Interim Results

Filtronic PLC 02 February 2004 For Immediate Release 2nd February 2004 Filtronic plc Interim Results For Six Months Ended 30 November 2003 Results Ahead of Expectations at all Levels; Market Leading Positions Maintained; Strengthened Financial Position; Positive Outlook Filtronic plc ('Filtronic'), a world leader in the design and manufacture of customised microwave electronic products for the wireless telecommunications and defence industries, announces its Interim Results for the six months ended 30 November 2003. Sites are in the UK (North of England, Yorkshire, Midlands, Scotland), the US, Finland, China and Australia. Financial Highlights • Group sales of £121.5m (2002: £123.9m). • Operating Profit of £4.7m (2002: £1.4m). • Pre-tax profits of £2.2m (2002: £0.0m). • Earnings per share of 0.97p (2002: 1.99p loss). • Interim dividend maintained at 0.90p (2002: 0.90p), payable 1 April 2004. • Successful debt refinancing - estimated annual saving of £1.5m. • Net gearing down to 51% (2002: 73%). Operational Highlights • Wireless Infrastructure - Sales similar to those of second half of previous year. - Maintained leading market position. • Handset Products - Mobile handsets demand increased substantially. - Increased sales of antennas - up 37%. - Increased market share, strong margins. • Integrated Products - Defence sales better, expected to increase second half. Trading Outlook • Wireless Infrastructure - Forecast demand recently increased for base station products. - Manufacturing capacity to be increased in China. - Additional OEMs being aggressively pursued to strengthen market position. - Initial quantities of power amplifiers delivered to new OEM customer. - Other power amplifier products being developed for this customer and 3 other OEMs. • Handset Products - Expects to maintain market leading position - Record number of antennas under development for mobile phone programmes. • Integrated Products - Selected by new customer as preferred supplier for RF switch products. - Volumes to exceed one million units per month. In his summary to shareholders, Professor J. David Rhodes said: 'Filtronic is a world leader in the design and manufacture of customised microwave electronic products. We have maintained our market leading position in our two main businesses. The facility at Newton Aycliffe provides the company with the compound semiconductor technology necessary in future microwave electronic products. The company's financial position has been strengthened with the return to profitability and the refinancing of our borrowings.' Enquiries: Professor J. David Rhodes, Executive Chairman, Filtronic plc Tel: 020 7786 9600 (Monday) John Samuel, Finance Director, Filtronic plc Professor Christopher Snowden, Director, Filtronic plc Tel: 01274 530 622 Peter Binns, Nathalie Ells, Binns & Co PR Ltd Tel: 020 7 786 9600 Executive Chairman's Statement Interim financial results Sales for the six months ended 30 November 2003 were £121.5m (2002 £123.9m) and operating profit was £4.7m (2002 £1.4m). The prior year figure is stated after charging £2.7m of exceptional closure costs relating to the Santa Clara compound semiconductor facility. Financing costs totalled £2.5m (2002 £1.4m), comprising net interest payable of £2.8m (2002 £4.4m), a net currency exchange gain of £0.8m (2002 £2.0m) and an exceptional loss on the repayment of debt of £0.5m (2002 £1.0m gain). The profit before taxation was £2.2m (2002 £0.0m). After taxation charges of £1.5m (2002 £1.5m), the profit was £0.7m (2002 £1.5m loss). Basic earnings per share is 0.98p (2002 1.99p loss). Diluted earnings per share is 0.97p (2002 1.99p loss). Dividend The Board is maintaining an interim dividend of 0.90p (2002 0.90p) per share payable on 1 April 2004 to shareholders on the register at 27 February 2004. Operations On 26 January 2004, the company announced that the Board had implemented a reorganisation of the business segments. This ensures that Filtronic is better positioned to address the challenges of moving from the development stage into production with a broad range of new products including power amplifiers. Accordingly, the segmental analysis of the operating results is as follows: Six months ended Sales Operating profit 30 November 2003 2002 2003 2002 £m £m £m £m Wireless infrastructure 68.9 81.5 7.1 13.4 Handset products 33.3 24.3 7.7 5.2 Integrated products 18.7 17.4 (8.2) (14.2) Central services 1.9 1.2 (1.9) (3.0) Inter segment (1.3) (0.5) - - --------- --------- --------- --------- Total 121.5 123.9 4.7 1.4 --------- --------- --------- --------- Note that the operating loss of Integrated Products for the six months ended 30 November 2002 is stated after charging exceptional closure costs of £2.7m. Wireless Infrastructure Sales in Wireless Infrastructure were similar to those achieved in the second half of the previous financial year. Pricing pressure from the major Original Equipment Manufacturers ('OEMs') has kept margins at the lower end of our expectations for transmit/receive modules where we have maintained our position as the world's leading independent supplier. Handset Products Handset Products saw demand for mobile handsets increase substantially towards the end of 2003. We have maintained our leading market position resulting in increased sales of antennas. High volume flexible manufacturing techniques have enabled us to take increased market share and to achieve strong margins. These manufacturing processes are well suited to the increasing complexity of the products, many of which now include additional components. Integrated Products Integrated Products embraces the segments previously disclosed as Electronic Warfare, Broadband Access and Compound Semiconductors and will rely on integrated compound semiconductor circuits from our Newton Aycliffe facility in its future products. The business will provide the high power gallium arsenide ('GaAs') power amplifier modules to the Wireless Infrastructure business for incorporation into the complete power amplifier and related products for the base station market. The company has developed a range of radio frequency ('RF') switches using our high performance proprietary GaAs switch process. Costs of the Newton Aycliffe compound semiconductor facility remain at approximately £1m per month. Currently the largest area of Integrated Products sales is in defence, including products on the European Fighter Aircraft programme. Defence sales were slightly higher than the comparative period. We are continuing to improve our manufacturing processes for these products to increase volumes and improve margins. Central Services Central Services incorporates the digital signal processing expertise of Filtronic Sigtek together with a small research and development team based in Saltaire and group administrative services. Part of the central development group which has been involved with the power amplifier products has now been reallocated, either to the Wireless Infrastructure business or the Integrated Products business as appropriate, to facilitate the move to production quantities. These reallocations have increased the cost base of Wireless Infrastructure by approximately £2.5m in this financial year and will add almost £1m to the cost base of Integrated Products. Finance Net cash outflow before the repayment of debt in the six months ended 30 November 2003 was £1.1m (2002 £4.9m inflow). The company bought in $13.6m (£8.5m) of 10% Senior Notes due 1 December 2005 during the period. At 30 November 2003, long term debt totalled £51.5m (2002 £74.9m), representing £52.4m ($90.0m) of 10% Senior Notes due 1 December 2005, net of £0.9m of deferred debt issue costs. At 30 November 2003, Filtronic had a cash balance of £4.4m and was using £7.6m of its £31m bank overdraft facility. Net gearing was 51% (2002 73%). On 1 December 2003, the company redeemed a further $16.0m of the Senior Notes by utilising £10m of short term bank financing. On 16 January 2004, Filtronic announced the refinancing of all of the remaining Senior Notes and the short term bank financing by a £50.0m Term Loan, which is being provided by Barclays Bank PLC and HSBC Bank PLC. The refinancing will take place on 17 February 2004. Foreign exchange risk on the refinancing has been eliminated by taking out a forward contract at an exchange rate of approximately $1.82 = £1. An estimated total exceptional loss on repurchase of the Senior Notes of £2.5m will be recorded in the results for the year ending 31 May 2004. In a full financial year, the refinancing is expected to save approximately £1.5m at current interest rates. Following the refinancing, Filtronic will have overdraft and other short term borrowing facilities of approximately £9m available which the Board considers to be sufficient for the company's foreseeable requirements. Sale of Filtronic Solid State Electronic Warfare business and assets On 31 December 2003, the disposal of the Electronic Warfare division of Filtronic Solid State to Teledyne Wireless, Inc. was completed for $12.0m in cash. During the six months ended 30 November 2003, this part of the Integrated Products business segment contributed £3.4m of sales and £0.2m of operating profit. After costs, this transaction is expected to show an exceptional profit on sale of approximately $8.0m which will be recorded in the results for the year ending 31 May 2004. Foreign currency exchange rates The weakening of the US dollar, and consequently the Chinese yuan which is linked to the US dollar, when compared to sterling, has had an adverse impact on our trading results. Had rates of exchange remained unchanged since 1 June 2003, sales for the six months ended 30 November 2003 would have been £3.0m higher and operating profit £0.6m higher when recorded in sterling. Trading outlook Wireless Infrastructure forecast demand has increased in the last few weeks for transmit/receive modules and associated products for base stations. Pricing pressure, however, is likely to continue to restrict growth in sales and margins. We are continuing to increase our manufacturing capacity in China and are also aggressively pursuing additional OEM customers for transmit/receive modules for mobile base stations to strengthen further our market leading position. Our new base station power amplifier products provide opportunities for further expansion and growth to this business segment. In September 2003, we were selected by a new OEM customer to supply initial quantities of an integrated RF head unit, incorporating power amplifiers, for 3G WCDMA base stations. We are currently supplying these initial units. Production quantities are expected to commence in the second half of this calendar year for this customer. Negotiations over pricing and volume requirements are not yet completed. Other power amplifier products are being developed for this customer and for three other OEMs. In Handset Products the exceptional market share gained on certain mobile phone programmes in the first half of this financial year may not be maintained, with the possibility of a reduction in both sales and margins in the second half. However, we have a record number of antennas currently in development for mobile phone programmes. These antennas are based on new techniques with many featuring a range of additional components and including quad band designs. We expect to maintain our market leading position in Handset Products. In Integrated Products, defence sales are expected to increase in the second half of the financial year with a consequent reduction in operating losses. Filtronic has been selected by a new customer as a preferred supplier, to manufacture pHEMT RF switches including a quad band version for cellular handset and wireless LAN applications. Volume manufacture is expected to commence in the first half of this calendar year increasing to more than one million units per month by the end of the year. Power amplifier modules for applications in WIMAX base stations, satellite ground stations, phased array radars and point to point transceivers are in development in addition to those for wireless infrastructure applications. All wireless systems require radiated power to increase in proportion to the amount of information transmitted, increasing demand for power amplifiers. Within Central Services, our digital signal processing expertise at Filtronic Sigtek will continue to be focussed on developing proprietary real time predistortion techniques for power amplifier applications and the new standard base band digital interfaces necessary for the next generation of products. Summary Filtronic is a world leader in the design and manufacture of customised microwave electronic products. We have maintained our market leading position in our two main businesses. The facility at Newton Aycliffe provides the company with the compound semiconductor technology necessary in future microwave electronic products. The company's financial position has been strengthened with the return to profitability and the refinancing of our borrowings. Professor J D Rhodes CBE FRS FREng Executive Chairman 2 February 2004 Consolidated Profit and Loss Account Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 note £000 £000 £000 Sales 1, 2 121,520 123,869 241,268 -------------- -------------- -------------- Operating profit 1, 2 4,723 1,448 6,715 -------------- -------------- -------------- Net interest payable (2,808) (4,451) (7,995) Net financing currency exchange gain 766 2,027 4,236 Exceptional (loss)/ gain on repayment of debt (460) 1,026 881 -------------- -------------- -------------- (2,502) (1,398) (2,878) -------------- -------------- -------------- Profit on ordinary activities before taxation 2,221 50 3,837 Taxation (1,494) (1,525) (2,753) -------------- -------------- -------------- Profit/(loss) on ordinary activities after taxation 727 (1,475) 1,084 Dividends (671) (669) (2,006) -------------- -------------- -------------- Profit retained/ (deficit) for the period 56 (2,144) (922) -------------- -------------- -------------- Earnings/(loss) per share Basic 3 0.98p (1.99)p 1.46p Diluted 3 0.97p (1.99)p 1.45p Dividend per share 0.90p 0.90p 2.70p Consolidated Balance Sheet Unaudited Unaudited Audited 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Fixed assets Intangible assets 33,529 33,459 35,769 Tangible assets 90,885 101,493 96,272 -------------- -------------- -------------- 124,414 134,952 132,041 -------------- -------------- -------------- Current assets Stocks 34,560 36,443 34,344 Debtors 57,900 58,257 50,908 Cash 4,389 3,026 6,522 -------------- -------------- -------------- 96,849 97,726 91,774 -------------- -------------- -------------- Creditors: amounts falling due within one year Borrowings 7,558 2,429 - Other creditors 41,229 40,670 38,821 -------------- -------------- -------------- 48,787 43,099 38,821 -------------- -------------- -------------- Net current assets 48,062 54,627 52,953 -------------- -------------- -------------- Total assets less current liabilities 172,476 189,579 184,994 Creditors: amounts falling due after one year Borrowings 51,462 74,874 61,942 Provision for deferred tax 728 409 750 Deferred income 12,583 12,337 13,143 -------------- -------------- -------------- Net assets 107,703 101,959 109,159 -------------- -------------- -------------- Capital and reserves Called up share capital 7,453 7,430 7,430 Share premium account 137,461 135,851 135,851 Shares to be issued 2,168 4,392 4,321 Revaluation reserve 106 106 106 Other reserve 788 - 828 Profit and loss account (40,273) (45,820) (39,377) -------------- -------------- -------------- Equity shareholders' funds 107,703 101,959 109,159 -------------- -------------- -------------- Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 note £000 £000 £000 Net cash flow from operating activities A 9,915 16,413 38,528 -------------- -------------- -------------- Returns on investment and servicing of finance Net interest paid (2,880) (4,133) (7,407) -------------- -------------- -------------- Tax paid (1,961) (2,598) (4,128) -------------- -------------- -------------- Capital expenditure Purchase of tangible fixed assets (4,980) (4,382) (8,198) Sale of tangible fixed assets 147 851 1,378 Government grants received - 37 1,319 -------------- -------------- -------------- Net cash flow from capital expenditure (4,833) (3,494) (5,501) -------------- -------------- -------------- Equity dividends paid (1,337) (1,333) (2,002) -------------- -------------- -------------- Net cash flow before financing (1,096) 4,855 19,490 -------------- -------------- -------------- Financing Issue of shares 83 - - Loans repaid (8,463) (12,473) (22,107) -------------- -------------- -------------- Net cash flow from financing (8,380) (12,473) (22,107) -------------- -------------- -------------- -------------- -------------- -------------- Decrease in cash B (9,476) (7,618) (2,617) -------------- -------------- -------------- 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 2003 2002 2003 £000 £000 £000 Operating profit 4,723 1,448 6,715 Goodwill amortisation 1,138 1,063 2,348 Share compensation 145 218 146 Depreciation 9,244 9,088 19,322 Profit on sale of tangible fixed assets (111) (246) (518) Licence fee released (395) - (66) Government grants released (165) (115) (525) Movement in stocks (975) 6,309 8,734 Movement in debtors (7,290) (4,038) 3,876 Movement in creditors 3,601 2,686 (1,504) -------------- -------------- -------------- Net cash flow from operating activities 9,915 16,413 38,528 -------------- -------------- -------------- 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 2003 2002 2003 £000 £000 £000 Decrease in cash (9,476) (7,618) (2,617) Cash flow from debt 8,463 12,473 22,107 -------------- -------------- -------------- Change in net debt resulting from cash flows (1,013) 4,855 19,490 Non-cash movement (388) 708 293 Currency exchange movement 2,190 4,846 9,483 -------------- -------------- -------------- Movement in net debt in the period 789 10,409 29,266 Opening net debt (55,420) (84,686) (84,686) -------------- -------------- -------------- Closing net debt (54,631) (74,277) (55,420) -------------- -------------- -------------- Statement of Total Recognised Gains and Losses Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Profit/(loss) on ordinary activities after taxation 727 (1,475) 1,084 Currency exchange movement arising on consolidation (3,255) (4,283) (590) Currency exchange movement on loan 1,515 2,972 5,329 -------------- -------------- -------------- Total recognised gains and losses for the period (1,013) (2,786) 5,823 -------------- -------------- -------------- Consolidated Reconciliation of Shareholders' Funds Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Profit/(loss) on ordinary activities after taxation 727 (1,475) 1,084 Dividends (671) (669) (2,006) -------------- -------------- -------------- Profit retained/(deficit) for the period 56 (2,144) (922) Currency exchange movement arising on consolidation (3,255) (4,283) (590) Currency exchange movement on loan 1,515 2,972 5,329 Issue of shares 2,381 2,508 2,507 Shares to be issued - shares issued (2,298) (2,508) (2,507) - share compensation 145 218 146 -------------- -------------- -------------- Movement in shareholders' funds (1,456) (3,237) 3,963 Opening shareholders' funds 109,159 105,196 105,196 -------------- -------------- -------------- Closing shareholders' funds 107,703 101,959 109,159 -------------- -------------- -------------- Notes to the Interim Financial Information 1 Geographical origin segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Sales United Kingdom 46,924 53,214 102,807 Finland 31,692 32,051 64,954 United States of America 25,390 30,746 56,967 Australia 2,363 3,632 5,490 China 23,945 10,035 21,791 Inter segment (8,794) (5,809) (10,741) -------------- -------------- -------------- 121,520 123,869 241,268 -------------- -------------- -------------- Operating profit United Kingdom (5,587) (2,000) (4,768) Finland 1,020 4,281 5,960 United States of America 147 (3,144) 716 Australia (650) (734) (2,004) China 9,793 3,045 6,811 -------------- -------------- -------------- 4,723 1,448 6,715 -------------- -------------- -------------- The operating profit/ (loss) in the United States of America is after charging exceptional closure costs: - 2,719 1,812 -------------- -------------- -------------- Notes to the Interim Financial Information 2 Business segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Sales Wireless 68,854 81,454 151,715 infrastructure Handset products 33,341 24,324 51,242 Integrated products 18,690 17,402 37,443 Central services 1,885 1,219 1,771 Inter segment (1,250) (530) (903) -------------- -------------- -------------- 121,520 123,869 241,268 -------------- -------------- -------------- Operating profit Wireless 7,096 13,443 20,962 infrastructure Handset products 7,757 5,173 10,834 Integrated products (8,231) (14,203) (19,344) Central services (1,899) (2,965) (5,737) -------------- -------------- -------------- 4,723 1,448 6,715 -------------- -------------- -------------- The operating loss of integrated products is after charging exceptional closure costs: - 2,719 1,812 -------------- -------------- -------------- The Board has decided to reorganise the business into four segments. This is to ensure that the company is best positioned to address the challenges of moving from the development stage into production with a broad range of new products. The prior period comparative figures have been re-analysed to be consistent with the current period. Notes to the Interim Financial Information 3 Earnings/(loss) per share Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2003 2002 2003 £000 £000 £000 Profit/(loss) on ordinary activities after taxation 727 (1,475) 1,084 -------------- -------------- -------------- 000 000 000 Weighted average number of shares 74,418 74,186 74,245 Dilution effect of share options 98 - - Dilution effect of contingently issuable shares 283 - 460 -------------- -------------- -------------- Diluted weighted average number of shares 74,799 74,186 74,705 -------------- -------------- -------------- Basic earnings/(loss) per share 0.98p (1.99)p 1.46p -------------- -------------- -------------- Diluted earnings/(loss) per share 0.97p (1.99)p 1.45p -------------- -------------- -------------- 4 Post balance sheet events On 1 December 2003 $16,033,000 of 10% Senior Notes were redeemed at a redemption price of $1,025 per $1,000 principal amount. After the redemption there were $74,000,000 of Senior Notes outstanding. On 31 December 2003 the electronic warfare business of Filtronic Solid State was sold for a cash consideration of $12,000,000 resulting in an estimated profit on disposal of $8,000,000. On 16 January 2004 notice was given to holders of the 10% Senior Notes that the remaining $74,000,000 of the Senior Notes will be redeemed on 17 February 2004 at a redemption price of $1,025 per $1,000 principal amount. A medium term bank loan of £50,000,000 will be drawn down to pay for the redemption and repay existing bank borrowings. Notes to the Interim Financial Information 5 Interim financial information The accounting policies adopted in preparing this interim financial information are consistent with those set out on pages 22 and 23 of the Filtronic plc Annual Report 2003. The interim financial information contained in this report does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The figures for the year ended 31 May 2003 are extracted from the Financial Statements included in the Filtronic plc Annual Report 2003 dated 28 July 2003. Those Financial Statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies in England and Wales. Copes of this Interim Report are available from the registered office of the company: Filtronic plc The Waterfront Salts Mill Road Saltaire Shipley West Yorkshire BD18 3TT Tel: + 44 1274 530 622 Fax: + 44 1274 531 561 www.filtronic.com Independent Review Report to Filtronic plc Introduction We have been engaged by the company to review the financial information consisting of the profit and loss account, balance sheet, statement of total recognised gains and losses, reconciliation of shareholders funds, cash flow statement and notes and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. The report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 November 2003. KPMG Audit Plc Chartered Accountants Leeds 2 February 2004 This information is provided by RNS The company news service from the London Stock Exchange

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