07:00 Thu 07 Mar 2019
Spirent Comm PLC - Final Results
Full year results for the year ended
$ million |
2018 |
2017 |
Change (%) |
Ongoing businesses1 |
|
|
|
Order intake2 |
470.0 |
442.6 |
+6 |
Revenue |
476.9 |
448.9 |
+6 |
Adjusted operating profit3 |
77.1 |
57.5 |
+34 |
|
|
|
|
Revenue |
476.9 |
454.8 |
+5 |
Adjusted operating profit3 |
77.1 |
58.9 |
+31 |
Adjusted operating margin4 (%) |
16.2 |
13.0 |
+3.2 |
Adjusted profit before tax5 |
78.4 |
59.2 |
+32 |
Adjusted basic earnings per share6 (cents) |
10.86 |
7.55 |
+44 |
Reported operating profit |
57.5 |
43.7 |
+32 |
Reported profit before tax |
61.2 |
46.6 |
+31 |
Free cash flow7 |
50.9 |
56.4 |
-10 |
Closing cash |
121.6 |
128.4 |
-5 |
Dividend per share8 (cents) |
4.49 |
4.08 |
+10 |
Special dividend per share (cents) |
- |
5.00 |
|
Strong profitable growth
· Order intake and revenue from ongoing businesses both up 6 per cent year-on-year reflecting positive momentum across all business segments.
· In particular, we benefitted from
· Cost initiatives offsetting inflation, resulting in a broadly flat cost base. Going forward, we will continue to invest to support our growth agenda, particularly in R&D, whilst retaining an efficient cost base.
· Strong profit performance, with adjusted operating profit from continuing businesses up 34 per cent to
· Effective tax rate reduced to 15.4 per cent driven by US tax reform and management initiatives.
· Adjusted basic EPS up 44 per cent to
· Strengthened sales and marketing effectiveness, implemented key account management and account-based marketing and refreshed
· Exceptional items comprised
· Cash closed at
· 10 per cent increase to full year dividend, up 14 per cent in sterling. Final dividend of
Operational highlights
· Strategy is delivering on
· Networks & Security delivered strong growth with Lifecycle Service Assurance building scale.
· Connected Devices benefitted from cost management actions whilst revenue from ongoing businesses has stabilised.
· 5G development is gathering pace with positive impact on portfolio performance across all segments.
Networks & Security
· Revenue up 9 per cent drove operating margin improvement.
· Multiple strategic wins in high-speed Ethernet and record Positioning performance drives strong result.
· Revenue from our high-speed Ethernet business grew; we won multiple strategic deals to validate our market and product leadership in 400G.
· Our Positioning business secured record sales driven by US military spend, including circa
· Application Security growth in order intake was more than 20 per cent, with 25 new customers and increased subscription sales which builds deferred revenue. Application Security expanded the functionality of its flagship product (CyberFlood) and won more consulting business.
Lifecycle Service Assurance
· We focused our investment on laying the foundations for future growth in our Lifecycle Service Assurance business, delivering an increase in revenue of 3 per cent.
· We expanded our deployment of Spirent VisionWorks with our key tier 1 mobile operator customers in
· We saw significant demand for our 10G and 100G probes driven by network rollouts of 100G and 10G Ethernet to support increased traffic for mobile backhaul and business services and to prepare for expected mobile traffic growth with 5G.
· We were awarded the Leading Lights Award for Outstanding Test and Measurement Vendor for our innovative Lifecycle Service Assurance strategy.
· 5G drove demand for our Landslide mobile infrastructure test system, for which we now have more than ten 5G customers, including five tier 1 mobile service providers, multiple infrastructure providers and a leading university.
Connected Devices
· Strong profit growth, revenue from ongoing businesses stabilised with previous cost management actions underpinning improved operating margin.
· Our Service Experience business grew on the back of new frequency band and service rollouts in the US and EMEA.
· We have developed a key partnership with National Instruments to launch new 5G device test products in the second half of 2019.
· We won significant 5G channel emulation deals throughout 2018 for testing new, complex 5G RF technologies.
· We demonstrated the world's first 5G Over-the-Air Massive MIMO Beamforming Radio Frequency (RF) Test Bed with the
Summary and outlook
In early 2017, we set out a strategy to focus on the parts of our technology portfolio best matched to growth trends, allowing us to leverage from our expertise and strong customer relationships. We continue to demonstrate proof points of the execution of this strategy, resulting in material growth to revenue and earnings.
In 2018, as expected, the demand for 400G high-speed Ethernet was strong in the second half of the year. We benefitted from strong demand from the
We have a strong technology platform in our chosen areas of focus. 5G is an important driver bringing the next technology upcycle and we are well placed to support our customers' 5G needs across our whole portfolio as they begin to rollout their next phase of infrastructure investments.
The Board is confident that the Group will continue to see steady profitable growth in 2019, leveraging our technology platform to meet demand whilst adopting a balanced approach to driving efficiency and investment to support growth agendas. Therefore, we expect the cost base, as a percentage of revenue, to remain broadly constant looking forward.
"We are delighted to see our previously communicated strategy in action, delivering on
"We remain well positioned for future growth, enabling our customers to accelerate time to market and increase their service quality at lower operating costs and we are confident for further progress in the year ahead."
- ends -
Notes
1 The Device Intelligence and Developer Tools lines of business, divested
2 Order intake represents commitments from customers to purchase goods and/or services that will ultimately result in recognised revenue.
3 Adjusted operating profit is before charging exceptional items, acquired intangible asset amortisation and share-based payment amounting to
4 Adjusted operating profit as a percentage of revenue in the period.
5 Before the items set out in note 3 and gain on divestments.
6 Adjusted basic earnings per share is based on adjusted earnings as set out in note 6 of Notes to the full year consolidated financial statements.
7 Operating cash flow after tax, net interest and net capital expenditure.
8 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 2018 of
Enquiries
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+44 (0)1293 767676 |
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FTI Consulting |
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+44 (0)20 3727 1000 |
The Company will host a results presentation today at
About
Cautionary statement regarding forward-looking statements
This document may contain forward-looking statements which are made in good faith and are based on current expectations or beliefs, as well as assumptions about future events. You can sometimes, but not always, identify these statements by the use of a date in the future or such words as "will", "anticipate", "estimate", "expect", "project", "intend", "plan", "should", "may", "assume" and other similar words. By their nature, forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. You should not place undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to factors that could cause our actual results to differ materially from those expressed or implied by these statements. The Company undertakes no obligation to update any forward-looking statements contained in this document, whether as a result of new information, future events or otherwise.
Performance review
Overview - delivering on our potential
In early 2017,
Market
The prevailing market trends continue to be favourable to
These dynamics are driving the need for new high-speed Ethernet technologies, the virtualisation of networks, and the move to utilise capacity through cloud technologies. High-speed Ethernet increases capacity in physical networks and data centers, while virtualisation lowers the cost of capital expenditure in building networks and allows the turn up of new services to be managed more efficiently.
Pervasive security threats are now a daily occurrence, impacting any individual or business connected to the digital world. The cost of cybercrime continues to grow and is heaviest in financial services, utilities, aerospace & defence and healthcare.
Perhaps most importantly, we have now begun to see the major market impact of the development and deployment of 5G. Around the globe, vendors and operators race to develop and deploy 5G devices, networks and services. With mobile subscribers and connected devices saturating the global connectivity market, machine-to-machine connections are growing exponentially. Investment in 5G wireless infrastructure will grow to billions of dollars over the next three years, and 5G wireless deployment will enable innovation in the ways in which economic activity is undertaken and how entertainment and services are consumed. The work
5G development
5G development is accelerating with positive impact on our portfolio performance across our segments.
Strategic priorities
Our clear strategic priorities are as follows:
1. Focus on key markets and customers
Our first strategic priority is to focus on target markets and customers establishing new growth prospects for
2. Innovate and continue leading-edge product development
The second strategic priority is innovation to further
3. Maintain financial strength and flexibility
The third strategic priority is to ensure
2018 operating performance
Adjusted basic earnings per share increased by 44 per cent to
Board update
As announced in
Summary and outlook
In early 2017, we set out a strategy to focus on the parts of our technology portfolio best matched to growth trends, allowing us to leverage from our expertise and strong customer relationships. We continue to demonstrate proof points of the execution of this strategy, resulting in material growth to revenue and earnings.
In 2018, as expected, the demand for 400G high-speed Ethernet was strong in the second half of the year. We benefitted from strong demand from the
We have a strong technology platform in our chosen areas of focus. 5G is an important driver bringing the next technology upcycle and we are well placed to support our customers' 5G needs across our whole portfolio as they begin to rollout their next phase of infrastructure investments.
The Board is confident that the Group will continue to see steady profitable growth in 2019, leveraging our technology platform to meet demand whilst adopting a balanced approach to driving efficiency and investment to support growth agendas. Therefore, we expect the cost base, as a percentage of revenue, to remain broadly constant looking forward.
Business review
• develop innovative devices, applications, network equipment and networks; and
• operate these networks and services.
We improve network performance and end user experience in our connected world and help create our smarter future.
Networks & Security - 60% of Group revenue
Networks & Security provides functional, performance and security testing products and services to accelerate the development of new devices, networks and applications. Our products generate traffic and signals to simulate real-world conditions in the lab or in networks. Our portfolio covers high-speed Ethernet/IP, cloud, virtualisation, applications, security and GNSS, such as GPS.
$ million |
2018 |
2017 |
Change (%) |
Revenue |
285.1 |
261.0 |
9 |
Operating profit1 |
56.4 |
43.9 |
28 |
Operating margin1 |
19.8% |
16.8% |
3.0 |
Note
1 Before exceptional items of
Performance
Networks & Security revenue grew by 9 per cent to
In the year we benefitted from circa
Networks & Security generated operating profit before exceptional items of
Strategy
Our business objectives are to extend our market-leadership in Ethernet/IP, mobile infrastructure and positioning test systems and to grow our business in emerging technologies and new application areas, such as cyber security.
• To extend our lead in high-speed Ethernet/IP performance testing for emerging standards for data centers and wide area networks, such as 100G and 400G; wireless LAN and automotive Ethernet.
• To develop software-defined network (SDN) and network functions virtualisation (NFV) test methodologies and tools.
• To expand our security test business footprint in manufacturers, service providers and large enterprises by developing new product capabilities, investing in our security consulting services and expanding our marketing and sales channel globally.
• To extend our lead in GNSS simulation and the detection and assessment of products for security vulnerabilities. We will explore exciting new business opportunities in autonomous vehicles.
Impact of market dynamics on
Accelerate time to market
The primary value we deliver is to accelerate the time to market for developers and vendors. We enable our customers 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. As developers and vendors seek to reduce their time to market and to ensure their product quality, the demand for
Meet increasing network performance and security demands
The growth of cloud services drives innovation at an ever faster pace. Service providers worldwide are investing in their networks to keep up with demand. Over the year, we saw strong demand for 100G and 400G Ethernet/IP testing by data center and network equipment suppliers. We also saw the advent of 200G Ethernet development projects. As new routers, switches and other network equipment are developed, manufacturers, service providers and third party test labs buy our test systems to measure and validate their performance and security.
Communications service providers are undergoing vast changes driven by virtualisation enabling technologies, such as SDN and NFV. We provide test tools and services to measure and benchmark the performance of virtualised products in a range of operating environments and under different conditions.
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. Our security experts carry out assessments and provide a report and advice. Organisations also purchase our application and security products outright in order to evaluate the functionality and performance of their products and networks themselves.
Lifecycle Service Assurance - 24% of Group revenue
Our service assurance solutions accelerate the turn up of new services and the troubleshooting of customer and network performance problems. Our objective is to enable our service provider customers to reduce their costs while radically reducing their time to isolate problems and improve their network performance and customer experience.
$ million |
2018 |
2017 |
Change (%) |
Revenue |
112.8 |
109.2 |
3 |
Operating profit1 |
17.4 |
17.9 |
(3) |
Operating margin1 |
15.4% |
16.4% |
(1.0) |
Note
1 Before exceptional items of
Performance
Lifecycle Service Assurance revenue grew by 3 per cent to
In 2018, Lifecycle Service Assurance generated operating profit before exceptional items of
Strategy
Our business objective is to develop innovative service assurance and analytics solutions focused on the rollout and optimisation of mobile networks and services, Ethernet business services and virtualised network functions.
Our strategy is to radically reduce the time and cost to turn up new services and to speedily diagnose, troubleshoot and resolve issues with production networks and services. We do this through automation, visibility and analytics, all of which improve customer satisfaction and retention while reducing the cost and complexity of operating and managing a network. We provide systems to enable 4G/LTE, Internet of Things (IoT) and 5G devices and applications to connect to networks seamlessly, reducing the time and cost of pre-deployment qualification, and use analytics to manage the on-boarding and scaling of network devices and applications.
Impact of market dynamics on
We compete in the service assurance market. The estimated size of this market is about
Our current business is driven by service provider 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.
Network operators are facing major challenges in reducing operating expenses. We reduce operating costs by accelerating service turn-up, reducing 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 performance and customer experience problems.
Connected Devices - 16% of Group revenue
Today, everyone wants to do things faster. Our test systems reduce the time to develop and test new devices and connect them to the network. Using our products or services, manufacturers and service providers can understand how new devices operate on real networks.
$ million |
2018 |
Ongoing businesses1 2017 |
Change (%) |
Revenue |
79.0 |
78.7 |
- |
Operating profit2 |
10.5 |
3.8 |
>100 |
Operating margin2 |
13.3% |
4.8% |
8.5 |
Notes
1 The Device Intelligence and Developer Tools lines of business, divested
2 Before exceptional items of
Performance
In 2018, Connected Devices maintained level revenue from ongoing businesses, at
Operating profit before exceptional items from ongoing businesses increased by
Strategy
Our business objectives are to stabilise our revenue and improve our operating margin as the mobile device test business consolidates and declines and we develop new solutions for 5G.
Our strategy focuses on reducing cost to develop and launch new devices and services accelerating time to market while helping to ensure the highest service quality and user experience:
• invest in wireless device test products for development, location and carrier acceptance, while adapting those products and offering new services to meet the emerging requirements and changing customer expectations for video services, 5G and IoT;
• provide products and services to test the service experience over different networks or to benchmark a variety of devices over the same network; and
•
Impact of market dynamics on
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 continue to contract as wireless component, module and network equipment manufacturers' spending slows in the cyclical market lull between ongoing 4G enhancements and the very early days of 5G.
4G LTE services growth
5G development
The standardisation work plan for 5G has been accelerated. The standard as specified in 3GPP Release 15 has been finalised in 2017 for Non-Standalone 5G NR and by mid-2018 for Standalone 5G NR. Early 5G deployments are anticipated in several markets, including the US,
Growing opportunities and challenges in the IoT
The importance of wireless IoT connectivity continues to rise in a variety of segments from connected vehicles, homes and industry, to smart cities. This results in challenges in developing, connecting and operating IoT devices and applications on mobile and non-cellular networks, an attractive new market opportunity for
Notes
1 Analysys Mason "Service Assurance Systems: Worldwide Forecast 2017-2021" (June 2017).
2 GSA, "Snapshot LTE Ecosystem" (December 2017).
3 Technavio, "GLOBAL 5G EQUIPMENT MARKET 2016-2020" (October 2016).
Financial review
Group overview
A strong performance was delivered in 2018. Robust revenue growth was underpinned by progress across all operating segments as we continue to leverage our leading-edge technology portfolio. Cost efficiency actions implemented during 2017 and 2018 have kept the cost base relatively flat, ensuring strong earnings growth, with a resulting increase in adjusted basic earnings per share of 44 per cent. As we look forward, the market growth drivers remain positive, as we enter a new technology upcycle with the development of 5G.
We will continue to invest effectively in our product development and marketing activities to support growth, whilst carefully managing our operating model to deliver a robust operating margin.
The Group delivered revenue growth from ongoing businesses of 6 per cent, finishing at
Effective management of the cost base has continued during the year. Cost inflation has been largely mitigated with the overall cost base maintained broadly flat, allowing the incremental gross profit from higher revenues to flow down to adjusted operating profit. Consequently, adjusted operating profit margin from continuing businesses has increased to 16.2 per cent from 12.8 per cent in 2017.
Exceptional costs include $9.1 million provision for French import duty, following receipt of a Notice of Recovery from French Customs in relation to an ongoing dispute dating back to 2011, previously disclosed as a contingent liability at 31 December 2017, and $4.0 million in relation to Guaranteed Minimum Pension (GMP) equalisation on the
Adjusted basic earnings per share increased by 44 per cent to 10.86 cents reflecting the growth in adjusted operating profit together with the benefit from a reduction in the effective tax rate from 22.1 per cent in 2017 to 15.4 per cent this year, following the implementation of a number of tax management initiatives and US tax reform.
Cash at bank closed at $121.6 million, down slightly on the position at 31 December 2017 of $128.4 million, following dividend payments totalling $54.8 million in the year, including the special dividend of $29.9 million. Free cash flow was $50.9 million, also slightly lower than the prior year (2017: $56.4 million), as higher activity levels in the final quarter of the year were reflected in working capital, despite mitigation from improved receivables collection performance year-on-year. Free cash flow represented 77 per cent of adjusted earnings (2017: 122 per cent).
As a result of the strong financial performance, we propose a 10 per cent increase to the full year dividend per share, from 4.08 cents to 4.49 cents.
The following table shows summary financial performance for the Group:
$ million |
2018 |
2017 |
Change (%) |
Ongoing businesses1 |
|
|
|
Order intake2 |
470.0 |
442.6 |
+6 |
Revenue |
476.9 |
448.9 |
+6 |
Adjusted operating profit3 |
77.1 |
57.5 |
+34 |
Total Group |
|
|
|
Order intake2 |
470.0 |
447.8 |
+5 |
Revenue |
476.9 |
454.8 |
+5 |
Gross profit |
344.5 |
325.0 |
+6 |
Gross margin (%) |
72.2 |
71.5 |
+0.7 |
Adjusted operating costs3 |
267.4 |
266.1 |
- |
Adjusted operating profit3 |
77.1 |
58.9 |
+31 |
Adjusted operating margin4 (%) |
16.2 |
13.0 |
+3.2 |
Reported operating profit |
57.5 |
43.7 |
+32 |
Reported profit before tax |
61.2 |
46.6 |
+31 |
Adjusted basic earnings per share5 (cents) |
10.86 |
7.55 |
+44 |
Basic earnings per share (cents) |
9.14 |
4.75 |
+92 |
Free cash flow6 |
50.9 |
56.4 |
-10 |
Closing cash |
121.6 |
128.4 |
-5 |
Final dividend per share7 (cents) |
2.73 |
2.40 |
+14 |
Special dividend per share (cents) |
- |
5.00 |
|
Notes
1 The Device Intelligence and Developer Tools lines of business, divested 30 June 2017, and therefore excluded in the measures for ongoing businesses, contributed $5.2 million of order intake, $5.9 million of revenue and $1.4 million of adjusted operating profit to the Connected Devices operating segment result in 2017.
2 Order intake represents commitments from customers to purchase goods and/or services that will ultimately result in recognised revenue.
3 Before exceptional items, acquired intangible asset amortisation and share-based payment amounting to $19.6 million in total (2017: $15.2 million).
4 Adjusted operating profit as a percentage of revenue in the period.
5 Adjusted basic earnings per share is based on adjusted earnings as set out in note 6 of Notes to the full year consolidated financial statements.
6 Operating cash flow after tax, net interest and net capital expenditure.
7 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 2018 of 2.73 cents per Ordinary Share is equivalent to 2.08 pence per Ordinary Share.
Note on Alternative Performance Measures (APM)
The performance of the Group is assessed using a variety of performance measures, including APMs which are presented to provide users with additional financial information that is regularly reviewed by management. These APMs are not defined under IFRS and therefore may not be directly comparable with similarly identified measures used by other companies.
The APMs adopted by the Group are defined in the Appendix. The APMs which relate to adjusted income statement lines are presented and reconciled to GAAP measures using a columnar approach on the face of the income statement and can be identified by the prefix 'adjusted' in the commentary. All APMs are clearly identified as such, with explanatory footnotes to the tables of financial information provided, and reconciled to reported GAAP measures in the Financial Review or Notes to the consolidated financial statements.
Revenue
$ million |
2018 |
% of total |
2017 |
% of total |
Revenue by segment |
|
|
|
|
Networks & Security |
285.1 |
59.8 |
261.0 |
57.4 |
Lifecycle Service Assurance |
112.8 |
23.6 |
109.2 |
24.0 |
Connected Devices |
79.0 |
16.6 |
84.6 |
18.6 |
|
476.9 |
100.0 |
454.8 |
100.0 |
Revenue by geography |
|
|
|
|
|
265.4 |
55.7 |
248.6 |
54.7 |
|
159.1 |
33.3 |
160.2 |
35.2 |
|
52.4 |
11.0 |
46.0 |
10.1 |
|
476.9 |
100.0 |
454.8 |
100.0 |
Group revenue grew by $22.1 million in 2018, an increase of 5 per cent over the prior year. Excluding businesses divested in 2017, which contributed $5.9 million of revenue in the prior year, the increase was higher at $28.0 million, or 6 per cent.
All operating segments achieved revenue growth from ongoing businesses in 2018 but a primary driver was the Networks & Security operating segment with 9 per cent growth year-on-year. Within that segment all our lines of business grew revenue compared to the prior year. As anticipated, we saw growth in 400G in the second half of the year and our Application Security test solutions continued to gain traction. Orders for our Application Security solutions grew more than 20 per cent and subscription-based sales also grew which deliver revenue to future years and generate a sustainable revenue stream over the longer-term. Positioning benefitted from strong US military-related business in the year and, in particular, one
Major reorganisations at key service provider customers for our Lifecycle Service Assurance solutions constrained growth to 3 per cent year-on-year. Within this segment, Mobility Infrastructure was again a highlight but this positive was tempered by delays at a major customer experience management project implementation at a key customer. Excluding businesses divested in 2017, Connected Devices revenues were level year-on-year as device testing demand stabilised, we saw early 5G RF test wins and strength in our Service Experience business.
Geographically, we saw good growth in the
Gross margin
$ million |
2018 |
% |
2017 |
% |
Networks & Security |
205.3 |
72.0 |
186.7 |
71.5 |
Lifecycle Service Assurance |
87.9 |
77.9 |
84.7 |
77.6 |
Connected Devices |
51.3 |
64.9 |
53.6 |
63.4 |
|
344.5 |
72.2 |
325.0 |
71.5 |
Gross margin increased by 0.7 percentage points, to 72.2 per cent from 71.5 per cent in the prior year. All the operating segments achieved an improvement in gross margin but it was most pronounced in Connected Devices at 1.5 percentage points, benefitting from a higher proportion of software sales.
Operating costs
$ million |
2018 |
2017 |
Product development |
96.9 |
103.0 |
Selling and marketing |
123.9 |
116.8 |
Administration1 |
46.6 |
46.3 |
Adjusted operating costs1 |
267.4 |
266.1 |
Networks & Security |
148.9 |
142.8 |
Lifecycle Service Assurance |
70.5 |
66.8 |
Connected Devices |
40.8 |
48.4 |
Corporate |
7.2 |
8.1 |
Adjusted operating costs1 |
267.4 |
266.1 |
Note
1 Before exceptional items, acquired intangible asset amortisation and share-based payment amounting to $19.6 million in total (2017: $15.2 million).
Overall adjusted operating costs were broadly flat in 2018 compared to 2017, with much of the increase due to inflation mitigated by effective cost management actions. $3.8 million of adjusted operating costs in 2017 were associated with the divested businesses held for six months.
Following the completion of the portfolio review programme and sales reorganisation last year, management continues to focus on effective resource allocation and cost control, with investment directed to high-growth, high-margin areas. The impact of the focus on resource allocation is evident from the analysis of operating cost by type and segment, with expenditure focused on investment in sales and marketing to address strategic growth areas and the cost base of Connected Devices materially reduced. The overall level of investment was increased in Networks & Security and, to a lesser extent, in Lifecycle Service Assurance to drive and support increased activity levels. Corporate costs in 2017 included one-off costs associated with governance and tax compliance, which have not repeated in 2018.
The total Group investment in product development was reduced by $6.1 million overall, and by $4.9 million excluding businesses divested in 2017. Connected Devices product development costs represent $4.2 million of the overall decrease.
Selling and marketing costs increased by $7.1 million in total and by $8.9 million excluding businesses divested in 2017. This reflects the full year impact of specific investments made following the review undertaken by external consultants last year, including a key account management programme and an EMEA sales reorganisation. In addition, 2018 reflects the costs associated with the rebranding launched in August.
Administration costs have been maintained essentially flat year-on-year. Overall exchange rate movements have had little impact on the cost base in 2018, compared to 2017.
Following several years of implementing cost initiatives the cost base has now been effectively reshaped to match our strategic agenda, and as we look forward, we will continue to selectively invest in our product development and associated sales and marketing expertise to support our growth agenda.
Operating profit
$ million |
2018 |
Adjusted operating margin1, 2 % |
2017 |
Adjusted operating margin1, 2 % |
Networks & Security |
56.4 |
19.8 |
43.9 |
16.8 |
Lifecycle Service Assurance |
17.4 |
15.4 |
17.9 |
16.4 |
Connected Devices |
10.5 |
13.3 |
5.2 |
6.1 |
Corporate |
(7.2) |
|
(8.1) |
|
Adjusted operating profit1 |
77.1 |
16.2 |
58.9 |
13.0 |
Exceptional items |
(13.1) |
|
(6.7) |
|
Acquired intangible asset amortisation |
(3.7) |
|
(6.3) |
|
Share-based payment |
(2.8) |
|
(2.2) |
|
Reported operating profit |
57.5 |
|
43.7 |
|
Notes
1 Before exceptional items, acquired intangible asset amortisation and share-based payment amounting to $19.6 million in total (2017: $15.2 million).
2 Adjusted operating profit as a percentage of revenue in the period.
Adjusted operating profit increased by 31 per cent to $77.1 million, compared with $58.9 million in 2017, and adjusted operating margin increased to 16.2 per cent from 13.0 per cent in 2017. For ongoing businesses, excluding divestments made in 2017, the growth in adjusted operating profit was 34 per cent (2017 adjusted operating profit from ongoing businesses: $57.5 million) and the increase in adjusted operating margin was more pronounced at 3.4 per cent (2017 adjusted operating margin from ongoing businesses: 12.8 per cent).
Other items charged in arriving at reported operating profit were exceptional items, acquired intangible asset amortisation and share-based payment, which totalled $19.6 million in 2018 compared to $15.2 million last year.
Exceptional items
Exceptional items totalling $13.1 million have been charged in 2018, these were comprised of:
1) $9.1 million provision for import duty following receipt of a Notice of Recovery from French Customs in relation to an ongoing inquiry which commenced in 2011. The Notice of Recovery is disputed. The issue relates to the valuation and classification of imports into
2) a pension scheme past service cost of $4.0 million (£3.1 million) arising from a benefit change for GMP equalisation under our
In 2017, the Group incurred $6.7 million of exceptional costs in relation to:
1) a portfolio review together with a programme to increase the effectiveness and efficiency of the sales organisation, which resulted in exceptional restructuring costs of $5.4 million; and
2) a strategic review of Connected Devices at an exceptional cost of $1.3 million.
Acquired intangible asset amortisation and share-based payment
As a result of some acquired intangible assets reaching the end of their useful economic lives and no longer being amortised, acquired intangible asset amortisation has decreased significantly in 2018 to $3.7 million, down from $6.3 million in 2017.
Share-based payment has increased to $2.8 million in 2018 (2017: $2.2 million) reflecting adjustments to the expected vesting of previous awards with non-market based performance conditions and the incremental cost associated with new awards.
Divestments
There were no divestments in 2018.
The gain on divestment in 2018 of $2.4 million arose as a result of the repayment in full of a $2.0 million loan for working capital purposes extended to the purchaser of the Device Intelligence and Developer Tools lines of business, within Connected Devices, divested 30 June 2017, which had previously been impaired. In addition, during 2018 a provision relating to a disposal in 2012, which was classified as a discontinued operation, was released.
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 $0.6 million (2017: $1.6 million) arising from:
1) transacting in foreign currencies, primarily US dollars in the
2) translation of foreign currency cash balances of $0.2 million (2017: $0.7 million).
Forward foreign currency exchange contracts are entered into to manage the exposure arising from transacting in US dollars in the
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 $1.4 million was earned from cash held on deposit (2017: $0.6 million). Surplus funds are held principally in the
Tax
The adjusted effective tax rate, being the adjusted tax charge expressed as a percentage of adjusted profit before tax, shown on the face of the consolidated income statement, was 15.4 per cent in 2018, down from 22.1 per cent in 2017.
The US Tax Cuts and Jobs Act (the Act) became effective on 1 January 2018. The Act includes a number of significant changes in the tax law that have implications for
The impact of the US tax rate reduction, together with the repeal of the DPAD and the addition of the FDII deduction, and an increased
The Group continues to receive a tax benefit from both the US Research & Experimental tax credit and the
Earnings per share
Adjusted basic earnings per share was up 44 per cent to 10.86 cents (2017: 7.55 cents). Basic earnings per share was 9.14 cents (2017: 4.75 cents). There were 610.4 million (2017: 610.6 million) weighted average Ordinary Shares in issue. See note 6 of Notes to the full year consolidated financial statements on page 34 for the calculation of earnings per share.
Cash flow
The Group delivered healthy cash generation in 2018. Cash flow from operations in the prior year benefitted from a release in working capital driven by a focus on improving trade receivables collection performance. Further improvements were made in the current year but working capital was adversely impacted by higher activity levels in the last quarter which drove up trade receivables at the year end. Free cash flow came in marginally lower than last year at $50.9 million (2017: $56.4 million), resulting in a free cash flow conversion which represented 77 per cent of adjusted earnings (2017: 122 per cent).
Cash and cash equivalents were $121.6 million at 31 December 2018, compared with $128.4 million at 31 December 2017. Although 2018 finished lower than last year, this was after paying dividends of $54.8 million in the year, including the special dividend of $29.9 million. There continues to be no debt.
Free cash flow is set out below:
$ million |
2018 |
2017 |
Cash flow from operations |
65.9 |
77.7 |
Tax paid |
(5.7) |
(8.4) |
Net cash inflow from operating activities |
60.2 |
69.3 |
Interest received |
1.3 |
0.6 |
Net capital expenditure |
(10.6) |
(13.5) |
Free cash flow |
50.9 |
56.4 |
Tax payments of $5.7 million were lower in 2018 than the prior year (2017: $8.4 million), primarily due to the impact of US tax reform which lowered the statutory rate of tax. Net capital expenditure of $10.6 million was lower than last year in part due to timing and also as we continue to exercise careful management of capital investment to ensure efficient use of capital and maximise return on investment.
In 2018, the final dividend for 2017 and an interim dividend for 2018 totalling $24.9 million were paid (2017: $24.6 million). In addition, the special dividend for 2017 of $29.9 million was paid at the same time as the final dividend for 2017 (2017: nil cash out flow from special dividend). Also during 2018, 1.5 million shares were purchased and placed into the Employee Share Ownership Trust at a cost of $2.5 million.
Defined benefit pension plans
The Group operates two funded defined benefit pension plans in the
The accounting valuation of the funded defined benefit pension plans at 31 December 2018 gave rise to a net surplus of $2.5 million compared with a net deficit of $2.2 million at 31 December 2017. The basis of the assumptions underlying the valuation at 31 December 2018 were consistent with those used at 31 December 2017. Contributions to the plans paid in the year were $6.8 million (2017: $6.6 million).
The valuation at 31 December 2018 was based on the triennial actuarial valuation dated 31 March 2015. The latest triennial valuation as at 31 March 2018 is in progress. The Company is currently paying an annual contribution of £5.0 million (circa $6.6 million), which commenced 1 July 2016 for a period of seven years, under a deficit reduction plan agreed with the trustees following the 2015 triennial valuation.
In addition, there is a liability for an unfunded plan of $0.6 million (31 December 2017: $0.6 million).
On 26 October 2018, the High Court ruled on the Lloyds Bank GMP Inequalities case. In response to this, an amount of $4.0 million (£3.1 million) has been included on the Company and consolidated balance sheets at 31 December 2018 to make an allowance for the estimated costs arising from the judgement. This is required to be accounted for as a benefit change, included as a past service cost in the income statement for 2018. Due to its size and nature, this charge has been classified as an exceptional item.
The Group also operates a deferred compensation plan for employees in
Balance sheet
The consolidated balance sheet is set out on page 26.
Overall net assets were little changed at $355.3 million, compared to $354.1 million last year. The corresponding small movement in equity reflects the fact that the profit for the year has been almost entirely returned to shareholders as dividend, both ordinary and special.
In terms of non-current assets, amortisation of acquired intangible assets together with management of capital investment has led to a year-on-year decrease of $11.2 million.
Current assets have increased by $5.3 million as a result of growth in trade receivables due to higher activity levels at the end of 2018, compared to 2017, this is despite successful action taken by management to reduce the number of days sales outstanding reflected in trade receivables.
Non-current liabilities are virtually unchanged at $27.2 million, with higher deferred income offsetting a reduction in the defined benefit pension plan deficit.
Current liabilities have decreased by $6.7 million, with lower deferred revenue, due to timing of shipments, lower trade payables, due to a different profile of purchasing in the year, and a fall in the value of payments received on account, offset to some extent by an increase in provisions. The latter being primarily due to the booking of a provision for $8.9 million in respect of French import duty.
Liquidity and dividend policy
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. If and when it is deemed 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, as it did during 2018 with payment of a special dividend.
The Board is pursuing a progressive dividend policy targeting cover of 2 to 2.5 times adjusted earnings.
Dividend
The Board is recommending the payment of a final dividend for 2018 of 2.73 cents (2.08 pence) per share which, together with the interim dividend of 1.76 cents (1.34 pence) per share paid in September 2018, brings the full year dividend to 4.49 cents (3.42 pence) per share. This is a 10 per cent increase compared to the full year dividend for 2017. In sterling terms this represents an increase of 14 per cent. The dividend is covered 2.4 times by adjusted earnings.
Subject to approval by shareholders at the Annual General Meeting on 1 May 2019, the final dividend will be paid on 3 May 2019 to shareholders on the register at 15 March 2019. Payment to ADR holders will be made on 10 May 2019.
Consolidated income statement
|
|
Year ended 31 December 2018 |
Year ended 31 December 2017 |
||||
$ million |
Notes |
Adjusted |
Adjusting items1 |
Reported |
Adjusted |
Adjusting items1 |
Reported |
|
|
|
|
|
|
|
|
Revenue |
3 |
476.9 |
- |
476.9 |
454.8 |
- |
454.8 |
Cost of sales |
|
(132.4) |
- |
(132.4) |
(129.8) |
- |
(129.8) |
Gross profit |
|
344.5 |
- |
344.5 |
325.0 |
- |
325.0 |
Product development |
3 |
(96.9) |
- |
(96.9) |
(103.0) |
- |
(103.0) |
Selling and marketing |
|
(123.9) |
- |
(123.9) |
(116.8) |
- |
(116.8) |
Administration |
|
(46.6) |
- |
(46.6) |
(46.3) |
- |
(46.3) |
Other items |
|
- |
(19.6) |
(19.6) |
- |
(15.2) |
(15.2) |
Operating profit |
|
77.1 |
(19.6) |
57.5 |
58.9 |
(15.2) |
43.7 |
Other items charged in arriving at operating profit: |
|
||||||
Exceptional items |
4 |
- |
(13.1) |
(13.1) |
- |
(6.7) |
(6.7) |
Acquired intangible asset amortisation |
|
- |
(3.7) |
(3.7) |
- |
(6.3) |
(6.3) |
Share-based payment |
|
- |
(2.8) |
(2.8) |
- |
(2.2) |
(2.2) |
Other items |
|
- |
(19.6) |
(19.6) |
- |
(15.2) |
(15.2) |
Finance income |
|
1.4 |
- |
1.4 |
0.6 |
- |
0.6 |
Finance costs |
|
(0.1) |
- |
(0.1) |
(0.3) |
- |
(0.3) |
Gain on divestment |
12 |
- |
2.4 |
2.4 |
- |
2.6 |
2.6 |
Profit before tax |
|
78.4 |
(17.2) |
61.2 |
59.2 |
(12.6) |
46.6 |
Tax |
5 |
(12.1) |
6.7 |
(5.4) |
(13.1) |
(4.5) |
(17.6) |
Profit for the year attributable to owners of the parent Company |
|
66.3 |
(10.5) |
55.8 |
46.1 |
(17.1) |
29.0 |
Earnings per share (cents) |
6 |
|
|
|
|
|
|
Basic |
|
10.86 |
|
9.14 |
7.55 |
|
4.75 |
Diluted |
|
10.75 |
|
9.05 |
7.48 |
|
4.71 |
Note
1 Adjusting items comprise exceptional items, amortisation of acquired intangible assets, share-based payment, gain on divestment, tax on adjusting items and prior year tax. 2017 also includes revaluation of deferred tax assets due to US tax reform.
The performance of the Group is assessed using a variety of non-GAAP alternative performance measures which are presented to provide additional financial information that is regularly reviewed by management. Adjusting items are identified and excluded by virtue of their size, nature or incidence as they do not reflect management's evaluation of the underlying trading performance of the Group. The alternative performance measures are presented in the Appendix.
Consolidated statement of comprehensive income
|
|
Year ended 31 December |
|
$ million |
Notes |
2018 |
2017 |
Profit for the year attributable to owners of the parent Company |
|
55.8 |
29.0 |
Other comprehensive (loss)/income |
|
|
|
Items reclassified to profit or loss: |
|
|
|
Reclassification of foreign exchange on overseas divestments |
12 |
- |
(3.1) |
Items that may subsequently be reclassified to profit or loss: |
|
|
|
Exchange differences on retranslation on foreign operations |
|
(3.1) |
4.1 |
|
|
(3.1) |
1.0 |
Items that will not subsequently be reclassified to profit or loss: |
|
|
|
Re-measurement of the net defined benefit pension asset/liability |
9 |
2.8 |
5.5 |
Income tax effect of re-measurement of defined benefit pension asset/liability |
|
(0.6) |
(1.0) |
Re-measurement of the deferred compensation liability |
9 |
0.5 |
(0.9) |
Income tax effect of re-measurement of the deferred compensation liability |
|
(0.1) |
0.2 |
|
|
2.6 |
3.8 |
Other comprehensive (loss)/income |
|
(0.5) |
4.8 |
Total comprehensive income for the year attributable to owners of the parent Company |
|
55.3 |
33.8 |
Consolidated balance sheet
|
|
At 31 December |
||
$ million |
Notes |
2018 |
Restated1 2017 |
Restated1 At 1 January 2017 |
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Intangible assets |
|
158.0 |
163.6 |
169.8 |
Property, plant and equipment |
|
36.1 |
42.3 |
47.3 |
Trade and other receivables |
|
4.5 |
4.1 |
4.6 |
Assets recognised from costs to obtain a contract |
|
0.5 |
0.4 |
0.4 |
Cash on deposit |
|
- |
- |
0.1 |
Defined benefit pension plan surplus |
9 |
2.5 |
1.2 |
0.9 |
Deferred tax asset |
11 |
22.0 |
23.2 |
33.1 |
|
|
223.6 |
234.8 |
256.2 |
Current assets |
|
|
|
|
Inventories |
|
25.7 |
23.6 |
27.4 |
Trade and other receivables |
|
139.9 |
130.1 |
128.9 |
Assets recognised from costs to obtain a contract |
|
0.5 |
0.6 |
0.6 |
Other financial assets |
|
- |
0.1 |
- |
Current tax asset |
|
1.4 |
1.0 |
0.4 |
Cash and cash equivalents |
|
121.6 |
128.4 |
96.1 |
|
|
289.1 |
283.8 |
253.4 |
Total assets |
|
512.7 |
518.6 |
509.6 |
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
(63.1) |
(70.2) |
(67.8) |
Deferred income |
|
(55.2) |
(61.7) |
(59.4) |
Other financial liabilities |
|
- |
- |
(0.1) |
Current tax liability |
|
(1.2) |
(1.4) |
(1.5) |
Provisions |
8 |
(10.7) |
(3.6) |
(4.2) |
|
|
(130.2) |
(136.9) |
(133.0) |
Non-current liabilities |
|
|
|
|
Trade and other payables |
|
(5.4) |
(5.4) |
(3.4) |
Deferred income |
|
(14.4) |
(11.0) |
(11.2) |
Deferred tax liability |
11 |
- |
(0.3) |
(0.3) |
Defined benefit pension plan deficit |
9 |
(4.1) |
(7.7) |
(16.7) |
Provisions |
8 |
(3.3) |
(3.2) |
(2.6) |
|
|
(27.2) |
(27.6) |
(34.2) |
Total liabilities |
|
(157.4) |
(164.5) |
(167.2) |
Net assets |
|
355.3 |
354.1 |
342.4 |
Capital and reserves |
|
|
|
|
Share capital |
|
26.0 |
27.5 |
25.3 |
Share premium account |
|
25.7 |
27.3 |
25.0 |
Capital redemption reserve |
|
16.8 |
17.8 |
16.3 |
Other reserves |
|
17.5 |
13.4 |
19.4 |
Translation reserve |
|
8.2 |
11.3 |
10.3 |
Retained earnings |
|
261.1 |
256.8 |
246.1 |
Total equity attributable to owners of the parent Company |
|
355.3 |
354.1 |
342.4 |
Note
1 Restated for the adoption of IFRS 15 on 1 January 2018. Refer to note 37 of Notes to the consolidated financial statements in the 2018 Annual Report for further details.
Consolidated statement of changes in equity
|
|
Attributable to the equity holders of the parent Company |
||||||
$ million |
Notes |
Share capital |
Share premium account |
Capital redemption reserve |
Other reserves |
Translation reserve |
Retained earnings |
Total equity |
At 1 January 2017, as reported |
|
25.3 |
25.0 |
16.3 |
19.4 |
10.3 |
245.3 |
341.6 |
Impact of change in accounting standards - IFRS 15 |
|
- |
- |
- |
- |
- |
0.8 |
0.8 |
At 1 January 2017, restated1 |
|
25.3 |
25.0 |
16.3 |
19.4 |
10.3 |
246.1 |
342.4 |
Profit for the year |
|
- |
- |
- |
- |
- |
29.0 |
29.0 |
Other comprehensive income2 |
|
- |
- |
- |
- |
1.0 |
3.8 |
4.8 |
Total comprehensive income |
|
- |
- |
- |
- |
1.0 |
32.8 |
33.8 |
Share-based payment |
|
- |
- |
- |
- |
- |
2.2 |
2.2 |
Tax credit on share incentives |
|
- |
- |
- |
- |
- |
0.3 |
0.3 |
Equity dividends |
7 |
- |
- |
- |
- |
- |
(24.6) |
(24.6) |
Exchange adjustment |
|
2.2 |
2.3 |
1.5 |
(6.0) |
- |
- |
- |
At 1 January 2018, restated1 |
|
27.5 |
27.3 |
17.8 |
13.4 |
11.3 |
256.8 |
354.1 |
Profit for the year |
|
- |
- |
- |
- |
- |
55.8 |
55.8 |
Other comprehensive (loss)/income3 |
|
- |
- |
- |
- |
(3.1) |
2.6 |
(0.5) |
Total comprehensive (loss)/income |
|
- |
- |
- |
- |
(3.1) |
58.4 |
55.3 |
Share-based payment |
|
- |
- |
- |
- |
- |
2.8 |
2.8 |
Tax credit on share incentives |
|
- |
- |
- |
- |
- |
0.4 |
0.4 |
Equity dividends |
7 |
- |
- |
- |
- |
- |
(54.8) |
(54.8) |
Employee Share Ownership Trust4 |
|
- |
- |
- |
- |
- |
(2.5) |
(2.5) |
Exchange adjustment |
|
(1.5) |
(1.6) |
(1.0) |
4.1 |
- |
- |
- |
At 31 December 2018 |
|
26.0 |
25.7 |
16.8 |
17.5 |
8.2 |
261.1 |
355.3 |
Notes
1 Restated for the adoption of IFRS 15 on 1 January 2018. Refer to note 37 of Notes to the consolidated financial statements in the 2018 Annual Report for further details.
2 The amount included in other comprehensive income for 2017 of $3.8 million represents re-measurement gains on the net defined benefit pension liability of $5.5 million, net of a tax charge of $1.0 million, and re-measurement losses on 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.
3 The amount included in other comprehensive (loss)/income for 2018 of $2.6 million represents re-measurement gains on the net defined benefit pension asset of $2.8 million, net of a tax charge of $0.6 million, and re-measurement gains on the deferred compensation liability of $0.5 million, net of a tax charge of $0.1 million. The amount included in the translation reserve of $3.1 million represents other comprehensive loss related to the translation of foreign operations.
4 During the year 1.5 million shares were purchased and placed into the Employee Share Ownership Trust at a cost of $2.5 million.
Consolidated cash flow statement
|
|
Year ended 31 December |
|
$ million |
Notes |
2018 |
2017 |
|
|
|
|
Cash flows from operating activities |
|
|
|
Cash flow from operations |
10 |
65.9 |
77.7 |
Tax paid |
|
(5.7) |
(8.4) |
Net cash inflow from operating activities |
|
60.2 |
69.3 |
Cash flows from investing activities |
|
|
|
Interest received |
|
1.3 |
0.6 |
Purchase of intangible assets |
|
- |
(0.4) |
Purchase of property, plant and equipment |
|
(12.0) |
(14.9) |
Proceeds from the sale of property, plant and equipment |
|
1.4 |
1.8 |
Net expenses of divestments |
12 |
(0.2) |
(0.7) |
Loan from/(to) divested subsidiaries |
12 |
2.0 |
(2.0) |
Net cash used in investing activities |
|
(7.5) |
(15.6) |
Cash flows from financing activities |
|
|
|
Dividend paid |
7 |
(54.8) |
(24.6) |
Share purchase into Employee Share Ownership Trust |
|
(2.5) |
- |
Net cash used in financing activities |
|
(57.3) |
(24.6) |
Net (decrease)/increase in cash and cash equivalents |
|
(4.6) |
29.1 |
Cash and cash equivalents at the beginning of the year |
|
128.4 |
96.1 |
Effect of foreign exchange rate changes |
|
(2.2) |
3.2 |
Cash and cash equivalents at the end of the year |
|
121.6 |
128.4 |
Notes to the full year consolidated financial statements
1 |
Financial information presented |
The financial information contained in this document does not constitute the Group's statutory accounts for the year ended 31 December 2018.
As required by the
The full year announcement was approved by the Board of Directors on 7 March 2019.
2 |
Accounting policies |
The accounting policies adopted and methods of computation used are consistent with those applied in the consolidated financial statements for the year ended 31 December 2017, except for the adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers', both effective 1 January 2018. The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the EU.
New accounting standards
There have been no new standards or amendments to existing standards and interpretations that have been applied by the Group which have resulted in a significant impact on its consolidated results or financial position, other than in relation to IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'.
IFRS 9 Financial Instruments
IFRS 9 'Financial Instruments' is effective from 1 January 2018 and replaces the existing standard, IAS 39 'Financial Instruments: Recognition and Measurement'. The consolidated financial statements for the year ending 31 December 2018 are the first financial statements presented under IFRS 9. There is no material impact to the financial statements on transition to IFRS 9, other than classification effects, which have not impacted the measurement or carrying amount of financial instruments.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 'Revenue from Contracts with Customers' is effective from 1 January 2018 and replaces all existing revenue requirements in IFRS. The consolidated financial statements for the year ending 31 December 2018 are the first financial statements presented under IFRS 15.
IFRS 15 applies to all revenue arising from contracts with customers unless the contracts are in scope of other standards.
The Group has applied IFRS 15 fully retrospectively in accordance with paragraph C3 (a) of the standard, restating the prior period comparatives and electing to use the following practical expedients:
· in respect of completed contracts, the Group will not restate contracts that (i) begin and end within the same annual reporting period; or (ii) are completed contracts at the beginning of the earliest period presented (para. C5(a)); and
· for all reporting periods presented before the date of initial application, the Group will not disclose the amount of the transaction price allocated to the remaining performance obligations or an explanation of when the Group expects to recognise that amount as revenue (para C5(d)).
An explanation of the impact on the Group's prior period financial statements and related matters consequent upon the adoption of IFRS 15 are set out in note 37 of Notes to the consolidated financial statements in the 2018 Annual Report.
The directors do not anticipate that the adoption of any of the new standards and interpretations issued by the IASB and IFRIC with an effective date for the Group after the date of these financial statements 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.
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. The Group will first adopt IFRS 16 in the financial year ending 31 December 2019.
The Group has completed its impact assessment and determined that the application of the new standard will have a material impact on both gross assets and gross liabilities, adding circa $29 million of right-of-use assets and circa $32 million of lease liabilities. There will be a decrease in retained earnings of circa $3 million. There will also be an impact to the income statement, resulting in an increase to adjusted operating profit through the operating lease expense being removed and replaced with a smaller depreciation charge. This impact is deemed to be immaterial. There will be an interest expense under the new accounting that would not have occurred under IAS 17 which will substantially offset the increase in operating profit and result in an immaterial difference to profit before tax. There will not be an impact to total cash flows, however there will be an increase in cash flows from operating activities of circa $7 million, and a corresponding decrease in cash flows from financing activities.
At the point of transition the Group has elected to apply the standard using the modified retrospective approach, in accordance with paragraph C7 of the standard, meaning comparatives do not get restated. Under this option, the Group has decided to calculate the asset value as if the standard had always been applied (para. C8 (b)(i)).
A detailed disclosure on the impact of IFRS 16 is set out in note 2 of Notes to the consolidated financial statements in the 2018 Annual Report.
Going concern
At 31 December 2018, the Group had cash balances of $121.6 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 2020 and 2021 financial years. They have also considered the principal risks and uncertainties that the Group faces and its current financial position and are satisfied that the Group has adequate financial resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the going concern basis of accounting continues to be used in the preparation of the financial statements.
3 |
Operating segments |
The Group's organisational structure is based on differences in the products and services offered by each segment and information regularly reviewed by the Group's Chief Executive Officer, its chief operating decision maker, is presented on this basis. The Group's operating segments follow this structure.
The Group'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 and share-based payment. Finance income, finance costs and gain on divestment are not allocated to the reportable segments. Corporate is not an operating segment and costs are separately reported and not allocated to the reportable segments. Information on segment assets and segment liabilities is not regularly provided to the Group's Chief Executive Officer and is therefore not disclosed below. There is no aggregation of operating segments.
The Group disaggregates revenue from contracts with customers by nature of products and services and primary geographical markets, as management believe this best depicts how the nature, amount, timing and uncertainty of the Group's revenue and cash flows are affected by economic factors.
$ million |
Networks & Security |
Lifecycle Service Assurance |
Connected Devices |
Corporate |
Total |
2018 |
|
|
|
|
|
Revenue |
|
|
|
|
|
Nature of products and services |
|
|
|
|
|
Sale of hardware and software |
239.8 |
66.9 |
40.0 |
- |
346.7 |
Maintenance and support services |
45.3 |
45.9 |
39.0 |
- |
130.2 |
|
285.1 |
112.8 |
79.0 |
- |
476.9 |
Primary geographical markets |
|
|
|
|
|
|
133.7 |
93.4 |
38.3 |
- |
265.4 |
|
112.6 |
9.8 |
36.7 |
- |
159.1 |
|
38.8 |
9.6 |
4.0 |
- |
52.4 |
|
285.1 |
112.8 |
79.0 |
- |
476.9 |
Profit before tax |
|
|
|
|
|
Total reportable segment profit before exceptional items |
56.4 |
17.4 |
10.5 |
(7.2) |
77.1 |
Exceptional items note 4 |
- |
- |
- |
(13.1) |
(13.1) |
Total reportable segment profit |
56.4 |
17.4 |
10.5 |
(20.3) |
64.0 |
Acquired intangible asset amortisation |
|
|
|
|
(3.7) |
Share-based payment |
|
|
|
|
(2.8) |
Operating profit |
|
|
|
|
57.5 |
Finance income |
|
|
|
|
1.4 |
Finance costs |
|
|
|
|
(0.1) |
Gain on divestment note 12 |
|
|
|
|
2.4 |
Profit before tax |
|
|
|
|
61.2 |
Other information |
|
|
|
|
|
Product development |
53.0 |
29.6 |
14.3 |
- |
96.9 |
Intangible asset amortisation - other |
- |
- |
0.6 |
- |
0.6 |
Depreciation |
9.7 |
3.1 |
3.6 |
0.1 |
16.5 |
$ million |
Networks & Security |
Lifecycle Service Assurance |
Connected Devices |
Corporate |
Total |
2017 |
|
|
|
|
|
Revenue |
|
|
|
|
|
Nature of products and services |
|
|
|
|
|
Sale of hardware and software |
214.2 |
68.6 |
37.7 |
- |
320.5 |
Maintenance and support services |
46.8 |
40.6 |
45.7 |
- |
133.1 |
Royalty income |
- |
- |
1.2 |
- |
1.2 |
|
261.0 |
109.2 |
84.6 |
- |
454.8 |
Primary geographical markets |
|
|
|
|
|
|
116.9 |
90.0 |
41.7 |
- |
248.6 |
|
111.4 |
12.2 |
36.6 |
- |
160.2 |
|
32.7 |
7.0 |
6.3 |
- |
46.0 |
|
261.0 |
109.2 |
84.6 |
- |
454.8 |
Profit before tax |
|
|
|
|
|
Total reportable segment profit before exceptional items |
43.9 |
17.9 |
5.2 |
(8.1) |
58.9 |
Exceptional items note 4 |
(3.9) |
(0.1) |
(1.4) |
(1.3) |
(6.7) |
Total reportable segment profit |
40.0 |
17.8 |
3.8 |
(9.4) |
52.2 |
Acquired intangible asset amortisation |
|
|
|
|
(6.3) |
Share-based payment |
|
|
|
|
(2.2) |
Operating profit |
|
|
|
|
43.7 |
Finance income |
|
|
|
|
0.6 |
Finance costs |
|
|
|
|
(0.3) |
Gain on divestment note 12 |
|
|
|
|
2.6 |
Profit before tax |
|
|
|
|
46.6 |
Other information |
|
|
|
|
|
Product development |
53.6 |
30.9 |
18.5 |
- |
103.0 |
Intangible asset amortisation - other |
- |
- |
0.8 |
- |
0.8 |
Depreciation |
9.6 |
3.5 |
4.8 |
0.1 |
18.0 |
Inter-segment revenue is eliminated in the above periods. All of the Group's revenue arose from contracts with customers.
Generally, revenue from the sale of hardware and software is recognised at a point in time and revenue from maintenance and support services is recognised over time.
Revenues are attributed to regions and countries based on customer location.
No one customer accounted for 10 per cent or more of total Group revenue in either 2018 or 2017.
$ million |
2018 |
2017 |
Non-current assets1 |
|
|
|
184.6 |
195.4 |
|
4.4 |
4.9 |
|
5.1 |
5.6 |
|
194.1 |
205.9 |
Note
1 Non-current assets excludes trade and other receivables, assets recognised from costs to obtain a contract, defined benefit pension plan surplus and deferred tax asset.
4 |
Exceptional items |
$ million |
2018 |
2017 |
French Customs duty |
9.1 |
- |
|
4.0 |
- |
Portfolio review and sales organisation restructuring |
- |
5.4 |
Strategic review of Connected Devices |
- |
1.3 |
|
13.1 |
6.7 |
In 2018, the Group has recognised a $9.1 million charge in relation to an ongoing compliance dispute with Direction Générale des Douanes et Droits Indirects (French Customs) concerning the valuation and classification of imports into
In addition, following the Lloyds Bank GMP inequalities court judgement published in October 2018, the Group has equalised GMP benefits amounting to $4.0 million (£3.1 million) of defined benefit pension past service costs. See note 9 for further details.
In 2017,
The tax effect of exceptional items is a credit of $3.8 million (2017: $1.9 million). The total cash outflow in respect of exceptional items charged in 2018 is anticipated to be $9.1 million, with $0.2 million paid in the year (2017: $6.8 million with $3.4 million paid in that year). The cash outflow in 2018 in respect of exceptional items charged in 2017 was $3.4 million (2017: $2.5 million).
The total cash outflow in respect of exceptional items charged in 2018 will be reported within cash flows from operating activities in the consolidated cash flow statement.
5 |
Tax |
$ million |
2018 |
2017 |
Current income tax |
|
|
|
0.1 |
0.1 |
Foreign tax |
6.2 |
7.4 |
Amounts (overprovided)/underprovided in previous years |
(1.2) |
0.1 |
Total current income tax charge |
5.1 |
7.6 |
Deferred tax |
|
|
Recognition of deferred tax assets - US Research and Experimental tax credit |
- |
(1.5) |
Recognition of deferred tax assets - other |
(0.8) |
(0.8) |
Write-off of previously recognised tax assets including rate changes |
- |
8.0 |
Reversal of temporary differences |
1.4 |
3.0 |
Adjustments in respect of prior years |
(0.3) |
1.3 |
Total deferred tax charge |
0.3 |
10.0 |
Tax charge in the income statement |
5.4 |
17.6 |
The tax charge for the year ended 31 December 2018 was $5.4 million (2017: $17.6 million). This was after a prior year tax credit of $1.5 million and a tax credit on the adjusting items of $5.2 million (2017: prior year charge of $1.4 million and tax charge on adjusting items of $3.1 million). Excluding the prior year and tax charge on adjusting items, the effective tax rate was 15.4 per cent (2017: 22.1 per cent).
6 |
Earnings per share |
Basic
Earnings per share is calculated by dividing the profit for the year attributable to owners of the parent Company by the weighted average number of Ordinary Shares outstanding during the year.
Diluted
Diluted earnings per share is calculated by dividing the profit for the year attributable to owners of the parent Company by the weighted average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that would be issued on the conversion of all dilutive potential Ordinary Shares into Ordinary Shares.
$ million |
2018 |
2017 |
Profit for the year attributable to owners of the parent Company |
55.8 |
29.0 |
|
|
|
Number million |
|
|
Weighted average number of Ordinary Shares in issue - basic |
610.4 |
610.6 |
Dilutive potential of employee share incentives |
6.5 |
5.5 |
Weighted average number of Ordinary Shares in issue - diluted |
616.9 |
616.1 |
|
|
|
Cents |
|
|
Earnings per share |
|
|
Basic |
9.14 |
4.75 |
Diluted |
9.05 |
4.71 |
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
- share-based payment
- gain on divestment
- tax effect on the above items
- prior year tax (adjustments made to provisions in respect of prior years)
- revaluation of deferred tax assets due to US tax reform (in 2017)
A reconciliation is provided below:
|
2018 |
2017 |
||
|
$ million |
EPS cents |
$ million |
EPS cents |
Profit for the year attributable to owners of the parent Company |
55.8 |
9.14 |
29.0 |
4.75 |
Exceptional items note 4 |
13.1 |
|
6.7 |
|
Acquired intangible asset amortisation |
3.7 |
|
6.3 |
|
Share-based payment |
2.8 |
|
2.2 |
|
Gain on divestment |
(2.4) |
|
(2.6) |
|
Tax effect on the above items |
(5.2) |
|
(4.8) |
|
Revaluation of deferred tax assets due to US tax reform |
- |
|
7.9 |
|
Prior year tax |
(1.5) |
|
1.4 |
|
Adjusted basic |
66.3 |
10.86 |
46.1 |
7.55 |
Adjusted diluted |
|
10.75 |
|
7.48 |
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.
7 |
Dividends paid and proposed |
$ million |
2018 |
2017 |
Declared and paid in the year |
|
|
Equity dividend on Ordinary Shares |
|
|
Final dividend 2017 of 2.40 cents (1.73 pence) per Ordinary Share (2016: 2.21 cents (1.59 pence)) |
14.3 |
14.2 |
Special dividend 2017 of 5.00 cents (3.60 pence) per Ordinary Share |
29.9 |
- |
Interim dividend 2018 of 1.76 cents (1.34 pence) per Ordinary Share (2017: 1.68 cents (1.27 pence)) |
10.6 |
10.4 |
|
54.8 |
24.6 |
Proposed for approval at AGM (not recognised as a liability at 31 December) |
|
|
Equity dividend on Ordinary Shares |
|
|
Final dividend 2018 of 2.73 cents (2.08 pence) per Ordinary Share (2017: 2.40 cents (1.73 pence)) |
16.7 |
14.3 |
Special dividend 2017 of 5.00 cents (3.60 pence) per Ordinary Share |
- |
29.9 |
|
16.7 |
44.2 |
The directors are proposing a final dividend in respect of the financial year ended 31 December 2018 of 2.73 cents per Ordinary Share (2.08 pence) (2017: 2.40 cents), which will absorb an estimated $16.7 million of shareholders' funds (2017: $14.3 million). The final dividend will be paid on 3 May 2019 to Ordinary shareholders who are on the Register of Members at close of business on 15 March 2019. Payment will be made to ADR holders on 10 May 2019. 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 dividend to be paid for 2018 was $1.31: £1 (2017: $1.39: £1).
8 |
Provisions |
$ million |
Lease provisions |
Restructuring provisions |
Other provisions |
Total |
At 1 January 2017 |
3.1 |
2.3 |
1.4 |
6.8 |
Charged in the year |
0.8 |
3.7 |
0.5 |
5.0 |
Asset retirement obligation |
0.1 |
- |
- |
0.1 |
Released in the year |
(0.1) |
- |
(0.1) |
(0.2) |
Utilised in the year |
(0.3) |
(4.6) |
- |
(4.9) |
Unwind of discount |
0.1 |
- |
- |
0.1 |
Disposals |
(0.2) |
(0.1) |
- |
(0.3) |
Exchange difference |
- |
0.1 |
0.1 |
0.2 |
At 1 January 2018 |
3.5 |
1.4 |
1.9 |
6.8 |
Charged in the year |
- |
0.5 |
9.4 |
9.9 |
Asset retirement obligation |
0.5 |
- |
- |
0.5 |
Released in the year |
- |
(0.1) |
(0.9) |
(1.0) |
Utilised in the year |
(0.5) |
(1.8) |
(0.1) |
(2.4) |
Unwind of discount |
0.1 |
- |
- |
0.1 |
Exchange difference |
- |
- |
0.1 |
0.1 |
At 31 December 2018 |
3.6 |
- |
10.4 |
14.0 |
$ million |
2018 |
2017 |
Current |
10.7 |
3.6 |
Non-current |
3.3 |
3.2 |
|
14.0 |
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 six years.
Other provisions comprise environmental provisions related to property disposed of, provisions relating to legal claims and a provision relating to a Notice of Recovery received from French Customs, discussed below. The Group expects these provisions to be utilised in less than one year.
The Group has made a provision for $8.9 million following the receipt of a Notice of Recovery from the Direction Générale des Douanes et Droits Indirects (French Customs) in relation to the valuation and classification of duty on certain imports into
The import regulations changed on 1 January 2017 and no liability exists after that date.
9 |
Defined benefit pension plans |
The Group has ongoing obligations in relation to two funded defined benefit pension plans in the
The most recent actuarial valuations, at 31 March 2015, of the plans' assets and the present value of the plans' obligations, using the projected unit credit method, have been used and updated at 31 December 2018 as the basis for the accounting valuation.
The key financial assumptions are as follows:
% |
2018 |
2017 |
Inflation - RPI |
3.2 |
3.1 |
Inflation - CPI |
2.1 |
2.0 |
Rate of increase in pensionable salaries |
2.1 |
2.0 |
Rate of increase for pensions in payment |
|
|
Pre 2001 service |
3.7 |
3.6 |
2001 to 5 April 2005 service |
3.1 |
3.0 |
Post 5 April 2005 service |
2.1 |
2.1 |
Rate of increase in deferred pensions |
2.1 |
2.0 |
Rate used to discount plan liabilities |
2.8 |
2.5 |
An operating charge of $0.6 million (2017: $0.5 million) and finance costs of nil (2017: $0.2 million) have been recognised. Additionally, on 26 October 2018, the High Court ruled on the Lloyds Bank GMP inequalities case. In response to this, an allowance of $4.0 million (£3.1 million) has been included on the Group balance sheet at 31 December 2018 to make provision for the estimated costs arising from the judgement. The past service cost has been charged as an exceptional item in the income statement in the year and relates to the Staff Plan. There is no impact on the Cash Plan.
The assets and liabilities in the funded defined benefit pension plans were as follows:
$ million |
2018 |
2017 |
Fair value of defined benefit pension plans' assets |
254.2 |
282.6 |
Present value of defined benefit pension plans' obligations |
(251.7) |
(284.8) |
Net |
2.5 |
(2.2) |
The assets and liabilities on the balance sheet are as follows:
$ million |
2018 |
2017 |
Schemes in net asset position |
|
|
|
2.5 |
1.2 |
Schemes in net liability position |
|
|
|
- |
(3.4) |
|
(0.6) |
(0.6) |
US deferred compensation plan |
(3.5) |
(3.7) |
|
(4.1) |
(7.7) |
|
(1.6) |
(6.5) |
The Group also operates a deferred compensation plan for employees in
10 |
Reconciliation of profit before tax to cash generated from operations |
$ million |
2018 |
2017 |
Profit before tax |
61.2 |
46.6 |
Adjustments for: |
|
|
Finance income |
(1.4) |
(0.6) |
Finance costs |
0.1 |
0.3 |
Intangible asset amortisation |
4.3 |
7.1 |
Depreciation of property, plant and equipment |
16.5 |
18.0 |
Loss on the disposal of property, plant and equipment |
- |
0.2 |
Gain on divestment |
(2.4) |
(2.6) |
Share-based payment |
2.8 |
2.2 |
Changes in working capital: |
|
|
Deferred income (released)/received |
(2.5) |
5.1 |
Increase in receivables |
(11.0) |
(2.3) |
(Increase)/decrease in inventories |
(2.2) |
3.7 |
(Decrease)/increase in payables |
(4.7) |
5.5 |
Increase in provisions |
7.6 |
0.1 |
Defined benefit pension plan |
(6.7) |
(6.1) |
Defined benefit pension plan re-measurement (GMP equalisation) |
4.0 |
- |
Deferred compensation plan |
0.3 |
0.5 |
Cash flow from operations |
65.9 |
77.7 |
11 |
Deferred tax |
The movements in the deferred tax assets/(liabilities) are as follows:
$ million |
Temporary differences |
Tax losses |
Tax credits |
|
Total |
At 1 January 2017, restated1 |
18.1 |
8.2 |
3.9 |
2.6 |
32.8 |
Credited in the year |
(5.3) |
(1.3) |
(2.3) |
(1.1) |
(10.0) |
Deferred tax on defined benefit pension plan |
- |
- |
- |
(1.0) |
(1.0) |
Deferred tax on deferred compensation plan |
0.2 |
- |
- |
- |
0.2 |
Deferred tax on share incentives recognised in equity |
0.3 |
- |
- |
- |
0.3 |
Exchange adjustment |
0.1 |
0.5 |
- |
- |
0.6 |
At 1 January 2018, restated1 |
13.4 |
7.4 |
1.6 |
0.5 |
22.9 |
Charged/(credited) in the year |
2.3 |
(1.5) |
(0.7) |
(0.4) |
(0.3) |
Deferred tax on defined benefit pension plan |
- |
- |
- |
(0.5) |
(0.5) |
Deferred tax on deferred compensation plan |
(0.1) |
- |
- |
- |
(0.1) |
Deferred tax on share incentives recognised in equity |
0.3 |
- |
- |
- |
0.3 |
Transfers |
- |
(1.0) |
1.0 |
- |
- |
Exchange adjustment |
(0.2) |
(0.1) |
- |
- |
(0.3) |
At 31 December 2018 |
15.7 |
4.8 |
1.9 |
(0.4) |
22.0 |
Amounts on the balance sheet: |
|
|
|
|
|
At 31 December 2017 |
|
|
|
|
|
Deferred tax asset |
13.7 |
7.4 |
1.6 |
0.5 |
23.2 |
Deferred tax liability, restated1 |
(0.3) |
- |
- |
- |
(0.3) |
|
13.4 |
7.4 |
1.6 |
0.5 |
22.9 |
At 31 December 2018 |
|
|
|
|
|
Deferred tax asset |
15.9 |
4.8 |
1.9 |
- |
22.6 |
Deferred tax liability |
(0.2) |
- |
- |
(0.4) |
(0.6) |
|
15.7 |
4.8 |
1.9 |
(0.4) |
22.0 |
Note
1 Restated for the adoption of IFRS 15 on 1 January 2018. Refer to note 37 of Notes to the consolidated financial statements in the 2018 Annual Report for further details.
In 2018, the deferred tax asset and liability have been offset on the consolidated balance sheet as they relate to income taxes raised by the same tax authority on the same taxable entity.
A deferred tax asset of $22.0 million has been recognised at 31 December 2018 (restated 2017: $23.2 million asset and $0.3 million liability, respectively).
The Finance Bill 2016 was enacted 15 September 2016 and reduced the
12 |
Divestments |
There were no divestments in 2018.
The gain on divestments in 2018 of $2.4 million represents the repayment of a $2.0 million loan from the subsidiaries the Group divested of on 30 June 2017, together with the release of a $0.5 million provision relating to unsettled legal claims from a disposal the Group made in 2012. The $2.0 million loan had previously been impaired. The Group also incurred legal fees of $0.1 million relating to the divestments made in 2017. The net cash inflow from divestments in 2018 was $1.8 million.
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
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 did not constitute discontinued operations under IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'.
The gain on divestments during the prior year was as follows:
$ million |
DI/DT |
Epitiro |
2017 Total |
Gross consideration |
- |
0.4 |
0.4 |
Net liabilities/(assets) at date of divestment |
2.9 |
(0.5) |
2.4 |
Provision against loan to divested subsidiaries |
(2.0) |
- |
(2.0) |
Expenses of sale |
(0.8) |
(0.5) |
(1.3) |
Foreign exchange adjustments |
3.1 |
- |
3.1 |
Net gain/(loss) on divestments before and after tax |
3.2 |
(0.6) |
2.6 |
Accumulated foreign exchange gains of $3.1 million were recycled to profit or loss on divestment of DI and DT in 2017.
Appendix
Alternative Performance Measures (APM)
The performance of the Group is assessed using a variety of APMs which are presented to provide users with additional financial information that is regularly reviewed by management. The APMs presented are not defined under IFRS and therefore may not be directly comparable with similarly identified measures used by other companies.
In management's view, the APMs reflect the underlying performance of the Group and provide a more meaningful comparison of how the Group is managed and measured on a day-to day basis. Such APMs should not be viewed in isolation or as an alternative to the equivalent GAAP measure.
The APMs and key performance indicators are aligned to the Group's strategy and collectively are used to measure the performance of the Group and form the basis of the metrics for director and management remuneration. The Group's key performance indicators are presented within the Strategic Report of its 2018 Annual Report.
Order intake
Order intake represents commitments from customers to purchase goods and/or services from
Order intake is a measure of operating performance used by management to assess whether future activity levels are increasing or slowing and therefore how effective we have been in the execution of our strategy. Order intake is a key performance indicator used to measure Group, operating segment and regional performance for internal reporting purposes.
Order intake is a non-GAAP measure and as such should not be considered in isolation or as a substitute for GAAP measures of operating performance.
Book to bill
Book to bill is the ratio of orders booked to revenue billed in the period and is a measure of the visibility of future revenues at current levels of activity. Book to bill is a key performance indicator used to measure Group and operating segment performance for internal reporting purposes.
Book to bill is a non-GAAP measure and as such should not be considered in isolation or as a substitute for GAAP measures of operating performance.
Adjusted operating profit
Adjusted operating profit is reported operating profit excluding exceptional items, amortisation of acquired intangible assets and share-based payment. Management uses adjusted operating profit, in conjunction with other GAAP and non-GAAP financial measures, to evaluate the overall operating performance of the Group as well as each of the operating segments and believes that this measure is relevant to understanding the Group's financial performance, as specific items (adjusting items) are identified and excluded by virtue of their size, nature or incidence, as they do not reflect the underlying trading performance of the Group. The exclusion of adjusting items from adjusted operating profit is consistent from year to year.
Adjusted operating profit is also used in setting director and management remuneration targets and in discussions with the investment analyst community.
Adjusted operating margin
Adjusted operating margin is adjusted operating profit as a percentage of revenue. It is a measure of the Group's overall profitability and how successful we are in executing on our overall strategy, and demonstrates our ability to improve margin through efficient operations and cost management whilst being mindful of the need to invest for the future.
Adjusted basic earnings per share
Adjusted basic earnings per share (EPS) is adjusted earnings attributable to owners of the parent Company divided by the weighted average number of Ordinary shares outstanding during the year. Adjusted earnings is reported profit before tax excluding exceptional items, amortisation of acquired intangible assets, share-based payment, gain on divestment, tax on adjusting items, significant one-off tax impacts, for example revaluation of deferred tax assets due to US tax reform in 2017 and prior year tax.
Adjusted basic EPS is a measure of how successful we are in executing on our strategy and ultimately delivering increased value for shareholders. Adjusted basic EPS is also used in setting director and management remuneration targets and in discussions with the investment analyst community. The Group sets out the calculation of adjusted EPS in note 6 of Notes to the full year consolidated financial statements.
Free cash flow
Free cash flow is cash flow generated from operations, less tax and net capital expenditure, after interest paid and/or received.
Free cash flow is a measure of the quality of the Group's earnings and reflects the ability to convert profits into cash and ultimately to generate funds for future investment. It gives us financial strength and flexibility and the ability to pay sustainable dividends to our shareholders. Free cash flow is an important indicator of overall operating performance as it reflects the cash generated from operations after capital expenditure, financing and tax which are significant ongoing cash flows associated with investing in the business and financing the operations.
Free cash flow excludes corporate level cash flows that are independent of ongoing trading operations such as dividends, acquisitions and disposals and share repurchases and therefore is not a measure of the funds that are available for distribution to shareholders.
A reconciliation of cash generated from operations, the closest equivalent GAAP measure, to free cash flow is provided within the Financial review on page 21.
Free cash flow conversion
Free cash flow conversion is the ratio of free cash flow to adjusted earnings, presented as a percentage.
Free cash flow conversion is a measure used in conjunction with free cash flow to assess the Group's ability to convert profit into cash and ultimately to generate funds for future investment.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the
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