Spirent's Strategy Focus

Spirent’s strategy focuses on medium to long-term growth and therefore its achievement cannot just be measured by looking at performance in 2018 compared to the prior year; trends over a number of years must also be considered.

View our Five Year Financial History

Book to Bill Ratio1

Reason for Measurement

The ratio of orders booked to revenue billed is a measure of the visibility of future revenues at current levels of activity and provides an indication of the underlying trend in Spirent’s future revenue stream. 

Performance

The increase in book to bill ratio to 99, from 98 in 2017, reflects increased US Government business and core Ethernet product performance, partially offset by timing of Lifecycle Service Assurance VisionWorks orders.

Relevance to Strategy

The book to bill ratio is an indicator of whether future activity levels are rising or slowing, and therefore how effective we have been in the execution of our strategy.

Revenue

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.

Performance

5 per cent revenue increase in 2018, following flat revenue in 2017, reflecting strong Positioning business performance in North America, 400G upswing and core high-speed Ethernet product performance.

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.

Adjusted Operating Profit2

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.

Performance

Adjusted operating profit increased by 31 per cent to $77.1 million, from $58.9 million in 2017, as a result of strong revenue growth and engineering spend efficiencies.

Relevance to Strategy

Adjusted operating profit indicates our financial strength and our ability to invest in the business for future growth.

Adjusted Operating Margin3

Reason for Measurement

Adjusted operating margin is a measure of the Group’s overall profitability. Spirent operates in markets which have high operating returns and strives to achieve best-in-class operating returns compared with its peers.

Performance

Increase in adjusted operating margin to 16.2 per cent, from 13.0 per cent in 2017, reflects a combination of revenue growth and continued cost management.

Relevance to Strategy

Adjusted operating margin is a measure of how successful we are in our overall strategy and demonstrates our ability to improve margin through efficient operations whilst being mindful of the need to invest for the future.

Adjusted Basic Earnings Per Share (EPS)4

Reason for Measurement

Long-term growth in adjusted basic EPS is a fundamental driver to increasing shareholder value.

Performance

Spirent’s aim is to achieve growth in adjusted basic EPS. Part of the Executive Directors’ remuneration is dependent on achieving EPS targets. In 2018, adjusted basic EPS grew by 44 per cent as a result of the increase in adjusted earnings.

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.

Product Development as a Percentage of Revenue

Reason for Measurement

To maintain its competitive position, Spirent must invest at suitable levels to support future organic growth initiatives in line with the strategic objectives, whilst driving improved productivity and effectiveness.

Performance

In 2018, product development spend reduced to 20.3 per cent of revenue from 22.6 per cent in 2017, as a result of efficiency and revenue growth.

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; it enables us to expand our markets and to maintain our technology leadership position.

Voluntary Employee Turnover

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.

Performance

Our 2018 voluntary turnover rate of 7.9 per cent remains well below the global industry average of 12.8 per cent.

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.

Free Cash Flow5

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

Free cash flow in 2018 was impacted by the timing of fourth quarter business which increased working capital, offsetting growth in earnings. Free cash flow conversion for 2018 was 77 per cent of adjusted earnings (2017 122 per cent).

Relevance to Strategy

Having strong free cash flow reflects Spirent's ability to generate funds for future investment. It gives us financial strength and flexibility and the ability to pay sustainable dividends to our shareholders.

Notes:

  1. Ratio of orders booked to revenue in the period.
  2. Before exceptional items, acquired intangible asset amortisation and share-based payment.
  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. Operating cash flow after tax, net interest and net capital expenditure.
Items with notes 1 to 5 above are non-GAAP alternative performance measures, see pages 182 and 183 of the Spirent Communications plc Annual Report 2018 for more detail.