Final Results
FILTRONIC PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2012
Filtronic plc, the designer and manufacturer of microwave electronics products for the wireless telecoms infrastructure market, announces its Preliminary results for the year ended 31 May 2012, which mark a return to profitability (before amortisation of intangibles).
The Wireless business develops and markets innovative customised filters and combiners, which enable operators to use their existing network infrastructure to overlay 3G and 4G (LTE) services, as well as providing OEM customers with next generation filter solutions for 4G (LTE) basestation units.
The Broadband businessdesigns and manufactures customised microwave electronic sub assembly components that are integrated by OEM's into radios for telecom network backhaul links and by a leading radar manufacturer into its aerospace/security products.
Financial Highlights
· Revenues from continuing operations up 68% to £26.1m (2011: £15.5m)
· Operating profit before amortisation and exceptional items of £0.8m (2011: £5.3m loss)
· Profit for the period of £0.04m (2011: £6.94m loss)
· Basic EPS of 0.04p (2011: 7.48p loss)
· Year end cash slightly down at £3.7m (2011: £4.1m) despite funding significant growth
Operational Highlights
· Strong half on half growth from Wireless as multiple 4G (LTE) products moved into volume production
· Broadband sales up 7% in line with June trading update
· Continued strategy to expand addressable markets with a wider product range and diversified customer base
· Alan Needle, current board member, to replace Hemant Mardia as Chief Executive
Commenting on Outlook, Howard Ford, Chairman, said:
"The volume of data traffic generated by mobile devices continues to increase rapidly. In particular, changes in content-viewing habits have resulted in a surge in video traffic, which currently represents 50% of mobile data traffic and is expected to expand to 70% by 2016."
"The release of new spectrum to enable this growth in mobile traffic will require significant network investment by operators, and is expected to benefit both Filtronic's Wireless and Broadband businesses."
"I would like to wish Hemant well after 28 years service with the business and I am extremely pleased that we have such a highly qualified and experienced Wireless Systems man in Alan on the Board to take up the role of CEO and take the company forward on its next phase of growth"
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Chairman's Statement
The year ended 31 May 2012 produced revenue of £26.1m with an operating profit before exceptional items and the amortisation of intangibles of £0.8m, compared with the prior year revenue of £15.5m with a £5.3m operating loss before exceptional items from continuing operations.
Revenue included £13.1m (2011 £3.4m) for the Wireless business and £13.0m (2011 £12.1m) for the Broadband business. Operating profit pre exceptionals and intangible amortisation was split £0.7m Wireless, £0.6m Broadband and central costs of £0.5m. Cash at the end of the year of £3.7m was slightly down from last year's £4.1m.
Whilst the business has returned to profitability, the Board is mindful of its plans for continued growth, and has therefore decided to recommend no annual dividend in respect of the financial year just ended.
The Wireless business has continued to grow strongly under its first full year of Filtronic ownership, and during the year it was rebranded from Isotek to Filtronic Wireless.
The Group continues to trade as two separately reported business segments; Wireless and Broadband.
Wireless Business
Wireless continued to deliver strong half on half growth to produce a year's sales of £13.1m (H1/H2 £5.2m/£7.9m) versus a prior year second half of £3.1m (note that the business was acquired near to the end of the first half). As multiple products moved into volume production for 4G (LTE) network rollouts, volume sales and a favourable product mix moved the business into profitability in the second half and for the year as a whole. The year's operating profit of £0.7m was a significant improvement on the first half loss of £0.4m, and on last year's £2.0m loss for the full year.
US LTE end users accounted for over 80% of Wireless sales as US operator network rollouts continued to lead European and rest of world demand.
The group has continued to invest in Wireless engineering, sales and marketing resources in order to support existing programmes and to develop additional products to support customers upgrading their 3G and 4G mobile networks.
Broadband Business
Broadband saw a 7% improvement in revenues to £13.0m (2011 £12.1m), in line with our June trading update. As with Wireless, the segment's second half return to profitability delivered an operating profit for the year of £0.6m (2011 £2.5m loss).
The second half performance was boosted by end-of-programme purchases by a major customer that will not be repeated. Cost reduction actions taken towards the end of the prior financial year, as well as further reductions this year, contributed significantly to the return to profitability.
Management
Hemant Mardia joined Filtronic in 1984 and was appointed CEO in 2008. After 28 years with Filtronic, Hemant has decided to leave the business. During this time the business has been restructured and emerges as a leader in the supply of components for next generation wireless networks.
The Board expresses its sincere appreciation for Hemant's contribution to the development of Filtronic and wishes him every success for the future. Hemant will leave Filtronic following the AGM, 21 September 2012. A planned handover period is underway with Alan Needle, an existing Board member, becoming CEO.
Alan originally joined Filtronic in 1986, starting the Wireless Infrastructure Division. Filtronic went public in 1994 when Alan joined the main board. He became CEO of the Wireless Division, Broadband and the Defence businesses in 2001.
With the acquisition of Isotek in 2010 Alan rejoined the Filtronic main board as Head of the Wireless Infrastructure Division. Alan has a wealth of experience in all aspects of Filtronic's activities.
Outlook
The volume of data traffic generated by mobile devices continues to increase rapidly: it has grown 33-fold in the past five years, and is projected to grow a further 18-fold in the next five. In particular, changes in content-viewing habits have resulted in a surge in video traffic, which currently represents 50% of mobile data traffic and is expected to rise to 70% by 2016.
Wireless infrastructure demand continues to be driven by major US network rollouts including Sprint, AT&T and T-Mobile as well a number of smaller operators. Filtronic is accessing this market through major OEMs such as Ericsson and Alcatel Lucent, as well as by direct sales to operators. The Wireless business currently has a strong order book and more than 75% of first half sales are expected to continue to be based on US demand. European demand is developing and is expected to provide growth opportunities in the following financial year.
The Broadband business is developing its market with next generation radio modules ("E-band") and microwave components for aerospace applications. The E-band products enable the delivery of high data rate mobile services in dense urban areas, and sales are expected to grow in line with this developing market. Whilst these revenues are expected to build progressively over the coming 18 months to offset the decline in demand for our traditional radio modules, these new products are not expected to produce overall revenue growth in Broadband until FY2014.
The release of new spectrum to enable the continued growth in mobile traffic will require significant network investment by operators, and this is expected to benefit both Filtronic's Wireless and Broadband businesses.
Finally, I should like to thank all staff in the business for their contribution over the past year.
Howard Ford
Chairman
23 July 2012
Business Review - Chief Executive Officer's Operating Review
Summary
Following the acquisition of the Wireless business in November 2010 the business has completed its first full year with two trading segments; the Wireless and Broadband businesses.
The Group has returned to profitability (before intangible amortisation) and continues to execute its strategy for growth by expanding its addressable market with a widening range of products and a more diversified customer base.
Actions previously taken to grow Wireless volumes and improve product margins have delivered profits for the year and the Broadband business has also realised the benefits from prior cost reduction actions to enable a return to profit for the year.
Operations
The Wireless business develops and markets innovative customised filters and combiners, which enable operators to use their existing network infrastructure to overlay 3G and 4G (LTE) services. In addition we provide OEM customers with next generation filter solutions for their 4G (LTE) basestation units. Our products can bring significant cost savings versus alternative solutions by improving the use of available spectrum.
The Broadband business designs and manufactures customised microwave electronic sub assembly components that are integrated by OEM's into radios and by a leading radar manufacturer into its aerospace/security products. The OEM radios provide the backhaul links for telecom networks, particularly the mobile base station market. Filtronic is a leading merchant supplier of transceivers to this market.
Wireless sales have grown progressively over the last 3 half-year periods; £3.1m to £5.2m to £7.9m. Margins have been significantly improved as a number of products have moved into full volume rollout with cost reductions implemented as scheduled. Improved margins and product mix have moved the business into profitability with a £1.1m second half profit contributing to a £0.7m profit for the year.
Broadband enjoyed a stronger second half with revenue of £7.7m giving a £0.9m year on year sales increase. Better than forecast end of life deliveries to Ceragon contributed significantly to this improvement. These products are being displaced by Ceragon's in house solution during the first half of the coming financial year. The H2 sales produced a £0.9m second half Broadband profit giving a £0.6m operating profit for the year.
The Group continues to invest in new product development, investing £4.8m in R&D during the year. This included work supported by a research grant awarded by Yorkshire Forward with support from the European Regional Development Fund which assisted in the development of an E-band product to target the emerging market for 4G mobile broadband services. Following the completion of this work in late 2011, Broadband R&D costs were reduced whilst Wireless R&D was increased to address further Wireless related opportunities in this growing market.
Operational cash outflows of £0.6m, and capex of £0.6m, were partially offset by share issues of £0.8m to hold the cash outflow to £0.4m in the year.
Wireless Business
During the second half year, US network operators including, in particular, Sprint progressed their LTE network rollout programmes for growing smart phone use.
This US network upgrade activity, which provided demand for Filtronic products from key OEM relationships on several major programmes, is expected to continue during the coming financial year. As expected, the development of the 4G (LTE) market in Europe remains behind that of the USA due to regulatory licence timing.
The opportunity for the Wireless business during FY2013 is to continue to secure participation on these and new volume programmes. The business continues to plan for a significant increase in Wireless revenues for the year, and is well placed to do so with a strong opening order book.
Broadband Business
Although there are increasing revenues and encouraging new opportunities in E-band and aerospace, following end of life purchases, revenue from Ceragon is in decline. The new products revenues are expected to build progressively over the coming 18 months to offset the decline indemand for our traditional radio modules, however these new products are not expected to produce overall revenue growth in Broadband until FY2014.
Employees
At 31 May 2012, the group employed 161 people (2011 159) including 57 (2011 51) in the Wireless business.
On a personal note I wish to say that I have been privileged to hold several key positions in Filtronic and as CEO I have enjoyed leading the Business through a time of significant change. I would like to thank the Board for its support and would also like to give special thanks and personal appreciation to staff, customers and shareholders. I wish the Company continued success in the future.
Hemant Mardia
Chief Executive Officer
23 July 2012
Business Review - Financial Review
Results
The year ended 31 May 2012 generated revenue of £26.1m (2011 £15.5m), resulting in an operating profit before intangible amortisation, and exceptional items of £0.8m (2011 £5.3m loss from continuing operations). The group reported a small profit of £0.04m for the period from continuing operations (2011 £6.7m loss), including a £2.4m amortisation of acquisition related intangibles offset by a £1.7m tax credit. Revenue and operating results by segment (note 4) are the main key performance indicators used by the group. The operating results are discussed in the Chief Executive's Operating Review, along with a review of the business.
Net finance income
The group ended the year with net cash of £3.7m (2011 £4.1m) but generated immaterial net finance income (2011 £0.1m), reflecting low interest rates on reduced cash deposits.
Taxation
The tax credit of £1.7m includes a £0.4m recognition of deferred tax assets related to past losses of the Wireless business. A further £0.9m credit reported is a deferred tax liability release related to the intangible amortisation. Neither of these items have had a cash impact, however a further £0.4m tax credit relates to cash received from HMRC in respect of a Broadband research and development tax claim.
Capital expenditure
Capital expenditure of £0.6m (2011 £0.9m) included £0.4m for the Broadband business.
Research and development costs
Research and development costs of £4.8m (2011 £3.5m), which represented 18.2% (2011 22.7%) of revenue were expensed. Offsetting these costs, Yorkshire Forward grant income of £0.5m (2011 £0.3m), was reported under other operating income. No research and development costs were capitalised in the balance sheet.
Working capital
At 31 May 2012 net working capital was £5.1m (2011 £2.1m) reflecting the increased level of activity within the Wireless business. Net working capital comprised inventories of £3.2m (2011 £1.7m), receivables of £10.3m (2011 £5.9m) and payables of £8.4m (2011 £5.5m).
Cash flow
Cash outflow from operating activities was £0.6m (2011 £4.4m) which included a cash inflow from taxation of £0.5m (2011 nil). Net cash inflow from financing activities was £0.8m (2011 £0.7m outflow) and related to the February 2012 share issue. The closing cash balance as at 31 May 2012 was £3.7m (2011 £4.1m).
Dividend
Mindful of its plans for continued growth, the Board does not recommend an annual dividend in respect of 2011/12 (2011 nil).
Michael Brennan
Chief Financial Officer
23 July 2012
Business Review - Directors' Assessment of Risk
--Introduction
Filtronic supplies microwave and base station filter products for the wireless telecommunications market. The business is in a fast-changing sector with a small number of sophisticated customers, demanding performance standards and international competition, all of which pose risks to the business.
Market
We supply a niche range of products to a small number of large OEM customers for both the Broadband and Wireless businesses as well as a growing number of network operators in the Wireless business. The loss of any of these customers, or any material reduction in orders from any such customers may have a material adverse effect upon Filtronic's financial condition. With the rapid evolution of product technology and other corporate decisions the size of our addressable market may be affected. We may also fail to forecast market movements correctly so missing opportunities or wrongly predicting product longevity.
Manufacturing
In most of the products, production is demand led and customers may vary their requirements from the business at short notice, which also impacts inventory management. Customers in these businesses expect consistent high quality product and reducing prices, hence we depend on control of our operating environment, including management of security of supply in our supply chain, and the provision of correctly designed technological solutions including the achievement of target cost reduction plans. Non-performance in these areas risks a diminished market position.
All our products are provided to customers after detailed qualification testing. However, this may not test all aspects of the product's design and manufacturing process or may not ensure that the product is viewed as fit for purpose in its intended use. Identification of these types of problem after release of product to customers creates the risk of being required to rectify such product defects. Historically such work has not had a substantial impact on the financial performance of the business, although a major defect, leading to a field recall, could do so in future.
The Broadband business operates a leased manufacturing location, located within the facility of our major semiconductor supplier. The Wireless business relies for the manufacture of its products on a large Chinese turnkey manufacturer that provides favourable supply and financing terms. The loss of this supplier or a material change to supply terms could have a material adverse effect on the Group.
Technology
Our product competitiveness is strongly influenced by technology choices at product concept stage and throughout execution of design to product launch. For products in the production cycle, technology insertion is often required as a means of achieving price reductions, which underpin sales. The market is time sensitive and opportunities may be lost if the technology we develop is not appropriate or ready for exploitation to match market demand, so having an adverse effect on business performance.
Our ability to remain competitive in terms of technology and product design is also underpinned by retaining key staff, the loss of whom could seriously impact the rate of introduction of new products and technologies.
Financial management
A large proportion of sales is denominated in US dollars with the cost base substantially in sterling and the Chinese Yuan, which may therefore create margin risks that may not be recoverable through price changes. This risk is mitigated to some extent by purchasing some input materials in US dollars.
We have sold four divisions of the group in the past eight years. We have provided warranties in support of these transactions, covering areas including product liability for an initial period and usually environment risks on freehold property and tax risks for longer specified periods. We have received claims on the sale of the Wireless Infrastructure and Defence Electronics business, some of which have been settled or rejected, and may receive claims in future related to these current and future commitments.
Goodwill and Going Concern
With the acquisition of the Wireless business, goodwill and intangibles have arisen. If the Wireless business does not develop as anticipated then this may have an adverse impact upon business performance which may result in a write down of the goodwill and/or the intangibles.
The directors have considered going concern matters and whilst they have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future, it remains possible that sufficient events with material adverse impacts on the business could occur such as to change this expectation.
The Board
The directors that served during the year ended 31 May 2012 and their respective roles are set out below:
Hemant Mardia (Chief Executive Officer)
Howard Ford (Chairman)
Michael Brennan (Chief Financial Officer)
Graham Meek (Non-executive Director)
Reginald Gott (Non-executive Director)
Alan Needle (Executive Director)
Responsibility Statement of the Directors
This statement is given pursuant to rule 4 of the Disclosure and Transparency Rules. The directors whose names appear above confirm that to the best of their knowledge:
· The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole: and
· The Chairman's Statement and Business Review and which form part of the Report of the Directors, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with the description of the principal risks and uncertainties that they face.
Consolidated Income Statement
for the year ended 31 May 2012
|
|
|
2012 |
2011 |
|
Continuing operations |
note |
£000 |
£000 |
|
|
|
|
|
|
Revenue |
5 |
26,082 |
15,523 |
|
|
|
====== |
====== |
|
|
|
|
|
|
Operating profit/(loss) before amortisation and exceptional items |
|
768 |
(5,260) |
|
Amortisation of intangibles |
7 |
(2,419) |
(1,209) |
|
Exceptional items |
|
- |
(611) |
|
|
|
---------- |
---------- |
|
Operating loss |
|
(1,651) |
(7,080) |
|
|
|
|
|
|
Finance income |
|
16 |
79 |
|
|
|
---------- |
---------- |
|
Loss before taxation |
|
(1,635) |
(7,001) |
|
Taxation |
|
1,670 |
326 |
|
|
|
---------- |
---------- |
|
Profit/(loss) for the period from continuing operations |
|
35 |
(6,675) |
|
Loss for the period from discontinued operations |
|
- |
(265) |
|
|
|
---------- |
---------- |
|
Profit/(loss) for the period |
|
35 |
(6,940) |
|
|
|
====== |
====== |
|
|
|
|
|
|
Basic earnings/(loss) per share |
|
|
|
|
Continuing operations |
6 |
0.04p |
(7.19)p |
|
Discontinued operations |
6 |
- |
(0.29)p |
|
|
|
---------- |
---------- |
|
Basic earnings/(loss) per share |
6 |
0.04p |
(7.48)p |
|
|
|
====== |
====== |
|
Diluted earnings/(loss) per share Continuing operations |
6 |
0.04p |
(7.19)p |
|
Discontinued operations |
6 |
- |
(0.29)p |
|
|
|
---------- |
---------- |
|
Diluted earnings/(loss) per share |
6 |
0.04p |
(7.48)p |
|
|
|
---------- |
---------- |
|
|
|
|
|
|
|
|
|
|
The profit for the period is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2012
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Profit/(loss) for the period |
35 |
(6,940) |
|
|
---------- |
---------- |
|
Currency translation movement arising on consolidation |
16 |
(32) |
|
|
---------- |
---------- |
|
|
16 |
(32) |
|
|
---------- |
---------- |
|
|
---------- |
---------- |
|
Total comprehensive income for the period |
51 |
(6,972) |
|
|
====== |
====== |
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Balance Sheet
at 31 May 2012
|
|
|
|
(Restated) |
|
|
|
2012 |
2011 |
|
|
note |
£000 |
£000 |
|
Non-current assets |
|
|
|
|
Goodwill and other intangibles |
7 |
10,491 |
12,910 |
|
Property, plant and equipment |
|
2,375 |
2,485 |
|
|
|
---------- |
---------- |
|
|
|
12,866 |
15,395 |
|
|
|
---------- |
----------- ----------- ------------------ |
|
Current assets |
|
|
|
|
Inventories |
|
3,198 |
1,677 |
|
Trade and other receivables |
|
10,277 |
5,763 |
|
Tax receivable |
|
- |
114 |
|
Deferred tax |
|
887 |
420 |
|
Cash and cash equivalents |
|
3,745 |
4,120 |
|
|
|
---------- |
---------- |
|
|
|
18,107 |
12,094 |
|
|
|
---------- |
---------- |
|
|
|
---------- |
---------- |
|
Total assets |
|
30,973 |
27,489 |
|
|
|
---------- |
---------- |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
8,422 |
5,485 |
|
Provision |
|
565 |
437 |
|
Deferred Tax |
8 |
600 |
653 |
|
Deferred income |
|
267 |
17 |
|
|
|
---------- |
---------- |
|
|
|
9,854 |
6,592 |
|
|
|
---------- |
---------- |
|
Non-current liabilities |
|
|
|
|
Deferred Tax |
8 |
1,162 |
1,959 |
|
Deferred income |
|
116 |
108 |
|
|
|
---------- |
---------- |
|
|
|
1,278 |
2,067 |
|
|
|
---------- |
---------- |
|
|
|
---------- |
---------- |
|
Total liabilities |
|
11,132 |
8,659 |
|
|
|
---------- |
---------- |
|
|
|
---------- |
---------- |
|
Net assets |
|
19,841 |
18,830 |
|
|
|
====== |
====== |
|
Equity |
|
|
|
|
Share capital |
9 |
9,681 |
9,287 |
|
Share Premium |
10 |
5,083 |
4,683 |
|
Translation Reserve |
|
(16) |
(32) |
|
Retained earnings |
|
5,093 |
4,892 |
|
|
|
---------- |
---------- |
|
Total equity |
|
19,841 |
18,830 |
|
|
|
====== |
====== |
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Statement of Changes in Equity
for the year ended 31 May 2012
|
|
|
2012 |
2011
|
|
|
|
£000 |
£000 |
|
Opening total equity |
|
18,830 |
19,885 |
|
Total comprehensive income for the period |
|
51 |
(6,972) |
|
Shares issued net of issue costs |
|
794 |
6,538 |
|
Share-based payments |
|
166 |
122 |
|
Dividends |
|
- |
(743) |
|
|
|
---------- |
---------- |
|
Closing total equity |
|
19,841 |
18,830 |
|
|
|
====== |
====== |
Consolidated Cash Flow Statement
for the year ended 31 May 2012
|
|
|
2012 |
2011 |
|
|
note |
£000 |
£000 |
|
Cash flows from operating activities |
|
|
|
|
Profit/(loss) for the period |
|
35 |
(6,940) |
|
Loss on sale of discontinued operations |
|
- |
265 |
|
Taxation |
|
(1,670) |
(326) |
|
Finance income |
|
(16) |
(79) |
|
|
|
---------- |
---------- |
|
Operating loss |
|
(1,651) |
(7,080) |
|
Share-based payments |
|
166 |
122 |
|
Loss on disposal of plant and equipment |
|
(5) |
- |
|
Depreciation |
|
697 |
523 |
|
Amortisation of intangibles |
|
2,419 |
1,209 |
|
Movement in inventories |
|
(1,521) |
476 |
|
Movement in trade and other receivables |
|
(4,514) |
(724) |
|
Settlement of option premia debt acquired with Isotek |
|
- |
1,194 |
|
Movement in trade and other payables |
|
2,937 |
178 |
|
Movement in provision |
|
128 |
(269) |
|
R&D tax credit received |
|
467 |
- |
|
Movement in deferred income |
|
258 |
- |
|
|
|
---------- |
---------- |
|
Net cash used in operating activities |
|
(619) |
(4,371) |
|
|
|
---------- |
---------- |
Consolidated Cash Flow Statement
for the year ended 31 May 2012
|
|
|
2012 |
2011 |
|
|
note |
£000 |
£000 |
|
|
|
|
|
|
Net cash used in operating activities |
|
(619) |
(4,371) |
|
|
|
---------- |
---------- |
|
Cash flows from investing activities |
|
|
|
|
Interest received |
|
16 |
79 |
|
Acquisition of plant and equipment |
|
(579) |
(925) |
|
Proceeds on sale of assets |
|
8 |
19 |
|
Acquisition of subsidiary, net of cash acquired |
|
- |
(4,162) |
|
Share issue costs |
|
- |
(325) |
|
Acquired loan repaid |
|
- |
(1,400) |
|
Sale of investment in subsidiary |
|
- |
(265) |
|
|
|
---------- |
---------- |
|
Net cash used in investing activities |
|
(555) |
(6,979) |
|
|
|
---------- |
---------- |
|
Cash flows from financing activities |
|
|
|
|
Dividends paid |
|
- |
(743) |
|
Proceeds from issue of share capital (net of issue costs) |
|
737 |
- |
|
Proceeds from exercise of share options |
|
57 |
- |
|
|
|
---------- |
---------- |
|
Net cash from/(used in) financing activities |
|
794 |
(743) |
|
|
|
---------- |
---------- |
|
|
|
|
|
|
Movement in cash and cash equivalents |
|
(380) |
(12,093) |
|
Currency exchange movement |
|
5 |
(32) |
|
Opening cash and cash equivalents |
|
4,120 |
16,245 |
|
|
|
---------- |
---------- |
|
Closing cash and cash equivalents |
|
3,745 |
4,120 |
|
|
|
====== |
====== |
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
1 Basis of Preparation
These preliminary results have been prepared on the basis of the accounting policies which are to be set out in Filtronic plc's annual report and financial statements for the year ended 31 May 2012. The following new standards have become effective from 1 June 2011 and hence, have been reflected in the financial statements:
· IAS 24 Related Party Disclosures (revised 2009);
· Amendment to IFRIC 14 "Prepayments of a minimum funding requirement"
· IAS 1 "Presentation of financial statements" - presentation of statement of changes in equity;
· IFRS 7 "Financial instruments: disclosures" - amendments to disclosures;
· IFRIC 13 " Customer loyalty programmes" - fair value of award credit; and
· IAS 34 "Interim Financial Reporting - Significant events and transactions".
There are a number of standards and interpretations issues by the IASB that are effective for financial statements after this reporting period. The following have not been adopted by Group.
· Disclosures - Transfers of financial assets (amendments to IFRS 7) (effective for periods beginning on or after 1 July 2011)
· Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (effective for periods beginning on or after 1 July 2011)
EU Law (IAS Regulation EC1606/2002) requires that the consolidated financial statements of the group for the year ended 31 May 2012 be prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ('adopted IFRSs'). Whilst the information included in this preliminary announcement has been computed in accordance with adopted IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The company expects to publish full financial statements in August 2012.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 May 2012 or 2011 but is derived from those financial statements. Statutory financial statements for 2011 have been delivered to the registrar of companies, and those for 2012 will be delivered in due course. The auditors have reported on those financial accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
2 Accounting Estimates and Judgements
The presentation of the financial statements requires the use of accounting estimates and judgements, that affect the application of accounting policies and reported amount of assets and liabilities, income and expenses. The accounting estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of the future, that are believed to be reasonable under the circumstances. Actual results may differ from the expected results.
The accounting estimates and judgements that have a significant effect on the financial statements are considered below.
Goodwill and other intangibles impairment
Goodwill and other intangibles are tested for impairment by reference to the expected cash generated by the business unit. This is deemed to be the best approximation of value, but is subject to the same uncertainties as the cash flow forecast being used.
Inventory
Inventories are stated at the lower of cost and net realisable value. The assessment of net realisable value of inventory requires forecasts of the future demand and selling prices of the inventory.
Deferred tax asset
The recognition of the deferred tax assets relating to tax losses carried forward depends on the forecasts of the future taxable profits of the company and its subsidiaries. These forecasts require the use of estimates and judgements about the future performance of the company and its subsidiaries.
Warranty provision
Warranties are given to customers on products sold to them. A warranty provision is recognised when products are sold. The provision is based on historical warranty data. Actual warranty costs in the future may differ from the estimates based on historical performance. The level of warranty provision required is reviewed on a product by product basis and adjusted accordingly in light of actual experience.
Capitalisation of development costs
Development costs incurred on projects requiring product qualification tests to satisfy customer specifications are generally expensed as incurred, reflecting the technical risks associated with resultant product qualification test.
Other certain research and development costs are likely to meet the definition of enhancement type costs, as they do not substantially improve the product, and therefore do not meet the definition of development costs to be capitalised.
The process is to be continually reviewed to ascertain whether any development costs meet the criteria for capitalisation. This requires various judgements by management as to whether the various criteria have been met.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
3 Risks and Uncertainties
--Introduction
Filtronic supplies microwave and base station filter products for the wireless telecommunications market. The business is in a fast-changing sector with a small number of sophisticated customers, demanding performance standards and international competition, all of which pose risks to the business.
Market
We supply a niche range of products to a small number of large OEM customers for both the Broadband and Wireless businesses as well as a growing number of network operators in the Wireless business. The loss of any of these customers, or any material reduction in orders from any such customers may have a material adverse effect upon Filtronic's financial condition. With the rapid evolution of product technology and other corporate decisions the size of our addressable market may be affected. We may also fail to forecast market movements correctly so missing opportunities or wrongly predicting product longevity.
Manufacturing
In most of the products, production is demand led and customers may vary their requirements from the business at short notice, which also impacts inventory management. Customers in these businesses expect consistent high quality product and reducing prices, hence we depend on control of our operating environment, including management of security of supply in our supply chain, and the provision of correctly designed technological solutions including the achievement of target cost reduction plans. Non-performance in these areas risks a diminished market position.
All our products are provided to customers after detailed qualification testing. However, this may not test all aspects of the product's design and manufacturing process or may not ensure that the product is viewed as fit for purpose in its intended use. Identification of these types of problem after release of product to customers creates the risk of being required to rectify such product defects. Historically such work has not had a substantial impact on the financial performance of the business, although a major defect, leading to a field recall, could do so in future.
The Broadband business operates a leased manufacturing location, located within the facility of our major semiconductor supplier. The Wireless business relies for the manufacture of its products on a large Chinese turnkey manufacturer that provides favourable supply and financing terms. The loss of this supplier or a material change to supply terms could have a material adverse effect on the Group.
Technology
Our product competitiveness is strongly influenced by technology choices at product concept stage and throughout execution of design to product launch. For products in the production cycle, technology insertion is often required as a means of achieving price reductions, which underpin sales. The market is time sensitive and opportunities may be lost if the technology we develop is not appropriate or ready for exploitation to match market demand, so having an adverse effect on business performance.
Our ability to remain competitive in terms of technology and product design is also underpinned by retaining key staff, the loss of whom could seriously impact the rate of introduction of new products and technologies.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
3 Risks and Uncertainties (Continued)
Financial management
A large proportion of sales is denominated in US dollars with the cost base substantially in sterling and the Chinese Yuan, which may therefore create margin risks that may not be recoverable through price changes. This risk is mitigated to some extent by purchasing some input materials in US dollars.
We have sold four divisions of the group in the past eight years. We have provided warranties in support of these transactions, covering areas including product liability for an initial period and usually environment risks on freehold property and tax risks for longer specified periods. We have received claims on the sale of the Wireless Infrastructure and Defence Electronics business, some of which have been settled or rejected, and may receive claims in future related to these current and future commitments.
Goodwill and Going Concern
With the acquisition of the Wireless business, goodwill and intangibles have arisen. If the Wireless business does not develop as anticipated then this may have an adverse impact upon business performance which may result in a write down of the goodwill and/or the intangibles.
The directors have considered going concern matters and whilst they have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future, it remains possible that sufficient events with material adverse impacts on the business could occur such as to change this expectation.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
4 Segmental analysis
IFRS 8 requires consideration of the chief operating decision maker ('CODM') within the group. In line with the group's internal reporting framework and management structure, the key strategic and operating decisions are made by the CEO, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly the CEO is deemed to be the CODM.
Operating segments have then been identified based on the interim reporting information and management structures within the group. The group has three customers representing individually over 10% each in aggregate over 60% of the revenue.
The Group operates in two trading business segments:
· The design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunications networks (Broadband).
· The design of radio frequency conditioning product for base stations used in wireless telecommunications networks (Wireless)
The group also contains a central services segment that provides support to the trading businesses.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
4 Segmental analysis (Continued)
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Depreciation and amortisation |
|
|
|
Reportable segment totals |
697 |
523 |
|
Adjustments/amortisation of intangibles |
2,419 |
1,209 |
|
|
---------- |
---------- |
|
Consolidated depreciation and amortisation |
3,116 |
1,732 |
|
|
====== |
====== |
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Loss before taxation |
|
|
|
Total loss for reportable segments |
784 |
(6,057) |
|
Elimination of discontinued operations |
- |
265 |
|
Group/unallocated |
(2,419) |
(1,209) |
|
|
---------- |
---------- |
|
|
(1,635) |
(7,001) |
|
|
====== |
====== |
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Assets |
|
|
|
Total assets for reportable segments |
38,800 |
32,193 |
|
Inter company |
(10,378) |
(7,255) |
|
Group/unallocated |
2,551 |
2,551 |
|
|
---------- |
---------- |
|
|
30,973 |
27,489 |
|
|
====== |
====== |
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Liabilities |
|
|
|
Total liabilities for reportable segments |
21,510 |
15,914 |
|
Inter company |
(10,378) |
(7,255) |
|
|
---------- |
---------- |
|
|
11,132 |
8,659 |
|
|
====== |
====== |
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
5 Revenue by Destination
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
United Kingdom |
3,500 |
838 |
|
Europe |
12,446 |
11,256 |
|
USA |
5,589 |
620 |
|
Rest of the World |
4,547 |
2,809 |
|
|
---------- |
---------- |
|
|
26,082 |
15,523 |
|
|
====== |
====== |
6 Earnings/(loss) per share
|
|
2012 |
2011 |
|
|
|
£000 |
£000 |
|
|
Profit/(loss) for the period |
|
|
|
|
Continuing operations |
35 |
(6,675) |
|
|
Discontinued operations |
- |
(265) |
|
|
|
---------- |
---------- |
|
|
Profit/(loss) for the period |
35 |
(6,940) |
|
|
|
====== |
====== |
|
|
|
|
|
|
|
|
000 |
000 |
|
|
Basic weighted average number of shares |
95,843 |
92,873 |
|
|
Dilution effect of share awards |
692 |
- |
|
|
|
--------- |
--------- |
|
|
Diluted weighted average number of shares |
|
96,535 |
92,873 |
|
|
|
====== |
====== |
|
|
|
|
|
|
Basic earnings/(loss) per share |
|
|
|
|
Continuing operations |
|
0.04p |
(7.19)p |
|
Discontinued operations |
|
- |
(0.29)p |
|
|
|
---------- |
---------- |
|
Basic earnings/(loss) per share |
|
0.04p |
(7.48)p |
|
|
|
====== |
====== |
|
Diluted earnings/(loss) per share |
|
|
|
|
Continuing operations |
|
0.04p |
(7.19)p |
|
Discontinued operations |
|
- |
(0.29)p |
|
|
|
---------- |
---------- |
|
Diluted earnings/(loss) per share |
|
0.04p |
(7.48)p |
|
|
|
====== |
====== |
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
7 Goodwill and other intangibles
|
|
(Restated) Goodwill
|
Other intangibles (core technology) |
Total |
|
|
£000 |
£000 |
£000 |
|
Cost |
|
|
|
|
Reported 31 May 2011 |
3,655 |
10,884 |
14,539 |
|
Hindsight adjustments made November 2011 |
(420) |
- |
(420) |
|
|
--------- |
--------- |
--------- |
|
Restated 31 May 2011 and 31 May 12 |
3,235 |
10,884 |
14,119 |
|
|
====== |
====== |
====== |
|
Amortisation |
|
|
|
|
At 1 June 2011 |
- |
(1,209) |
(1,209) |
|
Provided in year |
- |
(2,419) |
(2,419) |
|
|
--------- |
--------- |
--------- |
|
At 31 May 2012 |
- |
(3,628) |
(3,628) |
|
|
====== |
====== |
====== |
|
Restated carrying amount at 1 June 2011 |
3,235 |
9,675 |
12,910 |
|
|
--------- |
--------- |
--------- |
|
Carrying amount at 31 May 2012 |
3,235 |
7,256 |
10,491 |
|
|
====== |
====== |
====== |
|
|
|
|
|
Goodwill and other intangibles relate to the acquisition of Isotek (Holdings) Limited.
At 31 May 2011 the fair value of the acquired assets, liabilities, intangibles and goodwill were determined on a provisional basis pending finalisation of acquisition related adjustments. Following this finalisation the intangibles and goodwill for the prior period at 31 May 2011, have been restated.
Goodwill is allocated to the Wireless cash generating unity (CGU) and this CGU represents the lowest level within the group at which the goodwill is monitored for internal management purposes, which is not higher than the group's operating segments as reported in note 4. The group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The carrying value of intangible assets and goodwill has been assessed for impairment by reference to its value in use. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The calculation of the value in use was based on the following key assumptions:
· Cash flows were projected to 31 May 2015 based on past experience and actual operating results;
Notes to the Preliminary Financial Information
For the year ended 31 May 2012
7 Goodwill and other intangibles (continued)
· Cash flows for a further 6-year period were extrapolated. A growth factor was not applied to the projections as the value in use exceeded the carrying amounts before any such assumption was applied:
· A pre-tax discount rate of 20% was applied in determining the recoverable amount of the unit, being the estimated weighted average cost of capital.
Based on this testing the directors do not consider any of the goodwill or intangible assets to be impaired even allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount rate.
8 Deferred tax
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Deferred tax liability |
1,762 |
2,612 |
|
|
====== |
====== |
|
|
|
|
The deferred tax liability relates to the intangible assets arising upon acquisition of the Wireless business. The liability was £2,938,000 and at 31 May 2011 was £2,612,000. £871,000 has been released to the income statement during the year (2011:£326,000).
Deferred tax classified as current consists of the element that will be recognised as income in the next year. Deferred tax classified as non-current will be released to the income statement over the remaining life.
|
|
|
Restated |
|
|
2012 |
2011 |
|
|
£000 |
£000 |
|
|
|
|
|
Deferred tax assets |
887 |
420 |
|
|
====== |
====== |
The deferred tax assets relate to the recognition of the tax losses in the Wireless business.
Notes to the Preliminary Financial Information
For the year ended 31 May 2012
9 Share Capital
|
|
Group |
|
|
|
Ordinary shares of 10p each issued and fully paid |
|
|
|
Number |
£000 |
|
At 1 June 2010 |
74,323,093 |
7,432 |
|
Shares issued in year |
18,550,000 |
1,855 |
|
|
-------------- |
--------- |
|
At 1 June 2011 |
92,873,093 |
9,287 |
|
Shares issued in year |
3,941,900 |
394 |
|
|
-------------- |
--------- |
|
At 31 May 2012 |
96,814,993 |
9,681 |
|
|
======== |
====== |
Holders of the ordinary shares are entitled to receive dividends when declared, and are entitled to one vote per share at meetings of the company.
The group issued 3.7m shares of nominal value 10p as part of an equity placing in August 2011.
The group also issued 0.2m shares due to employees exercising share options from SAYE Scheme 1.
In compliance with the Companies Act 2006 the company has adopted articles of association that has dispensed with the requirement for authorised share capital.
10 Share Premium
|
|
|
Group £000 |
|
At 1 June 2011 |
|
4,683 |
|
Premium on share issue |
|
498 |
|
Share issue costs |
|
(98) |
|
|
|
------- |
|
At 31 May 2012 |
|
5,083 |
|
|
|
==== |
The shares issued as part of the equity placing in August 2011 were issued at a premium of 12.5p reflecting the market value of the shares at the date of acquisition net of costs of £98,000. The shares issued as part of the SAYE scheme were issued at a premium of 15p.
The group issued 0.2m shares due to employees exercising share options from SAYE scheme 1.
Notes to the Preliminary Financial Information
for the year ended 31 May 2012
11 Dividends
The dividends recognised in equity and paid during the year were as follows:
|
|
|
2012 |
2011 |
|
|
Per share |
£000 |
£000 |
|
|
|
|
|
|
Annual dividend year ended 31 May 2010 |
1.00p |
- |
743 |
|
Annual dividend year ended 31 May 2011 |
1.00p |
- |
- |
|
|
|
---------- |
---------- |
|
|
|
- |
743 |
|
|
|
====== |
====== |
The directors are not proposing to pay a dividend for the year ended 31 May 2012.
12 Forward looking statements
The Chairman's Statement and Chief executive officer's operating review and include statements that are forward looking in nature. These are made by the directors in good faith based on the information available to them at the time of their approval of this report. Such statements are based on current expectations and are subject to a number of risks and uncertainties, including both economic and business risk factors that could cause actual events or results to differ materially from any expected future events referred to in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
|
|
|
|
|
|
|
|
|||||||||||||
|
|
Broadband |
Wireless |
Central Services |
Defence Electronics (Discontinued) |
Inter Company Eliminations |
Total |
|||||||||||||
|
|
2012 £000 |
2011 £000 |
2012 £000 |
2011 £000 |
2012 £000 |
2011 £000 |
2012 £000 |
2011 £000 |
2012 £000 |
2011 £000 |
2012 £000 |
2011 £000 |
|||||||
|
External revenue |
13,036 |
12,136 |
13,122 |
3,387 |
131 |
- |
- |
- |
(207) |
- |
26,082 |
15,523 |
|||||||
|
Finance income |
- |
- |
- |
- |
16 |
79 |
- |
- |
- |
- |
16 |
79 |
|||||||
|
Depreciation and amortisation |
592 |
487 |
105 |
36 |
- |
- |
- |
- |
- |
- |
697 |
523 |
|||||||
|
Reportable segment profit/(loss) before exceptional items |
601 |
(2,463) |
720 |
(1,955) |
(422) |
(842) |
- |
(265) |
(131) |
- |
768 |
(5,525) |
|||||||
|
Reportable segment profit/(loss) before income tax |
601 |
(2,584) |
720 |
(1,976) |
(406) |
(1,232) |
- |
(265) |
(131) |
- |
784 |
(6,057) |
|||||||
|
Reportable segment assets |
9,755 |
7,409 |
9,434 |
6,007 |
19,611 |
18,777 |
- |
- |
- |
- |
38,800 |
32,193 |
|||||||
|
Capital expenditure |
426 |
663 |
153 |
263 |
- |
- |
- |
- |
- |
- |
579 |
926 |
|||||||
|
Reportable segment liabilities |
8,049 |
6,693 |
12,850 |
8,838 |
611 |
383 |
- |
- |
- |
- |
21,510 |
15,914 |
|||||||
This information is provided by RNS
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