Final Results

RNS Number : 7815J

Filtronic PLC

22 July 2013

 



FILTRONIC PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2013

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 2013, which mark a significant increase in profitability (before amortisation of intangibles).

The Wireless business develops and markets innovative customised filters, combiners, and microwave subsystems 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) base station units.

The Broadband business designs 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 products.

Financial Highlights 

·     Revenues from continuing operations up 53% to £40.0m (2012: £26.1m)

·     Operating profit before amortisation and exceptional items of £3.1m (2012: £0.8m)

·     Profit for the period of £0.3m (2012: £0.04m)

·     Basic EPS of 0.29p (2012: 0.04p)

·     Year-end net funds at £1.9m (2012: £3.7m) whilst funding high Q4 growth

Operational Highlights

·     Strong growth from Wireless (up 143% versus 2012) as product base widens

·     Broadband sales down 38% as transition to new products is delayed to FY2014

·     Broadband headcount reduced to match reduced volumes

·     Continued strategy to expand addressable markets with a wider product range and diversified customer base

Commenting on the outlook, Howard Ford, Chairman, said:

"The increasing demand for mobile data supports our strategy of becoming a key equipment provider for the wireless telecommunications market. The Board is confident that our underlying technology and innovation will deliver long term growth. As our customer base and product offering broaden, we believe that we are well positioned to take advantage of the huge opportunities that exist for the provision of LTE/4G services."

Filtronic plc Tel. [phone] Howard Ford (Chairman) / Alan Needle / Mike Brennan Panmure Gordon (UK) Limited Tel. [phone] Dominic Morley Hannah Woodley Walbrook PR Ltd Tel. [phone] Paul McManus Mob. [phone] or [e-mail] Helen Westaway Mob. [phone] or [e-mail]

Chairman's Statement

The year ended 31 May 2013 produced revenue of £40.0m with an operating profit before exceptional items and the amortisation of intangibles of £3.1m compared with the prior year revenue of £26.1m with a £0.8m operating profit before exceptional items and the amortisation of intangibles.

Revenue included £31.9m (2012 £13.1m) for the Wireless business and £8.1m (2012 £13.0m) for the Broadband business. Operating profit before exceptionals and intangible amortisation was split Wireless £6.4m profit, Broadband £2.4m loss and central costs of £0.9m. Net funds at the end of the year of £1.9m was down from last year's £3.7m due to temporary working capital requirements related to high final quarter activity.

Wireless Business

Wireless continued to deliver strong growth to produce a full year's sales of £31.9m versus a prior year £13.1m.  With multiple products in volume production for 4G (LTE) network rollouts, the second half also benefitted from significant sales of LTE interference mitigation filters.  As gross margins were maintained, fixed costs were better spread and profitability improved significantly in the second half-year. The full year's operating profit of £6.4m was an improvement on the first half's £1.8m, and on last year's £0.7m profit for the full year.

Following a build-up of 4G related business in Europe, the importance of sales to the US LTE market reduced somewhat, though this territory still accounted for around 60% of Wireless sales (2012 over 80%). Whilst US operator network roll-outs are still expected to lead demand from Europe and the rest of world, the non US market is expected to grow significantly in the next financial year.

The Group continues 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 suffered a 38% fall in revenues to £8.1m (2012 £13.0m), broadly in line with expectations. The sales reduction resulted in an operating loss for the year of £2.4m (2012 £0.6m profit). As previously announced, Broadband is transitioning from its traditional module business to new growth products such as E-band. These product opportunities continue to develop but with production volumes not commencing before FY2014 the year under review to May 2013 has seen a challenging transition.  In order to reduce the Broadband cost base a redundancy programme was implemented which resulted in a 16% reduction of the Broadband workforce.

Outlook

Mobile data traffic doubled during 2012 and continues to grow rapidly.  Increasing numbers of data hungry devices (smart phones, tablets, e-books, cameras) are being used to access ever more sophisticated applications many of which require video. Video applications are now projected to grow at 60% pa to 2018 and to represent around half of mobile data traffic by then.

With customer satisfaction critically dependent upon network performance, operators in all the main developed markets are expected to invest heavily in LTE rollouts following the lead already seen in the US market. The rapid deployment of 4G/LTE will be assisted by the re-farming of spectrum, whilst network operators will be adopting technologies which allow 2G/3G/4G services to share the same mobile infrastructure sites.

In most markets outside North America, LTE is still in its early stages of rollout; in particular Europe with its well developed 3G networks has to date lagged but is expected to experience significant demand growth over the next 2-3 years.

During FY2013 Wireless sales were driven by two main product areas: firstly, infrastructure demand driven by US network rollouts; and secondly, in the second half year by demand for the LTE interference mitigation filters, principally to the UK. US LTE rollouts (notably by Sprint and T-Mobile) will continue in FY2014 but the European operator market is expected to develop further. As with the US, Filtronic will access the market through major OEMs, as well as by direct sales to operators.  New European markets for the LTE interference mitigation filters are being explored, though it is as yet not possible to size, or precisely time, the opportunities that might be presented in each national market.

Filtronic Wireless secured particularly strong growth in the second half of FY2013 on the back of these two factors. Prospects for the first half of FY2014 also look good, though tougher comparisons necessarily point to slower rates of underlying growth than in recent six-monthly periods. Whilst order cover extends well in to the first half, Wireless does not have forward visibility beyond that time. This is completely normal at this stage of the year. Design efforts and requests for quotations remain at a high level, and the Board remains optimistic of a satisfactory outcome for the full year in the Wireless division.

The Broadband business is now addressing 4G/LTE requirements for high capacity backhaul with its high frequency E-band radio modules, which are now in pilot production quantities for a small number of OEM customers. The E-band products enable the delivery of high data rate mobile services in dense urban areas, and are seen as providing a key element of network operators' strategies for serving the high demand levels placed by large numbers of simultaneous users running complex applications on smart-phones and similar devices. Broadband also continues to develop its microwave components for aerospace applications.

Taken together these two new revenue streams for Broadband are expected to build progressively over the coming year, more than offsetting further declines in demand for traditional radio modules.

This is expected to lead to a recovery in Broadband sales compared with FY2013. 

However, despite cost reductions delivered in 2013, Broadband is anticipated to remain loss making in the short term.

Dividend

Whilst the Group has returned to profitability, the Board is mindful of its plans and requirements to achieve continued longer term growth, and has therefore decided to recommend no annual dividend in respect of the financial year just ended.

The increasing demand for mobile data supports our strategy of becoming a key equipment provider for the wireless telecommunications market. The Board is confident that our underlying technology and innovation will deliver long term growth. As our customer base and product offering broaden, we believe that we are well positioned to take advantage of the huge opportunities that exist for the provision of LTE/4G services.

Finally, I should like to thank all staff in the business for their contribution over the past year.

Howard Ford

Chairman

22 July 2013

Business Review - Chief Executive Officer's Operating Review

Summary

Filtronic has completed its second full year with the existing two trading segments, and it was a year of contrasting fortunes for the Wireless and Broadband businesses.

The Group has increased profitability and continues to execute its strategy for growth by expanding its addressable market with a broader range of products and a more diversified customer base.

Wireless volumes have continued to grow, allowing operating profits to increase from £0.7m to £6.4m. 

Broadband has lost volumes in its traditional module markets and is yet to move into production volumes on its new millimetre wave markets.  The resulting loss of £2.4m for the year has led to cost reduction exercises including a 16% reduction in staff numbers.

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) base station 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 OEMs 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 expects to be a leading merchant supplier of high capacity E-band modules to this market.

Wireless sales growth has continued. During the second half a second subcontract manufacturer was successfully introduced to cope with high LTE interference mitigation filter volumes, and margins have been maintained.  Whilst fixed costs have increased to fund further R&D projects, operating margin has been significantly increased to 20% from last year's 6%.

Broadband sales remained weak in the second half resulting in annual revenue of £8.1m - down £4.9m on the prior year which had been boosted by high end of life deliveries to Ceragon.  The anticipated transition to high capacity E-band modules was delayed from Q4 of FY2013 into FY2014 but market interest in this product continues to grow. Despite weak sales in the second half, losses were contained through headcount reduction which is expected to deliver benefits in the coming year of £0.6m.

The Group continues to invest in new product development, investing £5.4m (2012 £4.8m) in R&D during the year. Following heavy investment in the E-band product in FY2012, Broadband R&D costs have reduced and Wireless now comprises 76% of the total R&D versus only 60% last year.

Operational cash outflows of £0.3m were heavily impacted by a temporary £4m Q4 working capital requirement which will reverse in the first quarter of FY2014. Combined with capital expenditure of £1.5m, this resulted in year-end net funds of £1.9m which was supported by a £4.0m borrowing facility.

Wireless Business

During the year, US network operators including, in particular, Sprint and more recently T-Mobile continued their LTE network rollout programmes addressing growing smart phone generated data traffic.

In the second half of the year the UK 4G auction led to high levels of LTE interference mitigation filter demand which will continue into the first half of FY2014.

The US network upgrade activity is expected to continue during the coming financial year but increasing activity in the European 4G/LTE market is anticipated as 3G networks will cease to provide satisfactory user experiences as smart-phone penetration increases.

Further opportunities for Wireless business growth in current and adjacent markets are being explored. 

Broadband Business

Although the company expects to see increasing revenues and encouraging new opportunities in E-band and aerospace applications, revenue from Ceragon will continue to decline following an end of life purchase programme. Customer interest in our new products, particularly for the high capacity E-band product is building and is expected to produce revenue growth in Broadband during FY2014.

Employees

Following a restructuring in the Broadband business the staffing levels were reduced by 16 in June 2013. At 31 May 2013, the Group employed 175 people (2012 161) including 69 (2012 57) in the Wireless business.  Overall, Group research and development costs increased by 12% during the year.

Alan Needle

Chief Executive Officer

22 July 2013

Business Review - Financial Review

Results

The year ended 31 May 2013, generated revenue of £40.0m (2012 £26.1m), resulting in an operating profit before intangible amortisation, and exceptional items of £3.1m (2012 £0.8m). The Group reported a small profit of £0.3m for the period (2012 £0.04m), including a £2.4m (2012 £2.4m) amortisation of acquisition related intangibles. 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 funds of £1.9m (2012 £3.7m) but generated immaterial net finance income (2012 £nil), reflecting low interest rates on reduced cash deposits.

Taxation

The tax credit of £0.05m includes a £0.6m deferred tax charge resulting from Wireless' use of past losses, largely offset by a £0.6m credit arising from a deferred tax liability release related to the intangible amortisation.

Capital expenditure

Capital expenditure of £1.5m (2012 £0.6m) included £0.9m for the Wireless business.

Research and development costs

Research and development costs of £5.4m (2012 £4.8m), which represented 13.5% (2012 18.2%) of revenue were expensed. No research and development costs were capitalised in the balance sheet.

Working capital

At 31 May 2013 net working capital was £9.0m (2012 £5.1m) reflecting the increased level of activity within the Wireless business during Q4. Net working capital comprised inventories of £5.4m (2012 £3.2m), receivables of £17.2m (2012 £10.3m) and payables of £13.6m (2012 £8.4m).

Cash flow

Cash outflow from operating activities of £0.3m (2012 £0.6m) was significantly impacted by working capital requirements of the LTE interference mitigation filter sales which drove the fourth quarter. The closing net funds at 31 May 2013 were £1.9m (2012 £3.7m).

Dividend

The Board does not recommend an annual dividend in respect of 2012/13 (2012 nil).

Michael Brennan

Chief Financial Officer

22 July 2013

The Board

The directors that served during the year ended 31 May 2013 and their respective roles are set out below:

Alan Needle (Chief Executive Officer)

Howard Ford (Chairman)

Michael Brennan (Chief Financial Officer)

Graham Meek (Non-executive Director)

Reginald Gott (Non-executive Director)

Hemant Mardia (Resigned 21 September 2012)

Michael Roller was appointed as a Non-executive Director on 1 June 2013.

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 2013

		2013	2012
	note	£000	£000
Revenue		39,976	26,082
		======	======
Operating profit before amortisation and exceptional items		3,051	768
Amortisation of intangibles		(2,419)	(2,419)
Exceptional items	6	(392)	-
		----------	----------
Operating profit/(loss)		240	(1,651)
Finance (costs)/income - net		(2)	16
		----------	----------
Profit/(loss) before taxation		238	(1,635)
Taxation		46	1,670
		----------	----------
Profit for the period		284	35
		======	======
		----------	----------
Basic earnings per share	7	0.29p	0.04p
		======	======
		----------	----------
Diluted earnings per share	7	0.29p	0.04p
		======	======

The profit for the period is attributable to the equity shareholders of the parent company Filtronic plc.

The above results are all as a result of continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 May 2013

	2013	2012
	£000	£000
Profit for the period	284	35
	----------	----------
Currency translation movement arising on consolidation	54	16
	----------	----------
	54	16
	----------	----------
	----------	----------
Total comprehensive income for the period	338	51
	======	======

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 2013

		2013	2012
	note	£000	£000
Non-current assets
Goodwill and other intangibles	8	8,072	10,491
Property, plant and equipment		3,005	2,375
		----------	----------
		11,077	12,866
		----------	----------
Current assets
Inventories		5,356	3,198
Trade and other receivables		17,237	10,277
Deferred tax	9	302	887
Cash and cash equivalents		2,375	3,745
		----------	----------
		25,270	18,107
		----------	----------
		----------	----------
Total assets		36,347	30,973
		----------	----------
Current liabilities
Trade and other payables		13,611	8,422
Provision		605	565
Deferred Tax	9	556	600
Deferred income		229	267
Interest bearing borrowings	13	496	-
		----------	----------
		15,497	9,854
		----------	----------
Non-current liabilities
Deferred Tax	9	556	1,162
Deferred income		96	116
		----------	----------
		652	1,278
		----------	----------
		----------	----------
Total liabilities		16,149	11,132
		----------	----------
		----------	----------
Net assets		20,198	19,841
		----------	----------
Equity
Share capital	10	9,700	9,681
Share Premium	11	5,111	5,083
Translation Reserve		38	(16)
Retained earnings		5,349	5,093
		----------	----------
Total equity		20,198	19,841
		======	======

The total equity is attributable to the equity shareholders of the parent company Filtronic plc.

Company member 2891064

Approved by the Board on 22 July 2013 and signed on its behalf by

Alan Needle

Chief Executive Officer

 Consolidated Statement of Changes in Equity

for the year ended 31 May 2013

		2013	2012
		£000	£000
Opening total equity		19,841	18,830
Total comprehensive income for the period		338	51
New shares issued (net of issue costs)		47	794
Share-based payments		163	166
Exercise of share awards		(191)	-
		----------	----------
Closing total equity		20,198	19,841
		======	======

Consolidated Cash Flow Statement

for the year ended 31 May 2013

		2013	2012
		£000	£000
Cash flows from operating activities
Profit for the period		284	35
Taxation		(46)	(1,670)
Finance costs/(income) - net		2	(16)
		----------	----------
Operating profit/(loss)		240	(1,651)
Share-based payments		163	166
Profit on disposal of plant and equipment		(24)	(5)
Depreciation		875	697
Amortisation of intangibles		2,419	2,419
Movement in inventories		(2,158)	(1,521)
Movement in trade and other receivables		(6,960)	(4,514)
Movement in trade and other payables		5,189	2,937
Movement in provision		40	128
R&D tax credit received		-	467
Change in deferred income including government grants		(58)	258
		----------	----------
Net cash used in operating activities		(274)	(619)
		----------	----------

Consolidated Cash Flow Statement

for the year ended 31 May 2013

		2013	2012
		£000	£000
Net cash used in operating activities		(274)	(619)
		----------	----------
Cash flows from investing activities
Interest received		8	16
Interest paid		(10)	-
Acquisition of plant and equipment		(1,532)	(579)
Proceeds on sale of assets		55	8
		----------	----------
Net cash used in investing activities		(1,479)	(555)
		----------	----------
Cash flows from financing activities
Proceeds from issue of share capital (net of issue costs)		-	737
Proceeds from exercise of share options		47	57
Exercise of share awards		(191)	-
Movement in interest bearing borrowings		496	-
		----------	----------
Net cash from financing activities		352	794
		----------	----------
Movement in cash and cash equivalents		(1,401)	(380)
Currency exchange movement		31	5
Opening cash and cash equivalents		3,745	4,120
		----------	----------
Closing cash and cash equivalents		2,375	3,745
		======	======

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

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 2013.

(a)  A number of new standards, amendments to standards and interpretations are effective for the year ended 31 May 2013. These are either not relevant or have no material impact on the Group.

(b)  There are also a number of new standards, amendments to standards and interpretations that are effective for financial statements after this reporting period, but the Group has not adopted them early. None of these is expected to have a material impact on the results or financial position of the Group.

EU Law (IAS Regulation EC1606/2002) requires that the consolidated financial statements of the Group for the year ended 31 May 2013 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 IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The company expects to publish full financial statements in August 2013.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 May 2013 or 2012 but is derived from those financial statements. Statutory financial statements for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditors have reported on those accounts; the 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 2013

2    Accounting Estimates and Judgements

The preparation 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 2013

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 range of niche 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 consistently 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 replicate all aspects of the product's in service use and so may not test all aspects of the design and manufacturing processes, which in turn 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 from a leased manufacturing location, located within the facility of one of our semiconductor suppliers. This lease expires on 31 March 2014 and the Broadband business is currently considering several options for its future location. 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.

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

3    Risks and Uncertainties (Continued)

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 are denominated in either Sterling or US dollars with the cost base substantially in Sterling and Chinese Yuan. This 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 nine years and have provided warranties in support of these transactions. These warranties typically cover matters such as product liability, environmental impact risks on freehold property and tax risks.  We may receive claims in future related to these current and future commitments.

Goodwill and Going Concern

Goodwill and intangibles arose on the acquisition of the Wireless business. 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 2013

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.

In the table below reportable segment assets and liabilities include inter segment balances. These have been included to reflect the assets and liabilities of the segment as monies are freely moved around the group to provide funding for working capital where required.

				Broadband				Wireless			Central Services			Inter Company Eliminations		Total
				2013 £000		2012 £000		2013 £000		2012 £000	2013 £000		2012 £000	2013 £000	2012 £000	2013 £000	2012 £000
External revenue				8,127		13,036		31,849		13,122	-		131	-	(207)	39,976	26,082
Finance income				-		-		-		-	8		16	-	-	8	16
Finance costs				-		-		-		-	(10)		-	-	-	(10)	-
Depreciation and amortisation				621		592		254		105	-		-	-	-	875	697
Reportable segment profit/(loss) before exceptional items				(2,449)		601		6,378		720	(878)		(422)	-	(131)	3,051	768
Reportable segment profit/(loss) before income tax				(2,720)		601		6,378		720	(1,001)		(406)	-	(131)	2,657	784
Reportable segment assets				7,293		9,755		20,499		9,434	16,734		19,611	-	-	44,526	38,800
Capital expenditure				595		426		937		153	-		-	-	-	1,532	579
Reportable segment liabilities				8,298		8,049		16,824		12,850	1,757		611	-	-	26,879	21,510

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

4    Segmental analysis (Continued)

	2013	2012
	£000	£000
Depreciation and amortisation
Reportable segment totals	875	697
Adjustments/amortisation of intangibles	2,419	2,419
	----------	----------
Consolidated depreciation and amortisation	3,294	3,116
	======	======

		2013	2012
		£000	£000
Profit/(loss) before taxation
Total profit for reportable segments		2,657	784
Group/unallocated		(2,419)	(2,419)
		----------	----------
	Consolidated profit/(loss) before taxation	238	(1,635)
		======	======
		2013	2012
		£000	£000
Assets
Total assets for reportable segments		44,256	38,800
Inter company		(10,730)	(10,378)
Group/unallocated		2,551	2,551
		----------	----------
	Consolidated total assets	36,347	30,973
		======	======

		2013	2012
		£000	£000
Liabilities
Total liabilities for reportable segments		26,879	21,510
Inter company		(10,730)	(10,378)
		----------	----------
	Consolidated total liabilities	16,149	11,132
		======	======

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

5    Revenue by Destination

	2013	2012
	£000	£000
United Kingdom	14,083	3,500
Europe	7,880	12,446
Americas	6,001	5,589
Rest of the World	12,012	4,547
	----------	----------
	39,976	26,082
	======	======

6    Exceptional items

Operating profit/(loss) is stated after charging exceptional items as follows:

	2013	2012
	£000	£000
Management Reorganisation	212	-
Redundancy costs	180	-
	----------	----------
	392	-
	======	======

During the year the previous Chief Executive Officer, Hemant Mardia, left the company. The costs relating to reorganising the management structure amounted to £212,000.

As part of a cost reduction programme in Filtronic Broadband 16 employees were made redundant at a cost of £180,000.

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

7    Earnings per share

		2013	2012
		£000	£000
		----------	----------
Profit for the period		284	35
		======	======
		000	000
Basic weighted average number of shares		96,951	95,843
Dilution effect of share options		592	-
Dilution effect of share awards		70	692
		---------	---------
Diluted weighted average number of shares		97,613	96,535
		======	======
		----------	----------
Basic earnings per share		0.29p	0.04p
		======	======
		----------	----------
Diluted earnings per share		0.29p	0.04p
		======	======

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

8    Goodwill and other intangibles

	(Restated) Goodwill	Other intangibles (core technology)	Total
	£000	£000	£000
Cost
At 1 June 2011, 31 May 2012 and 31 May 2013	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
Provided in year	-	2,419	2,419
	======	======	======
At 31 May 2013	-	6,047	6,047
	======	======	======
Carrying amount at 1 June 2011	3,235	9,675	12,910
	---------	---------	---------
Carrying amount at 31 May 2012	3,235	7,256	10,491
	---------	---------	---------
Carrying amount at 31 May 2012	3,235	4,837	8,072
	======	======	======

      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, were 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:

·     Budgets incorporating cash flows have been prepared to 31 May 2015 based on past experience and actual operating results;

Notes to the Preliminary Financial Information

For the year ended 31 May 2013

8    Goodwill and other intangibles (continued)

·     Cash flows for a further 6-year period have been 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 for the Wireless CGU.

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.               

9    Deferred tax

	2013	2012
	£000	£000
Deferred tax liability	1,112	1,762
	======	======

The deferred tax liability largely relates to the intangible assets arising upon acquisition of the Wireless business. The liability was £2,938,000 and at 31 May 2012 was £1,741,000. £629,000 has been released to the income statement during the year (2012: £871,000).

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.

	2013	2012
	£000	£000
Deferred tax assets	302	887
	======	======

The deferred tax assets relate to the recognition of the tax losses and capital allowances in the Wireless business.                                                                                                                                

Notes to the Preliminary Financial Information

For the year ended 31 May 201

10    Share Capital

	Group
	Ordinary shares of 10p each issued and fully paid
	Number	£000
At 1 June 2011	92,873,093	9,287
Shares issued in year	3,941,900	394
	--------------	---------
At 1 June 2012	96,814,993	9,681
Shares issued in year	183,000	19
	--------------	---------
At 31 May 2013	96,997,993	9,700
	========	======

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 0.2m shares due to employees exercising share options from SAYE Scheme 1.

11  Share Premium

		Group  £000
At 1 June 2012		5,083
Premium on share issue		28
		-------
At 31 May 2013		5,111
		====

The shares issued as part of the SAYE Scheme were issued at a premium of 15p.

Notes to the Preliminary Financial Information

for the year ended 31 May 2013

12  Dividends

The directors are not proposing to pay a dividend for the year ended 31 May 2013 (2012: nil).

13  Analysis of net funds

	1 June 2012	Cash Flow	Other Changes	31 May 2013
Cash and cash equivalents	3,745	(1,401)	31	2,375
Interest bearing borrowings	-	(496)	-	(496)
	---------	---------	---------	---------
	3,745	(1,897)	31	1,879
	======	======	======	======
Reconciliation of cash flow to movement in net funds
			2013	2012
			£000	£000
Movement in cash and cash equivalents			(1,401)	(380)
Cash flow from increase in debt financing			(496)	-
Effect of exchange rate fluctuations			31	5
			---------	---------
Movement in net funds			(1,866)	(375)
Net funds at 1 June			3,745	4,120
			---------	---------
Net funds at 31 May			1,879	3,745
			======	======

14  Forward looking statements

The Chairman's Statement and Chief executive officer's operating review 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.

 

END

 

 

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