Trading Statement

Filtronic PLC
23 June 2004


                                 Trading update


Filtronic plc, a leading designer and manufacturer of customised microwave
electronic products for the telecommunications and defence industries, announces
the following statement on trading for the year ended 31 May 2004 and on trading
and prospects for the coming year ending 31 May 2005.


Wireless Infrastructure


'Sales in Wireless Infrastructure, our largest business, improved in the second
half by around 5% compared to the first half of the financial year. As indicated
in my announcement of 14 April 2004, results in the second half have been
materially impacted by adverse exchange rate movements and costs, in excess of
£1m, incurred in maintaining production capacity levels in established
manufacturing sites whilst rapidly expanding output from our Chinese facility.
This production strategy was instrumental in winning the substantial programme
position with a new Original Equipment Manufacturer ('OEM') customer, which I
announced in April, and enables Filtronic to satisfy the increasing world demand
for cellular base station infrastructure.


Sales to this new customer are expected to commence towards the end of 2004
calendar year and to increase rapidly, with the result that sales and
profitability in this business area in 2004/05 financial year will be heavily
weighted to the second half. This business is currently experiencing improving
demand for transmit/receive modules as equipment manufacturers roll out further
2G and 21/2G infrastructure and market indications are that such demand is
likely to continue to rise in the medium term.


Costs of over £4m have been incurred within the Wireless Infrastructure business
during 2003/04 in supporting the development of complete power amplifier
products incorporating digital interfaces. Initial production quantities of
these integrated digital transmitters are expected to be shipped to our first
customer towards the end of the 2004 calendar year. Work is continuing with
other OEMs on power amplifier module developments but it is increasingly likely
that the market demand will be for the complete integrated digital transmitters
incorporating the highly efficient gallium arsenide power amplifier modules.
Investment in this product area is continuing and increased development
expenditure budgeted for the new financial year is likely to increase the net
cost of this product area in the 2004/05 financial year by approximately 50%.
The prime objective of this expenditure will be to further reduce production
costs and increase operating margins.


Handset Products


As indicated in my statement of 2 February 2004, Handset Products, our second
largest business, has seen a marked reduction in sales in the second half
compared to the first half due to adverse exchange rates and after particularly
high volumes in the first half for a single phone programme, on which Filtronic
had a temporary exceptional market share. As a result of this and with the
impact of continuing price erosion, operating margins have decreased to around
15% for the 2003/04 financial year as a whole. During financial year 2004/05,
the move to more mechanically integrated products incorporating internal
antennas is expected to continue. As these products contain a higher proportion
of bought in materials, margins are not expected to return to previous levels.
Revenues will continue to be subject to substantial pricing pressure.


Integrated Products


Sales in Integrated Products, which comprises the Electronic Warfare, Broadband
Access and Compound Semiconductor divisions, have shown an improvement in the
second half compared to the first half as increased revenues in the Electronic
Warfare and Compound Semiconductor areas have offset the impact caused by the
sale of the EW division of Filtronic Solid State, which contributed £3.4m of
sales in the first half. Losses have reduced in this division in the second half
by over £3m compared to those incurred in the first half even though investment
has continued in increasing the manufacturing capacity for the power amplifier
modules. A substantial increase in revenues is expected in this business area in
financial year 2004/05 due to the commencement of shipments of gallium arsenide
switches and other compound semiconductor products. This should result in
further reductions in operating losses in the first half and the achievement of
monthly profitability at the operating level before the end of the 2004/05
financial year.


Capital Investment


The growth in demand from both our existing and new customers for wireless
infrastructure transmit/receive modules is causing Filtronic to commit further
capital expenditure for test equipment and facilitisation, mainly in China. This
investment together with new generic manufacturing equipment and processes to
supply the mechanically integrated handset antenna products using new foil
technology and automated test equipment for the production of integrated digital
transmitters for 3G WCDMA networks will result in total 2004/05 capital
expenditure of over £20m, almost twice us much as that incurred in the 2003/04
financial year.


Currency Translation


The impact of the weak US dollar when compared to our budgeted exchange rates
for the 2003/04 financial year has reduced reported sales by £13.4m and
operating profit by £3.0m, as the company's manufacturing profits in both
Wireless Infrastructure and Handset Products are increasingly earned in China,
where the local currency is tied to the US dollar. This impact, together with
the costs associated with increasing the capacity in China, leads to an
operating profit for the year, after goodwill amortisation and share
compensation costs, which is not expected to be less than £3.5m.


Outlook


Filtronic is well placed for growth in 2004/05 financial year and beyond as it
continues to gain market share in transmit/receive modules for base stations,
introduces new compound semiconductor based products across a broad range of end
markets and commences the supply of integrated digital transmitters.


Preliminary results for the year ended 31 May 2004 will be announced on 2 August
2004.'


Professor J D Rhodes, CBE, FRS, FREng
Executive Chairman
23 June 2004

Mobile: [phone]

Professor C M Snowden,
Director,
Telephone: [phone]






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