REG - Spirent Comm PLC - Third Quarter 2023 Trading Update

Spirent CommunicationsAnnouncement

04/10/2023 07:15

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RNS Number : 5913O  Spirent Communications PLC  04 October 2023

SPIRENT COMMUNICATIONS PLC

Third Quarter 2023 Trading Update

 

Trading impacted by very challenging telecommunications market conditions

 

London, UK - 4 October 2023: Spirent Communications plc ("Spirent", the
"Company" or the "Group") (LSE: SPT), the leading provider of automated test
and assurance solutions for next-generation devices and networks, today issues
the following Trading Update for the nine month period up to 30 September
2023.

 

The telecommunications market is extremely challenged at this time, with
Spirent's largest customers delaying their expenditure and technology
investments. The uptick in demand we witnessed in the second quarter
dissipated over the summer months and the anticipated rebound in September has
not happened. In contrast, we did see strong growth from our
non-telecommunications end markets such as Positioning.

 

As a result, there is not enough near term strength in the orderbook to
support our expectations for the final quarter trading, and accordingly we
reduce our outlook for the near term. The impact of negative operating
leverage will very materially affect operating profit in this financial year.

 

Summary

·    Order intake momentum experienced in the second quarter did not
continue into the third quarter. Order intake for the first nine months was 24
per cent down compared to the same period last year

·    Revenue for the first nine months is anticipated to be down broadly
20 per cent, in line with the reduction seen in the first half, and is
expected to continue broadly at this rate for the full financial year;
negative operating leverage will impact operating profit very materially

·    Management is taking appropriate cost action, while maintaining
critical investments aligned to our market growth drivers

·    The Company concluded its $72 million (£56 million) Share Buyback
Programme and we continue to maintain a robust balance sheet

 

Group performance

The telecommunications market and our key customers continue to be very
challenged in the current economic environment and are therefore delaying
their investment plans, impacting timing of order placements and contributing
to ongoing uncertainty and reduced visibility in the near term.

 

It is anticipated that for the nine months to the end of September, Group
revenue will be approximately 20 per cent behind the same period last year; we
do not see the year-on-year performance improving in the remaining quarter. We
continue to effectively manage gross margin, which continues to track to plan.

 

Financial position

We successfully concluded our Share Buyback Programme totalling $72 million,
(£56 million) and have cancelled 33 million shares accordingly. The Group's
balance sheet remains strong.

 

Lifecycle Service Assurance

Despite improvements in the second quarter, our ability to convert prospects
in our bid pipeline to firm orders waned in the third quarter. Conversations
with prospects remain encouraging, but delays meant that we were unable to
convert these deals in the third quarter.

 

Delays also impacted the timing of the significant order with a leading global
bank, but good progress has been made finalising work scope and we remain
confident of its closure in the fourth quarter whilst also building a funnel
of other potential opportunities.

 

Networks & Security

Demand for high-speed Ethernet was particularly challenged in the third
quarter. A strong pick up in orders from China was expected and this did not
materialise as the Chinese Government reduced its spending plans and the
general economic landscape there deteriorated. The China market represents a
large proportion of revenue which we are now not expecting to receive in this
financial year.

 

However, we saw good order intake growth in the third quarter for our
Positioning solutions, which operate with different end markets and customers.
This resulted in good orderbook growth, particularly from our commercial
customer base, having secured a number of strategically important contracts.

 

Medium/long-term outlook

Our confidence in 5G as an enduring growth driver remains intact. While
initial 5G Standalone (SA) launches have remained sluggish during 2023 due to
the complexity associated with deploying and operating a cloud-native core
network, momentum is growing. Acceleration is anticipated in 2024 as
demand-side drivers increase, especially from enterprises for private 5G.

 

Core network spending, including cloud capabilities and associated high-speed
Ethernet (HSE) IP core upgrades, is also poised to increase through at least
2027 as investment cycles move beyond 5G New Radio coverage, the long tail of
global service providers progressively upgrade, and 5G Advanced becomes
standardised. This will enable a wealth of new capabilities for
direct-to-device satellite connectivity, eXtended Reality (XR) and AI, all of
which Spirent is well positioned to capitalise on through our leadership in
HSE test and core network test and assurance.

 

In addition, new technical and operational challenges in deployment and
operation of the 5G core are triggering growing capex investments in IT
digital transformation programmes around DevOps tools (Continuous Testing) and
lab and test automation. The combination of the upcoming multi-year launches
of 5G Standalone, its evolution to 5G Advanced, and the associated Digital
Transformation programmes continues to represent a long-term sustainable
growth opportunity for Spirent.

 

Eric Updyke, Chief Executive Officer, said:

 

"We saw positive trading momentum and pipeline build in the second quarter
which gave us confidence for the remainder of the year, however a slow summer
and disappointing September meant that we fell materially short of our
expectations for the third quarter. In the long run, our drivers remain
intact, but the near term orderbook isn't strong enough to support our final
quarter expectations, and our outlook for the full year reduces accordingly.

 

"Given the lack of certainty in the timing on our customers' technology
roadmaps, we are taking the necessary cost actions, while being careful to
protect those investments that enable us to maximise our long-term structural
growth drivers.

 

"Spirent will continue to benefit from these industry drivers as our customers
demand more rigorous end-to-end assurance and testing solutions to deliver
faster, more resilient, more reliable networks. Our market leadership position
and differentiated, high-quality operating model leaves us well placed to
leverage market opportunities as they open up."

 

- ends -

 

Enquiries

 Eric Updyke, Chief Executive Officer                    Spirent Communications plc    +44 (0)1293 767676

                                                                                       E: investor.relations@spirent.com (mailto:investor.relations@spirent.com)
 Paula Bell, Chief Financial & Operations Officer

 James Melville-Ross/                                    Dentons Global Advisors       +44 (0)20 7664 5095

James Styles/Leah Dudley

                                                                                       E: spirent@dentonsglobaladvisors.com
                                                                                       (mailto:spirent@dentonsglobaladvisors.com)

 

About Spirent Communications plc

Spirent Communications plc (LSE: SPT) is the leading global provider of
automated test and assurance solutions for networks, cybersecurity and
positioning. The Company provides innovative products, services and managed
solutions that address the test, assurance and automation challenges of a new
generation of technologies, including 5G, SD-WAN, Cloud, autonomous vehicles
and beyond. From the lab to the real world, Spirent helps companies deliver on
their promise to their customers of a new generation of connected devices and
technologies. Further information about Spirent Communications plc can be
found at https://corporate.spirent.com/ (https://corporate.spirent.com/) .

 

Spirent Communications plc Ordinary Shares are traded on the London Stock
Exchange (ticker: SPT; LEI: 213800HKCUNWP1916L38). The Company operates a
Level 1 American Depositary Receipt (ADR) programme with each ADR representing
four Spirent Communications plc Ordinary Shares. The ADRs trade in the US
over-the-counter (OTC) market under the symbol SPMYY and the CUSIP number is
84856M209. Spirent ADRs are quoted on the Pink OTC Markets electronic
quotation service which can be found at
https://www.otcmarkets.com/marketplaces/otc-pink
(https://www.otcmarkets.com/marketplaces/otc-pink) .

 

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.

 

Cautionary statement regarding forward-looking statements

This document may contain forward-looking statements which are made in good
faith and are based on current expectations or beliefs, as well as assumptions
about future events. You can sometimes, but not always, identify these
statements by the use of a date in the future or such words as "will",
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statements are inherently predictive and speculative and involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. You should not place undue reliance on these
forward-looking statements, which are not a guarantee of future performance
and are subject to factors that could cause our actual results to differ
materially from those expressed or implied by these statements. The Company
undertakes no obligation to update any forward-looking statements contained in
this document, whether as a result of new information, future events or
otherwise.

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