninterrupted period of engagement is 68 years, covering periods from our appointment
through to the period ending 31 December 2017.

• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we

remain independent of the Group and the Parent Company in conducting the audit.

• The audit opinion is consistent with the additional report to the Audit Committee.

Joe Yglesia
(Senior Statutory Auditor)
For and on behalf of Ernst & Young LLP, Statutory Auditor
Reading
8 March 2018

Notes
1. The maintenance and integrity of the Spirent Communications plc website is the responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors accept 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.

107

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Consolidated income statement
Year to 31 December 2017

Revenue
Cost of sales
Gross profit
Product development
Selling and marketing
Administration
Other items
Operating profit/(loss)

Other items charged in arriving
at operating profit/(loss):
Exceptional items
Acquired intangible asset amortisation
Goodwill and acquired intangible asset
impairment
Share-based payment

Finance income
Finance costs
Share of loss of associate
Gain on divestment
Profit/(loss) before tax
Tax
Profit/(loss) for the year attributable
to owners of the parent Company
Earnings/(loss) per share (cents)
Basic
Diluted

Notes
3, 4

14
31

7
8
16
33
4, 5
11

Year ended 31 December 2017
Adjusting
items1
$ million
–
–
–
–
–
–
(15.2)
(15.2)

Adjusted
$ million
454.8
(129.8)
325.0
(103.0)
(116.8)
(46.3)
–
58.9

Reported
$ million
454.8
(129.8)
325.0
(103.0)
(116.8)
(46.3)
(15.2)
43.7

Year ended 31 December 2016

Adjusted
$ million
457.9
(133.6)
324.3
(111.7)
(125.4)
(40.7)
–
46.5

Adjusting
items1
$ million
–
–
–
–
–
–
(87.6)
(87.6)

Reported
$ million
457.9
(133.6)
324.3
(111.7)
(125.4)
(40.7)
(87.6)
(41.1)

–
–

0.6
(0.3)
–
–
59.2
(13.1)

(6.7)
(6.3)

–
(2.2)

–
–
–
2.6
(12.6)
(4.5)

(6.7)
(6.3)

–
(2.2)

0.6
(0.3)
–
2.6
46.6
(17.6)

46.1

(17.1)

29.0

7.55
7.48

4.75
4.71

–
–

0.3
(0.7)
(1.9)
–
44.2
(11.9)

32.3

5.29
5.29

(4.8)
(12.9)

(69.1)
(0.8)

–
–
(2.6)
–
(90.2)
15.6

(4.8)
(12.9)

(69.1)
(0.8)

0.3
(0.7)
(4.5)
–
(46.0)
3.7

(74.6)

(42.3)

(6.93)
(6.93)

Note
1. Adjusting items comprise exceptional items, amortisation of acquired intangible assets, goodwill and acquired intangible asset impairment, share-based

payment, gain on divestment, impairment of associate, tax on adjusting items, revaluation of deferred tax assets due to US tax reform and prior year tax.

The notes on pages 113 to 149 and pages 166 and 167 form part of these financial statements.

108

Spirent Communications plc Annual Report 2017Consolidated statement of comprehensive income
Year to 31 December 2017

Profit/(loss) for the year attributable to owners of the parent Company
Other comprehensive income/(loss)
Items reclassified to profit or loss:

Reclassification of foreign exchange on overseas divestments

Items that may subsequently be reclassified to profit or loss:
Exchange differences on retranslation of foreign operations

Items that will not subsequently be reclassified to profit or loss:
Re-measurement of the net defined benefit pension liability
Income tax effect of re-measurement of the net defined benefit pension liability
Re-measurement of the deferred compensation liability
Income tax effect of re-measurement of the deferred compensation liability

Other comprehensive income/(loss)
Total comprehensive income/(loss) for the year attributable
to owners of the parent Company

The notes on pages 113 to 149 and pages 166 and 167 form part of these financial statements.

Notes

2017
$ million
29.0

2016
$ million
(42.3)

(3.1)

10
11
10
11

4.1
1.0

5.5
(1.0)
(0.9)
0.2
3.8
4.8

–

(2.9)
(2.9)

(2.2)
0.4
–
–
(1.8)
(4.7)

33.8

(47.0)

109

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationNotes

2017
$ million

2016
$ million

14
15
20
16
21
10
24

19
20
20

22
22

25
24
10
26

163.6
42.3
4.1
–
–
1.2
23.2
234.4

23.6
130.1
0.1
1.0
128.4
283.2
517.6

(131.9)
–
(1.4)
(3.6)
(136.9)

(20.1)
(0.1)
(4.0)
(3.2)
(27.4)
(164.3)
353.3

27.5
27.3
17.8
13.4
11.3
256.0
353.3

169.8
47.3
4.6
–
0.1
0.9
33.1
255.8

27.4
128.9
–
0.4
96.1
252.8
508.6

(127.2)
(0.1)
(1.5)
(4.2)
(133.0)

(16.9)
(0.1)
(14.4)
(2.6)
(34.0)
(167.0)
341.6

25.3
25.0
16.3
19.4
10.3
245.3
341.6

Financial Statements
Consolidated balance sheet
At 31 December 2017

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Investment in associate
Cash on deposit
Defined benefit pension plan surplus
Deferred tax asset

Current assets
Inventories
Trade and other receivables
Other financial assets
Current tax asset
Cash and cash equivalents

Total assets
Liabilities
Current liabilities
Trade and other payables
Other financial liabilities
Current tax liability
Provisions

Non-current liabilities
Trade and other payables
Deferred tax liability
Defined benefit pension plan deficit
Provisions

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 113 to 149 and pages 166 and 167 form part of these financial statements.

Signed on behalf of the Board

Paula Bell
Director
8 March 2018

110

Spirent Communications plc Annual Report 2017Consolidated cash flow statement
Year to 31 December 2017

Cash flows from operating activities
Cash flow from operations
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Net expenses of divestments
Loan to divested subsidiaries
Acquisition of subsidiaries and businesses net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Dividend paid
Acquisition of non–controlling interest
Net cash used in financing activities
Net increase/(decrease) 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 113 to 149 and pages 166 and 167 form part of these financial statements.

Notes

33
33

2017
$ million

2016
$ million

77.7
(8.4)
69.3

0.6
(0.4)
(14.9)
1.8
(0.7)
(2.0)
–
(15.6)

(24.6)
–
(24.6)
29.1
96.1
3.2
128.4

47.4
(4.7)
42.7

0.3
(1.1)
(17.5)
1.5
–
–
(0.1)
(16.9)

(24.2)
(2.6)
(26.8)
(1.0)
102.0
(4.9)
96.1

111

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Consolidated statement of changes in equity

Attributable to the equity holders of the parent Company

$ million

Notes

Share
capital
30.2
–

Share
premium
account
29.9
–

Capital
redemption
reserve
19.5
–

Other
reserves
6.4
–

Translation
reserve
13.2
–

Retained
earnings
312.6
(42.3)

Non-
controlling
interest
0.3
–

Total
411.8
(42.3)

11
13

–

–
–

–

–
–
(4.9)
25.3
–

–

–
–

–
–
2.2
27.5

–

–
–

–

–
–
(4.9)
25.0
–

–

–
–

–
–
2.3
27.3

–

–
–

–

–
–
(3.2)
16.3
–

–

–
–

–
–
1.5
17.8

–

–
–

–

–
–
13.0
19.4
–

–

–
–

–
–
(6.0)
13.4

(2.9)

(2.9)
–

(1.8)

(4.7)

(44.1)
0.8

(47.0)
0.8

–

(0.1)

–
–
–
10.3
–

1.0

1.0
–

–
–
–
11.3

0.3
(24.2)
–
245.3
29.0

0.3
(24.2)
–
341.6
29.0

3.8

4.8

32.8
2.2

33.8
2.2

0.3
(24.6)
–
256.0

0.3
(24.6)
–
353.3

–

–
–

–

(0.3)
–
–
–
–

–

–
–

–
–
–
–

Total
equity
412.1
(42.3)

(4.7)

(47.0)
0.8

(0.1)

–
(24.2)
–
341.6
29.0

4.8

33.8
2.2

0.3
(24.6)
–
353.3

At 1 January 2016
Loss for the year
Other comprehensive
loss1
Total comprehensive
loss
Share-based payment
Tax charge on
share incentives
Acquisition of non-
controlling interest
Equity dividends
Exchange adjustment
At 1 January 2017
Profit for the year
Other comprehensive
income2
Total comprehensive
income
Share-based payment
Tax credit on share
incentives
Equity dividends
Exchange adjustment
At 31 December 2017

Notes
1. The amount included in other comprehensive loss for 2016 of $1.8 million represents re-measurement losses of the net defined pension liability of $2.2 million
net of a tax credit of $0.4 million. The amount included in the translation reserve of $2.9 million represents other comprehensive loss related to the translation
of foreign operations.

2. The amount included in other comprehensive income for 2017 of $3.8 million represents re-measurement gains of the net defined pension liability of $5.5 million
net of a tax charge of $1.0 million and re-measurement losses of the deferred compensation liability of $0.9 million net of a tax credit of $0.2 million. The amount
included in the translation reserve of $1.0 million represents other comprehensive income related to the translation of foreign operations of $4.1 million net of an
other comprehensive loss arising on the reclassification of foreign exchange on overseas divestments of $3.1 million.

The notes on pages 113 to 149 and pages 166 and 167 form part of these financial statements.

112

Spirent Communications plc Annual Report 2017Notes to the consolidated financial statements

1. CORPORATE INFORMATION
The Group’s consolidated financial statements for the year ended 31 December 2017 were authorised for issue by the Board of
directors on 8 March 2018. Spirent Communications plc is a public limited company incorporated and domiciled in England and Wales
(registration number 00470893). The registered address of the Company is Northwood Park, Gatwick Road, Crawley, West Sussex,
RH10 9XN, United Kingdom.

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 (IFRS) 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 150 to 151 and the accounting policies in respect of the Company are set out on pages 152 to 156.

2. SIGNIFICANT ACCOUNTING POLICIES
Accounting convention
The consolidated financial statements are prepared on a historical cost basis apart from certain financial instruments that have been
measured at fair value.

Going concern basis of accounting
At 31 December 2017 the Group had cash balances of $128.4 million and no debt.

The directors have reviewed the detailed financial projections for a period of 12 months from the date of this report and the business
plans for the 2019 and 2020 financial years. They have also considered the principal risks and uncertainties that the Group faces and
its current financial position and are satisfied that the Group has adequate financial resources to continue in operational existence
for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the going concern basis of
accounting continues to be used in the preparation of the financial statements.

New accounting standards
No applicable new standards, amendments to standards and interpretations effective from 1 January 2017 have been applied by the
Group which have resulted in a significant impact on its consolidated results or financial position.

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. A full list of subsidiary undertakings is provided on pages 166 and 167.

Subsidiary undertakings are entities that are directly or indirectly controlled by the Group. The Group controls an entity when it is
exposed, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity.

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.

The separable net assets, including intangible assets of newly acquired subsidiaries, are incorporated into the consolidated financial
statements based on their fair values at the effective date of control.

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds between 20 and 50 per cent of the voting power of another entity.

Associates are accounted for using the equity method and are initially recognised at cost. The Group’s investment includes goodwill
identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share
of the total comprehensive income from the date that significant influence commences until the date that significant influence ceases.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil
and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of an associate.

113

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the consolidated financial statements continued

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Dividends received from associates reduce the carrying value of the associate. Investments in associates are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations and goodwill
A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Business
combinations are accounted for using the acquisition method.

At acquisition date, the identifiable assets acquired and liabilities assumed, including intangible assets, are measured at their fair
values. The cost of an acquisition is measured as the aggregate of the consideration transferred and the amount of any non-controlling
interest in the acquiree. Non-controlling interests are measured at the proportionate share of the acquiree’s identifiable net assets.

Contingent consideration resulting from business combinations is valued at fair value at the acquisition date as part of the business
combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value
at each reporting date, with changes in fair value recognised in profit or loss. The determination of fair value is based on discounted
cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount rate.

Acquisition costs are expensed and included in administration costs.

Goodwill arising on the acquisition of subsidiaries, representing the excess of cost over the net fair value of the net assets 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.

Acquired intangible assets, being customer lists, current technology, database, brand names and a non-compete covenant, are
amortised on a straight line basis over their estimated useful lives and the charge is included within other items in the income
statement. Licences are amortised over their useful lives or term, and are expensed within cost of sales or selling costs.

The estimated useful lives of intangible assets and the amortisation expiry dates are as follows:

Customer lists
Current technology
Database
Brand names
Non–compete covenant
Licences

Useful life
2 to 7 years
5 to 7 years
2.5 to 7 years
5 years
4 years
3 to 5 years

Expiry date
2020
2021
2016
2020
2016
2018

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.

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 2017 and 31 December 2016, no amounts have met the recognition criteria.

114

Spirent Communications plc Annual Report 20172. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 lower
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 of disposal.
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.

Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or non-occurrence of
uncertain future events outside the Group’s control, or present obligations that are not recognised because it is not probable that a
settlement will be required or the value of such a payment cannot be reliably measured. The Group does not recognise contingent
liabilities but discloses them.

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.

115

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Notes to the consolidated financial statements continued

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 IFRS, 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 receivable 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.

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.

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.

116

Spirent Communications plc Annual Report 20172. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.

Revenue from sales or usage-based royalties is recognised as the subsequent sale or usage occurs.

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.

Government grants
A government grant is recognised in the balance sheet initially as deferred income when there is reasonable assurance that it will be
received and that the Group will comply with the conditions attached to it. Grants that compensate the Group for expenses incurred
are recognised as other operating income on a systematic basis in the same periods in which expenses are incurred. Grants that
compensate the Group for the acquisition of an asset are presented by deducting them from the acquisition cost of the related asset in
accordance with IAS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’.

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 satisfied.

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.

117

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Notes to the consolidated financial statements continued

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 other comprehensive income or 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.

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 and the special
dividend are included in the period in which they are approved by the shareholders at an annual general meeting.

Adjusting items
Adjusting items are disclosed separately in the income statement where it is necessary to do so due to their nature or amount and
to provide further understanding of the Group’s financial performance. Adjusting items comprises exceptional items, amortisation of
acquired intangible assets, goodwill and acquired intangible asset impairment, share-based payment, impairment of associate, the
tax effect of these items, revaluation of deferred tax assets due to US tax reform and prior year tax.

Certain items are classified as exceptional items due to their nature, amount or infrequency. Such presentation is relevant to an
understanding of the Group’s financial statements. These items are not part of the Group’s normal ongoing operations.

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.

Estimates
Business combinations and goodwill
For the purpose of impairment tests, the goodwill arising from each business combination is allocated to cash-generating units (CGUs)
that are expected to benefit from the combination and which represent the lowest level within the Group at which management
monitors goodwill. There have been no changes to the CGUs in the year.

The Group tests annually by CGU 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 CGUs have been determined based on
value in use calculations which require estimates and assumptions to be made in relation to management’s expectations of growth in
adjusted operating profit before depreciation and amortisation; long-term growth rates; and appropriate discount rates to reflect the
risks involved.

Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash
flow projections, could significantly affect the Group’s impairment evaluation and hence reported assets and profits and losses.
Further details are included in note 14 to the consolidated financial statements.

118

Spirent Communications plc Annual Report 20172. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 10.

Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that there will be sufficient and suitable taxable
profits in the relevant legal entity or tax group against which to utilise the assets in the future. 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. Judgement is required when determining probable future taxable profits, which are
estimated using the latest available profit forecasts. Unrecognised deferred tax assets are disclosed in note 24.

Provisions and contingent liabilities
Provisions are estimates and the actual cost and timing of future cash flows are dependent on future events. The Group exercises
judgement in recognising provisions and the exposures to contingent liabilities. Judgement is necessary to assess the likelihood that
a liability will arise and to quantify the possible amount of any financial settlement. The inherent uncertainty of such matters means
that actual amounts of transactions may differ materially from estimates provided. Any difference between the amounts previously
recognised and the actual amount is recognised immediately in the consolidated income statement. Provisions and contingent
liabilities are disclosed in notes 26 and 17, respectively.

Judgements
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. 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. The fair values determined and allocated to each element may impact the timing of
revenue recognition and the determination of fair values can involve complex judgements. The Group generally determines the fair
value of individual elements based on prices at which the deliverable is regularly sold on a standalone basis after considering
customer discounts, where appropriate.

Applicable 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)
IFRS 2

IFRS 9
IFRS 15
IFRS 16
IFRIC 22

IFRIC 23

Annual Improvements
2014-2016 Cycle
2015-2017 Cycle

Amendments to IFRS 2 – Classification and
Measurement of Share-based Payment Transactions
Financial Instruments
Revenue from Contracts with Customers
Leases
Foreign Currency Translations and
Advanced Considerations
Uncertainty over Income Tax Treatments

Effective for annual periods
beginning on or after
1 January 2018

1 January 2018
1 January 2018
1 January 2019
1 January 2018

1 January 2019

1 January 2018
1 January 2019

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 other than in relation to IFRS 16 which is discussed below. The Group has
completed its impact assessment of IFRS 15 which is discussed below.

119

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Notes to the consolidated financial statements continued

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
IFRS 15 Revenue from Contracts with Customers
IFRS 15 ‘Revenue from Contracts with Customers’ was issued in May 2014 and is effective for accounting periods beginning on or after
1 January 2018. It establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15,
the core principle is that revenue is recognised to depict the transfer of promised goods and services to customers in an amount that
reflects the consideration to which the entity is entitled in exchange for those goods or services.

For the Group, transition to IFRS 15 took place on 1 January 2018. The Group has adopted the standard using the fully retrospective
approach which means that the cumulative impact of the adoption will be recognised in retained earnings as of 1 January 2017 and
comparatives will be restated.

The Group has completed its assessment of the impact of the standard on its financial statements and has identified the following area
that will be affected:

Incremental costs incurred to obtain a contract
In 2017, the Group expensed costs in relation to commissions and agency fees incurred as they did not qualify for recognition as an
asset under any of the other accounting standards. However, the costs would not have been incurred had the contract not been
obtained and, by their nature, are expected to be recovered through the Group’s performance of its contractual obligations. Certain
of these costs will therefore be eligible for capitalisation under IFRS 15 and recognition as a contract asset with effect from 1 January
2018, and then amortised as the revenue is recognised on the goods and services to which the asset relates.

The Group will apply the practical expedient in paragraph 94 of IFRS 15 and continue to recognise such incremental costs as an
expense when incurred if the amortisation period of the asset that the Group would otherwise have recognised is one year or less.
The financial impact on the Group’s financial statements is therefore limited and primarily applicable to maintenance, service and
software subscription contracts that extend beyond 12 months.

Presentation of contract assets and contract liabilities in the balance sheet and related disclosures
IFRS 15 requires separate presentation of contract assets and contract liabilities in the balance sheet. This will result in some
reclassifications as of 1 January 2017 in relation to advance payments and deferred revenue which are currently included in other
balance sheet line items. Other presentation changes are limited to additional disclosure requirements under IFRS 15 only.

IFRS 16 Leases
IFRS 16 ‘Leases’ was issued in January 2016 to replace IAS 17 ‘Leases’ and is effective for accounting periods beginning on or after
1 January 2019.

IFRS 16 eliminates the classification of leases as either operating leases or finance leases as per IAS 17, and introduces a single lessee
accounting model. Lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a
corresponding loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use
asset and interest on the lease liability. Consequently, there will be a reduction in operating expenses and an increase in finance costs.
The accounting for leases that are currently designated as finance leases will be largely unchanged under IFRS 16. The accounting for
leases that are currently designated as operating leases will be fundamentally different to the current treatment of expensing the rental
charges on a straight line basis. The Group’s operating lease commitments are disclosed in note 28.

The Group continues to assess the impact of IFRS 16 on the financial statements, however, the changes are expected to have a
material impact on the consolidated balance sheet. The Group is continuing to assess the impact on the consolidated income
statement.

When IFRS 16 is adopted, the Group has the choice to apply it on a fully retrospective basis, restating comparative information, or to
recognise the cumulative effect of application as an adjustment to opening equity on the date of adoption. The Group intends to adopt
the fully retrospective approach.

3. REVENUE

Sale of goods
Maintenance and support services
Royalty income
Total revenue

120

2017
$ million
320.5
133.1
1.2
454.8

2016
$ million
322.7
132.7
2.5
457.9

Spirent Communications plc Annual Report 2017
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.

The Group’s reportable operating segments are Networks & Security, Lifecycle Service Assurance and Connected Devices. The
Group evaluates adjusted operating profit before exceptional items, acquired intangible asset amortisation, goodwill and acquired
intangible asset impairment and share-based payment. Finance income, finance costs and share of loss of associate are not allocated
to the reportable segments. Corporate is not an operating segment and costs are separately reported and not allocated to the
reportable segments. Information on segment assets and segment liabilities is not regularly provided to the Group’s Chief Executive
Officer and is therefore not disclosed below. There is no aggregation of operating segments.

Revenue
External revenue
Inter-segment revenue is eliminated.

Profit before tax
Total reportable segment
profit/(loss) before exceptional items
Exceptional items
Total reportable segment profit/(loss)
Unallocated amounts

Acquired intangible asset amortisation
Share-based payment

Operating profit
Finance income
Finance costs
Gain on divestment
Profit before tax

Other information
Product development
Intangible asset amortisation – other
Depreciation

Notes

Networks &
Security

Lifecycle
Service
Assurance

Connected
Devices

Corporate

Total

261.0

109.2

84.6

–

454.8

2017
$ million

43.9
(3.9)
40.0

17.9
(0.1)
17.8

5.2
(1.4)
3.8

(8.1)
(1.3)
(9.4)

58.9
(6.7)
52.2

(6.3)
(2.2)
43.7
0.6
(0.3)
2.6
46.6

53.6
–
9.6

30.9
–
3.5

18.5
0.8
4.8

–
–
0.1

103.0
0.8
18.0

2016 operating segment information has been restated for the following changes to the Group’s operating segments which came into
effect on 1 January 2017:

The operating segments were reorganised to focus certain product lines and to combine resources and planning efforts in other
product lines. The following changes were made to the operating segments:

• The Networks & Applications operating segment was divided into five distinct lines of business; Cloud and IP, Application Security,

Automation Platform Technologies, Mobility Infrastructure and Spirent Technologies.

• The Service Assurance Broadband line of business was split by product offering between the core Service Assurance business

and Service Experience line of business.

From 1 January 2017, the new operating segments were as follows:

• Networks & Security comprising our Cloud and IP, Application Security and Positioning lines of business with the aim of addressing

the needs of the lab test market for Ethernet, Virtual, Data Centre, applications test and timing for critical infrastructure.

• Lifecycle Service Assurance comprising our Mobility Infrastructure, Customer Experience Management, Service Assurance and

Automation Platform Technologies lines of business. All businesses in this segment target wireless service providers’ production
networks aimed at reducing operating costs, increasing service quality and providing real-time analytics to trigger automatic tests
and fixes to network degradation.

• Connected Devices comprising our Wireless and Service Experience lines of business together with Device Intelligence and
Developer Tools. Device Intelligence and Developer Tools were divested by the Group on 30 June 2017. Further details are
disclosed in note 33. The future opportunities for this segment are centred around 5G wireless development, performance and
security of connected devices and the challenges to network providers coming from the Internet of Things.

121

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Notes to the consolidated financial statements continued

4. OPERATING SEGMENTS CONTINUED

Revenue
External revenue
Inter-segment revenue is eliminated.

Loss before tax
Total reportable segment profit/(loss) before
exceptional items
Exceptional items
Total reportable segment profit/(loss)

Unallocated amounts

Acquired intangible asset amortisation
Goodwill and acquired intangible asset impairment
Share-based payment

Operating loss
Finance income
Finance costs
Share of loss of associate

Loss before tax

Other information
Product development
Intangible asset amortisation – other
Depreciation

Notes

Networks &
Security1

Lifecycle
Service
Assurance1

Connected
Devices1

Corporate

Total

262.2

99.2

96.5

–

457.9

2016
$ million

14
31

47.2
(0.9)
46.3

11.2
(1.1)
10.1

(4.4)
(2.8)
(7.2)

(7.5)
–
(7.5)

46.5
(4.8)
41.7

(12.9)
(69.1)
(0.8)
(41.1)
0.3
(0.7)
(4.5)

(46.0)

53.0
–
9.4

31.7
–
2.9

27.0
0.9
6.5

–
–
0.3

111.7
0.9
19.1

Note
1. Restated for changes to the Group’s operating segments effective 1 January 2017 as set out above.

Geographical information

Revenue by market
Americas
Asia Pacific
Europe, Middle East and Africa

Europe, Middle East and Africa includes United Kingdom revenue of $8.1 million (2016 $7.9 million).

Americas includes United States revenue of $237.8 million (2016 $244.4 million).

Asia Pacific includes China revenue of $88.3 million (2016 $81.0 million).

Revenues are attributed to countries based on customer location.

No one customer accounted for ten per cent or more of total Group revenue in either 2017 or 2016.

2017
$ million

2016
$ million

248.6
160.2
46.0
454.8

254.1
149.3
54.5
457.9

122

Spirent Communications plc Annual Report 2017
4. OPERATING SEGMENTS CONTINUED

Non-current assets1
Americas
Asia Pacific
Europe, Middle East and Africa

2017
$ million

2016
$ million

195.4
4.9
5.6
205.9

206.9
4.4
5.8
217.1

Note
1. Non-current assets excludes trade and other receivables, cash on deposit, defined benefit pension plan surplus and deferred tax asset.

Europe, Middle East and Africa includes United Kingdom non-current assets of $2.9 million (2016 $2.4 million).

Americas includes United States non-current assets of $182.5 million (2016 $194.9 million).

5. PROFIT/(LOSS) BEFORE TAX
The following items have been charged or (credited) in arriving at profit/(loss) before tax:

Employee benefit costs
Costs of inventories recognised as an expense
Write-down of inventories to net realisable value
Amortisation of intangible assets
Depreciation of property, plant and equipment – owned assets
Operating leases – minimum lease payments
Product development costs
Net foreign exchange loss/(gain)

Notes
9

19
14
15

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
Tax advisory services

2017
$ million
207.4
78.4
2.3
7.1
18.0
9.1
103.0
1.6

2016
$ million
216.3
83.5
0.5
13.8
19.1
9.2
111.7
(3.4)

2017
$ million

2016
$ million

0.9

–
0.9

0.9

0.1
1.0

A description of the work of the Audit Committee is set out in the Audit Committee report on pages 68 to 73 and includes an
explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.

6. EXCEPTIONAL ITEMS

Portfolio review and sales organisation restructuring
Strategic review of Connected Devices

2017
$ million
5.4
1.3
6.7

2016
$ million
4.8
–
4.8

123

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Financial Statements
Notes to the consolidated financial statements continued

6. EXCEPTIONAL ITEMS CONTINUED
In 2016, Spirent undertook a fundamental review of the lines of business in order to bring more focus to certain product lines and
to combine resources and planning efforts in other product lines. This resulted in a change to the Group’s reported operating
segments. In addition, Spirent reviewed the sales organisation and compensation structure. The change in product line emphasis
and organisational review resulted in exceptional restructuring costs. In 2017, the portfolio and sales organisation reviews were
continued and concluded, which resulted in further headcount reductions, an onerous lease provision and other associated costs.
The Group also incurred a contract amendment fee in relation to outsourced research and development services. In addition, in 2017
the Group undertook a strategic review of the Connected Devices operating segment incurring advisors’ fees of $1.3 million.

The tax effect of exceptional items is a credit of $1.9 million (2016 $1.1 million). The total cash outflow in respect of exceptional items
charged in 2017 is anticipated to be $6.8 million, with $3.4 million paid in the year (2016 $3.9 million with $1.4 million paid in the year).
The cash outflow in 2017 in respect of exceptional items charged in 2016 was $2.5 million (2016 $7.0 million).

The total cash outflow in respect of exceptional items charged in 2017 will be reported within cash flows from operating activities in
the consolidated cash flow statement.

7. FINANCE INCOME

Bank interest receivable

8. FINANCE COSTS

Net defined benefit pension plan interest
Unwind of discount on provisions

9. EMPLOYEES
The average number of people employed by the Group during the year was:

Manufacturing
Product development
Selling and marketing
Administration

Employee benefit costs were:

Remuneration
Social security costs
Pension and other related costs
Expense of share-based payment

2017
$ million
0.6

2016
$ million
0.3

Note
10

2017
$ million
0.2
0.1
0.3

2016
$ million
0.7
–
0.7

2017
Number
330
531
447
197
1,505

2017
$ million
184.4
14.3
6.5
2.2
207.4

2016
Number
352
587
471
189
1,599

2016
$ million
192.4
15.7
7.4
0.8
216.3

Note

Please refer to the Report on Directors’ Remuneration on pages 74 to 93 and note 34 for disclosures relating to the emoluments,
share incentives and pensions of the directors.

124

Spirent Communications plc Annual Report 2017

10. 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 is closed to new entrants

• The Cash Plan is primarily a defined contribution arrangement, although there are some legacy defined benefits (“Old Section”)

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. The Cash Plan is
closed to new entrants.

There is also a UK 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 the 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 chance of members living longer than expected.

The plans hold a significant proportion of their assets in equity. 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 2018 are $7.1 million. This includes the contributions agreed with the funded
plans’ trustees in accordance with UK legislation. Following the triennial valuations as at 1 April 2015, the Group has agreed to pay
$7.0 million (£5.0 million) per annum into the Staff Plan from 1 July 2016, over a seven year period, in order to clear the funding deficit
as assessed by the trustees’ independent actuary.

If the contributions currently agreed are insufficient to pay the benefits due, the Group will need to make further contributions.

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

Net pension plan deficit on the balance sheet

2017
$ million

2016
$ million

1.2

(3.4)
(0.6)
(4.0)
(2.8)

0.9

(13.7)
(0.7)
(14.4)
(13.5)

125

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the consolidated financial statements continued

10. PENSIONS CONTINUED
a) The assets and liabilities in each plan

Staff Plan
Quoted

Equities
Government bonds
Corporate bonds

Unquoted
LDI funds
Cash benchmarked bonds
Hedge funds
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
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
Total net deficit recognised
Unfunded plan
Present value of unfunded obligations
Net pension plan deficit on the balance sheet

2017
$ million

2016
$ million

65.7
5.8
5.3

50.0
102.0
26.7
3.4
1.5
10.9
271.3
(274.7)
(3.4)

4.6
4.3

0.1
2.3
11.3
(10.1)
1.2
(2.2)

(0.6)
(2.8)

62.4
4.7
3.6

33.3
91.4
19.1
3.5
1.2
18.7
237.9
(251.6)
(13.7)

4.1
3.7

0.1
2.3
10.2
(9.3)
0.9
(12.8)

(0.7)
(13.5)

Approximately two thirds of the Staff Plan’s assets are held in a combination of LDI funds, cash benchmarked bonds and hedge funds.
The objective of this allocation is to hedge against the plan’s liabilities, provide protection against inflation risk and to provide a level of
investment returns in all market scenarios.

These funds have a wide investment remit and as such the investments of the funds may or may not be listed on recognised
exchanges and markets and will be without restriction as to geographical, industrial or sectoral exposure. These funds may take both
long and short positions and may utilise a broad range of derivatives. The funds’ investments may include sub-investment grade
securities, corporate debt securities, gilts, sale and repurchase agreements, loans, and emerging markets debt and currencies.

The plans are prohibited from investing in Spirent’s own financial instruments.

The fair values of the quoted equity and debt instruments are determined based on quoted market prices in active markets whereas
the fair values of the other assets are not.

The Group has determined that it has an unconditional right to refund of surplus assets if the schemes are run off until the last member
dies, on which basis IFRIC 14 does not cause any change in the balance sheet disclosures before tax.

For the purposes of the following disclosures the Staff Plan and Cash Plan have been combined as the Cash Plan is immaterial to these
financial statements.

126

Spirent Communications plc Annual Report 2017
10. PENSIONS CONTINUED
b) Analysis of the amounts charged to the income statement

Plan administration expenses
Current service cost
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 (loss)/gain arising from experience
Actuarial gain arising from the demographic assumptions
Actuarial loss arising from changes in financial assumptions
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
Interest cost
Benefit payments
Actuarial loss/(gain) arising from experience
Actuarial gain arising from the demographic assumptions
Actuarial 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
Benefit payments
Plan administration expenses
Re-measurement gain on plans’ assets
Exchange adjustment
Fair value of plans’ assets

2017
$ million
0.4
0.1
0.5
0.2
0.7

2017
$ million
10.5
(0.8)
5.5
(9.7)
5.5

2017
$ million
260.9
0.1
7.3
(11.7)
0.8
(5.5)
9.7
23.2
284.8

2017
$ million
248.1
7.1
6.6
(11.7)
(0.4)
10.5
22.4
282.6

2016
$ million
0.7
0.1
0.8
0.7
1.5

2016
$ million
32.0
4.3
8.0
(46.5)
(2.2)

2016
$ million
275.6
0.1
9.5
(10.9)
(4.3)
(8.0)
46.5
(47.6)
260.9

2016
$ million
256.5
8.8
7.0
(10.9)
(0.7)
32.0
(44.6)
248.1

127

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Financial Statements
Notes to the consolidated financial statements continued

10. 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

2017
%
3.1
2.0
2.0
3.6
3.0
2.1
2.0
2.5

2016
%
3.2
2.1
2.1
3.7
3.1
2.1
2.1
2.8

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 (2016 aged 65) will live on average for a further 22.7 years (2016 23.1 years) if they are male and
for a further 24.6 years (2016 25.2 years) if they are female. For a member who retires in 2037 (2016 in 2036) at age 65 (2016 age 65),
the assumptions are that they will live on average for a further 24.1 years (2016 24.8 years) after retirement if they are male and for a
further 26.1 years (2016 27.1 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 $4.2 million (2016 $3.8 million).
•
•

Increasing RPI inflation by 0.1 per cent would increase the plans’ liabilities by $1.5 million (2016 $1.5 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 $13.9 million (2016 $11.7 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 analysis 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 (2016 15 years).

Deferred compensation plan
The Group operates a deferred compensation plan for employees in the United States. The plan enables participating employees to
defer a portion of their salary and invest it in deemed investments, that are used to measure the gains or losses that are attributed to
the deferral account over time. The plan has elements of a defined benefit pension retirement obligation and therefore is required to
be valued in accordance with IAS 19 ‘Employee Benefits’.

At 31 December 2017, the deferred compensation plan deficit amounted to $3.7 million (2016 $2.3 million) and is included within
non-current trade and other payables (note 25). During the year, $0.3 million was charged to the income statement (2016 $0.1 million) and a
re-measurement loss of $0.9 million (2016 nil) was recognised directly in the statement of other comprehensive income. The key financial
assumptions include a discount rate used to discount plan liabilities of 3.4% and an expected investment yield of 7.5%. In the prior year, no net
investment yield growth was assumed for the plan. There is no material impact of changing each of the key assumptions by 0.1 per cent, in
isolation.

Defined contribution plans
United Kingdom
The Group contributes towards defined contribution pension plans for employees in the United Kingdom. Employer contributions into
these plans for 2017 were $0.8 million (2016 $0.8 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 $4.0 million for 2017 (2016 $4.1 million). There were no defined benefit plans in the United States in 2017 or 2016.

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
2017 in respect of these plans amounted to $1.1 million (2016 $1.1 million).

Total employer contributions to defined contribution plans were $5.9 million (2016 $6.0 million).

128

Spirent Communications plc Annual Report 201710. PENSIONS CONTINUED
Directors’ pension arrangements
The pension arrangements of the executive directors are described in detail in the Report on Directors’ Remuneration on pages 74 to 93.

11. TAX

Tax charge/(credit) in the income statement
Current income tax
UK tax
Foreign tax
Amounts underprovided/(overprovided) in previous years
Total current income tax charge
Deferred tax
Recognition of deferred tax assets – US Research and Experimental tax credit
Recognition of deferred tax assets – other
Write-off of previously recognised tax assets including rate changes
Reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax charge/(credit)
Tax charge/(credit) in the income statement

2017
$ million

2016
$ million

0.1
7.4
0.1
7.6

(1.5)
(0.8)
8.0
3.0
1.3
10.0
17.6

0.1
5.3
(0.2)
5.2

(3.0)
(0.2)
0.1
(5.0)
(0.8)
(8.9)
(3.7)

The tax charge for the year ended 31 December 2017 was $17.6 million (2016 $3.7 million credit). This was after a prior year tax charge of
$1.4 million and a tax charge on the adjusting items of $3.1 million (2016 prior year credit of $1.0 million and tax credit on adjusting items
of $14.6 million). Excluding the prior year and tax charge on adjusting items, the effective tax rate was 22.1 per cent (2016 26.9 per cent).

Tax relating to items charged/(credited) to other comprehensive income or equity:

Tax (credit)/charge on share incentives
Deferred tax charge/(credit) on defined benefit pension plan
Deferred tax credit on deferred compensation plan

2017
$ million
(0.3)
1.0
(0.2)

2016
$ million
0.1
(0.4)
–

Reconciliation of the total tax charge/(credit)
The tax charge in the income statement for the year is lower than the standard rate of corporation tax in the UK of 19.25 per cent (2016
20.0 per cent). The differences are reconciled below:

Accounting profit/(loss) before tax
Accounting profit/(loss) multiplied by the UK standard rate
of corporation tax of 19.25 per cent
Differences in overseas rates
US tax rate change
Non-taxable income
Recognition of deferred tax assets
Current year losses upon which no deferred tax recognised
Utilisation of tax assets not previously recognised
UK & US Research and Experimental tax credit
Withholding tax
Permanent differences
Tax underprovided in prior years
Total tax charge reported in the income statement

Year ended 31 December 2017
Reported
$ million
46.6

Adjusting
$ million
(12.6)

Adjusted
$ million
59.2

11.4
5.5
–
(1.0)
(0.3)
0.2
(0.6)
(2.5)
0.8
(0.4)
–
13.1

(2.4)
(1.6)
7.9
(0.3)
(0.5)
–
–
–
–
–
1.4
4.5

9.0
3.9
7.9
(1.3)
(0.8)
0.2
(0.6)
(2.5)
0.8
(0.4)
1.4
17.6

129

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information
Financial Statements
Notes to the consolidated financial statements continued

11. TAX CONTINUED

Accounting profit/(loss) before tax
Accounting profit multiplied by the UK standard rate
of corporation tax of 20.0 per cent (2015 20.25 per cent)
Differences in overseas rates
Non-taxable income
Recognition of deferred tax assets
Write-off of previously recognised tax assets including rate changes
Current year losses upon which no deferred tax recognised
UK & US Research and Experimental tax credit
Withholding tax
Permanent differences
Tax overprovided in prior years
Total tax charge/(credit) reported in the income statement

Year ended 31 December 2016
Reported
$ million
(46.0)

Adjusting
$ million
(90.2)

Adjusted
$ million
44.2

8.8
4.8
(1.5)
(0.2)
0.1
0.9
(3.2)
1.3
0.9
–
11.9

(18.0)
(6.4)
–
–
–
–
–
–
9.8
(1.0)
(15.6)

(9.2)
(1.6)
(1.5)
(0.2)
0.1
0.9
(3.2)
1.3
10.7
(1.0)
(3.7)

Included in the above reconciliation are the following items: US tax rate change of $7.9 million which relates to the re-measurement
of the Group’s US deferred tax assets due to the decrease in the tax rate from 35 per cent to 21 per cent; non-taxable income of
$1.3 million which relates to offshore income in the rest of the world of $0.9 million and non-taxable gains on disposals in the United
Kingdom of $0.4 million; permanent differences of $0.4 million largely relate to the UK patent box deduction; tax underprovided in prior
years of $1.4 million which relates to corrections to US deferred tax assets of $0.7 million and the France tax assessment received for
prior years of $0.7 million.

The Group’s tax rate is sensitive to the geographic mix of products and reflects a combination of higher tax in certain jurisdictions,
such as the United States, with a statutory rate of 35 per cent and other regions’ significantly lower tax rates, such as the United
Kingdom at 19.25 per cent, China at 15 per cent and other rates that fall in between. Research and Experimental credits of
$2.5 million (2016 $3.2 million) bring down the rate but items such as state taxes and withholding tax increase the tax rate.

12. EARNINGS PER SHARE
Basic
Earnings per share is calculated by dividing the profit/(loss) for the year attributable to owners of the parent Company by the weighted
average number of Ordinary Shares outstanding during the year.

Diluted
Diluted earnings per share is calculated by dividing the profit/(loss) for the year attributable to owners of the parent Company by the
weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that
would be issued on the conversion of all dilutive potential Ordinary Shares into Ordinary Shares.

Profit/(loss) for the year attributable to owners of the parent Company

Weighted average number of Ordinary Shares in issue – basic
Dilutive potential of employee share incentives¹
Weighted average number of Ordinary Shares in issue – diluted

2017
$ million
29.0

Number
million
610.6
5.5
616.1

2016
$ million
(42.3)

Number
million
610.6
–
610.6

Note
1. The effect of dilutive employee share incentives was anti-dilutive in 2016 and was therefore ignored in calculating diluted EPS. The dilutive potential of

employee share incentives was 2.4 million in 2016.

Earnings/(loss) per share
Basic
Diluted

130

Cents

4.75
4.71

(6.93)
(6.93)

Spirent Communications plc Annual Report 201712. EARNINGS PER SHARE CONTINUED
Adjusted
The Group is disclosing adjusted earnings per share for continuing operations attributable to owners of the parent Company in order to provide
a measure to enable period-on-period comparisons to be made of its performance. The following items are excluded from adjusted earnings:

• exceptional items
• acquired intangible asset amortisation
• goodwill and acquired intangible asset impairment
• share-based payment
•

impairment of investment in associate

• gain on divestment
•
•
• prior year tax (adjustments made to provisions in respect of prior years)

tax effect on the above items
revaluation of deferred tax assets due to US tax reform

A reconciliation is provided below:

Profit/(loss) for the year attributable
to owners of the parent Company
Exceptional items
Acquired intangible asset amortisation
Goodwill and acquired intangible asset impairment
Share-based payment
Impairment of investment in associate
Gain on divestment
Tax effect on the above items
Revaluation of deferred tax assets due to US tax reform
Prior year tax charge/(credit)
Adjusted basic
Adjusted diluted

Notes

$ million

EPS cents

$ million

EPS cents

2017

2016

14
31
16
33
11
11
11

29.0
6.7
6.3
–
2.2
–
(2.6)
(4.8)
7.9
1.4
46.1

4.75

7.55
7.48

(42.3)
4.8
12.9
69.1
0.8
2.6
–
(14.6)
–
(1.0)
32.3

(6.93)

5.29
5.29

There were no Ordinary Share transactions that occurred after 31 December that would have significantly changed the number of
Ordinary Shares or potential Ordinary Shares outstanding at the period end if those transactions had occurred before the end of the
reporting period in either year.

13. DIVIDENDS PAID AND PROPOSED

Declared and paid in the year
Equity dividend on Ordinary Shares
Final dividend 2016 of 2.21 cents (1.80 pence) per Ordinary Share (2015 2.21 cents (1.59 pence))
Interim dividend 2017 of 1.68 cents (1.27 pence) per Ordinary Share (2016 1.68 cents (1.27 pence))

Proposed for approval at AGM (not recognised as a liability at 31 December)
Equity dividend on Ordinary Shares
Final dividend 2017 of 2.40 cents (1.73 pence) per Ordinary Share (2016 2.21 cents (1.80 pence))
Special dividend 2017 of 5.00 cents (3.60 pence) per Ordinary Share

2017
$ million

2016
$ million

14.2
10.4
24.6

14.7
30.5
45.2

14.1
10.1
24.2

13.5
–
13.5

The directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 2.40 cents per Ordinary
Share (1.73 pence) (2016 2.21 cents (1.80 pence)), which will absorb an estimated $14.7 million of shareholders’ funds (2016 $13.5 million).
The directors are also proposing a special dividend of 5.00 cents per Ordinary Share (3.60 pence), which will absorb an estimated
$30.5 million of shareholders’ funds. The final dividend and special dividend will be paid on 4 May 2018 to Ordinary shareholders
who are on the Register of Members at close of business on 16 March 2018. Payment will be made to ADR holders on 11 May 2018.
No liability is recorded in the financial statements in respect of these dividends.

Dividends are determined in US dollars and paid in pounds sterling. The exchange rate for determining the amount of the final and
special dividends to be paid for 2017 was $1.39: £1 (2016 $1.23: £1).

131

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information
Financial Statements
Notes to the consolidated financial statements continued

14. INTANGIBLE ASSETS

Cost, net of accumulated amortisation
and impairment losses
At 1 January 2016
Additions
Adjustments
Impairment
Amortisation for the year
Exchange adjustment
At 1 January 2017
Additions
Disposals
Amortisation for the year
Exchange adjustment
At 31 December 2017
At 31 December 2016
Cost (gross carrying amount)
Amortisation and accumulated
impairment losses
Net carrying amount
At 31 December 2017
Cost (gross carrying amount)
Amortisation and accumulated
impairment losses
Net carrying amount

Goodwill

Customer
list

Current
technology

Brand
names

Other

Licences

Total

$ million

216.9
–
(0.2)
(61.4)
–
0.4
155.7
–
–
–
1.1
156.8

8.8
–
–
(0.9)
(3.9)
–
4.0
–
(0.1)
(1.8)
–
2.1

20.0
–
–
(4.7)
(7.7)
(0.2)
7.4
–
(0.3)
(4.2)
–
2.9

621.9

21.1

43.9

(466.2)
155.7

(17.1)
4.0

(36.5)
7.4

595.4

16.9

36.2

(438.6)
156.8

(14.8)
2.1

(33.3)
2.9

1.2
–
–
(0.2)
(0.5)
–
0.5
–
–
(0.3)
–
0.2

2.7

(2.2)
0.5

2.3

(2.1)
0.2

2.7
–
–
(1.9)
(0.8)
–
–
–
–
–
–
–

7.1

(7.1)
–

3.6

2.0
1.1
–
–
(0.9)
–
2.2
0.4
–
(0.8)
(0.2)
1.6

251.6
1.1
(0.2)
(69.1)
(13.8)
0.2
169.8
0.4
(0.4)
(7.1)
0.9
163.6

11.8

708.5

(9.6)
2.2

(538.7)
169.8

12.1

666.5

(3.6)
–

(10.5)
1.6

(502.9)
163.6

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.

Goodwill has been allocated to three CGUs as follows:

Networks & Security, an operating segment from 1 January 2017
Lifecycle Service Assurance, an operating segment from 1 January 2017
Connected Devices, an operating segment from 1 January 2017

2017
$ million
73.1
37.6
46.1
156.8

2016
$ million
72.0
37.6
46.1
155.7

132

Spirent Communications plc Annual Report 2017
14. INTANGIBLE ASSETS CONTINUED
Annual impairment test
The Group has an annual impairment testing date of 30 November. The key assumptions used in the value in use calculations were:

revenue growth rates;

•
• gross margin;
• operating expenses;
• discount rate; and
• growth rate used to extrapolate cash flows beyond the five-year period covered by management’s projections.

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 in years four and five are extrapolated based on long range plans. Cash flows in subsequent years
have been extrapolated using a steady 2.5 per cent for all CGUs (2016 2.5 per cent for all CGUs), which management estimates to be the
approximate average long-term growth rate for the industries in which these units operate. Fundamentally this long-term growth is based
on a proxy for global long-term inflation taking into consideration more developed and developing markets. The growth rates used in the
value in use calculations are set at the same level for each CGU as all the CGUs operate within similar markets which share the same
growth drivers and characteristics. The discount rates incorporate the specific risks relating to each CGU.

The discount rate applied to the cash flows is based on the weighted average cost of capital of comparable companies by taking the
risk free rate for 30-year government bonds and making an adjustment to reflect the increased risk of investing in equities. In making
this adjustment, the inputs required are the equity market risk premium, beta, and the risk adjustment applied to reflect the systematic
risk of Spirent and the specific CGUs, taking into account factors such as size and the territories in which each CGU operates.

The cash flows have been discounted using the following pre-tax discount rates:

Networks & Security
Lifecycle Service Assurance
Connected Devices

2017
%
16.0
17.4
14.3

2016
%
16.0
17.4
15.6

For Spirent the key factor in relation to the cash flow forecasts is the ability to forecast revenue. All CGUs operate in the data technology
market and generate a high gross profit (gross margin); consequently changes in revenue can have a significant impact on the operating
profit and cash flows. Revenue growth rates used in the projections are based on management’s estimate of growth in the markets
served and take into account historical levels of growth, expected future developments in products and technology, industry forecasts
and macro-economic conditions in the territories in which the CGUs operate. Gross margin and operating expenses are based on
historical values adjusted for the effect of revenue growth and cost reduction actions committed prior to the impairment testing date.

The Networks & Security three-year plan delivers growth from Cloud and IP into core emerging markets such as Automotive, Wi-Fi and
TSN. Cloud and IP growth in high speed ethernet is expected to continue, supported by ongoing product development. Further growth
in Networks & Security is expected in the Positioning business from launches of new tailored solutions. Management expects that the
Application Security product line will deliver growth in market share within network equipment manufacturers and service providers
with new hardware and synergies with Positioning and continued expansion in complementary solutions with Cloud and IP.

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Notes to the consolidated financial statements continued

14. INTANGIBLE ASSETS CONTINUED
The continuing drive in lab sales and enhancements to the feature set at the Mobility Infrastructure business unit is expected to grow
revenue in Lifecycle Service Assurance on a relatively flat cost base in the near term. Management expects revenue increases at the
Customer Experience Management business unit driven by the VisionWorks sales strategy and a relatively flat gross margin over the
three-year forecast period. The Lumos legacy business in Lifecycle Service Assurance is expected to drop in the near term to be
replaced by growth in new Ethernet products supported by investment in product development, particularly in virtualisation. The
individual business units in Lifecycle Service Assurance are expected to work together to deliver the three-year plan to meet changes
in customer needs and the competitive landscape.

Revenue is expected to grow at Connected Devices as the smartphone market recovers, driven by network emulator partnerships
with growth in 5G. Management expects gross margin improvement as a result of product mix shifting to more software solutions and
cost reduction initiatives, including a new channel emulator platform and a new network emulator platform. Operating expenses are
expected to remain relatively flat as business unit integration synergies are leveraged following recent organisational change and
research and development flexibility is gained from outsourcing programmes and shifting investment to new growth areas.

The recoverable amount of each CGU was calculated on a value in use basis and was in excess of its carrying value for every CGU.
As the Networks & Security and Lifecycle Service Assurance CGUs satisfied the carry forward criteria as per IAS 36 ‘Impairment of
Assets’, no detailed value in use calculations were undertaken for these CGUs.

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 value in
use of the Networks & Security and Lifecycle Service Assurance CGUs to fall below the carrying value.

The headroom on the Connected Devices CGU was $27.3 million. Sensitivity analysis around the key assumptions has indicated that
for the Connected Devices CGU, a 33.6 per cent decrease in forecast revenue in year 1 and continuing to apply the forecast growth
rates to subsequent years, in isolation, would cause the value in use to fall below the carrying value. There is no reasonable possible
change in the discount rate and the long term growth rate, in isolation, that would cause the value in use of the Connected Devices
CGU to fall below the carrying value.

Intangible asset impairment
Year ended 31 December 2017
There was no impairment charge in respect of the other intangible assets.

Year ended 31 December 2016
An intangible asset impairment charge of $7.7 million was incurred in respect of the customer list, current technology, database,
brand names and non-compete covenant intangible assets arising on the acquisitions of the Radvision Technology Business Unit and
Mobilethink in 2014. At acquisition, the acquired intangibles were expected to be amortised over useful lives of between 2.5 and 7
years, however, lower than anticipated projected cash flows within these businesses resulted in a reassessment of expected future
business performance in light of current trading and planned future investment. The cash flows from these businesses, which formed
the recently divested Developer Tools and Device Intelligence lines of business, were not expected to support the acquired intangible
assets identified at acquisition and, therefore, they were fully impaired.

134

Spirent Communications plc Annual Report 201715. PROPERTY, PLANT AND EQUIPMENT

Cost, net of accumulated depreciation and accumulated impairment
At 1 January 2016
Additions – owned assets
Disposals
Inter-class transfers
Depreciation charge for the year
Exchange adjustment
At 1 January 2017
Additions – owned assets
Disposals
Inter-class transfers
Depreciation charge for the year
Exchange adjustment
At 31 December 2017
At 31 December 2016
Cost
Accumulated depreciation and accumulated impairment
Net carrying amount
At 31 December 2017
Cost
Accumulated depreciation and accumulated impairment
Net carrying amount

Land and
buildings

Plant and
machinery

Fixtures,
fittings and
equipment

15.9
1.7
(0.1)
0.4
(2.5)
(0.1)
15.3
1.7
(0.2)
–
(2.6)
0.1
14.3

25.8
(10.5)
15.3

26.4
(12.1)
14.3

25.7
11.9
(1.5)
(4.2)
(11.9)
(0.1)
19.9
10.1
(1.9)
(0.5)
(10.7)
0.2
17.1

82.1
(62.2)
19.9

82.1
(65.0)
17.1

9.5
3.7
(0.1)
3.8
(4.7)
(0.1)
12.1
3.1
(0.2)
0.5
(4.7)
0.1
10.9

55.1
(43.0)
12.1

57.3
(46.4)
10.9

$ million

Total

51.1
17.3
(1.7)
–
(19.1)
(0.3)
47.3
14.9
(2.3)
–
(18.0)
0.4
42.3

163.0
(115.7)
47.3

165.8
(123.5)
42.3

None of the property, plant and equipment is held under finance lease arrangements.

16. INVESTMENT IN ASSOCIATE
The carrying amount for Jolata is nil in 2017 (2016 nil)

Jolata, Inc. (“Jolata”) is a company incorporated in the United States and its principal activity is the provision of network testing.

Jolata is considered an associate as the Group controls 26 per cent (2016 26 per cent) of the voting power and therefore has
significant influence over the entity.

During the prior year, the investment in Jolata was impaired in full by $2.6 million . Following the impairment, the recoverable amount
in Jolata was nil.

The Group has $1.0 million cumulative unrecognised share of losses in Jolata (2016 nil).

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Financial Statements
Notes to the consolidated financial statements continued

17. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The Group had capital commitments of $0.8 million at 31 December 2017 (31 December 2016 $1.8 million).

The Group has provided indemnities of $0.1 million (2016 $0.1 million) for certain ongoing business obligations under letters of credit
for subsidiary companies.

The Group has received enquiries from the Direction Générale des Douanes et Droits Indirects (French Customs) in relation to the
valuation and classification of imports into France but has not received a formal demand for unpaid duty and it is unclear whether a
formal demand will be received. Spirent has adopted a duty tariff based on World Customs Organisation guidelines that potentially
conflicts with European Union import regulations, resulting in a possible liability to the French authorities.

There is uncertainty with regard to not only the legitimacy of any potential claim, but also the appropriate tariff classification, the
period in question and both the population and valuation of goods potentially subject to duty. The determination of the amount of any
liability in respect of unpaid duty and associated penalties and interest is therefore dependent on a number of significant inter-related
uncertainties and therefore the Group cannot reasonably make an assessment of the quantum of that contingent liability at the date of
the signing of these financial statements. It is not practicable to state the timing of the payment due, if any, since no formal demand for
unpaid duty has been made.

Due to the aforementioned uncertainties, the Group considers it possible, but not probable, that a settlement will be required.

18. SUBSIDIARIES

A list of subsidiaries, including the name, country of incorporation and proportion of ownership interest is given on pages 166 and 167
of these financial statements.

19. INVENTORIES

Raw materials
Work in progress
Finished goods

2017
$ million
4.3
0.8
18.5
23.6

2016
$ million
8.7
0.7
18.0
27.4

An expense of $2.3 million (2016 $0.5 million) has been recognised in the year for inventory write-downs. There were no reversals of
prior period inventory write-downs (2016 nil).

No inventories are carried at fair value less costs to sell (2016 nil).

136

Spirent Communications plc Annual Report 2017
20. TRADE AND OTHER RECEIVABLES

Non-current assets
Other receivables
Prepayments

Current assets
Trade receivables
Other receivables
Prepayments
Deferred costs

2017
$ million

2016
$ million

4.1
–
4.1

113.8
4.8
9.2
2.3
130.1
134.2

4.1
0.5
4.6

112.2
3.2
11.5
2.0
128.9
133.5

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

2017
$ million
2.3
0.3
(1.4)
1.2

2016
$ million
1.4
1.7
(0.8)
2.3

The directors consider that the carrying amount of trade and other receivables approximates 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.

Other financial assets – current

Other financial assets

Other financial assets comprises forward foreign currency exchange contracts.

21. CASH AND CASH EQUIVALENTS

Cash at bank and in hand
Short-term bank deposits

2017
$ million
0.1

2016
$ million
–

2017
$ million
83.3
45.1
128.4

2016
$ million
91.1
5.0
96.1

Cash at bank and in hand earns interest at floating interest rates. Of this balance, $45.1 million (2016 $5.0 million) is callable at notice of
three-months.

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.

At the end of 2017, the currency split of cash and cash equivalents was US dollar 85 per cent (2016 70 per cent), sterling 11 per cent
(2016 22 per cent) and other currencies 4 per cent (2016 8 per cent).

For the purposes of the cash flow statement, cash and cash equivalents comprise the above amounts.

At 31 December 2017, there were no amounts of non-current cash held as a property deposit (2016 $0.1 million).

137

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Financial Statements
Notes to the consolidated financial statements continued

22. TRADE AND OTHER PAYABLES – CURRENT

Trade payables
Payments received on account
Other taxes and social security costs
Accruals
Deferred income

2017
$ million
16.3
3.8
3.5
46.6
61.7
131.9

2016
$ million
21.0
2.7
3.0
41.1
59.4
127.2

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 their fair value.

Other financial liabilities – current

Other financial liabilities

Other financial liabilities comprises forward foreign currency exchange contracts.

23. GOVERNMENT GRANTS
The following government grants are included within deferred income:

At 1 January
Received during the year
Released to the income statement
At 31 December

Current
Non-current

2017
$ million
–

2016
$ million
0.1

2017
$ million
2.4
0.5
(0.3)
2.6

2017
$ million
1.2
1.4
2.6

2016
$ million
1.2
1.4
(0.2)
2.4

2016
$ million
2.4
–
2.4

Government grants have been received to accelerate and support research and development in the vulnerability of Global Navigation
Satellite Systems and other high technology projects.

138

Spirent Communications plc Annual Report 2017

24. DEFERRED TAX
The movements in the deferred tax assets/(liabilities) are as follows:

At 1 January 2016
Charged/(credited) in the year
Deferred tax on defined benefit pension plan
Deferred tax on share incentives recognised in equity
Exchange adjustment
At 1 January 2017
Credited in the year
Deferred tax on defined benefit pension plan
Deferred tax on deferred compensation plan
Deferred tax on share incentives recognised in equity
Exchange adjustment
At 31 December 2017
Amounts on the balance sheet:
At 31 December 2016
Deferred tax asset
Deferred tax liability

At 31 December 2017
Deferred tax asset
Deferred tax liability

Notes

11
11
11

11
11
11
11

Temporary
differences
6.0
12.7
–
(0.1)
(0.3)
18.3
(5.3)
–
0.2
0.3
0.1
13.6

Tax losses
13.0
(4.5)
–
–
(0.3)
8.2
(1.3)
–
–
–
0.5
7.4

Tax credits
2.0
1.9
–
–
–
3.9
(2.3)
–
–
–
–
1.6

UK pension
plans
4.0
(1.2)
0.4
–
(0.6)
2.6
(1.1)
(1.0)
–
–
–
0.5

18.5
(0.2)
18.3

13.7
(0.1)
13.6

8.1
0.1
8.2

7.4
–
7.4

3.9
–
3.9

1.6
–
1.6

2.6
–
2.6

0.5
–
0.5

$ million

Total
25.0
8.9
0.4
(0.1)
(1.2)
33.0
(10.0)
(1.0)
0.2
0.3
0.6
23.1

33.1
(0.1)
33.0

23.2
(0.1)
23.1

A deferred tax asset of $23.2 million has been recognised at 31 December 2017 (2016 $33.1 million). $3.5 million is in the United
Kingdom (2016 $3.7 million), $18.9 million is in the United States (2016 $28.2 million) and $0.8 million is in the rest of the world
(2016 $1.2 million).

The deferred tax asset includes $1.1 million (2016 $0.5 million) in respect of the tax deduction which may be available on the future
exercise of share incentives.

The Group has tax losses arising in the United Kingdom of $40.0 million (2016 $37.1 million), at the State level in the United States of
$22.4 million (2016 $31.1 million), and the rest of the world of $0.4 million (2016 $0.4 million) that are available for offset against suitable
future taxable profits. The significant increase in the United Kingdom is mostly due to favourable foreign exchange movements.
The US tax losses can be carried forward until 2022 through to 2036. Additionally, there are short-term timing differences in the rest
of the world of $3.5 million (2016 $3.8 million), tax credits in the United States (State level) and the rest of the world of $7.1 million and
$2.2 million, respectively (2016 $7.1 million and $2.1 million). A deferred tax asset has not been recognised in respect of these items as
their future recovery is uncertain.

The Group has capital losses carried forward of $1,103.2 million (2016 $1,020.9 million) for which no deferred tax asset has been recognised
on the balance sheet. This increase is due to favourable foreign exchange movements. These capital losses have no expiry date.

139

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Notes to the consolidated financial statements continued

24. DEFERRED TAX CONTINUED
US tax reform and other future changes in tax rates
On 22 December 2017, the US government enacted ‘The Tax Cuts and Jobs Act’ (the Act). The Act has significant tax implications for
the Group. The most significant change made is the reduction in the statutory corporate tax rate from 35 per cent to 21 per cent with
effect from 1 January 2018. Other changes that will impact the Group include the repeal of the Domestic Production Activity Deduction
(DPAD) and the enactment of a new deduction, the Foreign-Derived Intangible Income (FDII) deduction. It is estimated that the impact
of the US tax rate reduction together with the repeal of the DPAD and the addition of the FDII deduction will decrease the Group’s 2018
effective tax rate. The precise impact is still to be determined as we are awaiting further guidance from the US government. We also
expect to see cash savings resulting from the Act’s changes.

The enactment of the lower tax rate prior to the balance sheet date results in our re-measurement of the Group’s US deferred tax
assets. As a result, the Group’s US deferred tax assets were written-down by $7.9 million with a corresponding deferred tax charge
to the income statement. This charge is reflected in the tax on adjusting items.

The Finance Bill 2016 was enacted 15 September 2016 and reduced the United Kingdom rate of corporation tax from 20 per cent as
of 1 April 2017 to 19 per cent and by a further 2 per cent to 17 per cent from April 2020. No further United Kingdom corporation tax rate
reductions have been announced. As such, the United Kingdom temporary differences have been recognised at the rate at which the
temporary differences are expected to unwind.

In line with these rate changes, deferred tax assets and liabilities being realised or settled before 2020 have been based on a rate of
19 per cent. Those being realised or settled after 2020 have been based on a rate of 17 per cent.

25. TRADE AND OTHER PAYABLES – NON-CURRENT

2017
$ million

2016
$ million

5.4
–
11.0
3.7
20.1

2.6
0.8
11.2
2.3
16.9

Lease
provisions
2.8
0.5
0.1
(0.1)
(0.2)
–
3.1
0.8
0.1
(0.1)
(0.3)
0.1
(0.2)
–
3.5

Restructuring
provisions
7.0
3.2
–
(0.1)
(7.8)
–
2.3
3.7
–
–
(4.6)
–
(0.1)
0.1
1.4

Other
provisions
1.5
–
–
–
–
(0.1)
1.4
0.5
–
(0.1)
–
–
–
0.1
1.9

$ million

Total
11.3
3.7
0.1
(0.2)
(8.0)
(0.1)
6.8
5.0
0.1
(0.2)
(4.9)
0.1
(0.3)
0.2
6.8

Other payables
Accruals
Deferred income
Deferred compensation

Further details on deferred compensation are disclosed in note 10.

26. PROVISIONS

At 1 January 2016
Charged in the year
Asset retirement obligation
Released in the year
Utilised in the year
Exchange difference
At 1 January 2017
Charged in the year
Asset retirement obligation
Released in the year
Utilised in the year
Unwind of discount
Disposals
Exchange difference
At 31 December 2017

140

Spirent Communications plc Annual Report 2017

26. PROVISIONS CONTINUED

Current
Non-current

2017
$ million
3.6
3.2
6.8

2016
$ million
4.2
2.6
6.8

The lease provisions are for the continuing obligations under leases in respect of space which has been vacated by the Group and
property dilapidation and restoration provisions. Where material, lease obligations are discounted. The Group expects these provisions
to be utilised over one to seven years.

Restructuring provisions relate to severance costs which are expected to be utilised within one year.

Other provisions comprises environmental provisions related to property disposed of and provisions relating to legal claims. The Group
expects these provisions to be utilised in less than one year.

27. 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 stated at amortised cost, except for forward
foreign currency exchange contracts, included within current other financial assets and liabilities, that are designated at fair value
through profit and loss and corporate owned life insurance, amounting to $2.5 million (2016 $2.2 million), included within non-current
trade and other receivables, that is designated as available-for-sale through profit or loss. These are shown in the below table:

Non-current cash on deposit
Non-current trade and other receivables
Cash and cash equivalents
Current trade and other receivables
Current other financial assets
Financial assets

Non-current other payables and accruals
Current trade payables and accruals
Current other financial liabilities
Contractual provisions
Financial liabilities

Notes
21
20
21
20
20

25
22
22
26

2017
$ million
–
4.1
128.4
118.6
0.1
251.2

9.1
62.9
–
3.5
75.5

2016
$ million
0.1
4.1
96.1
115.4
–
215.7

5.7
62.1
0.1
6.8
74.7

The Group enters into derivative transactions, forward foreign currency exchange contracts, for the management of the Group’s foreign
currency exposures when deemed appropriate.

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.

141

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Notes to the consolidated financial statements continued

27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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.

Short-term bank deposits and forward foreign currency exchange contracts mature within three months. The financial instruments bear
the following interest rates:

Fixed rate
Fixed deposits
Floating rate
Cash at bank and in hand

2017

2016

Effective
interest rate
%

$ million

1.46

45.1

83.3

0.98

$ million

5.0

91.1

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.

Interest receivable for the year (note 7) was $0.6 million (2016 $0.3 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 2017 would increase or reduce interest
income and equity by $0.2 million (2016 $0.1 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 undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters using forward foreign currency exchange contracts.

The main exposures arise in relation to US dollar receivables and cash balances held by non-US operations. Group treasury, by means
of forward foreign currency exchange contracts, carries out transaction hedging. A ten per cent appreciation or depreciation of sterling
and euro against the US dollar would increase or reduce profit before tax by $1.9 million (2016 $1.5 million) based on the balances at
the reporting date.

142

Spirent Communications plc Annual Report 201727. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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 $128.4 million (2016 $96.1 million).

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 $113.8 million (2016 $112.2 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

2017
$ million
86.0

2016
$ million
69.1

15.1
6.7
6.0
113.8

18.5
12.5
12.1
112.2

The Group closely monitors amounts due from customers and performs activities such as credit checks and reviews 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 $1.2 million
(2016 $2.3 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 2017, the Group had cash and cash equivalents of $128.4 million (2016 $96.1 million) of which $83.3 million (2016
$91.1 million) is available on demand and $45.1 million matures within three months (2016 $5.0 million matures within three months).

During 2017, the Group generated $69.3 million of cash from operating activities (2016 $42.7 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

2017
$ million
8.0

2016
$ million
5.0

The Group is debt free and does not have loans payable. Financial liabilities are trade and other payables, the majority of which are
due to be settled within one year, and provisions (note 26).

The Group does not have any other material financial contractual commitments.

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Notes to the consolidated financial statements continued

27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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 2017 and 2016 were immaterial.

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.

Spirent’s policy on the payment of dividends to shareholders is to maintain a sustainable dividend.

28. 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

2017
$ million
9.2
30.2
6.9
46.3

2016
$ million
9.1
29.0
12.6
50.7

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.

29. EQUITY
a) Issued share capital
Issued and fully paid Ordinary Shares of 3⅓ pence each:

At 1 January 2016
Exchange adjustment
At 1 January 2017
Exchange adjustment
At 31 December 2017

Number of
Ordinary
Shares
million
611.7

611.7

$ million
30.2
(4.9)
25.3
2.2
27.5

b) Equity and reserves
The nature and purpose of each reserve within equity is as follows:

• Share premium account: this reserve records the consideration premium for shares issued at a value that exceeds their nominal value;
• Capital redemption reserve: this reserve arises in relation to share capital cancellation;
• 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

• 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 2017, the Employee Share Ownership Trust held 0.6 million Ordinary Shares (2016 0.6 million Ordinary Shares) to
satisfy awards under various share incentive plans. At 31 December 2017, the Spirent Sharesave Trust held 0.5 million Ordinary Shares
(2016 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 1.1 million Ordinary Shares (2016 1.1 million Ordinary Shares), at
31 December 2017 was $1.5 million (2016 $1.3 million).

144

Spirent Communications plc Annual Report 201730. EMPLOYEE SHARE PLANS
Movements in share incentives over a two-year period ending on 31 December 2017 are shown below:

Incentives outstanding at 31 December 2015
Exercised
Granted
Forfeited
Incentives outstanding at 31 December 2016
Exercised
Granted
Forfeited
Incentives outstanding at 31 December 2017
Incentives exercisable
At 31 December 2016
At 31 December 2017

2005 Employee
Incentive Plan1
Weighted
average
exercise price
pence
56
48
–
62
53
–
–
50
55

Number of
share
incentives
million
9.7
(0.1)
–
(2.9)
6.7
–
–
(3.2)
3.5

Spirent Long-Term
Incentive Plan2
Weighted
average
exercise price
pence
–
–
–
–
–
–
–
–
–

Number of
share
incentives
million
–
–
4.1
(0.2)
3.9
–
2.9
(0.3)
6.5

–
–

Notes
1. Figures for the 2005 Employee Incentive Plan include share options, stock appreciation rights and Performance Shares in aggregate.
2. Figures for the Spirent Long-term Incentive Plan include restricted stock and Performance Shares in aggregate.

The weighted average share price at exercise date was 103.0 pence (2016 83.0 pence).

The following information relates to outstanding share incentives at 31 December 2017:

Exercise period
(as at 31 December)
28.04.14-17.05.25
28.04.14-10.08.25

Range of
exercise
prices
pence
–
87-89

Weighted
average
exercise
price
pence
–
89

Number
of share
incentives
outstanding
million
1.3
2.2

16.06.16-17.05.27

–

6.5
10.0

2017

Weighted
average
remaining
contractual
life years
7.3
7.2

Weighted
average
exercise price
pence
1
93

9.9

–

2016

Weighted
average
remaining
contractual
life years
7.9
7.9

9.5

Number
of share
incentives
outstanding
million
2.9
3.8

3.9
10.6

Share plan

2005 Employee
Incentive Plan
Spirent Long-Term
Incentive Plan

Discretionary plans
Spirent Long-Term Incentive Plan (“LTIP”)
The LTIP, which was approved by shareholders at the 2016 AGM, is available for selected employees, including executive directors,
on a discretionary basis.

Under the LTIP, the Company is able to grant share options, including HMRC-approved options, share settled stock appreciation
rights (“SARs”), Performance Shares and Restricted Stock. No price is payable on the grant of an award.

In normal circumstances, LTIP awards vest three years following the date of grant provided the relevant performance conditions have been
met. For Performance Share awards, performance conditions related to Total Shareholder Return (“TSR”) and the Company’s earnings per
share (“EPS”). For Restricted Stock, the performance conditions relate to the recipient’s continued employment with the Company.

Further information on the performance conditions for LTIP share incentives is set out in the Report on directors’ remuneration.

145

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the consolidated financial statements continued

30. EMPLOYEE SHARE PLANS CONTINUED
2005 Employee Incentive Plan (“EIP”)
The EIP closed for new awards following the 2016 AGM and was replaced by the Spirent Long-term Incentive Plan.

The EIP, which was approved by shareholders and introduced in 2005, was available for selected employees, including executive
directors, on a discretionary basis.

Under the EIP, the Company was able to grant share options, including HMRC-approved options, share settled stock appreciation
rights (“SARs”) and Performance Shares. No price was 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.

Further information on the performance conditions for EIP share incentives is set out in the Report on directors’ remuneration.

Options and SARs granted under the EIP expire on the tenth anniversary of their grant unless they have previously lapsed or been exercised.

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 2015 and is available to
all UK employees. The UK ESPP offers four ways to provide Ordinary Shares to employees: free shares, partnership shares, matching
shares and dividend 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.

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 United States or United Kingdom 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 on a six-monthly basis since 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.

146

Spirent Communications plc Annual Report 201731. SHARE-BASED PAYMENT

2005 Employee Incentive Plan
Spirent Long-Term Incentive Plan

All schemes are equity-settled.

2017
$ million
0.5
1.7
2.2

2016
$ million
0.2
0.6
0.8

2.9 million share incentives were granted during 2017 (2016 4.1 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

Sub-optimal exercise factor
Risk free rate (%)
Dividend yield (%)

2017
118.1
–
92.8
31.0

3.0
NA
1.5
1.1–1.2
3.5

2016
76.5
–
68.6
34–40

3.0
10.0
1.5
0.8–1.5
3.2

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.

32. RECONCILIATION OF PROFIT/(LOSS) BEFORE TAX TO CASH GENERATED FROM OPERATIONS

Profit/(loss) before tax
Adjustments for:
Finance income
Finance costs
Share of loss of associate
Intangible asset amortisation
Goodwill and acquired intangible asset impairment
Depreciation of property, plant and equipment
Loss on the disposal of property, plant and equipment
Gain on divestment
Share-based payment
Changes in working capital

Deferred income received/(released)
Increase in receivables
Decrease/(increase) in inventories
Increase in payables

Increase/(decrease) in provisions
Defined benefit pension plan
Cash flow from operations

2017
$ million
46.6

2016
$ million
(46.0)

(0.6)
0.3
–
7.1
–
18.0
0.2
(2.6)
2.2

4.1
(2.3)
3.7
7.0
0.1
(6.1)
77.7

(0.3)
0.7
4.5
13.8
69.1
19.1
0.2
–
0.8

(2.6)
(1.7)
(4.5)
4.9
(4.5)
(6.1)
47.4

147

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Financial Statements
Notes to the consolidated financial statements continued

33. DIVESTMENTS
On 16 February 2017, the Group divested of certain assets and liabilities of Epitiro Group Limited (Epitiro) for consideration of
$0.4 million. Epitiro was reported within the Lifecycle Service Assurance operating segment.

On 30 June 2017, the Group divested the entire issued share capital of its subsidiaries, Spirent Communications Israel Limited, its
Developer Tools (DT) line of business, and Spirent Holdings Denmark ApS and its subsidiaries, its Device Intelligence (DI) line of
business, to Dorfi Limited, an Israeli entity established by the former General Manager of the business units, for a total cash
consideration of $1. Both DI and DT were reported within the Connected Devices operating segment.

In 2016, DI and DT reported combined revenue of $12.9 million, made an adjusted operating loss of $2.1 million and a loss before
tax of $6.8 million (after exceptional items of $1.1 million and acquired intangible asset amortisation of $3.6 million). In 2017, DI and
DT reported combined revenue of $5.9 million and made an adjusted operating profit and profit before tax of $1.4 million.

These divestments do not constitute discontinued operations under IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.

The gain on divestments during the year was as follows:

Gross consideration
Net liabilities/(assets) at date of divestment
Provision against loan to divested subsidiaries
Expenses of sale
Foreign exchange adjustments
Net gain/(loss) on divestments before and after tax

DI/DT
$ million
–
2.9
(2.0)
(0.8)
3.1
3.2

Epitiro
$ million
0.4
(0.5)
–
(0.5)
–
(0.6)

2017
Total
0.4
2.4
(2.0)
(1.3)
3.1
2.6

Accumulated foreign exchange gains of $3.1 million were recycled to profit or loss on divestment of DI and DT.

As part of the sale of DI and DT, Spirent made a $2.0 million interest bearing loan to the divested subsidiaries to fund working capital
requirements. This loan has been fully provided for by the Group and expensed in the calculation of the gain on divestments.

The net cash impact of divestments in the year was as follows:

Cash consideration
Loan to divested subsidiaries
Expenses of sale
Net cash impact from divestments in the year

DI/DT
$ million
–
(2.0)
(0.7)
(2.7)

Epitiro
$ million
0.4
–
(0.4)
–

2017
Total
0.4
(2.0)
(1.1)
(2.7)

148

Spirent Communications plc Annual Report 201733. DIVESTMENTS CONTINUED
The net (liabilities)/assets divested during the year were as follows:

At date of divestment
Intangible assets
Property, plant and equipment
Cash on deposit
Inventories
Trade and other receivables
Trade and other payables
Provisions
Net (liabilities)/assets

DI/DT
$ million

Epitiro
$ million

–
0.3
0.1
–
3.0
(6.0)
(0.3)
(2.9)

0.4
–
–
0.1
–
–
–
0.5

2017
Total

0.4
0.3
0.1
0.1
3.0
(6.0)
(0.3)
(2.4)

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
Share-based payment

No director received compensation for loss of office (2016 $nil).

There were no gains (2016 $29,000) on the exercise of options by key management personnel in 2017.

For further details refer to the Report on Directors’ Remuneration on pages 74 to 93.

2017
$000
2,629.4
493.3
3,122.7

2016
$000
2,206.3
218.2
2,424.5

149

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Parent Company balance sheet
At 31 December 2017

Fixed assets
Intangible assets
Tangible assets
Investments

Current assets
Stocks
Debtors
Cash at bank and in hand

Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities

Creditors: amounts falling due after more than one year
Defined benefit pension plan 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

Notes

2017
£ million

2016
£ million

4
5
6

7
8

10
3
3

2.4
1.6
351.8
355.8

1.6
23.0
13.4
38.0
(98.3)
(60.3)
295.5

(1.0)
0.9
(3.0)
292.4

20.4
20.2
13.1
238.7
292.4

2.4
1.6
338.7
342.7

1.4
22.1
20.2
43.7
(92.0)
(48.3)
294.4

–
0.7
(11.6)
283.5

20.4
20.2
13.1
229.8
283.5

The Company has taken advantage of the exemption under Section 408 of the Companies Act 2006 from presenting its own profit and
loss account. In 2017, the profit for the year amounted to £22.5 million (2016 £11.6 million).

The notes on pages 152 to 165 form part of these financial statements.

Signed on behalf of the Board

Paula Bell
Director
8 March 2018

150

Spirent Communications plc Annual Report 2017Parent Company statement of changes in equity

At 1 January 2016
Profit for the year
Other comprehensive loss1
Total comprehensive income
Share-based payment
Equity dividends
At 1 January 2017
Profit for the year
Other comprehensive income2
Total comprehensive income
Share-based payment
Equity dividends
At 31 December 2017

Notes

Attributable to the equity holders
of the parent Company

Called up
share capital
20.4
–
–
–
–
–
20.4
–
–
–
–
–
20.4

Share
premium
account
20.2
–
–
–
–
–
20.2
–
–
–
–
–
20.2

Capital
redemption
reserve
13.1
–
–
–
–
–
13.1
–
–
–
–
–
13.1

Profit and
loss account
236.3
11.6
(1.2)
10.4
0.6
(17.5)
229.8
22.5
3.5
26.0
1.7
(18.8)
238.7

£ million

Total equity
290.0
11.6
(1.2)
10.4
0.6
(17.5)
283.5
22.5
3.5
26.0
1.7
(18.8)
292.4

1. The amount included in other comprehensive income for 2016 of £1.2 million represents re-measurement losses of the net defined benefit pension liability of

£1.6 million net of a tax credit of £0.4 million.

2. The amount included in other comprehensive income for 2017 of £3.5 million represents re-measurement gains of the net defined benefit pension liability of

£4.3 million net of a tax charge of £0.8 million.

The notes on pages 152 to 165 form part of these financial statements.

151

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the parent Company financial statements

1. SIGNIFICANT ACCOUNTING POLICIES
Corporate information
Spirent Communications plc (the Company) is a public limited company incorporated and domiciled in England and Wales (registration
number 00470893). The registered address of the Company is Northwood Park, Gatwick Road, Crawley, West Sussex, RH10 9XN,
United Kingdom.

Basis of accounting
The financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101).

In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the EU (Adopted IFRS), but makes amendments where necessary in order
to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions have been taken.

• A Cash Flow Statement and related notes;
• Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
• Disclosures in respect of transactions with wholly owned subsidiaries;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRS; and
• Disclosures in respect of the compensation of key management personnel.

As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under
FRS 101 available in respect of the following disclosures:

IFRS 2 ‘Share-based payment’ in respect of Group-settled share-based payments;

•
• Certain disclosures required by IAS 36 ‘Impairment of Assets’ in respect of the impairment of goodwill and indefinite life intangible

assets; and

• The disclosures required by IFRS 7 ‘Financial Instruments Disclosures’ and IFRS 13 ‘Fair Value Measurement’ regarding financial

instrument disclosures have not been provided apart from those which are relevant for the financial instruments which are held at
fair value.

The following exemptions have been taken in these financial statements, as granted by IFRS 1 ‘First-time adoption of IFRS’:

• Business combinations – business combinations that took place prior to 1 January 2014 have not been restated.
• Use of previous GAAP carrying amounts as at date of transition as a deemed cost for investment in subsidiaries.

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.

Accounting convention
The financial statements are prepared on a historical cost basis apart from certain financial instruments that have been measured at
fair value.

Going concern basis of accounting
The directors have reviewed the detailed financial projections for a period of 12 months from the date of this report and the business
plans for the 2019 and 2020 financial years. They have also considered the principal risks and uncertainties that the Company faces
and its current financial position and are satisfied that the Company has adequate financial resources to continue in operational
existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the going concern
basis of accounting continues to be used in the preparation of the financial statements.

152

Spirent Communications plc Annual Report 20171. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Business combinations and goodwill
Goodwill arising on the acquisition of a business, representing the excess of cost over the net fair value of the net assets acquired,
is capitalised as an intangible asset. Goodwill is carried at cost less any accumulated impairment losses.

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 profit and loss account.

The UK Companies Act requires goodwill to be reduced by provisions for depreciation on a systematic basis over a period chosen by
the directors, it’s useful economic life. However, under IFRS 3 ‘Business Combinations’ goodwill is not amortised. Consequently the
Company does not amortise goodwill, but reviews it for impairment on an annual basis or whenever there are indicators of impairment.
The Company is therefore invoking a ‘true and fair view override’ to overcome the prohibition on the non-amortisation of goodwill in
the Companies Act.

Had the Company amortised goodwill a period of 20 years would have been chosen as the useful life for goodwill. The profit for the
year would have been £0.6 million lower had goodwill been amortised in the year.

Tangible assets
Tangible assets 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 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 lower
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 that the
carrying value may not be recoverable.

Impairment of assets
Tangible assets with finite useful lives are tested for impairment at each reporting date where there is an indication that an asset may
be impaired. Goodwill with an indefinite useful life is 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 of disposal. 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 profit and loss account 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 profit and loss account.
This does not apply for goodwill, for which an impairment loss must not be reversed in any circumstances.

Investments
Investments in subsidiaries are stated at cost and reviewed for impairment if there are indications that the carrying value may not
be recoverable.

153

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the parent Company financial statements continued

1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 profit and loss account on a straight line basis over the period of the lease.

Stocks
Stocks are valued at the lower of cost and estimated net realisable value, after provisions for obsolescence. 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.

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.

Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or non-occurence of
uncertain future events outside the Company’s control, or present obligations that are not recognised because it is not probable
that a settlement will be required or the value of such a payment cannot be reliably measured. The Company does not recognise
contingent liabilities but discloses them.

Foreign currencies
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 gains and losses are
taken to the profit and loss account.

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.

Trade debtors
Trade debtors 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.

Trade creditors
Trade creditors are non-interest bearing and are stated at the original invoiced amount.

Loans and borrowings
Loans and borrowings are recognised initally at fair value less attributable transaction costs. Subsequent to initial recognition, loans and
borrowings are stated at amortised cost using the effective interest method, and in respect of financial assets, less any impairment losses.

Equity instruments
Equity instruments are recorded at the proceeds received, net of direct issue costs. Spirent Communications plc Ordinary Shares
held by the Company 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.

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.

154

Spirent Communications plc Annual Report 20171. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Pensions
The Company operates two funded defined benefit pension plans. All other pension plans are defined contribution in nature where
the amount charged to the profit and loss account is the employer’s 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. 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 Company 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 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.

Revenue from sales or usage-based royalties is recognised as the subsequent sale or usage occurs.

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 Company fulfils its contractual obligations and to the extent that it has earned the right to consideration.

Government grants
A government grant is recognised in the balance sheet initially as deferred income when there is reasonable assurance that it will be
received and that the Company will comply with the conditions attached to it. Grants that compensate the Company for expenses
incurred are recognised as other operating income on a systematic basis in the same periods in which expenses are incurred. Grants
that compensate the Company for the acquisition of an asset are presented by deducting them from the acquisition cost of the related
asset in accordance with IAS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’.

Product development
Research expenditure is recognised in the year in which it is incurred. Intangible assets arising on the Company’s various product
development projects are recognised only if the recognition criteria of IAS 38 ‘Intangible Assets’ are met.

At 31 December 2017 and 31 December 2016 no amounts have met the recognition criteria.

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.

155

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the parent Company financial statements continued

1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 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.

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
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit and loss account
except to the extent that it relates to items in other comprehensive income or equity.

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:

•

Dividends paid
The interim dividend is included in the financial statements in the period in which it is paid, and the final dividend and the special
dividend in the period in which they are approved by the shareholders at an annual general meeting.

Critical accounting assumptions and estimates
The preparation of financial statements requires the Company 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 high degree of judgement or where assumptions
and estimates are significant to the parent Company financial statements are revenue recognition, defined benefit pension plans
(note 3), recognition of deferred tax assets (note 12) and contingent liabilities (note 17). Please refer to note 2 of Notes to the
consolidated financial statements on page 118 for detailed disclosures.

156

Spirent Communications plc Annual Report 20172. EMPLOYEES
Please refer to the Report on Directors’ Remuneration on pages 74 to 93 and note 34 of Notes to the consolidated financial statements
on page 149 for disclosures relating to the emoluments, share incentives and long-term incentive interests and pensions of the directors.

The average number of people employed by the Company during the year was:

Manufacturing
Product development
Selling and marketing
Administration

Employee benefit costs were:

Remuneration
Social security costs
Pension and other related costs
Expense of share-based payment

2017
Number
37
44
41
30
152

2017
£ million
12.2
1.3
1.4
0.5
15.4

2016
Number
32
43
41
22
138

2016
£ million
10.1
1.1
1.6
0.1
12.9

3. PENSIONS
Defined benefit plans
i) Characteristics and risks associated with the Plans
The Company 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 Company’s most significant plan. 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 (Old Section) 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. The cash
plan was closed to new entrants on 31 May 2016.

There is also a United Kingdom unfunded plan, which consists of a contractual obligation for the Company to top up certain former
employees’ benefits whose salaries exceeded the statutory earnings cap.

As with the vast majority of similar arrangements in the United Kingdom, the Company ultimately underwrites the risks relating to
the defined benefit plans. These risks include investment risks and demographic risks, such as the chance of members living longer
than expected.

The plans hold a significant proportion of their assets in equity. Strong future equity returns would be expected to reduce the
Company’s future cash contributions (and vice versa).

Expected contributions to the defined benefit plans in 2018 are £5.1 million. This includes the contributions agreed with the funded
plans’ trustees in accordance with UK legislation. Following the triennial valuations as at 1 April 2015, the Group has agreed to pay
£5.0 million per annum into the Staff Plan from 1 July 2016, over a seven-year period, in order to clear the funding deficit as assessed
by the trustees’ independent actuary.

If the contributions currently agreed are insufficient to pay the benefits due, the Company will need to make further contributions.

157

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Notes to the parent Company financial statements continued

3. 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

Net pension plan deficit on the balance sheet

a) The assets and liabilities in each plan

Staff Plan
Quoted

Equities
Government bonds
Corporate bonds

Unquoted
LDI funds
Cash benchmarked bonds
Hedge funds
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
Quoted

Equities
Government bonds

Unquoted

Insured annuities
Cash and other

2017
£ million

2016
£ million

0.9

(2.5)
(0.5)
(3.0)
(2.1)

0.7

(11.0)
(0.6)
(11.6)
(10.9)

2017
£ million

2016
£ million

48.6
4.3
4.0

36.8
75.8
19.8
2.5
1.1
8.1
201.0
(203.5)
(2.5)

3.4
3.2

0.1
1.7
8.4
(7.5)
0.9
(1.6)

(0.5)
(2.1)

50.3
3.8
2.9

26.9
73.7
15.4
2.8
1.0
15.1
191.9
(202.9)
(11.0)

3.3
3.0

0.1
1.8
8.2
(7.5)
0.7
(10.3)

(0.6)
(10.9)

The plans are prohibited from investing in Spirent’s own financial instruments.

158

Spirent Communications plc Annual Report 2017
3. PENSIONS CONTINUED
The fair values of the quoted equity and debt instruments are determined based on quoted market prices in active markets whereas
the fair values of the other assets are not.

The Company has determined that it has an unconditional right to refund of surplus assets if the schemes are run off until the last
member dies, on which basis IFRIC 14 does not cause any change in the balance sheet disclosures before tax.

For the purposes of the following disclosures, the Staff Plan and Cash Plan have been combined as the Cash Plan is immaterial to these
financial statements.

b) Analysis of the amounts charged to the profit and loss account

Plan administration expenses
Current service cost
Amount charged to operating costs
Net interest on the net defined benefit pension liability
Net charge to the profit and loss account

c) Analysis of amount recognised directly in the statement of comprehensive income

d) Movements in the present value of funded defined benefit obligations

At 1 January
Current service cost
Interest cost
Benefit payments
Actuarial loss/(gain) arising from experience
Actuarial gain arising from the demographic assumptions
Actuarial loss arising from changes in financial assumptions
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
Benefit payments
Plan administration expenses
Re-measurement gain on plans’ assets
Fair value of plans’ assets

2017
£ million
0.3
0.1
0.4
0.2
0.6

2017
£ million
8.1
(0.6)
4.3
(7.5)
4.3

2017
£ million
210.4
0.1
5.8
(9.1)
0.6
(4.3)
7.5
211.0

2017
£ million
200.1
5.5
5.1
(9.1)
(0.3)
8.1
209.4

2016
£ million
0.5
0.1
0.6
0.5
1.1

2016
£ million
23.7
3.2
6.0
(34.5)
(1.6)

2016
£ million
186.2
0.1
6.9
(8.1)
(3.2)
(6.0)
34.5
210.4

2016
£ million
173.3
6.5
5.2
(8.1)
(0.5)
23.7
200.1

159

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Financial Statements
Notes to the parent Company financial statements continued

3. PENSIONS CONTINUED
f) The key financial assumptions
The assumptions used for both plans using a weighted average were as follows:

2017
%
3.1
2.0
2.0
3.6
3.0
2.1
2.0
2.5

2016
%
3.2
2.1
2.1
3.7
3.1
2.1
2.1
2.8

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 (2016 aged 65) will live on average for a further 22.7 years (2016 23.1 years) if they are male
and for a further 24.6 years (2016 25.2 years) if they are a female. For a member who retires in 2037 (2016 in 2036) at age 65 (2016 age
65), the assumptions are that they will live on average for a further 24.1 years (2016 24.8 years) after retirement if they are male and for
a further 26.1 years (2016 27.1 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 £3.1 million (2016 £3.1 million)
•
•

Increasing RPI inflation by 0.1 per cent would increase the plans’ liabilities by £1.1 million (2016 £1.2 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 £10.3 million (2016 £9.4 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 sensitity analysis 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 (2016 15 years).

Defined contribution plans
The Company contributes to defined contribution pension plans for employees. Employer contributions for 2017 were £0.6 million
(2016 £0.6 million).

4. INTANGIBLE ASSETS

Cost
At 1 January 2017 and 31 December 2017
Accumulated amortisation and impairment losses
At 1 January 2017 and 31 December 2017
Net book value at 31 December 2016 and 31 December 2017

Goodwill
£ million

6.8

4.4
2.4

The carrying value of goodwill has been tested by reference to the value in use of the Networks & Security CGU. No impairment of
goodwill was required.

160

Spirent Communications plc Annual Report 2017
5. TANGIBLE FIXED ASSETS

Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2017
Depreciation charge for the year
Disposals
At 31 December 2017
Net book value at 31 December 2016
Net book value at 31 December 2017

6. INVESTMENTS

Cost
At 1 January 2017
Additions
Repayments
Share-based payment
At 31 December 2017
Amounts provided
At 1 January 2017 and 31 December 2017
Net book value at 31 December 2016
Net book value at 31 December 2017

Freehold
land and
buildings

Plant and
machinery

Fixtures,
fittings and
equipment

0.7
–
–
0.7

0.3
–
–
0.3
0.4
0.4

3.7
0.4
(0.1)
4.0

3.0
0.4
(0.1)
3.3
0.7
0.7

1.9
0.2
–
2.1

1.4
0.2
–
1.6
0.5
0.5

Shares in
subsidiaries

Loans to
subsidiaries

1,081.0
15.3
(2.2)
1.2
1,095.3

743.7
337.3
351.6

4.9
–
(1.2)
–
3.7

3.5
1.4
0.2

£ million

Total

6.3
0.6
(0.1)
6.8

4.7
0.6
(0.1)
5.2
1.6
1.6

£ million

Total

1,085.9
15.3
(3.4)
1.2
1,099.0

747.2
338.7
351.8

The recoverability of the carrying value of investments in subsidiaries has been assessed by reference to value in use.

Additions represent capital contributions made to subsidiaries during the year. Repayments of £2.2 million represent a capital
reduction of part of the investment held in Spirent Communications Technology (Beijing) Limited during the year.

7. STOCKS

Work in progress
Finished goods

2017
£ million
0.3
1.3
1.6

2016
£ million
0.2
1.2
1.4

There were no stock write-downs recognised in the period (2016 nil) and there were no reversals of prior period stock write-downs
(2016 nil).

No stock is carried at fair value less costs to sell (2016 nil).

161

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information

Financial Statements
Notes to the parent Company financial statements continued

8. DEBTORS

Due within one year
Trade debtors
Owed by subsidiaries
Other debtors
Prepayments and accrued income
Current tax asset
Deferred tax (note 12)

2017
£ million

2016
£ million

7.7
9.1
0.8
2.6
0.4
2.4
23.0

7.5
8.7
0.8
2.2
–
2.9
22.1

The directors consider that the carrying amount of trade and other debtors approximates their fair value.

The Company has no significant concentration of credit risk attributable to its trade debtors as the exposure is spread over a large
number of customers.

9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

Trade creditors
Owed to subsidiaries
Accruals and deferred income
Other taxes and social security costs

2017
£ million
1.6
82.1
13.9
0.7
98.3

2016
£ million
2.2
78.8
10.4
0.6
92.0

Trade creditors are non-interest bearing and are normally settled on 30 to 60 day terms. Other creditors are non-interest bearing.

The directors consider that the carrying amount of trade creditors approximates their fair value.

10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

Deferred income

11. GOVERNMENT GRANTS
The following government grants are included within deferred income:

At 1 January
Received during the year
Released to the profit and loss account
At 31 December

Current
Non-current

2017
£ million
1.0

2016
£ million
–

2017
£ million
1.2
0.3
(0.2)
1.3

2017
£ million
0.3
1.0
1.3

2016
£ million
0.3
1.0
(0.1)
1.2

2016
£ million
1.2
–
1.2

A government grant has been received to accelerate and support research and development in the vulnerability of Global Navigation
Satellite Systems.

162

Spirent Communications plc Annual Report 2017

12. DEFERRED TAX
The movements in the deferred tax asset is as follows:

At 1 January 2016
Credited in the year
Deferred tax on defined benefit pension plan
Transferred in the year
At 1 January 2017
Charged in the year
Deferred tax on defined benefit pension plan
At 31 December 2017

Temporary
differences
0.2
–
–
–
0.2
–
–
0.2

Tax losses
1.0
(0.8)
–
0.4
0.6
1.1
–
1.7

UK pension
plans
2.7
–
(0.6)
–
2.1
–
(1.7)
0.4

Credits
–
–
–
–
–
0.1
–
0.1

£ million

Total
3.9
(0.8)
(0.6)
0.4
2.9
1.2
(1.7)
2.4

The Company has tax losses of £23.9 million (2016 £23.6 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.

The Company also has capital losses carried forward of £823.3 million (2016 £823.3 million) for which no deferred tax asset has been
recognised on the balance sheet. These capital losses have no expiry date.

£0.4 million (2016 £1.4 million) of the deferred tax asset is due after one year.

13. OPERATING LEASE COMMITMENTS
At the balance sheet date, the Company 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

14. DIVIDENDS

Declared and paid in the year
Equity dividend on Ordinary Shares
Final dividend 2016 of 1.80 pence per Ordinary Share (2015 1.59 pence)
Interim dividend 2017 of 1.27 pence per Ordinary Share (2016 1.27 pence)

Proposed for approval at AGM (not recognised as a liability at 31 December)
Equity dividend on Ordinary Shares
Final dividend 2017 of 1.73 pence per Ordinary Share (2016 1.80 pence)
Special dividend 2017 of 3.60 pence per Ordinary Share

2017
£ million
0.1
0.5
0.6

2016
£ million
0.1
–
0.1

2017
£ million

2016
£ million

11.0
7.8
18.8

10.6
22.0
32.6

9.7
7.8
17.5

11.0
–
11.0

The directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 1.73 pence per Ordinary Share
(2016 1.80 pence), which will absorb an estimated £10.6 million of shareholders’ funds (2016 £11.0 million). The directors are also
proposing a special dividend of 3.60 pence per Ordinary Share, which will absorb an estimated £22.0 million of shareholders’ funds.
The final dividend and special dividend will be paid on 4 May 2018 to Ordinary shareholders who are on the Register of Members at
close of business on 16 March 2018. Payment will be made to ADR holders on 11 May 2018. No liability is recorded in the financial
statements in respect of these dividends.

163

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information
Financial Statements
Notes to the parent Company financial statements continued

15. CAPITAL AND RESERVES
Changes during the year in the issued Ordinary Share capital were as follows:

Issued and fully paid Ordinary Shares of 3 1/3 pence each at 1 January 2017 and 31 December 2017

Number of
Ordinary
shares
million
611.7

In 2017, no Ordinary Shares were transferred from the Spirent Employee Share Ownership Trust (“ESOT”) to satisfy options exercised
under the 2005 Employee Incentive Plan (2016 nil).

There has been no material increase in the issued Ordinary Share capital, whether by exercise of share incentives or otherwise,
between 31 December 2017 and 8 March 2018, the date on which these financial statements have been signed.

Please refer to note 29 of the Notes to the consolidated financial statements on page 144 for disclosures relating to the nature and
purpose of each reserve within equity.

Investment in own Ordinary Shares
At 31 December 2017, the ESOT held 0.6 million Ordinary Shares (2016 0.6 million Ordinary Shares) to satisfy awards under various
share incentive plans. At 31 December 2017, the Spirent Sharesave Trust held 0.5 million Ordinary Shares (2016 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 1.1 million Ordinary Shares (2016 1.1 million Ordinary Shares), at 31 December 2017 was
£1.1 million (2016 £1.0 million).

Capital redemption reserve
During 2017, the Company did not cancel any Ordinary Shares (2016 nil) and did not make any transfers to the capital redemption
reserve (2016 nil).

Employee share plans
The Company operates a number of employee share incentive plans which are described in note 30 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.

The following information relates to outstanding share incentives at 31 December 2017:

Exercise period
(as at 31 December)

Range of
exercise
prices
pence

Weighted
average
exercise
price
pence

Number of
share
incentives
outstanding
million

2017
Weighted
average
remaining
contractual
life
years

2016

Weighted
average
exercise price
pence

Number of
share
incentives
outstanding
million

Weighted
average
remaining
contractual
life years

23.03.15-17.05.25

0–89

16.6

16.06.16-16.05.20

–

8.4

9.9

3.0

–

0.8

2.6

3.4

7.9

9.6

1.4

1.5

2.9

Share plan
2005 Employee
Incentive Plan1
Spirent Long-Term
Incentive Plan²

Notes
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.

2. Figures for the Spirent Long-Term 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.

164

Spirent Communications plc Annual Report 2017
16. SUBSIDIARIES
A list of subsidiaries, including the name, country of incorporation, registered office address and proportion of ownership interest is
given on pages 166 and 167 of this Annual Report.

17. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
There were no capital commitments at 31 December 2017 or 31 December 2016.

Spirent Communications plc has provided indemnities of nil (2016 nil) for certain ongoing business obligations under letters of credit for
subsidiary companies.

The Company has received enquiries from the Direction Générale des Douanes et Droits Indirects (French Customs) in relation to the
valuation and classification of imports into France but has not received a formal demand for unpaid duty and it is unclear whether a
formal demand will be received. Spirent has adopted a duty tariff based on World Customs Organisation guidelines that potentially
conflicts with European Union import regulations, resulting in a possible liability to the French authorities.

There is uncertainty with regard to not only the legitimacy of any potential claim, but also the appropriate tariff classification, the
period in question, and both the population and valuation of goods potentially subject to duty. The determination of the amount of
any liability in respect of unpaid duty and associated penalties and interest is therefore dependent on a number of significant inter-
related uncertainties and therefore the Company cannot reasonably make an assessment of the quantum of that contingent liability at
the date of the signing of these financial statements. It is not practicable to state the timing of the payment due, if any, since no formal
demand for unpaid duty has been made.

Due to the aforementioned uncertainties, the Company considers it possible, but not probable, that a settlement will be required.

165

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationFinancial Statements
Full list of subsidiary undertakings

A full list of subsidiaries and companies in which Spirent Communications plc has an interest of more than 20% at 31 December 2017.
The country of incorporation and the effective percentage of equity owned (if less than 100%) is also detailed below. Unless otherwise
noted, the share capital comprises ordinary shares which are indirectly held by Spirent Communications plc.

Company Name
Spirent Communications
of Ottawa Limited

Registered in
Canada

Spirent Communications
Technology (Beijing) Limited

China

Bowthorpe Limited

Cambridge Analytical
Group Limited
Earlynow Limited

Epitiro Group Limited

England

Metrico Wireless Limited

England

PG International Limited

England

Shipbrick Limited

England

Spirent Capital Limited

England

Spirent Communications
(International) Limited
Spirent Communications
(Scotland) Limited
Spirent Communications
(SW) Limited
Spirent Financial Limited

England

Spirent Financing Limited

England

Spirent Holdings Limited

England

Spirent Investment Limited

England

Spirent Limited

England

Spirent Sharesave Trust Limited

England

Registered office address
100 King Street West, 41st Floor,
1 First Canadian Place,
Toronto, Ontario, M5X 1B2
Suite 1302, Shining Tower,
No 35 Xue Yuan Road,
Haidian District, Beijing 100191
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN

Notes

Held directly

54.55% held directly,
45.45% held indirectly
Held directly

Held directly

166

Spirent Communications plc Annual Report 2017Company Name
Spirent Systems Limited

Registered in
England

Spirent Systems No 2 Limited

England

TFDC Limited

England

Spirent Communications SAS

France

Spirent Communications GmbH Germany

Spirent Technologies GmbH
Spirent (Overseas) Limited

Germany
Guernsey

Spirent Communications
(Asia) Limited

Hong Kong

Spirent Communications
(India) Pvt Limited

India

Spirent Communications
Japan KK
Spirent Communications
Singapore Pte Limited
Spirent Communciations
Korea Inc
Spirent Communications
Taiwan Limited
Jolata, Inc

Netcom Systems
Holding Corporation
Spirent Communications Inc

Japan

Singapore

South Korea

Taiwan

US (Delaware)

Spirent Federal Systems Inc

US (Delaware)

Spirent Holdings Corporation

US (Delaware)

Spirent Communications
Hawaii LLC

US (Hawaii)

Registered office address
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Northwood Park, Gatwick Road,
Crawley, West Sussex RH10 9XN
Gaia, 9 Parc Ariane,
Boulevard des Chenes,
78280 Guyancourt
Leopoldstrasse 252a,
80807 Munich
Michaelkirchstr 17/18, 10179 Berlin
Suite 6, Provident House,
Havilland Street, St Peter Port GY1 2QE
Suites 1905-07, 19th Floor,
Olympia Plaza, 243-255
King’s Road, North Point
9th Flr Umiya Business Bay Tower,
1 Cessna Business Park,
Marathahalli-Sarjapur Ring Road,
Kadubeesanahalli, Bangalore 560037
Karnataka
4th Floor Kyodotsushin Kaikan, 2-2-5,
Toranomon, Minato-ku, Tokyo 105-0001
101 Thomson Road, #30-01
United Square, Singapore 307591
2F, 16 Gangnam-daero 95-gil,
Seocho-gu, Seoul 06526
8F-1, No 10, Ln 360, Sec 1 Neihu Road,
Neihu District, Taipei City 11493
3500 South Dupont Highway,
Dover, Delaware 19901
1209 Orange Street,
Wilmington, Delaware 19801
1209 Orange Street,
Wilmington, Delaware 19801
1209 Orange Street,
Wilmington, Delaware 19801
1209 Orange Street,
Wilmington, Delaware 19801
1209 Orange Street,
Wilmington, Delaware 19801

Notes
100% ‘A’ shares held indirectly,
100% ‘B’ shares held directly

Held directly

26% held indirectly*

Note
* Spirent Communications plc holds 26 per cent of the issued share capital in Jolata, Inc through one of its subsidiaries; this has been treated as an associate

company in these financial statements.

167

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther Information2017

2016

2015

2014

454.8
(129.8)
325.0
(103.0)
(116.8)
(46.3)
(15.2)
43.7
–
0.3
2.6
46.6
(17.6)
29.0
–
29.0

163.6
42.3
5.5
211.4
–
128.4
(6.8)
23.1
(2.8)
353.3
353.3

69.3
0.6
(13.5)
56.4
(2.7)
–
(24.6)
–
29.1

457.9
(133.6)
324.3
(111.7)
(125.4)
(40.7)
(87.6)
(41.1)
(4.5)
(0.4)
–
(46.0)
3.7
(42.3)
–
(42.3)

169.8
47.3
15.6
232.7
–
96.2
(6.8)
33.0
(13.5)
341.6
341.6

42.7
0.3
(17.1)
25.9
(2.7)
–
(24.2)
–
(1.0)

477.1
(145.3)
331.8
(118.3)
(127.2)
(44.2)
(32.0)
10.1
(0.4)
(0.1)
–
9.6
3.9
13.5
–
13.5

251.6
51.1
8.8
311.5
4.6
102.1
(11.3)
25.0
(19.8)
412.1
412.1

60.4
0.4
(25.5)
35.3
(6.7)
0.1
(23.5)
(0.1)
5.1

457.2
(140.9)
316.3
(115.4)
(113.5)
(41.4)
(22.3)
23.7
–
0.4
–
24.1
(3.5)
20.6
–
20.6

273.3
52.2
13.9
339.4
–
99.8
(8.3)
18.0
(14.5)
434.4
434.4

41.7
0.6
(31.6)
10.7
(85.9)
(16.4)
(22.2)
–
(113.8)

$ million

2013

413.5
(126.7)
286.8
(100.5)
(96.6)
(39.6)
(11.0)
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)

Other Information
Financial history

Summary income statement
Continuing operations
Revenue
Cost of sales
Gross profit
Product development
Selling and marketing
Administration
Other items
Operating profit/(loss)
Share of loss of associate
Net finance income/(costs)
Gain on divestment
Profit/(loss) before tax
Tax
Profit/(loss) from continuing operations after tax
Discontinued operations
Profit/(loss) for the year
Summary balance sheet
Intangible assets
Property, plant and equipment
Working capital (excluding cash and deferred tax)
Operating assets
Investment in associate
Net funds including long-term cash
Provisions and other liabilities
Deferred tax
Defined benefit pension plan deficit
Net assets
Total equity
Summary cash flows
Cash flow from operating activities
Net interest received
Net capital expenditure
Free cash flow
Acquisitions and disposals and investment in associate
Share capital and share repurchase
Dividends paid
Transfer from long-term deposit and loan repayment
Net increase/(decrease) in cash and cash equivalents

168

Spirent Communications plc Annual Report 20172017

2016

2015

2014

Other information – continuing operations
Expenditure on property, plant and equipment
Depreciation
Product development
Share information
Earnings/(loss) per share from continuing operations (cents)
Basic
Diluted
Adjusted basic1,2
Dividend per Ordinary Share (cents)
Special dividend per Ordinary Share (cents)
Fully paid Ordinary Shares in issue at year end (number, million)
Segmental analysis – continuing operations
Revenue3
Networks & Security
Lifecycle Service Assurance
Connected Devices

Adjusted operating profit3
Networks & Security
Lifecycle Service Assurance
Connected Devices
Corporate – non-segmental
Adjusted operating profit1
Exceptional items
Acquisition related costs
Acquired intangible asset amortisation
Goodwill and acquired intangible asset impairment
Share-based payment
Operating profit/(loss)
Geographical information – continuing operations
Revenue by market
Americas
Asia Pacific
Europe, Middle East and Africa

14.9
18.0
103.0

4.75
4.71
7.55
4.08
5.00
611.7

261.0
109.2
84.6
454.8

43.9
17.9
5.2
(8.1)
58.9
(6.7)
–
(6.3)
–
(2.2)
43.7

248.6
160.2
46.0
454.8

17.3
19.1
111.7

(6.93)
(6.93)
5.29
3.89
–
611.7

262.2
99.2
96.5
457.9

47.2
11.2
(4.4)
(7.5)
46.5
(4.8)
–
(12.9)
(69.1)
(0.8)
(41.1)

254.1
149.3
54.5
457.9

26.5
25.0
118.3

2.18
2.17
5.00
3.89
–
611.7

239.2
112.2
125.7
477.1

34.6
17.7
(4.4)
(5.8)
42.1
(12.5)
(0.1)
(14.8)
(3.8)
(0.8)
10.1

268.1
148.2
60.8
477.1

$ million

2013

22.9
16.5
100.5

5.10
5.09
5.71
3.54
–
621.4

33.8
19.7
115.4

3.35
3.35
5.82
3.89
–
611.7

457.2

413.5

(6.3)
46.0
(4.1)
(3.8)
(12.7)
(1.0)
(0.7)
23.7

245.0
142.5
69.7
457.2

(5.9)
50.1
(3.8)
–
(8.4)
–
1.2
39.1

228.2
132.2
53.1
413.5

Notes
1. Before exceptional items, acquisition related costs, acquired intangible asset amortisation, goodwill and acquired intangible asset impairment and share-

based payment.

2. Before impairment of investment in associate, items in note 1, tax effect of items in note 1, revaluation of deferred tax assets due to US tax reform and prior year tax.
3. Restated operating segment information is not available for corresponding amounts prior to 2015.

169

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationOther Information
Shareholder information

Financial calendar 2018

8 March
15 March
16 March
2 May
4 May
11 May
30 June
August
August
August
September
September
31 December 2018
February/March 2019

2017 Full Year results and final dividend announcement
Final and special dividends – ex-dividend date
Final and special dividends – record date
Annual General Meeting
Final and special dividends – payment date (Ordinary shareholders)
Final and special dividends – 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)
Financial year end
2018 Full Year 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). BNY 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 2018 Annual General Meeting (“2018 AGM”) will be held at 10.30am on 2 May 2018 at the offices of FTI Consulting,
200 Aldersgate, Aldersgate Street, London EC1A 4HD.

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 0371 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.

Dividends
Shareholders are able to choose to 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. To change how you receive your
dividends please contact the Company’s registrar, Equiniti, on 0371 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 0371 384 2268 or log on to www.shareview.co.uk.

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.

170

Spirent Communications plc Annual Report 2017
Glossary

4G (Fourth Generation)

5G (Fifth Generation)

5G New Radio (5G NR)

Code Division Multiple
Access (CDMA)
Cloud

Data Center

Distributed Denial of
Service (DDoS)

Enhanced Multimedia
Broadcast Multicast
Service (eMBMS)
Enhanced Voice
Services (EVS)

Ethernet

Evolution-Data Optimised
(EV-DO or EVDO)

Evolved Packet
Core (EPC)

Frequency division
duplex (FDD)
Fuzzing

Global Navigation
Satellite Systems (GNSS)

Global Positioning
System (GPS)

Internet of Things (IoT)

Fourth generation of mobile communications that delivers data rates of tens to hundreds of
megabits per second.
The next major phase of mobile telecommunications standards beyond the current
4G/IMT-Advanced standards.
5G NR is a new air interface being developed for 5G. An air interface is the radio frequency
portion of the circuit between the mobile device and the active base station. The active base
station can change as the user is on the move, with each changeover known as a handoff.
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 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 centralised location where computing resources critical to an organisation are maintained in a
highly controlled environment.
A type of attack where multiple compromised systems, which are often infected with a Trojan,
are used to target a single system causing a Denial of Service (DoS) attack. Victims of a DDoS attack
consist of both the end targeted system and all systems maliciously used and controlled by the hacker
in the distributed attack.
eMBMS offers LTE service providers an effective way to lower cost per bit when delivering the same
content simultaneously to multiple end users.

A superwideband speech audio coding standard. It offers up to 20 kHz audio bandwidth and is
claimed to have high robustness to delay jitter and packet losses. It has been developed in 3GPP
and is described in 3GPP TS 26.441. The application areas of EVS consist of improved telephony
and teleconferencing, audiovisual conferencing services and streaming audio.
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 telecommunications standard for the wireless transmission of data through radio signals, typically
for broadband internet access. EV-DO is an evolution of the CDMA2000 (IS-2000) standard that
supports high data rates and can be deployed alongside a wireless carrier’s voice services.

A framework for providing converged voice and data on a 4G Long-Term Evolution (LTE) network to
support user mobility, wireless data connections, routing and authentication.

A technique where separate frequency bands are used at the transmitter and receiver side.

A software testing technique commonly used to uncover security vulnerabilities in software,
operating systems or networks by inputting large amounts of invalid, unexpected or random
data to the system in an attempt to make it crash.
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.
A network of physical objects or “things” embedded with electronics, software, sensors and
connectivity to enable data exchange with the manufacturer, operator and/or other connected
devices. Each thing is uniquely identifiable through its embedded computing system but is able
to interoperate within existing internet infrastructure.

171

Spirent Communications plc Annual Report 2017Strategic Report Corporate GovernanceFinancial StatementsOther InformationThe primary network protocol used on the internet and on other network devices to facilitate and control
the flow of data.
A standardised next-generation architecture for telecoms operators who want to provide mobile and
fixed multimedia services.

The intentional emission of radio frequency signals to interfere with the operation of a GNSS receiver
by saturating it with noise or false information.
A cloud-based build and deploy environment to manage lab resources required by developers, testers,
pre and post-sales support teams and others on an on-demand basis. LaaS is proven to reduce CapEx
and increase lab user efficiency.
An advanced wireless data communications technology standard (sometimes called “4G”) which is an
evolution of 3G UMTS standards. In addition to its wireless interface specification, LTE uses a simplified
flat IP-based network architecture.
A wireless technology that employs multiple radio antennas on both the transmitter and receiver to
improve the data transmission speeds and capacity of wireless networks.
An initiative to provide a 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.
A technology used for wireless broadcasting and/or communications that uses radio waves within
the range over which they may be transmitted, from about 3 kilohertz to about 300,000 megahertz.
A way of delivering applications over the internet as a service instead of installing and maintaining
software.
An approach to networking in which control is decoupled from hardware and given to a software
application called a controller.
An attempt to deceive a GNSS receiver’s estimate of its position or time by broadcasting counterfeit
GNSS signals, structured to resemble a set of normal GNSS signals, or by rebroadcasting genuine
signals captured elsewhere or at a different time.
TDD refers to duplex communication links where uplink is separated from downlink by the allocation of
different time slots in the same frequency band.
The most common 3G wireless technology globally, which uses wideband code division multiple access on
its underlying air interface and offers support for data transfer rates from hundreds of kilobits per second to
tens of megabits per second.
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 framework for virtualising the functions required to converge voice and data on 4G Long-Term
Evolution (LTE) networks. vEPC moves the core network’s individual components from dedicated
hardware to software that operates on low-cost commercial off-the-shelf servers.
The implementation of a network function using software that is decoupled from the underlying hardware
leading to more agile networks with potential Opex and Capex savings.
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.
Transmission of IP-based voice communication (VoIP) over a Wi-Fi network.
A wireless distribution method for two or more devices that use high-frequency radio waves and often
include an access point to the internet. A WLAN allows users to move around the coverage area, often
a home or small office, while maintaining a network connection.

Other Information
Glossary continued

Internet Protocol (IP)

Internet Protocol
Multimedia
Subsystem (IMS)
Jamming

Lab-as-a-Service (LaaS)

Long-Term Evolution (LTE)

Multiple-Input Multiple-
Output (MIMO)
Network Functions
Virtualisation (NFV)

Radio Frequency (RF)

Software-as-a-Service
(SaaS)
Software-Defined
Network (SDN)
Spoofing

Time Division
Duplex (TDD)
Universal Mobile
Telecommunications
System (UMTS)
Virtualisation

Virtual Evolved Packet
Core (vEPC)

Virtual Network
Functions (VNF)
Voice over LTE (VoLTE)

Voice over Wi-Fi (VoWi-Fi)
Wireless Local Area
Network (WLAN)

172

Spirent Communications plc Annual Report 2017Contact 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: https://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: 0371 384 2126 (UK)
Tel: +44 (0)121 415 7047 (overseas)
Text phone (for shareholders with hearing difficulties):
0371 384 2255 (UK)
+44 (0)121 415 7028 (overseas)
Website: www.shareview.co.uk

ADR depositary
BNY 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.computershare-na.com/bnym_adr

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
5 Broadgate
London EC2M 2QS
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

Consultancy, design and production
www.luminous.co.uk

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: https://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.