Final Results

Filtronic PLC 23 July 2007 FILTRONIC PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2007 Filtronic plc, the wireless communications and electronic defence equipment company, announces its Preliminary Results for the year ended 31 May 2007. Revenue from continuing operations was £73.5m (2006 £63.0m), with an operating loss before exceptional items of £5.3m (2006 £10.9m). Operating loss after exceptional items was £27.6m (2006 £10.2m). Discontinued operations recorded a profit of £76.7m (2006 £18.9m). Earnings per share were 60.36p compared with 8.03p in 2006. Highlights • Revenue from continuing UK operations £65.4m (2006 £49.5m) • Reduced operating loss from continuing UK operations before exceptional items £3.4m (2006 loss £11.8m) • Year end cash £118.3m (2006 net debt £12.7m) • Point to Point revenue up 93% year on year and 10% margin • UK Defence good recovery in second half • Compound Semiconductors' operating loss much reduced • Disposals realised £144.5m for Wireless Infrastructure business, further £11.3m for Handset division and £2.8m for properties • Pension scheme liabilities reduced in size by 35%, at a cost of £5.3m in 2007/8 post the year end Summary of Outlook for the Group The Board is committed to defining the future of Compound Semiconductors and resolving the issues that stand in the way of a cash return. Once these are achieved, progress of the UK Defence and Point to Point businesses and reduced central costs indicate that the group should return to profit during this year. Enquiries: Filtronic plc John Poulter, Chairman Tel: 01274 415 306 Charles Hindson, Chief Executive Tel: 01274 415 306 / Mob: 07800 706 319 Parkgreen Communications Ltd Tel: 020 7479 7933 Paul McManus Mob: 07980 541 893 Chairman's Statement The year ended 31 May 2007 produced revenue from continuing operations of £73.5m and operating losses before exceptional items of £5.3m compared with the prior year of £63.0m and £10.9m respectively. The group profit for the period was £45.0m compared to £6.0m in the prior year. Cash at the year end was £118.3m compared with net debt of £12.7m at the 31 May 2006. A full breakdown of the year is shown in the financial statements, notes and narratives which follow. Having detailed the many events impacting the performance of Filtronic in my report to shareholders at the interim stage, I shall concentrate in this commentary on the activities of the second half of the year to avoid repetition. Since the half year the shares received in part consideration for the Wireless Infrastructure business, completed in October 2006, were sold, yielding net cash proceeds of £144.5m. Our review of activities resulted in the decision to exit the small loss-making US defence business and discussions are at an advanced stage with a prospective purchaser. Similarly, overheads have been reduced and surplus property has been sold. The Waterfront building, previously occupied by the headquarters and the Wireless Infrastructure business, is on the market. Of the three continuing operations, both the Point to Point and the UK Defence businesses performed well. The former in particular has achieved substantial growth as a result of exploiting its particular niche. Actions taken to reduce costs and widen margins enabled Compound Semiconductors to produce a near-breakeven result in the second half. The total impact of the capital expansion reversal referred to at the half year was £7.1m. Excluding this, and completion of the capital expenditure commitments, the unit delivered a positive cash flow in the half year. Subsequently, the main customer for mobile handset switch products advised us of its intention to in-source all its future requirements, resulting in Filtronic announcing a significant headcount reduction at the Newton Aycliffe facility. The objective for the remaining Compound Semiconductors business, serving a diverse range of customers, is to be at least break even and cash-neutral. The scale of the operation in a volatile and capital-intensive environment, set against the small size of the parent company, indicates that sale to another company in the same or adjacent markets would provide the optimum solution for customers, employees and shareholders. The company is engaged in discussions to that end but, in the event that these prove unfruitful, the Board will pursue other options. A further non cash impairment of £20.1m has been made in the carrying value of Compound Semiconductors, reducing it to £17.9m, reflecting the decision referred to above. The consequent provision against the carrying value in the company accounts has eliminated the distributable reserves. As noted above, the group has £118.3m in cash and the Board remains committed to pursuing a return of cash to shareholders in line with the intention expressed in the EGM circular related to the Wireless Infrastructure disposal. The prerequisites remain expiry of the product liability obligations to Powerwave Technologies, Inc. associated with the disposal and the need to reach agreement with the trustees of the Filtronic defined benefit pension scheme on the magnitude of a cash injection into the fund as a necessary precursor to shareholder approval and a court approved reorganisation of reserves. The former will be time expired in October. The company has made an offer of enhanced transfer values to deferred members, resulting in a reduction of 35% in the size of the scheme liabilities as at 30 November 2006. Further discussions are now being held with the trustees of the scheme with the aim of providing an additional cash contribution to the scheme consistent with the intended return of cash to shareholders. A further consequence of the lack of distributable reserves is that the company will not pay a final dividend. Looking ahead, the Board is committed to defining the future of Compound Semiconductors and resolving the issues that stand in the way of a cash return. Once these are achieved, progress of the UK Defence and Point to Point businesses and reduced central costs indicate that the group should return to profit during this year. In addition to the Board changes detailed in the interim statement, Richard Blake retired at the beginning of March and Iain Gibson will resign at the AGM. I should like to thank directors who have retired from the Board over the past year, as well as all staff in the business who have had to accommodate the many changes in the group. John Poulter Chairman 23 July 2007 Chief Executive's Operating Review Summary The course of the year has resulted in many changes for the group, after the disposal of the Wireless Infrastructure business to Powerwave Technologies, Inc. The previous expansion plan for Compound Semiconductors was stopped. Point to Point and UK Defence have delivered growth and good operating performances. Continuing operations The segmental analysis of the operating results for continuing operations is as follows: Revenue Operating (loss) Operating before exceptional (loss) items Year ended 31 May 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Compound Semiconductors 30.3 20.8 (1.5) (7.3) (29.0) (5.1) Defence Electronics 24.2 32.1 (0.6) 2.1 (3.4) 0.6 Point to Point 22.4 11.6 2.2 (0.4) 2.2 (0.4) Central Services - - (4.8) (4.2) (5.2) (4.2) Inter segment (3.4) (1.5) - - - - Unallocated pension credit/(charge) - - (0.6) (1.1) 7.7 (1.1) ----- ----- ----- ----- ----- ----- 73.5 63.0 (5.3) (10.9) (27.7) (10.2) ----- ----- ----- ----- ----- ----- Compound Semiconductors The Compound Semiconductors business operates a Gallium Arsenide (GaAs) fabrication facility at Newton Aycliffe in the UK that specialises in producing pHEMT GaAs wafers which are used in switches for mobile telephones, a range of components and complex Monolithic Multifunctional Integrated Circuits (MMICs) for communication equipment and defence applications. The decision was made in the last financial year to expand the facility. This expansion was stopped in the light of market developments. Subsequent to the year end, we announced that our predominant customer had decided to in-source fully and that its requirements for switches would cease in September 2007; this will result in a substantial reduction in the level of activity for the Compound Semiconductor business. During the financial year, Compound Semiconductors achieved revenues of £30.3m, split equally across the half financial years, and reduced operating losses through margin and overhead control to near breakeven for the second half of the financial year. By stopping the expansion plan in December 2006, the capital expenditure, including cancellation costs, was restricted to £13.4m and its termination was completed in the year. Excluding this capital expenditure, there was a cash inflow of £5.8m in the second half. In light of the expected lower level of activity, the carrying value of the Compound Semiconductors business has been impaired to £17.9m in both the consolidated and company's accounts. The objective for this division is to trade on at least a break even and cash neutral basis on a reduced level of turnover arising from the broadening customer base, with negligible capital expenditure. Defence Electronics The Defence Electronics division consists of two separately managed activities in the UK and the US. The UK Defence business supplies complex components and subsystems that are principally used in the defence market including military communications, radar and sensing equipment. It is well positioned to provide partial or complete ' antennae to digital interface' solutions for the receiver systems required in such equipment. Its customers are typically the world-wide, prime contractors for defence equipment into which it supplies at component or sub-assembly, and increasingly at the major subsystems, levels. Its products are used to intercept, identify, analyse, generate and transmit radio frequency, microwave and millimetre wave signals. UK Defence's expertise is in novel RF and microwave circuit design, coupled with a strong capability in advanced digital signal processing and a sound knowledge of system requirements and system engineering. It is not dependent on any single technology or manufacturing technique, using the most appropriate resource on a product by product basis. Its research and developments activities, in the UK and Australia, are driven by both customer funded development activities and by technology research contracts undertaken directly with Government agencies. It is a member of the UK EMRS Defence Technology Centre and the Electronic Warfare and Radar Towers of Excellence, enabling it to work in partnership with the wider UK defence industry, academia and MoD to advance ideas and concepts which will eventually be pulled through to enhance future MoD equipment capabilities. UK Defence grew its underlying turnover by 18% compared with last financial year, excluding the major contracts that effectively came to a close last year, and improved its operating profit margin to 8% for this year with the stronger performance in the second half of the financial year. The order book at the year end was stable, with overdue orders reduced in the second half year. It is expected to show revenue growth over the coming year. The US Defence business achieved revenues of £8.1m and made an operating loss of £1.9m, and discussions for its sale are at an advanced stage. Point to Point The Point to Point business designs and manufactures customised microwave electronic sub assembly components that are integrated by OEMs into point to point (PTP) radios. These radios provide the backhaul links for telecom networks particularly for the mobile basestation market. Customers require a broad radio portfolio in order to provide global coverage of the licensed communication bands. Point to Point applies specialised microwave technology and radio expertise to develop custom solutions for each OEM customer. It provides a broad product range of frequency bands underpinned by cost effective designs in order to offer highly competitive volume supply across two product lines - microwave transceiver modules and filters. These products are integrated by the customer into the radio. Point to Point has developed proprietary semiconductor device technology that enables a high level of product integration. These devices are manufactured both in Filtronic's in-house semiconductor division and at a third party foundry. This provides significant cost advantage compared to the normal level of product integration by reducing the complexity of manufacture of transceiver modules. It has a full portfolio of filters required to channelise the licensed frequency bands in the radio. These products are optimised to meet market needs for high volume supply with short lead times. Point to Point has expanded its customer base and has three main customers which are global market leading OEMs. It believes itself to be in the top two merchant suppliers of transceivers and diplex filters by global volume share in the point to point market. Several additional products are being developed and qualified, some of which have entered production late in the financial year. Expansion of its portfolio with its current customer base and volume demand growth from these customers has enabled Point to Point to increase its revenue 93% compared with last financial year and achieve operating margins of 10% in the year. It is expected to show further growth in the coming year. Discontinued operations Wireless Infrastructure The shares in Powerwave Technologies, Inc. ('Powerwave'), which were received on completion of the sale of the Wireless Infrastructure business, were disposed of in the second half of the financial year for £53.4m, bringing the net cash consideration received to £144.5m. We have provided for a product liability claim that has now been settled. We have not been notified of other material outstanding product liability claims, although Powerwave has the right to do so until 16 October 2007. Handset Products Deferred consideration of £11.3m was received during the year, bringing the total consideration received for the Handset Products division to £55.5m. Group matters Central costs were reduced further in the second half of the financial year, resulting in an forward run rate of £3m a year. Two freehold properties were disposed of in the year with cash receipts of £2.8m, resulting in a book loss of £0.4m. The main remaining surplus property to operational requirements is the Waterfront site in Saltaire, UK; this is being marketed. Finance The group repaid its bank facilities of £18.0m on completion of the sale of the Wireless Infrastructure business. The group ended the year with cash on deposit of £118.3m, receiving interest payments of £2.8m on cash balances subsequent to the sale of the Wireless Infrastructure business. Capital expenditure The group's capital expenditure in the year for continuing operations was £14.4m, of which £13.4m was within Compound Semiconductors, completing the curtailed expansion programme. Employees At 31 May 2007, the group employed 801 people, of which 71 were in the US Defence business and 340 in the Compound Semiconductors business. Pension scheme The profile of the defined benefit pension scheme operated by Filtronic ('the scheme') has changed during the year. We have previously reported the change to a career average revalued earnings basis in August 2006 and a contribution of £4.6m by the group at that time. A further contribution of £1m was made in March 2007 to complete the group's obligations arising from this change. The group made an offer to deferred members of the scheme of transfer values enhanced to the level of the IAS 19 valuation as at 30 November 2006, which closed after the year end on 30 June 2007. Some 320 members have now accepted the offer. On a proforma IAS 19 basis as at 30 November 2006, this would have resulted in a reduction of 35% in the size of the scheme liabilities. This will involve further funding of £5.3m from the group to be paid in the year ended 31 May 2008. Charles Hindson Chief Executive 23 July 2007 Consolidated Income Statement for the year ended 31 May 2007 2007 2006 Continuing operations note £000 £000 Revenue 1, 2 73,501 62,992 ====== ====== Operating loss before exceptional items (5,300) (10,877) Exceptional items 3 (22,360) 732 --------- --------- Operating loss 1, 2 (27,660) (10,145) (Loss)/gain on sale of property (415) 523 Loss on sale of investments 13 (6,518) - Finance income 14 5,221 1,706 Finance costs 15 (3,839) (4,934) --------- --------- Loss before taxation (33,211) (12,850) Taxation 1,491 - --------- --------- Loss for the period from continuing (31,720) (12,850) operations Profit for the period from discontinued 16 76,715 18,861 operations --------- --------- Profit for the period 44,995 6,011 ====== ====== Basic and diluted (loss)/earnings per share Continuing operations 24 (42.55) p (17.17) p Discontinued operations 24 102.91 p 25.20 p --------- --------- Basic and diluted earnings per share 24 60.36 p 8.03 p ====== ====== The profit for the period is attributable to the equity shareholders of the parent company Filtronic plc. Consolidated Statement of Recognised Income and Expense for the year ended 31 May 2007 2007 2006 £000 £000 Profit for the period 44,995 6,011 --------- --------- Actuarial gain/(loss) on defined benefit pension scheme 562 (2,849) Transfer to income from translation reserve related to business 61 (42) disposal Currency translation movement arising on consolidation 47 (531) --------- --------- 670 (3,422) --------- --------- --------- --------- Total recognised income and expense for the period 45,665 2,589 ====== ====== The total recognised income and expense for the period is attributable to the equity shareholders of the parent company Filtronic plc. Consolidated Balance Sheet at 31 May 2007 2007 2006 £000 £000 Non-current assets Goodwill - 2,723 Property, plant and equipment 26,089 69,248 Deferred tax - 2,249 --------- --------- 26,089 74,220 --------- --------- Current assets Inventories 10,625 33,623 Trade and other receivables 16,268 67,615 Income tax receivable - 550 Cash and cash equivalents 118,267 5,293 --------- --------- 145,160 107,081 --------- --------- --------- --------- Total assets 171,249 181,301 --------- --------- Current liabilities Bank revolving credit - 18,000 Trade and other payables 23,944 41,412 Income tax payable - 1,764 --------- --------- 23,944 61,176 --------- --------- Non-current liabilities Defined benefit pension 6,954 20,585 Deferred income 2,140 4,475 Deferred tax - 688 --------- --------- 9,094 25,748 --------- --------- --------- --------- Total liabilities 33,038 86,924 --------- --------- --------- --------- Net assets 138,211 94,377 ====== ====== Equity Share capital 7,432 7,484 Share premium 139,253 139,172 Capital redemption reserve 58 - Translation reserve 660 698 Other reserve - 6,237 Accumulated losses (9,192) (59,214) --------- --------- Total equity 138,211 94,377 ====== ====== The total equity is attributable to the equity shareholders of the parent company Filtronic plc. Consolidated Cash Flow Statement for the year ended 31 May 2007 2007 2006 note £000 £000 Cash flows from operating activities Profit for the period 44,995 6,011 Gain on sale of discontinued operations (80,139) (14,146) Taxation (860) 1,390 Finance costs 4,078 4,934 Finance income (5,221) (1,706) Loss on sale of investments 6,518 - Loss/(gain) on sale of property 415 (523) --------- --------- Operating loss 27 (30,214) (4,040) Defined benefit pension (credit)/charge (5,649) 3,624 Defined benefit pension contributions paid (7,695) (2,561) Share-based payment 567 240 Goodwill impairment 2,653 - Plant and equipment impairment 17,511 - Depreciation 8,252 11,744 Loss on sale of plant and equipment 7,316 402 Licence fee released to income (2,335) (2,335) Government grants released to income - (3,920) Movement in inventories (3,201) (3,215) Movement in trade and other receivables 381 1,490 Movement in trade and other payables 1,719 1,086 --------- --------- Cash flow from operations (10,695) 2,515 Taxation received/(paid) 88 (1,998) --------- --------- Net cash from operating activities 27 (10,607) 517 --------- --------- Consolidated Cash Flow Statement for the year ended 31 May 2007 2007 2006 note £000 £000 Net cash from operating activities 27 (10,607) 517 --------- --------- Cash flows from investing activities Proceeds from sale of property 2,750 3,508 Proceeds from sale of plant and equipment 334 348 Interest received 2,850 172 Acquisition of property, plant and equipment (16,605) (14,422) Proceeds from sale of discontinued operations 105,252 44,138 Proceeds from sale of investments 53,391 - --------- --------- Net cash from investing activities 27 147,972 33,744 --------- --------- Cash flows from financing activities Bank revolving credit (repaid)/drawn (18,000) 18,000 Bank loan repaid - (44,000) Bank loan renewal fee paid (508) (543) Interest paid (575) (1,841) Shares issued 87 - Shares bought back (1,137) - Dividends paid (1,348) (2,021) --------- --------- Net cash from financing activities 27 (21,481) (30,405) --------- --------- Increase in cash and cash equivalents 115,884 3,856 Currency exchange (loss)/gain on sale of discontinued (2,784) 1,007 operations Currency exchange movement (126) (175) Opening cash and cash equivalents 5,293 605 --------- --------- Closing cash and cash equivalents 118,267 5,293 ====== ====== Notes to the Preliminary Financial Information for the year ended 31 May 2007 1 Business segment analysis continuing operations 2007 2006 £000 £000 Revenue Compound Semiconductors 30,323 20,756 Defence Electronics 24,196 32,079 Point to Point 22,364 11,631 Inter segment (3,382) (1,474) --------- --------- 73,501 62,992 ====== ====== Operating (loss)/profit Compound Semiconductors (28,999) (5,114) Defence Electronics (3,431) 564 Point to Point 2,234 (382) Central Services (5,208) (4,150) Unallocated pension credit/(charge) 7,744 (1,063) --------- --------- Operating loss (27,660) (10,145) (Loss)/gain on sale of property (415) 523 Loss on sale of investments (6,518) - Finance income 5,221 1,706 Finance costs (3,839) (4,934) --------- --------- Loss before taxation (33,211) (12,850) Taxation 1,491 - --------- --------- Loss for the period from continuing operations (31,720) (12,850) ====== ====== The operating loss is stated after crediting the release of deferred income as follows: 2007 2006 £000 £000 Compound Semiconductors - licence fee 2,335 2,335 - government grants - 3,440 Defence Electronics - government grants - 64 --------- --------- 2,335 5,839 ====== ====== 2 Geographical origin segment analysis continuing operations 2007 2006 £000 £000 Revenue United Kingdom 65,004 49,453 United States of America 8,159 14,026 Australia 619 - Inter segment (281) (487) --------- --------- 73,501 62,992 --------- --------- Operating loss United Kingdom (23,278) (8,803) United States of America (4,556) (1,342) Australia 174 - --------- --------- Operating loss (27,660) (10,145) (Loss)/gain on sale of property (415) 523 Loss on sale of investments (6,518) - Finance income 5,221 1,706 Finance costs (3,839) (4,934) --------- --------- Loss before taxation (33,211) (12,850) Taxation 1,491 - --------- --------- Loss for the period from continuing operations (31,720) (12,850) ====== ====== 3 Exceptional items Operating loss is stated after charging/(crediting) exceptional items as follows: 2007 2006 note £000 £000 Compound Semiconductors assets impairment 4 20,111 - Loss on disposal of plant and equipment 5 7,057 - Closure costs 6 - 406 Government grants released 7 - (2,717) Goodwill impairment 8 2,653 - Inventory write down 9 - 1,516 Redundancy costs 10 521 - Share-based payments 11 333 63 Pension past service credit 12 (8,315) - --------- --------- 22,360 (732) ====== ====== 4 Compound Semiconductors assets impairment 2007 2006 £000 £000 Plant and equipment impairment 17,511 - Inventory impairment 2,600 - --------- --------- 20,111 - ====== ====== Following an impairment review, the plant and equipment and inventory at the UK Compound Semiconductors facility was impaired. The impairment resulted from the reduction in the scale of the business, due to the decision of the principal customer to in-source its switch production from September 2007. 5 Loss on disposal of plant and equipment 2007 2006 £000 £000 Loss on disposal of plant and equipment 7,057 - ====== ====== A loss on disposal of plant and equipment at the UK Compound Semiconductors facility was incurred as a result of the curtailment of the expansion plan at the facility. 6 Closure costs 2007 2006 £000 £000 Closure costs - 406 ====== ====== Closure costs were incurred in closing the Compound Semiconductors facility in California, USA. 7 Government grants released 2007 2006 £000 £000 Government grants released - (2,717) ====== ====== During the year ended 31 May 2006, deferred government grants of £2,717,000, related to the UK Compound Semiconductors facility, were released to income following the renegotiation of their arrangements. 8 Goodwill impairment 2007 2006 £000 £000 Goodwill impairment 2,653 - ====== ====== Following an impairment review the goodwill related to Sage Laboratories, Inc. was impaired. Sage Laboratories, Inc. is located in the United States of America and forms part of the Defence Electronics division. 9 Inventory write down 2007 2006 £000 £000 Inventory write down - 1,516 ====== ====== An inventory write down in the US Defence Electronics business arose as a result of its strategic repositioning and after its move to a new facility. 10 Redundancy costs 2007 2006 £000 £000 Redundancy costs: UK Compound Semiconductors 132 - UK Defence Electronics 158 - UK Central Services 231 - --------- --------- 521 - ====== ====== 11 Share-based payments 2007 2006 £000 £000 Share option expense: Compound Semiconductors 155 48 Central Services 178 15 --------- --------- 333 63 ====== ====== All outstanding share options vested on the completion of the sale of the Wireless Infrastructure business on 16 October 2006. Consequently all the remaining share-based payment cost was charged in the period. Notes to the Preliminary Financial Information for the year ended 31 May 2007 12 Pension past service credit 2007 2006 £000 £000 Pension past service credit (8,315) - ====== ====== In August 2006 the defined benefits pension scheme was changed from a final salary basis to a career average revalued earnings basis. This resulted in a past service credit, due to a reduction in the past service pension liabilities. 13 Loss on sale of investments 2007 2006 £000 £000 Proceeds from sale of Powerwave shares 53,391 - Value of Powerwave shares consideration at completion of the (59,909) - sale of Wireless Infrastructure business --------- --------- Loss on sale of investments (6,518) - ====== ====== On 16 October 2006 the company received 17,700,000 shares in Powerwave Technologies, Inc. common stock, as part of the consideration for the sale of the Wireless Infrastructure business. All the shares were sold in the six months ended 31 May 2007. 14 Finance income 2007 2006 £000 £000 Interest income 2,850 172 Expected return on pension scheme assets 2,371 1,534 --------- --------- 5,221 1,706 ====== ====== 15 Finance costs 2007 2006 £000 £000 Interest expense 575 1,841 Bank loan renewal fee 508 543 Interest on pension scheme liabilities 2,646 2,058 Currency exchange losses 110 492 --------- --------- 3,839 4,934 ====== ====== 16 Profit for the period from discontinued operations 2007 2006 Discontinued operations note £000 £000 Revenue 17, 18 58,039 174,714 ====== ====== Operating (loss)/profit before exceptional (2,320) 7,362 items Exceptional items 19 (234) (1,257) --------- --------- Operating (loss)/profit 17, 18 (2,554) 6,105 Finance costs 22 (239) - --------- --------- (Loss)/profit before taxation (2,793) 6,105 Taxation (631) (1,390) --------- --------- (Loss)/profit after taxation (3,424) 4,715 Gain of sale of discontinued operations 23 80,139 14,146 --------- --------- Profit for the period from discontinued 76,715 18,861 operations ====== ====== 17 Business segment analysis discontinued operations 2007 2006 £000 £000 Revenue Wireless Infrastructure 58,039 161,069 Handset Products - 13,645 --------- --------- 58,039 174,714 ====== ====== Operating (loss)/profit Wireless Infrastructure (2,554) 5,907 Handset Products - 198 --------- --------- Operating (loss)/profit (2,554) 6,105 Finance costs (239) - --------- --------- (Loss)/profit before taxation (2,793) 6,105 Taxation (631) (1,390) --------- --------- (Loss)/profit after taxation (3,424) 4,715 Gain on sale of discontinued operations 80,139 14,146 --------- --------- Profit for the period from discontinued operations 76,715 18,861 ====== ====== The operating (loss)/profit is stated after crediting the release of deferred income as follows: 2007 2006 £000 £000 Wireless Infrastructure - government grants - 416 ====== ====== 18 Geographical origin segment analysis discontinued operations 2007 2006 £000 £000 Revenue United Kingdom 24,170 68,327 Finland 8,654 42,056 Hungary 7,427 3,402 United States of America 14,816 39,000 China 22,720 72,220 Australia - 1,481 Inter segment (19,748) (51,772) --------- --------- 58,039 174,714 ====== ====== Operating (loss)/profit United Kingdom (4,331) (6,856) Finland (1,201) (1,751) Hungary 2,206 (412) United States of America 738 1,685 China 34 14,693 Australia - (1,254) --------- --------- Operating (loss)/profit (2,554) 6,105 Finance costs (239) - --------- --------- (Loss)/profit before taxation (2,793) 6,105 Taxation (631) (1,390) --------- --------- (Loss)/profit after taxation (3,424) 4,715 Gain on sale of discontinued operations 80,139 14,146 --------- --------- Profit for the period from discontinued operations 76,715 18,861 ====== ====== 19 Exceptional items discontinued operations Operating (loss)/profit from discontinued operations is stated after charging exceptional items as follows: 2007 2006 note £000 £000 Closure costs 20 - 1,080 Share-based payments 21 234 177 --------- --------- 1,257 234 ====== ====== 20 Closure costs discontinued operations 2007 2006 £000 £000 Closure costs - 1,080 ====== ====== Closure costs were incurred in closing the Wireless Infrastructure facility in Australia. 21 Share-based payments discontinued operations 2007 2006 £000 £000 Share options expense: Wireless Infrastructure 234 (4) Handset Products - 181 --------- --------- 234 177 ====== ====== All outstanding share options vested on the completion of the sale of the Wireless Infrastructure business on 16 October 2006. Consequently all the remaining share-based payment cost was charged in the period. 22 Finance costs discontinued operations 2007 2006 £000 £000 Currency exchange losses 239 - ====== ====== 23 Gain on sale of discontinued operations 2007 2006 £000 £000 Gain on sale of: Handset Products business - 14,146 Wireless Infrastructure business 80,139 - --------- --------- 80,139 14,146 ====== ====== On 16 October 2006 the Wireless Infrastructure business was sold for $185,000,000 cash and 17,700,000 shares of Powerwave Technologies, Inc. common stock. The cash consideration was covered by forward foreign exchange contracts when the sale was agreed in September 2006. This fixed the cash consideration at £96,925,000. Following completion of the sale of the Wireless Infrastructure business a product liability claim was made by one of its customers. After investigation and negotiations, the claim has been settled for £5,750,000. The sale is analysed as follows: £000 Consideration and costs Cash consideration 99,709 Currency exchange loss on consideration (2,784) --------- Cash consideration after currency exchange loss 96,925 Powerwave shares consideration 59,909 Sale costs (6,720) Product liability costs (5,750) Currency translation adjustment (61) --------- 144,303 ====== Assets and liabilities sold Property, plant and equipment 23,082 Deferred tax asset 2,269 Inventories 26,342 Trade and other receivables 39,506 Cash and cash equivalents 406 Trade and other payables (26,306) Income tax payable (460) Deferred tax liability (675) --------- Net assets sold 64,164 Gain on sale of the Wireless Infrastructure business 80,139 --------- 144,303 ====== 24 Basic and diluted (loss)/earnings per share 2007 2006 £000 £000 (Loss)/profit for the period Continuing operations (31,720) (12,850) Discontinued operations 76,715 18,861 --------- --------- Profit for the period 44,995 6,011 ====== ====== 000 000 Basic and diluted weighted average number of shares 74,543 74,842 ====== ====== Basic and diluted (loss)/earnings per share Continuing operations (42.55) p (17.17) p Discontinued operation 102.91 p 25.20 p --------- --------- Basic and diluted earnings per share 60.36 p 8.03 p ====== ====== 25 Dividends The dividends recognised in equity and paid during the period were as follows: 2007 2006 Per share £000 £000 Final dividend year ended 31 May 2005 1.80p - 1,347 Interim dividend year ended 31 May 2006 0.90p - 674 Final dividend year ended 31 May 2006 1.80p 1,348 - --------- --------- 1,348 2,021 ====== ====== 26 Reconciliation of movements in total equity 2007 2006 £000 £000 Opening total equity 94,377 93,569 Total recognised income and expense for the period 45,665 2,589 Share-based payments 567 240 Dividends (1,348) (2,021) Shares issued 87 - Shares bought back (1,137) - --------- --------- Closing total equity 138,211 94,377 ====== ====== 27 Note to the consolidated cash flow statement 2007 2006 £000 £000 Operating loss Continuing operations (27,660) (10,145) Discontinued operations (2,554) 6,105 --------- --------- (30,214) (4,040) ====== ====== Net cash from operating activities Continuing operations (9,873) (6,828) Discontinued operations (734) 7,345 --------- --------- (10,607) 517 ====== ====== Net cash from investing activities Continuing operations 44,835 (4,257) Discontinued operations (2,115) (6,137) Sale of discontinued operations 105,252 44,138 --------- --------- 147,972 33,744 ====== ====== Net cash from financing activities Continuing operations (21,481) (30,405) ====== ====== This information is provided by RNS The company news service from the London Stock Exchange

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