Spirent Communications plc
Annual Report 2023
Unlocking new
possibilities
Unlocking new
possibilities
Discover how in our spotlights
featured throughout this report
Spirent is the leading global
provider of automated test and
assurance solutions for networks,
cybersecurity, and positioning.
With a strong track record of
innovation and a dedicated
team, Spirent is driving
momentum and broadening its
reach with pioneering solutions
that help shape the future across
many industries.
Discover how in our spotlights
featured throughout this report
Strategic report
1. Our strategic roadmap
2. 2023 highlights
3. Investment case
4. Spirent at a glance
6. Spotlights
8. Chairman’s statement
10. Chief Executive Officer’s review
12. Spotlights
14. Our markets
16. Our business model
18. Spotlight on 5G
20. Our strategic priorities
22. Key performance indicators
24. Stakeholder engagement
28. Spotlights
30. Our people and culture
32. Sustainability
40. Operating review
48. Financial review
55. Principal risks and uncertainties
61. Non-financial & sustainability
information statement
Corporate governance
62. Chairman’s introduction
to governance
64. Board of Directors
66. Board statements
67. Directors’ statement on
corporate governance
74. Nomination Committee report
77. Audit Committee report
83. Report on Directors’ remuneration
110.Directors’ report
114.Directors’ responsibilities statement
Financial statements
115.Independent auditor’s report
127.Consolidated income statement
128.Consolidated statement of
comprehensive income
129.Consolidated balance sheet
130.Consolidated statement of
changes in equity
131.Consolidated cash flow statement
132.Notes to the consolidated
financial statements
172.Parent Company balance sheet
173.Parent Company statement of
changes in equity
174.Notes to the parent Company
financial statements
192.Full list of subsidiary undertakings
Other information
194.Financial history
196.Alternative performance measures
198.Shareholder information
199.Glossary
IBC. Contact details
Our purpose and ambition
Spirent’s ambition is to be the global leader and trusted partner for innovative technology
test and assurance solutions.
Read more on pages 4 and 5
Delivering value across the lifecycle
We stand behind our customers’ promise to deliver a new generation of innovative products
and services to their customers. We are with them in every phase of the lifecycle, from development
in the lab to pre-deployment and live operation, ensuring that new technologies deliver.
Read more on pages 14 to 17
Sustainability values
We manage our material sustainability impacts and opportunities in alignment with the values we have
captured in our FuturePositive programme:
Promise of a sustainable future
Net zero carbon
Promote diversity and invest in people
Operate responsibly
Be accountable and transparent
Read more on pages 32 to 39
Culture/values
Our values are the bedrock of our culture, guiding how we work with one another and our customers.
Our suite of flexible working practices supports employee wellbeing, reduces our carbon footprint,
creates office environments that encourage knowledge-sharing, innovation and collaboration, and
helps us attract and retain talent.
Read more on pages 30 and 31
Strategic priorities
We are executing on our live network opportunities, diversifying our customer base to help reduce
cyclicality, increasing our recurring revenue streams, and driving services and solutions across our
portfolio. Our strategy is built on three pillars:
Read more on pages 20 and 21
Innovation for GrowthCustomer Centricity Operational Excellence
Our strategic roadmap
1Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
STRATEGIC REPORT
$474.3m (2022 $607.5m)
Revenue
$293.7m (2022 $288.1m)
Orderbook
1
72.4% (2022 72.0%)
Gross margin
$45.2m (2022 $129.5m)
Adjusted operating profit
2
$22.9m (2022 $114.6m)
Reported profit before tax
7.5 5 ¢ (2022 18.86¢)
Adjusted basic earnings per share
3
$108.1m (2022 $209.6m)
Closing cash
2.76¢ (2022 7.57¢)
Dividend per share
2023 highlights
Financial highlights
• Challenging market conditions impacted revenue which
was $474.3 million (2022 $607.5 million).
• We have accelerated our focus on non-telco end
markets, with good order growth for our Positioning
business, positive progress with hyperscaler and
enterprise customers, as well as the important
financial services win.
• Robust pricing, supply chain management and product
mix led to strong gross margin delivery at 72.4 per cent
(2022 72.0 per cent).
• Opex initiatives delivered considerable cost savings in
2023 and will continue in 2024.
• Retained our technical leadership with no change to
R&D headcount.
• Adjusted operating profit at $45.2 million
(2022 $129.5 million) was in line with revised market
consensus, materially down on 2022 performance,
due to the significant impact of negative operating
leverage. Reported operating profit at $18.4 million
(2022 $112.7 million).
• Robust orderbook of $293.7 million
(2022 $288.1 million).
• Strong balance sheet maintained, $108.1 million cash
(2022 $209.6 million) after dividend payments of
$46.5 million and $71.6 million of share buybacks.
Operational highlights
• Secured over 500 5G-related new contracts from more
than 150 customers despite macroeconomic headwinds
in the telecommunication market.
• Secured a significant Financial Services win and
acquired NetScout’s
®
Test Lab Automation business,
successfully demonstrating our strategy to diversify
outside of telecoms, and the broader applicability of
our lab and test automation portfolio.
• Secured several important wins for Open Radio Access
Networks from market-leading customers positioning
us well for this long-term growth opportunity.
• Continued to develop our world-leading Wi-Fi
test solutions business and brought to market
the most comprehensive test solution for the
next-generation, Wi-Fi 7.
Notes
1. Orderbook is an alternative performance measure as defined on page 196.
2. Before acquired intangible asset amortisation, share-based payment and other adjusting items amounting to $26.8 million in total (2022 $16.8 million).
3. Adjusted basic earnings per share is based on adjusted earnings as set out in note 11 of Notes to the full year consolidated financial statements.
Items with notes 1 to 3 are non-GAAP alternative performance measures; see pages 196 and 197 for more detail.
As we progressed through 2023, the market landscape became increasingly challenging. The elevated
prevailing interest rates and inflationary pressures impacted customers, especially those in the
telecommunications sector. These customers responded by taking significant action, particularly
in the second half of 2023, to cut costs and by reducing their capital expenditure to preserve cash.
2 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Investment case
Uniquely
positioned,
strategically and
operationally
Enduring market drivers
We are a critical enabler in the rapid shift to a
hyperconnected world, with robust market drivers that
include migration to 5G and beyond, digital transformation
initiatives in telcos and large enterprises, hyperscalers
expanding into the telco space and upgrading data centres
for artificial intelligence workloads, and location awareness
as a key enabler.
Only vendor addressing the entire
technology lifecycle
We leverage the expertise and test methodologies
developed in the lab to address our customers’ live network
test and assurance challenges, enabling us to secure larger,
multi-year contracts that enhance our revenue visibility and
predictability and help reduce cyclicality.
Key enabler of 5G transformation
Despite some caution in the current macroeconomic
environment, operators’ investment in their complex 5G
networks is ultimately non-discretionary, with spectrum and
network capital investment commitments already in place.
Our opportunities from 5G standalone and 5G private
network rollouts are still in their infancy.
Disciplined investment strategy
Our customer intimacy and governance around our
portfolio management ensure that we focus our investments
on the faster-growing market areas that are most critical
to our customers, both organically and through highly
selective, earnings-accretive acquisitions.
We go-to-market differently
Our customers are the world’s leading service providers,
technology companies and enterprises. We have evolved
our customer relationships, engaging in more consultative
selling, and becoming a trusted partner that understands our
customers’ newer, larger business challenges and addresses
them with solutions and services, not just products.
Robust, sustainable operating model
We focus on retaining our key talent while pursuing
a policy of diversity and inclusion, fuelling collaboration
and leading edge innovation. We maintain a proactive
approach to managing our supply chain. Our commitment
to sustainability led to us achieving CarbonNeutral
®
Company certification in 2022.
We are uniquely positioned to seize
opportunities, even in the face of
macroeconomic uncertainty, due
to the strength of our differentiated
model and proposition. Leveraging
our unique technology leadership
and subject matter expertise, we are
focused on market opportunities with
strong and enduring drivers, and on
further diversifying our customer
base to reduce cyclicality. Our
differentiated approach provides us
with distinct competitive advantages.
3Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Spirent at a glance
Global leader,
innovator and
trusted partner,
unlocking new
possibilities
Lifecycle Service Assurance
An established global leader in lab-based testing
of 5G mobile core networks, cellular and Wi-Fi
devices, as well as in lab and test automation
solutions for the telecom industry and enterprises.
The world-class innovation of our Lifecycle Service
Assurance segment has enabled us to bring to
market “live” solutions that provide end-to-end
visibility, actionable insights and automated
troubleshooting to radically simplify turn-up and
assurance of complex 5G networks and services,
reducing time and cost.
$199.1m
revenue in 2023
(2022 $264.5m)
Networks & Security
An industry leader in high-speed Ethernet/internet
protocol performance testing, our Networks &
Security segment develops test methodologies,
tools and services for virtualised networks, cloud
and artificial intelligence networking infrastructure,
application performance and proactive security
validation. As the acknowledged market leader in
global navigation satellite system test and simulation
solutions, we are applying our innovation and expertise
to emerging positioning, navigation and timing growth
opportunities, such as low earth orbit satellite systems.
$275.2m
revenue in 2023
(2022 $343.0m)
Read more on pages 40 to 43 Read more on pages 44 to 47
4 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Lifecycle Service
Assurance
42%
Networks & Security
58%
Americas
57%
Asia Pacific
32%
EMEA
11%
Sustainability recognition
Revenue by
segment
Revenue by
geography
Revenue by
customer
Largest customer
7%
Other top ten customers
27%
Customers outside top ten
66%
Read more on pages 32 to 39
CDP rating 2023
Climate change: B
Supply chain: B
EcoVadis bronze
rating 2023
FTSE4Good
member 2023
CarbonNeutral
®
Company certification
2021, 2022, 2023
FTSE ESG 100
Select member
2023
Honolulu, HI
Calabasas, CA
San Jose, CA
Plano, TX
Frederick, MD Holmdel, NJ
Littleton, MA
Paignton, UK
Crawley, UK
Beijing, China
Bangalore, India
1,100+
customers served in 2023
10
significant
engineering sites
1,500+
employees
50+
countries
Head office
5Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Faster
Unlocking new opportunities
to accelerate next-generation
chipset development
Data centre applications
Sophisticated chipsets at the heart of data centres and other high-performance applications
are becoming ever more complex as demand for greater capabilities and increased data
bandwidths continues unabated. Unleashing new capabilities of system-on-chip (SoC) designs
and getting these to the market faster places huge demands on design accuracy, as issues
found after SoCs have been fabricated can cause costly delays.
Recognising the opportunity to incorporate early-stage advanced chipset testing, Spirent
worked closely with long-time partner Cadence to create an integrated solution that bridges
the gap between pre- and post-silicon validation, addressing design and test challenges of
complex Ethernet chipsets for next-generation networking products. The seamless integration
delivers large scale, high-speed Ethernet traffic generation, testing and troubleshooting
capabilities to pre-silicon verification, helping accelerate the entire silicon development lifecycle.
Spotlight:
Accelerate time to market
6 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Easier
Unleashing the best digital
experience for banking
customers worldwide
Financial services
Today’s financial services customers expect a seamless online digital experience. To help
ensure this, one of the world’s leading financial services organisations turned to Spirent to help
automate its global network of test labs, with the goal of making it easier to accelerate delivery
of new products, version upgrades, and services to customers, while ensuring strict compliance
and achieving major productivity gains and cost savings.
Manual, siloed approaches to testing enterprise networks are no longer viable because of
the complexity of these increasingly disaggregated networks, and the speed and frequency
at which they must be updated. Using its leading expertise in test automation and assurance,
Spirent created a comprehensive solution that helps reduce testing procedure times from months
to a matter of hours. The project represents an expansion of Spirent’s reach beyond its existing
telco and enterprise customers into the financial services sector.
Spotlight:
Reduce complexity and cost
7Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Chairman’s statement
I am pleased to present our
Annual Report for the year
to 31 December 2023.
Performance during the year
2023 was without doubt a very difficult year. After several
years of year-on-year growth, we saw a sharp reverse
in our performance in terms of revenue and profitability.
This performance was driven by a general slowdown in
the telco market, Spirent’s largest. Spirent’s two biggest
customer segments, telecom service providers and network
equipment manufacturers were adversely affected, as
investment in the roll-out of new 5G networks was delayed.
It is scant comfort to our shareholders and the Board that
all of our competitors also saw significant contraction where
they compete in the markets that we serve.
In the face of a difficult market, it has been necessary to
right-size our workforce whilst continuing to invest in our
R&D technical leadership positions. Those of our colleagues
who have left the business we have sought to treat fairly,
sympathetically and with respect. We wish them well.
Notwithstanding the current headwinds, the Board will
continue to ensure that we invest in areas where we see
potential for future growth.
Notwithstanding a difficult year, it was certainly not without
bright spots. I should first mention the excellent performance
of our Positioning business unit, unaffected by the telco
market, which saw significant orders growth during the year.
We were also excited to win our first significant automation
deal at a tier-one financial institution in the North American
market. This win represents an example of how we might
reduce our reliance over time on the telco market and
demonstrates how we can take our testing and automation
expertise and apply it to different end markets. Spirent is
an innovative company and this beachhead in the financial
services sector is a great example of how our innovative and
thoughtful approach to solving the problems of customers
can offer new growth opportunities for the Company.
The Board approved and executed a £56 million
($71.6 million) share buyback during the year.
Revenue decreased by 21.9 per cent to $474.3 million and
adjusted operating profit fell by 65.1 per cent. Reported profit
before tax was down from $114.6 million to $22.9 million.
We ended the year with cash of $108.1 million. The Board
will continue to look at both organic and inorganic
opportunities to grow, although it will be mindful of
depleting cash in the current market environment. We
are glad to see that our purchase of octoScope
®
in 2021
continues to perform strongly, and we expect the Wi-Fi
space to offer significant opportunity for growth in 2024
and beyond. We also completed a small purchase of a
Layer-1 switching business in the year, which rounds out
our automation offering for the financial services sector.
Navigating a
tough market
Sir Bill Thomas
Chairman
8 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Our employees and the right culture
As indicated, it has been a difficult year for all of our
colleagues. Resilience and hard work have been the
order of the day.
On behalf of the Board, I thank every one of our colleagues
for continuing to strive to deliver for our customers and for
your continued investment in the future success of Spirent.
Through our employee engagement surveys we see
continued high levels of engagement which is pleasing
in the current environment.
Through our workforce engagement sessions, our
Non-executive Directors are keen to understand the
challenges our colleagues face and how we might move
the Company forward. This year we have spent our sessions
listening to our sales organisation in each of our three
regions to better understand the drivers of customer buying
behaviour in the current market.
We must also not lose sight of our successes and the progress
we have made during the year. We continue to deliver exciting
new products and we have been successful in new customer
verticals and geographies. Where markets have offered us
opportunities, we have executed well.
Sustainability
In late 2020, Spirent set an ambitious Sustainability Strategy
with medium and long-term goals. Our strategy and goals
are set out publicly in our annual Sustainability Report, as is
the progress we have made against those goals. By the end
of 2022, we had achieved our shorter term aims of achieving
CarbonNeutral
®
Company certification and the calculation of
all our Scope 3 emissions. At the end of 2023 we set ourselves
our next medium-term goal, and publicly committed to the
Science Based Targets initiative to reduce our emissions
to ensure that the planet does not warm by more than
1.5 degrees centigrade. That is a significant challenge for
our business to achieve and I look forward to reporting on
our progress in the coming years.
Outlook
It is notoriously difficult to predict when the telco market
will improve. We will continue to invest in our market-
leading technologies and will look at how our expertise and
technology can be applied to other markets. We will be well
positioned to secure our share of the upside when the market
begins to improve.
Customers are currently continuing to exercise caution in
their spending, and so we will look to continue innovating to
offer cost-effective solutions to customers with compelling
value propositions.
Sir Bill Thomas
Chairman
5 March 2024
Our 2023 Sustainability Report
We established our FuturePositive programme to address our ESG
progress in 2014. Since 2017 we have published an annual Sustainability
Report, which is intended to inform all of our stakeholders of our progress.
See pages 32 to 39 for more detail on Sustainability
See pages 35 to 37 for more detail on TCFD
Read our Sustainability Report here: corporate.
spirent.com/sustainability/sustainability-reports
Report,
which
is
intended
to
inform
all
of
our
9Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
2023 was a challenging year for
many of the markets we serve.
Despite our customers experiencing the challenging
economic environment resulting in delays to their technical
programmes, Spirent continued to deliver value for our
customers, innovate and diversify its end markets.
Market overview
We maintain confidence in our mid-term growth prospects
supported by our key market drivers. While 5G rollouts
experience delays, our Open RAN offerings align with
evolving customer needs and the market landscape. As
Wi-Fi 7 deployment unfolds, our standing as the global
leader in Wi-Fi testing positions us for substantial benefits.
The evolution of data centres, the rise of artificial intelligence
(AI)/machine learning, and the expanding presence of
hyperscalers is a developing vector for our high-speed
Ethernet business. With our leadership position in 800G,
we are well-prepared for future spending in this domain.
Simultaneously, our world-class Positioning portfolio is set
to expand, catering to the increasing demand for location
awareness, global navigation satellite system (GNSS) testing
and the emergence of low earth orbit (LEO) satellites.
We cannot predict the timing of the recovery of telecom
customer spending; however, we are well positioned to
benefit as the recovery comes through and our strategic
focus on diversification across end markets remains steadfast.
Notably, Spirent’s Positioning business delivered good
growth serving diverse sectors such as government,
automotive, aerospace,
defence and other verticals and
our recent win in financial services and advancements
in our automation portfolio underscore our commitment
to diversify and exploit new growth segments and
core markets.
Strategy
To realise our ambition to be the global leader and trusted
partner for innovative technology test and assurance solutions,
our
strategic pillars remained: Customer Centricity, Innovation
for Growth, and Operational Excellence.
Customer Centricity
As our customers faced tighter budgets, our commitment to
collaboration deepened as we worked together to address
their foremost business challenges through value-added
services and solutions. We continue our shift from selling
features to emphasising outcomes and value. This resulted
in strengthened relationships with our customers. It solidified
our significance in their accounts, especially during times
of economic uncertainty and cautious spending on capital
and operations.
Strategically, we are focused on broadening our customer
base and venturing into new verticals. In 2023, we extended
support to over 1,100 customers spanning more than
54 countries.
Chief Executive Officer’s review
Revenue
$474.3m
(2022 $607.5m)
Orderbook
1
$293.7m
(2022 $288.1m)
Well placed for
strategic and
operational
progress
Eric Updyke
Chief Executive Officer
Note
1. Orderbook is an alternative performance measure as defined
on page 196.
10 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Innovation for Growth
To maintain and expand our technical leadership position,
we continued to make smart investments, both organic
and inorganic, to capture emerging market opportunities.
We continued to invest in all key product road maps and
in research and development in 2023. We brought several
key new solutions and services to market, including our
Wi-Fi 7 solution and an enhanced end-to-end Open RAN
testing solution. We invested in key partnerships, including
participating in the 5G Open Innovation lab.
To enhance our automation portfolio, we acquired the Test
Lab Automation business from NetScout
®
, which delivers
physical layer switching capabilities, critical to configuration
and connectivity in automated labs. As manual methods
for testing enterprise networks are no longer viable, our
automation solution enables customers to significantly
accelerate delivery of new products, version upgrades, and
services to their customers, while ensuring strict compliance
and benefiting from major productivity gains and cost
savings. This innovative offering appeals to multiple customer
verticals, as showcased by our major win with a financial
services customer this year.
In the high-speed Ethernet testing domain, our strategy
focuses on broadening our customer base to include data
centres and enterprises. This expansion aims to focus
on every phase of next-generation network and cloud
infrastructure evolution, ranging from pre-silicon verification
to high-density, large-capacity systems. Our leadership
in 800G high-speed Ethernet test is critical for data centre
evolution to support AI. We supported H3C to complete
the industry’s first large-scale 800G and won the industry’s
prestigious Interop Best of Show Award 2023 Special Prize.
Our worldwide leadership in positioning, navigation and
timing (PNT) testing, further establishes us as the go-to
partner for professionals in PNT technology. Our extensive
portfolio emphasises multi-sensor integration, ensuring
clients in emerging sectors like LEO satellites, chipsets, and
automotive technology can realise their PNT aspirations.
Our Positioning division witnessed growth in orders, driven
by government expenditures and fresh prospects in the
burgeoning LEO satellite sector. We further broadened
our Positioning operations in the enterprise and automotive
sectors, securing a managed services win with a top-tier
mining communications equipment provider.
Operational Excellence
In response to the unpredictable nature of the market,
we implemented targeted cost-saving measures to
ensure the sustainability of our operations. The focus
was on preserving critical investments, while grappling
with the inherent difficulties posed by the unpredictable
business environment.
As the nature of our workplace continued to be mainly
hybrid or remote, we continued the journey of consolidating
our real estate footprint. This initiative required a delicate
balance between optimising costs and providing a
work environment that meets the evolving needs of
our workforce.
We made some organisational changes to better align
ourselves with the market dynamics. First and foremost, we
have taken an approach to better enable solutions selling.
We have been on a journey to be a more solutions-centric
organisation for the last few years and have now integrated
our Lifecycle Service Assurance and Cloud & IP business
units from 1 January 2024. This change will align products
into “value streams” to better package them into solutions
that solve customer business problems. We expect it to
drive more efficiency, including our R&D oversight, enabling
functions to drive better prioritisation, common platforms,
and consistent user interface/user experience across
products. Our Positioning business, which has different
end markets and customers, will be reported separately
going forward.
Sustainability remains a key pillar of our operational
excellence. In 2023, we successfully rolled out certified
regional ISO 14001 Environmental Management Systems
for North America and EMEA. We introduced sustainability
clauses into our supplier contracts, and we have improved
our carbon data quality. You can read more about the full
scope of our work in the area of ESG on pages 32 to 39 and
in our annual Sustainability Report.
Capital allocation approach
Our capital allocation policy remains unchanged. We invest
in R&D to maintain and expand our leadership positions
in the market, and in inorganic investments where we see
attractive opportunities that support our strategic growth
agenda, whilst maintaining a robust balance sheet. We
maintain a progressive dividend policy and in the financial
year we concluded a share buyback programme of 33.1
million shares.
Eric Updyke
Chief Executive Officer
5 March 2024
11Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Simpler
Helping NTT Docomo
unlock the Open RAN
revolution’s potential
Open RAN
When NTT Docomo set out its global plan to become the partner of choice for telecom
operators adopting Open RAN (O-RAN), it turned to Spirent’s O-RAN test solutions to help
unlock the technology’s potential. Offering customisable solutions to design, integrate, test,
deploy and operate O-RAN systems, Docomo wanted to demonstrate to customers that
its multi-vendor O-RAN solutions can deliver the performance required in the world’s largest,
most demanding networks.
Through its O-RAN service brand OREX™, Docomo chose Spirent’s solutions to provide
comprehensive 5G core emulation, critical to simplifying validation of multi-vendor
interoperability, standards compliance, and real-world performance. Combining Spirent’s
industry-leading realistic network emulation with advanced performance and security testing
in a unified, automated solution gives Docomo confidence in demonstrating the viability and
performance of O-RAN for customers worldwide.
Spotlight:
Optimise user experience
12 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Meeting the daunting
data demands of
artificial intelligence
Artificial intelligence
One of the world’s largest hyperscalers is also leading the way in the development of artificial
intelligence (AI), as AI becomes a growing force in digital transformation. While wrestling with
the capabilities that AI is already delivering, the company is all too aware of the daunting
demands it will put on data capacity requirements for the future, as AI integration becomes
ever more ubiquitous.
Seeing 800G as the future workhorse of the cloud’s high-speed Ethernet backbone, the
hyperscaler invested in Spirent’s market-leading 800G test solutions, making it simpler to test
and validate today the reliability and potential of the 800G ecosystem of the near future, and
ensuring it can continue its work at the bleeding edge of AI development with confidence.
Smarter
Spotlight:
Ensure robustness
13Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Spirent invests to sustain
and expand our leadership
and support our profitable
growth in key technologies
and growth markets.
Our markets
Unlocking new
opportunities
We are evolving deeper and broader partnerships with
an increasingly diverse base of customers, helping them
address their larger business problems with innovative
solutions and services, not just products. We are leveraging
subject matter expertise gained from our leadership in lab
test and validation to address our customers’ live network
challenges, as they advance towards complex cloud-native
5G standalone networks and employ continuous integration
and continuous delivery models. We are applying our
industry-leading expertise to key emerging areas such 5G
private networks, the expansion of telco cloud, data centre
upgrades to support artificial intelligence (AI) workloads,
open radio access networks (Open RAN), and low earth
orbit (LEO) satellite constellations. Diversifying our markets
and our customers provides us with new opportunities to
grow and to build additional recurring revenue streams
that support sustainable, profitable growth.
Non-terrestrial networks and LEO
Market driver
Growth in non-terrestrial networks (NTN) and LEO mega
satellite constellations continues apace with over 5,700
satellites in orbit, and over 58,000 satellites estimated to
be in active orbit by 2030, delivering mobile broadband,
emergency services and Internet of Things connectivity
directly to devices, while offering resilient positioning,
navigation and timing (PNT). Being close to Earth, these
new constellations enable more robust and secure
connectivity to remote, underserved communities,
mission-critical industries, and military theatres.
Opportunities for Spirent
Space is an incredibly complex environment, so it is
critical to validate satellite communications and PNT
performance in the lab before deployment. Numerous
technology and performance challenges must be tested,
from signalling delays and timing variations to large
Doppler shifts and signal degradation from atmospheric
conditions and interference.
Our response
Spirent, as the industry leader in satellite PNT and
end-to-end mobility testing, is well positioned to help
the industry deliver on NTNs’ promises and bridge
the technology divide between satellite providers and
mobile operators. Spirent is already deeply engaged
with leading players across the ecosystem, helping to test
the complex performance and resiliency requirements
of a new generation of SATCOM and PNT services.
386m
direct satellite-to-device subscribers by 2030
Source: NSR an Analysys Mason Company 1 August 2022.
Satellite D2D consumer segment revenue
Emergency
<$100 million
SMS
+$100 million
Voice
+$1 billion
Data
+$10 billion
Analysys Mason estimate a $137 billion revenue opportunity (cumulative
between 2022 to 2032) for direct-to-device (D2D) SATCOM services.
Source: Analysys Mason/NSR.
3GPP
Release 17
3GPP
Release 18
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
60,000
50,000
40,000
30,000
20,000
10,000
0
USD million
14 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
800G and data centre
networking for AI
Market driver
The rapidly-increasing appetite for applications
such as cloud gaming, streaming services, industrial
connectivity, and a new wave of AI workloads is
driving bandwidth demands ever higher. Cloud
service providers are focusing on AI infrastructure
for learning clusters which require high bandwidth
connectivity, and for inferences which require
low latency.
This is all stimulating rapid evolution in Ethernet
backbones and interconnects in data centres that
underpin the cloud and provide support for enterprises,
driving refresh cycles from 400G to 800G, as well as
early 1.6 Terabit research and development.
Opportunities for Spirent
With the rapid acceleration towards 800G, customers
are demanding higher-density testing capabilities.
Flexibility is needed to validate the next generation of
routers and data centre fabrics for cloud computing
and streaming service quality of service, for
performance and latency of data centre switches,
and for the latest generation of terabit core routers.
Our response
Spirent has developed the industry’s highest-density,
award-winning multi-rate 800G high-speed
Ethernet test solution, leveraging our decades of
leadership in Ethernet testing.
Spirent’s 800G solution helps accelerate 800G
adoption across next-generation chipsets, routers,
switches, and data centre fabrics, and lays the
foundation for future 1.6 Terabit evolution.
Financial services
(digital transformation)
Market driver
Financial services organisations are embarking on
large-scale digital transformation and automation
programmes driven by competitive pressures,
heightened security risks, legacy IT systems and
a heritage of costly and inefficient siloed labs and
manual testing processes.
This is compounded by the need for continuous
regulatory compliance and certification testing while
meeting aggressive sustainability targets across
growing IT and data centre real estates.
Opportunities for Spirent
Manual methods for testing enterprise networks,
regulatory compliance and the provision of new
digital services are no longer viable because of
the complexity, speed and frequency at which
increasingly disaggregated networks need to
be updated.
By automating test lab capabilities, world-leading
financial services companies will be able to significantly
accelerate delivery of new products, version upgrades,
and services to their customers, while ensuring strict
compliance and benefiting from major productivity
gains and cost savings.
Our response
Spirent’s proven lab and test automation solutions
are fully applicable to these transformation
programmes and to continuous testing within
enterprise sectors, including financial services.
This expanded market opportunity for Spirent was
showcased by a large deal we won with a leading
global financial services organisation in 2023.
Banking, Financial Services, & Insurance (BSFI)
market dynamics
$310bn
Digital Transformation spending by 2032, growing
at a compound annual growth rate (CAGR) of 16.6
per cent from 2023 to 2032.
1
$8.79bn
Robotic Process Automation spending by 2030
to automate repetitive tasks, streamline complex
processes, and reduce human errors, growing
at a CAGR of 39.4 per cent from 2023 to 2030.
2
Sources: 1. Allied Market Research; 2 Grand View Research.
Deployments in front-end connectivity for AI clusters to drive 800G
demand with nearly 2/3 of ports being 800 Gbps by 2027.
Source: Dell’Oro Group.
Forecast (23–27) – front-end AI networks
2020 2021 2022 2023e 2024e 2025e 2026e 2027e
100%
0%
Port Shipments (%)
100Gbps 200Gbps 400Gbps 800Gbps 1,600Gbps
15Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Our business model
Unleashing the value of
transformative technologies
We stand behind the promise of our increasingly
diverse customer base to deliver a new generation of
transformative products and services to their customers.
We are with them in every phase of the lab to live lifecycle
from development to operation, ensuring new technologies
work and new revenue streams are unleashed.
Using our
resources
effectively
Financial strength
To invest in research
and development
Intellectual property
Protected IP and patents
Organisational capital
Unique systems and processes
Human capital
Talented and driven workforce
Social capital
Strong partnerships with
customers and suppliers
O
p
t
i
m
i
s
e
u
s
e
r
e
x
p
e
r
i
e
n
c
e
A
c
c
e
l
e
r
a
t
e
t
i
m
e
t
o
m
a
r
k
e
t
R
e
d
u
c
e
c
o
s
t
a
n
d
c
o
m
p
l
e
x
i
t
y
O
p
e
r
a
t
e
D
e
v
e
l
o
p
D
e
p
l
o
y
Harden
security
defences
Lab
Live
16 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Making new technologies work
Non-terrestrial
networks and LEO
satellites
Telecom and
financial digital
transformation
AI networking
and 800G for
data centres
The next wave
of 5G, Wi-Fi and
the cloud
Spirent’s unique value
We Unblock
development for
faster releases
Our automated test and digital
twin solutions realistically model
real-world networks so providers
can rapidly validate new concepts
for non-terrestrial networks (NTN),
artificial intelIigence (AI) data
centre networking, 5G standalone/
advanced, Wi-Fi 7, next-generation
positioning and more. Our managed
solutions offer our critical technology
and methodology skills and expertise,
allowing customers to streamline
their labs and testing.
We Unlock
agility and
cost savings
Our continuous testing solutions
and automated test frameworks
empower our diversified customer
base across industries such as
telecom and financial services
to transform legacy testing
workflows and silos into automated,
collaborative test environments.
This enables supplier ecosystems to
work together seamlessly, improving
agility, accelerating releases,
and increasing resource and
energy efficiency.
We Unleash
new services
and revenues
Our active continuous monitoring
solutions create a foundation for a
new generation of AI, NTN, 5G, Wi-Fi 7,
and positioning services that offer
high-growth revenue opportunities.
We enable service differentiation
across new dimensions: latency, loss,
security, scalability, and managed
service level agreements. Our
proactive, automated root cause
isolation allows customer issues
to be resolved before customers
are impacted.
17Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Spotlight on 5G
Private 5G networks
The market for enterprise private networks saw steady
adoption throughout 2023. In 2024 and beyond, we expect
private networks to see significant growth – and become a
meaningful source of incremental revenue for our customers
– thanks to rising demand from enterprises, government and
military customers, and their growing willingness to pay a
premium for assuring network service level agreements (SLAs)
to guarantee business outcomes and return on investment.
This growth in enterprise private networks will also fuel
associated investment in cloud and multi-access edge
computing (MEC). It’s already clear that many enterprises
have strict requirements for assuring security and data
privacy on-site. At the same time, many of the most
compelling private network use cases, especially those
using latency-sensitive or artificial intelligence/machine
learning-driven applications, will benefit from the performance
gains derived from local application processing.
Spirent’s strategy is well aligned to help our customers
unleash the revenue potential of private 5G and MEC. An
acknowledged industry leader in 5G core and edge network
testing, offering innovative solutions such as automated
and continuous testing and assurance, together with flexible
business models such as test-as-a-service, Spirent is helping
enterprises to unlock new business outcomes and operators
and suppliers to deliver new premium and assured revenue
generating services.
5G standalone on the cusp
5G standalone (SA) network deployments growth stalled
during 2023, largely due to delays in capital expenditure
investment and delays in overcoming the formidable technical
challenges of deploying and integrating new, cloud-native
5G core technologies. However, growth is forecast to
rebound in 2024, as mobile operators focus on advanced
revenue-generating use cases which simply cannot be
supported without the move to 5G SA. This comes against
a background of expanding demand in enterprise private
networks, gaming and metaverse applications, government
and military use cases, and energy efficiency/sustainability,
all representing near-term areas of opportunity for Spirent.
Already 121 operators in 55 countries are investing in 5G
SA networks. Cloud providers, operators and network
equipment manufacturers are all launching private 5G
SA-based offerings. Leading chip and device equipment
manufacturers are launching 5G SA advanced capable form
factors, while premium 5G SA services are being tested and
launched, including secure network slices, voice over new radio
and reliable low-latency solutions for industrial applications.
Clearly, suppliers and operators see a 5G SA market
that’s ready to scale, and we anticipate controlled growth
deployments beginning in mature markets during 2024,
scaling nationally throughout the coming years, with the
longer tail of operators following, providing an enduring
test and assurance opportunity for Spirent.
Unleashing 5G
standalone with
its new revenue
opportunities
and efficiencies
Advanced revenue-generating
use cases simply cannot
be supported without the
move to 5G SA.
Stephen Douglas
Head of Market Strategy, Spirent
18 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Lifecycle Service
Assurance
Helping customers unleash new
forms of differentiation, assured
revenue generating services and
increased savings.
As early 5G non-standalone (NSA)
networks mature, focus naturally
shifts towards 5G SA to deliver the
true promise of 5G and guarantee
performance, with SLAs helping to
ensure new revenue streams and
competitive advantage.
With new complexity from
5G SA’s cloudification, and a
transformation of many integration
and deployment workflows,
demand is growing for network
automation and continuous
test and assurance across the
5G lifecycle.
Spirent’s market leadership in
5G SA core network testing,
our vendor-independent status
and cutting-edge expertise in
automation and continuous test
and assurance uniquely positions
us to help the industry make the
move to true 5G with confidence.
Spirent’s global leadership in 5G
core testing was again showcased
in 2023 with leading operators,
equipment manufacturers and
cloud providers, with over 65
unique customer engagements,
including within adjacent satellite
industry, government and
military markets.
Networks & Security
Helping customers unlock
increased agility and faster time
to market.
The growth in 5G deployments
and the move to SA with its
disaggregated, cloud-native
architecture highlight the
dependency on a high-capacity,
tightly synchronised, low-latency
and secure internet protocol
transport network capable of
supporting thousands of additional
cell sites, new edge locations
and geographically distributed
data centres.
Spirent’s high-speed Ethernet and
application-aware security testing
leadership was complemented in
2023 by CloudSure, an innovative
solution designed to ensure
the reliability, fault tolerance,
and scalability of cloud-native
deployments to deliver robust and
resilient 5G services.
Spirent’s 5G telco cloud leadership
was highlighted in 2023 at one of
the world’s largest 5G operators,
helping them validate 5G core
network cloud native function
resilience when running on various
cloud infrastructures and stacks,
safely accelerating their time to
launch their new 5G SA network.
Managed Solutions
Helping our customers address
technology risks, operational
overheads and skill set shortages.
5G’s increased complexity,
combined with an exponential
increase in the velocity and volume
of software releases, inconsistent
tools and processes, and a lack of
in-house expertise, presents major
challenges to our customers.
Managed Solutions help address
these challenges by offering
our unparalleled subject matter
expertise, tools and methodologies
as a service, enabling an
innovation pipeline between
development and operations.
Spirent’s Managed Solutions
leadership was showcased in
2023 at a leading north American
operator with one of the world’s
largest 5G SA networks, which
utilised Spirent’s Test-as-a-Service
managed solution to deliver
lab and field testing of new
mobile devices to validate their
performance for data and
next-generation voice-enabled
services on its new 5G SA network.
$24.1bn
Forecasted 5G SA network
infrastructure (core and
cloud) spend between
2024–2027
1
300
Commercial 5G launches
out of 578 operators
investing in 5G
2
50
Commercial 5G SA
launches with another
74 operators currently
investing towards 5G SA
3
Sources
1. Omdia (September 2023).
2. Global Mobile Suppliers Association (GSA) (December 2023).
3. Dell’Oro Group & GSA (December 2023).
4. Analysys Mason (December 2023).
>60,000
Private 5G/LTE networks by 2028
4
19Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Customer Centricity
Our strategic priorities
We are
focused on
three strategic
priorities
1,100+
customers served in 2023
What we achieved
We remained dedicated to supporting our customers
during difficult times by staying connected with
them. Our primary focus was on enhancing the
return on investment enabled by our portfolio,
ultimately saving our customers’ time, effort and
money throughout their journey.
The success of our key account programme
persisted, driven by major customers directing
their budgets toward automation and essential
investments. Our partner ecosystem demonstrated
impressive performance yet again, achieving robust
outcomes by strategically targeting rapidly-growing
segments and regions.
In addition, we increased our share of the market
among existing customers while simultaneously
expanding into new target segments like hyperscalers
and financial services. A significant milestone was
reached with a financial services organisation,
highlighting our leadership in modernising and
automating labs and winning customers beyond
our core base.
Priorities for 2024
• Continue diversifying our customer base.
• Continue driving our shift from selling product
features and functions to selling outcomes
and value.
• Drive solutions and services that specifically tackle
our customers’ existing challenges, particularly those
related to productivity and efficiency objectives.
• Utilise our globally leading automation solutions
to expedite the achievement of our customers’
energy-saving goals.
• Expand on our landmark services deals to win
more strategic services opportunities.
To realise our ambition to be the
global leader and trusted partner
for innovative technology test and
assurance solutions, we are focused
on three strategic priorities, or pillars:
Customer Centricity
Our mindset of customer centricity enables us to take a
broader role on our customers’ behalf, solving their larger,
most pressing problems and adding more value.
Innovation for Growth
We must continue to relentlessly innovate and invest to stay
ahead on key, emerging technologies, and to maintain
market leadership.
Operational Excellence
Our focus on operational excellence and upholding our core
values is a key differentiator that enables our sustainable,
profitable growth.
We are building on the progress
we have made in addressing
our customers’ larger and most
pressing business problems by
selling outcomes and value.
Eric Updyke
Chief Executive Officer
20 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Innovation for Growth Operational Excellence
What we achieved
We continued to make smart investments in our
future growth, including R&D, key talent and business
model innovation, with a continuing focus on our
drivers of 5G and Open RAN (O-RAN), cloud growth,
digital transformation and location awareness.
Our Positioning business, with its unique end markets,
achieved robust bookings with its world-class portfolio
of solutions. Our extensive portfolio now emphasises
multi-sensor integration, ensuring clients in emerging
sectors like low earth orbit (LEO) satellites, chipsets and
automotive technology can realise their positioning,
navigation and timing (PNT) aspirations.
To enhance our automation portfolio, we acquired
the Test Lab Automation business from NetScout
®
,
which delivers physical layer switching capabilities,
critical to configuration and connectivity in
automated labs.
We introduced our Wi-Fi 7 solution to the market to
address the evolving demands of the next generation
in Wi-Fi testing. This cutting-edge solution not
only enhances performance but also sets a new
standard for reliability and speed in wireless
connectivity testing.
Priorities for 2024
• Invest in scaling and management of our services
delivery capability and increasing the software
content in our solutions.
• Leverage the breadth of our 5G portfolio to address
evolving customer needs as 5G moves beyond the
lab to deployment and production networks.
• Leverage our industry leadership in Wi-Fi test
and validation to address technology evolution
to Wi-Fi 7 and the growing Wi-Fi market need for
Test-as-a-Service offerings.
• Maintain and expand leadership in high-speed
Ethernet with continued 800G innovation and
quality/usability enhancements.
• Expand PNT leadership in space, chipset and live
assurance applications.
• Focus on maximising opportunities in O-RAN and
5G private network markets.
$102.4m
(2022 $111.3m)
invested in research and
development in 2023,
representing
21.6%
(2022 18.3%)
of revenue
What we achieved
Our prioritisation of operational excellence resulted
in continuing diligent management of our cost base
throughout 2023, ending the year with $108.1 million
of cash and no debt. The adjusted operating margin
decreased by 12 percentage points to 9.5 per cent.
We continued to invest in our people and made
significant progress in our diversity, equity and
inclusion strategy.
In light of the market’s unpredictable nature, we
embraced the challenging yet essential task of
implementing cost-cutting measures to navigate
economic headwinds. This entailed making difficult
decisions and executing targeted cost-saving
initiatives to secure the sustainability of our operations.
Our primary objective was to preserve critical
investments while grappling with the inherent challenges
presented by the unpredictable business environment.
Our approach to cost optimisation demanded
surgical precision, with a heightened awareness of
the delicate balance between fiscal responsibility and
the imperative to safeguard our capacity for growth.
We made some organisational changes to better
align ourselves with the market dynamics, including
reorganising our business units to better enable
solutions selling. We expect it to drive more efficiency,
including a single R&D organisation to drive better
prioritisation, common platforms and consistent user
interface/user experience across products.
Priorities for 2024
• Continuously assess and expand our portfolio,
pursuing both organic and inorganic growth
to align with strategic goals and capitalise on
lucrative market opportunities.
• Unwavering commitment to operational efficiency,
encompassing the execution of our site strategy
and optimisation of our operating model.
• Prioritise sustainability and ESG objectives
to uphold our commitment as a responsible
corporate citizen.
• Execute the 2024 objectives outlined in our
diversity, equity and inclusion strategy.
• Sustain investments in our IT infrastructure,
tools and processes, to bolster support for our
ongoing growth.
• Maintain a robust balance sheet to ensure strategic
flexibility and long-term viability, particularly during
periods of macroeconomic uncertainty.
21Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Key performance indicators
Book to bill
1
Ratio
101
Revenue
$ million
$474.3m
Adjusted operating profit
2
$ million
$45.2m
Adjusted operating margin
3
%
9.5%
503.6
103.5
18.4
92.9
522.4
118.5
19.8
103
21 21 21 21
106
20 20 20 2019 19 19 19
Performance in
a difficult
environment
Spirent’s strategy focuses on medium to long-term growth
and therefore its achievement cannot be measured by just
looking at performance in 2023 compared to the prior year;
trends over a number of years must also be considered.
Executive Director remuneration is linked to certain financial,
strategic and operational key performance indicators (KPIs)
with further information available in the Report on Directors’
Remuneration on pages 83 to 109.
103
101
111
22 23
607.5
474.3
576.0
22 23
129.5
45.2
22 23
21.3
9.5
20.6
22 23
Reason for measurement
The ratio of orders booked
to revenue recognised is a
measure of the visibility of
future revenue at current
levels of activity and
provides an indication of the
underlying trend in Spirent’s
future revenue stream.
Reason for measurement
Spirent monitors growth in
revenue as this shows how
successful Spirent has been
in expanding its markets and
growing its customer base.
Reason for measurement
Adjusted operating profit
is the measure used
to evaluate the overall
performance of the Group
as well as each of the
operating segments.
Reason for measurement
Adjusted operating margin
is a measure of the Group’s
profitability. Spirent operates
in markets which have high
operating returns and strives
to achieve best-in-class
operating margin compared
with its peers.
Performance
Order intake was greater
than revenue in the year
resulting in a book to bill
ratio of 101 as we continue
to win larger, longer-term
contracts that improve
revenue visibility and
build repeatable business
(2022 103).
Performance
21.9 per cent revenue
decrease in 2023, following
a 5.5 per cent increase in
2022. 5G is expected to be
a strong driver of future
business across our solution
portfolio in the mid term;
however, during the year,
customers delayed their
investments to manage
economic challenges.
Performance
Adjusted operating profit
decreased by 65.1 per cent
to $45.2 million, from
$129.5 million in 2022, as a
result of challenging trading
conditions partly offset by
continued focus on
cost control.
Performance
The decrease in adjusted
operating margin
to 9.5 per cent, from
21.3 per cent in 2022,
reflects challenging
trading conditions partly
offset by cost control.
Relevance to strategy
The book to bill ratio is an
indicator of the underpin to
future revenue and whether
activity levels are rising or
slowing, and therefore how
effective we have been in the
execution of our strategy.
Relevance to strategy
Revenue demonstrates
the effectiveness of our
strategy: our success in
expanding our markets both
organically and through
acquisition; maintaining
technology leadership; and
our strong relationships with
our customers, all of which
ensure that we continue to
win and maintain business.
Relevance to strategy
Adjusted operating profit
indicates our financial
strength and our ability
to invest in the business to
support the growth agenda.
Relevance to strategy
Adjusted operating margin is
a measure of how successful
we are in our overall strategy
and demonstrates our ability
to improve profitability
through efficient operations
whilst being mindful of the
need to invest for the future.
22 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Adjusted basic earnings
per share
4
(EPS)
Cents
7.55¢
Product development spend
as a percentage of revenue
%
21.6%
Voluntary employee turnover
%
5.6%
Free cash flow
5
$ million
$23.7m
13.40
19.2
7.6
100.1
14.68
19.7
6.7
102.6
21 21 21 2120 20 20 2019 19 19 19
Notes
1. Ratio of orders booked to
revenue recognised in the period.
2. Before acquired intangible
asset amortisation, share-based
payment and other adjusting
items amounting to $26.8 million
in total (2022 $16.8 million).
3. Adjusted operating profit as
a percentage of revenue in
the period.
4. Adjusted basic earnings
per share is based on
adjusted earnings as set
out in note 11 of Notes to
the full year consolidated
financial statements.
5. Cash flow generated from
operations, less tax and net
capital expenditure, after interest
paid and/or received, payment
of lease liabilities, finance
lease payments received and
excluding acquisition related
other adjusting items and
one-off contributions to the UK
pension scheme.
Items with notes 1 to 5 are
non-GAAP alternative performance
measures; see pages 196 and 197
for more detail.
Reason for measurement
Long-term growth in
adjusted basic EPS
is a fundamental
driver to increasing
shareholder value.
Reason for measurement
To maintain its competitive
position, Spirent must invest
at suitable levels to support
further organic growth
initiatives in line with the
strategic objectives, whilst
driving improved productivity
and effectiveness.
Reason for measurement
Spirent’s success is
dependent on its talented
employees and retaining
them is extremely important.
Voluntary employee turnover
compared to the industry
average is the measure used
to assess how well the Group
has performed.
Reason for measurement
Free cash flow is a measure
of the quality of Spirent’s
earnings. The aim is to
achieve a high conversion
of earnings into cash.
Performance
Spirent aims to achieve
growth in adjusted basic
EPS. Part of the Executive
Directors’ remuneration is
dependent on achieving
EPS targets. In 2023,
adjusted basic EPS
decreased 60.0 per cent as
a result of the decrease in
adjusted earnings.
Performance
In 2023, product
development spend of
$102.4 million (2022
$111.3 million) benefited
from transferring North
American activities to lower
cost regions.
Performance
Our 2023 voluntary
turnover rate of 5.6 per
cent remains well below
the global industry average
of 14.2 per cent.
Performance
Free cash flow in 2023 was
positive at $23.7 million.
Free cash flow conversion
for 2023 was 54 per cent
of adjusted earnings
(2022 91 per cent).
Relevance to strategy
Adjusted basic earnings per
share is a measure of how
successful we are in our
strategy and ultimately how
Spirent increases value for
its shareholders.
Relevance to strategy
It is critical that Spirent’s
product development
investment keeps pace
with the speed of change
in technology, and that
it is directed at the right
key technology areas;
this enables us to expand
our markets and to
maintain our technology
leadership position.
Relevance to strategy
We cannot avoid the fact that
some of our employees will
move on but we can avoid a
skills shortage by appropriately
managing, recognising
and rewarding our people.
Voluntary employee turnover
is a measure of how successful
Spirent is in its strategy of
retaining and investing in
its people.
Relevance to strategy
Having strong free cash
flow reflects Spirent’s
ability to generate funds
for future investment. It
provides financial strength
and flexibility and the ability
to pay sustainable dividends
to our shareholders.
18.86
7.55
16.59
22 23
18.3
21.6
19.7
22 23
10.1
5.6
7.2
22 23
91.9
103.8
23.7
22 23
23Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Stakeholder engagement
Considering
stakeholders
in key business
decisions
Directors are bound by their duties under the
Companies Act 2006 (the “2006 Act”), but the
principles underpinning Section 172 are not only
considered at Board level, they form part of
everything we do as a Company.
Supported by the Company Secretary & General
Counsel, the Board, management and all those
tasked with preparation of Board materials must
give consideration to relevant stakeholders in
matters requiring decision making, including
strategic decisions.
The following pages comprise our Section 172(1)
Statement and set out how the Board has, in
performing its duties over the course of the year,
had regard to the matters set out in Section
172(1) (a) to (f) of the 2006 Act, giving details of
how each key stakeholder has been engaged
and considered, including examples of how
stakeholders were considered in key Board
decisions. Further information can also be found
throughout the Strategic Report.
No successful business
can operate in isolation.
Without a thorough
understanding of its key
stakeholders and their
differing perspectives,
a business will struggle
to deliver sustainable
long-term growth to
shareholders and
other stakeholders.
24 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Shareholders
Spirent is committed to engaging
with current and potential shareholders
through continued transparent and
effective communication.
Topics covered
• Financial performance.
• Capital management and distribution.
• Long-term sustainability strategy.
• Corporate governance and stewardship.
• Executive remuneration, including share plans.
How we listen and engage
• Investor roadshows after the full and half year results.
• Open door policy with investors: CEO and CFO regularly
meet investors virtually and, when possible, face-to-face.
• The Annual General Meeting (AGM) and related follow-up.
• Remuneration Committee Chair consults with
shareholders on application of the Group’s Executive
Director Remuneration Policy and share plan changes.
2023 highlights including Board decision making
and Section 172 considerations
• All resolutions successfully passed at 2023 AGM with votes
cast representing more than 81 per cent of the issued
share capital.
• Directors fully available to answer shareholder questions
at the AGM.
• Return of capital to shareholders by buying back and
cancelling £56 million of shares, the Board having sought
broker views on market sentiment beforehand.
• Continuing payment of dividends, better aligned to
profitability and cash flow.
• Regular broker updates to the Board on market
sentiment, as well as other presentations to the Board
on investor feedback.
• Ongoing engagement with major shareholders on share
plan changes, including use of restricted shares, before
finalising AGM resolutions.
Employees
We are a people business and our
1,500+ colleagues around the world
are fundamental to the long-term
success of our Company.
Topics covered
• Reinforcing understanding of our mission, vision, values
and strategy.
• Ensuring employees understand what is expected of them
and know the role they play in our success.
• Spending quality time with line managers so that they
feel listened to and supported, enabling employees to
feel confident that they have the skills to do their job
well while identifying potential training needs for their
future development.
• Making sure that employees feel part of a thriving
Spirent community.
How we listen and engage
• Global and regional internal communication and
collaboration platforms to provide access to information
for all colleagues.
• Learning and knowledge sharing forums for our
technology and sales communities.
• Biannual colleague engagement surveys to monitor
developments in workforce sentiment.
• Engagement events with global and local management
representatives, including Non-executive Directors.
2023 highlights including Board decision making
and Section 172 considerations
• Non-executive Directors met with employee groups
based in their home geography through hosted
sessions with small groups of colleagues (face-to-face
where possible, but also online), with feedback from
engagement sessions being used to inform Board and
Committee discussions.
• Biannual employee surveys have consistently achieved
strong response rates, with results indicating that we
continue to have a highly engaged workforce.
• Management Matters engagement programme continues
to support people managers within the business.
• Employee wellbeing programmes refreshed with
improved access to support ranging from awareness
campaigns to mental health first aid training.
• Employees who departed during the 2023 right sizing
all dealt with fairly, sympathetically and with respect,
with follow-up reporting to the Board.
25Spirent Communications plc Annual Report 2023
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Stakeholder engagement continued
Customers
Providing solutions and services
to help our customers keep their
promises to their customers.
Topics covered
• Understanding the challenges our customers face.
• Developing solutions and services to help our customers
to manage the complexity of their devices, networks
and services.
• Working collaboratively with customers and their partners.
How we listen and engage
• Investment in an agile, collaborative organisation so that
we can be responsive to customer needs.
• Regular client updates and acting on their feedback.
• Extension of our thought leadership to stay ahead in
key technologies in sustainable growth areas.
2023 highlights including Board decision making
and Section 172 considerations
• Awards won at 2023 Lightwave Innovation Reviews (Lab/
Production Test Equipment and Field Test Equipment) and
2023 Interop Tokyo Best of Show (Testing Special Prize
and Testing Grand Prize).
• Teaming up with customers to innovate and create
leading technology.
• Acceleration of our digital-first marketing approach with
targeted always-on digital marketing campaigns to grow
interaction and drive demand.
• Continued expansion of our library of downloadable
resources with high-quality, targeted content to share
thought leadership and technological expertise.
• Extending geographical reach and customer
engagement through an ever-expanding social media
networking programme.
• Review and reorganisation of business units, agreed
and monitored by the Board.
Suppliers
Spirent engages with a number
of different suppliers across
the business.
Topics covered
• Long-term trusted partnerships facilitating real
margin improvement.
• Strong working relationships.
• Collaboration.
• Fair contract and payment terms.
• Management of relationships through global supply
chain disruption.
How we listen and engage
• Active management and monitoring of key suppliers and
supply chain trends.
• Meetings held with key suppliers.
• Supplier surveys as an embedded part of the
procurement process.
• Supplier Code of Conduct assessments.
2023 highlights including Board decision making
and Section 172 considerations
• Continued supply chain audit programme, auditing
30 suppliers.
• Engaging with suppliers in preparation for additional
Scope 3 disclosures on greenhouse gases (GHG) emissions.
• Mitigation of global component shortage, reported to
the Board.
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The world around us
Spirent has a diverse network
throughout the world around us
which is critical to the ongoing
success of the business, from
governments and regulators to
educational facilities and our
local communities.
Topics covered
• Being mindful of our environmental impact.
• Being a responsible corporate citizen.
• Supporting our local communities through
charitable giving.
• Being a trusted partner to customers around the world.
• Providing work experience and early career
development programmes.
• Engaging with global think tanks and trade associations
to understand research priorities and opportunities, and
offer expertise to shape policy and industry positions.
• Participating in global thought leadership conferences
and roundtable events.
How we listen and engage
• Participation in environmental reporting surveys.
• Enhancement of reporting framework to ensure
compliance with Task Force on Climate-related Financial
Disclosures (TCFD) requirements.
• Apprenticeship, graduate and work experience
schemes to encourage a diverse pipeline of new and
developing talent.
2023 highlights, including Board decision making
and Section 172 considerations
• Expanded our early career talent programme,
launching a new internal network and an engineering
development programme.
• Active move towards ongoing flexible working to reduce
real estate footprint and carbon emissions, with reporting
to and monitoring by the Board.
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Sooner
Proving the potential of LEO’s
positioning future
Low earth orbit
Growth in low earth orbit (LEO) satellite constellations will open up huge new opportunities
for developers, but a key challenge is designing, building and testing devices to utilise LEO
services before the constellations are fully deployed. Hexagon NovAtel needed to establish
the performance of its LEO receivers with Xona’s PULSAR™ LEO constellation, which, when
completed, will improve positioning, navigation and timing (PNT) resilience and accuracy
by augmenting existing global navigation satellite systems.
However, with limited satellites currently in orbit and live-sky testing only available for a few
minutes per day, NovAtel employed Spirent’s GSS7000 simulator and industry-first SimXona
simulation software to successfully test NovAtel receivers’ ability to track Xona PULSAR™ signals.
Utilising Spirent’s simulation expertise, NovAtel was able to successfully demonstrate its new
receiver’s capability to track Xona’s PULSAR™ LEO network signals in the lab, showcasing
Spirent SimXona’s value to developers of future LEO PNT innovations.
Spotlight:
Position the future
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Moving Wi-Fi 7 into the
consumer mainstream
Wi-Fi 7
Gearing up to bring the benefits of Wi-Fi’s next-generation to its customers, a North American
tier-one service provider turned to Spirent to help with the development of its new Wi-Fi 7
residential gateway devices. Along with many benefits, Wi-Fi 7 also introduces tough new
technological challenges to grapple with before it can be moved into the mainstream and
unleashed into consumers’ homes.
Identifying Spirent as the undisputed leader in Wi-Fi testing innovation, the service
provider made a significant investment in Spirent’s octoBox
®
platform to create a controlled,
automated environment in which to emulate real-world conditions for testing its Wi-Fi
enabled devices.
With comprehensive new Wi-Fi 7 testing capabilities already built in, octoBox
®
equips the
service provider to meet the exacting new testing requirements of Wi-Fi 7 and launch its
next-generation Wi-Fi residential gateway, confident that customers will experience the
enhanced performance and capability benefits.
Better
Spotlight:
Empower consumers
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Our people and culture
An engaging
and inclusive
culture
Spirent is proud of the supportive
and inclusive environment in which
its employees thrive. Our people are
key to our success.
The way we work
Rooted in our culture, our values serve as our foundation,
shaping the way we collaborate with both our team
members and customers. Complemented by a range of
flexible working practices, our commitment to employee
wellbeing not only minimises our carbon footprint but also
fosters knowledge sharing, innovation and collaboration.
This comprehensive approach not only aids in talent
attraction but also plays a crucial role in talent retention.
Measuring our engagement
In our pursuit of prioritising what is most important to our
team members, we advocate for psychological safety,
encourage direct feedback, and emphasise continuous
improvement. Our biannual employee survey serves as a
tool to gauge engagement levels, with consistently high
participation rates. In 2023, we launched the “Business
Bottleneck” anonymous feedback form to surface and
resolve process inefficiencies. We encourage in person
planning, knowledge sharing, and social events to build and
strengthen connections across the Company, and continue
our Spirent Celebrates programme to honour the rich
diversity of our global workforce.
Diversity and inclusion strategy
2023 priorities
Equitable pay
Our focus on pay equity continues. We established the
framework and tools to review pay parity in our business-
as-usual compensation reviews.
Invest in skills, training and development
Spirent has well-established learning and development
programmes and a continuous improvement and coaching
culture. We are passionate about science and engineering,
but we recognise that there are barriers that prevent
talented young people from studying science, technology,
engineering and mathematics (STEM) subjects and
pursuing careers in technology. Our STEM Ambassadors
Programme enables us to engage with young people and
foster an interest in STEM subjects that we hope will lead
them to fulfilling careers in science and engineering.
In 2023, we expanded our early career development
programmes. These offer structured pathways into a career
in technology through internships, apprenticeships, university
sponsorships, and on-the-job development – the latter of
which includes our Aspire Network and Sales Development
Representatives (SDR) Programme.
Celebrating diversity
Our Spirent Celebrates programme, which honours the rich
diversity of our global workforce, continued to grow in 2023.
We expanded the number and range of cultures, awareness
days, and environmental advocacy that we spotlighted to
include the likes of Black History Month, Neurodiversity
Celebration Week, National Apprenticeship Week, Onam,
and the Mid-Autumn Festival. Additionally, we acknowledge
the meaningful contributions of our employees who dedicated
their volunteer time off to give back to their local communities.
Our values
1
Join forces
Collaborate with customers, partners
and employees to drive success.
2
Find a better way
Create new possibilities and make
change happen.
3
Play to win
Aim high and win responsibly.
4
Inspire, challenge
and coach
Enable and empower our people.
5
Take ownership
Embrace responsibility and seek to
deliver impact wherever you go.
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Bringing our
culture to life
Our #LifeAtSpirent campaign, and internal ‘Get
to Know’ employee spotlight series, allowed us to
recognise and better connect the incredible talent
we already have across our business. The campaign
highlights our Company’s development opportunities,
social responsibility, diversity and inclusion, employee
benefits, sustainability efforts and more.
The campaign has also allowed us to recognise the
incredible talent we already have within our business.
Our culture in action:
supporting early careers
“My technical, problem-solving, and interpersonal
skills have been taken to a new level! Thanks to the
support I’ve been given and the opportunities to join
my more experienced colleagues in meeting both new
and established customers, I’ve gained experience in
situations that I’ll no doubt encounter soon.”
Haocheng Cao – Associate System Engineer
“The ongoing development, support and networking
opportunities provided as part of the Spirent Sales
Development Representatives Programme (SDR)
has been incredible! I’ve received great training from
both a technical and sales perspective and feel well
prepared to pursue a career in sales.”
Shuang (Claire) Liang –
Sales Development Representative
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Sustainability
D
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About
FuturePositive
FuturePositive is our
sustainability programme.
Through this programme, we have embedded the highest
standards of environmental management, social practices
and corporate governance in our business and supply
chain and help our customers tackle important global
sustainability challenges.
Promote diversity
and invest in people
Our promise
We will take action on diversity and set clear expectations.
We will attract and develop talent and skills to drive
innovation and support long-term sustainable growth.
We will also enable and embed flexible working across
all our operations.
Vision
Our solutions will help deliver
on the promise of a sustainable
future for all.
We will operate with integrity,
respecting the environment and
people everywhere.
Promise of a
sustainable future
Our promise
We will showcase the environmental
benefits that our solutions deliver for
customers and embed sustainability
into our go-to-market strategy.
Net zero
carbon
Our promise
We aim to achieve
CarbonNeutral
®
Company
certification in two years,
and work towards net
zero carbon by 2035
through energy efficiency,
100 per cent renewable
electricity and
carbon offsets.
Operate
responsibly
Our promise
We will roll out ISO 14001
management system
practices globally and
work towards sending
zero waste to landfill. We
will embed circular
economy principles in
our product design and
reduce sustainability
impacts in our
supply chain.
Be accountable
and transparent
Our promise
We will expand our sustainability
governance structures and reporting, and
communicate regularly with staff on
FuturePositive targets and progress.
Our sustainability strategy is
focused on five key missions:
32 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
STRATEGIC REPORT
Progress in 2023
Key achievements
• Net zero carbon: We maintained CarbonNeutral
®
Company certification for Scope 1 and 2 and
some Scope 3 emissions.
• Diversity and inclusion: We expanded our early
careers programme.
• Environmental management system: We
extended our ISO 14001 certification to include our
headquarters in Crawley and our Paris office.
• Lab and estates strategy: We agreed a new lab
and estates strategy which will reduce our Scope
1 and 2 emissions by 62 per cent in the next three
years, by moving to high-efficiency offsite data
centre using renewable energy and downsizing
our offsite estate.
• Product energy performance: We conducted
detailed energy performance assessments of 15
of our key products, helping us better report our
product ‘in-use’ emissions.
• Supplier sustainability: We have collaborated
with key suppliers on sustainability and have
established supplier sustainability agreements.
Sustainability at Spirent
We are committed to embedding the highest standards
of environmental management, social practices and
governance into our operations and products and across
our supply chain.
We look to create long-term value for our shareholders by:
• protecting our reputation and ability to grow;
• focusing on winning 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
inclusive environment;
• helping us to attract and retain diverse 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 updated in 2022
using a risk-based approach. The review identified climate
change and carbon neutrality as priority issues, including
the role our solutions can play in helping our customers
reduce their impacts. Diversity, equity and inclusion, staff
health and wellbeing were identified as important, along
with responsible business practices, sustainable product
design, human and labour rights and robust sustainability
governance. Water use is an emerging issue, especially in
raw materials and manufacturing in supply chains. The
materiality assessment will be updated in 2024.
Policies
Spirent maintains a suite of responsible business policies
which commit the Group to compliance with high standards of
ethics and business integrity, environmental management,
and employee and community welfare.
Vision
Our solutions will help deliver
on the promise of a sustainable
future for all.
We will operate with integrity,
respecting the environment
and people everywhere.
During 2023 we submitted
our short-term science-based
target for approval to SBTi and
agreed a new lab and estates
strategy that will help reduce
our Scope 1 and 2 emissions
by 62 per cent in three years.
Angus Iveson
Company Secretary & General Counsel, Spirent
We manage our material sustainability impacts and
opportunities through our FuturePositive programme.
Our comprehensive programme not only ensures we
comply with legislation and stakeholder expectations but
has positive social and environmental impacts for customers
and for our own business.
The Board has designated the CEO as the Board member
responsible for ESG matters within the Group. We have
appointed Brite Green as ESG advisers and Challenge
Sustainability as assurance auditors for ESG data.
The Board is given updates on our sustainability
programme, FuturePositive, at least twice a year as part
of our formal Board calendar. The Audit Committee also
receives frequent updates on risk throughout the year,
including cybersecurity.
33Spirent Communications plc Annual Report 2023
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Sustainability continued
Sustainability at Spirent continued
Deliver a sustainable future
We aim to showcase the environmental benefits that our
solutions deliver for customers and embed sustainability into
our go-to-market strategy.
This year we worked with customers across the project
lifecycle to help them improve their sustainability performance.
From working with equipment manufacturers to test and
validate new, more efficient components for 5G, to our work
with lab and network operators to automate and streamline
operations, Spirent is helping to drive the transition to a
low-carbon economy.
You can read more in our Sustainability Report which is
available on our website at corporate.spirent.com.
Be net zero carbon
We set out to achieve CarbonNeutral
®
Company certification
by 2023, and work towards net zero carbon (ie all emission
sources in scope 1, 2 and 3, for which we are responsible) by
2035. In 2023 we developed a net zero carbon roadmap,
which will deliver our short term carbon reduction targets
through energy efficiency, office and lab consolidation, 100
per cent renewable electricity and promising and contractual
mechanisms. We will not require offsetting to achieve our
short term goals.
During 2023, we maintained our CarbonNeutral
®
Company
certification for our Scope 1 and 2 and some Scope 3 emissions
sources, which include electricity transmission and distribution,
waste from building operations, business travel and homeworking.
We also submitted our short-term science-based carbon
target to SBTi for approval and agreed a comprehensive
reduction strategy covering our labs, estates and across our
value chain.
We continued to source all our electricity from renewable
sources through on-site generation at our Paignton site and
the purchase of Energy Attribute Certificates (EACs).
When purchasing EACs and carbon credits, we have conducted
due diligence to give us comfort as to their quality and traceability.
We have only selected those from high-quality and reputable
projects which are independently verified to recognised
global standards. We have worked with Climate Impact
Partners to source carbon credits in line with our regional
emissions and to purchase national EACs based on our
energy usage in each country we operate in.
Energy use
Spirent is within scope of the Streamlined Energy and Carbon
Reporting (SECR) Regulations. Spirent’s total global energy
use decreased by 2.7 per cent in 2023 to 12,807MWh (2022
13,157MWh). This is due to a reduction in the size of our
estate and rationalisation work on lab equipment. Gas use
increased in the year by around 17.4 per cent to 402MWh
(2022 344MWh). 2022 had been very low and 2023 usage is
well below (2021 usage 548MWh). Total energy usage in the
UK during 2023 was 742MWh (2022 718MWh). UK energy use
comprises Gas: 83MWh, purchased electricity: 613MWh, onsite
generation from renewables: 46MWh. UK energy use is 6 per
cent of our global total and 3 per cent of total location-based
carbon emissions.
Greenhouse gas emissions
Spirent is committed to combating climate change and reporting
our progress. Our total Scope 1 and 2 (location-based) emissions
decreased by 1.8 per cent from 2022, however our emissions
per $ million of revenue increased 26 per cent due to the
reduction in revenue. We have reduced our total location-based
emissions by 38 per cent since our 2014 baseline. Carbon
emissions arising from our UK operations in 2023 were 142
tonnes CO
2
e (2022 134 tonnes CO
2
e). Emissions from UK
operations represent 3 per cent of the Group’s total worldwide.
Due to our purchasing 100 per cent renewable electricity,
our market-based emissions are significantly lower
than our location-based total: 58.5 tonnes CO
2
e in 2023
(2022 44.9 tonnes CO
2
e).
The total Scope 3 emissions for the year is around 28,426
tonnes CO
2
e with the largest component of our Scope 3
footprint coming from customer use of our products. A full
breakdown by source is set out in our Sustainability Report
which is available on our website at corporate.spirent.com.
The Group responded to the Carbon Disclosure Project in
2023, completing the Climate Change and Supply Chain
questionnaires. In 2023, we achieved a Climate Change rating
of B (Management) (2022 C). The average for our sector is B-.
2023
Tonnes
of CO
2
e
2022
Tonnes
of CO
2
e
Emissions from:
Combustion of fuel and operation
of facilities (Scope 1)
73.6 62.7
Electricity, heat, steam and
cooling purchased for own use
(Scope 2)
4,118.8 4,208.2
Total emissions (Scope 1 and 2) 4,192.4 4,270.9
Scope 3 28,426 44,415
Total emissions (Scope 1, 2 and 3) 32,618 48,686
Emissions intensity metrics:
Normalised per FTE employee 2.53 2.58
Normalised per square metre of
gross internal area of our facilities
0.121 0.113
Normalised per $ million
of revenues
8.84 7.03
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 the Group is responsible for and
which fall within our consolidated financial statements.
We do not have any responsibility for any emission sources that
are not included in our consolidated financial statements.
We report our emissions using the location-based methodology.
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 the most recent emission factors available: UK Government
GHG Conversion Factors for Company Reporting 2023 for the
UK, US EPA 2023 eGrid emissions factors for the applicable
individual states in the US, and the latest emissions factors for
all other countries were sourced from the International Energy
Agency’s 2023 data set.
34 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
A “limited” level of assurance for the energy use and
greenhouse gas emissions has been conducted, to meet
the requirements of the International Standard on Assurance
Engagements (ISAE) 3000 revised.
Performance against targets
We set a target to achieve CarbonNeutral
®
Company
certification for the Group by 2023, and have achieved this
target. The Group has set a target to reduce energy use by
25 per cent from 2019 levels by the end of 2025. In 2023 our
energy use was 2.7 lower than the previous year.
In 2023 we committed to a programme to move our labs to
high-efficiency site totally powered by renewable energy and
a lab and estate strategy to shrink our office footprint. To the
end of 2023 we have reduced energy use by 11.4 per cent from
from the 2019 baseline.
Energy Savings Opportunity Scheme (ESOS)
Spirent qualifies for ESOS. We completed an ESOS
compliance energy audit for Stage 2 and submitted the
relevant disclosure to the Environment Agency. We are
planning our participation in Stage 3 in 2024.
Task Force on Climate-related
Financial Disclosures (TCFD)
Climate change creates new risks and opportunities for
companies. In accordance with the requirements of Listing
Rule 9.8.6R, Spirent has provided disclosures against all 11
disclosure recommendations that span four key areas of
governance, strategy and climate change scenario analysis,
risk management, and metrics and targets. These disclosures
also meet the mandatory CFD requirements and form part of
the NFSI statement.
Governance and risk management
The Board considers sustainability issues (including climate
change) at least twice a year and oversees the consideration
of climate-related risks and opportunities under the TCFD
disclosure requirements, as well as monitoring progress
against our future positive sustainability strategy, including
climate related goals and targets.
A detailed review of how climate change may impact
our business in the future was completed in 2021 and the
assumptions and findings were reviewed in 2022, with only
minor changes being made. The significant climate-related
risks and opportunities were initially identified via an analysis
conducted by a sustainability consultant which considered
physical, regulatory and commercial factors across various
scenarios, all of which were examined through a senior manager
workshop, including Executive Directors, General managers
of our Business Units and Supply Chain, and Operational
Executives. These are reviewed on an ongoing basis by the
Executive Director-led ESG Management Committee, the
Audit Committee and its Risk Sub-Committee, as part of our
business risk and financial planning processes, with the CEO
having overall responsibility for sustainability matters. The
materiality of the potential climate impact is assessed using
the Group’s materiality criteria.
Over the course of 2023, a number of investors and customers
have engaged with us on the importance of climate change,
and we have incorporated their expectations into our
materiality, strategy and reporting planning.
Strategy
Spirent recognises the importance of climate change as an
environmental threat that the world faces, and as such we
have carefully considered the impact of such risk across our
operations. Climate risks are entirely integrated into our risk
management process.
We have identified the following risks across a variety of time
horizons. The risks consider the potential for increased exposure
to extreme weather events at a Group location or key supply
chain site. In addition, likely changes to the regulatory system
in which the Group operates have been considered.
For the purpose of evaluating climate change-related risks,
the Group has defined the following time horizons, which also
ensue that other timeframes, such as business planning and
viability are aligned:
Short term Medium term Long term
0–2 years 2–10 years 10+ years
In consideration to Tables A1.1 and A1.2 of the TCFD
Implementation Guidance 2021, we have considered all
climate related risk themes and their potential impact on
the Group, the most important of which are as follows:
Transitional risks
It is expected that there will likely be a large and radical change
in global markets, with a drive to shift quickly towards renewables
and away from fossil fuels, resulting in increased carbon taxes
across all regions in the short and medium term. This may
result in associated increased costs. Starting in the short term,
costs are likely to increase by an immaterial amount due to
higher investment requirements in low-carbon technology
and expected additional carbon-related levies and we also
expect additional administrative burden on the business, likely
increasing the costs for resource to deliver and report.
We have modelled the impact of carbon credits using a price
per tonne CO
2
e of up to £250 and the impact is not material.
Transitional risks are also unlikely to lead to any impairments
or write-offs. We expect to purchase carbon credits in the
short to medium term in line with our commitment to achieve
CarbonNeutral
®
Company certification, but expect energy
efficiency and renewable energy to reduce the requirement
for carbon credits as we progress towards net zero carbon in
2035. Over the course of 2023 and with the help of an external
adviser, we further developed and refined Spirent’s plan to
reach net zero. We have agreed a new lab and estates strategy
which will allow our labs over time to be moved to high-
efficiency site which is powered 100 per cent by renewable
energy. This move will allow us to further consolidate our labs
and decrease our overall estates footprint significantly. We
also aim to expand the size of our on-site solar installation
at Paignton. The proposed strategy will reduce Scope 1 and 2
emissions by 62 per cent in the next three years.
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Sustainability continued
Task Force on Climate-related
Financial Disclosures (TCFD) continued
Transitional risks continued
In addition, we have agreed a programme to reduce
our indirect carbon emissions. A key area is the use of our
products and we will draw on a range of approaches to help
reduce our impact in this area. These include our continued
migration from hardware to software test solutions and the
use of more efficient white-box hardware, improved energy
management in our bespoke hardware, supporting customers
with test automation and scheduling, and improved data
about how our products are used.
We will also work closely with our supply chain, and set
requirements to reduce and report carbon emissions through
supplier sustainability agreements.
Physical risks
Acute
Considering the potential of increasing intensity and frequency
of storms and concentrated rainfall events, and frequency of
wildfires, we have assessed that these risks would possibly
cause some disruption to operations. Wildfire risks are most
relevant to our operations in Calabasas, CA, and flooding in
our principal contract manufacturer, based in Thailand.
In the medium to long term, risks include Spirent site damage
to building and infrastructure, lost time and productivity and
any associated increased cost of insurance.
Additionally, a major supplier disruption event is a possible
key risk, causing an outage for a period of time which we
assess as causing possible delays to customer shipments
and the timing of revenue recognition.
Spirent has mitigation plans for each of these physical
risks identified, which have been developed as part of
longstanding business continuity and disaster recovery plans.
Spirent engineering centres are situated in various different
locations allowing a level of flexibility and agility should one
site become affected. We endeavour to dual source key
components wherever possible. Additionally, the Group has
appropriate business interruption insurance in place.
Chronic
Higher peak and average temperatures are likely to result
in increased energy demand and cooling capacity required
for lab and office environments. This could lead to increased
capital expenditure to expand or upgrade cooling equipment
across multiple Spirent sites. In addition, increased heatwaves
and droughts could have an impact on the health of more
vulnerable employees and their families possibly resulting in
higher staff absence levels.
It is possible that the rise in average temperatures may reduce
natural gas use for space heating. Additionally, there is already
a market opportunity for existing products, relating to the
provision of emerging energy-efficient Spirent products.
We have identified a number of areas of opportunity to reduce the
energy footprint of our solutions in order to support competitive
advantage as well as opportunities to reduce costs and improve
efficiencies, especially from estates consolidation and automation
within our labs. We also expect that a greater focus on climate
change will increase our resilience from climate related weather
events, both within our estate and across our supply chain, through
resilience planning, upgraded infrastructure as well as enhanced
preparedness and response procedures.
We also recognise our role in supporting clients to develop
new technology. We recognise that there may be opportunities
for new use cases for our existing test solutions to support
climate mitigation, in particular in the area of lab automation
and consolidation.
The Group is still exploring the opportunities that climate
change presents and therefore they have not been incorporated
into the modelling.
Scenario analysis
This was last conducted in 2021 and aligned to the IPCC
representation concentration pathway (RPC) models. We
have defined modelling assumptions for both scenarios for
each relevant risk category in order to assess the financial
and commercial impact to the Group. The impact of each of
the risks identified above has been assessed, quantified and
considered in two climate change-related scenarios:
• aggressive mitigation – emissions halved by 2050, average
temperature increase of 1.5°C; and
• strong mitigation – emissions stabilised at half of today’s
emissions by 2080, average temperature increase of 2.4°C.
These scenarios were selected as they would include the
most aggressive policy responses (which are likely to have the
greatest impact on our business in the next three to five years)
and because we believe that aiming to limit climate change to
1.5°C still remains the right policy objective.
In terms of modelling horizon, we have considered the impacts
over the short, medium and long term, and with regard to
the occurrence of the risks identified and also in comparing
with the horizons adopted by peers, the most appropriate
time horizon to model is 15 years, which covers short to
long term). The most recent strategic three-year plans have
been extrapolated to form the base case long-term plans
from which to sensitise, using growth rates and assumptions
consistent with other forward-looking financial statement
items (goodwill impairment, viability) and assumptions.
Given the modelling horizon, there is not likely to be a significant
difference between the two scenarios in relation to our exposure
to physical risks – a change of 1.5°C is expected by 2030
under all scenarios, with the same likelihood and distribution
of extreme weather events and chronic changes in weather
patterns and temperatures. The major differences appear
between 2040 and 2080, which falls outside of the scope
of our long-term plans and provides sufficient time for the
business to adapt if required. In terms of transitional risk,
we do expect a difference between the two scenarios, most
notably in the size of increases to energy costs and the size of
anticipated carbon tariffs across all regions.
Based on the modelling we have performed and given
the significant financial headroom Spirent has, the relative
magnitude of the impact the risks present, the mitigation
plans, and the insurance cover in place, it is not anticipated
that the climate-related risks identified will have a material
impact in the short term and being less than 5 per cent
of revenue. The longer-term impact on the organisation’s
strategy and plans is currently being further assessed
but initial analysis does not suggest a significant financial
impact. Therefore, Spirent is considered resilient to climate
change-related scenarios.
36 Spirent Communications plc Annual Report 2023
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Opportunities
As part of the scenario process, a number of opportunities
have been identified:
• reduction in costs and efficiency, especially in relation to
office estate and automation in labs;
• improved resilience from physical and transitionary risks;
• additional testing opportunities to support the development
of new technologies to mitigate and adapt to a changing
climate; and
• expanding demand for test solutions that help reduce
customer emissions, including lab automation and efficiency.
Metrics and targets
We monitor carbon emissions sources that fall within Scopes 1,
2 and 3 and report our carbon emissions annually within the
Annual Report and Sustainability Report (see page 34). We
have considered cross industry climate related metrics and
do not consider these to be material. The Executive Directors’
annual bonus targets also include relevant climate related
metrics and targets.
We have set clear targets to source electricity from 100 per
cent renewable sources, and work towards net zero carbon
by 2035. We have targeted a 25 per cent reduction in our
energy usage by 2025.
In 2023 we committed to the Science Based Targets initiative
(SBTi) which commits us to a medium term carbon emissions
reduction targets of 39 per cent by 2030. We will continue to
evaluate whether additional metrics and targets are required
as part of our existing business strategy and risk management
processes, in particular in relation to supply chain risks, as we
further refine our longer-term strategy and plans.
Promote diversity and invest in people
We aim to take action on diversity. We will attract and develop
talent and skills, and support long-term sustainable growth.
Despite the initiatives and progress detailed below, due to
workforce reductions and limited hiring across the Group,
our diversity metrics remained flat compared to 2022.
Diversity in talent acquisition
In 2023, we ran programmes to support more diverse hiring,
provide family-friendly benefits, and support early career
development and leadership. We continued our partnerships
with Historically Black Colleges and Universities (HBCUs)
Morgan State University and Prairie View A&M University,
and consulted with an internal focus group of African American
employees to understand how we can recruit Black candidates
more effectively. With the help of this focus group, we created
a recruitment video which we shared with students we met on
campus and our HBCU partners.
Early career development
Spirent’s early career programme offers a structured
pathway into a career in technology through internships,
apprenticeships and university sponsorships. Our early
career pathway incorporates resources, tools and training
for managers and early career staff to help young, talented
people start a career in technology.
In 2023, we supported 26 interns across our North American
and APAC regions, who worked in our Engineering, Sales,
Legal, IT and HR divisions. Our UK Positioning Technologies
business empowered Engineering, IT and HR apprentices
to develop the skills and knowledge they need for a reward
career in their chosen fields.
We currently have 25 Aspire Network members who work
in teams across our business, and our Sales Development
Representatives (SDR) scheme helped eight employees to
jump-start their career in technical sales through training,
on the job learning and mentorship.
We collaborated with 40 research partners in universities
across the world through our Academia Programme, and
supported undergrad, post-grad and post-doctorate students
in their research.
Equality and diversity
The Group employs a diverse workforce and prides itself on
providing equal opportunities for all. High value is placed on
rewarding our people for their commitment, their integrity
and their service. Our commitment to a fair and inclusive
workplace is governed by our Business Ethics and HR Policies
which ensure that no one 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 age.
More detail can be found in our Sustainability Report
available on our website at corporate.spirent.com.
At 31 December 2023, our gender diversity was:
Level of organisation Female Male Other or no gender reported Total
Board 3 38% 5 62% – – 8
Executive management
1
4 40% 6 60% – – 10
Senior management
2
6 9% 64 91% – – 70
Total employees 352 23% 1,174 77% – – 1,526
Notes
1. The data for executive management includes the CFO and direct reports to the CEO only, excluding executive assistants.
2. The data for senior management includes all other Vice Presidents (including Regional Sales VPs and Client Partner Executives) and Senior Directors.
The Board is committed to increasing the representation of women on boards and in other leadership roles. This work will
continue with a focus on developing diversity of all types in executive and senior management roles and throughout the
talent pipeline.
37Spirent Communications plc Annual Report 2023
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Sustainability continued
Promote diversity and invest
in people continued
Gender pay gap
Having fewer than 250 employees in the UK, Spirent is not
currently required to comply with the Gender Pay Gap
Reporting Regulations introduced in 2017. However, data
for the 5 April 2023 snapshot date has been collected on a
voluntary basis and is set out below.
UK gender pay gap
2023
%
2022
%
Median hourly pay difference
between male and female
employees 18.1 22.3
Mean hourly pay difference
between male and female
employees 18.8 16.4
UK bonus gap
2023
%
2022
%
Median bonus difference between
male and female employees 28.5 36.3
Mean bonus difference between
male and female employees (35.0) (45.0)
UK quartile split
2023
%
2022
%
Male employees receiving a bonus 79.8 95.5
Female employees receiving
a bonus 74.5 86.7
The snapshot to the 5 April 2023 shows an increase in the
gender pay gap. This reflects the full year effect of highly
compensated male hires made in late 2021 and early 2022.
As the results are sensitive to very small movements in
the employee population, but for a very small number of
individuals hired, we would have seen the gap narrow.
Business ethics and human rights
Spirent’s values and principles are set out in the Group’s
Business Ethics Policy. These principles apply to all dealings
with our customers, suppliers and other stakeholders, and
are considered in pre-contract due diligence and monitored
through ongoing supplier audits.
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 its 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 protection, in
all jurisdictions in which we operate.
Regular anti-bribery training is required to be taken by
certain employees.
Health and safety
The Board has designated the CFO as the Board member
responsible for health and safety within the Group and
procedures are in place for incidents to be reported through
the Audit Committee to the Board as necessary.
The health and safety risk profile for the Group remained
low during 2023, with no reported accidents (2022 nil). There
were no reportable accidents under the RIDDOR Regulations
or required hospitalisations during the year.
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.
STEM initiatives and community impact projects
Spirent actively encourages its employees to become
STEM (science, technology, engineering and mathematics)
Ambassadors around the globe.
We provide all our employees with volunteering time off to
make a positive contribution to the communities in which
they work.
Through financial donations and volunteering, Spirent has
continued to support community projects worldwide.
We are committed to
empowering our employees
to progress personally and
professionally by investing in
career development, diversity
and inclusion initiatives,
and health and wellness
programmes.
Ann Menard
Global Head of Human Resources, Spirent
38 Spirent Communications plc Annual Report 2023
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Operate responsibly
We operate with integrity. We are rolling out our ISO 14001
management system practices globally and are working
towards zero waste to landfill. We are also embedding
circular economy principles in our product design and
reducing the sustainability impacts of our supply chain.
In 2023, we expanded our ISO 14001 certification, engaged
with suppliers on sustainability and continued our supplier
audit programme.
ISO 14001
We set a target to expand the coverage of formal environmental
management systems and achieve ISO 14001 certification at
one major engineering site by 2022 and all major sites by the
end of 2025.
In 2023 we completed the implementation of our environmental
management system at our headquarters in Crawley and our
Paris site.
Circular economy training
The design of our products significantly influences the
environmental impact of our products across the whole
lifecycle. We have seen significant improvements since
implementing sustainability metrics in our product design
process and to support further gains in this area, we set an
objective to roll out training on circular economy for our engineers.
In 2022 we developed a bespoke circular economy training
course, which incorporates both an introduction to key aspects
of theory and how it applies to Spirent’s product and design
process specifically. We commenced the roll-out of our circular
economy training, with 20 engineers in the UK. We will expand
this to engineers globally in 2024.
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.
Priority suppliers are audited by Spirent’s procurement
team: 30 supplier audits were conducted in 2023, meeting the
target we set. No material issues were identified. Three minor
non-conformances were identified. More than 84 per cent
of our hardware supply chain spend is from companies
audited by us, our contract manufacturers, or through the
RBA VAP audit programme. We have expanded our supplier
ESG partnerships, working closely with CALNEX (a strategic
supplier) to conduct joint supplier audits and to improve
packaging design; reducing material used and removing
non-recyclable materials. We have also started working with
smaller suppliers to provide support to improve their ESG
management.
Modern slavery and human trafficking
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 we 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
corporate.spirent.com.
Electronic waste and use of hazardous materials
Spirent’s business units comply with the EU’s Waste
Electrical and Electronic Equipment Regulations 2013, the
EU’s Restriction of Hazardous Substances Directive (RoHS),
the Batteries Directive and the California Electronic Waste
Recycling Programme.
Conflict minerals
The Group is not directly required to comply with or report
under Section 1502 of the Dodd-Frank Act or 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 is subject to
the EU Directive on Conflict Minerals; we are monitoring the
development of the legislation and are confident our existing
practices meet the specifications required.
Information security
Spirent takes data security and privacy seriously. We continually
review the security of our data systems and procedures in
order to comply with all legislation and so we can react to
areas of heightened risk promptly and effectively.
We operate robust information security procedures and
our Applications & Security business based in Plano and
San Jose operates an ISO 27001 certified information
management system.
Our procedures 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.
Periodic information security risk assessments are performed,
and training is provided to staff with the aim of preventing
information security breaches. We have a whistleblowing
procedure in place for staff to report information security or
any other concerns.
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 electronic storage devices
disposed of at end of life.
Be accountable and transparent
We aim to communicate regularly with staff on our
FuturePositive strategy and the progress made.
The Board and Audit Committee oversaw our climate change
and sustainability programme.
39Spirent Communications plc Annual Report 2023
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Operating review
Revenue
$199.1m
(2022 $264.5m)
Adjusted operating profit
1
$16.9m
(2022 $51.0m)
Lifecycle Service
Assurance
Our Lifecycle Service Assurance
portfolio boasts the industry’s
most comprehensive set of
end-to-end solutions aimed
at accelerating customers’
initiatives as they develop,
deploy and optimise new
devices, technologies and
services. From lab
environment transformations
to pre-production and live
networks, we dramatically
reduce the time, costs and
risks associated with bringing
new technologies such as 5G
standalone (SA) and Wi-Fi 7
to market.
2023 performance highlights
• Despite 5G SA delays towards commercial
deployments during 2023, our industry-leading
Landslide 5G Core test solution which is pivotal for
5G SA, was selected by over 30 operators.
• We expanded our live assurance offering with
the launch of our Mobile Test Platform providing
unique end-to-end visibility critical for our
customers to monetise 5G and private networks.
Note
1. Before other adjusting items of $6.1 million charged in 2023 (2022 $0.9 million). See note 3.
40 Spirent Communications plc Annual Report 2023
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Monetising 5G
Unlocking 5G standalone’s value
Challenge:
Having made huge investments in 5G spectrum, a
North American tier-one network operator is naturally
eager to take advantage of the new opportunities to
monetise that investment. Key to this is providing ‘true
5G’, anchored to the 5G standalone core network,
which requires rigorous testing to ensure its readiness
to unlock the potential for new 5G revenues.
Solution:
Already a close partner of Spirent in multiple areas
of its business, this network operator made significant
further investment in the relationship to expand its
Spirent Fit4Launch programmes and evolve its new 5G
offerings. Combining lab and field testing in multiple
markets, the programme includes live network testing
of 5G devices, and new capabilities such as 5G fixed
wireless access and 5G voice over new radio.
Impact:
The testing, validation and benchmarking programmes
provide confidence in newly launched services, help
improve the quality of existing offerings, and allow
the operator to use more of its valuable spectrum
on differentiated new revenue-generating, business
oriented services.
Strategy
Our Lifecycle Service Assurance strategy is: 1) deliver a leading
active assurance platform for 5G and next-generation service
delivery and user experience assurance; 2) help service
providers and enterprises automate critical lab environments
and test activities, as the industry moves towards an always-on
continuous test environment; 3) leverage our product
offerings, together with our deep test and assurance expertise,
to deliver a new portfolio of outcome-driven service offerings.
Three key attributes set Spirent apart in the Lifecycle Service
Assurance market:
Automation
Automation continues to become a growing priority across
both the telecom eco-system and enterprises, with the
objective of improving agility and operational efficiency.
Legacy labs, testing and service assurance activities have
been mostly siloed, manual, reactive and time consuming.
As continuous integration and continuous delivery (CI/CD)
principles become mainstream, automated testing and
assurance are becoming essential to support the CI/CD
model across all layers. Automation enables use cases such
as lab transformation, new service activation, continuous
monitoring and automated troubleshooting to be seamlessly
integrated with network management systems, with a goal
of establishing fully autonomous operations. Spirent is at the
forefront of this journey.
Coverage
Spirent is the only vendor to offer both lab and live solutions
as both a contiguous and continuous test offering. With the
broadest coverage in the industry, from the user device
into the radio access network, across the cloud and mobile
backhaul, and into the mobile core, our solutions provide
the broadest end-to-end visibility in the industry. The breadth
and depth of our expertise and our portfolio enables
us to quickly address net-new opportunities including
direct-to-device communications from non-terrestrial
networks and next-generation access networks including
Open RAN (O-RAN).
Analytics
Spirent continues to advance our machine learning (ML)
and artificial intelligence (AI) based analysis providing
actionable insights that allow our customers to detect,
isolate and eliminate potential service interruptions or
degradations before subscribers are impacted. This in turn
allows rapid reduction in mean-time to-repair by alleviating
the unnecessary escalations typically found in traditional
operational support models. In 2023 we expanded our
analytics coverage through a new over-the-air (OTA) mobile
test platform, giving service providers unique insights into
what their customers experience, including end-to-end
visibility of service and network performance.
41Spirent Communications plc Annual Report 2023
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What we test and assure
Our Lifecycle Service Assurance offerings support the full
lifecycle for any new technology roll-out. From pre-production
test and validation to post-production troubleshooting, to
transforming labs and processes into agile continuous test
environments through automation, we help our customers
maximise the monetisation of any new technology and reduce
costs. The following key areas were instrumental in growing
pipeline and sales in 2023, and offer continued expansion
opportunities into 2024 and beyond:
5G core
For both standalone and non-standalone flavours of
5G, Spirent provides continuous testing capability across
the entire lifecycle for any initiative. Beginning with the
network equipment manufacturer, through service provider
deployments and enterprise service consumption, our 5G
offering bridges the gaps traditionally found between the
develop, deploy and operate phases of a new technology.
Focus areas include 3GPP network function testing, interoperability,
performance and security testing. In 2023 we enhanced our
5G core solution with support for 3GPP R17 capabilities for
new use cases around public safety, non-terrestrial networks
and private networks.
Operating review continued
Next-generation access technologies
(Open RAN and Wi-Fi)
Spirent is industry’s first vendor to deliver a single, fully
integrated, and automated Open RAN (O-RAN) offering
supporting full wrap-around testing of the O-RAN network
functions and end-to-end testing. 2023 highlighted
the continuing progress of O-RAN in the market and
demonstrated our strategy in action as we supported market
leaders NTT-Docomo test their multi-vendor eco-system,
established partnerships with National Instruments and
Anritsu, and played a significant role in the O-RAN Alliance
Plugfest programmes.
Wi-Fi: Following the acquisition of octoScope in 2021, Spirent
is the market leader in Wi-Fi test and certification. With the
adoption of Wi-Fi 6E in full swing and Wi-Fi 7 scheduled
for release in 2024, Spirent added early comprehensive
support for Wi-Fi 7 testing during 2023. In addition, the
recent harmonisation of radio spectrum represents a unique
opportunity for Spirent as the industry forges a pathway
towards co-existence and convergence of Wi-Fi and 5G.
Lifecycle Service Assurance continued
5G active assurance
Tier-two turns to Spirent to
tackle 5G OTA testing
Challenge:
To accelerate its 5G standalone (SA) evolution, a
leading tier-two operator in North America wanted
to extend its proactive service assurance philosophy
into the live network with OTA testing of its 5G service.
Having invested heavily in a new 5G mid-band
spectrum, it wanted to assure the balance of speed,
capacity, coverage and penetration that make
mid-band so appealing.
Solution:
Already a Spirent active assurance customer for its 5G
core, the operator chose Spirent’s VisionWorks Mobility
Service Assurance (MSA) to deliver an expansion of its
automation and proactive health checks approach.
Adding MSA’s scalable test tools and single interface
provides the operator with comprehensive, proactive
OTA testing capabilities around the clock, as well
as the capacity to segment its network between the
radio access network and the network core to better
isolate issues.
Impact:
Using VisionWorks OTA, the operator is now able to run
a fully automated suite of scheduled tests 24x7 at a
variety of cell locations to assure the performance of its
growing 5G network.
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Telecom and enterprise lab
transformation (automation)
Telecom providers and enterprises are prioritising
digitisation programmes aimed at improving efficiency
and reducing costs. The automation of lab environments,
testing, lifecycle management activities and network operations
is at the heart of these programmes. Spirent’s lab and test
automation solutions enable customers to consolidate
and transform physical labs into web accessible resources
for remote, automated testing. In 2023 Spirent acquired
NetScout’s
®
Layer-1 switch product lines to make lab
automation even easier and showcased a large deal
with a leading global financial services organisation.
Performance
Lifecycle Service Assurance revenue was $199.1 million and
was impacted by current macroeconomic challenges, which
saw our telecom customers increasingly delay spend as the
year progressed as high interest rates and inflation affected
their budgets. As a result, adjusted operating profit for the
segment was $16.9 million (2022 $51.0 million).
The impact was primarily felt on our mobility (5G) test
portfolio as service providers delayed 5G rollouts and
standalone (SA) upgrades.
Wi-Fi 6 and 6E infrastructure continues to be tested against
evolving standards. In addition, Wi-Fi 7, the latest generation,
is now transitioning from equipment manufacturers’ labs
towards commercial availability, creating substantial
opportunities and broader demand for testing.
We also saw progress around our lab and test automation
portfolio as we continued to expand capabilities, allowing
us to move into adjacent enterprise markets with a
substantial order from a financial services organisation
demonstrating the broader applicability and market
opportunity of our portfolio.
Accomplishments
Spirent’s industry leading automated modular test platform
for Wi-Fi devices, octoBox
®
, added comprehensive support
for testing the demanding new requirements of Wi-Fi 7.
We completed the launch of our comprehensive O-RAN
testing portfolio including unique subscription-based
automation test libraries and the industry’s first real-world
application testing.
Our live assurance portfolio continued to expand beyond
the core network out to the handset with the launch of our
Mobile Test Platform providing unique end-to-end visibility
critical for our customers to monetise 5G and guarantee
private network service level agreements.
We advanced our strategy towards lab and lifecycle test
automation, with the acquisition of NetScout’s
®
Test Lab
Automation business, along with advancements in our
market-leading Velocity automation portfolio, allowing
greater diversification outside of telecoms.
While 2023 was a challenging
year in the telecom market we are
poised well for the acceleration
to true 5G standalone while our
diversification strategy towards
enterprise automation, Open RAN
and Wi-Fi provides us enduring
new opportunities, even in the face
of macroeconomic uncertainty.
Doug Roberts
General Manager, Lifecycle Service Assurance, Spirent
43Spirent Communications plc Annual Report 2023
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Operating review continued
Revenue
$275.2m
(2022 $343.0m)
Adjusted operating profit
1
$39.0m
(2022 $86.8m)
Networks & Security
Networks & Security is a world
leader in high-speed Ethernet/
internet protocol (IP) performance
testing and automotive Ethernet,
and develops test methodologies,
tools and services for virtualised
networks, data centre connectivity
fabrics and the cloud. We provide
consulting services, test tools,
methodologies and proactive
security validation solutions.
We are leveraging our world
leadership in global navigation
satellite system (GNSS) simulation
solutions and services as we
expand further into the broader
positioning, navigation and
timing (PNT) market including
low earth orbit (LEO) satellites
and autonomous vehicles.
2023 performance highlights
• We continued to demonstrate our leadership in
800G which will be critical for the evolution of
data centres to underpin AI growth by supporting
H3C to complete the industry’s first large-scale
800G test, and won the industry’s prestigious
Interop Best of Show Award 2023 Special Prize.
• Our Positioning business delivered strong order
growth benefiting from government spending
and new opportunities in the emerging LEO
satellite market.
• We continued to expand our Positioning business
into enterprise and automotive verticals, including
a key managed services win with a leading
provider of mining communications equipment.
Note
1. Before other adjusting items of $7.3. million charged in 2023 (2022 $2.1 million). See note 3.
44 Spirent Communications plc Annual Report 2023
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IP network validation
Testing the next generation of a nation’s communication networks
Challenge:
With the advent of 5G, Indonesia’s Ministry of
Communication and Information Technology decided to
create its own national telecommunication equipment
testing centre (BBPPT) to help ensure that next-generation
telecoms equipment and devices perform at the highest
levels. A vital element for the labs is a state-of-the-art IP
networking test system, essential for ensuring the quality
and performance of ICT equipment.
Solution:
Having identified Spirent as the leader in the field
of network testing and backed by the strong IP
expertise of Spirent’s local partner in the region, the
BBPPT selected Spirent TestCenter as a foundational
component of the new facility. With its unrivalled end-
to-end testing capabilities, Spirent TestCenter is used
by leading service providers and network equipment
manufacturers across the world, and will help BBPPT
ensure equipment and device performance.
Impact:
With Spirent TestCenter, BBPPT can provide advanced
testing features that include high scalability,
automation, and real-time reporting for complex
network systems that will benefit Indonesia and its
neighbouring countries.
Strategy
We are maintaining and expanding our market leadership
in high-speed Ethernet test, with a focus on diversifying our
customer base into data centres and enterprises, driving
growth through involvement in all stages of next-generation
network and cloud infrastructure development, from verification of
pre-silicon and silicon to high-density, high-capacity systems.
We are working to drive industry standards that enable
rapid adoption of technologies such as generative artificial
intelligence (AI), 5G, Open RAN (O-RAN), cloud, secure access
service edge (SASE)/zero trust and automotive Ethernet,
expanding our test domain expertise and delivering more
managed services.
We are addressing additional enterprise and government
demands through partnerships with network equipment
manufacturers, cloud providers and service providers on
performance and security validation essential for their
development and deployment, with solutions and services
addressing cloud-native, 5G/edge, AI data centres testing
and SASE environments.
We are building on our global PNT test leadership, extending
our reach and influence as the trusted partner of researchers,
developers and integrators in the field of PNT technology. Our
broad portfolio of solutions and managed services is increasingly
multi-sensor oriented, assuring that our customers in growth
segments such as LEO satellites, chipsets and automotive
technologies are able to achieve their PNT ambitions.
We are leveraging our subject expertise gained from
design and verification of GNSS technologies in the lab into
geospatial prediction services to help ensure safe and reliable
navigation of vehicles, aircraft including drones and devices.
What we test and assure
High-speed Ethernet/IP, cloud and virtualisation
Our high-speed Ethernet/IP, cloud and virtualisation
test solutions enable network vendors, carriers and cloud
service providers to test the performance and security of
next-generation networks, applications and data centre
connectivity fabrics by simulating real-world conditions in
the lab and on the network. Our portfolio addresses physical
data centres and virtualised networks, applications and
services. Our solutions enable architects, developers and test
engineers to create and transmit complex and high-capacity
traffic and safely assess the performance, scalability and
resilience of their products. Our customers benefit from our
wide network of industry partnerships and active contributor
role in standards development, enabling them to leverage the
latest technology and best practices.
Applications performance and cybersecurity
Spirent is a single source for security assurance of all network
infrastructure elements. We provide comprehensive security
and performance validation capabilities covering all elements
of any production environment: physical and virtual security
domains, distributed edge, 5G and internet of things use
cases, whether legacy or virtualised and cloud. Our flexible
solutions and services offerings provide hyper-realistic
assessment based on real-world application, service and
threat traffic emulation.
45Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
What we test and assure continued
Positioning, navigation and timing
We are market leaders in addressing the PNT research and
development, verification and integration testing needs
of customers from national government, military and
space contractors to commercial PNT chipset and device
developers, automotive, precision agriculture and survey
players. Our market-leading radio frequency simulation
environments and record/playback systems offer a practical
and robust framework to audit receiver, system or application
resilience in the face of increasing threats to GNSS-based
PNT. We are leaders in the testing of hybrid positioning and
sensor fusion under real-world conditions for connected
and autonomous vehicle development. Our latest innovation
is a patented service that provides predictions of GNSS
performance to assure safe and reliable navigation in
live deployment scenarios for the aviation (e.g. drones),
automotive and other industries.
Operating review continued
Performance
Networks & Security revenue was $275.2 million as we
managed a challenging year in the telecommunications
sector impacted by macroeconomic uncertainty. We continue
to focus on new growth markets including data centre networking
needs to support AI and earlier stages of the R&D lifecycle
around pre-silicon testing. As a result, adjusted operating
profit was $39.0 million (2022 $86.8 million).
We expected a recovery in 2023 in China for high-speed
Ethernet demand, following an extended period of COVID-19
affecting our customers’ ability to enter their lab facilities,
progress their programmes and procure our solutions.
However, the Chinese economy struggled in 2023 and
expenditure plans were stalled.
Our Positioning business, which operates within diversified
end markets, saw good order intake growth in 2023, building
a robust orderbook as we enter 2024 due to continued
solid spending in government and commercial markets,
reinforcing our position as market leader. We also saw
continued momentum with our business expansion into larger
addressable markets in LEO, aerospace and automotive.
Networks & Security continued
High-speed Ethernet
Proving the 800G route to the high-speed AI future
Challenge:
AI-generated content and the large-scale AI workloads
that come with it are driving demand for computing
power. With 800G expected to become the standard
for data exchange, leading digital infrastructure
equipment developer HC3 was eager to demonstrate
the credentials of its new generation of high-
performance 800G Ethernet switches for data centres.
Solution:
Seeking the support of Spirent, HC3 jointly developed
a test programme utilising Spirent’s recently launched
high-density TestCenter 800G test platform and set out
to complete the industry’s first large-scale high-density
800G Ethernet test, with a staggering 64 800G Ethernet
ports. The test results showed a total switching capacity
of up to 51.2 Terabits per second, with all 64 Ethernet
ports operating as expected at 800G.
Impact:
Results from the test validated both the high
performance and reliability of H3C’s new 800G
switch series, paving the way for the company to help
customers achieve major improvements in the scale
and computing power of their computing clusters in
response to the AI challenge.
46 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Accomplishments
High-speed Ethernet/IP, cloud and virtualisation
• Our leadership in 800G Ethernet was highlighted with
the industry’s first large-scale 800G test with H3C and
our solution was honoured with the prestigious Interop
Tokyo 2023 Best of Show Award Special Prize, chosen
by a panel of leading industry analysts and experts.
As demand in next-generation cloud and data centre
networking testing for AI gathering pace in 2024, we
anticipate growth for our 400G and 800G test solutions.
• Our cloud resiliency and impairment solutions continued
to gain momentum with mobile operators as they began
to upgrade to 5G SA with the new cloud native core.
• We partnered with Anritsu to bring together our extensive
portfolio of automotive vehicle-to-everything test
solutions in a single unified framework.
• We joined the Ultra Ethernet Consortium alongside
industry leaders AMD, Arista, Broadcom, Cisco, HPE, Intel,
Meta, Microsoft and Oracle, to advance new capabilities
for Ethernet to meet the growing network demands of AI
and high-performance computing at scale.
Applications performance and cybersecurity
• We released a powerful new zero trust network access
testing capability as organisations worldwide evolve to
give their hybrid workforces secure, flexible connectivity
from anywhere, beyond the limitations of legacy virtual
private networks.
• Demand for our CF400 ultra-high performance network
security and application test platform help drive revenue
growth, as well as a strong opportunity pipeline for 2024.
Positioning, navigation and timing
• We saw continued momentum with government and
military segments, growth in space and commercial
sectors especially in the rest of APAC (outside of China)
and EMEA, and continued growth in automotive testing,
especially in China.
• We launched the industry-first satellite constellation
simulator to support the XONA commercial PNT service
built on a backbone of LEO small satellites.
• Our Positioning business was honoured with the highest
accolade, platinum award, as the UK Employer of the
year (50–249 people) at the 2023 Investors in People
Award. Investors in People is the international standard
for people management, defining what it takes to lead,
support and manage people effectively to achieve
sustainable results.
I am delighted by our demonstrated
leadership in 800G high-speed
Ethernet which positions us well
for the rapidly-growing data
centre market to support both the
traditional (front-end) and growing
AI (back-end) networks, while
market demand for our ultra-high
performance network security and
application test platform grows.
Aniket Khosla
Vice President - Product Management, Cloud & IP, Spirent
47Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Group overview
The geopolitical and inflationary pressures at the end of
2022 continued into 2023 resulting in rising costs and a
slowdown in economic growth. This inevitably impacted
Spirent’s business environment, specifically within the
telecommunications market, particularly evidenced
by increasingly delayed expenditure and technology
investments by our customers as they responded to
higher interest rates. We did however see several areas of
important progress within our non-telecommunications
markets such as Positioning, and in November 2023 secured
an important strategic automation and test solution for a
brand new customer segment in Financial Services.
Against this challenging economic backdrop, revenue
was $474.3 million, compared to $607.5 million for
2022. However, the orderbook closed at $293.7 million
(2022 $288.1 million), providing a solid base as we enter
the new financial year.
Effective supply chain management and robust customer
pricing meant gross margin was maintained at 72 per cent.
To optimise our cost base whilst protecting our technology
leadership, a number of key initiatives have been completed
or are underway:
• Organisation restructure – from 1 January we are merging
our High-Speed Ethernet business unit within our Lifecycle
Service Assurance segment to better support how we
sell to our customers increasing numbers of solutions,
including more products from across our portfolio.
• We reduced our headcount by circa 8 per cent through
the year, including as part of the organisation restructure
mentioned above. We have taken a very targeted
approach to ensure all key R&D product road maps
remain intact.
• We are reducing our overall office footprint, reflecting a
more flexible office working environment post COVID-19.
The initiatives, with a restructuring cost of $13.5 million
have driven cost savings of $14 million during 2023 and are
expected to deliver further savings of circa $17 million for
2024 which will more than mitigate cost inflation. The overall
payback of the change initiatives is expected to be less than
two years.
The revenue reduction in the year significantly impacted
adjusted operating profit which reduced to $45.2 million
from $129.5 million in 2022. Reported operating profit
decreased from $112.7 million in 2022 to $18.4 million in 2023.
Other adjusting items were $14.2 million (2022 $3.6 million)
which comprise restructuring and strategic evaluation costs
of $13.5 million and acquisition costs of $0.7 million. The
majority of the strategic costs relate to people exits, with
the remainder being rationalisation and downsizing or
exiting office space. Acquisition costs relate to the purchase
of the Test Lab Automation business of NetScout
®
Systems,
Inc., a small carve-out based in New Jersey, USA. Whilst
the financial impact of this technology business is relatively
small, it brings important intellectual property which will
enable us to expand our test lab automation capabilities.
Adjusting items are further detailed on page 51.
Financial review
Revenue
$474.3m
(2022 $607.5m)
Gross margin
72.4%
(2022 72.0%)
Closing cash
$108.1m
(2022 $209.6m)
Proactive
response to
current
challenging
environment
Paula Bell
Chief Financial & Operations Officer
48 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
The effective tax rate reduced from 12.9 per cent to 10.8 per cent mainly driven by the mix of profit generation by region.
Adjusted basic earnings per share decreased by 60.0 per cent, down from 18.86 cents last year to 7.55 cents for 2023.
On 3 April 2023, the Company commenced a Share Buyback Programme of $71.6 million (£56.0 million) which was successfully
completed on 24 August 2023. These 33 million shares, representing circa 5.4 per cent of the Company’s issued share capital,
have been cancelled.
Cash closed at $108.1 million (2022 $209.6 million), following payment of the ordinary dividend of $46.5 million and repurchase of
shares through the Share Buyback Programme of $71.6 million.
The following table shows summary financial performance for the Group:
$ million 2023 2022 Change (%)
Orderbook
1
293.7 288.1 1.9
Order intake
2
477.0 625.7 (23.8)
Revenue 474.3 607.5 (21.9)
Gross profit 343.6 437.1 (21.4)
Gross margin (%) 72.4 72.0 0.4pp
Adjusted operating costs
3
298.4 307.6 (3.0)
Adjusted operating profit
3
45.2 129.5 (65.1)
Reported operating profit 18.4 112.7 (83.7)
Reported profit before tax 22.9 114.6 (80.0)
Effective tax rate
4
(%) 10.8 12.9 (2.1pp)
Adjusted basic earnings per share
5
(cents) 7.55 18.86 (60.0)
Reported basic earnings per share (cents) 4.30 16.46 (73.9)
Closing cash 108.1 209.6 (48.4)
Notes
1. Orderbook is an alternative performance measure as defined in the appendix on page 196.
2. Order intake represents commitments from customers to purchase goods and/or services that will ultimately result in recognised revenue.
3. Before acquired intangible asset amortisation, share-based payment and other adjusting items amounting to $26.8 million in total (2022 $16.8 million).
4. Effective tax rate is the adjusted tax charge, before tax on adjusting items, expressed as a percentage of adjusted profit before tax.
5. Adjusted basic earnings per share is based on adjusted earnings as set out in note 11 of Notes to the full year consolidated financial statements.
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 full
year consolidated financial statements. The reported GAAP measures give the complete measure of financial performance.
49Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Financial review continued
Revenue
$ million 2023 % of total 2022 % of total
Revenue by segment
Lifecycle Service Assurance 199.1 42.0 264.5 43.5
Networks & Security 275.2 58.0 343.0 56.5
474.3 100.0 607.5 100.0
Revenue by geography
Americas 268.1 56.5 336.3 55.3
Asia Pacific 153.9 32.5 205.8 33.9
Europe, Middle East and Africa 52.3 11.0 65.4 10.8
474.3 100.0 607.5 100.0
Overall Group revenue declined by 22 per cent, with Lifecycle Service Assurance and Networks & Security down 25 per cent
and 20 per cent respectively, compared to the prior year.
Revenue at Lifecycle Service Assurance was adversely impacted in 2023 due to customer spending delays. Nonetheless there
were several contract wins within the developing technology of Open RAN including closing a significant deal with a world
leading financial services organisation. This represents a new end market for the Group.
Total Group maintenance and support services revenue remained consistent at $184.0 million (2022 $185.4 million).
Geographical revenue as a percentage of total revenue in the regions was similar to last year.
Gross margin
$ million 2023 % 2022 %
Lifecycle Service Assurance 147.8 74.2 198.0 74.9
Networks & Security 195.8 71.1 239.1 69.7
343.6 72.4 437.1 72.0
Gross margin remained robust at 72.4 per cent (2022 72.0 per cent) driven by effective supply chain management, robust
customer pricing and change in product mix.
Operating costs
$ million
Adjusted
1
2023
Reported
2023
Adjusted
2022
Reported
2022
Product development 102.4 102.4 111.3 111.3
Selling and marketing 133.9 133.9 138.9 138.9
Administration
1
62.1 88.9 57.4 74.2
Operating costs
1
298.4 325.2 307.6 324.4
Lifecycle Service Assurance 130.8 136.9 147.0 147.9
Networks & Security 156.9 164.2 152.3 153.8
Corporate 10.7 24.1 8.3 22.7
Operating costs
1
298.4 325.2 307.6 324.4
Note
1. Before acquired intangible asset amortisation, share-based payment and other adjusting items amounting to $26.8 million in total (2022 $16.8 million).
Total Group adjusted operating costs decreased given the continued focus on financial management of our cost base and a
number of initiatives implemented during the year. Actual reported costs increased in 2023 due to the strategic restructuring
initiatives as outlined in note 5.
The overall investment in product development decreased year-on-year from $111.3 million to $102.4 million, driven by
cost-saving initiatives as we transferred activities to lower-cost regions whilst retaining the same R&D headcount.
Selling and marketing costs decreased by $5.0 million, from $138.9 million to $133.9 million, which includes lower incentivisation
reward as order bookings fell. Administration costs reflect investment into our support functions and infrastructure to sustain our
growth agenda, increasing compliance requirements, as well as inflationary increases.
We continued to invest in our world-class employees, supporting their professional development and wellness, which has
contributed to an employee retention rate significantly higher than the industry average.
50 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Operating profit
$ million 2023
Adjusted
operating
margin
1,2
% 2022
Adjusted
operating
margin
1,2
%
Lifecycle Service Assurance 16.9 8.5 51.0 19.3
Networks & Security 39.0 14.2 86.8 25.3
Corporate (10.7) (8.3)
Adjusted operating profit
1
45.2 9.5 129.5 21.3
Adjusting items:
Acquired intangible asset amortisation (5.0) (4.7)
Share-based payment (7.6) (8.5)
Other adjusting items (14.2) (3.6)
Reported operating profit 18.4 112.7
Notes
1. Before acquired intangible asset amortisation, share-based payment and other adjusting items amounting to $26.8 million in total (2022 $16.8 million).
2. Adjusted operating profit as a percentage of revenue in the period.
Adjusted operating profit and reported profit was $45.2 million (2022 $129.5 million) and $18.4 million (2022 $112.7 million),
respectively, impacted by the decline in revenue and negative operating leverage.
Total adjusting items of $26.8 million in 2023 increased from $16.8 million in 2022, mainly due to the rationalisation and strategic
review of the Group’s operating model which commenced at the end of 2022.
Acquired intangible asset amortisation and share-based payment
The acquired intangible asset amortisation charge increased slightly over the prior year to $5.0 million (2022 $4.7 million) due to
the amortisation of the intangible assets recognised on the acquisition of the NetScout
®
business carve-out in September 2023,
generating a charge of $0.3 million in 2023.
Share-based payment decreased to $7.7 million in 2023 (2022 $8.9 million), of which $7.6 million (2022 $8.5 million) have been
treated as an adjusting item.
Other adjusting items
$ million 2023 2022
Restructuring 13.5 2.8
Acquisition related transactions 0.7 0.8
14.2 3.6
Restructuring
$ million 2023 2022
R&D engineering plan 0.7 1.5
Finance transformation 1.1 –
Organisational restructure 8.8 1.3
Facilities downsize 2.9 –
13.5 2.8
The initiatives, with a restructuring cost of $13.5 million have driven cost savings of $14 million during 2023 and are expected
to deliver further savings of circa $17 million for 2024 which will more than mitigate cost inflation. The overall payback of the
change initiatives is expected to be less than two years.
We embarked on a strategic evaluation of our operating model, taking into account the need to serve our customers with
solutions involving a combination of our portfolio offerings, as well as the need to drive cost efficiency during a challenging
trading environment.
We concluded our R&D engineering site plan to relocate activities from North America to lower cost regions for our High-Speed
Ethernet business. This incurred severance and retention costs of $0.7 million (2022 $1.5 million) and delivered material cost savings.
In order to embed standardised global finance processes, we moved certain accounting activities from North America to the UK,
incurring $1.1 million of costs including $0.5 million consultancy.
51Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Acquired intangible asset amortisation and
share-based payment continued
Restructuring continued
We reduced headcount by 8 per cent and incurred $8.3 million
of costs mainly relating to severance and exit costs of people.
At the end of 2023, we also incurred an additional $0.5 million
of restructure costs in relation to the organisational change to
merge the High-Speed Ethernet businesses into the Lifecycle
Service Assurance segment to better serve our customers’
requirements for portfolio solutions.
Our facilities and office sites were reviewed and we exited
and downsized three of our North American facilities which
gave rise to a non-cash $2.9 million impairment of assets,
therefore reducing the cost of our office space going forward.
Acquisition related transactions
On 8 September 2023, the Group completed the asset
purchase of a small test lab automation business carve-out
from NetScout
®
Inc. Direct acquisition transaction costs
of $0.4 million and integration costs of $0.3 million were
incurred during 2023.
Prior year acquisition costs reflect the Group acquisition of
octoScope in 2021 which relate to direct acquisition costs
of $0.6 million, acquisition related performance credit
adjustment of $0.1 million and integration costs of $0.3 million.
The tax effect of other adjusting items is a credit of $2.5 million
(2022 $0.9 million). There will be a total net cash outflow of
$11.3 million in respect of other adjusting items charged in
2023, $10.3 million of which was in 2023 (2022 $3.6 million
outflow with $1.7 million paid in 2022). The cash outflow in
2023 in respect of other adjusting items charged in 2022 was
$1.9 million (2022 $0.9 million).
The total cash outflow in respect of other adjusting items is
reported within cash flows from operating activities in the
consolidated cash flow statement.
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 $0.9 million (2022
$0.2 million gain) arising from transacting in foreign
currencies, primarily US Dollars, in the United Kingdom,
and the translation of foreign currency cash balances.
Forward foreign currency exchange contracts are entered into
to manage the exposure arising from transacting in currencies
other than US Dollars.
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
Interest income of $4.8 million was earned from bank interest
(2022 $2.1 million) and $0.6 million (2022 $0.8 million) of
interest income was recognised in relation to the UK defined
benefit pension plans. The growth in bank interest received
year-on-year reflects the increase in US Dollar and Sterling
interest rates. Surplus funds are held principally in the United
Kingdom and United States on short-term or overnight
deposits and earn market rates of interest.
Finance costs in 2023 were $0.9 million (2022 $1.0 million),
relating to interest on lease liabilities.
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
10.8 per cent in 2023, compared with 12.9 per cent in 2022.
Spirent’s effective tax rate continues to benefit from the United
Kingdom Patent Box Scheme, the United States R&D Tax Credit,
and the US foreign-derived intangible income deduction.
Going forward it is anticipated that Spirent’s effective tax
rate will rise slightly over time, due to the geographical mix
of profits, but 2024 will likely be similar to 2023 at 11 per cent
if statutory tax rates do not materially change. As a large
proportion of the Group’s profit is generated in the United
States, the effective tax rate is exposed to changes in US tax
legislation. Between currently proposed US tax law changes
and the fact that 2024 is an election year, we will be closely
monitoring all proposed corporate tax rates and other tax
legislative changes for their impact on the Group’s effective
tax rate.
Financial review continued
52 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Earnings per share
Adjusted basic earnings per share was down 60.0 per cent to 7.55 cents (2022 18.86 cents). Basic earnings per share was 4.30
cents (2022 16.46 cents). There were 586.7 million (2022 607.0 million) weighted average Ordinary Shares in issue. See note 11 of
Notes to the full year consolidated financial statements on page 153 for the calculation of earnings per share.
Acquisition
On 8 September 2023, Spirent completed the asset purchase of a small test lab automation business carve-out from
NetScout
®
Inc. for a total cash consideration of $7.8 million. The acquisition was funded from the Group’s cash resources.
The business carve-out from NetScout
®
is a US-based technology business that develops and manufactures Layer-1 switches
and control software which will further accelerate opportunities within our lab automation solutions and services. This business
was incorporated into our Lifecycle Service Assurance operating segment.
The acquisition gave rise to goodwill of $3.9 million, and acquired intangible assets of $4.3 million with an estimated useful life
of six years. Details on the net assets acquired and performance of the business acquired are detailed separately in note 33 of
Notes to the full year consolidated financial statements.
Treasury management
The key objective of the Group’s treasury function is to manage the financial risks of the business and to ensure that sufficient
liquidity is available for the Group. All treasury activity operates within a formal control framework. The Board has approved
treasury policies and guidelines and periodically reviews treasury activities. Additionally, it is the Group’s policy that speculative
treasury transactions are expressly forbidden.
Spirent’s financial risk management objectives and policies and its exposure to risks are discussed in note 28 of Notes to the full
year consolidated financial statements.
Financing and cash flow
Cash flow from operations was $45.8 million in 2023 (2022 $140.6 million) driven by the reduction in adjusted operating profit.
Cash flow from operations is detailed in note 32 (page 170). An explanation on free cash flow as an alternative performance
measure can be found on page 197.
Free cash flow conversion represented 54 per cent of adjusted earnings (2022 91 per cent).
Free cash flow is set out below:
$ million 2023 2022
Cash flow from operations 45.8 140.6
Tax paid (13.9) (22.8)
Net cash inflow from operating activities 31.9 117.8
Interest received 5.4 1.5
Net capital expenditure (6.1) (8.2)
Payment of lease liabilities, principal and interest (8.8) (9.6)
Lease payments received from finance leases 0.6 0.6
Acquisition related other adjusting items (note 5):
– Direct acquisition transaction costs 0.4 0.6
– Acquisition related performance payments – (0.1)
– Acquisition integration costs 0.3 0.3
One-off employer contribution to UK pension scheme – 0.9
Free cash flow 23.7 103.8
Net capital expenditure of $6.1 million was lower than over the same period last year (2022 $8.2 million) and was predominantly
related to demonstration and test equipment.
In 2023, the final dividend for 2022 and an interim dividend for 2023, totalling $46.5 million was paid (2022 $39.9 million).
No shares were purchased or placed into the Employee Share Ownership Trust (ESOT) (2022 7.1 million shares at a cost of
$22.9 million).
On 3 April 2023, the Company commenced a Share Buyback Programme which completed on 24 August 2023, resulting in a
cash outflow of $71.6 million and the cancellation of 33 million issued shares.
Following these payments, cash closed at $108.1 million at year end, compared with $209.6 million in the previous year.
There continues to be no bank debt.
53Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Defined benefit pension plans
The Group operates two funded defined benefit pension
plans in the United Kingdom which are closed to new entrants.
In order to protect the balance sheet from further risk of
market movements affecting the valuation of pension
liabilities, in October 2022, the Trustees, with the Company’s
support, purchased a bulk annuity insurance policy from
specialist UK insurer Pension Insurance Corporation (PIC), in
respect of the largest plan, the Staff Plan. The premium was
met from the plan’s assets and sufficient assets remain to
meet the plan’s ongoing costs. This pension buy-in secures
an insurance asset from PIC that matches the remaining
pension liabilities of the Staff Plan, such that the Company
no longer bears any investment, inflation, longevity or other
demographic risks.
Following the purchase of the bulk annuity insurance
policy, the Group does not expect to make any further cash
contributions to this plan.
The accounting valuation of the funded defined benefit
pension plans at 31 December 2023 was a net surplus of
$6.7 million (31 December 2022 net surplus of $8.0 million).
There is also a liability for an unfunded plan in the UK of
$0.5 million (31 December 2022 $0.5 million).
The Group operates an unfunded deferred compensation
plan for employees in the United States. At 31 December 2023,
the deficit on this deferred compensation plan amounted to
$9.2 million (31 December 2022 $6.9 million).
Balance sheet
The consolidated balance sheet is set out on page 129.
Overall, net assets decreased by $89.4 million to $375.8 million
at 31 December 2023, from $465.2 million at 31 December 2022.
Cash decreased by $101.5 million within current assets to
$108.1 million (2022 $209.6 million) as a result of the reduction
of operating profit, the payment of dividends amounting
to $46.5 million (2022 $39.9 million) and the repurchase of
shares through the Share Buyback Programme of $71.6 million
(2022 nil).
Overall, liabilities of $208.0 million fell at 31 December 2023
(2022 $240.1 million) reflecting the decrease in trading
performance, and therefore, a reduction in trade payables of
$14.3 million and accrued employee bonuses of $11.6 million.
Liquidity and dividend policy
The Board’s intention is 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.
The cash generation of the Group allows continued investment
into R&D to maintain our market-leading positions and
inorganic investments where opportunities support growth
plans. If and when it is considered 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 organic and inorganic 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. The Board has implemented a progressive
dividend policy.
Dividend
No final dividend is being recommended.
Paula Bell
Chief Financial & Operations Officer
5 March 2024
Financial review continued
54 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Principal risks and uncertainties
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
risk registers are maintained 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 regularly to reflect new or emerging risks as they
are identified to keep them up to date.
The approach includes a process to identify, clarify and
communicate emerging risks for Board discussion and
assessment, along with agreed mitigating action plans.
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 risk may occur using the
following classifications:
Risk Impact
Impact High
Medium
Low
Likelihood of occurrence Likely
Possible
Unlikely
The Board takes the view that a high-impact risk could lead to
a 10 per cent or more reduction in revenue, a medium-impact
risk a 5 to 10 per cent reduction in revenue and a low-impact
risk a reduction of up to 5 per cent in revenue.
The 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 the risk registers 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.
The Board has identified the following principal risks, each of
which is discussed on pages 57 to 60:
Risk Impact Likelihood Change
A. Macroeconomic change High Likely No change
B. Technology change High Likely No change
C. Business continuity High Likely No change
D. Customer dependence/
customer investment plans
High Likely No change
E. Competition Medium Possible No change
F. Acquisitions Medium Likely No change
G. Employee skill base Medium Possible No change
Identifying and assessing risk
Risk
assessment
Review
Governance
Board and Audit
Committee
Identify, assess
and mitigate
Business units,
functional leads
and Group
Executive Committee
Current topical risks, uncertainties and emerging risks
Topical risks and uncertainties along with emerging risks are
covered in detail in the table of principal risks and uncertainties,
but some of the more pertinent ones are described below.
Macroeconomic uncertainty
Spirent is a global business exposed to current world
economic conditions over which it has no control. Global
market economic conditions have been impacting some of
our customers, particularly our telecommunication customers,
resulting in delays to their investment decisions.
Wars in Ukraine and the Middle East
The organisation has negligible activities within Ukraine, Russia
and the Middle East and, therefore, these wars are expected to
continue to have an immaterial direct financial impact on the
Group unless they escalate and broaden further.
US/China trade and sanctions
The geopolitical landscape is turbulent with continuing
US/China trade challenges. We have navigated regulatory
changes throughout the year and continue to work closely
with our customers and regulators. We make sales across a
broad range of customers in China. Changes to existing US
regulations to embargoed customers may impact our ability
to supply affected customers in both the short and medium
term. A conflict between Taiwan and the Chinese military
could lead to a global recession and have an impact on the
global supply of Taiwan’s microchips which the organisation
is currently heavily reliant upon. We maintain a watching brief
as legislative requirements and these geopolitical tensions
continue to evolve.
55Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Principal risks and uncertainties continued
Current topical risks, uncertainties and
emerging risks continued
Task Force on Climate-related Financial Disclosures (TCFD)
We have undertaken TCFD-aligned scenario analyses, which
involved senior management, to assess our exposure to
climate-related physical and transition risks. This workstream
is overseen by an Executive Director-led management
committee that has been established to consider ESG matters
including climate-related risks and opportunities, with
updates reported regularly to the Audit Committee and the
Board. More details can be found on pages 32 to 37.
From a transitional risk perspective, it is expected that there
will likely be a shift quickly towards renewables and away
from fossil fuels, resulting in increased carbon taxes across
all regions in the short and medium term. This may result in
associated increased costs; however, we do not estimate the
impact to be material to Spirent.
From a physical risk perspective, the potential of extreme
weather events has been considered and could cause some
disruption to our operations or those of our key suppliers.
Spirent has mitigation plans for each of these physical risks
identified, including appropriate insurance coverage, and
these plans have been developed as part of longstanding
business continuity and disaster recovery plans.
Responding to climate change also offer opportunities for
businesses and, as part of the scenario process, a number of
opportunities have been identified.
• Reduction in costs and efficiency, especially in relation to
office estate and automation in labs.
• Improved resilience from physical and transitionary risks.
• Additional testing opportunities to support the development
of new technologies to mitigate and adapt to a
changing climate.
• Expanding demand for test solutions that help reduce
customer emissions, including lab automation and efficiency.
See pages 32 to 37 for further detail of our approach to
environmental sustainability and climate change.
Supply chain
Supply chain issues have been experienced around the world,
particularly with respect to the supply of semi-conductors, in
2023 due to the residual effects of COVID-19, the ongoing war
in Ukraine, macroeconomic issues, war in the Middle East,
and a number of other localised factors that are expected
to continue at a lower scale in the medium term. There has
been no material impact on our ability to deliver goods and
services to customers. However, the impact of the component
shortages has meant that we are experiencing longer lead
times, supply chain cost increases and supply constraints, and
there has been some disruption to the delivery timelines of
hardware to our customers. This is causing us to hold more
inventory, make longer-term commitments to suppliers and
re-engineer some products to use more readily available
components. We have seen a significant reduction in supply
chain challenges and have reached what appears to be a
steady state of somewhat elevated lead times.
We continue to monitor any effect from these disruptions on
the sourcing of components and the effect that this may have
on our ability to manufacture hardware and deliver products
to our customers on a timely basis.
Risk appetite and developing
the long-term Viability Statement
The UK Corporate Governance Code requires the Board to
explain how it has assessed the prospects of the Group and
state whether it has a reasonable expectation that the Group
can continue to operate and meet its liabilities, taking into
account its current position and principal risks.
The Board has determined that a three-year period should
be used when assessing viability, as explained on page 113 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 understood markets, which would
be inherently cash generative, the Board would expect to
maintain a 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 the principal risks were
modelled based on historical trends experienced across
the Group. A severe but plausible combination of those risks
was considered for the purposes of determining the revenue
and free cash flow scenarios that should be stress tested via
financial modelling.
A number of scenarios that encompass the principal risks and
uncertainties were modelled over the three-year period, using
the Group’s strategic three-year plan as a basis, and are set
out in the table below. The analysis also included a reverse
stress test scenario to illustrate the revenue reduction in the
12 months following approval of the financial statements that
would lead to the Group ceasing to be a going concern.
Scenario Principal risks
1. Revenue reduction in year 2,
no growth in year 3
B, E
2. Revenue reduction in year 1,
no growth in years 2 or 3
B, E
3. Major trade embargo A, D
4. Major supplier disruption C
5. Reverse stress test n/a
The impacts arising from the principal risks relating to
employee skill base and acquisitions were not modelled as
they arise as a result of specific events or transactions, the
financial effects are less extreme than other risks or they
would be expected to take longer to materialise.
The analysis included assumptions in relation to the ability of
the Group to take realistic and successful mitigating actions
to avoid or reduce the impact or occurrence of the underlying
risks, including the ability to make significant reductions in
its operating costs. In doing so an appropriate and realistic
adjustment was made for the cost of taking those actions.
In performing the Viability Statement modelling the Board
took into consideration the Group’s healthy cash balance
of $108.1 million at 31 December 2023 and the ability of the
Group to continue to generate positive free cash flow over
the three-year period even in stressed scenarios, as has
historically been the case.
56 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
A – Macroeconomic change
Spirent is a global business exposed to current world
economic conditions and political and trade embargo
uncertainties over which it has no control.
We have navigated regulatory changes throughout the
year and continue to work closely with our customers.
Trade compliance issues continue to remain a focus,
particularly with China.
The business is also exposed to government spending
priorities, principally in the United States.
The residual effects of the COVID-19 crisis, the war in
Ukraine, inflationary pressures, and rises in interest
rates by major central banks have combined to create
uncertainty to current world economic conditions and
government spending priorities. The Group continues
to monitor the impact to the global economy and
possibility of a prolonged recession in the organisation’s
key markets.
Potential impact
Deterioration in economic conditions and a change to the
terms of conventional international trade and embargoing
of specific customers may lead to a reduction in the level
of demand for Spirent’s products and services and cause
customers to delay their purchasing decisions.
Mitigating actions
The Group closely monitors both market and geographic trends
in order to respond to changes in demand and be in a position
to take timely actions to protect profitability where possible.
In addition, Spirent has a large number of geographically
diverse customers, which may mitigate the impact of issues in
any one area.
B – Technology change
Spirent sells complex solutions in industries that can be
subject to rapid and somewhat cyclical technological
changes. Testing new technologies drives our business,
but the opportunity also brings high risk since keeping at
the forefront of these key future technologies is critical to
our success and to ensuring that we remain competitive
in our markets.
It is critical that our product development investment is
directed at the right areas in order to deliver the solutions
that our customers need, when they need them.
Spirent’s success is dependent in part on proprietary
technology which may be infringed by others.
Open-source tools become more prevalent providing
some of the functionality of our products.
Potential impact
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 and increasing scrutiny on security
and privacy 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.
Customers may choose to use open-source tools instead of
some Spirent products to meet part of their testing needs.
Mitigating actions
All Spirent’s businesses work very closely with customers and
remain focused on their requirements.
Each business makes investment decisions specifically related
to its solutions portfolio based on market needs.
Spirent continues to focus its investment into areas that offer
the most potential for sustainable earnings growth. In 2023
the product development investment was $102.4 million
(2022 $111.3 million) as we find new ways of investing at
lower cost.
Spirent has active intellectual property protection
programmes in place to obtain appropriate protection in a
cost-effective manner.
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 of the reduction in revenue and cash
generation and consequently the availability of cash to fund
operations; and
• the ability of management to successfully take the
mitigating actions identified.
Based on the results of this analysis, the Directors have
a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the three-year period. The Viability Statement is set out in
the Directors’ Report on page 113.
57Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Principal risks and uncertainties continued
C – 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, climate change, a global pandemic
or cybersecurity attacks. For example, a significant
portion of our operations are located in California which
has in the past experienced natural disasters, including
earthquakes and wildfires.
Our TCFD-related analysis has considered the potential
of increasing intensity and frequency of storms and
concentrated rainfall events, and frequency of wildfires,
and we have assessed that these risks would possibly
cause some disruption to operations. The understanding
of climate change-related risks is incorporated into the
risk management framework.
The Group has therefore taken steps to manage the
increase to business continuity risk, including invoking
business continuity plans in each location, closely
monitoring the impact to the supply chain with additional
inventory procured on key components and by adding
alternate suppliers, making last time buys as necessary,
and by boosting the global Spirent information technology
systems to enable the workforce to work remotely.
Contract manufacturers are used for a substantial
amount of Spirent’s products and have experienced a
reduction in orders from Spirent, cost increases, end of life
notices and some elevated lead time challenges, leading
to a limited number of shortages but primarily increased
costs during 2023. Spirent’s major contract manufacturer
is located in Thailand.
The incidence of cybercrime continues to rise. Spirent is
dependent on its information technology systems for both
internal and external communications, maintaining our
reputation as well as for day-to-day operations.
Potential impact
A significant natural disaster or global pandemic could disrupt
the Group’s ability to conduct business and adversely impact
revenue and operating results.
Higher peak and average temperatures could lead to
increased capital expenditure to expand or upgrade cooling
equipment across multiple Spirent sites.
The shift towards renewables and away from fossil fuels
may result in associated increased costs. Starting in the short
term, energy costs are likely to continue to increase due to
higher investment requirements in low-carbon technology
and expected additional carbon-related levies. We also
expect additional administrative burden on the business, likely
increasing the costs for resource to deliver and report. We do
not estimate the impact to be material to Spirent.
In the medium to long term, our TCFD climate-related
analysis has highlighted the risks of site damage to building
and infrastructure, lost time and productivity and any
associated increased cost of insurance. Additionally, a major
supplier disruption event is a possible key risk, causing an
outage for a period of time which we assess as causing
possible delays to customer shipments and the timing of
revenue recognition. Disruption, financial problems of contract
manufacturers or limitations in their manufacturing capacity
could limit supply and/or increase cost.
Failed internal and external processes, systems or human
error could lead to compliance issues.
If a cyberattack were to be successful it could result in loss
of data, reputation, and confidential information as well as
damage to Spirent’s intellectual property, causing major
disruption to the business. Any security vulnerabilities in our
products could also adversely impact our customers. There
would also be a potential impact on Spirent’s credibility in the
security market.
Mitigating actions
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 2023, we performed the
annual refresh and test of the Group Business Continuity and
Disaster Recovery Policy and Procedure.
Spirent has mitigation plans for each of the TCFD physical
risks identified, that have been developed as part of
longstanding business continuity and disaster recovery
plans. Spirent engineering centres are situated across the
globe, allowing flexibility and agility should one site become
affected. Where possible we have second source component
supply to assist with the mitigation of interruptions in supply
and regular meetings are held with contract manufacturers.
In addition, the Group’s largest manufacturing subcontractor
has multiple worldwide sites and comprehensive business
continuity plans.
The Group has appropriate business interruption insurance
in place.
We are working closely with our contract manufacturers
and are in frequent direct consultation with key component
suppliers worldwide to mitigate the impact of the ongoing
supply chain challenges. The situation is dynamic and we
will take appropriate action to mitigate the supply chain risk
including the careful management of planning and fulfilment.
During 2023, we continued with a programme of work
to enhance processes and procedures in the area of
cybersecurity. Third party providers are used in both the
testing and monitoring of our security profile.
58 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
D – Customer dependence/customer
investment plan
The Group sells its products and services to a wide
range of companies and continually seeks to expand its
customer base. In 2023, no one customer accounted for
more than 10 per cent of Group revenue, although the
top ten customers represented 34.4 per cent of Group
revenue (2022 36 per cent).
In some of our markets certain customers have a
dominant market share, which makes doing business with
these customers and their suppliers critical to the success
of our business.
In addition, many of the companies with which
we do business are some of the largest global
telecommunications corporations. Therefore meeting
our development obligations, producing high-quality
products and being on time are vital to Spirent’s
reputation and success.
Changes in our major customers’ priorities in technology
investments can also have a significant impact on
their spending on Spirent products and on those in the
customers’ supply chain.
The industry continues to experience consolidation which
does disrupt the spending patterns of affected customers.
As a result of the current macroeconomic uncertainty,
customer spending patterns remain uncertain,
particularly in our telecommunication markets. The
Group is taking steps to evolve its go-to-market in order
to strengthen relationships with customers and diversify
its customer base.
Potential impact
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.
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.
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 which 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 customers’ supply chains increase
spending on new technologies.
E – 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
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.
Consolidation continues within 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.
Mitigating actions
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. We also seek opportunities for attractive inorganic
investments that can strengthen our competitive advantage.
Competitor activity is closely monitored with a view to
maintaining clear differentiation based on Spirent’s products,
services, and global reach.
Mitigating actions
Strong customer relationships are critical to Spirent. We aim
to provide innovative solutions which address our customers’
larger business problems with products and services 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 and our key account
management initiatives assist to ensure robust relationships
with our largest customers. We place engineers on site with
our customers and undertake site surveys of 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.
We also seek to broaden our customer base to mitigate
customer concentration risk, investing in digital marketing,
inside sales, field sales and our partner ecosystem to expand
the number of new customers that we win.
59Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
G – Employee skill base
Employees are crucial to the success of our business.
Attracting and retaining highly qualified and skilled
employees is essential to enable the Group to deliver on
its strategy and to the success of the business.
Potential impact
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.
Mitigating actions
Investing in people is at the core of the Group’s strategy.
The aim is to find, keep and engage the highest calibre
of employees and encourage their contribution and
development. An environment that fosters innovation and
collaboration is critical to Spirent’s success, as is ensuring
incentive plans are competitive.
We have refined our employee value proposition and
continue to make Spirent a more inclusive, diverse, and
engaging place to work to attract and retain talent.
Succession planning for senior posts in the Company is
reviewed periodically by the Board.
Appropriate career paths, professional development plans,
and internal recognition programmes are developed for both
technical and non-technical staff.
Regular reviews are performed to ensure equitable pay
practices and that all elements of compensation across the
Group are competitive with the market.
F – Acquisitions
A key emerging element of Spirent’s strategy is to develop
new capabilities and technologies, and to expand our
addressable markets, 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.
Potential impact
Underperformance by acquisitions will impact the Group’s
results and may lead to impairment of goodwill and/or
intangible assets.
Mitigating actions
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.
Principal risks and uncertainties continued
60 Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Non-financial & sustainability information statement
This section of the Strategic Report constitutes the Non-Financial & Sustainability Information Statement
of Spirent Communications plc, produced to comply with Sections 414(C)(A) and 414(C)(B) of the
Companies Act 2006. The information listed in the table below is incorporated by cross-reference.
Reporting requirement
Policies and standards which
govern our approach Additional information and risk management
Environmental matters Group Environment Policy
Group Sustainability Policy
Supplier Code of Conduct
Stakeholder engagement (pages 24 to 27)
Sustainability (pages 32 to 39)
Task Force on Climate-related Financial Disclosures
including CFD
(pages 35 to 37)
Sustainability Report at corporate.spirent.com
Employees Business Ethics Policy
Whistleblowing Policy
Occupational Safety Policy
Diversity and Inclusion Policy
Stakeholder engagement (pages 24 to 27)
Sustainability (pages 32 to 39)
Sustainability Report at corporate.spirent.com
Audit Committee report (pages 77 to 82)
Nomination Committee report (pages 74 to 76)
Report on Directors’ remuneration (pages 83 to 109)
Social matters Group Environment Policy
Group Sustainability Policy
Diversity and Inclusion Policy
Supplier Code of Conduct
Stakeholder engagement (pages 24 to 27)
Sustainability (pages 32 to 39)
Sustainability Report at corporate.spirent.com
Nomination Committee report (pages 74 to 76)
Directors’ report (pages 110 to 113)
Respect for human rights Modern Slavery Statement
Diversity and Inclusion Policy
Stakeholder engagement (pages 24 to 27)
Sustainability (pages 32 to 39)
Sustainability Report at corporate.spirent.com
Nomination Committee report (pages 74 to 76)
Anti-corruption and bribery Business Ethics Policy
Group wide Dealing Policy
Supplier Code of Conduct
Sustainability (pages 32 to 39)
Directors’ statement on corporate governance
(pages 67 to 73)
Audit Committee report (pages 77 to 82)
Directors’ report (pages 110 to 113)
Description of the business model Our business model (pages 16 to 17)
Description of principal risks and
impact of business activity
Our business model (pages 16 to 17)
Principal risks and uncertainties (pages 55 to 60)
Task Force on Climate-related Financial Disclosures
(pages 35 to 37)
Non-financial key
performance indicators
Strategic Report (pages 1 to 61)
Key performance indicators (pages 22 to 23)
The policies mentioned above form part of Spirent Communications plc’s Group policies, which act as the link between our
strategy, purpose and values and how we manage our day-to-day business. The Board has determined that the policies remain
appropriate, are consistent with the Company’s values and support its long-term sustainable success.
Approval
Pages 1 to 61 form part of the Strategic Report, which has been reviewed and approved by the Board.
Angus Iveson
Company Secretary
5 March 2024
61Spirent Communications plc Annual Report 2023
STRATEGIC REPORT
Chairman’s introduction to governance
Sir Bill Thomas
Chairman
Dear shareholder
On behalf of the Board, I am pleased to present the Governance
Report for the year ended 31 December 2023. This review
and the reports of the Nomination, Audit and Remuneration
Committees that follow summarise the Board’s activities
during the year. The Board is committed to high standards
of corporate governance, and decisions are made based
on what the Board believes will most benefit stakeholders
by promoting and maintaining the long-term success of the
Company and its reputation.
Compliance with the 2018 UK Corporate
Governance Code (the 2018 Code)
Our approach to governance is based on the concept
that good corporate governance enhances longer-term
shareholder value and sets the culture, ethics and values
for the Group. Consistent with our belief in the importance
of corporate governance, I am pleased to report that,
throughout the year under review, the Company has been
in full compliance with the principles and provisions of
the 2018 Code. A copy of the 2018 Code can be found
at www.frc.gov.uk. The Board notes the introduction of
a new UK Corporate Governance Code in January 2024
and intends to adopt the provisions of this Code where it is
able to do so.
Board composition and succession planning
During the year under review, the Nomination Committee
discussed succession planning for Executive and Non-executive
Directors and the progressive refreshing of the Board.
Further information about the Nomination Committee’s
work can be found in the Nomination Committee Report.
Diversity
As at the financial year end, the Board comprised five
male and three female Directors, meaning that just
under 40 per cent of our Board is now female, with two
Board members from ethnic minority backgrounds. The
under-representation of women at all levels of Spirent and
throughout the technology sector is a key challenge and
there remains significant work to do in this area.
Evaluating the Board’s effectiveness
Each year, the Board undertakes a formal evaluation of
its effectiveness and this year we carried out an internally
facilitated evaluation to assist in the development of the
Board. The results of the Board evaluation confirmed that
the Board continues to function effectively and that there
are no significant concerns among the Directors about its
effectiveness. The Board members were seen as engaged
and committed while the Board’s culture remains open,
respectful and constructive. A number of actions were
identified to further enhance the Board’s effectiveness, as
set out in the Directors’ statement on corporate governance.
People and culture
Our business is built on the commitment, abilities and drive
of our people. In the year, both the Board and management
have continued to review results of our bi-annual employee
engagement programme and are pleased to see we have
a highly engaged workforce. Further details may be found
in the Stakeholder engagement section.
Re-election of Directors
In accordance with the 2018 Code provisions and following
a performance evaluation of those Directors standing
for re-election at the 2024 Annual General Meeting, I
can confirm that they all continue to be effective and
committed to their roles and have sufficient time available
to perform their duties. Accordingly, as recommended by
the Nomination Committee, all Directors will be offering
themselves for re-election at the Company’s Annual General
Meeting to be held in May 2024.
Annual General Meeting (AGM)
The AGM of the Company will take place at the offices of
UBS at 5 Broadgate, London, EC2M 2QS in May 2024. All
Directors routinely attend each AGM, so as to provide an
opportunity for shareholders to ask questions. I look forward
to meeting any shareholders who can join us at our AGM
and extend my thanks to you all for your continued support
as we move through 2024.
Sir Bill Thomas
Chairman
5 March 2024
62 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
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 July 2018. The Code sets out standards
of good practice in relation to Board leadership and
Company purpose; division of responsibilities; composition,
succession and evaluation; audit, risk and internal control;
and remuneration. The Code is published by the UK
Financial Reporting Council (FRC), a copy of which is
available from the FRC website. The Board confirms that
the Company is fully compliant with the Code.
Board leadership and Company purpose
The Board’s ultimate objective is the long-term
sustainable success of the Company. Read more about
our strategy in our Strategic Report and how the Board
achieves this through, amongst other things, stakeholder
and workforce engagement (set out in the Stakeholder
engagement section), establishing a clear and aligned
Company purpose, strategy and values (see Investment
case) and how the Board assesses and monitors culture
(see Our people and culture).
Division of responsibilities
The Board consists of two Executive Directors, five Independent
Non-executive Directors and the Non-executive Chairman,
who was considered independent on appointment to
the Board. Additional external appointments of Board
members routinely require prior Board approval.
Directors’ other time commitments are in line with the
key institutional investor and investor body guidelines.
Composition, succession and evaluation
The Nomination Committee report describes its activities
during 2023, including information on succession planning
and diversity and inclusion matters. Details of the Board’s
effectiveness review which took place during the period
and of Board composition are set out in the Directors’
statement on corporate governance.
Audit, risk and internal control
The Audit Committee report describes the work of the
Committee and how it discharges its roles and responsibilities.
The Board, supported by the Audit Committee and its
Risk Sub-Committee, completed a robust assessment
of the Company’s emerging and principal risks during
the period under review and has well-established
procedures to manage risk. The Company’s disclosures
regarding principal risks are set out in the Principal risks
and uncertainties section.
Remuneration
The Report on Directors’ remuneration describes the work
of the Remuneration Committee during 2023, and sets out
how executive remuneration is aligned with the Company’s
purpose, values and strategy and how workforce remuneration
and related policies have been considered in its decision
making regarding executive remuneration.
Board composition
Tenure
0–2 years 1
3–5 years 1
6–9 years 6
Ethnicity
Director of colour 2
White 6
Male 5
Female 3
Gender
63Spirent Communications plc Annual Report 2023
Board of Directors
Appointed
Sir Bill was appointed to the
Board in December 2016
as Non-executive Director
and appointed Chairman
in May 2017.
Skills and experience
Sir 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,
provides valuable insight.
Sir Bill stepped down as a
Non-executive Director of
The Co-operative Bank in
October 2023 and was also
previously Senior Vice President
at Hewlett Packard and on the
executive committee of EDS
plc as Executive Vice President.
Until March 2022, Sir Bill was
Chairman of Clarkson PLC.
Other roles
Chairman of Node4, a private
equity-owned IT services firm.
Sir Bill was awarded a
knighthood in the New Year
Honours 2020.
Appointed
Eric was appointed to the
Board in May 2019 as Chief
Executive Officer.
Skills and experience
Most recently, Eric was on the
executive management team of
Amdocs reporting directly to the
CEO. In his capacity as Group
President, Services at Amdocs
Ltd he had global responsibility
for the entire Managed Services,
Testing and SI businesses. This
business encompassed 10,000
employees and roughly $2 billion
in revenue. Prior to that role,
Eric was Division President for
North America at Amdocs where
he managed a $1 billion P&L
and was responsible for the
relationship with North American
communications service
providers. Prior to his time at
Amdocs, he held executive roles
at Nokia Siemens Networks and
AT&T. Eric has a great track
record of success, has functional
expertise in every facet of the
business and has excelled in
multi-cultural global companies.
Eric has an MBA in Finance
and a bachelor’s degree in
Electrical Engineering from
Cornell University.
Other roles
Since 2019, Non-executive
Director of Symend, Inc.
Appointed
Paula was appointed to the
Board in September 2016 as
Chief Financial Officer.
Skills and experience
Paula has extensive PLC main
board experience both as an
Executive and Non-Executive
Director, and in particular,
working with large scale global
technology, engineering and
industrial businesses. Paula was
previously CFO at John Menzies
Plc from 2013, a £2 billion
revenue business with 35,000
employees, and CFO at Ricardo
Plc from 2006 to 2013.
Paula has also held senior
leadership roles at BAA plc,
AWG plc and Rolls-Royce
Plc, with extensive breadth of
responsibility, including leading
business development, strategy,
significant M&A activity and
leading organisational change.
Paula is a Fellow of the Chartered
Institute of Management
Accountants and a Chartered
Global Management Accountant.
Other roles
Appointed as a Non-executive
Director at Keller Group plc in
September 2018, then Chair of
Audit and Risk Committee in
January 2019. Paula was also
previously with Laird Plc from 2012
to 2018 as Non-executive Director,
Senior Independent Director and
Chair of the Audit Committee.
Appointed
Jonathan was appointed
to the Board in June 2015
as Non-executive Director,
appointed Chair of Audit
Committee in August 2015, and
appointed Senior Non-executive
Director in November 2016.
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 of Baillie
Gifford China Growth Trust plc;
Non-executive Director and
Chairman of Audit Committee
of East and North Hertfordshire
NHS Trust; Non-executive
Director and Chairman of Audit
Committee at Henderson High
Income Trust PLC.
Sir Bill Thomas
Chairman
Eric Updyke
Chief Executive Officer
Paula Bell
Chief Financial &
Operations Officer
Jonathan Silver
Senior Independent
Non-executive Director
A Audit Committee
N Nomination Committee
R Remuneration Committee
Committee Chairman
Committee key
A N RN
64 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Appointed
Maggie was appointed
Non-executive Director in
April 2021.
Skills and experience
Prior to this role, Maggie was
SVP and Chief Business Officer
at SAP Customer Success
Services and before that,
General Manager and Global
Head of Innovation Services
and Solutions at SAP. She has
significant experience building
fast-growth digital businesses
and previously led Digital Sales,
Markets and Industries globally
at Capgemini and Global Cloud
Sales and Consulting for Fujitsu.
Maggie serves on the
International Committee of the
UK Chartered Management
Institute and also served on the
Board of Green Token by SAP,
winning the “Women in the City”
technology category award.
She is on the next generation
committee at Leap, a charity that
helps young people manage
conflict. She advises scale-ups
in the sustainability, customer
experience and enterprise
AI segments.
Maggie holds both a Master
of Letters and a BBS Lang in
Business and French from Trinity
College, Dublin. She also holds
a degree from the Grande École
de Commerce de Rouen, France.
Other roles
Maggie is a technology industry
executive, adviser and speaker,
and is currently Chief Operating
Officer at Normative.
Appointed
Edgar was appointed to
the Board in January 2018 as
Non-executive Director.
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 is currently
board adviser at Liqid, Inc,
a leader in the design and
development of GPU clustering
solutions. Prior to this, Edgar was
Chief Executive Officer of the
Accton Group, a global leader in
the design and manufacturing
of networking products. Prior
to this, Edgar was President
and Chief Executive Officer
of Qualtre, Inc., a US-based
start-up acquired by Panasonic
Corporation in December 2016.
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 Diplôme
d’Ingénieur 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
Venture Partner at Sway
Ventures; Chairman of the Board
of Kollective Technology, Inc.
Appointed
Gary was appointed to the
Board in December 2016
as Non-executive Director
and appointed Chair of
Remuneration Committee in
May 2017.
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 Chair of AFC
Energy PLC.
Appointed
Wendy was appointed to
the Board in January 2018 as
Non-executive Director.
Skills and experience
Wendy is a seasoned leader in
the IT industry with 27 years of
experience driving growth in the
APAC region. She has a strong
background in partnership
strategy, relationship building,
go-to-market planning, and
sales & business development.
In her role as Vice President
Pathways, Alliance & Strategy
APAC at NetApp, Wendy led
APAC business partnerships and
drove business value by helping
partners generate opportunities
in the hybrid cloud and
supporting customers on their
digital transformation journeys.
At Juniper Networks, Wendy
served as Senior Vice President
Global GTM Strategy and
Business Development, where
she was responsible for leading
transformational strategy and
establishing partnerships to
increase the value proposition
for customers. With a strong
track record of developing
competitive and high-performing
businesses, Wendy is an expert
in driving growth and delivering
outstanding service.
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
Executive Vice President/
Managing Director South East
Asia at Capgemini.
Maggie Buggie
Independent
Non-executive Director
Edgar Masri
Independent
Non-executive Director
Gary Bullard
Independent
Non-executive Director
Wendy Koh
Independent
Non-executive Director
A N R A N R A N R A N R
65Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Board statements
Board statements
Requirement Compliance statement
Where to find
further information
Strategic Report The Strategic Report was approved by the Board of Directors on 5 March 2024. Pages 1 to 61
NFR statement The Company has complied with the Non-Financial Reporting Directive
contained in Sections 414CA and 414CB of the Companies Act 2006.
Page 61
Section 172 of the
Companies Act 2006
The Board of Directors, through the Strategic Report, provides information
for shareholders to help them assess how the Directors have performed
their duty, under Section 172, to promote the success of the Company and,
in doing so, had regard to the matters set out in that section. This includes
considering the interests of other stakeholders which will have an impact
on the long-term success of the Company.
Pages 24 to 27
Compliance with the
UK Corporate
Governance Code
In accordance with the Listing Rules of the UK Listing Authority, the Company
confirms that throughout the reporting period and at the date of this Annual
Report, it was in full compliance with all relevant provisions of the 2018 UK
Corporate Governance Code.
Pages 62 to 114
Going concern After making appropriate enquiries and taking into account the matters set
out in this Annual Report, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational existence for
the foreseeable future and therefore continue to adopt the going concern
basis when preparing the financial statements.
Page 113
Viability Statement The Directors confirm that they have a reasonable expectation that the
Group will continue in operation and meet its liabilities as they fall due over
the three-year period under review.
Page 113
Robust assessment of
the principal risks
facing the Group
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Group, including those that would
threaten its strategy, business model and future performance. The Directors
also assessed the Group’s risk appetite with regard to each risk and
considered how to manage and mitigate such risks.
Pages 55 to 60
Annual review of the
systems of risk
management and
internal control
During the period ended 31 December 2023, the Audit Committee provided
transparency on the Group’s systems of risk management and internal control.
Pages 77 to 82
“Fair, balanced and
understandable”
statement
The Board agrees with the recommendation of the Audit Committee that
this Annual Report, taken as a whole, is fair, balanced and understandable.
Page 77
Report on Directors’
remuneration
The Directors confirm that their report on remuneration for the period
ended 31 December 2023 complies with the requirements of the Listing
Rules of the UK Financial Conduct Authority, Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations
2013 (as amended) and the provisions of the 2018 UK Corporate
Governance Code.
Pages 83 to 109
Competition and
Markets Authority
The Audit Committee considers that the Company complied with the
mandatory audit processes and Audit Committee responsibility provisions
of the Competition and Markets Authority Audit Order for the period ended
31 December 2023.
Page 81
Modern Slavery Act
2015
The Directors confirm, for the financial year ended 31 December 2023, that
steps have been taken in relation to our responsibilities under Section 54 of
the Modern Slavery Act 2015 and that the Board approved a statement
setting out the steps that have been taken to combat modern slavery in
the Group’s supply chain.
Page 39
Task Force on
Climate-related
Financial Disclosures
(TCFD)
The Directors confirm that the Company has complied with the recommendations
of the Task Force on Climate-related Financial Disclosures as required by
Listing Rules of the UK Financial Conduct Authority.
Pages 35 to 37
66 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Directors’ statement on corporate governance
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, within agreed financial parameters; and provision
of adequate succession planning.
The schedule of matters reserved for the Board is typically
reviewed annually.
Board composition
At the date of this Report, the Board comprises the Non-executive
Chairman, five 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 including specific knowledge, understanding and
experience of growth areas, 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 Chairman holds regular discussions with the Non-executive
Directors, both individually and as a group, without the
Executive Directors present to ensure a free and frank
exchange of views on the effectiveness of the Executive
Directors and senior management.
Committees of the Board
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.
Further details are set out in the reports of each Committee
that follow this statement.
A Disclosure Committee of the Board is also in place, to
ensure that adequate procedures, systems and controls are
maintained and operated to enable the Company to fully
comply with its obligations regarding the timely and accurate
identification and disclosure of all information to meet the
legal and regulatory obligations and requirements arising
from the Companies Act 2006, the FCA’s Listing Rules, the
Disclosure Guidance and Transparency Rules and the EU
Market Abuse Regulation, as it forms part of retained EU law.
The Board notes, however, that the existence of a Disclosure
Committee does not absolve it from its obligations in this area.
This Committee comprises the CEO, the CFO and the Company
Secretary, with the Chairman and the Senior Independent
Non-executive Director authorised to act as alternates in the
event that a quorum of two members cannot be met. By its
nature, the Disclosure Committee meets on an ad hoc basis,
when circumstances require.
Membership of each Committee of the Board is typically
reviewed annually, with minutes of Committee meetings
made available to all Directors on a timely basis. The written
terms of reference for the Audit, Disclosure, 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 corporate.spirent.com.
The Chairmen of the Audit, Nomination and Remuneration
Committees intend to be available at the Annual General
Meeting to answer questions on the work of their
respective Committees.
Board governance framework
Audit
Committee
Executive
Directors
Disclosure
Committee
Nomination
Committee
Remuneration
Committee
Spirent Communications plc Board
Risk
Sub-Committee
ESG
Management
Committee
67Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Directors’ statement on corporate governance continued
Committees of the Board continued
An Executive Director-led Management Committee has been
established to lead and monitor ESG matters and co-ordinate
the reporting of issues and updates to the Board. Further
information on the issues dealt with by this Committee are set
out in the Sustainability section of this Annual Report.
There is also a formal Risk Sub-Committee of the Audit
Committee to monitor risks and uncertainties at corporate
and business unit levels. Further details of this Sub-Committee
can be found in the Audit Committee report.
Chairman and CEO
The roles of the Chairman and the CEO are separately held.
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 CEO 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 CEO for execution or
further delegation by him for the effective day-to-day running
and management of the Group.
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 required. 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 which enables 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.
Company Secretary
The Company Secretary & General Counsel 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.
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). 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, 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.
The Board is mindful of investors’ concerns on ‘overboarding’
and the particular attention given to the time commitment
and availability of Directors. The external commitments
of each Director are monitored to enable the Board to be
assured that all of the Directors devote sufficient time and
attention as is necessary in order to perform their duties.
The list of external appointments held by Directors can be
found in the Board of Directors section.
68 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Board development
New Directors participate in an induction programme on the operations and activities of the Group, the role of the
Board and the matters reserved for 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 programme is normally then
supplemented by visits to key locations and meetings with, and presentations by, senior executives.
Ongoing 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, the Board’s knowledge
and understanding of the legal and regulatory environment are 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.
Further details of the appointment and induction process are set out in the Nomination Committee report.
Board meetings
The Board meets at regular intervals during the year, as well as for ad hoc matters, as required from time to time. Discussion
papers for Board and Committee meetings are provided to Directors in advance of each meeting. Should a Director be unable
to participate in a meeting either in person or remotely, the Chairman will, where appropriate, solicit their views in advance of
the relevant meeting, so that these can be shared at the meeting.
The attendance of the Directors at scheduled Board and Committee meetings during the year under review is shown in the table
below. There was full attendance, except for Maggie Buggie, due to unavoidable diary commitments.
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Sir Bill Thomas 10/10 – 3/3 –
Paula Bell 10/10 – – –
Eric Updyke 10/10 – – –
Maggie Buggie 10/8 3/3 3/3 7/7
Gary Bullard 10/10 3/3 3/3 7/7
Wendy Koh 10/10 3/3 3/3 7/7
Edgar Masri 10/10 3/3 3/3 7/7
Jonathan Silver 10/10 3/3 3/3 7/7
Information flow
The Company Secretary manages the provision of information to the Board at appropriate times in consultation with the
Chairman and CEO. In addition to formal meetings, the Chairman and CEO 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 and developments 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.
At the start of each Board meeting, the Directors are reminded of their duties under the Companies Act to declare any interests
in the matters to be discussed and to withdraw from the meeting prior to any voting being held on any such issue. Any Director
having such an interest would not be considered to form part of the quorum for discussions on that specific matter.
69Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Directors’ statement on corporate governance continued
Board activities during the year
At each Board meeting the CEO presents an update on performance, strategy and business issues such as M&A pipeline
developments across the Group and the CFO 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.
Key issues considered by the Board during 2023
Governance/compliance Finance Business/strategy
January
• CFO update
• Full year trading update review
• CEO update
February
• Budget update • CEO update
• Capital markets update
Early March
• Full year compliance and Annual Report
review plus Modern Slavery
Statement review
• AGM Notice and Proxy Card approval
• Legal update
• CFO update
• Full year results review
• Dividend Policy review
• Capital Policy review
• Receive Audit Committee report on
internal controls, risk management and
Viability Statement
• CEO update including sales
and customer briefings
Late March
• Budget review
• Share Buyback Programme
Early May
• Q1 Trading Update review • CEO update
May AGM
• AGM voting review • CFO update • CEO update
June
• CFO update • CEO update
• Broker update
• People update
• Strategy presentations
July
• H1 corporate governance and
compliance review
• NED Workforce
• Engagement and Board
• Effectiveness
• Review
• Legal Update
• Group Insurance Renewal
• Half year update • CEO update
August
• CFO update
• Share Buyback Programme
• CEO update
• Project update
October
• Stakeholder engagement feedback
(investors)
• CFO update • CEO update
• Sales update
• CIO update
November
• Board and Committee effectiveness
review kick-off, Director Conflicts
• CFO update
• Q3 results review
• CEO update
• Capital markets update
• Cyber update
December
• Board Matters Reserved and
Committee TORs, Board and
Committee effectiveness results,
NED fees
• CFO update
• Preliminary Budget, Dividend and
Capital Allocation Policy review
• CEO update
• Strategy update
70 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Board performance review
The effectiveness of the Board and its Committees is reviewed
at least annually and conducted according to the principles
of the Code and the supporting FRC Guidance on Board
Effectiveness. As the 2021 review was facilitated externally,
the 2023 review was conducted internally by the Chairman
and Company Secretary.
Evaluation process
Following discussions between the Chairman and Company
Secretary, which included the provision of internal policy
documents, an initial questionnaire was developed for
the Board and its Audit, Nomination and Remuneration
Committees. Directors completed the confidential survey
online, with their answers forming a report to be discussed
by the Board. The conclusions and insights gained were
discussed, with areas of focus for 2024 identified for final
discussion by the Board.
Evaluation findings
The review concluded that there continued to be a firm
understanding of strategy and success factors over the short,
medium and longer term, as well as strengths, weaknesses,
challenges and threats, with the Company’s values, as defined
to employees, fully aligned to strategy. Also, it was felt that the
composition of the Board remained appropriate, with further
additions to the Board to be in line with agreed diversity and
succession plans.
Board action plan
The Board’s key areas of focus for 2024 include:
• focus on the risks and opportunities arising from the merger
of the CIP and LSA business units;
• explore further diversification opportunities from our
traditional core markets;
• review, in detail, the strategic plans for each of the value
streams in the new organisational model;
• continue to focus on ensuring a culture of innovation across
the Group;
• receive further external perspectives on core markets and
diversification opportunities, building on any prior year
activities; and
• more deeply explore R&D, including greater correlation to
new markets segments and clarity on spend.
Election and re-election of Directors
All Non-executive Directors undertake a fixed term of
three years subject to annual re-election by shareholders.
The fixed term can be extended and, consistent with best
practice, would not go beyond nine years unless exceptional
circumstances were deemed to exist.
The Board confirms that each of the Directors standing
for re-election has been subject to a formal performance
evaluation by the Chairman in relation to their duty to
act in the long-term interests of the Company, while also
having regard to other stakeholders. The evaluation of the
Chairman’s performance was carried out by the Senior
Independent Non-executive Director.
Biographical details, including information on other roles
held, can be found in the Board of Directors section; an
assessment of skills held by Board members can be found
in the Nomination Committee report.
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 report.
Business model
A description of the Company’s business model for sustainable
growth is set out in “Our business model”. 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 in order 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.
71Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Directors’ statement on corporate governance continued
Internal control and risk management continued
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; this 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. Ongoing
consideration is also given to potential emerging risks and
whether or not any of those identified have the potential to
become a principal risk to the business in the medium to
long term. More details are set out in the Principal risks and
uncertainties section.
Management and control of US subsidiary
Spirent Federal Systems Inc (Spirent Federal), which
contributed approximately $45.7 million to the Group’s
revenue in 2023 (2022 $46.1 million), operates under a Proxy
agreement, as detailed below, with the remainder of the US
business operating outside the Proxy regime and therefore
allowing the same reporting lines and processes as the
Group’s other, non-regulated businesses.
Spirent Federal and the Proxy arrangement
Spirent Federal Systems Inc is a wholly owned subsidiary of
Spirent in the United States. It has been placed under a Proxy
arrangement as it is required by the US National Industrial
Security Program to maintain facility security clearances
and to be mitigated of the risks of foreign ownership, control
or influence for the business it undertakes. Under the Proxy
agreement, Spirent Federal and the US Department of
Defense (DoD) are parties to a Proxy agreement that relates
to the management and operation of Spirent Federal.
In addition to their powers as Directors, the United
States Government expects the Proxy Holders to exercise
independently the prerogatives of share ownership of Spirent
Federal. The Proxy holders have a fiduciary duty, and agree,
to perform their interests in the best interests of Spirent as a
shareholder (including the legitimate economic interest), and
in a manner consistent with the national security interests of
the United States. Spirent may not remove the Proxy holders
other than for acts of gross negligence or wilful misconduct or
for breach of the Proxy agreement (and always only with the
consent of the US Defense Security Service).
In terms of the power to govern, the Proxy agreement
vests certain powers solely with the Proxy holders and
certain powers solely with Spirent. For example, the Proxy
holders cannot carry out any of the below without Spirent’s
express approval:
• sell or dispose of, in any manner, capital assets or the
business of Spirent Federal;
• pledge, mortgage or encumber assets of Spirent Federal
for purposes other than obtaining working capital or funds
for capital improvements;
• merge, consolidate, reorganise or dissolve Spirent
Federal; and
• file or make any petition under the federal bankruptcy laws
or similar law or statute of any state or any foreign country.
Spirent can require the above to be carried out and these are,
therefore, considered to be significant participative features.
Spirent maintains its involvement in Spirent Federal’s activities
through normal business interaction and liaison with the Chair
of the Proxy Board. Members of Spirent’s senior management
team attend meetings of the Proxy Board periodically.
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 both 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,
being 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.
72 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Internal audit
All of the internal audit activities are co-ordinated by the
Head of Internal Audit & Risk 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 Report on Directors’ remuneration provides details of
our Remuneration Policy and how it has been implemented,
together with the activities of the Remuneration Committee.
Board relations with shareholders
The Board is committed to maintaining good communications
with shareholders. The Chairman, CEO and CFO have regular
one-to-one contact with individual institutional shareholders
in order to develop an understanding of their views. These
are then discussed with the Board. Key themes for discussion
in 2023 have continued to include developments in the
Company’s growth strategy.
All Directors are offered the opportunity to develop a
dialogue with major shareholders to listen to their views.
Presentations are made to analysts, investors and prospective
investors covering the full year and half year results. Executive
Directors receive regular reports prepared by an independent
capital markets advisory firm which provides comprehensive
information relating to the Company’s major shareholders.
The Company seeks to maintain a dialogue with the various
bodies which monitor the Company’s governance policies
and procedures.
The Company is always keen to hear the views of its private
shareholders and we encourage them to access our website
at corporate.spirent.com for our Company reports and
business information. Detailed enquiries can be sent to our
shareholder mailbox at investor.relations@spirent.com.
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. An
appropriate response is 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 at
corporate.spirent.com.
Board relations with workforce
Employee feedback during the year was gathered in a
number of ways including two employee engagement surveys
and virtual town-hall meetings for all employees and/or
smaller sub-groups.
The Board continues to engage with the workforce through its
local Non-executive Directors designated as the liaison point
for employees in the three geographical areas in which the
Company operates:
Americas – Edgar Masri;
APAC – Wendy Koh; and
EMEA – Gary Bullard.
Meetings for each of the three areas took place either in
person or on a virtual basis, with feedback being reported
to the Board at its regular meetings.
Annual General Meeting (AGM)
The Board continues to view the AGM as a valuable
opportunity to communicate with private shareholders in
particular, for whom it provides the opportunity to ask questions
of the Chairman and, through him, the Chairmen of the key
Committees and other Directors. The 2024 AGM is planned to
take place as an in-person meeting, but notifications of any
alternative arrangements that arise after the publication of this
Annual Report will be published on the Company’s website at
corporate.spirent.com/shareholder-information/agm and by
announcement via a Regulatory Information Service.
To ensure transparent representation of shareholder views,
resolutions are normally subject to poll voting. This gives
shareholders the ability to vote directly on the resolutions
either in person at the meeting, or by submitting their proxy
instructions to the Company’s Registrar, in advance of
the meeting.
73Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Nomination Committee report
Sir Bill Thomas
Committee Chairman
Key duties
The terms of reference of the Nomination Committee
are typically reviewed annually and are available on
the Company’s website at corporate.spirent.com.
In accordance with its terms of reference, the Nomination
Committee’s key duties include:
• regularly reviewing the Board structure, size and composition
(including the skills, knowledge, independence, experience
and diversity) 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;
• considering plans for orderly succession on the Board and
in the Company’s senior leadership with a view to ensuring
the continued ability of the organisation to compete in the
marketplace; and
• leading the search process and making recommendations to
the Board for the appointment of new Directors.
Board composition and succession
As part of the annual Board and Committee effectiveness
review, the Committee concluded that there was no significant
skills gap in the composition of the Board and it was well
equipped for its role of implementing the strategy of the
Company, in order to successfully deliver for stakeholders.
Also, given the tenure of some Board members, preparations
are ongoing to ensure a timely recruitment and succession
process, with further additions to the Board also being kept
under review with diversity and succession planning in mind.
The Company has begun the recruitment process for a new
Audit Committee Chair and although Jonathan Silver will offer
himself for re-election at the upcoming AGM, he is expected
to step down from the Board later in 2024.
Time commitment
The Committee is mindful of investors’ concerns on
“overboarding” and the particular attention given to the
time commitment and availability of Directors. The external
commitments of each Director are monitored to enable the
Board to be assured that all of the Directors devote sufficient
time and attention as is necessary in order to perform their
duties. The Director biographies in the Board of Directors
section include a list of external appointments and also set out
skills and experience.
Performance review
The performance of the Committee was reviewed as part of
the annual Board effectiveness evaluation and the Committee
was found to be operating effectively.
Members
During the year under review and as at the date of this Annual
Report, the Nomination Committee comprised as follows:
Sir Bill Thomas (Chairman)
Maggie Buggie
Gary Bullard
Wendy Koh
Edgar Masri
Jonathan Silver
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CORPORATE GOVERNANCE
Spirent’s commitment to
a diverse and inclusive
work environment
At Spirent, we know that having a diverse and
inclusive workforce is essential if we are going to
deliver on our mission to be global leader and
trusted partner for innovative technology test and
assurance solutions. We know how critical diverse
and inclusive teams are to fuel our innovation and
genuinely connect with the communities in which
we live and work. We embrace a culture where
difference is valued and openness, mutual respect,
collaboration and fairness are fundamental.
Spirent does not tolerate discrimination or offensive
behaviour of any kind. We are committed to creating
workplaces that genuinely reflect the diversity of
the world we serve and provide an environment
where everyone feels empowered to bring their full,
authentic self to work.
We strive to enable:
• workforce representation that reflects the
talent market;
• equitable reward and advancement; and
• a culture of trust, fairness and respect.
Spirent’s commitment to
diversity in talent acquisition
The talent pools we recruit from determine our
diversity and we have made a concerted effort to
reach a wider audience when we recruit. We have
developed and maintain a network of university
partners and recruitment channels to help us
to both recruit from groups that are currently
under-represented, especially female engineers
and people of colour, and support students to
reach their full potential.
Re-election of Directors
All Non-executive Directors undertake a fixed term of
three years subject to annual re-election by shareholders.
The fixed term can be extended and, consistent with best
practice, would not go beyond nine years unless exceptional
circumstances were deemed to exist.
The Committee reviews the results of the annual Board
effectiveness 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 Board confirms that each of the Directors standing
for re-election has been subject to a formal performance
evaluation by the Chairman in relation to their duty to
act in the long-term interests of the Company, while also
having regard to other stakeholders. The evaluation of the
Chairman’s performance was carried out by the Senior
Independent Non-executive Director.
Succession planning for senior leadership
A key part of the Committee’s role is to maintain an ongoing
assessment of the senior leadership depth and improving the
effectiveness of the internal talent pipeline continues to be one
of the Board’s priorities.
An update to the leadership development and the internal
succession pipeline was undertaken during the year, with
the aim of enhancing visibility and awareness of the Group’s
leadership talent, strengths and gaps, while also providing
an open, honest leadership team dialogue on what teams
contribute and how. The Committee continues to support
management in recognising that understanding and deploying
the Group’s talent is a critical and dynamic business planning
process that can help the organisation to make huge strides in
cross-functional collaboration and the sharing of knowledge
and experience.
75Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Nomination Committee report continued
Diversity and inclusion
The Committee, the Board of Directors and the Spirent
Group as a whole continue to pay full regard to the
benefits of diversity, including gender and ethnic
diversity, when searching for candidates for the Board,
its committees (Remuneration, Audit and Nomination)
the senior management team and other appointments.
We believe that better business decisions can be made by
having representation from different genders and cultural
backgrounds with differing skill sets, experience and
knowledge, which reflect our customer base and the wider
population in our markets.
Diversity of Board members is important to provide the
necessary range of background experience, values and
diversity of thinking and perspectives to optimise the decision
making process. Gender and ethnicity are important aspects of
diversity which the Chairman and the Committee consider when
deciding upon the most appropriate composition of the Board.
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.
At the year end, the Group’s performance against the diversity
targets set out under the FCA Listing Rules 9.8.6(9) and 14.3.33,
are as set out below. All diversity data is collected in line
with the Department for Business and Trade (DBT) FTSE 350
Companies: Ethnic Diversity Voluntary Census.
Gender identity
Number
of Board
members
Percentage
of the Board
Number
of senior
positions
on the
Board
1
Number
in executive
management
2
Percentage
of executive
management
2
Men 5 62.5 3 5 62.5
Women 3 37.5 1 3 37.5
Not specified/prefer not to say – – – – –
Ethnic background
Number
of Board
members
Percentage
of the Board
Number
of senior
positions
on the
Board
1
Number
in executive
management
2
Percentage
of executive
management
2
White British or other White (including
minority White groups) 6 75.0 4 7 87.5
Mixed/multiple ethnic groups – – – – –
Asian/Asian British 1 12.5 – – –
Black/African/Caribbean/Black British – – – – –
Other ethnic group, including Arab 1 12.5 – 1 12.5
Not specified/prefer not to say – – – – –
Notes
1. Chairman, CEO, CFO and SID.
2. Excludes CEO, includes CFO and direct reports to the CEO only (excluding executive assistant and Chief of Staff).
The Committee notes that the Company has achieved each of the targets set out in the relevant Listing Rules with the exception
of the Board comprising at least 40 per cent women. Two of the four most recent appointments to the Board have been women,
and the Committee is committed to requiring a diverse candidate list for all future Board appointments in order to continue to
improve against this target.
Sir Bill Thomas
Chairman, Nomination Committee
5 March 2024
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CORPORATE GOVERNANCE
Audit Committee report
Dear shareholder
On behalf of the Audit Committee, I am pleased to present
its report for the period ended 31 December 2023 and
to recommend to the Board that the Annual Report,
taken as a whole, is fair, balanced and understandable.
In making this recommendation, and in addition to the
external audit review, the Committee has applied robust
governance measures.
I expect this to be my last Audit Committee Report as
Chairman of the Audit Committee. Although I will be offering
myself for re-election at the forthcoming AGM, a search
has begun for my successor as I near the limit of the period
in which I will be considered independent. I will stand
down from the Board and my role as Audit Chair after
my successor is appointed. I have very much enjoyed my
involvement with the Company in the time I have spent on
the Board and would like to thank the finance team within
the Company for their dedication and the support which
they have given me over the years.
I look forward to meeting with shareholders at the Annual
General Meeting to answer any questions on the work
of the Committee.
Jonathan Silver
Chair, Audit Committee
5 March 2024
Jonathan Silver
Committee Chairman
Fair, balanced and
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 each 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
• oversight of the external audit process.
Final approval of the Annual Report is provided
by the Board, on the recommendation of
the Committee.
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CORPORATE GOVERNANCE
Members
During the year and at the date of this report, Committee
members were:
Jonathan Silver (Committee Chair)
Maggie Buggie
Gary Bullard
Wendy Koh
Edgar Masri
As required, the Audit Committee is comprised of at least
three members, all of whom are Independent Non-executive
Directors of the Company, with the necessary range
of financial and commercial expertise to challenge
management. Two members may constitute a quorum.
The Code also 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 Chair 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 by reviewing significant financial reporting
judgements contained in them before their submission to
the Board for approval;
• reviewing and challenging on matters of financial reporting,
where necessary, the consistency of and any changes to
accounting and treasury policies, for example considering
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 and emerging 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 and 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 and identifying money laundering, and
the Group’s arrangements for whistleblowing; and
• overseeing the relationship with the Group’s External
Auditor, 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 its
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 its work and fees paid to it for
audit, assessing the effectiveness of the audit process,
and agreeing the policy in relation to the provision of
non-audit services.
How the Committee operates
Committee members are expected to be financially literate
and to have an understanding of the following areas:
• 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 Chair, the CEO, the CFO, the
Head of Internal Audit & Risk 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
Deloitte LLP, and two meetings with the Head of Internal Audit
& Risk, without the Executive Directors 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 in
2023 the Committee was found to be operating effectively.
The terms of reference of the Audit Committee were reviewed
and approved during the year and can be viewed on the
Company’s website at corporate.spirent.com.
Audit Committee report continued
78 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Meetings
The Audit Committee met three times during the year, with the
Committee agenda typically linked to events in the Group’s
financial calendar.
Activities during the year
The Audit Committee’s activities, again, principally related to
financial reporting, internal control and risk management,
preparation of the viability statement and scrutiny of the
external audit. The Committee considered all material
controls, including financial, operational and compliance
controls and their effectiveness and monitored the internal
audit plan as carried out by the Head of Internal Audit &
Risk, assisted by PwC. This work also encompassed other
related areas, such as the Group’s approach to IT controls,
site security and cybersecurity, as well as examining the
disclosures in this Annual Report based on the Task Force
on Climate-related Financial Disclosures. The Committee
was also kept abreast of new reporting and governance
requirements and preparations by management for
reporting on such.
Risk Sub-Committee
During the period under review, the Audit Committee had
oversight of a Sub-Committee dealing with the risks and
uncertainties being dealt with on a Group and business
unit level.
The Risk Sub-Committee met regularly throughout the year to
monitor the Group’s risk appetite and registers.
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 the notes 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
the potential for risks to impact on the viability of the Group;
• reviewed and considered assumptions in relation to the
going concern basis for preparation of financial statements;
• reviewed, challenged and monitored the appropriateness
of alternative performance measures; 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 Chair reports any significant findings or
identified weaknesses to the Board.
Significant financial issues considered and
addressed in relation to the financial statements
The Audit Committee gives careful consideration to those
aspects of the financial statements that required significant
accounting judgements or where there is estimation
uncertainty. These areas are set out in the notes to the
consolidated financial statements. The Committee received
detailed reports from both the CFO and External Auditor on
these areas and on many other matters which they believed
should be drawn to the Committee’s attention and challenged
the treatment and assumptions where it was felt necessary to
ensure that the judgements were robust and supportable. The
external auditor’s report on the financial statements was also
reviewed, with particular reference to those matters reported
as carrying risks of material misstatement.
Management override of controls
The Audit Committee is aware of the risk that management
overrides the controls environment that is in place in order to
misrepresent performance by the business. The effectiveness
of internal controls is monitored and challenged by the
Committee both directly and through the continuing internal
audit work undertaken by the Head of Internal Audit &
Risk and PwC.
The Committee is aware that International Standards on
Auditing require the External Auditor to presume risk of
fraud in respect of management override of controls and
that as part of its audit programme Deloitte considers the
higher areas of risk deriving from inappropriate posting of
journals, unintentional or intentional management bias in key
judgements used in material estimates and accounting for
transactions outside the ordinary course of business.
Revenue recognition
The Committee is mindful of the risk that continuing
pressure on management to meet certain targets and to
respond to specific customer requests may drive additional
deal complexity which could, in turn, lead to complex or
judgemental accounting, in particular due to the impact
of external factors on business sentiment. This may result
in inappropriate recognition of revenue and associated
balances. It is also aware of the heightened risk around the
high volume of orders fulfilled around the period end, which is
highlighted as an additional fraud risk as an area that could
be manipulated by management.
Management updates the Committee on significant contracts
in the year. The Committee also receives regular reports
on management’s oversight of areas where significant
judgement is exercised and challenges findings to ensure
compliance with accounting standards.
As part of its update to the Committee, Deloitte discussed
the procedures performed in relation to reviewing specific
large and judgemental transactions and revenue recognised
around the period end. Deloitte and the Committee also
discussed the procedures performed in relation to the Group’s
arrangements for sales through distributors or with the
assistance of agents.
79Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Adjusting items
• The Committee kept the definition and use of adjusting
items under review throughout the period, in particular
because of the potential impact upon the Group’s reported
profitability. The Committee paid close attention to the
treatment of costs connected to the items related to the
restructuring in 2023.
Pensions
• The Committee receives regular updates on the
accounting for the funded defined benefit pension plans.
The Committee monitors the approach and assumptions
made by management and advisers in relation to
recognition of the current surplus or deficit.
Tax accounting
• The Committee received regular updates from the VP
of Global Tax and Group Financial Controller on the
appropriateness of recognised tax provisions, recoverability
of deferred tax assets and the key tax judgements. The
Committee evaluated updates from management in
respect of uncertain tax positions, the tax provision and the
deferred tax position. The Committee was satisfied that
management’s approach to the accounting for taxation
was appropriate. The Committee also noted Deloitte’s
use of tax specialists and considered its view on the tax
accounting matters.
Goodwill impairment
• The Committee receives a report setting out the approach
and outcomes of the Group’s annual goodwill impairment
exercise which takes place each year, together with additional
reviews of the impact on the goodwill position of specific
events or changes to the assumptions made.
Misstatements
Management reported to the Committee that it was not
aware of any material or immaterial misstatements made
intentionally to achieve a particular outcome. The External
Auditor reported to the Committee misstatements it had
found in the course of its work. 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
the year; and
• reviewed regular reports on taxation, treasury operations,
health and safety and cybersecurity.
The Board is responsible for the effectiveness of the Group’s
system of internal control, which has been designed and
implemented to meet the particular requirements of the
Group and the risks to which it is exposed. Details can be
found below on the Group’s internal control environment,
how risk is managed and the Committee’s review of
the effectiveness of the risk management and internal
control systems.
Internal control environment
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
latest Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting issued by the FRC.
The CFO is responsible for internal financial 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 and 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.
The following key elements comprise the internal
control environment:
• an appropriate organisational structure with clear lines
of responsibility;
• an experienced and qualified finance function which
regularly assesses the possible financial impact of the risks
facing the Group;
• a comprehensive annual business planning process
and strategy review; systems of control procedures and
delegated authorities which operate within defined
guidelines, and approval limits for capital and operating
expenditure together with other key business transactions
and decisions;
• a robust financial control, budgeting and forecast system
which includes regular monitoring, variance analysis, key
performance indicator reviews and risk and opportunity
assessments at Board level; procedures by which the
consolidated financial statements are prepared, which
are monitored and maintained through the use of
internal control frameworks addressing key financial
reporting risks arising from changes in the business and
accounting standards;
• established policies and procedures setting out expected
standards of integrity and ethical standards which reinforce
the need for all employees to adhere to all legal and
regulatory requirements;
Audit Committee report continued
80 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
• an annual internal controls compliance checklist; and
• the Head of Internal Audit & Risk, who is supported by
a co-sourced internal audit resource. In 2017, the Group
adopted co-source arrangements and appointed PwC,
which continues to support the Head of Internal Audit & Risk
to formulate and execute the Group’s internal audit plan.
The plan for 2023 was approved to ensure that there was
appropriate coverage of the internal control environment,
strategic priorities and key risks identified by the Board. At
each Committee meeting the Head of Internal Audit & Risk,
assisted by PwC, gives an update on the progress of the
internal audit plan, which is reviewed to ensure that it is in
line with the Committee’s expectations.
During the year the internal audit plan was amended so
that additional areas were added to the plan based on
the changes that gave rise to increased levels of risk. These
changes to the agreed audit plan were approved by the
Committee.
The Head of Internal Audit & Risk has direct access to the
Board Chair and to the Committee Chair and is accountable
to the Committee, meeting regularly with both the Committee
and its Chair, without the presence of management, to
consider the work of internal audit.
The effectiveness of the execution of the internal audit plan is
monitored at each Audit Committee meeting and also forms
part of the Board’s annual evaluation process.
The 2023 evaluation confirmed that the Directors are satisfied
with the arrangements and approach currently in place.
Risk management
Members of the Executive Risk Committee meet to challenge
and debate the assessment of risk including emerging risks,
for the Group as a whole and within each business unit, which
have submitted 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 CFO and Head of
Internal Audit & Risk attended all Audit Committee meetings to
report on internal control and risk management and notified
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 cybersecurity or
business continuity, are provided at the Committee’s request.
Business Ethics Policy
A policy that sets standards of professionalism and integrity
for all employees and operations was relaunched in 2020
and is regularly refreshed. The Business 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.
Anti-bribery training is required to be taken by certain
employees periodically.
Acquisitions and divestments
Disciplined due diligence processes and post-acquisition
integration programmes are in place.
Fraud
The Board of Directors is aware that it bears the primary
responsibility for the detection and prevention of fraud. The
Directors are aware of the potential for fraud and this features
as an element of the Board’s risk assessment and corporate
governance procedures. The Audit Committee reviews these
procedures to ensure that they are in place and working
effectively. This oversight is supported by the work of the
Head of Internal Audit & Risk and PwC as part of their internal
audit work.
The Group’s Business Ethics Policy, which has been
communicated to all employees, makes clear that employees
also have a responsibility for fraud prevention and detection
and any suspicion of fraud will be reported immediately and
investigated vigorously.
Raising concerns at work
The Committee aims to ensure that employees are able
to raise any concern in confidence about any possible
improprieties in business practices or other matters. A
Group-wide Whistleblowing Policy is in place and is regularly
highlighted to employees and an external third party reporting
service is available to employees for the reporting of any concerns.
Disclosures under this arrangement are investigated promptly
by the Company Secretary and the Head of Internal Audit
& Risk, and are escalated to the Executive Directors and the
Committee as appropriate, with follow-up action being taken
as soon as practicable thereafter.
The Committee is satisfied that the means for employees to
raise concerns at work are appropriate to the size and scale
of the Group.
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: its performance
in discharging the audit and interim review of financial
statements, its independence and objectivity, and its
re-appointment, remuneration and feedback on these
matters is given to the External Audit Partner.
Auditor appointment
Each year the Committee assesses and reports to the Board
on the qualification, expertise, resources and effectiveness, as
well as the independence of the External Audit Partner and
their team.
The Committee notes and confirms compliance with the
Competition and Markets Authority Order 2014 (the CMA
Order) in respect of statutory audit services for large companies.
81Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Auditor appointment continued
Following a thorough tender process in 2020, Deloitte LLP was
appointed by the Company at its Annual General Meeting in
April 2021, to audit the financial statements of the Company
for that and subsequent financial periods. Jane Makrakis
succeeded Robert Knight as audit partner during the year.
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 its handling
of key judgements, its responsiveness to the Committee
and its commentary where appropriate on the systems of
internal control.
The Committee holds regular private meetings with the
External Auditor to assist with its assessment, including
discussion of:
• how the External Auditor has identified and addressed
potential risks to audit quality;
• the controls in place within the External Audit firm to identify
risks to audit quality, including the results of internal and
external inspections of the External Audit team and firm;
• whether the External 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; and
• the content of the External Auditor’s management letter.
In addition, the Committee monitors the External Audit
partner’s involvement in their team’s work to ensure
sufficient oversight and direction of work was evident, in
particular with regard to the audit of significant components
involving judgements.
The effectiveness of the External Auditor also forms part
of the Board’s annual evaluation process.
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. Deloitte has provided
a letter confirming its belief that it remained independent
throughout the period under review 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.
Policy on non-audit services
The Committee is responsible for pre-approving the
engagement of the External Auditor for any and all 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 (2023 $0.3 million
(2022 $0.3 million)). These were less than one-third of the
Group’s audit fee of $1.7 million (2022 $1.4 million). The
Committee can confirm that no non-audit services were
provided by Deloitte during the period under review other
than the interim review fee of $0.1 million (2022 $0.1 million).
Audit Committee report continued
82 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Report on Directors’ remuneration
Dear shareholder
I am pleased to present the Directors’ Remuneration Report
for the year and our proposed Remuneration Policy which
will be put to the AGM in May 2024.
As ever, the overarching duty of the Committee is to ensure
the Company has a remuneration structure that allows it to
recruit and retain executives of the high calibre required to
run a complex global organisation and pay them in a way
that is both motivational and aligned with investors’ interests.
Our triennial review of the Remuneration Policy (Policy) is an
opportunity to assess whether our structures are working as
intended and propose change where necessary. However,
readers of previous reports will know that we have been
acutely aware for quite some time of the tension between
the exigencies of a US-led business whose operations and
sales are both largely centred in the US, with the standard
pay model for a UK-listed company.
Last year, we adjusted the salary for our US-based
Chief Executive. Before doing so, I talked to many of our
shareholders, who mostly understood the need to make
this change but some of whom did not feel able to support
the increase. As I signalled then, we intended to return this
Gary Bullard
Committee Chairman
Compliance statement
The Report on Directors’ remuneration for the year
ended 31 December 2023 describes how the Board,
via the Remuneration Committee (the Committee),
has complied with the provisions of the 2018 UK
Corporate Governance Code.
The Report is presented in two parts: the Directors’
Annual Remuneration Report and the Directors’
Remuneration Policy, the former setting out details of
how the Remuneration Policy was implemented for
the year ended 31 December 2023 and how it will be
applied for the year ending 31 December 2024.
year to the broader question of pay structure - in particular
long-term incentives - where the divergence between UK and
US practice causes as many issues for competitiveness as do
pay levels.
Over the course of this year, the Committee has developed
proposals which I have discussed with our major shareholders
in two rounds of consultation. I have been encouraged that
most have come to our discussions with an open mind,
willing to listen to the challenges of operating in the global
market for technology talent, and to hearing our proposals
for how to meet those challenges. There is no doubt that the
broader conversations about the challenges faced by global
companies listed in London have helped move this debate on
and rightly so.
Following our consultation, we are proposing to put to the
AGM in April 2024 a Policy that will give us future flexibility to
use both restricted shares and performance shares, and to
increase the levels of long-term incentive award. However,
we have made a clear undertaking not to use either facility
for this coming year. Moreover, all elements of pay for the
two Executives Directors are frozen at last year’s levels in
recognition of the challenging year we have experienced.
I summarise below both the pay outcomes for 2023 and our
proposed Policy changes; and set them out in much more
detail in the rest of this report.
Executive remuneration outcomes in 2023
2023 has been a very challenging year for the telecommunications
market. Turbulence in the geopolitical landscape and the current
economic environment have resulted in key customers delaying
their investment plans, impacting timing of order placements
and contributing to ongoing uncertainty and reduced visibility
in the near term. This is reflected in the remuneration outcomes
for the year against the challenging targets we set ourselves.
Despite this, our confidence in 5G as an enduring growth driver
remains intact and actions taken by the management team in
the year ensure that Spirent is well positioned to capitalise on
these opportunities in the medium term.
The Annual Incentive for 2023 was based on the achievement
of targets for profitability, revenue and strategic and operational
priorities. For 2023, the annual bonus will pay out at between
15.5 per cent and 16.7 per cent of maximum. Full details of
the specific financial and non-financial targets set and the
performance against those targets can be found on pages 86
to 87. One-third of the Annual Incentive achieved for 2023 will
again be deferred into shares, to be retained for a period of
three years.
The Long-term Incentive Plan awards granted to the
Executive Directors in 2021 were based on stretching
Earnings Per Share and Absolute Total Shareholder Return
performance conditions. Unfortunately, measurement against
both of these elements will mean that the awards lapse in full.
Full details of the targets set and the performance against
those targets can be found on page 89.
The incentive outcomes above have resulted in a total single
figure for the CEO of £1.4 million (2022 £2.2 million) and for
the CFO of £0.8 million (2022 £1.1 million).
In the Committee’s view, the Policy acted as intended in 2023
and therefore no discretion was exercised in respect of the
pay outcomes.
83Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Remuneration Policy
The principal proposed change under the new Policy is the
implementation of a hybrid long-term incentive (LTI) plan in
place of the current Performance Share Awards (PSA). This
hybrid plan involves making two, distinct award grants; one
element of the plan would operate as a PSA, in line with the
current approach, while the other element would operate as
a Restricted Share Award (RSA).
The proposed hybrid plan aligns better with market practice
in the US, which represents the majority of Spirent’s operations
and sales, and is the home location of the majority of the
Executive Committee, including our CEO. Additionally,
introducing such a plan provides the opportunity in the
future for consistency between our Executive Directors and
a number of our senior leadership team in the US, where
individuals receive RSAs alongside their PSA awards.
The Committee does not currently intend to use the additional
headroom under the new Policy, nor the ability to use RSAs,
for either of the two current Executive Directors and would
consult with shareholders if this position changes in the future.
However, the Committee believes that this structural change
to the Policy is necessary to remain competitive, particularly
if we were to need to recruit externally from the US market in
the future.
I have set out further details on the intended operation of
the structure below. Full details of how the Policy will be
implemented in 2024 is set out in the ‘Executive Remuneration
in 2024’ section below:
• Structure: the proposed LTI plan will incorporate both a
PSA and an RSA, better aligning with the US market and
to enable Executive Directors to have both an element of
performance based and time based awards.
• Award Mix: The mix of the PSA and RSA will be determined by
the Remuneration Committee each year. The Remuneration
Committee will normally consult with shareholders if it intends
to change the mix for executive directors from the prior year.
• Quantum: The maximum on-target opportunity is 200 per
cent of salary, which will be made up of:
– Performance Share Awards (PSA), for which the on-
target value is half the face value, i.e. for every £1 of
on-target award value, the maximum opportunity is £2.
– Restricted Share Awards (RSA), for which the on-target
value is equivalent to their face value.
The Policy allows for a maximum on-target opportunity of
200 per cent of salary to enable higher grants where these
may be necessary, for example when recruiting from the
US market.
• PSA performance measures: The Committee will review
and decide on performance measures prior to the
commencement of each performance cycle, taking into
account business priorities.
• RSA underpin: The RSA will be subject to continued
employment and to satisfactory assessment of a
performance underpin.
Shareholder Consultation
As part of the Committee’s process of reviewing the Policy,
we consulted with circa 30 shareholders, who each hold over
1 per cent of the Company’s share capital and who account
for approximately 70 per cent of the Company’s issued share
capital. We were grateful to those who took the time to meet
with us to discuss our proposals and were pleased that
virtually all shareholders were open to the use of a hybrid
plan and understood our rationale for introducing one today
to give us the flexibility to use the arrangement over the
duration of the new Policy cycle if it is needed. Shareholder
questions primarily focused on how the Committee intends
to implement the Policy in 2024, details of which are set
out below.
Executive remuneration in 2024
We took the time to discuss the outcome of the vote on the
remuneration report at the 2023 AGM with shareholders
during the consultation and this informed the proposed
implementation for the coming year.
We are not proposing to make any changes to Executive
Director packages for 2024. This means that neither Executive
will receive a base salary increase, which is in line with the
wider employee base, where most employees received no
increase at all during 2023.
For the Annual Incentive, the metrics of profitability, revenue
and strategic and operational priorities remain the same, with
the targets for the financial metrics updated to require growth
from the achievements of 2023. The Committee believes the
targets they have set to be challenging and appropriate;
details of the actual targets will be disclosed in the 2024
Annual Report. One-third of the Annual Incentive achieved
will be deferred into shares, to be retained for a period of
three years.
No changes are proposed to the LTIP grants to the current
Executive Directors for 2024, with the grant levels as follows:
• CEO PSA: 200 per cent of salary face value (i.e. on-target
value of 100 per cent of salary).
• CFO PSA: 175 per cent of salary face value (i.e. on-target
value of 87.5 per cent of salary).
Neither Executive Director will receive an RSA component
in 2024. Given there is no change to LTI quantum for 2024,
these awards are permissible under the current Policy and it
is therefore the intention to make the awards at the normal
time (i.e. shortly after announcement of full year results) rather
than waiting until after the vote on the new Policy at the AGM.
The 2024 PSA award will be assessed against an EPS growth
metric for 50 per cent of the award, a relative TSR metric
for 40 per cent of the award and an ESG measure for 10 per
cent of the award. In line with the approach for the 2023 LTIP
award, the relative TSR metric will be measured based on
performance compared to the FTSE 250 index as a whole
(excluding financial services and investment trusts).
I hope you find this report clear and informative. I will be available
at the 2024 AGM to respond to any questions that shareholders
may have with respect to the work of the Committee.
Gary Bullard
Chairman, Remuneration Committee
5 March 2024
Report on Directors’ remuneration continued
84 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
At a glance
Performance snapshot
Annual Incentive performance
Measure
Performance
opportunity (%)
Achievement
(% of max)CEO CFO
Adjusted operating profit 50.00 50.00 –
Revenue 30.00 30.00 –
Services and solutions 6.67 6.67 50.0
ESG 6.67 6.67 100.0
Hyperscalers 6.67 – 82.0
Cash flow – 6.67 100.0
Long-Term Incentive performance
Measure Performance (%)
Achievement
(% of max)
Earnings per share
1
50.00 –
Relative Total
Shareholder Return
2
50.00 –
Notes
1. Data shown relates to the EPS element of the LTIP award which
will vest in May 2024, based on performance to 31 December 2023.
2. Data shown relates to the TSR element of the LTIP award which
vested in May 2023.
Alignment of Executive remuneration with Group strategy
Performance measure
Annual
Incentive LTIP Reason for selection
Adjusted operating profit A key performance indicator showing overall performance of the Group
Revenue
A key performance indicator showing how successful Spirent has been
in expanding its markets and growing its customer base
Strategic and operational
priorities
A focus on specific factors aligned with Spirent’s short and medium-term
strategic objectives that promote long-term performance
Adjusted EPS
A key measure of underlying profitability
Relative TSR
A key measure of Spirent’s return to shareholders through the cycle
£000
Salary
Benefits
Retirement benefits
Annual Incentive
Long-Term Incentive
Total CEO remuneration £000
3,000
2,500
2,000
1,500
1,000
500
0
3,000
2,500
2,000
1,500
1,000
500
0
2023 20232022 2022
Total CFO remuneration £000
Performance period
Deferral/retention period
Incentive timelines
Annual Incentive
Long-Term Incentive
01 2345
Years
2
31
3
1,416.8
2,208.4
835.7
1,110.6
85Spirent Communications plc Annual Report 2023
Annual remuneration report
Single figure of total Executive Directors’ remuneration 2023 (audited)
The tables below set out the single figure of remuneration received by the Executive Directors during 2023. Details of
performance under the Annual Incentive and Long-Term Incentive Plans are set out on pages 86 to 87 and 89 respectively.
Paula Bell
£000
Eric Updyke
1
£000
2023 2022 2023 2022
Salary/fees
2
403.6 384.4 727.3 635.8
Benefits
3
15.0 16.9 15.7 25.4
Retirement benefits
4
56.5 76.9 43.5 25.2
Fixed remuneration 475.1 478.2 786.5 686.4
Annual Incentive
5
84.1 325.1 168.7 582.4
Long-Term Incentive
6
276.5 307.3 461.6 939.6
Variable remuneration 360.6 632.4 630.3 1,522.0
Tota l
7
835.7 1,110.6 1,416.8 2,208.4
Notes
1. 2023 data for Eric Updyke, who is US based and paid in US Dollars, has been converted using an exchange rate of £1.244:£1 (2022 $1.236:£1).
2. Salary/fees: cash paid in respect of the year.
3. Benefits: taxable value of all benefits in respect of the year which comprise private healthcare, permanent health insurance, life insurance and car allowance.
4. Retirement benefits: cash value in lieu of pension for Paula Bell; Company contributions to 401(k) plan and to Deferred Compensation Plan for Eric Updyke.
5. Annual Incentive: cash incentive payable in respect of performance during 2023, one-third of the value of which will be deferred into shares.
6. Long-Term Incentive: value of elements of LTIP awards vesting based on performance during 2023.
7. The total single figure of remuneration for 2022 for each Executive Director has been restated to reflect the actual Long-Term Incentive figure using the share
price at the date of vesting of 174.55 pence.
Annual Incentive (audited)
During 2023, incentives were available to Executive Directors on an annual basis, with the following maximum total Annual
Incentive available:
2023
base salary
£000
On-target total
incentive available
Maximum total
incentive available
Per cent of
base salary £000
Per cent of
base salary £000
Paula Bell 403.6 75.0 302.7 125.0 504.5
Eric Updyke 727.3 90.0 637.7 150.0 1,091.0
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 50 per cent and 30 per cent of the incentive respectively, with performance
against an agreed set of strategic and operational priorities linked to improving Spirent’s performance representing the
remaining 20 per cent of the incentive.
Adjusted operating profit element (50 per cent of Annual Incentive)
Target
$ million
Achievement
$ million
Entry point (20 per cent) 109.2 –
On target (60 per cent) 115.2 45.2
Maximum (100 per cent) 121.2 –
Achievement 0 per cent
Report on Directors’ remuneration continued
86 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Revenue (30 per cent of Annual Incentive)
Target
$ million
Achievement
$ million
Entry point (20 per cent) 565.0 –
On target (60 per cent) 595.0 474.3
Maximum (100 per cent) 607.0 –
Achievement 0 per cent
Strategic and operational priorities (20 per cent of Annual Incentive)
Eric Updyke and Paula Bell were each set priorities at the start of 2023, with performance of each target to be equally weighted.
Services and Solutions (CEO: Eric Updyke; CFO: Paula Bell)
Objective: Driving Managed Solutions Growth.
Managed Solutions growth is a key element of our strategy, providing greater confidence over future revenue projections and helping
to mitigate the impacts of technical cyclicality. Given the significant progress in terms of (i) growth of non-telco Managed Service
bookings and (ii) Managed Solutions as a percentage of overall revenue, the Committee felt a 50% achievement appropriate.
Achievement
Achievement 50.0 per cent
ESG (CEO: Eric Updyke; CFO: Paula Bell)
Objective: Submission of Spirent’s implementation plan to SBTi.
Preparation of full implementation plan to SBTi.
Status Achievement
Achievement Achieved 100 per cent
Cash Flow (CFO: Paula Bell)
Objective: To maintain strong cash flow conversion in line with the agreed budget.
Strong conversion of operating profit into free cash flow allows Spirent to fund growth opportunities, both organic and inorganic,
in addition to making returns to shareholders through dividends. Targets were set by the Committee at 65 per cent at entry,
69 per cent at target and 74 per cent at stretch. The free cash flow conversion also excludes exceptional items (i.e. acquisitions,
dividends, share buyback, additional pension funding).
Free cash flow
% Achievement
Achievement 83.0 100 per cent
Hyperscalers (CEO: Eric Updyke)
Objective: Demonstrate sustainable, profitable growth with Hyperscaler customers.
Cloud strategy is an important focus area to drive sustainable, profitable growth. One measure of our progress in this area is
bookings growth within the Hyperscaler segment (e.g. Facebook, Apple, Google, Amazon, Microsoft, Equinix, Oracle). Growth
targets for bookings with this group of customers were set by the Committee at $40.5 million at entry, $43.0 million at target and
$45.0 million at stretch.
Bookings
$ million Achievement
Achievement 44.1 82.0 per cent
Discretion
Following assessment of performance against the targets that have been set, the Committee agreed that no discretion would be
exercised with regard to the outcomes for the 2023 Annual Incentive.
87Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Annual Incentive (audited) continued
Summary of Annual Incentive target outcomes
CFO
Paula Bell
CEO
Eric Updyke
Per cent of total
incentive
Achievement as per
cent of maximum
opportunity
Achievement as per
cent of maximum
opportunity
Adjusted operating profit 50.0 – –
Revenue 30.0 – –
Strategic and operational priorities 20.0 16.7 15.5
• Services and solutions – 50.0 50.0
• ESG – 100.0 100.0
• Cash flow – 100.0 –
• Hyperscalers – – 82.0
Total 100.0 16.7 15.5
2023 2022
Per cent of
maximum
Annual
Incentive
opportunity
Per cent of
annual base
salary £000
Per cent of
maximum
Annual
Incentive
opportunity
Per cent of
annual base
salary £000
Paula Bell 16.7 20.9 84.1 67.7 84.6 325.1
Eric Updyke 15.5 23.2 168.7 61.0 91.5 582.4
Deferred Bonus Plan (audited)
The Remuneration Policy approved by shareholders at the 2019 AGM introduced the deferral of one-third of the incentive
achieved under the Annual Incentive into shares, to be retained for a period of three years. This applies to Executive Directors
employed by the Group at the date of the payment of the 2023 Annual Incentive.
The deferral element of the 2023 Annual Incentive will be applied as follows:
Total value of Annual
Incentive achieved
£000
Value of Annual
Incentive payable as
cash
£000
Value of Annual
Incentive deferred into
shares
£000
Vesting date for
deferred shares
Paula Bell 84.1 56.1 28.0 March 2027
Eric Updyke 168.7 112.5 56.2 March 2027
Total retirement entitlements (audited)
During 2023, Paula Bell received a taxable cash allowance in lieu of pension of 14 per cent of base salary; the allowance paid
was £56,509 (2022 20 per cent of base salary, £76,884).
Eric Updyke is eligible to participate in the Spirent Communications, Inc 401(k) programme with a 4 per cent Company
match of his own contributions, subject to any applicable IRS cap. Mr Updyke enrolled in the programme on 1 January 2020,
receiving Company contributions for 2023 of £10,390 (2022 £9,871). Mr Updyke is also eligible to participate in the US Deferred
Compensation Plan, a scheme which allows individuals to elect to defer compensation from the Company until a later date.
A 4 per cent Company match was applied to compensation deferred in 2023, with Mr Updyke receiving £33,061 (2022 £15,310).
Long-Term Incentive Plan outcomes (audited)
In line with previous years, the operation of the LTIP is such that the EPS and absolute TSR performance measures run over
different performance periods.
EPS Absolute TSR
The performance period for EPS performance conditions
starts at the beginning of the financial year in which the
award is granted and ends three financial years later.
The performance period for Absolute TSR performance conditions
starts shortly before the date of grant and ends three years later.
Report on Directors’ remuneration continued
88 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
The LTIP value reported in the Single Total Figure of Remuneration on page 86 relates to measures where the performance
period completed during the relevant year. Consequently, the EPS and Absolute TSR elements disclosed in the Single Total Figure
of Remuneration relate to different LTIP awards. This is set out in further detail below.
Award Performance metrics
Weighting
per cent Threshold Maximum Actual
Achievement
per cent
2020 LTIP EPS
(2022 Single Figure) 50.00 15.5 cents 18.82 18.86 100.00
Absolute TSR
(2023 Single Figure) 50.00 17.00% 42.00% (2.1%) –
2021 LTIP EPS
(2023 Single Figure) 75.00 16.99 cents 20.62 cents 7.55 –
Absolute TSR
(2024 Single Figure) 25.00 20.00% 48.00%
Performance period not
yet complete
2023 LTIP Single figure reconciliation
Absolute TSR
(2020 LTIP
Award)
EPS
1
(2021 LTIP
Award)
2023 Single
Figure
Paula Bell Shares awarded 91.134 129,590 –
Achievement per cent – – –
Shares vesting – – –
Value of vested shares
2
£000 – – –
Increase in value due to share price appreciation £000
–––
Eric Updyke Shares awarded 181,238 218,176 –
Achievement per cent – – –
Shares vesting – – –
Value of vested shares
2
£000 – – –
Increase in value due to share price appreciation £000 – – –
Notes
1. The level of vesting for the EPS element of the 2021 award is based on the audited EPS figure published in this Annual Report 2023; the estimate value is based on
the three-month average price of a Spirent Ordinary Share to 31 December 2023 of 107 pence.
2. TSR value of vested shares is calculated using the share price on the date of vesting.
External appointments (audited)
From 1 September 2018, and with the approval of the Company’s Board, Paula Bell was appointed to a non-executive director
role with Keller Group plc; she became chairman of the audit committee of Keller Group plc on 1 January 2019. Fees in respect of
this directorship are paid directly to and retained by Ms Bell.
On appointment in 2019 the Board agreed that it was acceptable for Eric Updyke to continue with his non-executive role with
Symend, Inc. Fees in respect of this directorship are paid directly to and retained by Mr Updyke.
Payments to past Directors (audited)
No payments were made to past Directors during the year under review.
Payments for loss of office (audited)
There were no payments for loss of office during the year under review.
Payments of advances, credits or guarantees (audited)
There were no payments of advances, credits or guarantees to Directors during the year under review.
89Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Executive Directors’ interests in share awards (audited)
The table below sets out the Executive Directors’ interests in share awards. Details of the Executive Director shareholding
requirements and achievements against these are set out on page 95.
Unvested
LTIP awards
1
Unvested
DBP awards
2
Paula Bell
3
At 1 January 2023 468,822 181,249
Granted at 178.74 pence (face value LTIP £706,348; DBP £108,374) 395,182 60,632
Dividend equivalents – 4,736
Vested/released 91,134 59,227
Lapsed 91,134 –
At 31 December 2023 864,014 187,390
Eric Updyke
3
At 1 January 2023 1,298,841 308,810
Granted at 178.74 pence (face value LTIP £1,489,748; DBP £197,531) 833,472 110,513
Dividend equivalents – 6,701
Vested/released 181,238 83,783
Lapsed 181,239 –
At 31 December 2023 2,132,313 342,241
Notes
1. Awards under the LTIP will only vest to the extent that relevant performance conditions are met.
2. No performance conditions apply to DBP awards.
3. Face value equals number of awards at the price granted.
Share incentive interests awarded during the year (audited)
In March 2023 the Committee approved awards to Ms Bell and Mr Updyke, as shown in the table above, using an average
closing share price for the five days prior to the award date, as follows:
• Restricted Stock Units under the Deferred Bonus Plan representing one-third of the value of the Annual Incentive outcome
based on performance during 2023. These awards will vest on 15 March 2026, with no further performance conditions to
be satisfied.
• Performance Shares under the Long-Term Incentive Plan equivalent to 175 per cent and 200 per cent of base salary
respectively. The metrics and weightings for the 2023 LTIP award to Executive Directors were changed from those used in
previous years, in response to feedback from shareholders.
50 per cent of the award:
Earnings per share
The EPS performance period starts at the beginning of the financial year in which the award is made, in this case on 1 January 2023,
and ends after three years, in this case on 31 December 2025. The adjusted EPS figure reported for the financial period to
31 December 2022, which forms the baseline for this performance target, was 18.86 cents.
Target EPS (adjusted) Proportion of Performance Shares vesting (per cent)
Below 21.21 cents 0
21.21 cents 25
Above 21.21 cents and below 25.79 cents On a straight-line basis between 25 and 100
25.79 cents and higher 100
Report on Directors’ remuneration continued
90 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
40 per cent of the award:
Relative TSR against the FTSE 250 index (excluding financial services and investment trusts)
When determining Relative TSR growth for the Company, share prices are averaged over 90-day periods immediately prior to,
and at the end of, the performance period commencing 14 days prior to the date of award and ending three years later.
Relative TSR
1
- total growth Proportion of Performance Shares vesting (%)
Below Median growth 0
Median growth 25
Above Median but below Upper Quartile growth On a straight-line basis between 25 and 100
Upper Quartile growth or higher 100
Note
1. Growth includes re-invested dividends.
10 per cent of the award:
ESG
In 2023 produce an optimisation plan of Spirent’s facilities and lab footprint in order to achieve longer-term carbon reduction
goals. Implement that plan and achieve the identified carbon reduction targets, such reductions to be externally assured.
Awards made to Executive Directors under the Spirent Long-Term Incentive Plan in 2023 are subject to a post-vesting holding
period of an additional two years.
Dilution (audited)
Overall shareholder dilution resulting from the Company’s discretionary share incentive plans (on a rolling ten-year basis) has
decreased slightly by 0.8 per cent when comparing the positions at 31 December 2023 (0.5 per cent) and 31 December 2022
(1.3 per cent). The overall number of share incentives outstanding has increased to 11.1 million at 31 December 2023 (2022 8.4 million).
Table of CEO remuneration
1
Year CEO
CEO single figure of
total remuneration
£000
Annual bonus
payout against
maximum
opportunity
per cent
Long-Term Incentive
vesting rates against
maximum
opportunity
per cent
2023 Eric Updyke 1,416.8 12.1 –
2022 Eric Updyke 2,878.1 61.0 100
2021 Eric Updyke 2,536.2 100.0 86
2020 Eric Updyke 1,867.6 83.2 100
2019 Eric Updyke
2
968.8 85.1 –
2019 Eric Hutchinson
3
1,548.6 85.1 89
2018 Eric Hutchinson 1,533.4 80.0 63
2017 Eric Hutchinson 1,292.6 86.8 –
2016 Eric Hutchinson 632.6 22.6 –
2015 Eric Hutchinson 497.1 – –
2014 Eric Hutchinson 521.6 – –
Notes
1. Data for Mr Updyke’s earnings are presented in Sterling based on an average exchange rate for 2023 of $1.2705:£1. Prior year data in this table has been
recalculated from US Dollars to be presented in Sterling at the following average exchange rates: 2022 $1.2360:£1; 2021 $1.3745:£1; 2020 $1.284:£1; 2019
$1.2779:£1; 2014 $1.65:£1; 2013 $1.56:£1. During the years 2018 to 2015, Mr Hutchinson’s salary was paid in Sterling, so no currency calculation is required.
2. Eric Updyke took up the position of CEO on 1 April 2019.
3. Earnings disclosed are to 30 June 2019, when Eric Hutchinson retired from the Spirent Group.
91Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
CEO pay ratio
For the purposes of this year’s disclosure, the gender pay gap data from our 5 April 2023 snapshot has been used to identify
the three appropriate employees for comparison with the CEO (Option B). Further detail on the methodology is set out below.
The table below compares the 2023 single figure of remuneration for the individual who fulfilled the role of CEO during the
period with that of the Group employees who are paid at the 25th percentile (lower quartile), 50th percentile (median) and 75th
percentile (upper quartile) of its UK employee population.
Method
25th
percentile
pay ratio
Median
pay ratio
75th
percentile
pay ratio
2023 Option B 36:1 23:1 13:1
2022 Option B 65:1 44:1 28:1
2021 Option B 54:1 38:1 22:1
2020 Option B 50:1 32:1 18:1
2019
1
Option B 72:0 53:1 24:1
Note
1. The data provided for 2019 is the aggregate 2019 single figure of remuneration for the two individuals who fulfilled the role of CEO during the period which
includes a three-month period where both individuals were receiving remuneration and Annual Incentive payments to both individuals.
The remuneration figures for all employees were determined at 31 December 2023.
Under Option B, the latest available gender pay gap data is used to identify the best equivalent for three Group employees in
the UK whose hourly rates of pay are at the 25th, 50th and 75th percentiles for the Group and their total pay and benefits figure
for 2023 is then calculated. The identified employees are considered to be reasonably representative since the structure of their
remuneration arrangements is in line with that of the majority of the UK workforce. The table below sets out the salary and total
pay and benefits for the three identified quartile point employees:
25th
percentile
(P25)
Median
(P50)
75th
percentile
(P75)
Salary (£) £36,000 £57,919 £91,464
Total pay and benefits (£) £39,581 £61,815 £105,818
Each employee’s pay and benefits were calculated using each employee’s remuneration, consistent with the CEO remuneration,
on a full-time equivalent basis. No adjustments were made and no components of pay have been omitted.
Base salaries of all employees, including our Executive Directors, are set with reference to a range of factors including market
practice, experience and performance in role. In reviewing the ratios the Committee also noted that the CEO’s remuneration
package is weighted more heavily towards variable remuneration (including the Annual Incentive and Long-Term Incentive Plan)
than the wider workforce due to the nature of the role. This means the ratio is likely to fluctuate depending on the performance
of the business and associated outcomes of incentive plans in each year.
The Committee notes that the 2019 ratio data covered a period during which there were two individuals in the role of CEO, one
of whom (Eric Hutchinson) received a significant vesting of an LTIP award during the period; although the 2020, 2021 and 2022
data includes the vesting of the tranches of Eric Updyke’s buy-out award of restricted stock, this award was at a lower quantum.
The Committee also notes that the CEO pay ratio has increased over the prior year. This is as a result of the vesting of the third
and final tranche of Mr Updyke’s buy-out award of restricted stock falling during the same period as the vesting of his first
annual LTIP award of performance shares.
The Committee continues to believe the median pay ratio is consistent with the pay, reward and progression policies for our UK
employees. The salary and total pay and benefits levels for the CEO and median representative employee are competitively
positioned within the relevant markets and reflect the operation of our remuneration structures. These are effective in
appropriately incentivising staff, while having regard to the Company’s risk framework and risk appetite and to rewarding
the approach as well as the outcome of performance.
Report on Directors’ remuneration continued
92 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Percentage change in remuneration of the Directors and Average Employee
The table below shows the movement in salary, benefits and Annual Incentive for each of the Directors between the current
and prior years compared to the remuneration of the Average Employee
1
:
Executive Directors Non-executive Directors
2
Average
Group
Employee
1
Eric
Updyke
3
Paula
Bell
Sir Bill
Thomas
Maggie
Buggie
3
Gary
Bullard
Wendy
Koh
Edgar
Masri
Jonathan
Silver
Base salary
2022–2023 (3.3) 15.0 4.75 4.75 4.75 4.75 4.75 4.75 4.75
2021–2022 0.2 3.0 3.0 21.2 n/a 2.6 3.1 3.1 2.6
2020–2021 4.4 3.0 3.0 3.0 – 5.6 3.0 3.0 4.1
2019–2020 4.1 3.0 3.5 3.0 – 2.6 2.9 2.9 2.4
2018–2019 4.8 n/a 3.0 9.4 – 2.5 5.7 5.7 2.5
Benefits
4
2022–2023 0.6 17.0 (22.9) – – – – – –
2021–2022 (0.7) 4.2 2.7 – – – – – –
2020–2021 10.3 46.7 2.4 – – – – – –
2019–2020 7.1 38.2 2.9 – – – – – –
2018–2019 (6.6) n/a 2.7 – – – – – –
Annual Incentive
5
2022–2023 (67.6) (78.0) (41.3) – – – – – –
2021–2022 (26.2) (37.2) (30.3) – – – – – –
2020–2021 14.8 25.8 27.1 – – – – – –
2019–2020 6.2 0.7 (3.4) – – – – – –
2018–2019 12.3 n/a 36.3 – – – – – –
Notes
1. Average Group employee data is based on the employee remuneration costs and average number of employees set out in note 8 to the consolidated financial
statements with costs for the CEO, CFO and Non-executive Directors removed.
2. Non-executive Directors do not receive benefits or pension payments and are not eligible for variable remuneration.
3. Where the incumbent did not serve for the full year, the calculation has not been made as it is not representative. Eric Updyke joined the Board in April 2019;
Maggie Buggie joined the Board in April 2021.
4. Benefits include employer retirement benefit contributions and Company match payments, car allowance, health insurance and life assurance.
5. Total Annual Incentive includes all Annual Incentive payments and commission.
Relative importance of the spend on pay
The following table shows the total expenditure on pay for all of the Company’s employees compared to distributions to
shareholders by way of dividend. In order to provide context for these figures, adjusted operating profit is also shown.
2023
$ million
2022
$ million
Per cent
change
Employee remuneration costs
1
255.9 267.7 (4.4)
Distributions to shareholders
2
46.5 39.9 16.5
Adjusted operating profit
3
45.2 129.5 (65.1)
Notes
1. Remuneration, social security costs, pension and other related costs and expense of share-based payment (see note 8 to the consolidated financial statements).
2. Dividends declared and paid in the year (see note 12 to the consolidated financial statements).
3. Before acquired intangible assets, share-based payment and other adjusting items amounting to $26.8 million in total (2022 $16.8 million).
93Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Total Shareholder Return (TSR) performance
The graph below shows the TSR performance for the last ten financial years of Spirent Communications plc against the FTSE
250 Index and the FTSE TechMARK 100 Index, excluding those companies which were also constituents of the FTSE 100 Index
at the commencement of the period. These indices have been selected as the most relevant comparators for Spirent across
the time period reflected in the graph below due to Spirent’s business operations in the technology space and the Company’s
market capitalisation and size.
Ten-year TSR performance – Spirent vs FTSE TechMARK100
and FTSE 250
400
300
200
100
0
Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21 Dec 22 Dec 23
Spirent FTSE 250 FTSE TechMARK 100
1
Note
1. As of 1 January 2014, excluding FTSE 100 companies.
The middle market price of an Ordinary Share at the close of business on the first and last days the London Stock Exchange was
open for trading in 2023, was 265.4 pence and 123.3 pence, respectively, and during that period ranged between a high of 283.6
pence and a low of 90.1 pence.
Non-executive Director fees (audited)
Details of individual appointments are as follows:
Director
First appointed as
a Director
Current appointment
due to expire
Maggie Buggie 29 April 2021 2025 AGM
Gary Bullard 1 December 2016 2026 AGM
Wendy Koh 11 January 2018 2024 AGM
Edgar Masri 11 January 2018 2024 AGM
Jonathan Silver 25 June 2015 2025 AGM
Sir Bill Thomas 1 December 2016 2026 AGM
Single figure of total Non-executive Directors’ remuneration 2023 (audited)
Maggie Buggie Gary Bullard Wendy Koh Edgar Masri Jonathan Silver Sir Bill Thomas
£000 £000 £000 £000 £000 £000
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Salary/fees 58.9 56.3 69.9 67.3 58.9 56.3 58.9 56.3 70.9 68.3 235.7 225.0
Benefits
1
– – – – – – – – – – – –
Retirement benefits
1
– – – – – – – – – – – –
Tota l 58.9 56.3 69.9 67.3 58.9 56.3 58.9 56.3 70.9 68.3 235.7 225.0
Notes
1. Non-executive Directors do not receive benefits or pension payments and are not eligible for variable remuneration.
Report on Directors’ remuneration continued
94 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Executive Director shareholdings as a percentage of 2023 base salary
1
Statement of Directors’ shareholdings and share interests (audited)
The beneficial interests of the Directors and their connected persons in the shares of the Company are set out below:
At 31 December 2022
or date of
appointment
Ordinary Shares
1
At 31 December 2023
Ordinary Shares
1
At 5 March 2024
Ordinary Shares
1
Executive Directors
Paula Bell
2
509,525 593,453 593,881
Eric Updyke 642,477 933,928 933,928
Non-executive Directors
Maggie Buggie – 20,458 20,458
Gary Bullard 78,393 135,215 135,215
Wendy Koh – ––
Edgar Masri 20,000 20,000 20,000
Jonathan Silver 70,000 100,000 100,000
Sir Bill Thomas 67,442 94,873 94,873
Notes
1. Directors’ beneficial interests do not form part of the remuneration provided by the Company.
2. Since 31 December 2023, Paula Bell has acquired 214 “Partnership” Ordinary Shares and received 214 “Matching” Shares under the UK Employee Share Purchase
Plan at a price of 122.2 pence per share (204 shares) and 111.7 pence per share (224 shares), respectively.
Shareholding guidelines for Executive Directors (audited)
The Committee believes that to further align their interests with those of shareholders, Executive Directors should have a
significant shareholding in the Company. Under the 2021 (and proposed 2024) Remuneration Policy, the Committee requires
Executive Directors to build a holding of shares equivalent in value to 200 per cent of base salary.
Under the 2021 Remuneration Policy, the current Executive Directors will not be required to hold on to beneficially owned
shares after the end of their employment with the Group. However, any new Executive Directors joining the Company would be
required to retain the lower of the respective in-role shareholding guideline and the accrual shareholding immediately prior to
departure for a period of two years.
The chart below sets out the minimum shareholding requirements and the actual shareholdings for the individuals. The
percentages are a function of base salary, shareholdings and share incentives at 31 December 2023.
Beneficially owned shares (31 December 2023)
After tax value of Deferred Bonus award
After tax value of LTIP Performance Share award subject to holding period only
Note
1. For the purpose of this table, the interests have been valued using the closing share price on the last dealing day in December 2023 of 123.3 pence
per share. Details of outstanding share incentive awards is set out on page 90.
Paula Bell
Eric Updyke
0 50 100 150 200 250 300 350 400
Percentage
31
30 54
58
181
158
265%
247%
95Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Statement of implementation of Remuneration Policy in 2024 (unaudited)
Information on how the Company intends to implement the Executive Directors’ Remuneration Policy in 2024 is set out below.
Base salary
2024 2023
Per cent
change
Paula Bell £403,638 £403,639 –
Eric Updyke
1
£727,300 £727,300 –
Note
1. The figures shown represent the annual base salaries for Eric Updyke at an exchange rate of $1.244:£1.
Benefits
• Life insurance cover of four times annual base salary
• Permanent health insurance
• Private healthcare cover for executive and family
• Car allowance
Retirement benefits
In line with the wider workforce where the Director provides services, Eric Updyke is eligible to participate in the Spirent
Communications, Inc 401(k) programme with a 4 per cent Company match of his own contributions, subject to any applicable
IRS cap. Mr Updyke is also eligible to participate in the US Deferred Compensation Plan, which has a 4 per cent Company
match of the participant’s contributions which are not made to the participant’s 401(k) account due to restrictions imposed
by the IRS.
Paula Bell will receive a taxable cash sum in lieu of pension at a rate of 14 per cent of base salary.
Annual 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 2024
are as follows:
Adjusted operating profit 50.0 per cent
Revenue 30.0 per cent
Strategic and operational priorities 20.0 per cent
On-target and maximum Annual Incentive payments are as follows:
On-target
performance
per cent of
base salary
Maximum
performance
per cent of
base salary
Paula Bell 75 125
Eric Updyke 90 150
One-third of any incentive achieved through the Annual Incentive will be deferred into shares for an additional period of three
years. Details of these targets and their achievement will be disclosed in the Directors’ Annual Remuneration Report 2024.
Award under Spirent Long-Term Incentive Plan
It is anticipated that the following award will be made under the LTIP in 2024 in the form of Performance Shares:
Per cent of
base salary
Anticipated
value of award
Paula Bell 175 £706,367
Eric Updyke
1
200 £1,417,142
Note
1. The figure shown represents the annual base salary for Eric Updyke at an exchange rate of $1.2705:£1.
Report on Directors’ remuneration continued
96 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
The metrics and weightings for the 2024 LTIP award to Executive Directors are:
50 per cent of the award:
Earnings per share
The EPS performance period starts at the beginning of the financial year in which the award is made, in this case on 1 January 2024,
and ends after three years, in this case on 31 December 2026. The adjusted EPS figure reported for the financial period to
31 December 2023, which forms the baseline for this performance target is 7.55 cents.
Target EPS (adjusted) Proportion of Performance Shares vesting (per cent)
Below 7.55 cents 0
7.55 cents 25
Above 7.55 cents and below 10.32 cents On a straight-line basis between 25 and 100
10.32 cents and higher 100
40 per cent of the award:
Relative TSR against the FTSE 250 index (excluding financial services and investment trusts)
When determining Relative TSR growth for the Company, share prices will be averaged over 90-day periods immediately
prior to, and at the end of, the performance period, which will commence 14 days prior to the date of award and will end
three years later.
Relative TSR
1
– total growth Proportion of Performance Shares vesting (%)
Below Median growth 0
Median growth 25
Above Median but below Upper Quartile growth On a straight-line basis between 25 and 100
Upper Quartile growth or higher 100
Note
1. Growth includes re-invested dividends.
10 per cent of the award:
ESG
Achievement over a three-year period of the aggregate carbon emissions reduction targets necessary to meet the Science
Based Target Initiative to limit global warming to 1.5°c.
Awards made to Executive Directors under the Spirent Long-Term Incentive Plan in 2024 are subject to a post-vesting holding
period of an additional two years.
Non-executive Director fees (audited)
During 2023 the Board reviewed the level of fees to be paid to Non-executive Directors from 1 January 2024, also taking into
account the wider employee base, to ensure alignment. To avoid any conflict of interest, the matter was considered by the
Chairman and Executive Directors in the absence of the Non-executive Directors affected.
Following consideration, no increase was made. It was also agreed that the additional fees paid to Committee Chairmen and
the Senior Independent Non-executive Director would not be increased in 2024.
2024 2023
Per cent
change
Non-executive Directors £58,948 £58,948 –
Audit Committee Chairman £12,000 £12,000 –
Remuneration Committee Chairman £11,000 £11,000 –
Senior Independent Non-executive Director
1
£10,000 £10,000 –
Note
1. The current Senior Independent Non-executive Director has chosen to continue to waive this additional fee during the period under review and for 2024.
During 2023 the Remuneration Committee reviewed the level of fees to be paid to the Non-executive Chairman from 1 January 2024.
To avoid any conflict of interest, the matter was considered by the Committee in the absence of the individual affected.
Following consideration, no increase was made.
2024 2023
Per cent
change
Non-executive Chairman £235,687 £235,687 –
97Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Share incentive interests vesting during 2024 (audited)
Deferred Bonus Plan: Restricted Stock (March 2024)
Both Ms Bell and Mr Updyke have awards of Restricted Stock under the DBP which are due to vest on 11 March 2024.
These awards are the result of the deferral of one-third of the value of the Annual Incentive achieved based on performance
in 2020. As such, no further performance conditions are applicable to the awards prior to vesting.
Long-Term Incentive Plan: Performance Shares (March 2024)
Both Ms Bell and Mr Updyke have awards of Performance Shares under the LTIP which are due to vest on 16 March 2024,
subject to an EPS performance condition and an Absolute TSR performance condition.
The EPS condition has not passed the growth threshold required and will lapse in full.
The Absolute TSR condition will be tested after the conclusion of the performance period. Current estimates, based on the
growth in market price of a Spirent Ordinary Share between the beginning of the performance period and the date of this
report, suggest it is unlikely that there will be any vesting under this element of the award.
Full details of the vesting of these awards will be disclosed in the Directors’ Annual remuneration report 2024.
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 6.1 million Ordinary Shares for
the purpose of satisfying the exercises of current and future awards by employees and former employees of the Group.
Illustrations of the application of Remuneration Policy in 2024
A significant proportion of remuneration is linked to performance, particularly at maximum performance levels. The charts
below show how much the Executive Directors could earn under Spirent’s Remuneration Policy under different performance
scenarios in the 2024 financial year. The following assumptions have been made:
Variable remuneration
Fixed remuneration Annual Incentive Long-Term Incentive
Minimum Base salary
1
, benefits
2
, pension
3
––
Target Base salary
1
, benefits
2
, pension
3
On target
4
Threshold vest (25 per cent)
6
Maximum Base salary
1
, benefits
2
, pension
3
Maximum
5
Full vest (100 per cent)
6
Maximum + 50 per cent
share price growth
Base salary
1
, benefits
2
, pension
3
Maximum
5
Full vest (100 per cent)
6
+ 50 per cent
growth in share price from date of grant
Notes
1. Base salary effective 1 January 2024.
2. Benefits as received during 2023 financial year.
3. Cash contributions to the Company’s 401(k) plan and Deferred Compensation Plan during 2023 financial year for CEO and cash sum in lieu of pension equal to
20 per cent of base salary received during 2023 financial year for CFO.
4. Annual Incentive on-target payout of 90 per cent of base salary for CEO and 75 per cent of base salary for CFO.
5. Annual Incentive maximum payout of 150 per cent of base salary for CEO and 125 per cent of base salary for CFO.
6. Long-Term Incentive on-target payout of 25 per cent of award and maximum payout of 100 per cent of award.
Report on Directors’ remuneration continued
98 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Remuneration Committee
Members
During the year and at the date of this report, Committee members were:
• Gary Bullard (Committee Chairman);
• Maggie Buggie;
• Wendy Koh;
• Edgar Masri; and
• Jonathan Silver.
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;
• an approach that rewards fairly and responsibly contribution to the Company’s long-term success; and
• other provisions of the Executive Directors’ service agreements, 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 by the Board
in December 2023.
The Committee’s terms of reference are available on the Company’s website at corporate.spirent.com.
CFO
Minimum performance
On-target
Maximum performance
Maximum + share
price growth
Fixed remuneration Annual Incentive Long-Term Incentive
£475,148
100%
£954,470
31.72%
£1,686,065
41.89%29.92%
Minimum
performance
51.96%24.74%
49.78%
28.18%
23.30%
On-target
£2,039,250
Maximum performance
Maximum + share
price growth
CEO
Fixed remuneration Annual Incentive Long-Term Incentive
£786,500
100%
£1,804,720
20.15%36.27%43.58%
£3,332,050
43.65%
32.74%
23.60%
£4,059,350
53.75%26.87%19.38%
18.50%
99Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Remuneration Committee continued
Composition of the Committee
At the date of this Report, the Remuneration Committee comprises five 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 2018 UK Corporate Governance Code.
Advisers to the Committee
During the period under review the Committee consulted with the Company’s Chairman, CEO, CFO and Company Secretary
& General Counsel but not on matters relating to their own remuneration.
Following a formal tender Aon was appointed by the Committee in August 2018 to undertake a market review of executive
remuneration practices and assist with the design and introduction of an updated Remuneration Policy that was put to shareholder
s at the
2019 Annual General Meeting. In July 2020, following a restructure at Aon, the lead adviser to the Committee transferred to work
at PwC. The Committee has retained PwC in this role because it values the robust data and advice provided and the continuity
of provision from the advisers involved. The Committee remains satisfied that PwC is independent, thoughtful and challenging.
PwC 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.
The fees paid to PwC to carry out work for the Remuneration Committee during the period under review totalled £80,000 (2022 £144,000).
Fees are based on a fixed retainer for certain services and time and materials otherwise. During the year, PwC provided other tax
and advisory services to the Company. PwC did not have any other connection with the Directors of the Company.
Kepler Associates Limited, which was acquired in June 2015 by Mercer Limited, was 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 remains 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. During the year Mercer did not provide any other services to the Company and did not have any other connection
with the Directors of the Company.
The fees paid to Mercer Limited to carry out work for the Remuneration Committee during the period under review totalled
£2,700 (2022 £4,800) and were based on time and materials.
Statement of shareholder voting
At the 2023 AGM on 4 May 2023, the results of shareholder voting on remuneration matters were as follows:
Advisory vote regarding the Report on Directors’ remuneration for the year to 31 December 2022:
Votes for
1
Per cent Votes against Per cent Votes cast Votes withheld
2
340,189,272 69.78
147,308,519
30.22 487,497,791 4,093,705
As announced immediately following this AGM, ‘‘We are disappointed with the result. The Committee felt that after 3½ years of
strong delivery by our CEO, that we needed to address a significant gap in his fixed pay from similarly sized companies in the UK
market and accordingly awarded him a 15 per cent pay increase. We consulted with our top 25 shareholders on our proposals,
which represents approximately 70 per cent of the share register. Of those shareholders who responded, we held meetings
with and received support from the majority for our proposals. Those that disagreed did not dispute the performance or the
significant beneficial changes made to the Company during the CEO’s tenure but asked us to consider phasing any increase
over a number of years. The Committee noted that input but decided to implement the increase wholly in 2023 as it wished to
align pay to the market in the near term, given the performance over a number of years. As described earlier, the Committee
has consulted further with shareholders as it prepared to update to its Directors’ Remuneration Policy, which will be brought to
the Company’s 2024 AGM.
The most recent binding vote for the Company’s Remuneration Policy was also approved by shareholders at the 2021 AGM
and effective from 29 April 2021:
Votes for
1
Per cent Votes against Per cent Votes cast Votes withheld
2
480,377,721
96.40
17,920,170 3.60 498,297,891 58,844
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.
By Order of the Board
Gary Bullard
Chairman, Remuneration Committee
5 March 2024
Report on Directors’ remuneration continued
100 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Directors’ Remuneration Policy (unaudited)
The Committee’s Policy is to set remuneration levels which ensure that the Executive Directors are fairly and responsibly rewarded
in return for high levels of performance. The Remuneration Policy 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. Whilst due consideration is given to wider employees as part of the Policy review,
there is no formal employee consultation, although conflicts of interest are avoided by extensive shareholder consultation.
The Company’s current Remuneration Policy was subject to a binding vote at the 2021 AGM, receiving 96.40 per cent of all votes
cast in favour. The Policy proposed for approval at the AGM in 2024, was subject to an extensive shareholder consultation, as
earlier explained and is primarily intended to introduce a hybrid LTIP approach.
Considerations of UK Corporate Governance Code principles
When determining the Remuneration Policy, the Committee was mindful of its obligations under Provision 40 of the Corporate
Governance Code in order to ensure that the Policy and other remuneration practices were clear, simple, predictable,
proportional and aligned to the culture of the Company and accounted for reputational and other risks linked to excessive
reward. Set out below are examples of how the Committee addressed these factors:
Clarity
Remuneration arrangements should be transparent and promote
effective engagement with shareholders and the workforce.
The Committee consulted with its shareholders on the proposed changes
within the Policy and received positive feedback.
The Committee believes that the remuneration arrangements are transparent
and align to market and best practice.
Simplicity
Remuneration structures should avoid complexity and their
rationale and operation should be easy to understand.
The Committee is not proposing any significant structural changes to the
incentive plans. Spirent operates two incentive plans, which it believes are
easy to communicate and for stakeholders to understand and the structure
of which is aligned to market practice. The performance measures provide
a clear link to business performance and business strategy.
Risk
Remuneration arrangements should ensure reputational and
other risks from excessive rewards, and behavioural risks that
can arise from target-based incentive plans, are identified
and mitigated.
The Committee is mindful of mitigating risks in relation to excessive reward
through the application of discretion, as well as through malus and clawback
provisions in respect of incentive awards.
Predictability
The range of possible values of rewards to individual Directors
and any other limits or discretions should be identified and
explained at the time of approving the Policy.
The range of possible rewards for Executive Directors is considered
on page 99.
The Committee has the ability to apply discretion in relation to the variable
pay elements of the awards, for new joiners and for leavers, which were
revisited as part of the review of the Remuneration Policy.
Proportionality
The link between individual awards, the delivery of strategy and
the long-term performance of the Company should be clear.
Outcomes should not reward poor performance.
The Committee strongly believes that the awards implemented
ensure continued delivery of the short and long-term goals and the
business strategy.
The Committee also has discretion to adjust incentive outcomes to ensure
that they reflect the Company’s performance over the relevant period.
Alignment to culture
Incentive schemes should drive behaviours consistent with
Company purpose, values and strategy.
The Committee believes that the incentive schemes detailed in the
Remuneration Policy are consistent with Company purpose, values
and strategy.
101Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Policy table
This section of the Report describes the key components of each element of the remuneration arrangements for the Executive Directors.
Component and link to strategy Operation Maximum opportunity Framework to assess performance
Fixed remuneration
Base salary
To provide fixed remuneration
for each role which reflects the
size and scope of the Executive
Directors’ responsibilities, their
individual skills and experience,
and the market in which they
provide services.
Base salaries are normally
reviewed annually.
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, internal
relativities, 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 provides services. 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
in salary will ordinarily be (in
percentage terms) in line with
those of the wider workforce,
having regard to the increases
in the country in which the
individual provides services.
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
Remuneration Report.
Not applicable.
Benefits
To provide market levels of benefits
on a cost-effective basis.
May include private health cover
for the Executive Director and
their family, life insurance cover,
permanent health insurance and
a car allowance.
Executive Directors may
participate in any all-employee
share plans which may be
operated by the Company on the
same terms as other employees.
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.
Other benefits may be offered
from time to time, for example to
align with local market practice in
the country in which the Executive
Director provides services.
Reasonable business-related
expenses may be reimbursed
(including tax thereon, if deemed
to be a taxable benefit).
The overall value of benefits
will depend on the individual’s
circumstances and therefore
there is no formal maximum.
Participation in all-employee
share plans will be in line with
relevant statutory limits.
It is intended that the maximum
value of benefits offered will
remain broadly in line with
market practice in the country
in which the Executive Director
provides services.
Not applicable.
Report on Directors’ remuneration continued
102 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Component and link to strategy Operation Maximum opportunity Framework to assess performance
Retirement benefits
To provide cost-effective and
competitive post-retirement
benefits.
Defined contribution scheme or
cash allowance in lieu of Company
pension contributions or a
combination of both.
Other post-retirement benefits
may be offered from time to time
broadly in line with local market
practice in the country in which the
Executive Director is employed.
The maximum Company
contribution is set at 14 per cent
of base salary (combined cash
supplement and/or defined
contribution plan).
For Executive Directors, the
retirement benefits are set in line
with the general rates applicable
to employees in the country in
which the Executive Director
is employed.
Pension arrangements for
current Executive Directors
are set out in the Annual
Remuneration Report.
Not applicable.
Variable remuneration
Annual Incentive
To reward and incentivise the
achievement of annual financial and
strategic goals which are selected
to align with the strategy of the
business and support enhancement
of shareholder value.
Two-thirds of any bonus earned
is payable in cash with the
remaining one-third normally
deferred into shares.
The deferred bonus shares
ordinarily vest after three years.
Dividend equivalents may be paid
on vested shares in respect of
dividends arising over the period
between the grant date and the
vesting date.
Both the cash and deferred share
elements of the annual bonus
are subject to clawback and
malus provisions.
Maximum opportunity is capped
at 150 per cent of base salary.
The Annual Incentive starts
accruing from threshold levels of
performance, which results in 20
per cent of the maximum payout.
Current maximum potential
for each Executive Director
is set out in the Annual
Remuneration Report.
Annual incentives may be based on
a mix of financial, individual and
business objectives with at least
50 per cent of the weighting being
given to financial metrics.
The payment of any bonus is at
the absolute discretion of the
Committee and the Committee may
exercise its discretion to override the
formulaic outcome.
103Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Component and link to strategy Operation Maximum opportunity Framework to assess performance
Hybrid Long-Term Incentive
To incentivise executives to
achieve the Company’s long-term
strategy and enhance sustainable
shareholder value.
Awards may be granted annually
as one or a combination of
Performance Share Awards (PSAs)
and Restricted Share Awards
(RSAs) in the form of conditional
shares or nil-cost options.
Awards will ordinarily vest, subject
to any performance conditions or
underpin, on the third anniversary
of grant and will ordinarily be
subject to an additional two-year
holding period post-vesting,
during which time awarded shares
may not ordinarily be sold (other
than to settle tax liabilities incurred
by the vesting of the award).
Dividend equivalents may be paid
on vested shares in respect of
dividends arising over the period
between the grant date and the
vesting date (or, where an award
is structured as a nil-cost option
and subject to a holding period, to
the expiry of the holding period or
the date of exercise (if earlier)).
Malus and clawback provisions
will apply to all awards made
under the Spirent Long-Term
Incentive Plan.
Executive Directors may be
granted annual LTIP awards over
a target number of conditional
shares or nil-cost options with
a value up to 200 per cent
of salary.
The maximum number of
conditional shares or nil-
cost options that may vest
under an RSA is equal to the
target number.
The maximum number of
conditional shares or nil-cost
options that may vest under a
PSA is equal to two times the
target number.
The mix of the PSA and RSA
will be determined by the
Remuneration Committee
each year. The Remuneration
Committee will normally
consult with shareholders if it
intends to change the mix for
Executive Directors.
No more than 25 per cent of
the relevant part of a PSA will
vest for achieving threshold
performance, increasing to full
vesting for the achievement of
maximum performance. Details
of proposed award levels
will be set out in the Annual
Remuneration Report.
Award levels, performance
conditions and underpins are
reviewed before each award cycle
to ensure they remain appropriate.
PSAs are currently subject to
challenging Earnings Per Share and
Total Shareholder Return and ESG
targets. However, different measures
may be applied for future award
cycles as appropriate to reflect the
business strategy.
RSAs will be subject to an underpin.
The majority of performance
conditions and underpins will be
weighted towards financial metrics.
A full description of the performance
conditions applicable to any PSAs
and the underpins applying to any
RSAs will be set out in the Annual
Remuneration Report.
The Remuneration Committee
has the discretion to override the
formulaic out-turn of PSAs and RSAs
if appropriate to do so to take into
account the underlying financial
and operational performance of
the Company.
Notes to the Policy table
Performance conditions applicable to the Annual Incentive
The Annual Incentive is designed to drive and reward excellent short-term financial and operational performance. The
Committee reviews the Annual Incentive plan measures each year in order to ensure that they are aligned with the Group’s
strategy. The Committee may alter the choice and weighting of the metrics for future Annual Incentive cycles to reflect the
changing needs of the business. The Committee also retains the discretion to retrospectively amend the measures, weightings,
targets and/or method of assessment for the in-year Annual Incentive to take into account changes in the business strategy,
significant acquisitions or disposals, changes in accounting treatment or other exceptional events to ensure that the scheme is
able to fulfil its original purpose. The payment of any Annual Incentive is at the sole discretion of the Committee.
The choice of measures may change for future Annual Incentives but is currently based on:
• adjusted operating profit – a key driver of shareholder return and a key measure of business success;
• revenue – reflecting Spirent’s strategic priority of delivering top-line growth; and
• other strategic and operational priorities – these account for a minority of the Annual Incentive and ensure a rounded
assessment of performance.
Performance conditions applicable to awards under the Spirent Long-Term Incentive Plan (LTIP)
Performance Share Awards (PSA)
Hybrid Long-Term Incentive awards will be granted in accordance with the rules of the LTIP and the discretions contained
therein. The Committee reviews the appropriateness of performance parameters for each award under PSAs and will set
stretching performance conditions in light of the Company’s current and expected performance over the performance cycle.
The performance conditions for PSA awards to Executive Directors are (ordinarily) measured over a period of three years and
are set using a sliding scale of targets and no more than 25 per cent of the award (under each measure) will vest for achieving
the threshold performance hurdle. The choice of measures may change for future award cycles, but is currently based on:
• Relative Total Shareholder Return – generates a strong alignment of interest between executives and shareholders;
Policy table continued
Report on Directors’ remuneration continued
104 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
• Adjusted Earnings per Share – this provides an assessment of the profitability of the revenues delivered and aligns with the
interests of shareholders. Challenging targets for earnings per share are set based on internal and external forecasts; and
• ESG - ensures that Executives are aligned with Spirent’s broader sustainability commitments.
The Committee would consult with shareholders in advance of a significant change in the choice or weighting of the
performance measures to be applied under the PSA grants for future award cycles. Under the rules of the LTIP, the Committee
has the discretion to amend or substitute the performance conditions for in-flight awards in exceptional circumstances,
providing the new targets are no less challenging than originally envisaged.
Restricted Share Awards (RSA)
Restricted Share Awards would be subject to an underpin which will be assessed by the Remuneration Committee. Should a
grant be made under the RSA, details would be disclosed in the relevant Directors’ Remuneration Report.
Malus and clawback
The rules of the LTIP and the Company’s Annual Incentive (including any element deferred into shares) include provisions for
malus and clawback to apply if the Committee concludes that:
• the relevant individual has committed misconduct;
• there has been a restatement of any member of the Group’s financial results, due to inaccurate or misleading data;
• the extent to which an award was granted or has vested was based on inaccuracy or error;
• the Group (or a business unit within the Group) suffered a material financial loss as a result of circumstances that could
reasonably have been risk managed;
• the Company has suffered an instance of corporate failure resulting in the appointment of a liquidator or administrator;
• a material failure of risk management and/or regulatory non-compliance resulting in damage to the Company’s business or
reputation; or
• any other circumstances that the Board considers to have a similar nature or effect.
Clawback may be applied for up to two years following cash payment of an Annual Incentive and vesting under the LTIP, and
malus up to three years following the granting of awards under the Company’s deferred bonus arrangements and unvested
LTIP awards.
Shareholding requirements
The Executive Directors are required to build and maintain a shareholding in the Company are expected to retain shares vesting
under the deferred annual bonus and LTIP (net of tax) until such time as the guideline shareholding has been achieved. The
current such requirement is 200 per cent of salary.
New Executive Directors are required to maintain a post-cessation share ownership requirement to hold the lower of the
respective in-role shareholding guideline and the actual shareholding immediately prior to departure for a period of two years.
The Company’s policy in respect of vested and unvested share awards post-cessation of employment is set out below in the
section on Exit Payment Policy.
Discretions retained by the Committee in operating the LTIP and other variable pay schemes
The Committee operates the Group’s various incentive plans according to their respective rules and (where applicable) in
accordance with relevant legislation and HMRC guidance. In order to ensure efficient administration of these plans, certain
operational discretions are reserved to the Committee. These include:
• determining who may participate in the plans;
• determining the timing of grants of awards and/or payments under the plans;
• determining the quantum of any awards and/or payments (within the limits set out in the Policy table above);
• in exceptional circumstances, determining that a share-based award (or any dividend equivalent) shall be settled (in full or in
part) in cash;
• determining any performance measures, targets and underpins applicable to an award (in accordance with the statements
made in the Policy table above);
• where a participant ceases to be employed by the Company, determining whether “good leaver” status shall apply;
• determining the extent of vesting of an award based on assessment of any performance conditions or underpins, including
discretion as to the basis on which performance is to be measured if an award vests in advance of the normal timetable (on
cessation of employment as a “good leaver” or on the occurrence of corporate events);
• whether, and to what extent, pro-ration shall apply in the event of cessation of employment as a “good leaver” or on the
occurrence of corporate events;
• whether malus and/or clawback shall be applied to any award and, if so, the extent to which they shall apply; and
• making appropriate adjustments to awards on account of certain events, such as major changes in the Company’s
capital structure.
105Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
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, the jurisdiction from which the candidate was
recruited and in which they will provide services to the Company) 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.
Element Recruitment Policy
Base salary The Committee will take into consideration a number of factors, including internal relativities,
external market forces, skills and current level of pay.
Salary may (but need not necessarily) be set below the normal market rate, with a series
of planned increases implemented over the following few years to bring it to the desired
positioning, subject to individual performance.
Benefits Benefits provision would be in line with normal Policy.
The Committee may agree that the Company will meet appropriate relocation costs.
Retirement benefits In line with normal Policy.
Annual Incentive Eligible to take part in the Annual Incentive, with a maximum bonus of up to 150 per cent of
salary in line with Policy.
Depending on the timing of the appointment, the Committee may deem it appropriate to set
Annual Incentive performance metrics that are different from those that apply to the current
Executive Directors for the first performance year in which the appointment falls.
Hybrid Long-Term Incentive A normal award of conditional shares or nil cost options with a target value up to 200 per cent
of salary, in line with Policy.
Buyout awards In exceptional circumstances, the Committee may offer additional cash or share incentive
awards (using Listing Rule 9.4.2, if necessary) to compensate an individual for remuneration
forfeited on leaving a previous employer.
The awards would not normally exceed what is felt to be a fair estimate of the remuneration
forfeited and would reflect (as far as possible) the nature and time horizons attached to that
remuneration and the impact of any performance conditions. The Company would normally
aim to replace any forfeited cash awards with shares.
Shareholders will be informed of any such payments at the time of appointment.
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 Remuneration Report.
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.
Eric Updyke currently has a service agreement with Spirent Communications, Inc, and, being a US resident, his contract is in line
with US employment practice and is governed by the laws of the state of New Jersey. Mr Updyke’s service agreement, dated
1 April 2019, may be terminated on 12 months’ notice from the Company and six months’ notice from Mr Updyke.
Paula Bell currently has a service agreement with Spirent Communications plc, and, being a UK resident, her contract is in line
with UK employment practice and is governed by the laws of England and Wales. Ms 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 Remuneration Report.
The service agreements of Executive Directors are available for inspection at the Company’s registered office on request
and will be available for inspection at all General Meetings of the Company.
Report on Directors’ remuneration continued
106 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Exit Payment Policy
The Committee is committed to ensuring that it does not pay more than is necessary when Executive Directors 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
provides services. The current Exit Payment Policy is:
• service contracts contain provisions for the removal of the Executive 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 Executive Director
or if, having received notice from the Executive Director, the employer does not wish him/her to serve it. Any payment in lieu of
notice shall ordinarily be paid in monthly instalments, in respect of annual base salary and pension contributions only;
• 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 Directors’ Report);
• service contracts do not contain provision for liquidated damages of any kind; and
• service contracts contain appropriate provisions to protect the legitimate interests of the Company with respect to preventing
any terminated Executive Director from working in a business which competes against the Company.
Element Termination Policy
Salary, benefits
and pension
Payment will be made up to the termination date in line with relevant contractual notice periods and will
not exceed contractual entitlements.
Annual Incentive Unless otherwise provided in the service contract to be consistent with market practice in the country
in which the Executive Director provides services, Executive Directors 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”)).
Deferred Share
Bonus Plan
Awards will ordinarily continue to vest on the normal vesting date, unless the Committee determines that
early vesting should apply. The Committee reserves the discretion to scale the awards down (including to
nil) in the event of misconduct by the individual or to reflect individual performance.
Long-Term
Incentive Plan
Unvested awards will generally lapse at the time of exit.
For individuals determined by the Committee to be a Good Leaver (see below), the Committee will
ordinarily assess any performance conditions at the end of the applicable performance period and
unvested awards will ordinarily vest on the normal timetable.
Exceptionally, and always in the case of death, the Committee may assess any performance conditions
and underpins at the point of cessation by testing the performance conditions and underpins up to (or
as close as reasonably practicable to) the date of cessation. Awards will then vest following such early
assessment of performance.
Except in the case of death, any shares which vest would normally be pro-rated to reflect the proportion
of the vesting period actually served by the individual.
For the purposes of the LTIP, a Good Leaver is any individual who leaves due to death, ill health, injury,
disability, agreed retirement, redundancy, a transfer of the business for which the individual works
out of the Group or for any other reason at the Committee’s discretion (except where the individual is
summarily dismissed).
Any post-vesting holding period would normally continue to apply to a leaver’s vested and
unvested awards.
Legacy
arrangements:
Employee Incentive
Plan (EIP)
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.
107Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Service contracts continued
Exit Payment Policy continued
For all leavers, the Committee may also determine to make a payment in reimbursement of a reasonable level of outplacement
and legal fees in connection with a settlement agreement. The Company may pay any statutory entitlements, to which an
Executive Director is entitled, or settle or compromise any claims made in connection with the termination of employment or
appointment of an Executive Director where the Committee considers such claims to have a reasonable prospect of success
and that it is in the best interests of the Company to do so. Where appropriate, private health cover may continue for a suitable
period post-cessation of employment.
The Committee has now introduced a formal Policy in respect of post-cessation shareholdings for new Executive Directors.
Following the approval of this Policy and in respect of the incentive awards granted to newly appointed Executive Directors
thereafter, the following will ordinarily apply:
• unvested shares under the Deferred Bonus Plan will continue to vest on the normal vesting date (i.e. up to four years
post-cessation);
• unvested shares under the LTIP will, subject to the participant being a Good Leaver, continue to vest on the normal vesting
date and be subject to a post-vesting holding period;
• be subject to a post-vesting holding period;
• vested shares under the LTIP will remain subject to the holding period; and
• other beneficially owned shares may be sold as long as the individual continues to maintain a shareholding at least equal to
the minimum shareholding guidelines which applied during their employment.
Current Executive Directors will also be subject to this Policy, with the exception of its application to other beneficially owned
shares, over which there will be no sale restrictions.
The above will ensure that the Executive Directors continue to have an interest in the Company after having left employment,
promoting a culture of sustainable long-term performance. Furthermore, additional safeguards are in place through the malus
and clawback provisions which can continue to be invoked irrespective of employment status.
In the event of change in control of the Company, in accordance with rules of the respective plans, any outstanding share
awards will ordinarily vest on the date of such an event. For awards under the LTIP, vesting will be subject to an assessment of
achievement against any applicable performance conditions and, unless the Board determines otherwise, a reduction to reflect
the curtailed vesting period.
Non-executive Directors Policy
Our policy is to set fees that are competitive with companies of an equivalent size and complexity. Fees are reviewed annually,
with no Non-executive Director voting on their own remuneration. 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 automatically 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 all General Meetings of the Company. An example of a letter of appointment for a Non-executive Director is available on the
Company’s website at corporate.spirent.com. Details of the remuneration for Non-executive Directors are set out in the Annual
report on remuneration.
Report on Directors’ remuneration continued
108 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
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 provide services. 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 and the executive management team.
Where relevant, the Committee seeks to align the Remuneration Policy for Executive Directors with that for other senior
managers. Selected employees are able to share in the success of the Group through participation in the Management
Incentive Plan.
Executive Directors, other members of the executive management team and key employees are also eligible for participation
in the Long-Term Incentive Plan.
The Committee is aware of the 2018 UK Corporate Governance Code and its requirements for increasing engagement with
stakeholders including employees and details of the workforce engagement programme can be found in the Stakeholder
Engagement section of this Annual Report.
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. Over the past few
years, the Committee consulted with major shareholders and shareholder representatives, including over the development of
this policy.
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, or at a time when the relevant individual
was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual
becoming a Director. Details of any payments will be set out in the Annual Remuneration Report as they arise.
Dilution
The Committee is strongly committed to continuing to manage shareholder dilution in a responsible manner. Details of the
Company’s dilution are set out in the Annual Remuneration Report.
109Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
The Directors’ Report for the year ended 31 December 2023 comprises pages 110 to 113 of this Annual Report, together with the
sections of the Annual Report incorporated by reference. The Corporate Governance Report sections set out on pages 62 to
114 is incorporated by reference into this Directors’ Report and, accordingly, should be read as part of this Directors’ Report. As
permitted by legislation, some of the matters required to be included in the Directors’ Report have instead been included in the
Strategic Report on pages 1 to 61, as the Board considers them to be of strategic importance.
Specifically, these are:
• the Strategic Report on pages 1 to 61, which provides detailed information relating to the Group, its business model
and strategy, operation of its businesses, future developments and the results and financial position for the year ended
31 December 2023;
• future business developments (throughout the Strategic Report);
• details of the Group’s policy on addressing the principal risks and uncertainties facing the Group, which are set out in the
Strategic Report on pages 55 to 60;
• information on the Group’s greenhouse gas (GHG) emissions for the year ended 31 December 2023, along with our report
on the Task Force on Climate-related Financial Disclosures (TCFD) on pages 35 to 37;
• how we have engaged with our workforce and stakeholders on pages 24 to 27;
• business relationships (throughout the Strategic Report); and
• the Section 172 Statement on pages 24 to 27.
The Strategic Report and the Directors’ Report together form the Management Report for the purposes of the Disclosure
Guidance and Transparency Rules (DTR) 4.1.8R.
Disclosures required under Listing Rule 9.8.4R
The information required to be disclosed in accordance with Listing Rule 9.8.4R of the Financial Conduct Authority’s Listing Rules
can be located in the following pages of this Annual Report:
Listing Rule Detail Page reference
9.8.4R(1-3)(5-14)(A)(B) Not applicable n/a
9.8.4R(4) Long-Term Incentive Plans 83 to 109
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.
Results and dividends
An interim dividend of 2.76 cents was paid on 15 September 2023. The Directors are not recommending a final dividend.
Directors
Biographies of the Directors currently serving on the Board are set out in the Board of Directors section.
As set out in the Notice of Meeting, all Directors will retire at the 2024 AGM and submit themselves for election or re-election by
shareholders. All Directors have been subject to a formal and rigorous performance evaluation during the period under review,
further details of which can be found in the Directors’ statement on corporate governance.
The powers of Directors are described in the Company’s Articles of Association, which can be found on the Company’s website
at corporate.spirent.com.
Dates of appointment under the Executive Directors’ service contracts and Non-executive Directors’ letters of appointment are
set out in the Report on Directors’ remuneration, along with the interests of the Directors in the shares of the Company.
The Board has a documented process in place in response to conflicts, details of which are set out in the Directors’ statement on
corporate governance.
Insurance and indemnities
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.
Directors’ report
110 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Stakeholder engagement
Information on how the Directors have had regard to the need to foster the Company’s business relationships with suppliers,
customers and other stakeholders, and the effect of that regard, is contained in the Stakeholder engagement section.
Employees
The average number of employees within the Group is shown in note 8 to the Group’s consolidated financial statements. At
Spirent, we know that having a diverse and inclusive workforce is essential if we are to deliver on our mission to be the global
leader and trusted partner for innovative technology test and assurance solutions. Diverse and inclusive teams are critical to fuel
our innovation and genuinely connect with the communities in which we live and work. We embrace a culture where difference
is valued and openness, mutual respect, collaboration and fairness are fundamental. Spirent does not tolerate discrimination
or offensive behaviour of any kind. We are committed to creating workplaces that genuinely reflect the diversity of the world we
serve and provide an environment where everyone feels empowered to bring their full, authentic self to work.
We strive to enable:
• workforce representation that reflects the talent market;
• equitable reward and advancement; and
• a culture of trust, fairness and respect.
We all need to do more and are committed to doing so and so have completed a detailed review of our diversity and inclusion
practices to inform and set clear priorities and objectives. You will find more information on the actions we are taking in our
Sustainability Report 2023, available at corporate.spirent.com.
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 certain provisions of the Company’s share incentive plans may cause
outstanding unvested options and awards granted to individuals under such plans to vest on a takeover as follows:
Share incentive plan Change of control
Effect on vesting provisions
in the rules Performance condition
2005 Employee Incentive Plan
1
Yes n/a n/a
Spirent Long-Term Incentive Plan Yes Pro-rated Still applies
Spirent Deferred Bonus Plan Yes Full vesting n/a
Note
1. All outstanding awards granted under the 2005 Employee Incentive Plan have now completed their performance condition performance periods and have
either lapsed or have fully or partially vested.
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.
Share capital
The Company has a single class of share which is divided into Ordinary Shares of 3 & 1/3 pence each. Each Ordinary Share
carries one vote and all of the Ordinary Shares rank pari passu. There are no special control rights relating to any of the
Ordinary Shares. At the date of this report, 578,646,363 Ordinary Shares of 3 & 1/3 pence each had been issued which are fully
paid up and are listed on the London Stock Exchange. The Company also operates a Level 1 American Depositary Receipt
(ADR) programme with each ADR representing four Ordinary Shares. The ADRs trade on the US over-the-counter market and
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 17 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
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 2021 AGM, on 28 April 2021.
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 17 to the parent Company financial statements. The 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.
111Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
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 or as required under the Company’s Remuneration
Policy for Executive Directors. 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 2023 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 normally
prescribed limits. Accordingly, at the 2024 AGM authority will be sought to allot new Ordinary Shares up to a nominal value of
approximately 33.3 per cent of the Company’s issued share capital.
Return of capital
On 3 April 2023, the Company announced a share buyback programme of up to £56 million. This programme was completed
on 24 August 2023, following the purchase and cancellation of 33,095,525 Ordinary Shares for the maximum, as authorised.
The Company will seek renewal of the authority to repurchase up to 9.99 per cent of its issued Ordinary Shares, within certain
limits, as permitted by the Company’s Articles of Association, such authority typically remaining valid for a maximum of 15
months following each AGM.
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, including interests notified up to the date of this report, with
the percentage of voting rights being calculated at the time each relevant disclosure was made:
Total holding
Per cent of Company’s
total voting rights
Aviva plc 59,880,567 10.35%
Ameriprise Financial, Inc 57,321,456 9.91%
Standard Life Investments Ltd 32,370,026 5.59%
Brandes Investment Partners LP (various clients) 30,537,440 5.28%
AXA Investment Managers SA 30,515,747 5.27%
Prudential plc 30,472,411 5.27%
Aberforth Partners 30,368,910 5.25%
Neptune Investment Management Limited 29,775,214 5.15%
Artemis Investment Management Limited 29,195,146 5.05%
Martin Currie Investment Management Limited aka Franklin Templeton
Fund Management Limited 28,952,823 5.00%
Schroders plc 26,986,598 4.66%
Teleios Capital Partners LLC 24,639,977 4.26%
PrimeStone Capital LLP 26,434,581 4.57%
Sun Life Assurance Company of Canada (UK) Ltd 23,382,347 4.04%
Kames Capital (fka Global AEGON Asset Management Group) 18,507,514 3.20%
Norges Bank 18,068,435 3.12%
Directors’ report continued
112 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Political donations
In accordance with the Group’s Business Ethics Policy, no
political donations were made during the year (2022 nil).
Going concern
After making appropriate enquiries and taking into account
the matters set out in the Principal risks and uncertainties
section 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 31 of the 2018 UK Corporate
Governance Code, the Directors have assessed the viability
of the Group and concluded whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
period of assessment.
The Board has concluded that the most appropriate period
for this assessment should be three years, which is consistent
with the period used in other forward-looking areas of the
financial statements.
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;
• it reflects the period over which the principal risks would be
realised; 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
Group’s current financial position and prospects, the Group’s
long-term strategy, the Board’s risk appetite and the Group’s
principal risks and uncertainties as set out within that section
of this Annual Report.
The plans and cash flow projections used as the basis for
the assessment were the three-year strategic plan. They
were drawn up on the basis that the Group ends 2023 with a
cash balance of $107.9 million and maintains a cash balance
sufficient to fund normal operations, and that there will be
no material changes to the business structure throughout the
review period.
The Board has reviewed plausible and severe stress
tests based on the occurrence of a combination of the
principal risks to which the Group is exposed, considering
the potential impact of these risks on the business model,
future performance, solvency and liquidity over the period.
The analysis also included a reverse stress test scenario to
illustrate the revenue reduction in the 12 months following
approval of the financial statements that would lead to the
Group ceasing to be a going concern. Further detail on the
scenarios modelled and the principal risks considered is
disclosed within the Principal risks and uncertainties section.
In each of the scenarios over the three year period, the
Group was able to continue operating and generating free
cash flow. The reverse stress test required such an extreme
reduction in revenue that the likelihood of occurrence is
considered to be remote and therefore does not represent
a realistic threat to the viability of the Group. In reaching this
conclusion the Directors considered the three-year plan, the
uncertainties arising from the macroeconomic backdrop and
inflationary pressures, the magnitude of the revenue reduction
and the ability of the Group to take realistic and successful
mitigating actions, which are not factored into the reverse
stress test scenario.
Based on this assessment and the expected successful
impact of mitigating actions, the Directors have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
three-year period.
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 its 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 its report and to establish that
the Company’s auditor is aware of that information.
Independent External Auditor
As described in more detail in the Audit Committee report, an
audit tender process was completed during 2020, following
which, at the AGM in April 2021, shareholders approved the
appointment of Deloitte as auditor.
Having carried out a review of auditor effectiveness, the
Audit Committee has recommended to the Board the
re-appointment of Deloitte LLP, who have also indicated
their willingness to continue as auditor. Accordingly, this
re-appointment will be proposed at the 2024 AGM, with the
Audit Committee responsible for determining the audit fee on
behalf of the Board.
Annual General Meeting (AGM)
The Company’s 2024 AGM will be held at the offices of UBS at
5 Broadgate, London EC2M 2QS in May 2024.
By Order of the Board
Angus Iveson
Company Secretary
5 March 2024
Spirent Communications plc
Company number 470893
113Spirent Communications plc Annual Report 2023
CORPORATE 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 in accordance with applicable United
Kingdom law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they have
elected to prepare the consolidated financial statements of
the Group in accordance with the United Kingdom adopted
International Accounting Standards. The Directors have
elected to prepare the parent Company financial statements
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards
and applicable law) including FRS 101 “Reduced Disclosure
Framework”. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period.
The consolidated financial statements of the Group are
required by law and International Accounting Standards
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.
Under the Financial Conduct Authority’s Disclosure Guidance
and Transparency Rules, consolidated financial statements
are required to be prepared in accordance with UK adopted
International Accounting Standards.
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 in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and apply them consistently;
• make judgements and estimates that are reasonable
and prudent;
• in respect of the consolidated financial statements of the
Group, state whether international accounting standards in
conformity with the requirements of the Companies Act 2006
and UK adopted International Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the consolidated financial statements;
• in respect of the parent Company financial statements,
state whether applicable UK Accounting Standards,
including FRS 101, have been followed, subject to any
material departures disclosed and explained in the
parent Company financial statements;
• 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;
• properly select and apply accounting policies;
• present information, including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when compliance with the
specific requirements in International Accounting Standards,
and in respect of the parent Company financial statements,
FRS101, is insufficient to enable users to understand
the impact of particular transactions, other events and
conditions on the Group and parent Company financial
position and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
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 and Group’s transactions and disclose with
reasonable accuracy at any time the financial position of the
Group and the parent Company and enable them to ensure
that parent Company and Group financial statements comply
with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of 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 at corporate.spirent.com.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
This Annual Report complies with the Disclosure Guidance 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 profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
• the Annual Report, including the Strategic 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; and
• the Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
By Order of the Board
Paula Bell
Chief Financial & Operations Officer
5 March 2024
114 Spirent Communications plc Annual Report 2023
CORPORATE GOVERNANCE
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Spirent Communications plc (the parent Company) and its subsidiaries (the Group) give a
true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2023 and of the
Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards;
• the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent Company balance sheets;
• the consolidated and parent Company statements of changes in equity;
• the consolidated cash flow statement; and
• the related notes 1 to 34 and 1 to 17 of the parent Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and United Kingdom adopted international accounting standards. 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).
2. 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.
We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (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. The
non-audit services provided to the Group and parent Company for the year are disclosed in note 4 to the financial statements.
We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the
parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independent auditor’s report to the members
of Spirent Communications plc
FINANCIAL STATEMENTS
115Spirent Communications plc Annual Report 2023
FINANCIAL STATEMENTS
Independent auditor’s report to the members
of Spirent Communications plc continued
3. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
Appropriateness of revenue recognition; and
Classification of adjusting items (newly identified).
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Materiality The materiality that we used for the Group financial statements was $3.4 million which was determined
based on a number of metrics used by investors and other readers of the financial statements. We have
historically used profit before tax as the sole benchmark for determining materiality. However, given the
instability of this metric due to the challenging trading environment and high level of one-off adjusting
items in the current year, we have reassessed this to be a blended materiality considering other
benchmarks. These included adjusted profit before tax, profit before tax, net assets, and revenue.
Scoping We selected six components to perform a full scope audit. We also requested component auditors to audit
specific account balances and transactions at a further four reporting units.
The components, which were either full or specified account balances scope in the current year, contribute
93 per cent of revenue, 87 per cent of profit before tax and 92 per cent of net assets.
Significant changes
in our approach
We have identified the classification of adjusting items as a new fraud risk and key audit matter in the
current year due to the significance of the strategic evaluation presented as adjusting items.
The appropriateness of revenue recognition key audit matter is consistent with last year, but we have
identified an increased level of risk due to the profit warnings in the period which potentially could lead to
increased incentive to management to misappropriate revenue.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and parent Company’s ability to continue to adopt the going concern
basis of accounting included:
• obtaining an understanding management’s process in performing the going concern assessment;
• evaluating the cash-flow forecasts and the scenario analysis prepared by management and evaluating the Group’s ability to
support itself without accessing external funding, noting that the Group is not exposed to interest rate volatility as there is no
external debt financing;
• evaluating the Directors’ assessment of the Group’s ability to continue as a going concern, including challenging the
underlying data and key assumptions used to make the assessment, and evaluating the Directors’ plans for future actions. This
was done through detailed assessment of the operating and non-operating cash flows for reasonableness and consistency
with the underlying forecasts and plans for individual businesses;
• assessing management’s sensitivity analysis to cash flows including the impact of macro-economic conditions on the business,
the recent downturn in the markets in which Spirent operates and assessing whether updates to management’s forecasts
were in line with the trading updates issued to the market;
• performing inquiries of management regarding the assumptions used in the going concern models;
• assessing the mathematical accuracy of the forecasts produced and the historical accuracy of managements forecasts;
• evaluating analyst reports, industry data and other external financial information to determine if it provided corroborative or
contradictory evidence in relation to Management’s assumptions; and
• evaluating the Group’s disclosures on going concern against the requirements of IAS 1.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and parent Company’s ability to continue as a going
concern for a period of at least 12 months from when the financial statements are authorised for issue.
FINANCIAL STATEMENTS
116 Spirent Communications plc Annual Report 2023
4. Conclusions relating to going concern continued
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
5. 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 forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Appropriateness of revenue recognition
Key audit matter
description
The Group has recognised revenue of $474.3 million in 2023 (2022 $607.5 million).
The Group’s principal activity is the sale of hardware, software, support and services for the testing and
assurance of networks. In general, the performance obligations align with the types of products sold with
hardware and software recognised immediately, support recognised over the life of the support contract
and services recognised over the period in which the sale is performed or on a milestone basis. The group
also experiences significant seasonality, predominantly due to the timing of the budgetary cycles of the
group’s principal customers and markets.
Given the nature of the Group’s products and services there is judgement involved in the allocation of
revenue between the different performance obligations which impacts the timing of revenue recognition
and specifically there is a risk associated with cut-off given the significant seasonality, with sales peaking at
each quarter end, most notably in December.
The timing of revenue recognition can also be complicated by management’s use of distributors or
intermediary selling agents in jurisdictions where they have no physical presence or are otherwise required
to use an intermediary third party. This extends the cut-off risk due to the necessity of assessing whether
the fulfilment of the Group’s performance obligations is determinant on delivery by the intermediary to the
end customer.
The transaction price in the contract is allocated across these performance obligations based on the
standalone selling prices identified by management. This identification of standalone selling prices involves
judgement and has a direct impact on the timing and amount of revenue recognised.
Where sales are only partially delivered, management judgement is required to be exercised in the
application of IFRS 15 as to whether the delivered elements qualify for recognition prior to all contractual
deliverables being shipped.
We assessed revenue recognition, in particular cut-off risk, as a potential risk of fraud as revenue is one of
the KPIs for both external communications and management incentives. The identification of the
appropriateness of revenue recognition key audit matter is consistent with last year, but we have identified
risk due to the profit warnings in the period which could potentially lead to an increased incentive for
management to inappropriately record revenue.
Refer to page 77 (Audit Committee Report) and Notes 2 (Accounting Policies) and 3 (Operating Segments).
FINANCIAL STATEMENTS
117Spirent Communications plc Annual Report 2023
Independent auditor’s report to the members
of Spirent Communications plc continued
How the scope of our
audit responded to
the key audit matter
Testing of relevant controls
We tested relevant controls within management’s revenue recognition process.
We tested relevant controls including those over key IT systems and tools used in the revenue recognition process
and financial reporting. This included both the applications and infrastructure supporting these systems.
Evaluating key judgements in the revenue recognition process
In order to test the timing of revenue recognition, including for partial shipments, we tested all material
orders placed around the period end and a sample of the other orders to assess whether the activity
required for revenue recognition had occurred within the period under audit. This included:
• confirming shipping terms, value and address match between the quote, purchase order and
subsequent invoice;
• obtaining an agreement where revenue has been transacted with a distributor and assessing whether
there is any right to return of the goods or whether the sale is reliant upon a further onward sale by
the distributor;
• assessing any complexity in subsequent invoicing and whether this is indicative of a separate
arrangement or agreement outside of the normal contractual agreements of the Group;
• obtaining direct confirmation from the counterparty that no other agreements exist outside of the
contracts that have been provided;
• assessing whether any outstanding or unpaid debt is indicative of a revenue transaction not occurring
and evaluating whether there is an indication of material credit notes being raised post year-end;
• re-calculation of revenue based on orders listing and deferred revenue based upon the global data set
and available deferral rules;
• assessing whether the discount is consistent across all performance obligations and lines in the order;
• testing the price list, including the underlying evidence supporting the relative pricing of multi-element
contracts;
• consideration of whether the arrangements included any implementation required for the customer to
obtain benefit from the hardware or software provided and whether the delivery of the implementation
was impactful to the timing of revenue recognition; and
• performed inquiries with Spirent management as to whether any new arrangements existed whereby
Spirent are re-selling or selling through products manufactured by a third party. For any new
arrangements we considered whether the products being delivered were sold as complimentary to
Spirent’s existing offerings and whether Spirent acted as a principal in such arrangements.
Specifically to address the risk of inappropriate revenue recognition due to cut-off, we have done the
following procedures:
• obtaining shipping records for physical items and evaluating whether the dates of shipment and receipt
supported recognition of revenue in the appropriate period;
• reviewing customer acceptance correspondence for completed service activities to support revenue
recognition;
• considering the nature of the items delivered on partially completed orders and assessing whether the
performance obligations were sufficiently distinct to have independent value without the full order
having been delivered;
• obtaining third party purchase orders to evidence Incoterms and reviewing third party shipping records
and customer confirmations to assess whether Spirent’s obligations have been fulfilled at the point of
recognising revenue; and
• reviewing the shipping terms to third party agreements and obtaining third party shipping records to
assess whether the shipping terms have been fulfilled.
Key observations
Based on the work performed we concluded that the revenue recognition is appropriate.
5. Key audit matters continued
5.1. Appropriateness of revenue recognition continued
FINANCIAL STATEMENTS
118 Spirent Communications plc Annual Report 2023
5. Key audit matters continued
5.2. Classification of adjusting items
Key audit matter
description
In addition to the reported results, the Group continues to present adjusted profit measures which are
before the impact of adjusting items. Judgements made by management regarding the classification of
adjusting costs and income therefore have a significant impact on the presentation of the Group’s results.
In total, adjustments of $26.8 million have been made to the reported profit before tax of $22.9 million to
derive adjusted profit before tax of $49.7 million. Adjusting items included:
• Strategic evaluation ($13.5 million);
• Acquisition related transactions ($0.7 million);
• Acquired intangibles asset amortisation ($5.0 million); and
• Share-based payment ($7.6 million).
We identified a key audit matter in respect of the classification of items recorded as adjusting. While the key
measure used by management to monitor performance is adjusted operating profit, adjusted profit before
tax is also a key measure used in communication with shareholders. Judgement is exercised by
management in determining whether the classification of such items is in accordance with guidance issued
by the FRC and ESMA. There is a risk that costs or income may be classified as adjusting which are
underlying or recurring items, and therefore distort the reported adjusted profit, whether due to
manipulation or error. Consistency in the identification and presentation of the adjusted costs or income is
important for the comparability of year-on-year reporting.
Explanations of each adjustment are set out in note 5 to the Group financial statements, and also in note 2
to the Group financial statements in relation to the critical judgements involved in determining adjusting
items. Refer also to page 80 of the Audit Committee report.
How the scope of our
audit responded to
the key audit matter
We obtained an understanding of the relevant controls over the classification of adjusting items in the
financial statements.
We evaluated the appropriateness of the inclusion of items, both individually and in aggregate, within
adjusted results, completing the following procedures:
• assessed the consistency of items included year-on-year, the content and application of management’s
accounting policy, challenging the nature of these items by reference to FRC and ESMA guidance, and
challenging in particular the inclusion of those items that recur annually;
• tested a sample of adjusting items by agreeing to source documentation and evaluating their nature in
order to assess whether they are disclosed in accordance with the Group’s accounting policy, and also to
assess consistency of adjusting items between periods in the Group financial statements;
• agreed the amounts recorded through to underlying financial records and other audit support to test
that the amounts disclosed were complete and accurate;
• focused our challenge on certain categories such as strategic evaluation and acquisition costs within
adjusting items where we assessed that increased level of judgement had been applied by
management, and there was increased risk for fraud or error;
• for any impairment of right-of-use assets relating to leases we challenged whether the areas vacated
represented separate lease components that are reasonable to be individually isolated and impaired
distinct from the remainder of the lease;
• considered the impact of adjusting items on Directors’ remuneration targets to determine if any
increased fraud risk factor existed based on actual results for the period; and
• assessed whether the disclosures within the Group financial statements provided sufficient detail for the
reader to understand the nature of these items and how adjusted results reconcile to statutory results.
Key observations
The value of adjusting items results in a material difference between the statutory and adjusted results.
Whilst we note that the majority of adjusting items recur from period to period, their classification and
presentation is consistent with the Group’s policy and that they are appropriately disclosed.
FINANCIAL STATEMENTS
119Spirent Communications plc Annual Report 2023
Independent auditor’s report to the members
of Spirent Communications plc continued
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent Company financial statements
Materiality $3.4 million (2022 $5.9 million) $1.2 million (2022 $2.6 million)
Basis for determining
materiality
We considered the following metrics:
• Adjusted Profit Before Tax
• Profit Before Tax
• Net Assets
• Revenue
We considered the materiality for parent Company
on the same basis as the Group however capped at
50 per cent of Group materiality to address the risk
of aggregation when combined with other
businesses (2022 50 per cent).
Rationale for the
benchmark applied
We have historically used 5 per cent of profit before
tax as the sole benchmark for determining
materiality. However, given the instability of this
metric due to the challenging trading environment
and high level of one-off adjusting items in the
current year, we have reassessed this to be a
blended materiality considering other benchmarks.
In doing so we have selected metrics which are
considered key performance indicators by
management and users of the financial
statements, and that provide a more consistent
indicator of the overall level of trading activity
within the business.
Materiality for the current year represents:
• 0.7 per cent of Revenue (2022 1.0 per cent)
• 6.8 per cent of Adjusted Profit Before Tax
(2022 4.5 per cent)
• 14.7 per cent of Profit Before Tax
(2022 5.1 per cent)
• 1.0 per cent of Net Assets (2022 1.3 per cent)
Amortisation of acquired intangible assets,
share-based payment and other adjusting items
are recorded in arriving at profit before tax. We
have considered adjusting items through our key
audit matter above.
We performed our audit of in scope components
(see section 7) based upon a materiality range of
$1.2 million-$1.7 million depending on the size
and contribution of the respective component.
The parent Company includes both the UK trading
entities of the group and the head office. The
value of the standalone parent Company financial
statement to users is in relation to the assets and
equity of the business and as such net assets has
been used as the principal benchmark.
However, as the parent Company is also a trading
entity it was also considered that this was an
appropriate level relative to the revenue
generation, assets and profitability of the entity.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Parent Company financial statements
Performance
materiality
70 per cent of Group materiality
(2022 70 per cent)
70 per cent of parent Company materiality
(2022 70 per cent)
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we have considered the quality of the control environment
and corrected and uncorrected misstatements identified in previous audits.
FINANCIAL STATEMENTS
120 Spirent Communications plc Annual Report 2023
6. Our application of materiality continued
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $168,250
(2022 $295,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
We performed our scoping of the Group audit on the basis of our understanding of the Group and its environment, including
group-wide controls, and assessing the audit risks. This exercise has considered the relative size of each reporting unit’s
contribution to revenue, profit before tax, net assets and adjusted profit before tax as well as other components we consider to
be significant in relation to their potential risk.
The Group has three major accounting hubs located in the UK, US and Hong Kong where the local finance teams are
responsible for the recording and reporting of the Group’s financial performance. The UK-based finance team are responsible
for the Europe, Middle East and Africa region and the Hong Kong team are responsible for the Asia Pacific region. The relative
size of these geographies is set out in note 3 (Operating Segments).
This resulted in six full-scope audits being performed for the principal trading entities in the UK, Asia Pacific and the US as well as
for the Group’s Federal business, also based in the US.
Additionally, our audit planning identified four components, located in the UK, US and China where we consider there to be a
reasonable possibility of material misstatement in specific balances within the financial statements. The relevant component
teams have performed audit work over these specific balances.
These components, which were either full or specified account balances scope in the current year, contribute 93 per cent (2022
94 per cent) of revenue, 87 per cent (2022 87 per cent) of profit before tax and 92 per cent (2022 94 per cent) of net assets.
The Group engagement team performed all audit work in respect of the consolidation, share-based payments, goodwill impairment,
UK defined benefit pension schemes and all audit work over the parent Company entity including the group’s UK trading activities.
In addition, the group engagement team reviewed the performance of all components not identified as in full scope or
specified account balance scope to ensure that there were no indications of additional risks of material misstatement within
the residual balances.
As each of the components maintains separate financial records, we have engaged component auditors from the Deloitte
member firms in the US and Hong Kong to perform procedures under our direction and supervision.
Full audit scope 93%
Specified audit procedures 0%
Review at Group level 7%
Full audit scope 68%
Specified audit procedures 19%
Review at Group level 13%
Full audit scope 81%
Specified audit procedures 11%
Review at Group level 8%
Revenue
Profit
before tax
Net assets
FINANCIAL STATEMENTS
121Spirent Communications plc Annual Report 2023
Independent auditor’s report to the members
of Spirent Communications plc continued
7. An overview of the scope of our audit continued
7.2. Our consideration of the control environment
We tested general IT controls over IT systems that were key to the Group’s revenue recognition process. These included
principally the global instances of the Group’s ERP, the system that contains the Group’s general ledger, but also extended to
certain tools the Group uses as complementary to those systems. We also tested relevant controls over the supporting
infrastructure of those systems including databases and operating systems.
We performed detailed walkthroughs of all relevant processes and obtained an understanding of relevant controls over revenue,
adjusting items and financial reporting cycles which addressed a significant risk of material misstatement. We have also
obtained an understanding of controls for further relevant account balances, including inventory.
In the current year, management have implemented additional controls over revenue and continue to formalise their processes.
During the course of our audit, we tested and were able to place reliance on a number of relevant revenue controls.
Where control deficiencies and improvements were identified in relation to IT systems, segregation of duties and balance sheet
reconciliations, these are reported to management and the Audit and Risk Committee as appropriate. The Group continues to
invest time in responding to, and addressing, our observations.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements. Our risk assessment procedures included an understanding of management’s process for identifying and
considering climate-related risks and assessing whether the risks were consistent with our understanding of the entity.
The Group continues to focus on its assessment of the potential impacts of environmental, social and governance (ESG) related
risks, including climate change, as outlined on page 35. The risks identified by management include the potential for energy
costs increases in the short term and in the medium term, the potential for physical site damage, increased insurance costs and
capital expenditure and the potential for supplier disruption.
As a part of our audit, we have:
• Obtained an understanding of management’s climate-related risk assessment and evaluated the key assumptions;
• Held discussions with management to understand their governance process, the process of identifying climate-related risks,
the determination of mitigating actions and the impact on the Group’s financial statements;
• Read the disclosures in the Strategic report to whether they are materially consistent with the financial statements and our
knowledge obtained in the audit; and
• We have also evaluated the appropriateness of disclosures included in the financial statements.
Management has developed two climate change scenarios and determined that there is no material impact arising from
climate change on the judgements and estimates made in the financial statements, as disclosed on page 36 and in note 2.
7.4. Working with other auditors
In order to direct and supervise the component auditors we held regular formal video calls with all teams to ensure that we
gained a common understanding of the entity. We issued detailed referral instructions to the component auditors, reviewed and
supervised their work through visits to the component auditors during the planning and performance stages of our audit,
alongside frequent remote communication. We performed site visits for both the US and Hong Kong components. We also
attended key client briefings on both regional and segment performance.
8. Other information
The other information comprises the information included in the Annual Report, other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion thereon.
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 course of 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 this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
FINANCIAL STATEMENTS
122 Spirent Communications plc Annual Report 2023
9. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, 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’s and the 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.
10. 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.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment
of the risks of irregularities including those that are specific to the Group’s sectors;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
• the matters discussed among the audit engagement team, including significant component audit teams, and relevant internal
specialists, including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
FINANCIAL STATEMENTS
123Spirent Communications plc Annual Report 2023
Independent auditor’s report to the members
of Spirent Communications plc continued
11. Extent to which the audit was considered capable of detecting irregularities, including fraud continued
11.1. Identifying and assessing potential risks related to irregularities continued
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following area: appropriateness of revenue recognition and classification of
adjusting items. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to
the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the Companies Act 2006, the relevant tax
compliance regulations in the jurisdictions in which the Group operates, the Listing Rules and pensions legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included,
in particular, considering the effect of the USA’s restrictions on trading with China and the necessity of licenses for various of the
Group’s products.
11.2. Audit response to risks identified
As a result of performing the above, we identified the appropriateness of revenue recognition and classification of adjusting
items as a key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matter
in more detail and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential
litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC;
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias;
and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
FINANCIAL STATEMENTS
124 Spirent Communications plc Annual Report 2023
Report on other legal and regulatory requirements
12. 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.
In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the Strategic report or the Directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and
any material uncertainties identified set out on page 113;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate set out on page 113;
• the Directors’ statement on fair, balanced and understandable set out on page 114;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page
55;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems set out on pages 80 and 81; and
• the section describing the work of the Audit Committee set out on page 78.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• 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 are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
FINANCIAL STATEMENTS
125Spirent Communications plc Annual Report 2023
14. Matters on which we are required to report by exception continued
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 28 April 2021 to audit
the financial statements for the year ending 31 December 2021 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and re-appointments of the firm is three years, covering the years ending 31 December
2021 to 31 December 2023.
15.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with
ISAs (UK).
16. 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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR)4.1.15R – DTR 4.1.18R,
these financial statements form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism
of the UK FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the
Electronic Format Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Jane Makrakis FCA
For and on behalf of Deloitte LLP
Statutory Auditor
London
5 March 2024
Independent auditor’s report to the members
of Spirent Communications plc continued
FINANCIAL STATEMENTS
126 Spirent Communications plc Annual Report 2023
Consolidated income statement
Year to 31 December 2023
Notes
Year ended 31 December 2023 | Year ended 31 December 2022 | ||||||
| Adjusting | Adjusting | ||||||
| Adjusted | items 1 | Reported | Adjusted | items 1 | Reported | ||
| $ million | $ million | $ million | $ million | $ million | $ million | ||
Revenue | 3 | ||||||
Cost of sales | ( | ( | ( | ( | |||
Gross profit | |||||||
Product development | 3 | ( | ( | ( | ( | ||
Selling and marketing | ( | ( | ( | ( | |||
Administration | ( | ( | ( | ( | ( | ( | |
Operating profit | ( | ( | |||||
| Adjusting items: | |||||||
Acquired intangible asset amortisation | ( | ( | ( | ( | |||
Share-based payment | 31 | ( | ( | ( | ( | ||
Other adjusting items | 5 | ( | ( | ( | ( | ||
( | ( | ( | ( | ||||
Finance income | 6 | ||||||
Finance costs | 7 | ( | ( | ( | ( | ||
Profit before tax | 4 | ( | ( | ||||
Tax (charge)/credit | 10 | ( | ( | ( | |||
Profit for the year attributable to owners of the parent Company | ( | ( | |||||
Earnings per share (cents) | 11 | ||||||
Basic | |||||||
Diluted |
Note
1. Adjusting items comprise amortisation of acquired intangible assets, share-based payment, other adjusting items, tax on adjusting items and any over/under
provision in respect of prior year tax.
The performance of the Group is assessed using a variety of non-GAAP alternative performance measures which are presented
to provide additional financial information that is regularly reviewed by management. Adjusting items are identified and excluded
by virtue of their size, nature or incidence as they do not reflect management’s evaluation of the underlying trading performance
of the Group. The alternative performance measures are presented on pages 196 and 197. The reported GAAP measures give
the complete measure of financial performance.
The notes on pages 132 to 171 and pages 192 and 193 form part of these financial statements.
FINANCIAL STATEMENTS
127Spirent Communications plc Annual Report 2023
Notes
| 2023 | 2022 | ||
| $ million | $ million | ||
Profit for the year attributable to owners of the parent Company | |||
| Other comprehensive income/(loss) | |||
| 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 asset | 9 | ( | ( |
– Income tax effect of re-measurement of the net defined benefit pension asset | 10 | ( | |
– Re-measurement of the deferred compensation liability | 9 | ( | |
( | ( | ||
Other comprehensive loss | ( | ( | |
Total comprehensive income for the year attributable to owners of the parent Company |
The notes on pages 132 to 171 and pages 192 and 193 form part of these financial statements.
Consolidated statement of comprehensive income
Year to 31 December 2023
FINANCIAL STATEMENTS
128 Spirent Communications plc Annual Report 2023
Consolidated balance sheet
At 31 December 2023
Notes
| 2023 | 2022 | ||
| $ million | $ million | ||
| Assets | |||
| Non-current assets | |||
Goodwill and intangible assets | 13 | ||
Property, plant and equipment | 14 | ||
Right-of-use assets | 15 | ||
Trade and other receivables | 19 | ||
Assets recognised from costs to obtain a contract | 20 | ||
Defined benefit pension plan surplus | 9 | ||
Deferred tax asset | 26 | ||
| Current assets | |||
Inventories | 18 | ||
Trade and other receivables | 19 | ||
Assets recognised from costs to obtain a contract | 20 | ||
Current tax asset | |||
Cash and cash equivalents | 21 | ||
Total assets | |||
| Liabilities | |||
| Current liabilities | |||
Trade and other payables | 22 | ( | ( |
Contract liabilities | 24 | ( | ( |
Lease liabilities | 25 | ( | ( |
Other financial liabilities | 22 | ( | |
Current tax liability | ( | ( | |
Provisions | 27 | ( | ( |
( | ( | ||
| Non-current liabilities | |||
Trade and other payables | 22 | ( | ( |
Contract liabilities | 24 | ( | ( |
Lease liabilities | 25 | ( | ( |
Defined benefit pension plan deficit | 9 | ( | ( |
Provisions | 27 | ( | ( |
( | ( | ||
Total liabilities | ( | ( | |
Net assets | |||
Capital and reserves | 29 | ||
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 132 to 171 and pages 192 and 193 form part of these financial statements.
FINANCIAL STATEMENTS
129Spirent Communications plc Annual Report 2023
Notes
| Attributable to the equity holders of the parent Company | ||||||||
| $ million | ||||||||
| Share | Capital | |||||||
| Share | premium | redemption | Other | Translation | Retained | Total | ||
| capital | account | reserve | reserves | reserve | earnings | equity | ||
At 1 January 2022 | ||||||||
Profit for the year | ||||||||
| Other comprehensive income | ( | ( | ( | |||||
Total comprehensive (loss)/income | ( | |||||||
Share-based payment | 31 | |||||||
Tax charge on share incentives | 10 | ( | ( | |||||
Equity dividends | 12 | ( | ( | |||||
Employee Share Ownership Trust | 29 | ( | ( | |||||
Exchange adjustment | ( | ( | ( | |||||
At 1 January 2023 | ||||||||
Profit for the year | ||||||||
| Other comprehensive income/(loss) | ( | ( | ||||||
Total comprehensive income | ||||||||
Share-based payment | 31 | |||||||
Tax charge on share incentives | 10 | ( | ( | |||||
Equity dividends | 12 | ( | ( | |||||
Share repurchase | 29 | ( | ( | ( | ||||
Exchange adjustment | ( | |||||||
At 31 December 2023 |
1
2
Notes
1. The amount included in other comprehensive income/(loss) for 2022 of $19 .6 million represents re-measurement losses on the net defined benefit pension asset
of $29 .0 million, net of a tax credit of $9 .4 million. The amount included in the translation reserve of $8.2 million represents other comprehensive losses related
to the translation of foreign operations.
2. The amount included in other comprehensive income/(loss) for 2023 of $4.8 million represents re-measurement losses on the net defined benefit pension asset
of $4. 1 million, a tax charge of $0 .1 million and remeasurement losses on the deferred compensation liability of $0. 6 million. The amount included in the
translation reserve of $2. 8 million represents other comprehensive gain related to the translation of foreign operations.
The notes on pages 132 to 171 and pages 192 and 193 form part of these financial statements.
Consolidated statement of changes in equity
FINANCIAL STATEMENTS
130 Spirent Communications plc Annual Report 2023
Consolidated cash flow statement
Year to 31 December 2023
Notes
| 2023 | 2022 | ||
| $ million | $ million | ||
| Cash flows from operating activities | |||
Cash flow from operations | 32 | ||
Tax paid | ( | ( | |
Net cash inflow from operating activities | |||
| Cash flows from investing activities | |||
Interest received | |||
Purchase of property, plant and equipment | 14 | ( | ( |
Proceeds from the sale of property, plant and equipment | |||
Lease payments received from finance leases | 15 | ||
Acquisition of business | 33 | ( | |
Net cash used in investing activities | ( | ( | |
| Cash flows from financing activities | |||
Lease liability principal repayments | 25 | ( | ( |
Lease liability interest paid | 25 | ( | ( |
Dividend paid | 12 | ( | ( |
Share purchase into Employee Share Ownership Trust | 29 | ( | |
Share repurchase | 29 | ( | |
Net cash used in financing activities | ( | ( | |
Net (decrease)/increase in cash and cash equivalents | ( | ||
Cash and cash equivalents at the beginning of the year | |||
Effect of foreign exchange rate changes | ( | ||
Cash and cash equivalents at the end of the year | 21 |
The notes on pages 132 to 171 and pages 192 and 193 form part of these financial statements.
FINANCIAL STATEMENTS
131Spirent Communications plc Annual Report 2023
1. Corporate information
The Group’s consolidated financial statements for the year ended 31 December 2023 were authorised for issue by the Board
of Directors on 5 March 2024. Spirent Communications plc is a public limited company incorporated and domiciled in England
The Company’s Ordinary Shares are traded on the London Stock Exchange.
The Company has elected to prepare the Company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101) and the
Companies Act 2006. These are presented on pages 172 and 173 and the accounting policies in respect of the Company are set
out on pages 174 to 191.
2. Significant accounting policies
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
132 Spirent Communications plc Annual Report 2023
2. Significant accounting policies continued
Basis of consolidation continued
| Useful life | |
Customer lists | 2 to 7 years |
Current technology | 5 to 7 years |
Brand names | 3 years |
Licences | 3 to 5 years |
FINANCIAL STATEMENTS
133Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
Freehold buildings | 50 years |
Plant and machinery | 3 to 8 years |
| Fixtures, fittings and equipment: | |
- Building installations | 20 years or lease period if lower |
- Fittings and equipment | 3 to 8 years |
- Motor vehicles | 3 to 5 years |
- Business systems software | 4 years |
FINANCIAL STATEMENTS
134 Spirent Communications plc Annual Report 2023
2. Significant accounting policies continued
Leases continued
The Group as a lessee continued
FINANCIAL STATEMENTS
135Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
FINANCIAL STATEMENTS
136 Spirent Communications plc Annual Report 2023
2. Significant accounting policies continued
FINANCIAL STATEMENTS
137Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
Revenue continued
FINANCIAL STATEMENTS
138 Spirent Communications plc Annual Report 2023
2. Significant accounting policies continued
FINANCIAL STATEMENTS
139Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
Adjusting items continued
FINANCIAL STATEMENTS
140 Spirent Communications plc Annual Report 2023
2. Significant accounting policies continued
Critical accounting judgements and key sources of estimation uncertainty continued
Judgements continued
| Effective for annual periods | ||
| beginning on or after | ||
IAS 1 | Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) | 1 January 2024 |
IFRS 16 | Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) | 1 January 2024 |
IAS 1 | Non-current Liabilities with Covenants (Amendment to IAS 1) | 1 January 2024 |
IAS 28/IFRS 10 | Sale or Contribution of Assets between Investor and its Associate, or Joint | 1 January 2026 |
| Venture (Amendments to IAS 28/IFRS 10) | ||
IAS 7/IFRS 7 | Supplier Finance Arrangements (Amendments to IAS 7/IFRS 7) | 1 January 2024 |
FINANCIAL STATEMENTS
141Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
| 2023 | |||||
| $ million | |||||
| Lifecycle | |||||
| Service | Networks & | ||||
| Notes | Assurance | Security | Corporate | Total | |
| Revenue | |||||
| Nature of products and services | |||||
Sale of hardware and software | 86.7 | 203.6 | – | 290.3 | |
Maintenance and support services | 112.4 | 71.6 | – | 184.0 | |
199.1 | 275.2 | – | 474.3 | ||
| Primary geographical markets | |||||
Americas | 133.1 | 135.0 | – | 268.1 | |
Asia Pacific | 49.3 | 104.6 | – | 153.9 | |
Europe, Middle East and Africa | 16.7 | 35.6 | – | 52.3 | |
199.1 | 275.2 | – | 474.3 | ||
| Inter-segment revenue is eliminated. | |||||
| Profit before tax | |||||
Adjusted operating profit | 16.9 | 39.0 | (10.7) | 45.2 | |
Other adjusting items | 5 | (6.1) | (7.3) | (0.8) | (14.2) |
Total reportable segment profit | 10.8 | 31.7 | (11.5) | 31.0 | |
| Unallocated amounts: | |||||
– Acquired intangible asset amortisation | (5.0) | ||||
– Share-based payment | 31 | (7.6) | |||
Operating profit | 18.4 | ||||
Finance income | 6 | 5.4 | |||
Finance costs | 7 | (0.9) | |||
Profit before tax | 22.9 | ||||
| Other information | |||||
Product development | 52.0 | 50.4 | – | 102.4 | |
Intangible asset amortisation – other | 0.1 | – | – | 0.1 | |
Depreciation of property, plant and equipment | 14 | 4.4 | 6.0 | 0.1 | 10.5 |
Depreciation of right-of-use assets | 15 | 3.2 | 3.4 | 0.3 | 6.9 |
FINANCIAL STATEMENTS
142 Spirent Communications plc Annual Report 2023
3. Operating segments continued
| 2022 | |||||
| $ million | |||||
| Lifecycle | |||||
| Service | Networks & | ||||
| Notes | Assurance | Security | Corporate | Total | |
| Revenue | |||||
| Nature of products and services | |||||
Sale of hardware and software | 146.0 | 276.1 | – | 422.1 | |
Maintenance and support services | 118.5 | 66.9 | – | 185.4 | |
264.5 | 343.0 | – | 607.5 | ||
| Primary geographical markets | |||||
Americas | 179.7 | 156.6 | – | 336.3 | |
Asia Pacific | 61.8 | 144.0 | – | 205.8 | |
Europe, Middle East and Africa | 23.0 | 42.4 | – | 65.4 | |
264.5 | 343.0 | – | 607.5 | ||
| Inter-segment revenue is eliminated. | |||||
| Profit before tax | |||||
Adjusted operating profit | 51.0 | 86.8 | (8.3) | 129.5 | |
Other adjusting items | 5 | (0.9) | (2.1) | (0.6) | (3.6) |
Total reportable segment profit | 50.1 | 84.7 | (8.9) | 125.9 | |
| Unallocated amounts: | |||||
– Acquired intangible asset amortisation | (4.7) | ||||
– Share-based payment | 31 | (8.5) | |||
Operating profit | 112.7 | ||||
Finance income | 6 | 2.9 | |||
Finance costs | 7 | (1.0) | |||
Profit before tax | 114.6 | ||||
| Other information | |||||
Product development | 56.6 | 54.7 | – | 111.3 | |
Intangible asset amortisation – other | 0.6 | – | – | 0.6 | |
Depreciation of property, plant and equipment | 14 | 4.7 | 6.2 | 0.1 | 11.0 |
Depreciation of right-of-use assets | 15 | 3.4 | 3.6 | 0.3 | 7.3 |
FINANCIAL STATEMENTS
143Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
3. Operating segments continued
2023 | 2022 | |
$ million | $ million | |
| Non-current assets | ||
Americas | 225.1 | 229.2 |
Asia Pacific | 6.8 | 5.0 |
Europe, Middle East and Africa | 7.4 | 7.9 |
239.3 | 242.1 |
2023 | 2022 | ||
Notes | $ million | $ million | |
Employee benefit costs | 8 | 255.9 | 267.7 |
Costs of inventories recognised as an expense | 65.9 | 102.0 | |
Write-down/(up) of inventories to net realisable value | 18 | 2.9 | (0.2) |
Amortisation of intangible assets | 13 | 5.1 | 5.3 |
Depreciation of property, plant and equipment | 14 | 10.5 | 11.0 |
Depreciation of right-of-use assets | 15 | 6.9 | 7.3 |
Amortisation of assets recognised from costs to obtain a contract | 20 | 0.5 | 1.1 |
Expenses relating to short-term leases and leases of low-value assets | 25 | 0.6 | 0.7 |
Product development costs | 102.4 | 111.3 | |
Net foreign exchange loss/(gain) | 0.9 | (0.2) |
2023 | 2022 | |
$ million | $ million | |
| Audit services | ||
Parent Company | 1.0 | 0.8 |
Subsidiaries | 0.7 | 0.6 |
1.7 | 1.4 | |
| Non-audit fees | ||
Interim review | 0.1 | 0.1 |
Total fees | 1.8 | 1.5 |
5. Other adjusting items
2023 | 2022 | |
$ million | $ million | |
Restructuring | 13.5 | 2.8 |
Acquisition related transactions | 0.7 | 0.8 |
14.2 | 3.6 |
FINANCIAL STATEMENTS
144 Spirent Communications plc Annual Report 2023
5. Other adjusting items continued
Restructuring
2023 | 2022 | |
$ million | $ million | |
R&D engineering plan | 0.7 | 1.5 |
Finance transformation | 1.1 | – |
Organisational restructure | 8.8 | 1.3 |
Facilities downsize | 2.9 | – |
13.5 | 2.8 |
The initiatives, with a restructuring cost of $13.5 million have driven cost savings of $14 million during 2023 and are expected to
deliver further savings of circa $17 million for 2024 which will more than mitigate cost inflation. The overall payback of the
change initiatives is expected to be less than two years.
We embarked on a strategic evaluation of our operating model taking into account the need to serve our customers with solutions
involving a combination of our portfolio offerings and the need to drive cost efficiency during a challenging trading environment.
We concluded our R&D engineering site plan to relocate activities from North America to lower cost regions for our High-Speed
Ethernet business. This incurred severance and retention costs of $0.7 million (2022 $1.5 million) and delivered material cost savings.
In order to embed standardised global finance processes, we moved certain accounting activities from North America to the UK
incurring $1.1 million of costs including $0.5 million consultancy.
We reduced headcount by 8 per cent and incurred $8.3 million of costs mainly relating to severance and exit costs of people,
and at the end of 2023, incurred an additional $0.5 million of restructure costs in relation to the organisation change to merge
the High-Speed Ethernet businesses into the Lifecycle Service assurance segment to better serve our customers’ requirements
for portfolio solutions.
Our facilities and office sites were reviewed and we exited and downsized three of our North American facilities which gave rise
to a non-cash $2.9 million impairment of assets, therefore reducing the cost of our office space going forward.
Acquisition related transactions
On 8 September 2023, the Group completed the asset purchase of a small Test Lab Automation business carve-out from
NetScout
®
Inc. Direct acquisition transaction costs of $0.4 million and integration costs of $0.3 million were incurred during 2023.
Prior year acquisition costs reflect the Group acquisition of octoScope in 2021 which relate to direct acquisition costs of $0.6 million,
acquisition related performance credit adjustment of $0.1 million and integration costs of $0.3 million.
The tax effect of other adjusting items is a credit of $2.5 million (2022 $0.9 million). There will be a total net cash outflow of
$11.3 million in respect of other adjusting items charged in 2023, $10.3 million of which was in 2023 (2022 $3.6 million outflow
with $1.7 million paid in 2022). The cash outflow in 2023 in respect of other adjusting items charged in 2022 was $1.9 million
(2022 $0.9 million).
The total cash outflow in respect of other adjusting items is reported within cash flows from operating activities in the
consolidated cash flow statement.
2023 | 2022 | ||
Note | $ million | $ million | |
Bank interest receivable | 4.8 | 2.1 | |
Net defined benefit pension plan interest | 9 | 0.6 | 0.8 |
5.4 | 2.9 |
2023 | 2022 | ||
Notes | $ million | $ million | |
Lease liability interest | 25 | 0.9 | 1.0 |
FINANCIAL STATEMENTS
145Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
8. Employees
The average number of people employed by the Group during the year was:
2023 | 2022 | |
Number | Number | |
Assembly | 388 | 393 |
Product development | 500 | 499 |
Selling and marketing | 513 | 536 |
Administration | 220 | 220 |
1,621 | 1,648 |
Employee benefit costs, including Executive Directors, were:
2023 | 2022 | ||
Note | $ million | $ million | |
Remuneration | 219.3 | 230.4 | |
Social security costs | 18.7 | 19.0 | |
Pension and other related costs | 10.2 | 9.4 | |
Expense of share–based payment | 31 | 7.7 | 8.9 |
255.9 | 267.7 |
Please refer to the Report on Directors’ Remuneration on pages 83 to 109 and note 34 for disclosures relating to the emoluments,
share incentives and pensions of the Directors.
9. Pensions
FINANCIAL STATEMENTS
146 Spirent Communications plc Annual Report 2023
9. Pensions continued
Defined benefit plans continued
i) Characteristics and risks associated with the Plans continued
2023 | 2022 | |
$ million | $ million | |
| Schemes in net asset position | ||
UK defined benefit pension plan – Staff Plan | 12.9 | 14.9 |
Withholding tax payable | (4.5) | (5.2) |
8.4 | 9.7 | |
| Schemes in net liability position | ||
UK defined benefit pension plan – Cash Plan | (1.7) | (1.7) |
UK unfunded plan | (0.5) | (0.5) |
US deferred compensation plan | (9.2) | (6.9) |
(11.4) | (9.1) | |
Net pension plan (deficit)/surplus on the balance sheet | (3.0) | 0.6 |
FINANCIAL STATEMENTS
147Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
9. Pensions continued
Defined benefit plans continued
ii) Amounts in the financial statements continued
2023 | 2022 | |
$ million | $ million | |
| Staff Plan | ||
| Unquoted: | ||
- Insured annuities | 1.5 | 1.6 |
- Cash and other | 17.8 | 17.7 |
Insurance policy with PIC | 167.9 | 162.0 |
Fair value of plan assets | 187.2 | 181.3 |
Present value of defined benefit pension plan obligations | (174.3) | (166.4) |
Surplus in the plan | 12.9 | 14.9 |
Withholding tax payable | (4.5) | (5.2) |
Surplus in the plan on the balance sheet | 8.4 | 9.7 |
| Cash Plan | ||
| Quoted: | ||
– Equities | 6.0 | 5.0 |
- Government bonds | 1.9 | 2.0 |
| Unquoted: | ||
– Cash and other | 1.9 | 1.7 |
Fair value of plan assets | 9.8 | 8.7 |
Present value of defined benefit pension plan obligations | (11.5) | (10.4) |
Deficit in the plan | (1.7) | (1.7) |
Total net surplus recognised | 6.7 | 8.0 |
| Unfunded plan | ||
Present value of unfunded obligations | (0.5) | (0.5) |
| Deferred compensation plan | ||
Present value of deferred compensation obligations | (9.2) | (6.9) |
Net pension plan (deficit)/surplus on the balance sheet | (3.0) | 0.6 |
FINANCIAL STATEMENTS
148 Spirent Communications plc Annual Report 2023
9. Pensions continued
Defined benefit plans continued
ii) Amounts in the financial statements continued
2023 | 2022 | |
$ million | $ million | |
Current service cost | – | 0.1 |
Amount charged to operating costs | – | 0.1 |
Net interest on the net defined benefit pension surplus | (0.6) | (0.8) |
Net credit to the income statement | (0.6) | (0.7) |
2023 | 2022 | |
$ million | $ million | |
Re-measurement loss on plans’ assets | (0.3) | (104.8) |
Costs of managing plan assets paid by Company | (1.4) | (0.9) |
Actuarial loss arising from experience | (1.7) | (5.5) |
Actuarial gain arising from the demographic assumptions | 3.2 | 1.1 |
Actuarial (loss)/gain arising from changes in financial assumptions | (4.6) | 86.3 |
Withholding tax payable | 0.7 | (5.2) |
Re-measurement of the net defined benefit pension surplus | (4.1) | (29.0) |
2023 | 2022 | |
$ million | $ million | |
At 1 January | 176.8 | 292.5 |
Current service cost | – | 0.1 |
Interest cost | 8.6 | 4.5 |
Benefit payments | (11.9) | (10.5) |
Actuarial loss arising from experience | 1.7 | 5.5 |
Actuarial gain arising from the demographic assumptions | (3.2) | (1.1) |
Actuarial loss/(gain) arising from changes in financial assumptions | 4.6 | (86.3) |
Exchange adjustment | 9.2 | (27.9) |
Present value of funded defined benefit pension plans’ obligations | 185.8 | 176.8 |
2023 | 2022 | |
$ million | $ million | |
At 1 January | 190.0 | 330.3 |
Interest income on plans’ assets | 9.3 | 5.3 |
Employer contributions | – | 1.1 |
Benefit payments | (11.9) | (10.5) |
Re-measurement loss on plans’ assets | (0.3) | (104.8) |
Exchange adjustment | 9.9 | (31.4) |
Fair value of plans’ assets | 197.0 | 190.0 |
Withholding tax payable | (4.5) | (5.2) |
Fair value of plans’ assets less irrecoverable element of pension plan surplus | 192.5 | 184.8 |
FINANCIAL STATEMENTS
149Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
9. Pensions continued
Defined benefit plans continued
ii) Amounts in the financial statements continued
2023 | 2022 | |
% | % | |
Inflation – RPI | 3.1 | 3.3 |
Inflation – CPI (pre-2030) | RPI less 1.0% pa | RPI less 1.0% pa |
Inflation – CPI (post-2030) | RPI less 0.1% pa | RPI less 0.1% pa |
Rate of increase in pensionable salaries | CPI | CPI |
Rate of increase for pensions in payment pre-2001 service | 3.6 | 3.7 |
Rate of increase for pensions in payment 2001 to 5 April 2005 service | 3.0 | 3.1 |
Rate of increase for pensions post-5 April 2005 service | 2.1 | 2.1 |
Rate of increase in deferred pensions | CPI | CPI |
Rate used to discount plan liabilities | 4.5 | 4.8 |
2023 | 2022 | |
Weighted average duration of the defined benefit obligation (years) | 11 | 11 |
| Maturity analysis of benefit payments (non-discounted amounts) ($ million) | ||
Maturity ≤ 1 year | 11.0 | 10.3 |
Maturity > 1 ≤ 5 years | 46.2 | 43.3 |
Maturity > 5 ≤ 10 years | 57.7 | 55.7 |
Maturity > 10 ≤ 20 years | 98.4 | 98.5 |
Maturity > 20 ≤ 30 years | 64.7 | 67.8 |
Maturity > 30 years | 39.6 | 45.3 |
Deferred compensation plan
At 31 December 2023, the deferred compensation plan deficit amounted to $9.2 million (2022 $6.9 million).
During the year, $0.6 million was charged to the income statement (2022 $0.3 million credited) and there was a re-measurement
loss of $0.6 million recognised directly in the statement of other comprehensive income (2022 nil). The key financial assumptions
include a discount rate used to discount plan liabilities of 3.2 per cent (2022 5.2 per cent) and an expected investment yield of 5.0
per cent (2022 9.5 per cent). There is no material impact in 2023 or 2022 of changing each of the key assumptions by 0.1 per cent,
in isolation.
FINANCIAL STATEMENTS
150 Spirent Communications plc Annual Report 2023
9. Pensions continued
10. Tax
2023 | 2022 | |
$ million | $ million | |
| Tax charge in the income statement | ||
| Current income tax | ||
UK tax | 3.9 | 2.5 |
Foreign tax | 6.4 | 23.9 |
Amounts underprovided in prior years | (0.8) | 1.7 |
Total current income tax charge | 9.5 | 28.1 |
| Deferred tax | ||
Recognition of deferred tax assets | (0.2) | (1.0) |
Reversal of temporary differences | (10.8) | (12.4) |
Adjustments in respect of prior years | (0.8) | – |
Total deferred tax credit | (11.8) | (13.4) |
Tax (credit)/charge in the income statement | (2.3) | 14.7 |
The tax credit for the year ended 31 December 2023 was $2.3 million (2022 $14.7 million tax charge). This was after a prior year
tax credit of $0.8 million and a tax credit on the adjusting items of $6.1 million (2022 prior year charge of $1.7 million and tax
credit on adjusting items of $3.9 million). Excluding the prior year and tax charge on adjusting items, the effective tax rate was
10.8 per cent (2022 12.9 per cent).
Tax relating to items (credited)/charged to other comprehensive income or equity:
2023 | 2022 | |
$ million | $ million | |
Deferred tax on share incentives | 1.7 | 0.7 |
Current tax on share incentives | – | (0.6) |
Tax charge on share incentives | 1.7 | 0.1 |
Deferred tax charge/(credit) on defined benefit pension plan | 0.1 | (9.4) |
Deferred tax credit on deferred compensation plan | (0.1) | – |
FINANCIAL STATEMENTS
151Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
10. Tax continued
Reconciliation of the total tax charge
The tax charge in the income statement for the year is lower than the standard rate of corporation tax in the UK of 23.5 per cent
(2022 19.0 per cent). The differences are reconciled below:
| Year ended 31 December 2023 | |||
Adjusted | Adjusting | Reported | |
$ million | $ million | $ million | |
Accounting profit before tax | 49.7 | (26.8) | 22.9 |
Accounting profit multiplied by the UK standard rate of corporation tax of 23.5 per cent | 11.7 | (6.3) | 5.4 |
Differences in overseas rates | 0.5 | – | 0.5 |
Non-taxable income (offshore income in Hong Kong entity) | (0.9) | – | (0.9) |
Net state tax credits generated in current year | (0.2) | – | (0.2) |
Utilisation of temporary differences not previously recognised | (0.6) | – | (0.6) |
US Research and Experimental tax credit | (2.3) | – | (2.3) |
Withholding tax | 0.4 | (1.0) | (0.6) |
Hong Kong income tax credit | – | – | – |
Permanent differences | (3.2) | 0.2 | (3.0) |
Tax underprovided in prior years | – | (0.6) | (0.6) |
Total tax credit reported in the income statement | 5.4 | (7.7) | (2.3) |
| Year ended 31 December 2022 | |||
Adjusted | Adjusting | Reported | |
$ million | $ million | $ million | |
Accounting profit before tax | 131.4 | (16.8) | 114.6 |
Accounting profit multiplied by the UK standard rate of corporation tax of 19.0 per cent | 25.0 | (3.2) | 21.8 |
Differences in overseas rates | 3.5 | (0.4) | 3.1 |
Non-taxable income | (0.8) | – | (0.8) |
Recognition of temporary differences previously not recognised for deferred tax | (1.8) | – | (1.8) |
Utilisation of temporary differences not previously recognised | (1.0) | – | (1.0) |
UK and US Research and Experimental tax credit | (2.9) | – | (2.9) |
Withholding tax | 0.8 | – | 0.8 |
Hong Kong income tax credit | (0.7) | – | (0.7) |
Permanent differences | (5.2) | (0.3) | (5.5) |
Tax overprovided in prior years | – | 1.7 | 1.7 |
Total tax charge reported in the income statement | 16.9 | (2.2) | 14.7 |
The Group’s tax rate is sensitive to the geographic mix of profits and reflects a combination of higher statutory tax rates in
certain jurisdictions, and other regions with significantly lower statutory tax rates. Regional statutory tax rates range from a
high of 35 per cent to a low of 10 per cent. The UK Patent Box deduction benefit of $3.2 million (2022 $2.4 million), US Foreign-Derived
intangible income deduction of $0.8 million (2022 $3.6 million), and Research and Experimental credits of $2.3 million
(2022 $2.9 million) bring down the rate but items such as state taxes and withholding tax increase the tax rate.
FINANCIAL STATEMENTS
152 Spirent Communications plc Annual Report 2023
11. 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.
2023 | 2022 | |
$ million | $ million | |
Profit for the year attributable to owners of the parent Company | 25.2 | 99.9 |
| Number | Number | |
| million | million | |
Weighted average number of Ordinary Shares in issue – basic | 586.7 | 607.0 |
Dilutive potential of employee share incentives | 4.1 | 3.7 |
Weighted average number of Ordinary Shares in issue – diluted | 590.8 | 610.7 |
Cents | Cents | |
| Earnings per share | ||
Basic | 4.30 | 16.46 |
Diluted | 4.26 | 16.36 |
Adjusted
The Group is disclosing adjusted earnings per share attributable to owners of the parent Company in order to provide a
measure to enable period-on-period comparisons to be made of its performance. The following items are excluded from
adjusted earnings:
• acquired intangible asset amortisation;
• share-based payment;
• other adjusting items;
• tax effect on the above items; and
• prior year tax (adjustments made to provisions in respect of prior years).
A reconciliation is provided below:
2023 | 2022 | ||||
Notes | $ million | EPS (cents) | $ million | EPS (cents) | |
Profit for the year attributable to owners of the parent Company | 25.2 | 4.30 | 99.9 | 16.46 | |
Acquired intangible asset amortisation | 5.0 | 4.7 | |||
Share-based payment | 31 | 7.6 | 8.5 | ||
Other adjusting items | 5 | 14.2 | 3.6 | ||
Tax effect on the above items | 10 | (6.1) | (3.9) | ||
Prior year tax (credit)/charge | 10 | (1.6) | 1.7 | ||
Adjusted basic | 44.3 | 7.55 | 114.5 | 18.86 | |
Adjusted diluted | 7.50 | 18.75 |
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.
During the year, the Company repurchased and cancelled 33.1 million shares.
FINANCIAL STATEMENTS
153Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
2023 | 2022 | |
$ million | $ million | |
Lifecycle Service Assurance | 114.3 | 110.3 |
Networks & Security | 73.0 | 72.8 |
187.3 | 183.1 |
FINANCIAL STATEMENTS
154 Spirent Communications plc Annual Report 2023
13. Intangible assets continued
2023 | 2022 | |
% | % | |
Lifecycle Service Assurance | 13.1 | 13.5 |
Networks & Security | 12.7 | 12.6 |
FINANCIAL STATEMENTS
155Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
13. Intangible assets continued
14. Property, plant and equipment
| $ million | |||||
| Fixtures, | |||||
| Land and | Plant and | fittings and | |||
| Note | buildings | machinery | equipment | Total | |
Cost, net of accumulated depreciation and accumulated impairment | |||||
At 1 January 2022 | 5.7 | 13.0 | 5.0 | 23.7 | |
Additions | 0.1 | 6.6 | 1.7 | 8.4 | |
Disposals | – | (0.2) | – | (0.2) | |
Depreciation charge for the year | (1.9) | (6.9) | (2.2) | (11.0) | |
Exchange adjustment | (0.1) | (0.1) | (0.1) | (0.3) | |
At 1 January 2023 | 3.8 | 12.4 | 4.4 | 20.6 | |
Additions | – | 5.3 | 1.2 | 6.5 | |
Disposals | (0.1) | (0.1) | (0.2) | (0.4) | |
| Impairment | – | (0.3) | (0.1) | (0.4) | |
Inter-class transfers | – | 0.1 | (0.1) | – | |
Depreciation charge for the year | 4 | (1.6) | (7.0) | (1.9) | (10.5) |
At 31 December 2023 | 2.1 | 10.4 | 3.3 | 15.8 | |
| At 31 December 2022 | |||||
Cost | 22.8 | 85.6 | 39.6 | 148.0 | |
Accumulated depreciation and accumulated impairment | (19.0) | (73.2) | (35.2) | (127.4) | |
Net carrying amount | 3.8 | 12.4 | 4.4 | 20.6 | |
| At 31 December 2023 | |||||
Cost | 22.8 | 87.0 | 40.0 | 149.8 | |
Accumulated depreciation and accumulated impairment | (20.7) | (76.6) | (36.7) | (134.0) | |
Net carrying amount | 2.1 | 10.4 | 3.3 | 15.8 |
1
Note
1. Impairment of $0.4 million is included in adjusting items (see note 5).
FINANCIAL STATEMENTS
156 Spirent Communications plc Annual Report 2023
15. Leases
| $ million | ||||
| Land and | Motor | |||
| Note | buildings | vehicles | Total | |
| Cost, net of accumulated depreciation and accumulated impairment | ||||
At 1 January 2022 | 25.8 | 0.2 | 26.0 | |
Additions | 0.3 | 0.1 | 0.4 | |
Re-measurement | 1.0 | – | 1.0 | |
Depreciation charge for the year | (7.2) | (0.1) | (7.3) | |
Exchange adjustment | (0.6) | – | (0.6) | |
At 1 January 2023 | 19.3 | 0.2 | 19.5 | |
Additions | 4.9 | 0.2 | 5.1 | |
Re-measurement | 2.1 | – | 2.1 | |
| Impairment | (2.5) | – | (2.5) | |
Depreciation charge for the year | 4 | (6.7) | (0.2) | (6.9) |
Exchange adjustment | (0.1) | – | (0.1) | |
At 31 December 2023 | 17.0 | 0.2 | 17.2 | |
| At 31 December 2022 | ||||
Cost | 65.6 | 0.6 | 66.2 | |
Accumulated depreciation and accumulated impairment | (46.3) | (0.4) | (46.7) | |
Net carrying amount | 19.3 | 0.2 | 19.5 | |
| At 31 December 2023 | ||||
Cost | 66.7 | 0.8 | 67.5 | |
Accumulated depreciation and accumulated impairment | (49.7) | (0.6) | (50.3) | |
Net carrying amount | 17.0 | 0.2 | 17.2 |
The related lease liabilities are disclosed in note 25.
Finance lease receivables (Group as a lessor)
The Group subleases an office building that it leased in 2015. The Group has classified the sublease as a finance lease, because
the sublease transfers substantially all of the risks and rewards incidental to ownership of the head lease to the sub lessee.
The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received
after the reporting date.
2023 | 2022 | |
$ million | $ million | |
| Maturity analysis – contractual undiscounted cash flows | ||
Less than one year | 0.3 | 0.6 |
One to two years | – | 0.2 |
Two to three years | – | – |
Total undiscounted lease payments receivable | 0.3 | 0.8 |
Unearned finance income | – | – |
Net investment in the lease | 0.3 | 0.8 |
During the year, $0.6 million (2022 $0.6 million) was received in respect of finance leases.
The net investment in the lease has been included within trade and other receivables (note 19), as follows:
2023 | 2022 | |
$ million | $ million | |
Current | 0.3 | 0.6 |
Non-current | – | 0.2 |
0.3 | 0.8 |
FINANCIAL STATEMENTS
157Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
17. Subsidiaries
A list of subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given on pages 192
and 193 of these financial statements.
18. Inventories
2023 | 2022 | |
$ million | $ million | |
Raw materials | 29.2 | 24.9 |
Work in progress | 2.5 | 2.2 |
Finished goods | 11.8 | 12.7 |
43.5 | 39.8 |
An expense of $2.9 million (2022 $0.2 million release) has been charged (2022 credited) to the income statement in the year for
inventory write-downs. There were no reversals of prior period inventory write-downs (2022 nil).
No inventories are carried at fair value less costs to sell (2022 nil). The Directors consider there is no material difference between
the net book value of inventories and their replacement cost.
Inventories also include $1.4 million from the acquisition of NetScout’s
®
Test Lab Automation business.
2023 | 2022 | |
$ million | $ million | |
| Non-current | ||
Other receivables | 4.6 | 4.3 |
Prepayments | 0.4 | 2.4 |
5.0 | 6.7 | |
| Current | ||
Trade receivables | 113.3 | 142.4 |
Other receivables | 7.5 | 5.4 |
Prepayments | 12.9 | 13.0 |
133.7 | 160.8 | |
138.7 | 167.5 |
2023 | 2022 | |
$ million | $ million | |
At 1 January | 1.4 | 0.7 |
Charge for the year | 1.1 | 1.1 |
Released in the year | (0.5) | (0.4) |
At 31 December | 2.0 | 1.4 |
FINANCIAL STATEMENTS
158 Spirent Communications plc Annual Report 2023
20. Assets recognised from costs to obtain a contract
2023 | 2022 | |
$ million | $ million | |
Non-current | 0.3 | 0.5 |
Current | 1.0 | 0.9 |
1.3 | 1.4 |
These assets relate to capitalised incremental costs to obtain a contract, being sales commissions, arising on contracts with
customers of over one year in length.
During the year, amortisation of $0.5 million was charged to the income statement (2022 $1.1 million).
No assets were impaired or derecognised during the current year or prior year.
21. Cash and cash equivalents
2023 | 2022 | |
$ million | $ million | |
Cash at bank and in hand | 103.6 | 103.8 |
Short-term bank deposits | 4.5 | 105.8 |
108.1 | 209.6 |
Cash at bank and in hand earns interest at floating interest rates.
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 2023, the currency split of cash and cash equivalents was US Dollar 47 per cent (2022 83 per cent), Pound Sterling
34 per cent (2022 7 per cent) and other currencies 19 per cent (2022 10 per cent).
For the purposes of the cash flow statement, cash and cash equivalents comprise the above amounts.
2023 | 2022 | ||
Note | $ million | $ million | |
| Current | |||
Trade payables | 19.3 | 33.6 | |
Other taxes and social security costs | 3.2 | 5.3 | |
Other payables | 0.1 | 0.3 | |
Accruals | 42.2 | 54.4 | |
Government grants | 23 | 1.1 | 1.2 |
65.9 | 94.8 | ||
| Non-current | |||
Other payables | 0.2 | 0.2 | |
66.1 | 95.0 |
2023 | 2022 | |
$ million | $ million | |
Other financial liabilities | – | 0.1 |
FINANCIAL STATEMENTS
159Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
23. Government grants
The following government grants are included within trade and other payables:
2023 | 2022 | |
$ million | $ million | |
At 1 January | 1.2 | 1.4 |
Received during the year | 0.1 | 0.1 |
Released to the income statement | (0.3) | (0.2) |
Exchange adjustment | 0.1 | (0.1) |
At 31 December | 1.1 | 1.2 |
All government grants are expected to be recognised in the next 12 months.
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.
24. Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers. The Group
does not have any contract assets.
2023 | 2022 | ||
Note | $ million | $ million | |
Trade receivables | 19 | 113.3 | 142.4 |
| Contract liabilities | |||
| Current | |||
Payments received on account | 7.4 | 6.2 | |
Deferred income | 59.2 | 69.3 | |
66.6 | 75.5 | ||
| Non-current | |||
Deferred income | 33.7 | 22.7 | |
Total contract liabilities | 100.3 | 98.2 | |
Revenue recognised in the period from amounts included in contract liabilities at the beginning of the period | 75.5 | 72.1 |
There was no revenue recognised in 2023 or 2022 from performance obligations satisfied in previous periods.
The timing of revenue recognition, invoicing and cash collections results in trade receivables, deferred income and advance
customer payments received on account on the balance sheet.
The Group receives payments from customers based on a billing schedule, as established in the contract. Trade receivables are
recognised when the right to consideration becomes unconditional. Contract liabilities are recognised as revenue as (or when)
the Group performs under the contract.
The Group also recognises incremental costs incurred to obtain a contract as an asset if it expects to recover those costs.
Such costs are presented in the balance sheet as assets recognised from costs to obtain a contract and disclosed in note 20.
Expected realisation of remaining performance obligations at year end
The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
FINANCIAL STATEMENTS
160 Spirent Communications plc Annual Report 2023
24. Contract balances continued
Expected realisation of remaining performance obligations at year end continued
For contracts that exceed one year, deferred income that relates to unsatisfied or partially satisfied performance obligations
at year end is expected to be recognised as revenue in the future as follows:
2023 | 2022 | |
$ million | $ million | |
Within one year | 13.3 | 28.6 |
Greater than one year | 33.7 | 22.7 |
47.0 | 51.3 |
The above information represents the revenue the Group will recognise when it satisfies the remaining performance obligations
in the contracts. The amounts presented do not include orders for which neither party has performed.
Revenue from the sale of hardware and software generally arises from contracts less than one year in length. Consequently,
the above amounts predominantly relate to the sale of maintenance and support services.
Virtually all of the revenue will be recognised within three years.
The Group provides standard warranties on its products and services. The nature of these warranties is considered to provide
customers with assurance that the related product or service will function as intended in accordance with the agreed
specification, and does not contain or imply any additional service obligation to the customer. Warranty obligations are
estimated and recognised as liabilities based on the probable outflow of resources.
25. Lease liabilities
Total lease liabilities included in the balance sheet at 31 December:
| $ million | ||||
| Land and | Motor | |||
| Note | buildings | vehicles | Total | |
At 1 January 2022 | 29.6 | 0.2 | 29.8 | |
Additions | 0.3 | 0.1 | 0.4 | |
Re-measurement | 1.0 | – | 1.0 | |
Repayments | (9.5) | (0.1) | (9.6) | |
Interest | 1.0 | – | 1.0 | |
Exchange adjustment | (0.5) | – | (0.5) | |
At 1 January 2023 | 21.9 | 0.2 | 22.1 | |
Additions | 4.8 | 0.2 | 5.0 | |
Re-measurement | 2.1 | – | 2.1 | |
Repayments | (8.6) | (0.2) | (8.8) | |
Interest | 0.9 | – | 0.9 | |
Exchange adjustment | – | 0.1 | 0.1 | |
At 31 December 2023 | 21.1 | 0.3 | 21.4 |
2023 | 2022 | |
$ million | $ million | |
Current | 10.7 | 7.1 |
Non-current | 10.7 | 15.0 |
21.4 | 22.1 |
$0.3 million (2022 $0.8 million) of the lease liability included in the balance sheet relates to a building the Group subleases;
see note 15 for further details.
2023 | 2022 | |
$ million | $ million | |
| Maturity analysis – contractual undiscounted cash flows | ||
Less than one year | 10.8 | 7.7 |
One to five years | 9.3 | 12.6 |
More than five years | 1.7 | 3.5 |
Total undiscounted lease liabilities at 31 December | 21.8 | 23.8 |
FINANCIAL STATEMENTS
161Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
25. Lease liabilities continued
2023 | 2022 | ||
Note | $ million | $ million | |
| Amounts recognised in the income statement | |||
Interest on lease liabilities | 7 | 0.9 | 1.0 |
Expenses relating to short-term leases | 0.3 | 0.3 | |
| Expenses relating to leases of low-value assets, excluding leases of short-term | |||
low-value assets | 0.3 | 0.4 | |
| Amounts recognised in the cash flow statement | |||
Lease liability principal repayment | 7.9 | 8.6 | |
Lease liability interest paid | 0.9 | 1.0 |
Cash payments of $0.6 million (2022 $0.7 million) relating to short-term leases and leases of low-value assets are classified
within cash flows from operating activities in the consolidated cash flow statement.
Extension options
Some leases of buildings contain extension options exercisable by the Group before the end of the non-cancellable contract
period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Group and not the lessors. The Group assesses at lease commencement
whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to
exercise the options if there is a significant event or significant change in circumstances within its control.
| 2023 | 2022 | |||
| $ million | $ million | |||
| Potential future lease | Potential future lease | |||
| Lease liabilities | payments not included | Lease liabilities | payments not included | |
| recognised | in lease liabilities | recognised | in lease liabilities | |
| (discounted) | (discounted) | (discounted) | (discounted) | |
Buildings | 4.2 | 23.3 | 4.6 | 23.3 |
26. Deferred tax
The movements in the deferred tax assets/(liabilities) are as follows:
| $ million | ||||||
| Temporary | Tax | Tax | UK pension | |||
| Notes | differences | losses | credits | plans | Total | |
At 1 January 2022 | 12.2 | 3.6 | 4.2 | (9.4) | 10.6 | |
Charged/(credited) in the year | 10 | 13.1 | (0.8) | 1.5 | (0.4) | 13.4 |
Deferred tax on defined benefit pension plan | 10 | – | – | – | 9.4 | 9.4 |
Deferred tax on share incentives recognised in equity | 10 | (0.7) | – | – | – | (0.7) |
Exchange adjustment | (0.8) | – | – | 0.9 | 0.1 | |
At 1 January 2023 | 23.8 | 2.8 | 5.7 | 0.5 | 32.8 | |
Charged in the year | 10 | 11.4 | 0.3 | 0.1 | – | 11.8 |
Deferred tax on defined benefit pension plan | 10 | – | – | – | (0.1) | (0.1) |
Deferred tax on deferred compensation plan | 10 | 0.1 | – | – | – | 0.1 |
Deferred tax on share incentives recognised in equity | 10 | (1.7) | – | – | – | (1.7) |
Exchange adjustment | 0.3 | (0.1) | – | 0.1 | 0.3 | |
At 31 December 2023 | 33.9 | 3.0 | 5.8 | 0.5 | 43.2 | |
| Amounts on the balance sheet: | ||||||
| At 31 December 2022 | ||||||
Deferred tax asset | 23.8 | 2.8 | 5.7 | 0.5 | 32.8 | |
Deferred tax liability | – | – | – | – | – | |
23.8 | 2.8 | 5.7 | 0.5 | 32.8 | ||
| At 31 December 2023 | ||||||
Deferred tax asset | 33.9 | 3.0 | 5.8 | 0.5 | 43.2 | |
Deferred tax liability | – | – | – | – | – | |
33.9 | 3.0 | 5.8 | 0.5 | 43.2 |
FINANCIAL STATEMENTS
162 Spirent Communications plc Annual Report 2023
26. Deferred tax continued
A net deferred tax asset of $43.2 million has been recognised at 31 December 2023 (2022 $32.8 million). $37.3 million is in the
United States (2022 $27.6 million), $1.8 million is in France (2022 $1.7 million), $3.0 million is in the rest of the world (2022 $2.4 million),
and $1.1 million is in the United Kingdom (2022 $1.1 million).
The deferred tax asset includes $2.1 million (2022 $3.3 million) in respect of the tax deduction which may be available on
the future exercise of share incentives, $4.6 million (2022 $5.4 million) in respect of the future tax deduction on provisions,
$5.6 million (2022 $7.5 million) in respect of the future tax deduction on the deferral of compensation and $16.2 million
(2022 $5.6 million) in amortisation. These amounts are presented within temporary differences.
The Group has non-trading tax losses arising in the United Kingdom of $27.6 million (2022 $27.7 million), which are available for
offset against suitable future non-trading taxable profits. The Group also has trading losses arising in the United Kingdom of
$0.7 million (2022 $0.8 million) and in Hong Kong of $3.7 million (2022 nil). Additionally, there are short-term timing differences
in the United Kingdom of $2.7 million (2022 $2.5 million), and the rest of the world of $6.9 million (2022 $7.1 million), Scientific
Research and Experimental qualifying expenditure in Canada of $5.4 million (2022 $5.2 million) and tax credits in the rest of the
world of $1.1 million (2022 $1.4 million). A deferred tax asset has not been recognised in respect of these items as their future
recovery is not probable.
The Group has capital losses carried forward of $1,048.4 million (2022 $996.4 million) for which no deferred tax asset has been
recognised on the balance sheet. This change is due to foreign exchange movements. These capital losses have no expiry date.
The temporary difference associated with investments in the Group’s subsidiaries for which a deferred tax liability has not been
recognised in the periods presented are $203.6 million in aggregate (2022 $251.6 million). The Group does not expect a
significant amount of the undistributed profits, subject to withholding tax, to be distributed in the foreseeable future, but has
recognised a deferred tax liability of $0.2 million (2022 $0.4 million) on the expected distribution of $3.3 million (2022 $5.8 million)
of earnings from its China, Korea and Taiwan subsidiaries.
Changes in tax rates
The Group’s future tax charge, and the effective tax rate, could be affected by several factors including tax reform in countries
around the world and the geographical mix of profits.
Following the enactment of the United Kingdom Finance Bill 2021, the main corporation tax rate has increased to 25 per cent
effective 1 April 2023. As such, the United Kingdom temporary differences have been recognised at the rate at which the
temporary differences are expected to unwind.
| $ million | ||||
| Lease | Restructuring | Other | ||
| provisions | provisions | provisions | Total | |
At 1 January 2022 | 3.5 | 0.2 | 4.2 | 7.9 |
Charged in the year | – | 1.4 | 0.1 | 1.5 |
Released in the year | – | – | (0.2) | (0.2) |
Utilised in the year | – | (0.3) | (0.3) | (0.6) |
Exchange difference | (0.1) | – | (0.1) | (0.2) |
At 1 January 2023 | 3.4 | 1.3 | 3.7 | 8.4 |
Charged in the year | 0.2 | 1.6 1 | – | 1.8 |
Utilised in the year | (0.1) | (1.9) | (0.3) | (2.3) |
Exchange difference | – | – | 0.1 | 0.1 |
At 31 December 2023 | 3.5 | 1.0 | 3.5 | 8.0 |
FINANCIAL STATEMENTS
163Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
27. Provisions continued
2023 | 2022 | |
$ million | $ million | |
Current | 5.0 | 5.7 |
Non-current | 3.0 | 2.7 |
8.0 | 8.4 |
2023 | 2022 | |||
Measurement category under IFRS 9 | Notes | $ million | $ million | |
| Non-current trade and other receivables | Financial assets at amortised cost | 19 | 4.6 | 4.3 |
Cash and cash equivalents | Financial assets at amortised cost | 21 | 108.1 | 209.6 |
Current trade and other receivables | Financial assets at amortised cost | 19 | 120.8 | 147.8 |
Financial assets | 233.5 | 361.7 | ||
Non-current other payables | Financial liabilities at amortised cost | 22 | 0.2 | 0.2 |
Current trade payables, other payables and accruals Financial liabilities at amortised cost | 22 | 61.6 | 88.3 | |
| Current other financial liabilities | Derivatives designated at FVTPL | 22 | – | 0.1 |
Lease liabilities, current and non-current | Financial liabilities at amortised cost | 25 | 21.4 | 22.1 |
Contractual provisions | Financial liabilities at amortised cost | 27 | 3.5 | 3.4 |
Financial liabilities | 86.7 | 114.1 | ||
FINANCIAL STATEMENTS
164 Spirent Communications plc Annual Report 2023
28. Financial instruments and financial risk management continued
2023 | 2022 | ||||
| Effective | Effective | ||||
| interest rate | interest rate | ||||
| Note | % | $ million | % | $ million | |
| Floating rate | |||||
Cash at bank | 21 | 103.6 | 103.8 | ||
| Fixed rate | |||||
Fixed deposits | 21 | 0.80 | 4.5 | 4.23 | 105.8 |
FINANCIAL STATEMENTS
165Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
28. Financial instruments and financial risk management continued
b) Credit risk continued
2023 | 2022 | |||||
| Gross | Gross | |||||
| trade | Net trade | trade | Net trade | |||
| receivables | Provision | receivables | receivables | Provision | receivables | |
| $ million | $ million | $ million | $ million | $ million | $ million | |
Not past due | 95.7 | – | 95.7 | 125.5 | (0.3) | 125.2 |
| Past due: | ||||||
– Less than 30 days overdue | 9.3 | (0.2) | 9.1 | 13.8 | (0.1) | 13.7 |
– 30 to 60 days | 3.0 | – | 3.0 | 1.9 | – | 1.9 |
– Over 60 days | 7.3 | (1.8) | 5.5 | 2.6 | (1.0) | 1.6 |
Trade receivables | 115.3 | (2.0) | 113.3 | 143.8 | (1.4) | 142.4 |
2023 | 2022 | |
$ million | $ million | |
Sale of US Dollars against Pound Sterling | 3.1 | 4.7 |
FINANCIAL STATEMENTS
166 Spirent Communications plc Annual Report 2023
28. Financial instruments and financial risk management continued
29. Equity
| Number of | ||
| Ordinary | ||
Shares 1 | ||
million | $ million | |
At 1 January 2022 | 611.7 | 27.5 |
Exchange adjustment | (2.8) | |
At 1 January 2023 | 611.7 | 24.7 |
Share repurchase/share buyback | (33.1) | (1.4) |
Exchange adjustment | 1.3 | |
At 31 December 2023 | 578.6 | 24.6 |
FINANCIAL STATEMENTS
167Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
30. Employee share plans
Movements in share incentives over a two-year period ending on 31 December 2023 are shown below:
2005 | Employee | Spirent Long-Term | ||
Incentive Plan 1 | Incentive Plan 2 | |||
| Weighted | Weighted | |||
| Number | average | Number | average | |
| of share | exercise | of share | exercise | |
| incentives | price | incentives | price | |
| million | pence | million | pence | |
Incentives outstanding at 1 January 2022 | 0.3 | 89 | 7.2 | – |
Exercised | – | 89 | (2.6) | – |
Granted | – | – | 4.0 | – |
Forfeited | – | – | (0.4) | – |
Incentives outstanding at 31 December 2022 | 0.3 | 89 | 8.2 | – |
Exercised | – | 89 | (2.7) | – |
Granted | – | – | 6.2 | – |
Forfeited | – | – | (0.9) | – |
Incentives outstanding at 31 December 2023 | 0.3 | 89 | 10.8 | – |
| Incentives exercisable | ||||
At 31 December 2022 | 0.3 | 89 | – | – |
At 31 December 2023 | 0.3 | 89 | 10.8 | – |
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 restricted stock and Performance Shares in aggregate. No exercise price is payable on the vesting
of a Performance Share.
The weighted average share price at exercise date was 171 pence (2022 233 pence).
The following information relates to outstanding share incentives at 31 December 2023:
2023 | 2022 | ||||||||
| Weighted | Weighted | ||||||||
| Weighted | Number of | average | Weighted | Number of | average | ||||
| average | share | remaining | average | share | remaining | ||||
| Exercise | Exercise | exercise | incentives | contractual | exercise | incentives | contractual | ||
| period (as at | price | price | outstanding | life | price | outstanding | life | ||
| Share plan | 31 December) | pence | pence | million | years | pence | million | years | |
2005 | Employee | 23.03.18 | |||||||
| Incentive Plan | 23.03.25 | 89 | 89 | 0.3 | 1.2 | 89 | 0.3 | 2.2 | |
| Spirent Long-Term | 15.03.24– | ||||||||
| Incentive Plan | 15.12.26 | – | – | 10.8 | 1.0 | – | 8.2 | 1.1 | |
11.1 | 8.5 |
Discretionary plans
Spirent Long-Term Incentive Plan (LTIP)
Under the LTIP, awards of shares are granted to Executive Directors and certain employees. The release of these shares is
generally conditional upon continued employment and, for more senior individuals, some awards are conditional on the
achievement of certain performance targets measured over a three-year period.
Further information on the performance conditions for LTIP share incentives is set out in the Report on Directors’ Remuneration.
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. Awards
granted under the EIP expire on the tenth anniversary of their grant unless they have previously lapsed or been exercised.
FINANCIAL STATEMENTS
168 Spirent Communications plc Annual Report 2023
30. Employee share plans continued
All-employee plans
UK Employee Share Purchase Plan (UK ESPP)
The UK ESPP is an all-employee HMRC approved share plan open to employees based in the UK. Employees can elect to invest
up to £125 each month (£1,500 per year), deducted from their gross salary, which is used to purchase shares at market value as
“partnership” shares. The Company offers participants “matching” shares, which are subject to forfeiture for three years, on the
basis of one free matching share for each partnership share purchased.
UK Sharesave Plan (Sharesave)
The Sharesave is an all-employee HMRC approved share plan open to employees based in the UK. Employees can elect to
invest up to £250 each month, deducted from their post-tax salary, which is then held in a savings account for three years. At the
conclusion of the savings period, the employee can opt to receive the accumulated funds as cash or use them to buy Spirent
shares at a discounted option price that is 15 per cent below the three-day average of Spirent’s mid-market share price
immediately before the invitation date.
US Employee Stock Purchase Plan (US ESPP)
The US ESPP is available to all employees based in the US. Employees can elect to save up to $8,000 per year, deducted from
their post-tax salary, for a 12-month period. The savings are then used to purchase shares at an effective 15 per cent discount to
the prevailing market share price at the end of the savings period (the discount being funded by the Company).
Global All-Employee Share Purchase Plan (GAESPP)
The GAESPP is available to employees in countries other than the UK and US, on a share-settled or cash-settled basis, depending on
local regulations. Employees can elect to save funds, deducted from their post-tax salary, for a 12-month period. In the share-settled
model, these savings are then used to purchase shares at an effective 15 per cent discount to the prevailing market share price at the
end of the savings period (the discount being funded by the Company); in the cash-settled model, these savings are then returned to
the participant, along with an additional cash enhancement equal to a 15 per cent discount to the prevailing market share price at the
end of the savings period, had the funds been used to purchase Spirent shares (the enhancement being funded by the Company).
Employees participating in the GAESPP during the period under review included those based in Canada, France, Germany,
China, Hong Kong, India, Spain, Japan and South Korea.
31. Share-based payment
2023 | 2022 | |
$ million | $ million | |
| Charged to adjusting items | ||
Spirent Long-Term Incentive Plan¹ | 7.2 | 8.2 |
| Spirent All-Employee Share Purchase Plans (ESPP) | 0.4 | 0.3 |
7.6 | 8.5 | |
| Charged to administration expenses | ||
Executive deferred bonus plan | 0.1 | 0.4 |
7.7 | 8.9 |
2
Notes
1. 2023 includes $0.2 million (2022 $0.3 million) relating to cash-settled schemes.
2. 2023 includes $0.2 million (2022 $0.1 million) relating to cash-settled schemes.
All schemes are primarily equity-settled with elements cash settled pursuant to local legislation.
In 2023, $0.1 million (2022 $0.4 million) being one-third of the Executive Directors’ Annual Incentive has been deferred into shares
for an additional period of three years. This amount has been charged to administration expenses in the income statement and
is included within adjusted operating profit as it reflects part of the underlying trading performance of the Group.
FINANCIAL STATEMENTS
169Spirent Communications plc Annual Report 2023
Notes to the consolidated financial statements continued
31. Share-based payment continued
6.2 million share incentives were granted during 2023 (2022 4.0 million). The fair value of share incentives has been estimated as
at the date of grant using the Black-Scholes binomial model. The following table gives the assumptions made in arriving at the
share-based payment charge and the fair value:
2023 | 2022 | |
Weighted average share price (pence) | 178.7 | 241.0 |
Weighted average exercise price (pence) | 0.0 | 0.0 |
Weighted average fair value (pence) | 171.7 | 229.0 |
Expected volatility (%) | 31.3-40.3 | 30.7–37.7 |
| Option life (years): | ||
– Performance Shares | 1.0-3.0 | 1.0–3.0 |
– Options and SARs | 10.0 | 10.0 |
Risk free rate (%) | 3.30-5.15 | 1.33–3.11 |
Dividend yield (%) | 2.0 | 2.5 |
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 before tax to cash generated from operations
2023 | 2022 | |
$ million | $ million | |
Profit before tax | 22.9 | 114.6 |
| Adjustments for: | ||
Finance income | (5.4) | (2.9) |
Finance costs | 0.9 | 1.0 |
Intangible asset amortisation | 5.1 | 5.3 |
Depreciation of property, plant and equipment | 10.5 | 11.0 |
Depreciation of right-of-use assets | 6.9 | 7.3 |
Impairment of property, plant and equipment | 0.4 | - |
Impairment of right-of-use assets | 2.5 | - |
Share-based payment | 7.7 | 8.9 |
| Changes in working capital: | ||
Increase in inventories | (2.0) | (14.4) |
Decrease in receivables | 27.7 | 3.2 |
(Decrease)/increase in payables | (29.9) | 8.1 |
(Decrease)/increase in contract liabilities | (0.7) | 0.2 |
(Decrease)/increase in provisions | (0.4) | 0.7 |
| Defined benefit pension plan employer contributions net of plan administration | ||
expenses paid by the plan | (1.7) | (2.0) |
Deferred compensation plan | 1.9 | 0.2 |
Non-cash movements | (0.6) | (0.6) |
Cash flow from operations | 45.8 | 140.6 |
33. Business combinations
On 8 September 2023, the Group completed the asset purchase of a small Test Lab Automation business carve-out from
NetScout
®
Inc. for a final cash consideration of $7.8 million. The transaction was funded by surplus cash in the Group. The
business carve-out from NetScout
®
acquired by Spirent is a US-based technology business that develops and manufactures
Layer-1 switches and control software.
FINANCIAL STATEMENTS
170 Spirent Communications plc Annual Report 2023
33. Business combinations continued
| 2023 | |||
| $ million | |||
| Fair value | |||
| Book value | adjustment | Fair value | |
Intangible assets | – | 4.3 | 4.3 |
Property, plant and equipment | 0.2 | – | 0.2 |
Inventories | 1.4 | – | 1.4 |
Contract liabilities | (2.0) | – | (2.0) |
Total identifiable net assets | (0.4) | 4.3 | 3.9 |
Goodwill on acquisition | 3.9 | ||
Total consideration | 7.8 | ||
Satisfied by Cash consideration | 7.8 | ||
| Cash flows | |||
Cash consideration | 7.8 |
The fair values of the identifiable net assets acquired are set out in the table above. The fair value adjustments arose in relation
to the recognition of acquired intangible assets. The intangible assets acquired represent current technology and customer
relationships. These intangible assets have been assigned a useful life of six years. The goodwill arising of $3.9 million consists
largely of the synergies and commercial opportunities expected from the combination, together with intangible assets not
qualifying for separate recognition, such as workforce in place. Direct acquisition related costs of $0.4 million and $0.3 million of
integration costs have been expensed to other adjusting items within the income statement in 2023 (note 5). From the date of
acquisition to 31 December 2023, NetScout
®
acquired business contributed $4.1 million of revenue and $2.1 million of profit before
tax to the results of the Group before charging $0.4 million of direct acquisition related costs, $0.3 million of integration costs and
$0.2 million of acquired intangible asset amortisation.
There were no business combinations in 2022.
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”:
2023 | 2022 | |
$000 | $000 | |
Short-term employee benefits | 2,639.1 | 3,346.8 |
Share-based payment | 850.6 | 2,545.2 |
3,489.7 | 5,892.0 |
No Director received compensation for loss of office (2022 nil).
There were gains of $591,335 (2022 $2,621,747) on the exercise of options by key management personnel in 2023.
For further details refer to the Report on Directors’ Remuneration on pages 83 to 109.
FINANCIAL STATEMENTS
171Spirent Communications plc Annual Report 2023
Parent Company balance sheet
At 31 December 2023
2023 2022
Notes £ million £ million
Fixed assets
Intangible assets 4 3.2 3.3
Tangible assets 5 1.2 1.3
Right-of-use assets 6 1.3 1.6
Investments 7 491.1 451.5
496.8 457.7
Current assets
Stocks 8 8.5 8.4
Debtors: amounts falling due within one year 9 30.0 28.3
Debtors: amounts falling due after more than one year 9 7.5 8.8
Cash at bank and in hand 30.3 13.4
76.3 58.9
Creditors: amounts falling due within one year 10 (124.3) (127.6)
Net current liabilities (48.0) (68.7)
Total assets less current liabilities 448.8 389.0
Creditors: amounts falling due after more than one year 11 (3.2) (3.0)
Defined benefit pension plan deficit 3 (1.7) (1.8)
Deferred tax liability 15 – –
Net assets 443.9 384.2
Capital and reserves 17
Called up share capital 19.3 20.4
Share premium account 20.2 20.2
Capital redemption reserve 14.2 13.1
Profit and loss account 390.2 330.5
Shareholders’ funds – equity 443.9 384.2
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 2023, the profit for the year amounted to £150.8 million (2022 £73.4 million).
The notes on pages 174 to 191 form part of these financial statements.
Signed on behalf of the Board
Paula Bell
Director
5 March 2024
FINANCIAL STATEMENTS
172 Spirent Communications plc Annual Report 2023
Parent Company statement of changes in equity
Attributable to the equity holders
of the parent Company £ million
Notes
Called up
share
capital
Share
premium
account
Capital
redemption
reserve
Profit
and loss
account
Total
equity
At 1 January 2022 20.4 20.2 13.1 318.6 372.3
Profit for the year – – – 73.4 73.4
Other comprehensive losses
1
– – – (15.9) (15.9)
Total comprehensive income – – – 57.5 57.5
Share-based payment – – – 7.2 7.2
Tax charge on share incentives – – – (0.1) (0.1)
Employee Share Ownership Trust 17 – – – (19.3) (19.3)
Equity dividends 16 – – – (33.4) (33.4)
At 1 January 2023 20.4 20.2 13.1 330.5 384.2
Profit for the year – – – 150.8 150.8
Other comprehensive losses
2
– – – (3.2) (3.2)
Total comprehensive income – – – 147.6 147.6
Share-based payment – – – 6.0 6.0
Tax charge on share incentives –––––
Share repurchase (1.1) – 1.1 (56.7) (56.7)
Equity dividends 16 – – – (37.2) (37.2)
At 31 December 2023 19.3 20.2 14.2 390.2 443.9
Notes
1. The amount included in other comprehensive losses for 2022 of £15.9 million represents re-measurement losses on the net defined benefit pension asset
of £23.5 million, net of a tax credit of £7.6 million.
2. The amount included in other comprehensive losses for 2023 of £3.2 million represents re-measurement losses on the net defined benefit pension asset
of £3.2 million, net of a tax credit of nil.
The notes on pages 174 to 191 form part of these financial statements.
FINANCIAL STATEMENTS
173Spirent Communications plc Annual Report 2023
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 470893). The registered address of the Company is Origin One, 108 High Street, Crawley, West Sussex
RH10 1BD, United Kingdom.
Basis of accounting
The financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 “Reduced Disclosure
Framework” (FRS 101) and the Companies Act 2006.
In preparing these financial statements, the Company has set out below the FRS 101 disclosure exemptions that have been taken
in respect of the following disclosures:
• a cash flow statement and related notes;
• comparative period reconciliations for share capital, tangible 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.
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, and the defined benefit pension asset/liability which has been measured using the projected unit credit method.
Going concern basis of accounting
In adopting the going concern basis for preparing the financial statements, the Directors have considered the Company’s principal
risks and uncertainties as set out on pages 55 to 60.
The Directors have also considered sensitivities in respect of potential downside scenarios, including stress testing the latest cash
flow projections that cover a period of 12 months from the date of approval of these financial statements. In these scenarios, the
Company has more than sufficient headroom in its available resources.
The Directors have reviewed the detailed financial projections for the period ending 31 December 2024, as well as the business
plan and cash flows for the three months ending 31 March 2025. The Directors have also considered the period to the end of
2026 which forms part of the Company’s longer-term viability assessment. In addition, they have considered the principal risks
faced by the Company, the sensitivity analysis and the Company’s significant financial headroom and are satisfied that the
Company has adequate financial resources to continue in operational existence for the foreseeable future, a period of at least
12 months from the date of approval of this report. Accordingly, the going concern basis of accounting continues to be used in
the preparation of the financial statements.
New accounting standards
There have been no applicable new standards, amendments to standards and interpretations effective from 1 January 2023
that have been applied by the Company which have resulted in a significant impact on its results or financial position.
FINANCIAL STATEMENTS
174 Spirent Communications plc Annual Report 2023
1. Significant accounting policies continued
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.
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 amortisation on a systematic basis over a period
chosen by the Directors, its 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. There would
have been an impact of £0.1 million (2022 £0.1 million) to profit in the year had goodwill been amortised.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Separately identifiable
intangible assets such as current technology 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 current
technology, are amortised on a straight-line basis over their estimated useful lives and the charge is included within the
profit and loss account.
The estimated useful life of the current technology intangible asset is five years and the expiry date is 2024.
Product development
Research expenditure is recorded as a product development cost 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.
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 there is an expectation that the proposed product
will be successfully implemented. After technological feasibility is established, costs are capitalised and amortised on a straight-
line basis over the estimated useful life.
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 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 50 years
Plant and machinery 3 to 8 years
Fixtures, fittings and equipment:
– Building installations 20 years or lease period if lower
– Fittings and equipment 3 to 8 years
– Motor vehicles 3 to 5 years
– Business systems software 4 years
Business systems software is capitalised as tangible assets as the software is an integral part of the related hardware.
The carrying values of tangible assets are reviewed for impairment if events or changes in circumstances indicate that
the carrying value may not be recoverable.
FINANCIAL STATEMENTS
175Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
1. Significant accounting policies continued
Impairment of assets
Intangible assets with finite useful lives and tangible assets and right-of-use assets 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.
Leases
The Company assesses whether a contract is or contains a lease, at inception of a contract. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it
is the lessee at the commencement date of the lease (i.e. the date the underlying asset is available for use), except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Company
recognises the lease payments within the profit and loss account on a straight-line basis over the period of the lease.
At the commencement date of the lease, the lease liability is initially measured at the present value of lease payments to be
made over the lease term, discounted using the rate implicit in the lease. If this rate cannot be readily determined, the Company
uses its incremental borrowing rate. Under the modified retrospective transition method, which is the method the Company
adopted on transition to IFRS 16 “Leases” on 1 January 2019, lease liabilities are required to be discounted using the incremental
borrowing rate at date of transition. The Company has set the discount rate based upon the local base rate with an additional
premium to reflect various factors such as credit risk.
The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or rate, and amounts expected to be paid under residual value guarantees.
The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company
and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on which
the event or condition that triggers the payment occurs.
The lease liability is presented within creditors in the balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the
effective interest method), and by reducing the carrying amount to reflect the lease payments made. It is re-measured when
there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its assessment
of whether it will exercise a purchase, extension or termination option.
When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use
asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the corresponding lease liability, adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier
of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The right-of-use assets are presented as a separate line in the balance sheet.
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.
FINANCIAL STATEMENTS
176 Spirent Communications plc Annual Report 2023
1. Significant accounting policies continued
Provisions
Provisions are recorded when the Company has a present legal or constructive obligation as a result of a past event, for which
it is probable that it will be required to settle by an outflow of resources and for which a reliable estimate of the amount of the
obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Where the effect of the time value of money is material, the amount of the provision shall be the present value of the
expenditures expected to be required to settle the obligation.
Foreign currencies
The financial statements are presented in Pound Sterling, which is the Company’s functional and 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 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 expected credit
losses. At each reporting date, the Company measures the loss allowance at an amount equal to the lifetime expected credit losses.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade debtors. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance
based on lifetime expected credit losses at each reporting date. To measure the expected credit losses, the Company has established
a provision matrix that is based on shared credit risk characteristics and the days past due based on the expected loss rates.
The provision matrix is initially based on payment profiles of trade debtors over a period of 12 months before 31 December of
the prior year and the corresponding historical credit losses experienced within this period. At every reporting date the historical
observed default rates are updated. The Company also considers the impact of regional macroeconomic factors on the
likelihood of future losses.
Trade debtors are written off when there is no reasonable expectation of recovery.
A default on a trade debtor occurs when the debtor fails to make contractual payments when they fall due.
Cash at bank and in hand
Cash at bank and in hand in the balance sheet comprises cash at bank and in hand and short-term deposits which have
an original maturity of three months or less. There are no bank overdrafts.
Trade creditors
Trade creditors are non-interest bearing and are stated at the original invoiced amount.
Loans and borrowings
Loans and borrowings are recognised initially 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.
Impairment losses are based on lifetime expected credit 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
the profit and loss account reserve. Consideration received for the sale of such treasury shares is also recognised in equity.
Derivative financial instruments
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.
FINANCIAL STATEMENTS
177Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
1. 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 surplus 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 asset, taking account of any changes in the net defined benefit pension asset during
the period as a result of contribution and benefit payments. Where a refund of a surplus is expected, any applicable taxes that
are not income in nature are netted off. 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
Revenue represents the transfer of promised products or services to customers in an amount that reflects the consideration
to which the Company expects to be entitled in exchange for those products or services.
Revenue from product sales of hardware and perpetual software licences is recognised at the point in time when the customer
has obtained control of the products sold. This is usually when the products have been delivered in accordance with the
contractual terms. In some instances it is not until acceptance has occurred that control of the asset is transferred to the
customer. Terms of acceptance are dependent upon the specific contractual arrangement agreed with the customer. If it can be
objectively determined that control has been transferred to the customer in accordance with the agreed contract specifications,
customer acceptance is a formality that would not affect the determination of when the customer has obtained control of the
products. However, if it cannot be objectively determined that the products delivered are in accordance with the agreed-upon
contract specifications, revenue would not be recognised until customer acceptance has been granted.
For sales of software licences, the Company determines whether the licence is capable of being distinct and is separately
identifiable from other promises in the context of the contract. Revenue from software subscription licences that provide the
customer with a right to access the Company’s intellectual property throughout the subscription period is recognised over time,
throughout the subscription period. Revenue from perpetual software licences that provide the customer with a right to use the
Company’s intellectual property for an indefinite period of time is recognised at the point in time when the customer can first use
and benefit from the software.
For the sale of services, revenue is generally recognised over time with reference to when or as the performance obligations
are satisfied by transferring the service to the customer. Revenue from support and maintenance service contracts and software
subscription sales is recognised over the period of performance on a straight-line basis.
Revenue from professional services is generally recognised as work progresses in accordance with agreed-upon contractual
terms, based on a measure of progress towards complete satisfaction of the performance obligation. Progress is measured
using either an output method (e.g. completion of a day, or for fixed price contracts revenue is recognised based on performance
completed or contractual milestones reached) or an input method (e.g. actual cost of services provided as a proportion of total
cost of services expected to be provided under the contract). Where applicable, the Company elects to use the practical expedient
where revenue can be recognised in the amount to which the Company has a right to invoice, only if the Company has a right to
consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance
completed to date. Where the Company’s professional services contracts contain terms of acceptance, revenue would not be
recognised until customer acceptance had been obtained. Where the professional service has a pre-determined or fixed output
deliverable, revenue is recognised at a point in time once the performance obligation has been satisfied and the customer has
received the agreed deliverable.
The Company accounts for multi-component orders as multiple performance obligations if the following criteria are met:
a) the good or service is capable of being distinct, that is, they are individually readily available and regularly sold separately
to customers; and
b) the promise to transfer the good or service is distinct in the context of the contract, that is, they do not require significant
integration, customisation or modification with other goods or services in the contract and are not highly interrelated or
interdependent of other goods or services in the contract.
FINANCIAL STATEMENTS
178 Spirent Communications plc Annual Report 2023
1. Significant accounting policies continued
Revenue continued
For multi-component orders where the elements are accounted for as multiple performance obligations, the transaction price
and discount, if any, are allocated proportionally to all performance obligations in the contract. If either of the two criteria above
are not met, and where various components in the contract are combined, bundled or pre-assembled into one or more product
or equipment units to form a distinct good or service, they will be accounted for as a single performance obligation.
Cost of sales
The Company’s cost of sales related to the sale of its products includes materials, payments to third party contract manufacturers,
royalties and salaries and other expenses related to its manufacturing and supply operations personnel. Cost of sales related to
the provision of services includes salaries and other expenses associated with technical support services and the cost of
extended maintenance services.
Costs to obtain a contract
The incremental costs of obtaining a contract with a customer are capitalised as an asset if the Company expects to recover
them. The Company incurs costs such as sales commissions when it enters into a new contract. Such costs are presented within
debtors in the balance sheet as assets recognised from costs to obtain a contract where the related revenue is recognised over
time, usually in relation to support and subscription agreements. These assets are amortised on a systematic basis consistent
with how the related revenue is recognised.
The Company applies the practical expedient in paragraph 94 of IFRS 15 and recognises incremental costs of obtaining a
contract as an expense when incurred if the amortisation period of the asset that the Company would otherwise have
recognised is one year or less.
Management is required to determine the recoverability of assets recognised from costs to obtain a contract. At each reporting
date, the Company determines whether or not the assets are impaired by comparing the carrying amount of the asset to the
remaining amount of consideration that the Company expects to receive less the costs that relate to providing services under the
relevant contract. No assets were impaired as at 31 December 2023 or 31 December 2022.
Deferred income
Deferred income is only recognised on non-cancellable contracts that provide unconditional rights to payment from the customer
for products and services that the Company has not yet completed providing or that it will provide in the near future.
Revenue from product sales of hardware and perpetual software licences is recognised at the point in time when the customer
has obtained control of the products sold. In the instances where the customer has been invoiced and revenue from hardware
or perpetual software licences is unable to be recognised, revenue would not be recognised until control has passed, resulting
in deferred income.
Support services and software subscription agreements are generally billed at commencement of the support or subscription
contract, while revenue is recognised over the period of the support or subscription agreement, resulting in deferred income.
The Company occasionally receives advance payments from customers on account, before products or services are delivered
and revenue is recognised, resulting in liabilities. Deferred income and payments received on account are reported as contract
liabilities within creditors on the balance sheet on a contract-by-contract basis at the end of each reporting period.
Government grants
A government grant is recognised in the balance sheet initially within creditors 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.
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.
Share-based payment
The Company 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 profit and loss account (or as an addition to the cost of investment in the
subsidiary in which the relevant employees work) on a straight-line basis over the vesting period together with a corresponding
change in equity. The fair value is measured using the Black-Scholes 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 Company has an employee share trust for the granting of certain share incentives to employees. Shares in the Company
held by the employee share trust are treated as treasury shares and presented in the balance sheet as a deduction from equity.
Awards are capitalised as an investment, where a subsidiary is receiving the employee service and a corresponding adjustment
to equity in the parent Company.
FINANCIAL STATEMENTS
179Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
1. 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 profit and loss
account 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; and
• in respect of taxable temporary differences associated with investments in subsidiaries 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 special
dividend in the period in which it is approved by the shareholders at an Annual General Meeting.
Critical accounting judgements and key sources of estimation uncertainty
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 a high degree of judgement are
revenue recognition and defined benefit pension plans (see Group Accounting Policies). There are no critical accounting
estimates. Please refer to note 2 of Notes to the consolidated financial statements on pages 132 to 141 for detailed disclosures.
2. Employees
Please refer to the Report on Directors’ Remuneration on pages 83 to 109 and note 34 of Notes to the consolidated financial
statements on page 171 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:
2023 2022
Number Number
Assembly 47 50
Product development 79 72
Selling and marketing 70 71
Administration 43 38
239 231
Employee benefit costs were:
2023 2022
£ million £ million
Remuneration 21.9 21.0
Social security costs 2.6 2.7
Pension and other related costs 2.6 2.0
Expense of share-based payment 0.6 1.5
27.7 27.2
FINANCIAL STATEMENTS
180 Spirent Communications plc Annual Report 2023
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, 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 complicated with multiple cohorts that allows members to benefit from a lump sum on retirement, a defined
benefit contribution with a defined benefit underpin or pension. The Cash Plan is closed to new entrants.
There is also a UK 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 Cash Plan holds a significant proportion of its assets in equity. Strong future equity returns would be expected to reduce the
Company’s future cash contributions (and vice versa).
The latest triennial actuarial valuations dated 31 March 2021 indicated a combined funding deficit of £11.5 million, calculated on
a technical provisions basis using more prudent assumptions than the accounting valuation, particularly in relation to the
discount rate inflation and demographic. A deficit reduction plan was agreed with the trustees which required the Company to
pay monthly contributions of £449,609, whilst a funding deficit remains, increasing in line with CPI each year. In September 2022,
this deficit funding plan was suspended whilst the Company and trustees worked together to consider the feasibility of
purchasing a bulk annuity insurance policy.
In October 2022, the Trustees, with the Company’s support, purchased a bulk annuity insurance policy from specialist UK insurer
Pension Insurance Corporation (PIC), in respect of the largest plan, the Staff Plan. The premium was met from the plan’s assets
and sufficient assets remain to meet the plan’s ongoing costs. This pension buy-in secures an insurance asset from PIC that
matches the remaining pension liabilities of the Staff Plan, such that the Company no longer bears any investment, inflation,
longevity or other demographic risks. An asset remeasurement loss of £6.0 million has been recorded in other comprehensive
income as the premium paid was greater than the IAS 19 accounting value of the corresponding liabilities. Following the purchase
of the bulk annuity insurance policy, the Company does not expect to make any further cash contributions to this plan. Cash
contributions to the plan in 2023 amounted to nil (2022 £0.9 million).
At 31 December 2023, a reserve of $3.0 million (£2.4 million) is included within the accounting liabilities in respect of equalising
historic GMP benefits. The trustees are currently in the process of updating member benefits with equalised GMPs and
incorporating this within the bulk annuity insurance policy purchased in October 2022. The cost to equalise these benefits could
be higher or lower than reserved with the difference being charged to other comprehensive income as an experience gain/loss.
ii) Amounts in the financial statements
The assets and liabilities on the balance sheet are as follows:
2023 2022
£ million £ million
Schemes in net asset position
UK defined benefit pension plan – Staff Plan 10.1 12.3
UK defined benefit pension plan – Cash Plan – –
10.1 12.3
Withholding tax payable (3.5) (4.3)
6.6 8.0
Schemes in net liability position
UK defined benefit plan – Cash Plan (1.3) (1.4)
UK unfunded plan (0.4) (0.4)
(1.7) (1.8)
Net pension plan surplus on the balance sheet 4.9 6.2
FINANCIAL STATEMENTS
181Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
3. Pensions continued
Defined benefit plans continued
ii) Amounts in the financial statements continued
a) The assets and liabilities in each plan
2023 2022
£ million £ million
Staff Plan
Unquoted
– Insured annuities 1.2 1.3
– Cash and other 14.0 14.6
Insurance policy with PIC 131.8 133.9
Fair value of plan assets 147.0 149.8
Present value of defined benefit pension plan obligations (136.9) (137.5)
Surplus in the plan 10.1 12.3
Withholding tax payable (3.5) (4.3)
Surplus in the plan on the balance sheet 6.6 8.0
Cash Plan
Quoted:
– Equities 4.7 4.1
– Government bonds 1.5 1.7
Unquoted:
– Cash and other 1.5 1.4
Fair value of plan assets 7.7 7.2
Present value of defined benefit pension plan obligations (9.0) (8.6)
Deficit in the plan (1.3) (1.4)
Total net surplus recognised 5.3 6.6
Unfunded plan
Present value of unfunded obligations (0.4) (0.4)
Net pension plan surplus on the balance sheet 4.9 6.2
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. Unquoted investments are included at values provided by the fund managers
and are generally valued using recent market data and external sources, with a hierarchy that follows the principles of IFRS 13
“Fair Value Measurement”.
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/(credited) to the profit and loss account
2023 2022
£ million £ million
Current service cost – 0.1
Amount charged to operating costs – 0.1
Net interest on the net defined benefit pension surplus (0.5) (0.6)
Net credit to the profit and loss account (0.5) (0.5)
FINANCIAL STATEMENTS
182 Spirent Communications plc Annual Report 2023
3. Pensions continued
Defined benefit plans continued
ii) Amounts in the financial statements continued
c) Analysis of the amount recognised directly in the statement of comprehensive income
2023 2022
£ million £ million
Re-measurement loss on plans’ assets (0.2) (84.7)
Costs of managing plan assets paid by Company (1.4) (0.7)
Actuarial loss arising from experience (1.3) (4.4)
Actuarial gain arising from the demographic assumptions 2.5 1.0
Actuarial (loss)/gain arising from changes in financial assumptions (3.6) 69.6
Withholding tax payable 0.8 (4.3)
Re-measurement of the net defined benefit pension surplus (3.2) (23.5)
d) Movements in the present value of funded defined benefit obligations
2023 2022
£ million £ million
At 1 January 146.1 217.0
Current service cost – 0.1
Interest cost 6.8 3.7
Benefit payments (9.4) (8.5)
Actuarial loss arising from experience 1.3 4.4
Actuarial gain arising from the demographic assumptions (2.5) (1.0)
Actuarial loss/(gain) arising from changes in financial assumptions 3.6 (69.6)
Present value of funded defined benefit pension plans’ obligations 145.9 146.1
e) Movements in the fair value of plans’ assets
2023 2022
£ million £ million
At 1 January 157.0 245.0
Interest income on plans’ assets 7.3 4.3
Employer contributions – 0.9
Benefit payments (9.4) (8.5)
Re-measurement loss on plans’ assets (0.2) (84.7)
Fair value of plans’ assets 154.7 157.0
Withholding tax payable (3.5) (4.3)
Fair value of plans’ assets less irrecoverable element of pension plan surplus 151.2 152.7
f) The key financial assumptions
The assumptions used for both plans using a weighted average were as follows:
2023 2022
% %
Inflation – RPI 3.1 3.3
Inflation – CPI (pre-2030) RPI less 1.0% pa RPI less 1.0% pa
Inflation – CPI (post-2030) RPI less 0.1% pa RPI less 0.1% pa
Rate of increase in pensionable salaries CPI CPI
Rate of increase for pensions in payment pre-2001 service 3.6 3.7
Rate of increase for pensions in payment 2001 to 5 April 2005 service 3.0 3.1
Rate of increase for pensions post-5 April 2005 service 2.1 2.1
Rate of increase in deferred pensions CPI CPI
Rate used to discount plan liabilities 4.5 4.8
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 (2022 aged 65) will live on average for a further 21.7 years (2022 22.0 years) if they
are a male and for a further 24.2 years (2022 24.5 years) if they are female. For a member who retires in 2043 (2022 in 2042)
at age 65 (2022 aged 65) the assumptions are that they will live on average for a further 23.2 years (2022 23.6 years) after
retirement if they are male and for a further 25.8 years (2022 26.2 years) after retirement if they are female.
FINANCIAL STATEMENTS
183Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
3. Pensions continued
Defined benefit plans continued
iii) Amount, timing and uncertainty of future cash flows
The approximate impact to past service liabilities of these changes to the main assumptions, which are considered reasonably
possible, is as follows:
• Reducing the discount rate by 0.1 per cent per annum would increase past service liabilities by £1.5 million (2022 £1.6 million).
• Increasing RPI inflation by 0.1 per cent would increase the plans’ liabilities by £0.5 million (2022 £0.6 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 £7.3 million (2022 £6.9 million).
The accounting valuation of the funded UK defined pension plans as at 31 December 2023 gave rise to a net surplus of £8.8 million
(2022 £10.9 million). Future changes to the valuation assumptions noted above may cause material impacts to the pension
liability calculations, for example, the discount rate experienced a change of 3.0 per cent between 2023 and 2024.
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 liability has the following duration and maturity.
2023 2022
Weighted average duration of the defined benefit obligation (years) 11 11
Maturity analysis of benefit payments (non-discounted amounts) (£ million)
Maturity ≤ 1 year 8.6 8.5
Maturity > 1 ≤ 5 years 36.3 35.7
Maturity > 5 ≤ 10 years 45.3 46.0
Maturity > 10 ≤ 20 years 77.3 81.4
Maturity > 20 ≤ 30 years 50.8 56.0
Maturity > 30 years 31.1 37.5
Defined contribution plans
The Company contributes to defined contribution pension plans for employees. Employer contributions for 2023 were
£1.8 million (2022 £1.2 million).
4. Intangible assets
£ million
Goodwill
Current
technology Total
Cost
1 January and 31 December 2023 7.5 0.8 8.3
Accumulated amortisation and impairment losses
At 1 January 2023 4.4 0.6 5.0
Amortisation for the year – 0.1 0.1
At 31 December 2023 4.4 0.7 5.1
Net book value at 31 December 2022 3.1 0.2 3.3
Net book value at 31 December 2023 3.1 0.1 3.2
The carrying value of goodwill has been tested by reference to the value in use of the Networks & Security CGU as identified in
the consolidated financial statements; please refer to note 13 of Notes to the consolidated financial statements on pages 154 to 156
for detailed disclosures. No impairment of goodwill was required.
The goodwill arose on the acquisition of the Positioning business and on the acquisition of Integrated Navigation Systems
Limited in 2019, both within the Networks & Security CGU.
FINANCIAL STATEMENTS
184 Spirent Communications plc Annual Report 2023
5. Tangible assets
£ million
Freehold
land and
buildings
Plant and
machinery
Fixtures,
fittings and
equipment Total
Cost
At 1 January 2023
0.7 4.9 1.4 7.0
Additions – 0.1 0.2 0.3
Disposals – (0.3) (0.1) (0.4)
At 31 December 2023 0.7 4.7 1.5 6.9
Accumulated depreciation and impairment
At 1 January 2023
0.3 4.0 1.4 5.7
Depreciation charge for the year 0.1 0.2 0.1 0.4
Disposals – (0.3) (0.1) (0.4)
At 31 December 2023 0.4 3.9 1.4 5.7
Net book value at 31 December 2022 0.4 0.9 – 1.3
Net book value at 31 December 2023 0.3 0.8 0.1 1.2
6. Right-of-use assets
The Company leases office buildings.
Land and
buildings
£ million
Cost, net of accumulated depreciation and accumulated impairment
At 1 January 2022 1.8
Additions 0.1
Depreciation charge for the year (0.3)
At 1 January 2023 1.6
Additions –
Depreciation charge for the year (0.3)
At 31 December 2023 1.3
At 31 December 2022
Cost 2.6
Accumulated depreciation and accumulated impairment (1.0)
Net carrying amount 1.6
At 31 December 2023
Cost 2.5
Accumulated depreciation and accumulated impairment (1.2)
Net carrying amount 1.3
The related lease liabilities are disclosed in note 14.
FINANCIAL STATEMENTS
185Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
7. Investments
£ million
Shares in
subsidiaries
Loans to
subsidiaries Total
Cost
At 1 January 2023 1,195.2 2.9 1,198.1
Additions 34.1 – 34.1
Share-based payment 5.5 – 5.5
At 31 December 2023 1,234.8 2.9 1,237.7
Amounts provided
At 1 January 2023 and 31 December 2023 743.7 2.9 746.6
Net book value at 31 December 2022 451.5 – 451.5
Net book value at 31 December 2023 491.1 – 491.1
The recoverability of the carrying value of investments in subsidiaries has been assessed by reference to value in use.
During the year, capital contributions of £34.1 million were paid to subsidiaries (2022 £13.8 million). Additionally, capital
contributions were made to subsidiaries in relation to share-based payment of £5.5 million (2022 £5.7 million).
8. Stocks
2023 2022
£ million £ million
Work in progress 1.9 1.6
Finished goods 6.6 6.8
8.5 8.4
There were no stock write-downs recognised in the period (2022 nil) and there were no reversals of prior period stock
write-downs (2022 nil).
No stock is carried at fair value less costs to sell (2022 nil).
9. Debtors
2023 2022
Note £ million £ million
Due within one year
Trade debtors 12 9.0 12.1
Owed by subsidiaries 17.4 12.8
Other debtors 0.5 0.4
Prepayments 1.5 1.4
Current tax asset 1.5 1.5
Assets recognised from costs to obtain a contract 0.1 0.1
30.0 28.3
Due after one year
Defined benefit pension plan surplus 3 6.6 8.0
Deferred tax asset 15 0.9 0.8
7.5 8.8
The Directors consider that the carrying amount of trade debtors, amounts owed by subsidiaries 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.
Assets recognised from costs to obtain a contract relate to capitalised incremental costs to obtain a contract, being sales
commissions arising on contracts with customers of more than one year in length. No assets were impaired or derecognised
during the current year or prior year.
FINANCIAL STATEMENTS
186 Spirent Communications plc Annual Report 2023
10. Creditors: amounts falling due within one year
2023 2022
Notes £ million £ million
Trade creditors 3.0 3.2
Owed to subsidiaries 112.5 113.7
Accruals 3.6 4.6
Contract liabilities 12 5.2 5.6
Government grants 13 – 0.2
Lease liabilities 14 – 0.2
Other taxes and social security costs – 0.1
124.3 127.6
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 and amounts owed to subsidiaries approximates their fair value.
11. Creditors: amounts falling due after more than one year
2023 2022
Notes £ million £ million
Contract liabilities 12 1.9 1.6
Lease liabilities 14 1.3 1.4
3.2 3.0
12. Contract balances
The following table provides information about trade debtors and contract liabilities from contracts with customers.
The Company does not have any contract assets.
2023 2022
Notes £ million £ million
Trade debtors 9 9.0 12.1
Contract liabilities
Current
Payments received on account – 0.7
Deferred income 5.2 4.9
10 5.2 5.6
Non-current
Deferred income 11 1.9 1.6
Total contract liabilities 7.1 7.2
Revenue recognised in the period from amounts included in contract liabilities at the
beginning of the period 5.6 3.9
There was no revenue recognised in 2023 or 2022 from performance obligations satisfied in previous periods.
The timing of revenue recognition, invoicing and cash collections results in trade debtors, payments received on account and deferred
income on the balance sheet.
The Company receives payments from customers based on a billing schedule, as established in the contract. Trade debtors are
recognised when the right to consideration becomes unconditional. Contract liabilities are recognised as revenue as (or when)
the Company performs under the contract.
The Company also recognises incremental costs incurred to obtain a contract as an asset if it expects to recover those costs.
Such costs are presented within debtors in the balance sheet as assets recognised from costs to obtain a contract and disclosed
in note 9.
FINANCIAL STATEMENTS
187Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
12. Contract balances continued
Expected realisation of remaining performance obligations at year end
The Company applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of one year or less.
For contracts that exceed one year, deferred income that relates to unsatisfied or partially satisfied performance obligations
at year end is expected to be recognised as revenue in the future as follows:
2023 2022
£ million £ million
Within 1 year 1.8 1.6
Greater than 1 year 1.9 1.6
3.7 3.2
The above information represents the revenue the Company will recognise when it satisfies the remaining performance
obligations in the contracts. The amounts presented do not include orders for which neither party has performed.
Revenue from the sale of hardware and software generally arises from contracts less than one year in length. Consequently,
the above amounts predominantly relate to the sale of maintenance and support services.
Virtually all of the revenue will be recognised within three years.
The Company provides standard warranties on its products and services. The nature of these warranties is considered to
provide customers with assurance that the related product or service will function as intended in accordance with the agreed
specification, and does not contain or imply any additional service obligation to the customer. Warranty obligations are
estimated and recognised as liabilities based on the probable outflow of resources.
13. Government grants
The following government grants are included within creditors:
2023 2022
£ million £ million
At 1 January 0.2 0.3
Received during the year – –
Released to the profit and loss account (0.2) (0.1)
At 31 December – 0.2
All government grants are expected to be recognised in the next 12 months.
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.
14. Lease liabilities
Total lease liabilities included in the balance sheet at 31 December:
Buildings
£ million
At 1 January 2022 1.7
Additions 0.1
Repayments (0.3)
Interest 0.1
At 1 January 2023 1.6
Additions –
Repayments (0.5)
Interest 0.2
At 31 December 2023 1.3
2023 2022
Notes £ million £ million
Current 10 – 0.2
Non-current 11 1.3 1.4
1.3 1.6
FINANCIAL STATEMENTS
188 Spirent Communications plc Annual Report 2023
14. Lease liabilities continued
2023 2022
£ million £ million
Maturity analysis – contractual undiscounted cash flows
Less than one year 0.1 0.3
One to five years 1.1 1.0
More than five years 0.3 0.5
Total undiscounted lease liabilities at 31 December 1.5 1.8
In 2023, the total cash outflow for leases was £0.3 million (2022 £0.3 million).
Extension options
Some leases of buildings contain extension options exercisable by the Group before the end of the non-cancellable contract
period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The
extension options held are exercisable only by the Group and not the lessors. The Group assesses at lease commencement
whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to
exercise the options if there is a significant event or significant change in circumstances within its control.
2023 2022
Lease liabilities
recognised
(discounted)
£ million
Lease liabilities
recognised
(discounted)
£ million
Buildings 1.0 1.0
15. Deferred tax
The movements in the deferred tax asset/(liabilities) are as follows:
£ million
Notes
Temporary
differences
Tax
losses
UK pension
plans Total
At 1 January 2022 0.2 0.4 (6.9) (6.3)
Charged in the year 0.1 (0.3) (0.3) (0.5)
Deferred tax on defined benefit pension plan – – 7.6 7.6
At 1 January 2023 0.3 0.1 0.4 0.8
Charged in the year – 0.1 – 0.1
Deferred tax on defined benefit pension plan ––––
At 31 December 2023 9 0.3 0.2 0.4 0.9
In 2023 and 2022, the deferred tax liability and asset have been offset on the balance sheet as they related to income taxes
raised by the same authority on the same taxable entity.
The Company has tax losses of £22.2 million (2022 £22.9 million) and short-term timing differences of £0.3 million (2022 £0.3 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 as the losses are
non-trading losses that can only be offset by future non-trading profits. These losses can be carried forward indefinitely.
The Company also has capital losses carried forward of £823.3 million (2022 £823.3 million) for which no deferred tax asset has
been recognised on the balance sheet. These capital losses have no expiry date.
FINANCIAL STATEMENTS
189Spirent Communications plc Annual Report 2023
Notes to the parent Company financial statements continued
16. Dividends
2023 2022
£ million £ million
Declared and paid in the year
Equity dividend on Ordinary Shares
Final dividend 2022 of 4.12 pence per Ordinary Share (2021 3.34 pence) 24.8 20.3
Interim dividend 2023 of 2.14 pence per Ordinary Share (2022 2.16 pence) 12.4 13.1
37.2 33.4
Dividends are determined in US Dollars and paid in Pound Sterling.
17. Capital and reserves
Changes during the year in the issued Ordinary Share capital were as follows:
Number of
Ordinary
Shares
1
million £ million
Issued and fully paid Ordinary Shares of 3 1/3 pence each at 1 January 2023 and 31 December 2023 578.6 19.3
Note
1. Includes shares held in the Employee Share Ownership Trust and Spirent Sharesave Trust.
Please refer to note 29 of the Notes to the consolidated financial statements on page 167 for disclosures relating to the nature
and purpose of each reserve within equity.
Investment in own Ordinary Shares
During the year, no shares were purchased and placed into the Employee Share Ownership Trust (2022 7.1 million shares
purchased and placed at a cost of £19.3 million). 2.7 million shares were transferred from the Employee Share Ownership Trust
in the year to satisfy options exercised under the Spirent employee share plans (2022 2.7 million shares transferred).
At 31 December 2023, the Employee Share Ownership Trust held 6.3 million Ordinary Shares (2022 8.9 million Ordinary Shares)
to satisfy awards under various share incentive plans. At 31 December 2023, the Spirent Sharesave Trust held 0.5 million Ordinary
Shares (2022 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 6.8 million Ordinary Shares (2022 9.4 million
Ordinary Shares), at 31 December 2023 was £8.3 million (2022 £24.5 million).
Both the Employee Share Ownership Trust and the Spirent Sharesave Trust are an extension of the Company.
Share Buyback Programme
On 3 April 2023, the Company commenced a Share Buyback Programme of £56.0 million which was successfully completed
on 24 August 2023. These 33.1 million shares, representing circa 5.4 per cent of the Company’s issued share capital, have
been cancelled.
FINANCIAL STATEMENTS
190 Spirent Communications plc Annual Report 2023
17. Capital and reserves continued
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 share incentives over Ordinary Shares under these plans that have been granted and remain outstanding at 31 December 2023,
held by employees of the Company, are as follows:
2023 2022
Share plan
Exercise period
(as at 31 December)
Exercise
price
pence
Weighted
average
exercise
price
pence
Number
of share
incentives
outstanding
million
Weighted
average
remaining
contractual
life
years
Weighted
average
exercise
price
pence
Number
of share
incentives
outstanding
million
Weighted
average
remaining
contractual
life
years
Spirent Long-Term
Incentive Plan
1
05.03.24–
15.09.26 – – 1.8 1.5 – 1.7 1.7
1.8 1.7
Note
1. Figures for the Spirent Long-Term Incentive Plan include restricted stock and Performance Shares in aggregate. No exercise price is payable on the vesting
of a Performance Share.
The weighted average share price at exercise date was 167 pence (2022 227 pence).
FINANCIAL STATEMENTS
191Spirent Communications plc Annual Report 2023
A full list of subsidiaries of Spirent Communications plc at 31 December 2023 is set out below. The country of incorporation and
the effective percentage of equity owned (if less than 100 per cent) is also detailed below. Unless otherwise noted, the share
capital comprises Ordinary Shares which are indirectly held by Spirent Communications plc.
Company name Registered in Registered office address Notes
Spirent Communications of Ottawa
Limited
Canada 100 King Street West, 41st Floor,
1 First Canadian Place,
Toronto, Ontario M5X 1B2
Spirent Communications Technology
(Beijing) Limited
China Suite 1302, Shining Tower,
No 35 Xue Yuan Road,
Haidian District, Beijing 100083
Held directly
Bowthorpe Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Cambridge Analytical Group Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Earlynow Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Inclex No 3 Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Inclex No 5 Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Inclex No 6 Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Inclex No 7 Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
PG International Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Shipbrick Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
54.55 per cent held directly,
45.45 per cent held indirectly
Spirent Capital Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Financial Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Holdings Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Investment Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Sharesave Trust Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
Held directly
Spirent Systems Limited England Origin One, 108 High Street,
Crawley, West Sussex RH10 1BD
100 per cent “A” shares held
indirectly, 100 per cent “B”
shares held directly
Spirent Communications SAS France Gaia, 9 Parc Ariane, Boulevard des
Chenes, 78280 Guyancourt
Held directly
Spirent Communications GmbH Germany Konrad-Zuse Platz 10, House H,
3rd Floor, 81829 Munich
Spirent (Overseas) Limited Guernsey Suite 6, Provident House, Havilland
Street, St Peter Port GY1 2QE
Spirent Communications (Asia) Limited Hong Kong Suites 1603-05, 16th Floor,
625 King’s Road, North Point
Full list of subsidiary undertakings
FINANCIAL STATEMENTS
192 Spirent Communications plc Annual Report 2023
Company name Registered in Registered office address Notes
Spirent Communications (India)
Pvt Limited
India 2nd Flr Umiya Business Bay Tower,
1 Cessna Business Park,
Marathahalli-Sarjapur Ring Road,
Kadubeesanahalli, Bangalore
560103 Karnataka
Spirent Communications Japan KK Japan 4th Floor Kyodotsushin Kaikan,
2-2-5, Toranomon, Minato-ku,
Tokyo 105-0001
Spirent Communications
Singapore Pte Limited
Singapore 101 Thomson Road, #30-01 United
Square, Singapore 307591
Spirent Communications Korea Inc South Korea (Seocho-dong, Boutique Monaco)
R/M 1609, 397 Seochodaero,
Seocho-gu, Seoul 06616
Spirent Communications Taiwan Limited Taiwan 10F, No 66, Sec 1, Neihu Road,
Neihu District, Taipei City 11493
Netcom Systems Holdings Corporation US (Delaware) 1209 Orange Street, Wilmington,
Delaware 19801
Spirent Communications Inc US (Delaware) 1209 Orange Street, Wilmington,
Delaware 19801
Spirent Federal Systems Inc US (Delaware) 1209 Orange Street, Wilmington,
Delaware 19801
Spirent Holdings Corporation US (Delaware) 1209 Orange Street, Wilmington,
Delaware 19801
Spirent Communications Hawaii LLC US (Hawaii) 1209 Orange Street, Wilmington,
Delaware 19801
FINANCIAL STATEMENTS
193Spirent Communications plc Annual Report 2023
$ million
2023 2022 2021 2020 2019
Summary income statement
Revenue 474.3 607.5 576.0 522.4 503.6
Cost of sales (130.7) (170.4) (151.3) (139.0) (135.0)
Gross profit 343.6 437.1 424.7 383.4 368.6
Product development (102.4) (111.3) (113.3) (103.1) (96.5)
Selling and marketing (133.9) (138.9) (140.7) (123.4) (129.2)
Administration (62.1) (57.4) (52.2) (53.4) (50.0)
Adjusting items (26.8) (16.8) (14.3) (7.8) (4.3)
Operating profit 18.4 112.7 104.2 95.7 88.6
Net finance income/(costs) 4.5 1.9 (0.6) 0.1 1.0
Gain on divestment – ––––
Profit before tax 22.9 114.6 103.6 95.8 89.6
Tax credit/(charge) 2.3 (14.7) (14.4) (11.4) (11.6)
Profit for the year 25.2 99.9 89.2 84.4 78.0
Summary balance sheet
Intangible assets 206.6 202.0 208.2 159.9 160.3
Property, plant and equipment 15.8 20.6 23.7 25.8 29.5
Right-of-use assets 17.2 19.5 26.0 23.3 26.0
Working capital (excluding cash and deferred tax) 17.3 10.6 11.4 2.3 16.0
Operating assets 256.9 252.7 269.3 211.3 231.8
Net funds including long-term cash 108.1 209.6 174.8 241.2 183.2
Lease liabilities (21.4) (22.1) (29.8) (28.2) (33.0)
Provisions (8.0) (8.4) (7.9) (9.8) (8.2)
Deferred tax 43.2 32.8 10.6 21.7 22.4
Defined benefit pension plan (deficit)/surplus (3.0) 0.6 30.5 6.6 6.1
Net assets 375.8 465.2 447.5 442.8 402.3
Total equity 375.8 465.2 447.5 442.8 402.3
Summary cash flows
Cash flow from operating activities 31.9 117.8 102.9 121.2 119.3
Interest received 5.4 1.5 0.4 1.5 2.6
Net capital expenditure (6.1) (8.2) (9.8) (9.0) (11.9)
Net lease payments (8.2) (9.0) (9.5) (11.1) (9.9)
Acquisition related other adjusting items and one-off
contributions to UK pension scheme 0.7 1.7 7.9 – –
Free cash flow 23.7 103.8 91.9 102.6 100.1
Acquisitions, disposals and investment in associate (7.8) – (51.3) – (1.9)
Share purchase into Employee Share Ownership Trust – (22.9) (15.1) (11.9) (8.6)
Share buyback (71.6) ––––
Dividend paid (46.5) (39.9) (84.1) (33.6) (28.6)
Acquisition related other adjusting items and one-off
contributions to UK pension scheme (0.7) (1.7) (7.9) – –
Net (decrease)/increase in cash and cash equivalents (102.9) 39.3 (66.5) 57.1 61.0
Financial history
194 Spirent Communications plc Annual Report 2023
OTHER INFORMATION
$ million
2023 2022 2021 2020 2019
Other information
Expenditure on property, plant and equipment 6.5 8.4 10.2 9.5 10.9
Depreciation of property, plant and equipment 10.5 11.0 12.4 12.2 14.7
Depreciation of right-of-use assets 6.9 7.3 7.9 8.4 7.5
Product development 102.4 111.3 113.3 103.1 96.5
Share information
Earnings per share (cents)
Basic 4.30 16.46 14.67 13.84 12.79
Diluted 4.26 16.36 14.54 13.71 12.63
Adjusted basic
1,2
7.55 18.86 16.59 14.68 13.40
Dividend per Ordinary Share (cents) 2.76 7.57 6.76 6.04 5.39
Special dividend per Ordinary Share (cents) – – – 7.50 –
Fully paid Ordinary Shares in issue at year end (number, million)
578.6 611.7 611.7 611.7 611.7
Segmental analysis
Revenue
Lifecycle Service Assurance 199.1 264.5 261.6 219.3 190.6
Networks & Security 275.2 343.0 314.4 303.1 313.0
474.3 607.5 576.0 522.4 503.6
Adjusted operating profit
1
Lifecycle Service Assurance 16.9 51.0 63.1 50.7 28.7
Networks & Security 39.0 86.8 63.5 62.0 72.8
Corporate – non-segmental (10.7) (8.3) (8.1) (9.2) (8.6)
Adjusted operating profit
1
45.2 129.5 118.5 103.5 92.9
Acquired intangible asset amortisation (5.0) (4.7) (4.2) (0.5) (1.2)
Share-based payment (7.6) (8.5) (5.6) (4.2) (3.5)
Other adjusting items (14.2) (3.6) (4.5) (3.1) 0.4
Operating profit 18.4 112.7 104.2 95.7 88.6
Geographical information
Revenue by geographical market
Americas 268.1 336.3 324.6 276.2 266.1
Asia Pacific 153.9 205.8 185.1 189.2 187.8
Europe, Middle East and Africa 52.3 65.4 66.3 57.0 49.7
474.3 607.5 576.0 522.4 503.6
Notes
1. Before acquired intangible asset amortisation, share-based payment and other adjusting items.
2. Before gain on divestment, items in note 1, tax effect of items in note 1 and over/under provisions in respect of prior year tax.
195Spirent Communications plc Annual Report 2023
OTHER INFORMATION
The performance of the Group is assessed using a variety of alternative performance measures (APMs) which are presented
to provide users with additional financial information that is regularly reviewed by management. The APMs presented are not
defined under IFRS and therefore may not be directly comparable with similarly identified measures used by other companies.
In management’s view, the APMs reflect the underlying performance of the Group and provide an alternative basis for evaluating
how the Group is managed and measured on a day-to-day basis. Such APMs are non-GAAP measures and should not be
viewed in isolation or as an alternative to the equivalent GAAP measure.
The APMs and key performance indicators are aligned to the Group’s strategy and collectively are used to measure the
performance of the Group and form the basis of the metrics for Director and management remuneration. The Group’s key
performance indicators are presented within the Strategic Report of its 2023 Annual Report.
Order intake
Order intake represents commitments from customers to purchase goods and/or services from Spirent that will ultimately
result in recognised revenue. Where there can reasonably be changes to the scope or duration of an order, the Group exercises
judgement on the amount of the order that is booked.
Order intake is a measure of operating performance used by management to assess whether future activity levels are increasing
or slowing and therefore how effective we have been in the execution of our strategy. Order intake is a key performance
indicator used to measure Group, operating segment and regional performance for internal reporting purposes.
Orderbook
Orderbook comprises the value of all unsatisfied orders from customers and provides an indication of the amount of revenue
that has been secured and will be recognised in future periods. Orderbook represents the transaction price allocated to wholly
and partially unsatisfied performance obligations, including amounts held in contract liabilities at the period end. There is no
comparable IFRS measure.
Book to bill
Book to bill is the ratio of orders booked to revenue recognised in the year and is a measure of the visibility of future revenues
at current levels of activity. Book to bill is a key performance indicator used to measure Group and operating segment
performance for internal reporting purposes.
Adjusted operating profit
Adjusted operating profit is reported operating profit excluding amortisation of acquired intangible assets, share-based
payment and other adjusting items including restructuring. 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 are not considered
part of the Group’s normal ongoing operations and therefore can lead to period-on-period fluctuations that can make it difficult
to assess financial performance.
Specifically, items are excluded from adjusted operating profit if they are acquisition related in nature, including acquired
intangible asset amortisation which is dependent on being able to identify intangible assets and assessing their useful economic
lives, or if their exclusion allows for more meaningful comparisons with peer companies such as share-based payment which
can fluctuate from period to period. The exclusion of adjusting items from adjusted operating profit is consistent from period
to period.
Adjusted operating profit is also used in setting Director and management remuneration targets and in discussions with the
investment analyst community.
Adjusted operating margin
Adjusted operating margin is adjusted operating profit as a percentage of revenue. It is a measure of the Group’s overall
profitability and how successful we are in executing on our overall strategy, and demonstrates our ability to improve margin
through efficient operations and cost management, whilst being mindful of the need to invest for the future.
Effective tax rate
Effective tax rate is the adjusted tax charge, before tax on adjusting items, expressed as a percentage of adjusted profit before
tax. The adjusted tax charge is the reported tax charge excluding the tax effect on adjusting items and adjustments made to
provisions in respect of prior year tax.
Alternative performance measures
196 Spirent Communications plc Annual Report 2023
OTHER INFORMATION
Adjusted basic earnings per share
Adjusted basic earnings per share (EPS) is adjusted earnings attributable to owners of the parent Company divided by the
weighted average number of Ordinary Shares outstanding during the year. Adjusted earnings is reported profit before tax
excluding amortisation of acquired intangible assets, share-based payment, other adjusting items, tax on adjusting items and
over/under provisions in respect of prior year tax.
Adjusted basic EPS is a measure of how successful we are in executing on our strategy and ultimately delivering increased value
for shareholders. Adjusted basic EPS is also used in setting Director and management remuneration targets and in discussions
with the investment analyst community. The Group sets out the calculation of adjusted basic EPS in note 11 of Notes to the
consolidated financial statements.
Product development spend as a percentage of revenue
Product development as a percentage of revenue in the year. It is a measure of how much the Group is investing to support
further organic growth initiatives in line with the strategic objectives, whilst driving improved productivity and effectiveness.
Free cash flow
Free cash flow is cash flow generated from operations, less tax and net capital expenditure, lease liability principal repayments
and lease liability interest paid, add interest received and lease payments received from finance leases, excluding acquisition
related other adjusting items and one-off employer contributions to the UK pension scheme.
Free cash flow is a measure of the quality of the Group’s earnings and reflects the ability to convert profits into cash and
ultimately to generate funds for future investment. It gives us financial strength and flexibility and the ability to pay sustainable
dividends to our shareholders. Free cash flow is an important indicator of overall operating performance as it reflects the cash
generated from operations after capital expenditure, financing and tax which are significant ongoing cash flows associated with
investing in the business and financing operations.
Free cash flow excludes corporate level cash flows that are independent of ongoing trading operations such as dividends,
acquisitions and disposals and share repurchases and therefore is not a measure of the funds that are available for distribution
to shareholders.
A reconciliation of cash generated from operations, the closest equivalent GAAP measure, to free cash flow is provided within the
Financial Review on page 53.
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.
197Spirent Communications plc Annual Report 2023
OTHER INFORMATION
Financial calendar 2024
5 March 2024 Full year results and dividend announcement
May Annual General Meeting
30 June Half year end
August Half year results and dividend announcement
31 December 2024 Financial year end
February/March 2025 2024 full year results and 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/corporate-services.
Annual General Meeting
The Company’s 2024 Annual General Meeting (2024 AGM) will be held at the offices of UBS at 5 Broadgate, London EC2M 2QS
in May 2024.
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 +44 (0)371 384 2126 (please use the country code when calling from outside the UK). When you call, please
quote your 11 digit Shareholder Reference number. Lines are open from 8.30am to 5.30pm (UK time) Monday to Friday, excluding
public holidays in England and Wales. You can also contact us by using the Relay UK website at www.relayuk.bt.com.
Equiniti also provides 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 +44 (0)371 384 2126 (please use the country code
when calling from outside of the UK) 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 +44 (0)371 384 2268 (please use the country code
when calling from outside of the UK) 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.fca.org.uk/consumers.
Shareholder information
198 Spirent Communications plc Annual Report 2023
OTHER INFORMATION
4G (Fourth Generation) Fourth generation of mobile communications that delivers data rates of tens to
hundreds of megabits per second.
5G Core/5G Core Network The heart of a standalone 5G network, providing data and control plane operations.
The 5G core aggregates data traffic, communicates with devices, delivers essential
network services and provides extra layers of security, among many other functions.
5G (Fifth Generation) Fifth generation of cellular technology, engineered to greatly increase the speed and
responsiveness of wireless networks, capable of multiple gigabit per second data rates
and very low latency.
6G (Sixth Generation) The future standard for wireless communications technologies supporting cellular data
networks. As the planned successor to 5G, it is expected to be capable of much higher
data speeds and to support new business models.
Artificial Intelligence (AI) The simulation of human intelligence processes by machines, especially computer systems.
Specific applications of AI include expert systems, natural language processing, speech
recognition and machine vision.
Automotive Ethernet A form of Ethernet network with a physical layer adapted to automotive use cases, capable
of meeting automotive electromagnetic compatibility and immunity requirements.
Cloud 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.
Communications Service Provider (CSP) An umbrella term for a company that offers communications and information-related
services. This can include telephone companies, internet providers, or satellite cable
companies, as well as media entities.
Continuous Integration/Continuous
Delivery (CI/CD)
A culture, operating principles, and set of practices that application development teams
use to deliver software code changes more frequently and reliably.
Data Centre A centralised location where computing resources critical to an organisation are
maintained in a highly controlled environment.
Doppler A change in the frequency with which waves (as of sound or light) from a given source
reach an observer when the source and the observer are in motion with respect to
each other so that the frequency increases or decreases according to the speed at
which the distance is decreasing or increasing.
Edge/Edge Computing A network architecture concept that enables cloud computing capabilities and an IT
service environment at the edge of the cellular network and, more generally, at the
edge of any network.
Ethernet 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.
Fixed Wireless Access (FWA) A method of providing wireless connectivity through radio links between two fixed
points that enables “last mile” wireless broadband access to homes or businesses
without the need to lay fibre or cable.
Global Navigation Satellite System
(GNSS)
The standard generic term for satellite navigation systems that provide autonomous
geospatial 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.
Hyperscaler The operator of data centres that offer scalable cloud computing services. Examples
include Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform.
Internet of Things (IoT) A network of physical objects or “things” embedded with electronics, software, sensors
and connectivity to enable data exchange with the manufacturer, the 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.
Internet Protocol (IP) The primary network protocol used on the internet and on other network devices to
facilitate and control the flow of data.
Low Earth Orbit (LEO) An orbit that is relatively close to Earth’s surface, generally at an altitude of less than
2,000 kilometres (1,200 miles).
Machine Learning (ML) A branch of artificial intelligence (AI) and computer science which focuses on the use of
data and algorithms to imitate the way that humans learn, gradually improving its
accuracy.
Glossary
199Spirent Communications plc Annual Report 2023
OTHER INFORMATION
Multi-Access Edge Computing (MEC) MEC moves the computing of traffic and services from a centralised cloud to the edge
of the network and closer to the customer. Instead of sending all data to a cloud for
processing, the network edge analyses, processes, and stores the data.
Network Equipment Manufacturers
(NEMs)
Developers and suppliers of products and services to communication service providers
such as fixed or mobile operators, as well as to enterprise customers.
Non-Standalone (NSA) 5G An architecture used in initial 5G network rollouts to provide customers with higher data
transfer speeds by pairing a 5G Radio Access Network (RAN) with an existing 4G
Evolved Packet Core (EPC).
Non-Terrestrial Networks (NTN) Networks that provide connectivity through spaceborne vehicles (satellite), airborne
platforms, including airships and balloons, or UAS (unmanned aircraft system)
platforms, including drones.
Open Radio Access Network
(Open RAN/O-RAN)
The concept of interoperability of open hardware, software and interfaces for cellular
wireless access networks.
Open RAN Radio Unit (RU) and
Distributed Unit (DU)
Two of the main building blocks of a disaggregated Open RAN environment. The RU is
where the radio frequency signals are transmitted, received, amplified, and digitised.
The DU sends the digitalised radio signal into the network.
Over-the-Air Testing A testing method used to test the performance and reliability of a wireless device in the
real world. The device under test can be tested out in the real-world or placed inside a
test chamber where real-world environments are simulated and is subject to a variety
of test conditions.
Positioning, Navigation and Timing
(PNT)
“Positioning” is the ability to determine the geographic location of a person, object or
signal. “Navigation” is the ability to calculate a route to a desired position from a
current position. “Timing” is essential to synchronisation of modern networks, providing
the only frame of reference between all devices.
Secure Access Service Edge (SASE) A security framework for enabling secure and rapid cloud adoption, and for helping to
ensure that both users and devices have secure cloud access to applications, data and
services anywhere, any time.
Standalone (SA) 5G Use of 5G cells for both signalling and information transfer. It includes new 5G packet
core architecture instead of relying on the 4G evolved packet core. SA deployment
is expected to have lower cost and better efficiency, and to assist development of new
use cases.
System-on-Chip (SoC) A system on a chip or system-on-chip is an integrated circuit that integrates most or all
components of a computer or other electronic system.
Test-as-a-Service (TaaS) The outsourcing of testing activities to a third party that focuses on simulating real-world
testing environments as specified in the client requirements.
Virtualisation 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.
Wi-Fi 6/Wi-Fi 6E/Wi-Fi 7 Wi-Fi 6 is the latest generation and standard for wireless internet, providing lower latency
and more efficient data transfer compared with earlier generations. Wi-Fi 6E extends the
capabilities of Wi-Fi 6 into the 6 GHz band in certain countries. Wi-Fi 7 is the next
generation of Wi-Fi standards, currently in development.
Zero Trust (ZT)/Zero Trust Framework
(ZTF)
An architectural approach and goal for network security that assumes that every
transaction, entity, and identity is untrusted until trust is established and maintained over
time, in contrast with the legacy view that a network is secure unless security systems
identify a breach.
Glossary continued
200 Spirent Communications plc Annual Report 2023
OTHER INFORMATION
Registered office
Spirent Communications plc
Origin One
108 High Street
Crawley
West Sussex RH10 1BD
United Kingdom
Tel: +44 (0)1293 767676
Email: investor.relations@spirent.com
Website: corporate.spirent.com
Registered in England No: 470893
Auditor
Deloitte LLP
1 New Street Square
London EC4A 3HQ
United Kingdom
Tel: +44 (0)20 7936 3000
Website: www.deloitte.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 International
100 Bishopsgate London
EC2N 4JL
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 adviser
NM Rothschild & Sons Limited
New Court
St Swithin’s Lane
London EC4N 8AL
United Kingdom
Tel: +44 (0)20 7280 5000
Website: www.rothschildandco.com
Financial PR adviser
Dentons Global Advisors
One Fleet Place
London
EC4M 7RA
United Kingdom
Tel: +44 (0)20 7664 5095
Website: www.dentonsglobaladvisors.com
Contact details
CBP023623
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.
Spirent Communications plc’s commitment to environmental issues is reflected
in this Annual Report, which has been printed on Magno Satin, an FSC
®
certified
material. This document was printed by Park Communications using its environmental
print technology, which minimises the impact of printing on the environment.
Vegetable-based inks have been used and 99% of dry waste is diverted
from landfill. The printer is a CarbonNeutral
®
company.
Both the printer and the paper mill are registered to ISO 14001.
Spirent Communications plc
Origin One
108 High Street
Crawley
West Sussex RH10 1BD
United Kingdom
Tel: +44 (0)1293 767676
Email: investor.relations@spirent.com
Website: 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.