Final Results

FILTRONIC PLC 2 August 1999 FILTRONIC PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 1999 Sales up 99%; Operating profit before goodwill amortisation up 103%; £12.5m Pre-tax profits up 13.6%; Adjusted EPS up 46.4% Filtronic plc ('Filtronic'), a leading international designer and manufacturer of sophisticated microwave products for global cellular and cable telecommunications and electronic warfare applications, announces record preliminary results for the year ended 31 May 1999. Filtronic currently has 15 operational sites in the UK (Yorkshire, the Midlands and Scotland), the United States (Maryland, New Hampshire, Massachusetts and California), Australia (Brisbane) and Finland (Oulu). Financial Highlights * Sales up 99.1% to £187.3m (1998: £94.1m) * Operating profit before goodwill amortisation up 103.3% to £24.4m (1998: £12.0m) * Pre-tax profits up 13.6% to £12.5m (1998: £11.0m), restricted by exceptional charges * Profit after tax up 36.8% to £10.8m (1998: £7.9m) * Adjusted earnings per share up 46.4% to 25.01p (1998: 17.08p) * Adjusted diluted earnings share up 48.1% to 22.71p (1998: 15.33p) * Total dividend payable 1 November, up 14% * Dividend cover 6.7x * Equity shareholders' funds of £80.1m Trading and Operations * Growth organically and through acquisition * Wireless Infrastructure business performed strongly overall, particularly sales from UK * US sales up, but operating margins fell on delays in programmes and start up costs in Finland * Cellular Handset Products performed exceptionally well, strong operating margins * Three acquisitions successfully integrated * Growth in Electronic Warfare, strong operating margins * Two Board Appointments, one as Director of Technology * UK Wireless Infrastructure enters new financial year with record sales levels * US Wireless Infrastructure budgeted to produce strong second half recovery * Record sales in Australia in July * First cross-company product development near realisation, integrated module for cellular handsets * Financial year 2000 results even more strongly weighted towards second half than normal Outlook In his statement to shareholders, Executive Chairman, Professor J David Rhodes says: 'The company now has several key technologies under its control. Our core business markets offer exceptional growth opportunities and our outstanding engineering talent continues to develop innovative products for these markets. As the wireless communications market continues to demonstrate increasing levels of technical requirement alongside very high growth rates, the Board remains confident in the company's ability to achieve further significant growth.' Enquiries: Professor David Rhodes, Executive Chairman, Filtronic plc John Samuel, Finance Director, Filtronic plc Tel: 0171 638 4010 (this week) Chris Schofield, Director, Filtronic plc Tel: 01274 530622 Dominic Morley, WestLB Panmure Tel: 0171 638 4010 Peter Binns/Paul Vann, Binns & Co Tel: 0171 786 9600 Executive Chairman's Statement Results Sales increased by 99.1% to £187.3m (1998: £94.1m) and operating profit before goodwill amortisation by 103.3% to £24.4m (1998: £12.0m). Profit before taxation was £12.5m (1998: £11.0m), an increase of 13.6% compared to last year. Profit after taxation was £10.8m (1998: £7.9m), an increase of 36.8% compared to last year. Adjusted earnings per share were 25.01p (1998: 17.08p), an increase of 46.4%, and 22.71p (1998: 15.33p) on a diluted basis, an increase of 48.1%. Unadjusted earnings per share increased by 12.5% to 19.21p (1998: 17.08p) and by 13.8% to 17.45p (1998: 15.33p) on a diluted basis. Profit before taxation is arrived at after charging goodwill amortisation of £2.5m, non-recurring exceptional finance costs of £1.2m, net interest payable of £7.2m, a non-cash foreign currency exchange loss of £4.5m and after crediting a foreign currency exchange gain of £0.8m and a non-recurring exceptional gain arising from an insurance claim of £2.6m. The foreign currency exchange loss arises primarily from the translation of the $170m Senior Notes into sterling at the exchange rate ruling at 31 May 1999. Adjusted earnings per share is shown before the impact of goodwill amortisation, the foreign currency exchange items and the exceptional items. Dividend The Board is recommending a final dividend of 1.80p per share (1998: 1.35p), payable on 1 November 1999 to shareholders on the register at 27 August 1999, bringing the total for the year to 2.70p (1998: 2.00p), an increase of 14%. Acquisitions During the year, the company made three strategic acquisitions; Sage Laboratories, a US based manufacturer of microwave products, LK Products, a Finnish based manufacturer of microwave products principally for cellular handsets and the Solid State division of Litton Systems (now known as Filtronic Solid State), a US based manufacturer of microwave products and gallium arsenide semiconductors. These results consolidate Sage Laboratories from 25 June 1998, LK Products from 18 September 1998 and Filtronic Solid State from 5 October 1998. Operations Wireless Infrastructure The Wireless Infrastructure business contributed £120.0m (1998: £89.8m) of sales, an increase of 33.6% compared to 1998 and £12.7m (1998: £13.3m) of operating profit before goodwill amortisation. In Europe, this business area performed very strongly as a result of continuing strength in global demand for GSM and PCN integrated subsystems. Filtronic Comtek (UK) Limited contributed sales of £50.5m (1998: £41.6m) and operating profit of £8.1m (1998: £5.7m), an increase in margins from 13.7% to 16.0%. In the USA, Filtronic Comtek, Inc. recorded sales of £49.8m (1998: £44.8m) and operating profit of £5.6m (1998: £6.8m). Operating margins for Filtronic Comtek, Inc. fell due to increases in operational infrastructure costs in preparation for anticipated growth in demand which has been delayed. This delay, together with start up costs of £1.7m in developing Wireless Infrastructure activities in Finland, reduced the operating profit margin in this business segment to 10.5% from 14.9%. In Australia, despite the Far Eastern economic crisis, sales of £5.0m (1998: £3.4m) and operating profits of £0.9m (1998: £0.8m) were achieved. The new 60,000 sq ft facility in Brisbane will be completed in August 1999, providing an excellent base for growth in this region. Cellular handset products This business segment is carried out wholly within LK Products in Finland at present and has performed exceptionally well, contributing sales of £38.8m and operating profit before goodwill amortisation of £11.5m. The antenna products division continues to grow and represented 30.0% of sales in this business. The ceramic filter facility continues to operate at full capacity and represented 41.3% of sales. Electronic warfare The integration of Filtronic Components, Sage Laboratories and the Electronic Warfare division of Filtronic Solid State has proceeded very successfully. Components has achieved consistent manufacturing performance resulting in sales of £14.5m and an operating profit of £2.0m. Sage recorded an operating profit before goodwill amortisation of £0.6m, a 13.5% margin on sales of £4.5m. At Filtronic Solid State, total Electronic Warfare sales of £7.7m included £3.8m sales of semiconductor products. Cable Cable has succeeded in winning increased levels of business for both filter and amplifier products enabling the business to achieve sales of £1.9m. This resulted in an operating loss of £0.4m. Although Cable has traded profitability in certain months, demand has not yet reached a level where consistent profitability is being achieved. Board of directors In October 1998, the company was successful in recruiting Professor Christopher Snowden, a world leading expert in the field of gallium arsenide semiconductors, as Director of Technology. Chris has already developed a Global Technology Group which is heavily involved in bringing together the technologies which exist in our various businesses to apply them effectively in new product development. In March, the Board was strengthened further by the appointment of Ian Hardington as a non-executive director. Ian's experience as an investment banker with SG Cowen Securities Corporation in New York together with his knowledge of the global telecoms industry complements the skills of the other non-executive directors well. Technology integration and product development In June 1999, a three day global conference for Filtronic engineers from all businesses was held in Yorkshire. Over 140 delegates attended and 80 technical papers were presented by the company's staff. The conference was an outstanding success, promoting a strong interchange of ideas and the integration of various technologies. The first truly cross-company product development is now close to realisation. Prototype versions of an integrated module for cellular handsets have been developed. These modules incorporate internal antennas, thin block ceramic filters, high performance low noise amplifiers and power amplifiers manufactured using gallium arsenide semiconductors and represent a significant step forward in cellular handset component integration. An engineering and product development team involving staff from LK Products, Filtronic Solid State and the Global Technology Group has been assembled to develop this product. Prototypes have been supplied to a leading handset manufacturer with excellent preliminary results. Other advanced engineering projects which are also proceeding well include the development of highly linear power amplifiers for base station applications and combiners for CDMA systems. These products have particular significance for third generation mobile systems. Current trading In the Wireless Infrastructure business, Filtronic Comtek (UK) Ltd has entered the new financial year with a strong programme position and record sales levels, such that the Board already anticipates that budgeted performance will be significantly exceeded. In the USA, however, sales remain weak, pending the introduction of new products in customers' future programmes. These programmes may not begin in volume until the second half of the new financial year, resulting in the Board's expectation that Filtronic Comtek, Inc. will sustain losses in the first half. A strong recovery in the second half is expected following senior management changes and substantial reductions in operational costs. In Australia, record sales levels have been achieved in July. Continued rapid growth in global mobile telephone demand is expected to maintain strong financial performance in the Cellular Handset Products business. Further global business integration will increase the opportunity for continued growth in the Electronic Warfare business. In summary, however, the slow start to the new year for the US Wireless Infrastructure business will mean that results for the whole company will be even more strongly weighted towards the second half of the financial year than normal. Outlook In 1998, Filtronic plc grew rapidly both organically and through acquisition. The company now has several key technologies under its control. Future growth will be maximised by the effective use of these technologies and by continuing to apply them to markets which offer exceptional growth opportunities. Our core business markets continue to provide such opportunities and our outstanding engineering talent continues to develop innovative products for these markets. As the wireless communications market continues to demonstrate increasing levels of technical requirement alongside very high growth rates, the Board remains confident in the company's ability to achieve further significant growth.' Professor J D Rhodes, OBE FREng FRS Executive Chairman 2 August 1999 Consolidated Profit and Loss Account for the year ended 31 May 1999 Continuing operations Acquisitions Ongoing 1999 1998 note £000 £000 £000 £000 Sales 65,491 121,811 187,302 94,093 -------- -------- -------- -------- Operating profit before goodwill amortisation 9,967 14,474 24,441 12,024 Goodwill amortisation 2,548 - 2,548 - -------- -------- -------- -------- Operating profit 7,419 14,474 21,893 12,024 -------- -------- -------- -------- Exceptional gain 1 2,620 - 2,620 - -------- -------- -------- -------- Net interest payable 2 7,193 1,012 Net financing currency exchange loss 3 3,653 - Exceptional finance costs 4 1,167 - -------- -------- 12,013 1,012 -------- -------- Profit on ordinary activities before taxation 12,500 11,012 Taxation on profit on ordinary activities 5 1,724 3,137 -------- -------- Profit on ordinary activities after taxation 10,776 7,875 Dividends 6 1,615 963 -------- -------- Profit retained for the year 9,161 6,912 ==== ==== Adjusted earnings per share Undiluted 7 25.01p 17.08p Diluted 7 22.71p 15.33p Earnings per share Undiluted 7 19.21p 17.08p Diluted 7 17.45p 15.33p Dividend per share 6 2.70p 2.00p Consolidated Balance Sheet at 31 May 1999 1999 1998 £000 £000 Fixed assets Intangible assets 67,384 - Tangible assets 55,610 29,683 ---------- ---------- 122,994 29,683 ---------- ---------- Current assets Stocks 23,540 15,885 Debtors 45,078 20,335 Cash 22,459 1,782 ---------- ---------- 91,077 38,002 Creditors: amounts falling due within one year 29,665 34,169 ---------- ---------- Net current assets 61,412 3,833 ---------- ---------- Total assets less current liabilities 184,406 33,516 Creditors: amounts falling due after one year 104,288 4,285 ---------- ---------- Net assets 80,118 29,231 ====== ====== Capital and reserves Called up share capital 5,995 4,903 Share premium account 54,172 11,691 Revaluation reserve 106 106 Profit and loss account 19,845 12,531 ---------- ---------- Equity shareholders' funds 80,118 29,231 ====== ====== Approved by the Board on 2 August 1999 Professor J D Rhodes OBE FREng FRS J Samuel FCA Consolidated Cash Flow Statement for the year ended 31 May 1999 note 1999 1998 £000 £000 Net cash flow from operating activities A 19,229 4,872 ---------- ---------- Returns on investment and servicing of finance Interest received 1,243 111 Interest paid (7,876) (947) Interest element of finance lease payments (153) (176) Debt issue costs paid (4,888) - Exceptional finance costs paid (1,167) - ---------- ---------- Net cash flow from returns on investment and servicing of finance (12,841) (1,012) ---------- ---------- Tax paid (6,823) (790) ---------- ---------- Capital expenditure Purchase of tangible fixed assets (16,704) (9,835) Sale of tangible fixed assets 413 436 Exceptional proceeds from insurance claim 1,247 - ---------- ---------- Net cash flow from capital expenditure (15,044) (9,399) ---------- ---------- Acquisitions Purchase of subsidiary undertakings (81,311) (270) Net cash/(overdrafts) acquired with subsidiary undertakings 8,755 (2,274) ---------- ---------- Net cash flow from acquisitions (72,556) (2,544) ---------- ---------- Equity dividends paid (1,199) (743) ---------- ---------- ---------- ---------- Net cash flow before financing (89,234) (9,616) ---------- ---------- Financing Issue of shares 25,920 1,371 Capital element of finance lease payments (626) (628) Loans taken out 216,731 - Loans repaid (115,921) (213) ---------- ---------- Net cash flow from financing 126,104 530 ---------- ---------- ---------- ---------- Increase/(decrease) in cash B 36,870 (9,086) ====== ====== Notes to the Consolidated Cash Flow Statement for the year ended 31 May 1999 A. Reconciliation of operating profit to net cash flow from operating activities 1999 1998 £000 £000 Operating profit 21,893 12,024 Goodwill amortisation 2,548 - Depreciation 7,284 2,894 Profit on disposal of tangible fixed assets (171) (36) Increase in stocks (1,418) (5,037) Increase in debtors (14,969) (4,983) Increase in creditors 4,062 10 --------- --------- Net cash flow from operating activities 19,229 4,872 ===== ===== B. Reconciliation of net cash flow to movement in net debt 1999 1998 £000 £000 Increase/(decrease) in cash 36,870 (9,086) Cash flow from debt (95,922) 213 Cash flow from finance leases 626 628 --------- --------- Change in net debt from cash flows (58,426) (8,245) Loans and finance leases acquired with subsidiary undertakings (304) (1,681) Non-cash movement 409 (654) Currency exchange movement (4,238) (68) --------- --------- Movement in net debt (62,559) (10,648) Opening net debt (20,291) (9,643) --------- --------- Closing net debt (82,850) (20,291) ====== ====== C. Analysis of movement in net debt At Acquired Currency At 1 June Cash with Non-cash exchange 31 May 1998 flow subsidiaries movement movement 1999 £000 £000 £000 £000 £000 £000 Cash 1,782 22,459 Overdrafts (16,812) - -------- -------- Net cash/ (15,030) 36,870 - - 619 22,459 (overdrafts) -------- -------- Loans due within one year (320) (431) Loans due after one year (2,903) (103,452) -------- -------- Loans (3,223) (95,922) (304) 409 (4,843) (103,883) -------- -------- Finance leases due within one year (656) (590) Finance leases due after one year (1,382) (836) -------- -------- Finance leases (2,038) 626 - - (14) (1,426) -------- -------- -------- -------- -------- -------- -------- -------- Net debt (20,291) (58,426) (304) 409 (4,238) (82,850) ==== ==== ==== ==== ==== ==== Notes to the Financial Statements for the year ended 31 May 1999 1. Exceptional gain 1999 1998 £000 £000 Exceptional gain from an insurance claim 2,620 - ===== ===== During the year Filtronic Solid State made an insurance claim for the replacement cost of equipment destroyed by fire, which had nil book value. An exceptional gain arose equal to the insurance claim of £2,620,000. At 31 May 1999 £1,247,000 had been received and the balance of £1,373,000 is included as other debtors. 2. Net interest payable 1999 1998 £000 £000 Interest receivable Bank interest receivable 1,243 111 ===== ===== Interest payable Interest on bank loans and overdrafts 2,929 821 Interest on other loans 4,865 126 Finance lease interest 153 176 Other interest 82 - Debt issue costs amortisation 407 - --------- --------- 8,436 1,123 --------- --------- Net interest payable 7,193 1,012 ===== ===== 3. Net financing currency exchange loss 1999 1998 £000 £000 Currency exchange gain on cash balances (848) - Currency exchange loss on loan 4,501 - --------- --------- 3,653 - ===== ===== 4. Exceptional finance costs 1999 1998 £000 £000 Exceptional finance costs 1,167 - ===== ===== The exceptional finance costs relate to obtaining a short term loan that was used primarily to finance the acquisitions of LK Products and Filtronic Solid State (formerly Litton Solid State). 5. Taxation on profit on ordinary activities 1999 1998 £000 £000 Corporation tax (297) 1,876 Adjustment to prior year (592) (126) --------- --------- (889) 1,750 Overseas taxation 2,613 1,387 --------- --------- 1,724 3,137 ===== ===== The effect on the tax charge of exceptional items recognised below operating profit is a credit of £362,000 (1998: nil). The amount of unprovided deferred taxation for the year was £162,000 (1998: £526,000). 6. Dividends 1999 1998 1999 1998 per share per share £000 £000 Interim dividend - paid 0.90p 0.65p 537 301 Final dividend - proposed 1.80p 1.35p 1,078 662 --------- --------- --------- --------- 2.70p 2.00p 1,615 963 ===== ===== ===== ===== 7. Earnings per share 1999 1998 Adjusted earnings per share 25.01p 17.08p Effect of adjusted items net of taxation (5.80p) - --------- --------- Earnings per share 19.21p 17.08p ===== ===== Adjusted diluted earnings per share 22.71p 15.33p Effect of adjusted items net of taxation (5.26p) - --------- --------- Diluted earnings per share 17.45p 15.33p ===== ===== £000 £000 Adjusted earnings 14,030 7,875 Goodwill amortisation (2,548) - Exceptional gain 2,620 - Net financing currency exchange loss (3,653) - Exceptional finance costs (1,167) - Taxation on adjusted items 1,494 - --------- --------- Profit on ordinary activities after taxation 10,776 7,875 ===== ===== Weighted average number of shares in issue 56,105,681 46,095,314 Dilution effect of share options 5,661,926 5,286,754 --------- --------- Diluted weighted average number of shares 61,767,607 51,382,068 ======== ======== The adjusted earnings per share figures have been provided in order that the effects of the adjusted items on reported earnings per share can be fully appreciated.

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