Spirent Communications plc

Rachel Whiting - CFO Eric Hutchinson - CEO and Executive Director

Nick James - Numis Gareth Jenkins - UBS Arun George - Canaccord Genuity Rahul Chopra - Citigroup Gareth Jenkins - UBS

Well good morning, everyone. Welcome and thank you all for coming.

I'm Rachel Whiting, CFO of Spirent Communications, and I am delighted to be here today to present our 2014 preliminary results. 2014, as many of you know, has been a year where we've focused on investing in the business with the aim of growing our top line.

The market is constantly changing, and as a result, we've seen considerable volatility throughout the year, but despite that, we've made some excellent progress. Before diving into the slides, I'd just like to draw your attention to the usual Safe Harbor statement.

Thank you. As we look at an overview of this year, I want to highlight three key aspects.

Firstly, the steps we took at the end of 2013 to reorganize the business were difficult, but necessary, and they've also served to re-energize the Company. This new lease of life has enabled us to lay the foundations for growth in the years ahead.

Secondly, we made significant progress in our strategy of adding technology through acquisition. We completed five acquisitions in the year at the cost of $86 million.

These have expanded our served markets and added enhanced capabilities to our portfolio taking us into some interesting new areas. And thirdly, our additional organic investment in the business has driven growth in 2014 and enabled us to establish some exciting leadership positions in some of area where we see the greatest potential for growth.

The reorganization and the investment we’ve made meant that succeeded in our aim of growing revenues which grew by 11%. We also grew in all divisions and in all regions.

2014 of course wasn’t without these challenges. We saw major impact in Q3 as a large service provider reorganized and paused in its expending while it just helps us to move to new virtual technology.

This in turn impacted the ecosystem that supplies into that service provider. At Spirent, we saw a reduction in booking of some 33 million over the previous year as a result of that impact.

We were also disappointed by the speed of progress that we were able to make inside the security which we continue to see as a significant opportunity for the Company; however, we have new management in place in that business with a strong background in security tests. We feel that to have grown our top line in spite of these challenges indicate the rationale behind the reorganization that we undertook at the end of 2013 and the investment strategy that we have embarked on since then.

So turning to financial KPIs, as already noted, we saw revenue growth by 11% to 457.2 million. We grew our order book giving a book-to-bill ratio of 103 reflecting a strong finish to the year.

Operating profit was 46 million after additional organic investments of 24.4 million. This resulted in return on sales of 10.1% and adjusted EPS of $0.052 per share.

Turning then to the Group's comparative results for 2014, we see the revenue was up to 457.2 million with acquisitions in the year contributing 18.6 million. After an increase in revenue 16% in the first half of the year, we saw a significant flow down in the third quarter principally driven by our major service provider as already mentioned.

However we did see a marked uplift in business at the end of the year. The reduced operating profits of 46 million reflects the 24.4 million of additional organic investments that we made in support services and product development and in sales and marketing.

And I’ll talk more about those investments in a moment. The reported tax rate for 2014 was lower at 22% due to the geographic mix of profits and to the benefit of R&E tax credits in the U.S.

We are proposing an increase in the final dividend of 10% to $0.0221 underlying our confidence in the future. Now let me turn to the each of the operating divisions.

Let’s move first to our Networks & Applications division which accounts for 48% of group revenue. To remind you this division tests our customers’ new technology prior to commercial launch allowing them to develop and deploy new networks, services and applications with confidence.

This division bore the brunt of the slowdown in Q3 and a shift in the profile of its top customers where bookings in that ecosystem were $24 million lower than 2013. But despite the headwinds in Q3, the division grew by 4% demonstrating that we have gained market share with win backs of several key customers.

We saw strong growth for mobility solutions driven by 4G network rollout and also growth in our test optimization and solutions business which is playing a key role in helping to automate increasingly complex network environments. Gross margin was maintained at 68.3% but operating profit was offset by the 11.5 million of additional investment that we made in product development and in sales and marketing.

That investment meant that we expanded our leadership in software defined networking and network functions virtualization launching first market SCN capability to service providers on our Spirent Test Center platform. And although small in terms of quantum we saw great success with our virtual solutions which grew at triple digit rates.

Turning now to our wireless and service experience division which accounts for about 39% of group revenue. Here we test next generation mobile devices predominantly smartphones as well as satellite navigation and global positioning systems.

This division now increased two of the acquisitions that we made during the year. Radvision which we acquired in July has complete test slates for voice and video over IP and Testing Tech which develops software based testing tools.

These acquisitions contributed 6.5 million of the 10.9 million growth in revenue that we saw in the year. We saw particular strength in China from the 4G carrier ecosystem and from the continued worldwide investment in 4G LTE technologies and services particularly VoLTE.

We increased our investment here in product development and sales and marketing and support services by $9.4 million during the year. Our investments are particularly focused on VoLTE and rich communication services where we’ve established leadership with the launch of our unique elevator test platform.

This platform addresses the complex new testing challenges with the latest wireless and machine to machine devices and services. We saw a modest growth in our positioning business with a strong performance in commercial markets being tempered by government spending restrictions in some regions.

We also launched innovative new solutions which cover multi-GNSS technology meaning that we won market share. Looking at our service assurance business which accounts for 13% of revenue in 2014, this business allows service providers to diagnose, troubleshoot and resolve issues within the live network.

Merger activity and the need to assist virtualization also caused support and spend from some carriers in this division and resulted in overall service provider spends remaining cautious. Despite this revenue was up significantly thanks partly to the acquisitions of DAX and Mobilethink which contributed $12.1 million in revenue.

Revenue was also boosted by $12 million field test contract with a major North American service provider and in December we received a $16 million order for the second phase of this project for delivery in the second half of 2013. The leap in revenue fell almost directly through to a strong performance in the bottom line offset once again by increased spending and product development and in sales and marketing.

That investment resulted in various new product launches for the division including a new version of our field test product, Spirent TestCenter Live Virtual Probe and new capability for LTE for our customer experience management business. Finally, turning to our cash position, cash was $99.8 million at the end of the year down from $216 million a year ago.

This shift was in large part due to the $86 million that we invested in acquisitions, the investments that we made in product development and sales and marketing as well as $39 million that we have returned to shareholders. Cash generated from operating activities was lower as the activity was skewed towards the end of the fourth quarter resulting in a large increase in working capital, which we expect to unwind in the first quarter of 2015.

Also, our capital spend was higher as we move to new facilities in the U.S. following the expiry of previous lease terms.

We ended the year with a healthy cash balance of 99.8 million and no debt which gives us the financial flexibility to continue to invest in the business, to perceive strategic acquisitions and provide sustainable shareholder returns. Now let me hand you over to Eric, who will discuss the market of strategy and the outlook.

Thank you.

Thank you, Rachel. Okay let me turn to some of the market dynamics where we’re seeing the opportunities that arise from them and where Spirent is investing to grow the business.

So 2015 clearly a lot of fundamental changes going on in the industry, the polarization of wireless device manufacturers' performance, the impacted the build out of wireless infrastructure, the changes being sought by service providers, some of whom wished to become content providers and the move to virtualization of networks and datacenters combined with further technology innovation. In mobility, wireless has clearly become the access technology of choice, de rigueur, we all do that; all our businesses are that way and it’s bringing all the benefits of new seamless services generating new revenues streams for carriers which in turn have many challenges to their deployment, cyber security is the forefront of everybody’s mind, complexity has become the new norm in the industry and the line between laboratory and the life is distinctly blood.

Information is a resource to be monetized and this can only be done through big data analytics. So how does Spirent [indiscernible] position to meet the dynamic demands driven by these market changes, [as] Spirent possessed these expertise and leadership in testing and assurance to enable the delivery of every expanding data traffic volumes and notably we’ve got leadership positions in ethernet, cloud technologies, virtual, high speed data.

In applications tests we have powerful denial service test processes, security test with realism that scale and we have satellite navigation single vulnerability tests. In mobile infrastructure, we evolved packet core expertise that we have in test automation and orchestration is simplifying complexity for the testers and carriers there.

Mobile gives wise performance tests and interoperability we have leading capabilities and we’re investing data analytics in life network corporations through end-to-end solutions. So if I look at the technologies of market changes and is really about Spirent being able to ensure critical connectivity so changes often bad to tech companies specially those focused in one area.

Spirent assures the critical connectivity technology to perform across the whole networks and a really evolution in change for its life blood. So let me take you through the following focus areas where we’re investing and where we see opportunities and I’ll give you a sense of the size of the market and the growth rate, but just put that in the context of our strategic direction and how we see the industry evolving.

The end goal for everybody is to improve customer experience, improve the performance and connectivity of data traffic and voice traffic and quality of video. That's -- the technology are launch, they’re operated, they go through development phase but nowadays we’re seeing much more feedback from live operations back in to development through to the development and launch.

And we’re bringing the test methodologies you need to assure that the automation of those processes and now the analytics then improve the test methodologies and efficiency and the whole thing is that how we’re approaching the market. So all of these areas may look separate but they’re actually linked spare that in mind our strategy direction is pulling the portfolio together.

So turning to mobile networks, so now this focus is all about seeing this mobility, the significant evolutionary change in the evolved packet core network and there is greater investment going on in wireless infrastructure worldwide we saw that coming through significantly in 2014. We have a leadership position in comprehensive functional and performance testing of the vEPC, offering complete end-to-end testing for cellular and WiFi ecosystems, virtually EPC deployments will start be made in 2015.

Carriers are seeking to grow revenue from LTE and voice over LTE deployments with the new services, we see 71 carriers testing VoLTE technologies in 2015. We delivered emulation of real-world traffic at scale based on a range of network topologies.

Roaming to or from WiFi is expected to see the carrier WiFi market double. We offer integrated test solutions to cellular and WiFi hand of testing combined again with unmatched scalability.

Our expertise allows rapid set up of complex test sessions and segmentation of the network to identify clearly where problems may lie. So we’re able to offer very valuable solutions to European carrier that are able to model their deployments of the new technologies in the lab take their real traffic patents, remodel that, optimize their network investment and assure those services are delivered.

And another example is you have sporting events everybody is crammed into the arena, there is a huge load on the network and carriers who are looking to get Wi-Fi to deliver the additional capacity and the U.S. Tennis Open we were able to resolve those Wi-Fi service issues and ensure that the carrier met service level agreements we had.

Talk about ensuring seamless user experience, across the heterogeneous networks so that’s another buzz phrase het-net we come across that one in mobile networks, authentication, authorization and accounting using a new technology called Diameter which is a protocol that delivers access to new service technologies with enhanced security so Diameter traffic rates are doubling to 44 million messages per second in 2015 and we developed new capabilities to deliver realistic world simulation to accurately test performance characteristics for the networks equipments at scale with automated control. This allows customers to identify capacity limits, call data performance, pre-deployment characterization and accurate capacity planning.

The new wireless services how well do they function so another example of our innovation in 2014 is in the area of testing new wireless service, such as VoLTE and rich communication services is great to refer to. VoLTE will improve greatly user experience across all mobile devices, high definition quality voice codes and better video.

If any of you haven’t actually experienced the 4G voice call it’s 10 times or 100 times better than the quality you carry down in 2G/3G. Mobile devices are constantly tapping the network they’re always pinging the network and VoLTE technologies allow much more efficient use of network resources.

So again we have a range of solutions to address these needs in the live network and in monitoring performance. And in 2014 as Rachel mentioned we’ve launched the new wireless Test Framework called Elevate which aims at improving the quality and productivity of VoLTE and RCS development and deployment.

We’ve integrated our device test system, our traditional test system on device testing, the ProLab IMS suite which we acquired with the purchase of Radvision and we also combined that with our service experience analytics. So the platform is open, scalable and sharable it solves the test means for interoperability problems, it’s accessible from the developers’ desktop or indeed is accessible by remote technologies so you can run it from an iPad.

It allows complex issues to be found prior to market release, avoiding costly and damaging poor customer experience and therefore increase customer churn. In fact the illustration on this slide is from a really interoperability test that we ran, we discovered an RCS based video chat problem sort of degradation in signal and this is on two devices that unfortunately had already being released commercially so we are finding things that the current test processes are not finding.

Our developer tools business unit Radvision which we acquired in July has a worldwide recognized based in class solution for IMS, RCS and VoLTE test validation and enables IMS network systems to be emulated and this is a critical enabler for our Elevate platform, our VoLTE test solutions and gives Spirent some clear differentiation. The developer tools products have resolved issued in a Scandinavian video hosting provider we’ve improved network provision pre-deployment and assured video and audio quality.

So turning to the high speed Ethernet market, clearly exponential growth in data traffic is continuing the only way that the world can deliver capacity to support this exponential growth in data is to develop higher and higher speed Ethernet technologies. We’ve invested in the expansion of our 100 gigabit Ethernet test capability and that’s put us in a leading position.

This is resulted in a significant win back our business in major accounts during 2014 and that’s continuing in the third quarter for 2015. The development has delivered much needed functionality to those what people who are developing these technologies.

And we also demonstrated the world’s first working test for 400 gigabit Ethernet working with leading equipment developers and chip manufacturer. At such high speed rates disruptions have a much greater impact on network availability and expertise in testing at these speed rates is gapped across the entire industry.

Timing accuracy in order to picoseconds is needed for these measurements. Our latest test platforms have cloud core processing with deep real time analysis delivering enhanced realism of scale and this enables to test at highly scaled terabit networks and devices.

We addressed the needs of complex converged IP systems, cloud datacenters and high performance mobile networks. These capabilities allowed us to grow in a market that arguably shrank in 2014, we achieved growth in customers outside our top two accounts where those as Rachel flagged cut spending dramatically in 2014.

So cloud and virtualization, so the transition itself is a complex one, so the transition to software defined networking and network functions virtualization is bringing complexity, legacy systems that are already out there are complex and the migration to cloud-based technologies is causing concerns for IT leaders that worry that those migrations could fail, it would severely impact service availability which is the key delivering economic benefits for any network user. This in turn drives the need for new test solutions and test methodologies and our virtual test solutions are the first deliver infrastructure and application test solutions for OpenFlow controller, OpenFlow switch performance and end-to-end test between the virtual world and the physical world.

You can’t forget that the physical world, it’s going be that might go virtual but physical is always going to be there. These dynamics are seeing an increase demand for our cloud and IP test solutions again virtual mentions that, so in 2014, the served market was probably about 10 million as we enhanced our capabilities we think there will be more like 110 million in clearly of our growing area.

Network security, I mentioned all the security attack those breaches are hitting headlines every day and some examples on the bottom of the slide. Cyber security threat is a worldwide from different regions.

We see new malware intrusions into network on a daily basis and the key to discover and resolve exploit before find the weakness to test against the fuzzing of application traffic and protocols. Our systems currently test for over 10,000 [million] malware attacks and we will expand on that this year.

We’re investing in enhancements to our platform in 2015 and expect to show further progress in the second half of the year. We have validation solutions that test whether network security systems perform as expected to deliver the protection required for compliance with the United States National Institute Standards Technologies Cyber Security framework and this is critical for U.S.

service providers, enterprises and network equipment manufactures. In addition Spirent has unique capabilities to stimulate satellite navigation applications to test their resilience to threat.

Spoofing and blocking. We test vulnerabilities in systems that are built into critical applications where these are logistics, infrastructure or indeed the time stamping financing trading systems.

And now equipment manufacturers are using our stimulators to carry out time measurements to assure network performance so lot more to navigation signals than just navigation. The key part of the strategy is to expand the value we deliver to our customers from test assurance and monitoring activities.

There's a vast amount of data residing in our data centers, and our customers' data centers, generated by test activities in the lab and some network experience and we made two key acquisitions in this area in data analytics in 2014. The first being the purchase of the business focused on customer experience management, which is DAX Technologies in February.

The analytic solution gives operators real-time insights in to what’s being seen by the customers and the likely cause of any service deterioration. The solution enables actionable analytics for operational support, engineering teams and their marketing functions.

Our strategy is to expand our capabilities in this business so we can address the needs of other network operators, wireless or wireline to extend the reach worldwide and to engineer analytic solutions that can be added to and built into our test solutions across the entire portfolio. Great progress has been made in the last year both in top line growth and expanding the capabilities and expanding the resources we have there.

The team integrated well into the Spirent family with energy and enthusiasm and this itself is inspiring, it takes us into a significant new served market that is growing rapidly that is 220 million growing at 20%. One example of an application is with tier 1 carrier is which the that they’re taking to resolve customer issues for many-many hours to less than 30 minutes and it’s savings them over $60 million a year in operating expense so the return on the investment with us is measured in months.

We’ve also created specific algorithms to identify emerging issues in the network well before the tradition systems alarm systems are triggered and before many customers are impacted. This in turn improves customer satisfaction, network performance and utilizes fewer resources to resolve issues.

Let in the year we expanded a position with the acquisition of Mobilethink our device intelligence business unit. Here we enter into the live network device configurations for operators and MVNOs.

We now have a data base covering just about every mobile device on the planet. The system delivers analytics giving deep insight of the activity of device level enabling carriers to optimize their service delivery, deployment and rapid response to issues.

So those are key areas where examples that we’re investing, we’re seeing real traction in the market. So we’re investing in the business for long term growth.

As Rachel mentioned we’ve reorganized, we've got a much more agile responsive organization, we’ve hired new people at all levels, I've got new managers coming in particularly in cyber security experts coming into run those business, we’ve got guys with expertise on mobile technologies and we’ve promoted people internally. So we’ve invigorated the organization.

We’ve done some outsourcing so we’ve got a much more flexible business model on some of the areas that we’re working in, we’ve entered into a series of technology partnerships to broaden our capabilities and fill gaps in economic way where we see some gaps in the portfolio. We developed an open platform approach to testing so that people who get to use some of our functionality and then they want additional capability come and buy that from us.

Our M&A strategy is very focused around the pieces that we see add real value to our portfolio. And I've demonstrated where some of those fit in we’re developing new channels to market to gain some new adjacent areas some of these are longer term, so connected car and automated but is a longer burn, but we’ve got capabilities on Ethernet which will be in the car.

We’ve got the cellular test, we’ve got Wi-Fi test capability and we’ve got the satellite navigation so all of those pieces are used in automated. And we’ve invested in facilities so we now have a world class development laboratory in Southern California and we’ve got a world class customer demonstration lab on the East Coast of the U.S.

We’re demonstrating progress, we’ve released 80 plus 85 releases of new solutions, new functionality some of the major in 2014 and here is a list of some of the examples I've touched on 100 gigabit, VoLTE, the Elevate platform. We’ve actually refurbished and renewed and increased the capability on our satellite navigation platform.

We’ve got some interesting technologies on measuring mobile battery life performance in the live network, which everybody knows is probably one of the biggest [bug bears] anybody using a mobile smartphone has these days. We developed virtual network probes for deployment in live networks and we have a product called Velocity which is an open framework in cloud based platform that delivers test optimization and test automation.

So we’re now delivering products over the Web for access we see the Web and we have a strong pipeline for new developments coming through in 2015. So by way of wrap up, I think we’re delivering revenue growth.

We’re releasing the solutions. The organization is much more responsive.

There is a high level of energy and commitment in Spirent these days and we’ve been expanding capabilities and we’re expanding our sales and marketing reach to access the market. We’re winning back share.

By way of outlook broadly the messages were comfortable with where people expecting 2015 to come out. We are flagging that on a comparative basis it would look to be a slower start in Q1 and we’ve got a major contract timing shift that Rachel's referred to moving to the second half compared to Q1 last year.

But we do see an increase in level of demand as the year progresses and we expect to see further progress in 2015. So thank you for your attendance and we’ll move into Q&A.

I think Nick who is the first end up.

Good morning Nick James form Numis. I guess a couple of questions.

One was on the leadership in software defined networking. You said this was like a $10 million market for you guys in 2014, but it's like $100 million.

So who's got the rest of it and how do we get convinced that Spirent has got a leadership position in this market?

Well, in our 10 million we thought about 4 million. I mean clearly key competitor has got capabilities to turn the Ethernet test into virtual [and they are doing] some virtual test there and clearly Ixia has got focused on growing in SDN and NFV.

So we see that we're the two key vendors that can move and transition into delivering that. We believe we have an advantage because we write our software in a way that it could be virtualized much more rapidly so we were first to market with doing that and we’re enhancing that capability.

I’ve yet to see any meaningful new competitors in the test and insurance on SDN/NFV but a number of customers are developing their own internal processes to test their developments clearly. And the guys that are coming from a software internet services data center background are still doing a lot of it themselves.

So, the main competition for some time will be internal.

And then how do we think about the financial impact of this transition? Because I know there was some concern about it that it's moved from selling hard devices to selling software would be a bad thing to Spirent, so how do we think about that going forward?

The interesting thing is that when we’re talking to the guys that want the big iron hardware test, they still want that so whatever dynamics are on that part of the business will be what it is and it’s not really being impacted on the virtual test. The one area that we’re seeing a bit of shift is that we can now do much more regression testing at scale but running virtual machines on file servers that does impact hardware utilization but it is a point where you simply can’t buy enough hardware to scale in that market, so it’s nothing really impacting directly where we do sell SDN and NFV, it's easy to new customers who are looking for virtual test capabilities who quite honestly would never really have bought the hardware test tools anyway and clearly the model is software and services, so the gross margins are attractive.

The near-term will that we’ve got to put our efforts into developing that capability, so like with most anything tests it has methodologies it takes you 12 to 18 months to 24 months before you turn into a net profit.

Great and I guess just to follow up on that. You mentioned Ixia.

I think on their call the night before last, they made this claim that they were going to move the business more to enterprise. That's something that Spirent's talked about before.

They seemed to kind of de-emphasize Ethernet testing, said that was a flat market now. I know Spirent seems to have outperformed them in 2014, so just to contrast the two strategies as we look forward.

Actually we’re reinventing themselves as a network visibility business focused on sales provider datacenter enterprise and latching into virtualization. I think they said it’s not an executive focus on layer 2, layer 3 switch testing, not they’re going to exit the market I don’t believe them for a second.

But it is a change of emphasis. We decided -- we - positively decided that we were not going into that network packet broken market where they made investments, so we have got diversions to the strategy where we’re tackling enterprises where we have capabilities that we believe offers some probably niche advantage, but we’re not going down, we’re not developing a huge test business.

We think probably longer term machine to machine internet of things and connected vehicles are probably a diversification that is well worth pursuing. But we think that focusing on what we’re good at and that getting building expertise in our served markets will offer growth for Spirent.

This is Gareth Jenkins from UBS, a few if I could, just to follow on Nick’s question actually on the financial impact, should we expect gross margins to creep higher as the software content increases from these virtualized products? You've obviously got very high margins on your hardware already but more software content high gross margin?

Yes, sorry, overtime as we see more software content than we expect and we expect that shift to be instead of 1% to 2% a year, so gross margins will see some steady improvement and that on the other side of things start to go higher margins on hardware and services tend to be a little bit lower margin because of putting bodies in there. So it will be a slow shift.

So just to be clear that 1% to 2% a year is not the gross margin, that’s the shift in the [100] percentage?

No that’s the shift in hardware to software.

And just secondly on the 400 gig market, it feels like it's just really starting to gain traction if I look at releases from some of your key customers, how do you see that playing out over the next two years and then really were into I guess, a terabit market; how do you see that cycle?

So we would normally expect first move this to do some interesting thing on 400 gig and actually we’re talking I think it's six equipment manufacturers that are all doing work on 400 gig at the moment. The manufacturing for us they have pulled through well over our capabilities on 100 gig and the datacenter market is moving in an opposite direction, so 25 gigabit Ethernet is now the de rigueur of the featuring datacenter and multiples of that, so that’s another area that we’re tapping into.

So 400 gig it may actually develop more rapidly than we expect but we wouldn’t expect it to be significant revenue stream for couple of years but what it does to demonstrate the leadership and actually make sale of our 100 gigabit products more attractive to customers because they can see the product roadmap that gets into terabit

That’s great without dwell in too much of negative, cyber security, you said you were disappointed with the pace of entree why do you feel that’s been the face and I understand you made a management change to kind of rectify or to kind of reorganize.

So this is the -- we put in a manager who’s got great experience in security test picking software solutions in security and he’s got more experience in the use by government and enterprise. I think the main thing that’s being gaped is we’re very good at high functionality firewall development tests so everything that’s very specialized.

We’ve got the world’s leading tech cyber security test processes this is why we’re doing more realistic tests at greater scale. We’ll we’ve been gapped just trying to package that into an easier to use test system to compete with the guys who are really mopping up in enterprise and government parts of standard services test and easy to use.

So we’re looking to rectify that to some extent but also to really push on the advantages that we bring to doing realistic testing outside those sort of box ticking processes.

And then just last one from me -- one for Rachel what’s the right level of cash that you need in the business? Should we expect more M&A so kind of further reduction in cash growth getting the returns you are making or what’s the kind of right level?

So we wouldn’t really want to go below 75 million to 100 million balance sheet so acquisitions at the moment are likely to small technology agile or we would need to take on definitely to look at big acquisition.

Arun George from Canaccord Genuity, I have three questions. Firstly if look back at the Q3 trading update you highlighted I guess pricing pressure in China is one of the reasons.

I am just wondering how that has played out in Q4 and what’s your outlook for that in 2015?

So, China in particular we had a really strong Q4 which is lot of business that we saw growth with the major equipment manufacturers and service providers in China. The pricing issues are ones where there is capabilities that can be substituted where we put out new products and we’d like to see that pricing pressure.

So, I’d say it’s much more benign than we’ve anticipated. There was so much activity in the fourth quarter but it’s almost as our customers were pausing to take breath at the beginning of 2015 but we expect them to come back into the market but we expect to see growth in 2015 at group margins.

The second question is on the large field testing orders, $60 million. Looking into 2015 is there a third phase to be expected?

So 2015 will be the delivery of this 16 million, 2016 that will probably turn into more of a maintenance type of factor to be with that key customer so we’ll probably be run by there now 5 million plus. And then we’re looking to see if there are other customers who can utilize that capability so expand the customer base in the meantime we’re growing the other service assurance, software assurance products strongly, so we'll probably get come out in the wash.

And just final question one for you Rachel, I mean you’ve mentioned that you are happy with consensus as it stands for 2015 but you also highlighted a second half rating. Can you give us a rough estimate on what you expect the H1, H2 spread to be either on revenue or profits?

Yes, so revenue probably 45-55 in that region.

Rahul Chopra from Citigroup, just one question and in terms of can you just give some sense of organic increase in market size for investments in 2014, or…

So the market size dynamics, our estimate of the wireless market was a growth of around about 9%, the self-insurance market in traditional monitoring was probably flat to down in the new areas where we see 20% growth so net-net it’s probably 9% growth market. In the networks and application service market as I say that probably was a net down of around about 4%-5% in ’14.

If I look forward then over the next few years we’d expect networks and application service markets to grow around that 7%, wireless about 8% and the service assurance on a combined basis of round about 9%.

And just one more thing in terms of any color on the outlook for product development cost for FY15?

And so I think our cost base is [around was slide 15] and in the press release so the cost base at around 3% and plus some additional investments in sales and marketing and that’s because of the run rate on the acquisition.

Robert Hamill, Jefferies. It’s a just quick one on packet core market.

I think Nokia have called out some good trends there and I just wonder if you got a sense for revenues in 2014 at potential growth rates and the product line up given the diminished virtual packet core?

So we’re probably going to grow that product line by about 20% in 2015, over the next two or three years that could well double both currently about 7% of virtual growth just to give you a sense of scale of that business at the moment.

And then just on the Siemens industry consolidation, which I think you’ve touched on the Capital Markets Day and on the last call, is there an update in your view I guess vis-a-vis larger player and some smaller players in the market?

I think if you look out the position of the number of larger players that they are in the process of spinout from other divisions so their management teams are dealing with that process and probably market processes that takes six months or so and clearly their setting their strategy. And some of them look like they might be going in some different directions some have clearly stated their strategic direction and what are you seeing is that there are more pure and play communications, test and measurement vendors out there now so they are being decoupled from other businesses, so logically you'd expect to see a consolidation phase only and we would to be consolidator if it makes sense and do deals at sensible prices and we can see some complementary businesses and we can see some businesses where an overlap that might make sense, but clearly there’re a few very large companies and you may decide that they want to consolidate.

So I think it will be interesting to see how it plays out. I am not sure when it’s going to stop.

Gareth Jenkins, UBS. A couple more, if I could, the large customers that you saw pauses on in Q3, can you talk to us about 2015 what you’re expectations are should we expect them to start growing again or where you market shares gains within I mean that you grow?

So that’s the first question. And then secondly, just wondered if you’ve got any sense of the breakdown between sort of I guess what you may class legacy products and the newer products of the virtualized products cyber security you’ve mentioned packet in core 7%, any sense of how that dynamic is playing out I guess it’s always difficult to?

Yes, in terms of the two major customers who saw a decrease in virtual spend, we continue to see gain of market share within the equipment manufacturer side with the service provider and the equipment manufacturer we would expect to see growth this year so we probably expect to see that grow high single digits and we’re working on some projects with them that could exceed our plan. I believe we probably won't see that until the second half so we are expecting to see growth there and we’ve got a pre-posted outlook across the portfolio generally.

And in terms of the proportions of the business that we would say is legacy it’s pretty timely.

We truly call legacy is only about $4 million of revenue.

And we probably say that’s still a bit of a drag potentially from 3G CDMA over the long-term.

That would sound to 18% in the year.

So thinking about legacy and issue that future

Maybe just maybe I rephrase that how much of the revenues coming from product lease developed over the last 24 months or 12 months. I am just looking out some of the kind of new areas that you’re talking to that posting out the CAGR of 40% and 20% as opposed those.

The one thing in high growth area and account for about 15% to 20% of the portfolio, now there are some traditional Ethernet test products that we won't see much greater at all, it’s probably about 25% of the portfolio.

Thanks Its Nick James from Numis again. Just to follow up on security well I guess kind of the way that you’ve adjusted to this traditionally it's about [indiscernible] think some of the security vendors now talk about being able to find unknown threats as they’re arising, so just wanted to kind of understand how you kind of interface with that?

So we work closely with the guys who are looking to build the security and if we can build unknown threats into our test systems we will. I am not sure that we are in a position now to say that we can do that for that I mean we can.

But we’re all about delivering the test processes to the developers obviously curiously so if there is something we can do there. I mean a lot of it is around the fuzzing of the application traffic so that it looks different.

I mean I guess obviously people make lots of claims but given they are claiming that they can test for unknown threats if they can find unknown threats it would suggest that they’ve been testing that, so who is doing the testing?

I can’t comment. I don't know.

Great, thank you.

As they know when they found an unknown threat I don’t know.

Okay, very good no more questions. With that I’ll wrap up.

Thank you very much for your attendance.