Interim Results

Filtronic PLC 29 January 2001 FILTRONIC PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2000 Sales up 57% to £147.6m; Operating profit up 59% to £6.3m Filtronic plc ('Filtronic'), a leading global designer and manufacturer of a broad range of microwave and millimetre radio frequency (RF) components and subsystems, announces its Interim Results for the six months ended 30 November 2000. Its products filter, amplify, transmit and receive radio frequency signals, and address the wireless telecommunications, cable telecommunications and military markets. It has 17 worldwide sites, 7 in the UK, 6 in the US, 2 in Finland, 1 each in Australia and China. Financial Highlights * Group sales up 57% to £147.6m (1999 £94.0m) * 70% of Group sales in Wireless Infrastructure (transmit/receive modules for cellular base stations) * Operating profit before goodwill amortisation up 59% to £6.3m (1999 £4.0m) * Loss before tax of £1.5m (1999 loss £1.5m) - after goodwill amortisation of £1.9m, net interest payable £5.8m, net currency exchange loss £0.1m * Loss per share was 2.95p (1999 5.38p loss) both on an undiluted and diluted basis * Maintained dividend per share of 0.90p (1999 0.90p) payable 2 April 2001 Operating Sales profit before goodwill Six months ended 30 2000 1999 2000 1999 November £m £m £m £m Wireless 103.9 50.7 13.2 1.5 infrastructure Cellular handset 23.2 23.0 3.9 6.9 products Electronic warfare 11.4 12.1 (0.1) 0.2 Broadband access 4.1 5.2 (1.5) (1.3) Inter segment (0.1) (0.1) - - Central costs - - (1.8) (1.4) Excluding Compound 142.5 90.9 13.7 5.9 semiconductors Compound 5.1 3.1 (7.4) (1.9) semiconductors 147.6 94.0 6.3 4.0 * Wireless Infrastructure - Sales doubled, operating profit up 9-fold with new products for UK and US - Finland and Australia developing product for 3G systems; China gearing up production of existing products * Cellular Handset Products - Growth in unit sales of handset antennas, dominating segment sales, strong move to internal antennas - Decline in ceramic diplexer sales * Electronic Warfare sales flat with a break even position * Broadband Access still loss-making mainly due to transfer of transceivers from Santa Clara to UK * Compound Semiconductors capable of producing circuits on 6' wafers with potential high yield production - Sales from Santa Clara up; Newton Aycliffe running costs £1m per month Outlook - In his Statement to shareholders, Professor David Rhodes, Executive Chairman, includes the following: * Filtronic Compound Semiconductors now to be operated as a separate business * Strategy defined for Compound Semiconductors, discussions progressing with potential partners * World market share of cellular handset antennas will rise towards 30% * Wireless Infrastructure expected to maintain market share * New products being introduced in UK, USA, Australia and Finland * Well positioned to capitalise on new linear power amplifier business opportunity, complementary to and similar in scale to transmit/receive products market. Enquiries: Professor David Rhodes, Executive Chairman, Tel: 020 7786 9600 (today) Filtronic plc John Samuel, Finance Director, Filtronic plc Christopher Schofield, Director, Filtronic plc Tel: 01274 530622, 07370 376764 Peter Binns/Paul Vann, Binns & Co Tel: 020 7786 9600 Executive Chairman's Statement Interim financial results On 22 November 2000, I issued a trading statement which is confirmed by these results. Sales for the six months ended 30 November 2000 were £147.6m (1999 £ 94.0m) with an operating profit before goodwill amortisation of £6.3m (1999 £ 4.0m). Both exhibited a more than 57% increase over the comparable period last year. These results are stated after charging the expected operating losses of £7.4m (1999 £1.9m loss) for our Compound Semiconductors operations within which the running costs of approximately £1m per month of our Newton Aycliffe facility are included. After charging goodwill amortisation of £1.9m, net interest payable of £5.8m and a net currency exchange loss of £0.1m, the loss before taxation was £1.5m (1999 £1.5m loss). After taxation charges of £0.6m relating primarily to our Finnish based operations, the loss was £2.1m (1999 £3.5m loss). The loss per share was 2.95p (1999 5.38p loss) and these figures are unchanged on a diluted basis. Dividend The Board is maintaining an interim dividend of 0.9p (1999 0.9p) payable on 2 April 2001 to shareholders on the register at 2 March 2001. Operations The segmental analysis of the business is as follows: Operating profit Sales before goodwill Six months ended 30 November 2000 1999 2000 1999 £m £m £m £m Wireless infrastructure 103.9 50.7 13.2 1.5 Cellular handset products 23.2 23.0 3.9 6.9 Electronic warfare 11.4 12.1 (0.1) 0.2 Broadband access 4.1 5.2 (1.5) (1.3) Inter segment (0.1) (0.1) - - Central costs - - (1.8) (1.4) Excluding Compound 142.5 90.9 13.7 5.9 semiconductors Compound semiconductors 5.1 3.1 (7.4) (1.9) 147.6 94.0 6.3 4.0 In Wireless Infrastructure, the business has been dominated by our operations in the UK and USA. Our newer operations in Australia, Finland and China have been experiencing a transitional period. Australia is moving to a business supporting the indigenous OEMs in Japan and China. Finland is developing products for the next generation of base stations and China is gearing up for the production of existing GSM base station products for their home market. In September 1998, we purchased the Cellular Handset Products business of LK Products from Nokia for the explicit purpose of utilising its infrastructure to develop a wireless infrastructure business to support Nokia's production facilities in Northern Finland. In evaluating the acquisition, we looked at LK's then current three product areas. The highly profitable helical filter sales were expected to diminish to a negligible amount and this occurred in 2000. Production of ceramic filters was capacity limited and, following a customer inspired investment which was completed in August 2000, the capacity was increased five-fold for future programmes. In the short term, due to reductions in customer requirements, output has actually declined, thus reducing the profitability of the Cellular Handset Products business segment. However, unit sales of handset antennas have increased and now represent approximately two thirds of the sales of this business segment. In Electronic Warfare, sales have been flat with an approximately break-even position. Broadband Access consists of three parts: the cable products in the UK; the point to point transceiver business which was originally acquired through the purchase of Litton Solid State in Santa Clara in October 1998 and the recently acquired US business, Sigtek. Losses have been incurred during 2000 mainly due to the transfer of the transceiver operations from Santa Clara to the UK. The main reason for the purchase of Litton Solid State was for Filtronic to acquire the expertise in compound semiconductor devices and to ensure that the long term supply of key components for other aspects of the business could be achieved and maintained in the future. In 1999, the large facility at Newton Aycliffe was acquired with the intent to process and produce compound semiconductors for applications where a significant number of 6' wafers would be required per month. Today, after a substantial dedicated effort by the staff at Newton Aycliffe, we have a Gallium Arsenide facility capable of producing circuits on 6' wafers with a potential to have a high yield in production. Merchant sales from Santa Clara have increased, mainly due to an increase in the production of PHEMT transistors, but sales were below the break-even point. The Compound Semiconductor losses at Santa Clara, coupled with the £1m per month running costs at Newton Aycliffe, represented a significant drain upon cash resources. Finance At 30 November 2000, Filtronic had a cash balance of £12.6m. The company has secured overdraft and associated borrowing facilities totalling £25m, of which £15.5m was unutilised. Net debt totalled £114.2m, including $170m (£119.9m) of 10% Senior Notes repayable 1 December 2005 and net of £4.2m of deferred debt issue costs, giving a gearing ratio of 72.5%. Cash consumption in the second half of the financial year is expected to be considerably lower than in the first half as current capital investment programmes draw to an end. Management As from 29 January 2001, Filtronic plc will operate as two groups, Filtronic, which will embrace all of Filtronic's world-wide activities excluding Compound Semiconductors, and Filtronic Compound Semiconductors. Following this structural separation, I will continue as Executive Chairman of Filtronic plc and as CEO of Filtronic excluding Compound Semiconductors. Professor Christopher Snowden will hold the position of CEO, Filtronic Compound Semiconductors. Both Alan Needle and Dr Christopher Mobbs have been appointed to the Board of Filtronic plc as Managing Director and Director of Engineering respectively. All other board positions remain unchanged. Outlook Wireless infrastructure represents 70% of Filtronic's sales. Currently, these sales are entirely in transmit/receive modules for cellular base stations. The growth in this business over many years has been the same as the growth in the number of worldwide mobile subscribers. Recently, new products have moved into production in both the UK and USA. During this calendar year, newly qualified product will move into production in both Australia and Finland together with growth of production in China of products previously supplied from the UK. Looking to the second half of this financial year, we expect to maintain market share, however, there is likely to be some reduction in operating margins while new products are introduced. The key factor determining sales in the short term will be the timing of customers' manufacturing programmes, which can cause significant fluctuations in financial performance. Building upon the transmit/receive module business, we are developing several different linear power amplifiers, the first of which should be in production in the second half of next financial year. This market is similar in scale and complementary to that for our current transmit/receive module business, and represents a major medium term opportunity on which the company is focused. Cellular Handset Products sales will be increasingly dominated by sales of handset antennas. Since December 2000, several American TDMA operators have decided to move towards GSM/WCDMA systems, with the result that our ceramic diplexer business is expected to have only minimal sales in the second half of this financial year. This situation is expected to continue for at least twelve months. Meanwhile, costs will be incurred to maintain our capability in ceramic diplexers while developing WCDMA products. With the greater use of internal antennas, where multiband performance can easily be provided, we anticipate that our share of the world market will increase towards, and may ultimately exceed, 30%. However, we recognise that the world market for handsets will peak before the number of subscribers plateaus and that unit prices for antennas are likely to continue to fall. Sales in Broadband Access will become dominated by the production of transceivers for the point to point wireless connections between base stations. This business is similar in form to our current Wireless Infrastructure business but at higher frequencies. The effort this calendar year will be to raise the production levels to meet customer demands and move towards the margins traditionally achieved in our current Wireless Infrastructure business. However, losses are expected to continue for the rest of this financial year in this business segment. In Electronic Warfare, it has been decided that no new significant development contracts will be undertaken but support will be provided for future production runs. This has released design and development resources which are being used to support the linear power amplifier development in Wireless Infrastructure and the creation of a new range of ultra broadband microwave amplifiers as modulator driver amplifiers and limiting receiver amplifiers for photonic products. Our current growth in sales of compound semiconductor PHEMT transistors from Santa Clara is for applications in this photonics area. In Compound Semiconductors, the yields now anticipated from the Newton Aycliffe facility substantially exceed our earlier expectations and, as a result, will provide a capacity far in excess of that required for our foreseeable internal use. Additionally, the timescale required to establish and qualify products with customers was underestimated. Accordingly, the Board has reappraised the strategy and stemming the cash outflow from Compound Semiconductors has assumed the highest priority. The Board continues to believe that there is substantial business opportunity for Compound Semiconductors and, as a result, is pursuing various options, including discussions with potential commercial and financial partners. By these means, the Board intends to reduce or eliminate the financial burden of Compound Semiconductors as soon as possible. Professor J D Rhodes CBE FRS FREng Executive Chairman 29 January 2001 CONSOLIDATED PROFIT AND LOSS ACCOUNT Unaudited 6 months Ended 30 November 2000 Excluding Compound Semiconductors Compound Semiconductors Total note £000 £000 £000 Sales 1, 2 142,484 5,101 147,585 Operating profit before goodwill amortisation 1, 2 13,777 (7,438) 6,339 Goodwill amortisation 1,214 760 1,974 Operating profit 1, 2 12,563 (8,198) 4,365 Net interest payable 5,781 Net financing currency 72 exchange loss 5,853 Loss on ordinary activities before taxation (1,488) Taxation 647 Loss on ordinary activities after taxation (2,135) Dividends 668 Deficit for the period (2,803) Adjusted loss per share Undiluted 3 (0.12)p Diluted 3 (0.12)p Loss per share Undiluted 3 (2.95)p Diluted 3 (2.95)p Dividend per share 0.90p CONSOLIDATED PROFIT AND LOSS ACCOUNT Unaudited 6 months Ended 30 November 1999 Excluding Compound Compound Semiconductors Semiconductors Total note £000 £000 £000 Sales 1, 2 90,873 3,078 93,951 Operating profit before goodwill amortisation 1, 2 5,874 (1,896) 3,978 Goodwill amortisation 1,050 676 1,726 Operating profit 1, 2 4,824 (2,572) 2,252 Net interest payable 5,479 Net financing currency exchange (1,749) gain 3,730 Loss on ordinary activities before taxation (1,478) Taxation 1,995 Loss on ordinary activities after taxation (3,473) Dividends 644 Deficit for the period (4,117) Adjusted loss per share Undiluted 3 (5.41)p Diluted 3 (5.41)p Loss per share Undiluted 3 (5.38)p Diluted 3 (5.38)p Dividend per share 0.90p CONSOLIDATED PROFIT AND LOSS ACCOUNT Audited Year Ended 31 May 2000 Excluding Compound Compound Semiconductors Semiconductors Total Semiconductors note £000 £000 £000 Sales 1, 2 215,082 7,212 222,294 Operating profit before goodwill amortisation 1, 2 16,796 (8,211) 8,585 Goodwill amortisation 2,081 1,441 3,522 Operating profit 1, 2 14,715 (9,652) 5,063 Net interest payable 9,878 Net financing currency exchange (923) gain 8,955 Loss on ordinary activities (3,892) before taxation Taxation 4,032 Loss on ordinary activities after taxation (7,924) Dividends 1,943 Deficit for the period (9,867) Adjusted loss per share Undiluted 3 (7.82)p Diluted 3 (7.82)p Loss per share Undiluted 3 (11.64)p Diluted 3 (11.64)p Dividend per share 2.70p CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited 30 November 30 November 31 May 2000 1999 2000 £000 £000 £000 Fixed assets Intangible assets 77,869 64,817 64,351 Tangible assets 126,178 77,290 105,538 204,047 142,107 169,889 Current assets Stocks 54,284 30,317 39,706 Debtors 60,316 38,222 61,310 Cash 12,623 71,231 39,545 127,223 139,770 140,561 Creditors: amounts falling due within one year Borrowings 9,812 648 387 Other creditors 45,306 28,196 52,847 55,118 28,844 53,234 Net current assets 72,105 110,926 87,327 Total assets less current liabilities 276,152 253,033 257,216 Creditors: amounts falling due after one year Borrowings 117,013 103,637 110,465 Accruals and deferred income 1,629 760 1,202 Net assets 157,510 148,636 145,549 Capital and reserves Called up share capital 7,340 7,114 7,199 Share premium account 132,829 126,803 128,106 Shares to be issued 10,281 - - Revaluation reserve 106 106 106 Profit and loss account 6,954 14,613 10,138 Equity shareholders' funds 157,510 148,636 145,549 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Unaudited Unaudited Audited 6 months 6 months Year Ended Ended Ended 30 30 31 May November November 2000 2000 1999 £000 £000 £000 Loss on ordinary activities after taxation (2,135) (3,473) (7,924) Currency exchange movement arising on consolidation 5,805 (1,016) 4,214 Currency exchange movement on loan (6,186) - (3,955) Total recognised gains and losses (2,516) (4,489) (7,665) RECONCILIATION OF SHAREHOLDERS' FUNDS Unaudited Unaudited Audited 6 months 6 months Year Ended Ended Ended 30 30 31 May November November 2000 2000 1999 £000 £000 £000 Loss on ordinary activities after taxation (2,135) (3,473) (7,924) Dividends 668 644 1,943 Deficit for the period (2,803) (4,117) (9,867) Contribution to QUEST - (99) (99) Currency exchange movement arising on consolidation 5,805 (1,016) 4,214 Currency exchange movement on loan (6,186) - (3,955) Issue of shares 4,864 73,750 75,138 Shares to be issued 10,281 - - Movement in shareholders' funds 11,961 68,518 65,431 Opening shareholders' funds 145,549 80,118 80,118 Closing shareholders' funds 157,510 148,636 145,549 CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited 6 months 6 months Year Ended Ended Ended 30 30 31 May November November 2000 1999 2000 note £000 £000 £000 Net cash flow from operating activities A 2,509 8,509 6,926 Returns on investment and servicing of finance Net interest and finance costs paid (5,360) (6,109) (10,030) Tax paid (3,190) (1,742) (2,305) Capital expenditure Purchase of tangible fixed assets (31,026) (26,522) (54,883) Sale of tangible fixed assets 106 118 170 Government grants received 480 300 750 Exceptional proceeds from insurance claim - 1,381 1,373 Net cash flow from capital expenditure (30,440) (24,723) (52,590) Acquisitions Purchase of subsidiary (32) - - Net cash acquired with subsidiary 14 - - Net cash flow from acquisitions (18) - - Equity dividends paid (1,303) (1,079) (1,725) Net cash flow before financing (37,802) (25,144) (59,724) Financing Issue of shares 1,717 73,651 75,039 Capital element of finance lease payments (111) (1,151) (1,326) Loans repaid (439) (912) (1,684) Net cash flow from financing 1,167 71,588 72,029 (Decrease)/increase in cash B (36,635) 46,444 12,305 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT A Reconciliation of operating profit to net cash flow from operating activities Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2000 1999 2000 £000 £000 £000 Operating profit 4,365 2,252 5,063 Goodwill amortisation 1,974 1,726 3,522 Depreciation 7,711 4,514 9,737 (Profit)/loss on sale of tangible fixed (45) (6) 33 assets Government grants released (53) (9) (17) Movement in stocks (13,484) (6,790) (15,462) Movement in debtors 2,582 5,212 (17,217) Movement in creditors (541) 1,610 21,267 Net cash flow from operating activities 2,509 8,509 6,926 B Reconciliation of net cash flow to movement in net debt Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2000 1999 2000 £000 £000 £000 (Decrease)/increase in cash (36,635) 46,444 12,305 Cash flow from debt 439 1,832 2,692 Cash flow from finance leases 111 1,151 1,326 Change in net debt resulting from cash flows (36,085) 49,427 16,323 Loan acquired with subsidiary (300) - - Non-cash movement (421) (1,239) (1,672) Currency exchange movement (6,089) 1,608 (3,108) Movement in net debt in the period (42,895) 49,796 11,543 Opening net debt (71,307) (82,850) (82,850) Closing net debt (114,202) (33,054) (71,307) NOTES TO THE INTERIM FINANCIAL INFORMATION 1 Geographical segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2000 1999 2000 £000 £000 £000 Sales United Kingdom 57,046 37,829 79,437 Finland 30,159 26,061 54,055 United States of America 61,129 26,821 86,118 Australia 4,237 4,831 8,445 China 5,559 - 373 Inter segment (10,545) (1,591) (6,134) 147,585 93,951 222,294 Operating profit before goodwill amortisation United Kingdom 1,297 3,858 321 Finland 3,290 5,959 10,606 United States of America 3,524 (5,551) (989) Australia (540) 1,148 1,395 China 590 - (401) Central costs (1,822) (1,436) (2,347) 6,339 3,978 8,585 Operating profit United Kingdom 1,297 3,858 321 Finland 2,380 5,023 8,767 United States of America 2,460 (6,341) (2,672) Australia (540) 1,148 1,395 China 590 - (401) Central Costs (1,822) (1,436) (2,347) 4,365 2,252 5,063 2 Business segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2000 1999 2000 £000 £000 £000 Sales Wireless infrastructure 103,895 50,710 131,868 Cellular handset products 23,156 23,021 48,177 Electronic warfare 11,424 12,117 25,995 Broadband access 4,146 5,147 9,524 Inter segment (137) (122) (482) Excluding compound semiconductors 142,484 90,873 215,082 Compound semiconductors 5,101 3,078 7,212 147,585 93,951 222,294 Operating profit before goodwill amortisation Wireless infrastructure 13,280 1,486 9,296 Cellular handset products 3,927 6,877 11,917 Electronic warfare (125) 265 1,295 Broadband access (1,483) (1,318) (3,365) Central costs (1,822) (1,436) (2,347) Excluding compound semiconductors 13,777 5,874 16,796 Compound semiconductors (7,438) (1,896) (8,211) 6,339 3,978 8,585 Operating profit Wireless infrastructure 13,280 1,486 9,296 Cellular handset products 3,017 5,941 10,078 Electronic warfare (252) 151 1,053 Broadband access (1,660) (1,318) (3,365) Central costs (1,822) (1,436) (2,347) Excluding compound semiconductors 12,563 4,824 14,715 Compound semiconductors (8,198) (2,572) (9,652) 4,365 2,252 5,063 3 Loss per share Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2000 1999 2000 Adjusted loss per share (0.12)p (5.41)p (7.82)p Effect of adjusted items net of taxation (2.83)p 0.03p (3.82)p Loss per share (2.95)p (5.38)p (11.64)p Adjusted diluted loss per share (0.12)p (5.41)p (7.82)p Effect of adjusted items net of taxation (2.83)p 0.03p (3.82)p Diluted loss per share (2.95)p (5.38)p (11.64)p £000 £000 £000 Adjusted loss (89) (3,496) (5,325) Goodwill amortisation (1,974) (1,726) (3,522) Net financing currency exchange (loss)/gain (72) 1,749 923 Loss on ordinary activities after taxation (2,135) (3,473) (7,924) Weighted average number of shares 72,411,415 64,612,757 68,054,710 Dilution effect of share options - - - Diluted weighted average number of shares 72,411,415 64,612,757 68,054,710

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