Interim Results
Filtronic PLC
30 January 2006
For release 7.00am 30 January 2006
FILTRONIC PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005
Underlying performance of continuing operations broadly in line with market
expectations;
Handset Products division sale completed on 8 September for £45m; Foundry's
growth meeting plans;
Group debt reduced; Dividend maintained
Filtronic plc ('Filtronic'), a leading global designer and manufacturer of
customised microwave electronic subsystems for the wireless telecommunications
and defence industries, announces its Interim Results for the six months ended
30 November 2005. Worldwide sites are in the UK (North of England, Yorkshire,
Midlands, Scotland), USA, Finland, China and Hungary.
Filtronic is one of the world's leading independent suppliers of transmit/
receive modules for base stations and a leading manufacturer of semiconductor
switches for mobile handsets. The contribution to sales for continuing
operations is: Wireless Infrastructure (80%), Defence Electronics (13%);
Compound Semiconductors (7%).
Financial Highlights
• Revenue from continuing operations of £110.8m (2004: £103.2m)
• Operating loss from continuing operations before non recurring items of
£0.4m (2004 loss: £1.3m)
• Operating loss from continuing operations of £2.9m (2004 loss: £1.3m)
• Loss on disposal of property of £0.4m (2004 gain: £2.4m)
• Net interest expense of £1.1m (2004: £2.0m)
• Pre-tax loss of £5.6m (2004 profit: £3.5m)
• Gain on disposal of discontinued operation £2.9m (2004: £nil)
• Diluted loss per share of 5.66p (2004: diluted EPS of 2.45p)
• Interim dividend maintained at 0.90p (2004: 0.90p), payable 31 March
2006
• Net debt of £12.0m (2004: £44.0m), with working capital facilities of
£20.0m
Operational Highlights
• Wireless Infrastructure:
- Maintaining market share in stable market for transmit / receive
filters
- Volume production of integrated power amplifier achieved
- Sector now includes backhaul radio products
- Operations in Australia closed with non recurring cost of £0.6m
• Defence Electronics
- US operations integrated as Filtronic Signal Solutions with move to
new facilities in New Hampshire, £1.5m inventory write down
- Site in US sold for £1.4m
• Compound Semiconductors:
- Performance in line with revenue plan with established demand whilst
operational challenges remain
- West coast sales office closed with non recurring cost of £0.4m
• Handset Products division sale completed on 8 September for £45m
• Capital expenditure of £6.8m (2004: £7.3m)
Outlook
Professor J. David Rhodes said: 'Wireless Infrastructure is experiencing a flat
market in the second half of the financial year with operating margins for the
core transmit / receive filters at over 10%. Revenue growth awaits some delayed
contracts and new OEM platforms moving into production.
Our market driven approach to Power Amplifiers is gaining traction and will be a
growth mechanism in the coming financial year. New products in remote radio
heads for 3G and WiMAX, some of which are at the prototype stage, will give
growth in 2007.
In Defence Electronics, consolidation in the US is positioning the business
favourably with old and new customers. Completion of large contracts will reduce
revenue in the next financial year, with the lead time to production on sizeable
new opportunities being 12 to 18 months.
In Compound Semiconductors, the loading of the foundry is increasing, with more
customers expected. The foundry ramp up supports Compound Semiconductors
reaching run rate breakeven at the end of this financial year. Additional
capital expenditure of £4m is being undertaken to increase foundry capacity from
17,500 to nearly 27,000 wafers a year during the coming period.
The net cash flow for the coming half year is expected to be neutral after the
additional capital expenditure committed for the foundry, without the benefit of
£4m collected from overdue debtors in December 2005. The contingent
consideration arising from the sale of the Handset Products division is expected
to be around €10m (£7m) and is due to be received in August 2006.'
Enquiries
Filtronic plc:
Professor J David Rhodes, Chairman Tel: 01274 530622 / Mob: 07850 827 280
Charles Hindson, Group Finance Director Tel: 01274 530622 / Mob: 07800 706 319
Binns & Co PR Ltd:
Peter Binns Tel: 020 7786 9600 / Mob: 07768 392 582
Paul McManus Tel: 020 7786 9600 / Mob: 07980 541 893
Chairman's Statement
Interim financial results
These results have been prepared for the first time on the basis of
International Financial Reporting Standards.
Revenue for continuing operations for the six months ended 30 November 2005 was
£110.8m (2004 £103.2m) and the operating loss for continuing operations was
£2.9m (2004 £1.3m). Loss on disposal of property was £0.4m (2004 profit £2.4m).
Net financing costs totalled £2.2m (2004 £1.9m) including net interest payable
£1.1m (£2004 £2.0m) and a net currency exchange loss of £0.4m (2004 gains
£0.4m).
The loss before taxation was £5.6m (2004 profit £3.5m). After taxation charges
of £1.6m (2004 £1.7m) and gain on sale of discontinued operations of £2.9m (2004
£nil), the loss was £4.2m (2004 profit £1.8m). Basic and diluted loss per share
are 5.66p (2004 earnings 2.46p and 2.45p respectively).
Dividend
The Board is maintaining an interim dividend of 0.90p (2004 0.90p) per share
payable on 31 March 2006 to shareholders on the register on 24 February 2006.
Operations
The Group completed the sale of the Handset Products division in September 2005
for an initial consideration of £45.5m, along with a potential further
consideration on an earn out based on revenue for the year ending 31 May 2006.
The proceeds were used to repay the company's long term debt and enabled the
group's working capital facilities to be increased to £20m.
Overall continuing operations grew 7% over the comparable period, and underlying
operating performance was near breakeven for the period after excluding non
recurring costs of £2.5m arising on the closure of operations in two sites and
an inventory write down in the US Defence activities.
The segmental analysis of the operating results for continuing operations is as
follows:
Sales Operating (loss) / profit
6 months ended 30
November 2005 2004 2005 2004
£m £m £m £m
Wireless
Infrastructure 89.4 86.7 5.6 7.1
Defence Electronics 15.3 15.2 (0.7) 1.2
Compound
Semiconductors 8.5 3.6 (5.1) (6.3)
Central Services - - (2.1) (2.7)
Inter segment (2.4) (2.3) - -
Unallocated pension
charge - - (0.6) (0.6)
------ ------ ------ ------
110.8 103.2 (2.9) (1.3)
====== ====== ====== ======
The business segments were redefined with effect from 1 June 2005. The business
segment results for the comparative periods have been re-analysed to be
consistent with the current period.
Wireless Infrastructure
This business segment provides transmit / receive filters, power amplifiers and
backhaul radio products for mobile base stations to all of the leading Original
Equipment Manufacturers (OEMs).
It has maintained its market share at 28% of the available market, in a market
that is stable, with new programmes for major customers under development to
enter production in the second half of the coming financial year. We are seeing
continued strength of demand for backhaul radio products as OEMs continue to
outsource their requirements.
Significant opportunities with OEMs for power amplifiers are starting
development, along with new OEM requirement secured for remote radio heads using
optical interfaces for all 3G bands plus the expansion bands and for WiMAX at
both 3.5GHz and 2.5GHz.
The operations in Australia have been closed, resulting in non recurring costs
of £0.6m.
Defence Electronics
Defence Electronics covers the Group's defence interests in the UK and the US.
The latter were brought together as Filtronic Signal Solutions and strategy has
been repositioned to take advantage of the integration of its expertise in
digital and analogue signal processing. The main manufacturing plant was moved
to new facilities in New Hampshire and the previous manufacturing site has been
sold. As a result of these changes, the management team has changed and an
inventory write down of £1.5m has been made.
Compound Semiconductors
Compound Semiconductors are principally the operations established at the
foundry at Newton Aycliffe, UK. This segment's performance is in line with our
revenue plan. Its principal product is semiconductor switches for mobile
handsets, for which the demand is now established, with a second customer
secured. Wafer production has increased substantially in the period and
operational challenges remain as capacity expansion continues faster than
originally planned to meet demand. Its sales office based on the West coast of
the USA has been closed, with non recurring costs of £0.4m.
Finance
Net finance costs were £2.2m (2004 £1.9m) reflecting a reduced interest expense
of £1.1m (2004 £2.0m), bank loan renewal fee of £0.3m (2004 £nil) and currency
exchange losses of £0.4m (2004 gains £0.4m). Working capital facilities total
£20m comprising revolving committed facilities of £18m and overdraft facilities
of £2m.
Capital expenditure
Capital expenditure in the six months to 30 November 2005 was £6.8m (2004 £7.3m)
including investment in additional capacity in the foundry, the establishment of
the new site for Defence Electronics in the US and the start of the new facility
in Hungary for Wireless Infrastructure.
Cash flow and closing net debt
The Group's long term loan of £44.0m was repaid from the proceeds of the sale of
the Handset Products division. Net cash from operating activities was an outflow
of £5.1m (2004 inflow £10.1m) reflecting increased working capital of £6.4m
(2004 £1.6m). This included some £4m of overdue and non trading debtors that
were collected in December 2005 and increased creditor payments in the period.
Capital expenditure net of disposals of £5.1m and financing and tax payments of
£2.6m resulted in a closing net debt of £12.0m (2004 £44.0m).
Outlook
Wireless Infrastructure is experiencing a flat market in the second half of the
financial year with operating margins for the core transmit / receive filters at
over 10%. Revenue growth awaits some delayed contracts and new OEM platforms
moving into production.
Our market driven approach to Power Amplifiers is gaining traction and will be a
growth mechanism in the coming financial year. New products in remote radio
heads for 3G and WiMAX, some of which are at the prototype stage, will give
growth in 2007.
In Defence Electronics, consolidation in the US is positioning the business
favourably with old and new customers. Completion of large contracts will reduce
revenue in the next financial year, with the lead time to production on sizeable
new opportunities being 12 to 18 months.
In Compound Semiconductors, the loading of the foundry is increasing, with more
customers expected. The foundry ramp up supports Compound Semiconductors
reaching run rate breakeven at the end of this financial year. Additional
capital expenditure of £4m is being undertaken to increase foundry capacity from
17,500 to nearly 27,000 wafers a year during the coming period.
The net cash flow for the coming half year is expected to be neutral after the
additional capital expenditure committed for the foundry, without the benefit of
£4m collected from overdue debtors in December 2005. The contingent
consideration arising from the sale of the Handset Products division is expected
to be around €10m (£7m) and is due to be received in August 2006.
Professor J D Rhodes CBE FRS FREng
Chairman
30 January 2006
Independent Review Report to Filtronic plc
Introduction
We have been engaged by the company to review the financial information
consisting of the income statement, statement of recognised income and expense,
balance sheet, 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.
This 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.
As disclosed in basis of preparation note (note 11) to the financial
information, the next annual financial statements of the group will be prepared
in accordance with IFRS as adopted for use in the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. As the basis of preparation note to the
financial information explains, there is a possibility that the directors may
determine that some changes to the accounting policies adopted in preparing the
financial information are necessary when the group prepares its full annual
financial statements for the first time in accordance with IFRS as adopted for
use in the European Union.
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 2005.
KPMG Audit Plc
Chartered Accountants
Leeds
30 January 2006
Consolidated Income Statement
6 months ended 30 November
2005
Continuing Discontinued
operations operation Total
note £000 £000 £000
Revenue 110,753 13,645 124,398
========== ========== ==========
Operating (loss)/profit 3 (2,916) (85) (3,001)
(Loss)/gain on disposal of
property (376) - (376)
Finance income 4 94 - 94
Finance costs 5 (2,278) - (2,278)
---------- ---------- ----------
(Loss)/profit before taxation (5,476) (85) (5,561)
Taxation (1,569) - (1,569)
---------- ---------- ----------
(Loss)/profit after taxation (7,045) (85) (7,130)
Gain on sale of
discontinued
operation 6 - 2,894 2,894
---------- ---------- ----------
(Loss)/profit for the period (7,045) 2,809 (4,236)
========== ========== ==========
(Loss)/earnings per share
Basic 7 (9.41)p 3.75p (5.66)p
Diluted 7 (9.41)p 3.75p (5.66)p
The (loss)/profit for the period is attributable to the equity shareholders of
the parent.
Consolidated Income Statement
6 months ended 30 November 2004
Continuing Discontinued
operations operation Total
note £000 £000 £000
Revenue 103,168 26,973 130,141
========== ========== ==========
Operating (loss)/profit 3 (1,329) 4,311 2,982
(Loss)/gain on disposal of
property 2,372 - 2,372
Finance income 4 431 - 431
Finance costs 5 (2,281) - (2,281)
---------- ---------- ----------
(Loss)/profit before taxation (807) 4,311 3,504
Taxation (1,668) - (1,668)
---------- ---------- ----------
(Loss)/profit after taxation (2,475) 4,311 1,836
Gain on sale of discontinued
operation 6 - - -
---------- ---------- ----------
(Loss)/profit for the period (2,475) 4,311 1,836
========== ========== ==========
(Loss)/earnings per share
Basic 7 (3.31)p 5.77p 2.46p
Diluted 7 (3.31)p 5.76p 2.45p
The (loss)/profit for the period is attributable to the equity shareholders of
the parent.
Consolidated Income Statement
Year ended 31 May 2005
Continuing Discontinued
operations operation Total
note £000 £000 £000
Revenue 212,891 49,974 262,865
========== ========== ==========
Operating (loss)/profit 3 5,650 5,554 11,204
(Loss)/gain on disposal of
property 2,356 - 2,356
Finance income 4 607 - 607
Finance costs 5 (4,624) - (4,624)
---------- ---------- ----------
(Loss)/profit before taxation 3,989 5,554 9,543
Taxation (241) - (241)
---------- ---------- ----------
(Loss)/profit after taxation 3,748 5,554 9,302
Gain on sale of discontinued
operation 6 - - -
---------- ---------- ----------
(Loss)/profit for the period 3,748 5,554 9,302
========== ========== ==========
(Loss)/earnings per share
Basic 7 5.01p 7.43p 12.44p
Diluted 7 5.00p 7.41p 12.41p
The (loss)/profit for the period is attributable to the equity shareholders of
the parent.
Consolidated Statement of Recognised Income and Expense
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
(Loss)/profit for the period (4,236) 1,836 9,302
Actuarial gain/(loss) on defined
benefit
pension scheme 1,304 (3,584) (6,784)
Currency translation movement arising
on
consolidation 3,149 471 1,314
---------- ---------- ----------
Total recognised income and expense
for the period 217 (1,277) 3,832
========== ========== ==========
Consolidated Balance Sheet
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Non-current assets
Goodwill 2,944 32,024 31,400
Property, plant and equipment 69,716 81,601 79,793
Deferred tax 2,433 - 2,309
---------- ---------- ----------
75,093 113,625 113,502
---------- ---------- ----------
Current assets
Inventories 33,808 30,862 34,802
Trade and other receivables 63,016 58,731 67,924
Income tax receivable - 686 -
Cash and cash equivalents 3,955 6,322 6,563
---------- ---------- ----------
100,779 96,601 109,289
---------- ---------- ----------
---------- ---------- ----------
Total assets 175,872 210,226 222,791
---------- ---------- ----------
Current liabilities
Bank overdraft - 2,369 5,958
Bank revolving credit 16,000 - -
Bank loan - 8,000 11,000
Trade and other payables 39,283 40,224 49,844
Income tax payable 2,387 1,954 1,880
---------- ---------- ----------
57,670 52,547 68,682
---------- ---------- ----------
Non-current liabilities
Bank loan - 40,000 33,000
Defined benefit pension 15,700 15,804 16,149
Deferred income 9,168 12,295 10,730
Deferred tax 665 608 661
---------- ---------- ----------
25,533 68,707 60,540
---------- ---------- ----------
---------- ---------- ----------
Total liabilities 83,203 121,254 129,222
---------- ---------- ----------
---------- ---------- ----------
Net assets 92,669 88,972 93,569
========== ========== ==========
Equity
Share capital 7,484 7,484 7,484
Share premium 139,172 139,172 139,172
Translation reserve 4,011 554 1,302
Other reserve 6,024 1,937 5,584
Accumulated losses (64,022) (60,175) (59,973)
---------- ---------- ----------
Total equity 92,669 88,972 93,569
========== ========== ==========
Consolidated Cash Flow Statement
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Cash flows from operating activities
(Loss)/profit for the period (4,236) 1,836 9,302
Gain on sale of discontinued operation (2,894) - -
Taxation 1,569 1,668 241
Finance costs 2,278 2,281 4,624
Finance income (94) (431) (607)
Loss/(gain) on disposal of property 376 (2,372) (2,356)
---------- ---------- ----------
Operating (loss)/profit (3,001) 2,982 11,204
Defined benefit pension charge/(credit) 1,849 1,476 (422)
Defined benefit pension contributions
paid (1,260) (855) (2,029)
Share-based payment 230 129 291
Depreciation 5,866 7,235 14,572
Loss/(gain) on disposal of plant and
equipment 278 (136) (235)
Licence fee released (1,167) (1,167) (2,335)
Government grants released (395) (296) (693)
Government grants received - 1,000 1,000
Government grants repaid - (150) (150)
Movement in inventories (2,010) 5,466 2,107
Movement in trade and other receivables (2,248) (4,915) (13,249)
Movement in trade and other payables (2,175) 1,034 10,384
---------- ---------- ----------
Cash flow from operations (4,033) 11,803 20,445
Taxation paid (1,041) (1,662) (1,846)
---------- ---------- ----------
Net cash from operating activities (5,074) 10,141 18,599
---------- ---------- ----------
Consolidated Cash Flow Statement continued
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
note £000 £000 £000
Net cash from operating activities (5,074) 10,141 18,599
---------- ---------- ----------
Cash flows from investing
activities
Proceeds from sale of property 1,383 6,358 6,349
Proceeds from sale of plant and
equipment 282 1,004 1,555
Interest received 94 45 85
Acquisition of property, plant
and
equipment (6,776) (7,255) (12,963)
Sale of discontinued operation 42,523 - -
---------- ---------- ----------
Net cash from investing activities 37,506 152 (4,974)
---------- ---------- ----------
Cash flows from financing
activities
Bank revolving credit drawn 16,000 - -
Bank loan repaid (44,000) (2,000) (6,000)
Bank loan renewal fee paid (343) - -
Interest paid (1,244) (2,063) (4,189)
Dividends paid (1,347) (1,344) (2,018)
---------- ---------- ----------
Net cash from financing activities (30,934) (5,407) (12,207)
---------- ---------- ----------
Increase in cash and cash
equivalents 1,498 4,886 1,418
Currency exchange gain on sale
of
discontinued operation 1,007 - -
Currency exchange movement 845 366 486
Opening cash and cash equivalents 605 (1,299) (1,299)
---------- ---------- ----------
Closing cash and cash equivalents 9 3,955 3,953 605
========== ========== ==========
Notes to the Interim Financial Information
1 Business segment analysis
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Revenue
Wireless Infrastructure 89,370 86,631 177,733
Defence Electronics 15,337 15,216 31,590
Compound Semiconductors 8,466 3,610 8,572
Inter segment (2,420) (2,289) (5,004)
---------- ---------- ----------
Continuing operations 110,753 103,168 212,891
Handset Products - discontinued
operation 13,645 26,973 49,974
---------- ---------- ----------
124,398 130,141 262,865
========== ========== ==========
Operating (loss)/profit
Wireless Infrastructure 5,548 7,062 17,524
Defence Electronics (668) 1,197 3,070
Compound Semiconductors (5,055) (6,289) (11,701)
Central Services (2,152) (2,678) (5,694)
Unallocated pension (charge)/credit (589) (621) 2,451
---------- ---------- ----------
Continuing operations (2,916) (1,329) 5,650
Handset Products - discontinued
operation (85) 4,311 5,554
---------- ---------- ----------
Operating (loss)/profit (3,001) 2,982 11,204
(Loss)/gain on disposal of property (376) 2,372 2,356
Finance income 94 431 607
Finance costs (2,278) (2,281) (4,624)
---------- ---------- ----------
(Loss)/profit before taxation (5,561) 3,504 9,543
Taxation (1,569) (1,668) (241)
---------- ---------- ----------
(Loss)/profit after taxation (7,130) 1,836 9,302
========== ========== ==========
The business segments were redefined with effect from 1 June 2005. The business
segment results for the comparative periods have been re-analysed to be
consistent with the current period.
2 Geographical origin segment analysis
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Revenue
United Kingdom 56,661 54,614 106,447
Finland 22,133 16,223 31,214
Hungary 18 - -
United States of America 26,234 27,030 65,880
China 32,505 23,647 57,147
Australia 1,026 2,405 4,300
Inter segment (27,824) (20,751) (52,097)
---------- ---------- ----------
Continuing operations 110,753 103,168 212,891
---------- ---------- ----------
Finland 4,405 13,374 23,220
China 11,067 14,990 29,841
Inter segment (1,827) (1,391) (3,087)
---------- ---------- ----------
Discontinued operation 13,645 26,973 49,974
---------- ---------- ----------
124,398 130,141 262,865
========== ========== ==========
Operating (loss)/profit
United Kingdom (9,439) (10,077) (20,798)
Finland 3,040 2,227 3,041
Hungary (558) - -
United States of America (2,411) 1,080 9,538
China 7,430 6,750 16,198
Australia (978) (1,309) (2,329)
---------- ---------- ----------
Continuing operations (2,916) (1,329) 5,650
---------- ---------- ----------
Finland (3,473) (137) (2,923)
China 3,388 4,448 8,477
---------- ---------- ----------
Discontinued operation (85) 4,311 5,554
---------- ---------- ----------
Operating (loss)/profit (3,001) 2,982 11,204
(Loss)/gain on disposal of property (376) 2,372 2,356
Finance income 94 431 607
Finance costs (2,278) (2,281) (4,624)
---------- ---------- ----------
(Loss)/profit before taxation (5,561) 3,504 9,543
Taxation (1,569) (1,668) (241)
---------- ---------- ----------
(Loss)/profit after taxation (7,130) 1,836 9,302
========== ========== ==========
3 Reorganisation costs
Operating (loss)/profit is stated after charging reorganisation costs:
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Closure costs of the Wireless
Infrastructure facility in Australia 560 - -
Closure costs of the Compound
Semiconductors facility in California,
USA 406 - -
Inventory write down in the US
Defence
Electronics business 1,512 - -
---------- ---------- ----------
2,478 - -
========== ========== ==========
The write down of the inventory in the US Defence Electronics business has
arisen as a result of its strategic repositioning, and after its move to a new
facility.
4 Finance income
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Interest income 94 45 85
Currency exchange gains - 386 522
---------- ---------- ----------
94 431 607
========== ========== ==========
5 Finance costs
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Interest expense (1,244) (2,063) (4,189)
Bank loan renewal fee (343) - -
Net pension finance cost (266) (218) (435)
Currency exchange losses (425) - -
---------- ---------- ----------
(2,278) (2,281) (4,624)
========== ========== ==========
6 Gain on sale of discontinued operation
On 8 September 2005 the Handset Products business was sold. The sale is analysed
as follows:
£000
Consideration and costs
Cash consideration 47,113
Currency exchange gain on consideration 1,007
Sale costs (2,711)
Currency translation adjustment 53
----------
45,462
==========
Assets and liabilities sold
Goodwill 28,466
Property, plant and equipment 9,425
Inventories 4,064
Trade and other receivables 10,110
Cash and cash equivalents 208
Trade and other payables (9,667)
Income tax payable (38)
----------
Net assets sold 42,568
Gain on sale of discontinued operation 2,894
----------
45,462
==========
In September 2005 cash consideration of £45,442,000 was received. The balance of
£1,671,000 was received in December 2005. Further cash consideration may be
receivable in August 2006 depending on the revenue achieved by the Handset
Products business in the period 1 June 2005 to 30 June 2006. The amount of this
contingent consideration will be recognised at 31 May 2006.
The Handset Products business had the following cash flows:
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Cash flows from operating activities (1,567) 6,090 10,358
====== ====== ======
Cash flows from investing activities (973) (3,120) (4,471)
====== ====== ======
7 (Loss)/earnings per share
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
(Loss)/profit for the period
- continuing operations (7,045) (2,475) 3,748
- discontinued operation 2,809 4,311 5,554
---------- ---------- ----------
(Loss)/profit for the period (4,236) 1,836 9,302
========== ========== ==========
000 000 000
Weighted average number of shares 74,842 74,753 74,797
Dilution effect of share options 238 33 84
Dilution effect of contingently
issuable shares - 89 45
---------- ---------- ----------
Diluted weighted average number
of shares 75,080 74,875 74,926
========== ========== ==========
Basic (loss)/earnings per share
- continuing operations (9.41)p (3.31)p 5.01p
- discontinued operation 3.75p 5.77p 7.43p
---------- ---------- ----------
Basic (loss)/earnings per share (5.66)p 2.46p 12.44p
========== ========== ==========
Diluted (loss)/earnings per share
- continuing operations (9.41)p (3.31)p 5.00p
- discontinued operation 3.75p 5.76p 7.41p
---------- ---------- ----------
Diluted (loss)/earnings per share (5.66)p 2.45p 12.41p
========== ========== ==========
8 Dividends
The dividends recognised in equity and paid during the period were as follows:
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
Per share £000 £000 £000
Final dividend year ended
31 May 2004 1.80p - 1,344 1,344
Interim dividend year
ended
31 May 2005 0.90p - - 674
Final dividend year ended
31 May 2005 1.80p 1,347 - -
---------- ---------- ----------
1,347 1,344 2,018
========== ========== ==========
The interim dividend declared for the year ending 31 May 2006 is 0.90p per share
payable on 31 March 2006 to shareholders on the register on 24 February 2006.
9 Cash and cash equivalents and net debt
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Cash and cash equivalents 3,955 6,322 6,563
Bank overdraft - (2,369) (5,958)
---------- ---------- ----------
Cash and cash equivalents in the
cash flow statement 3,955 3,953 605
---------- ---------- ----------
Bank revolving credit (16,000) - -
Bank loan - current - (8,000) (11,000)
- non-current - (40,000) (33,000)
---------- ---------- ----------
Debt (16,000) (48,000) (44,000)
---------- ---------- ----------
---------- ---------- ----------
Net debt (12,045) (44,047) (43,395)
========== ========== ==========
10 Reconciliation of movements in equity
6 months 6 months Year
ended ended ended
30 November 30 November 31 May
2005 2004 2005
£000 £000 £000
Opening equity 93,569 91,464 91,464
Total recognised income and expense
for the period 217 (1,277) 3,832
Share-based payments 230 129 291
Dividends (1,347) (1,344) (2,018)
---------- ---------- ----------
Closing equity 92,669 88,972 93,569
========== ========== ==========
11 Basis of preparation
These interim financial statements have been prepared on the basis of
International Financial Reporting Standards (IFRS) as adopted for use in the
European Union that are effective at 31 May 2006, which is the group's first
annual reporting date under IFRS. IFRS are subject to ongoing amendment by the
International Accounting Standards Board and subsequent endorsement by the
European Union, and therefore are subject to change.
The consolidated financial statements for the year ended 31 May 2006 will be the
group's first full IFRS financial statements. The date of transition to IFRS is
1 June 2004. The financial information for the comparative periods has been
restated on the basis of IFRS. Reconciliations from UK GAAP to IFRS of the
profit for the period and total equity for the comparative periods are set out
in note 12. Explanations of the differences between the UK GAAP and the IFRS
financial statements are provided in note 13. The group has elected to take
certain IFRS first-time adoption options and these are described in note 14.
The accounting policies adopted when reporting under UK GAAP have been revised
where necessary to comply with IFRS. The accounting policies adopted by the
group under IFRS are laid out in note 15. The accounting policies have been
applied consistently to all the periods presented in these interim financial
statements.
12 Reconciliations from UK GAAP to IFRS
The reconciliations from UK GAAP to IFRS of the profit for the period and total
equity for the comparative periods are as follows:
Profit for the period
6 months Year
ended ended
30 November 31 May
2004 2005
£000 £000
Profit for the period per UK GAAP 1,652 5,312
Goodwill amortisation 1,109 2,222
Share-based payments (86) (248)
Defined benefit pension operating
(charge)/credit (621) 2,451
Defined benefit pension net finance
cost (218) (435)
---------- ----------
Profit for the period per IFRS 1,836 9,302
========== ==========
Total equity
1 June 30 November 31 May
2004 2004 2005
£000 £000 £000
Total equity per UK GAAP 101,113 102,590 105,778
Proposed dividends 1,344 674 1,347
SSAP 24 pension accrual 388 388 388
Defined benefit pension liability (11,381) (15,804) (16,149)
Goodwill amortisation - 1,109 2,222
Goodwill currency translation movement - 15 (17)
---------- ---------- ----------
Total equity per IFRS 91,464 88,972 93,569
========== ========== ==========
13 Differences between the UK GAAP and the IFRS financial statements
Explanations of the differences between the UK GAAP and the IFRS financial
statements are as follows:
Presentation of financial statements
The formats of the income statement, balance sheet and particularly the cash
flow statement are different under IFRS as compared to those used for UK GAAP.
Segment reporting
The reportable business segments were redefined to comply with the requirements
of IAS 14 Segment Reporting. Each reportable business segment is subject to
risks and returns that are different from the other business segments.
Goodwill
Goodwill is not amortised under IFRS. Instead goodwill is subject to annual
impairment testing, which indicated there was no impairment.
Share-based payment
Under IFRS, the fair value of share options at the date of grant is expensed in
the income statement over the vesting periods of the options.
Defined benefit pension
IAS 19 Employee Benefits requires the separate recognition of the operating and
financing costs of the defined benefit pension scheme in the income statement.
Service costs are spread systematically over the working lives of the employees.
Financing costs are recognised in the periods in which they arise. There was a
past service credit in the year ended 31 May 2005 as a result of a reduction in
the benefits payable under the scheme. The defined benefit pension liability is
the present value of the defined benefit obligation less the fair value of the
pension scheme assets. Actuarial gains and losses are recognised immediately in
the statement of recognised income and expense.
Previously under UK GAAP the defined benefit pension scheme was accounted for in
accordance with SSAP 24. The SSAP 24 charge to the income statement for the
comparative periods presented was the same as the employers pension
contributions for the period.
The defined benefit pension costs and pension liability under IAS 19 are the
same as disclosed under FRS 17 in the UK GAAP financial statements for the year
ended 31 May 2005.
Dividends
Under IFRS, interim dividends are recognised in the period they are declared,
and final dividends are recognised in the period they are approved by
shareholders. Dividends are recognised directly in equity, and not in the income
statement.
Translation reserve
Under IFRS, currency translation movements arising from the consolidation of
overseas subsidiaries are accumulated in the translation reserve, which is a
separate component of equity.
Revaluation reserve
The UK GAAP revaluation reserve of £106,000 has been reclassified to accumulated
losses under IFRS. The amount was the balance on the revaluation reserve at the
transition date in respect of assets that are measured on the basis of deemed
cost under IFRS.
14 IFRS first-time adoption options
The group has elected to take certain IFRS first-time adoption options as
follows:
Business combinations
All prior business combination accounting has been frozen at the transition
date. This includes goodwill on the balance sheet and goodwill deducted from
equity.
Share-based payments
Only share options granted since 7 November 2002 have been fair valued and
expensed in the income statement over the vesting periods.
Employee benefits
All cumulative actuarial gains and losses in respect of the defined benefit
pension scheme have been recognised at the transition date.
Foreign exchange
The translation reserve arising from the consolidation of foreign subsidiaries
was set to zero at the transition date.
15 Accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union.
The financial statements have been prepared under the historical cost
convention, except for the defined benefit pension liability which is measured
at fair value.
The accounting policies have been applied consistently throughout the group.
Basis of consolidation
The financial statements consolidate the income statements, balance sheets and
cash flow statements of the company and all of its subsidiaries.
Subsidiaries are all entities over which the group has the power to govern the
financial and operating policies. Subsidiaries are consolidated from the date on
which control is transferred to the group. Subsidiaries are not consolidated
from the date that control ceases.
Intra group transactions and balances are eliminated on consolidation.
Segment reporting
The business segments are the primary segments and the geographical origin
segments are the secondary segments. Each reportable segment is subject to risks
and returns that are different from the other segments.
Foreign currency translation
The functional currency of each subsidiary is the currency of the primary
economic environment in which the subsidiary operates. The financial statements
are presented in sterling which is the functional and presentational currency of
the company.
Transactions denominated in foreign currencies are translated into the
functional currency of each subsidiary at the exchange rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the rate of exchange ruling at the
balance sheet date.
Foreign exchange gains and losses arising on the settlement of such transactions
and translation of monetary assets and liabilities are recognised in the income
statement.
On consolidation, the financial statements of subsidiaries with a functional
currency other than sterling are translated into sterling as follows:
- The assets and liabilities in their balance sheets plus any goodwill are
translated at the rate of exchange ruling at the balance sheet date.
- The income statements and cash flow statements are translated at the average
rate of exchange for the period.
Currency translation movements arising on the translation of the net investments
in foreign subsidiaries are recognised in the translation reserve, which is a
separate component of equity.
Revenue
Revenue is recognised for goods and services provided to customers during the
period. Revenue excludes any related value added or sales tax.
Research and development
All research costs are expensed as incurred.
Development costs chargeable to the customer are recognised as an expense in the
same period as the associated customer revenue.
Development costs incurred on projects requiring product qualification tests to
satisfy customer specifications are generally expensed as incurred, reflecting
the technical risks associated with meeting the resultant product qualification
test.
Development costs incurred on projects are capitalised where firstly the
technical feasibility can be tested against relevant milestones, secondly the
probable revenue stream foreseen over the life of the resulting product can
support the development and thirdly sufficient resources are available to
complete the development. These capitalised costs are amortised on a straight
line basis over the expected life of the associated product.
Once a new product is qualified, further development costs are expensed as they
arise because they are incurred in response to continual customer demand to
enhance the product functionality and to reduce product selling prices.
Government grants
Government grants related to operating expenditure are recognised in the income
statement in the same period as the expenditure.
Government grants related to capital expenditure are credited to deferred income
in the balance sheet on receipt. The deferred government grant income is
recognised in the income statement over the expected life of the related assets.
Operating leases
Operating lease rentals are charged to the income statement on a straight line
basis over the lease term.
Share-based payments
The group operates share option schemes, under which share options are granted
to certain employees. The granting of the share options is a share-based
payment.
The fair value of the share options at the date of grant is calculated using an
option pricing model, taking into account the terms and conditions applicable to
the option grant. The fair value of the number of share options expected to vest
is expensed in the income statement on a straight line basis over the expected
vesting period. Each reporting period these vesting expectations are revised as
appropriate.
A credit is made to equity, equal to the share-based payment expense in the
period.
Goodwill
Goodwill represents the excess of the cost of acquisitions over the fair value
of the net identifiable assets of the subsidiary acquired at the date of
acquisition. Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash generating units. Goodwill is tested for
impairment annually and when there is an indication of impairment. If impaired,
the goodwill carrying value is written down to its recoverable amount.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and less any accumulated impairment losses.
Depreciation is provided on a straight line basis over the estimated useful
lives of the assets as follows:
Freehold land Not depreciated
Freehold buildings 50 years
Plant and equipment 3 to 10 years
Property, plant and equipment are tested for impairment when there is an
indication of impairment. If impaired, the carrying values of the assets are
written down to their recoverable amounts.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises weighted average cost of materials and components together with
attributable direct labour and overheads. Net realisable value is the estimated
selling price less estimated costs of completion and sale.
Trade receivables
Trade receivables are stated net of any provision for doubtful debts.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and bank deposits with an
original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the group's cash management are included as
a component of cash and cash equivalents for the purpose of the cash flow
statement.
Net debt
Net debt is cash and cash equivalents less bank overdrafts, bank revolving
credits and bank loans.
Dividends
Interim dividends are recognised in equity in the period they are declared.
Final dividends are recognised in equity in the period they are approved by
shareholders.
Share capital
Ordinary shares issued are classified as share capital in equity.
Pension schemes
Defined contribution pension schemes are operated for overseas employees.
Contributions are recognised as an expense in the income statement as incurred.
A defined benefit pension scheme is operated for United Kingdom employees. The
defined benefit pension liability is the present value of the defined benefit
obligation less the fair value of the pension scheme assets. The defined benefit
obligation is calculated by independent actuaries using the projected unit
measure. The discount rate used to calculate the present value of the defined
benefit obligation is the yield on AA credit rated corporate bonds that have
maturity dates approximating the terms of the benefit obligations.
Service costs are spread systematically over the working lives of the employees,
and are recognised within operating costs in the income statement. Financing
costs are recognised in the periods in which they arise within finance costs in
the income statement.
Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are recognised immediately in the statement of recognised
income and expense.
Deferred taxation
Deferred tax is provided using the balance sheet liability method. Provision is
made for temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the amounts for taxation purposes.
Temporary differences are not provided for the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit. No provision is
made for differences relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the
carrying amount of the assets and liabilities, using tax rates enacted or
substantially enacted at the balance sheet date. Deferred tax assets are
recognised only to the extent that it is probable that future taxable profits
will be available against which the asset can be utilised.
16 Interim financial information
The comparative financial information previously published under UK GAAP has
been restated in accordance with IFRS. Reconciliations of this restatement are
given in note 12.
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 financial information for the year ended 31 May 2005 is based on the UK GAAP
Financial Statements included in the Filtronic plc Annual Report 2005 dated 1
August 2005. Those Financial Statements, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of Companies in
England and Wales.
Copies 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: 01274 530622
Fax: 01274 531561
www.filtronic.com
This information is provided by RNS
The company news service from the London Stock Exchange
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