Final Results

Filtronic PLC 31 July 2000 FILTRONIC PLC: PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2000 Sales Up 18.7% to £222.3m; Operating Profit of £18.3m before Goodwill Amortisation and Newton Aycliffe costs In line with Trading Statement expectations; Confident Outlook Filtronic plc, a leading international designer and manufacturer of microwave and millimetre wave products for global wireless and cable telecommunications systems and electronic warfare, announces preliminary results for the year ended 31 May 2000. Filtronic has 16 operational sites, in the UK (Yorkshire, Co. Durham, the Midlands and Scotland), the US (Maryland, New Hampshire, Massachusetts, California and Chicago), Australia (Brisbane), Finland (Oulu) and China (Suzhou). Filtronic supplies most of the leading OEMs in the mobile phone industry, including Nokia, Motorola, Lucent, Nortel, Philips and Ericsson. Results are in line with the last Trading Statement issued on 3 May 2000. Key Points of the Results * Sales up 18.7% to £222.3m (1999: £187.3m) * Operating profit of £18.3m (1999: £24.4m) before goodwill and Newton Aycliffe costs * Significant improvement in second half profitability before charging £9.7m of operating costs for Newton Aycliffe facility * Pre-tax loss of £3.9m (1999: pre-tax profit £12.5m) * Loss per share of 11.64p (1999: 18.49p earnings per share) * Final dividend per share 1.80p; total dividend maintained at 2.70p per share (1999: 2.70p) payable 1 November 2000 * £38m invested for Compound Semiconductors, mainly at Newton Aycliffe Trading and Operations * Wireless Infrastructure business: strong growth in all operations worldwide * Strong second half year performance in US eliminates first half loss * Primary supplier worldwide to 3 major OEM customers in new generation base station programmes * New power amplifier activity established for 3G systems * Cellular Handset Products business: strong sales, market growth now over 50% per annum * Market share in handset antennas now 15% * Market leading position in internal antennas * New ceramic filter plant at Kempele, Finland increases current capacity 5- fold * Compound Semiconductors: well positioned to address significant opportunities in both handsets and base stations * New power amplifier devices for 3G base stations * Broadband Access: sales growth, investment in automated plant for transceivers, increasing volumes of cable amplifiers * Electronic Warfare business: expected to grow steadily. Regarding Prospects, Professor David Rhodes, Executive Chairman, in his statement said: 'The growth prospects of our new business areas, together with those of the more established businesses, give the Board great confidence that Filtronic will provide its shareholders with outstanding and sustainable growth.' Enquiries: Professor David Rhodes, Executive Chairman, Filtronic plc Tel: 020 7786 9600 John Samuel, Finance Director, Filtronic plc Chris Scholfield, Director, Filtronic plc Tel: 01274 530622 Peter Binns/Mike Tate, Binns & Co Tel: 0207 786 9600 Executive Chairman's Statement Results In line with expectations outlined in my trading statement issued on 3 May 2000, operating profit was £18.3m (1999 £24.4m) on sales of £222.3m (1999 £187.3m) before goodwill amortisation of £3.5m, and prior to charging £9.7m of operating costs related to establishing our new compound semiconductor manufacturing facility at Newton Aycliffe in England. The second half of the financial year contributed £12.6m of this operating profit on sales of £128.3m, representing a significant improvement in performance over the first half. After deducting the charges for goodwill and Newton Aycliffe, net interest costs of £9.9m and after crediting a net financing currency exchange gain of £0.9m, the loss before taxation was £3.9m (1999 £12.5m profit) which, after taxation, increased to £7.9m (1999 £10.8m profit). This resulted in a loss per share of 11.64p (1999 18.49p earnings) which is the same on a diluted basis (1999 16.85p earnings). The Board is recommending a final dividend of 1.80p per share (1999 1.80p) payable on 1 November 2000 to shareholders on the register at 25 August 2000, maintaining the total dividend for the year at 2.70p (1999 2.70p). Review of operations and current trading Wireless infrastructure This business segment contributed £131.9m of sales (1999 £120.0m) and £9.3m (1999 £12.7m) of operating profit before goodwill amortisation. There was strong growth in our operations in the UK, Finland and Australia. In the USA, the loss of £4.2m incurred in the first half, which was anticipated in my statement 12 months ago, was eliminated by a strong performance in the second half of the financial year. In all of our operations throughout the world, including our new facility in China, we are experiencing significant growth which is expected to continue throughout the current financial year. Cellular handset products The Cellular Handset Products segment achieved sales of £48.2m (1999 £38.8m - 9 months only) and an operating profit of £11.9m (1999 £11.5m - 9 months only). Significant growth has occurred in the antenna products division in Finland and now in the new facility in China, resulting in our share of the world market in handset antennas increasing from approximately 11% to 15%. Substantial growth is expected to continue in the antenna division in both Finland and China in the current financial year together with an increase in ceramic diplexers as a result of the commissioning of a new ceramic diplexer facility of 70,000 sq. ft. in Kempele, Finland which will now remove the capacity limitations experienced in this division. Electronic warfare Sales of £26.0m contributed an operating profit of £1.3m. Each operation in the UK, USA and Australia made a small profit. In the UK, investment is continuing in preparation for the production phase of the Eurofighter programme with shipments scheduled to begin in September 2001. Broadband access In this new business segment, sales of £9.5m resulted in an operating loss of £3.4m. Within these results the cable activity recorded a small operating profit on £3.2m of sales. A team has been established in the UK to address opportunities in the wireless broadband access market. Considerable efforts are now being expended to increase the manufacturing capacity for the broadband wireless products in the UK including establishing an automated assembly system in a clean environment at Newton Aycliffe which will be commissioned for the second half of the financial year. Compound semiconductors Sales of £7.2m resulted in an operating loss of £8.2m after incurring costs of £9.7m arising from the commissioning of the Newton Aycliffe plant to produce 6' compound semiconductor wafers. This business completed a notable achievement in bringing the Newton Aycliffe facility, which was acquired on 1 September 1999, into operational status on time and on budget. All of the sales of this business segment were achieved in Santa Clara, California, giving rise to an operating profit of £1.5m there. Board of directors In November 1999, the Board was strengthened by the appointment of Graham Meek as a non-executive director. Graham is a director of Beeson Gregory Ltd and has wide experience as a corporate finance advisor in the City. Corporate brokers In July 2000, the Board announced the appointment of Cazenove & Co as corporate brokers. The Board wishes to thank Panmure Gordon & Co Ltd, latterly WestLB Panmure Ltd, for their hard work and advice over the past six years. Outlook In Wireless Infrastructure a significant number of new products have moved into the production phase during the last 6 months both in Europe and the USA. These products have secured Filtronic's position as primary supplier to three major OEM customers on their new generation base station programmes. Our current products fulfill the requirements for transmit/receive modules in the base station but do not include the power amplifiers, which represent a similar market opportunity in potential sales revenue. We have now established teams in both the USA and UK to address this opportunity with a proprietary product offering which is particularly suitable for 3G systems using WCDMA or CDMA2000. The new design leverages our experience in ultra high performance microwave ceramic filters and our ability to produce large power PHEMTs at Newton Aycliffe in a cost effective manner. In Cellular Handset Products, a continued market shift towards internal antennas, where we have a leading market position is anticipated, resulting in a further increase in market share. The increase in our ceramic diplexer production capacity will also provide the opportunity to develop new customers for these products. The Electronic Warfare business is expected to grow steadily although preparations for the manufacture of the European Fighter Aircraft products will hold back growth in operating profits in the next financial year. During the coming year, the fixed network business within Broadband Access is expected to grow in line with the cable communications market. Automated production capacity in Newton Aycliffe for broadband wireless products will come on stream during the second half of the financial year supporting production of high capacity wireless transceivers. The ability to produce millimetre wave products in high volumes will significantly improve our position in this rapidly expanding market. We are now well positioned to address significant opportunities in the Compound Semiconductor business, however, as I have previously stated, there will be no significant sales in the UK in the first half of the current financial year. New types of power amplifier devices which we are able to produce in volume at Newton Aycliffe enable Filtronic to address both the mobile handset and base station markets. Each market provides similar and substantial volume requirements for wafer production. Prospects The growth prospects of these new business areas, together with those of the more established businesses, give the Board great confidence that Filtronic will provide its shareholders with outstanding and sustainable growth. Professor J D Rhodes CBE FRS FREng Executive Chairman Consolidated Profit and Loss Account for the year ended 31 May 2000 2000 1999 note £000 £000 Sales 1,2 222,294 187,302 ------------ ------------- Operating profit before goodwill amortisation 8,585 24,441 Goodwill amortisation 3,522 2,548 ------------ ------------- Operating profit 1,2 5,063 21,893 ------------ ------------- Exceptional gain 3 - 2,620 ------------ ------------- Net interest payable 4 9,878 7,193 Net financing currency exchange (gain)/loss 5 (923) 3,653 Exceptional finance costs 6 - 1,167 ------------ ------------- 8,955 12,013 ------------ ------------- (Loss)/profit on ordinary activities before taxation (3,892) 12,500 Taxation on (loss)/profit on ordinary activities 7 4,032 1,724 ------------ ------------- (Loss)/profit on ordinary activities after taxation (7,924) 10,776 Dividends 8 1,943 1,615 ------------ ------------- (Deficit)/profit retained for the year (9,867) 9,161 ------------ ------------- Adjusted (loss)/earnings per share Undiluted 9 (7.82p) 24.07p Diluted 9 (7.82p) 21.94p (Loss)/earnings per share Undiluted 9 (11.64p) 18.49p Diluted 9 (11.64p) 16.85p Dividend per share 8 2.70p 2.70p Consolidated Balance Sheet for the year ended 31 May 2000 2000 1999 £000 £000 Fixed assets Intangible assets 64,351 67,384 Tangible assets 105,538 55,610 ------------ ------------- 169,889 122,994 ------------ ------------- Current assets Stocks 39,706 23,540 Debtors 61,310 45,078 Cash 39,545 22,459 ------------ ------------- 140,561 91,077 Creditors: amounts falling due within one year 53,234 29,196 ------------ ------------- Net current assets 87,327 61,881 ------------ ------------- Total assets less current liabilities 257,216 184,875 Creditors: amounts falling due after one year 110,465 104,288 Accruals and deferred income 1,202 469 ------------ ------------- Net assets 145,549 80,118 ------------ ------------- Capital and reserves Called up share capital 7,199 5,995 Share premium account 128,106 54,172 Revaluation reserve 106 106 Profit and loss account 10,138 19,845 ------------ ------------- Equity shareholders' funds 145,549 80,118 ------------ ------------- Consolidated Cash Flow Statement for the year ended 31 May 2000 2000 1999 note £000 £000 Net cash flow from operating activies A 6,926 19,229 ----------- ------------- Returns on investment and servicing of finance Interest received 2,545 1,243 Interest paid (11,414) (7,876) Interest element of finance lease payments (153) (153) Debt issue costs paid (1,008) (4,888) Exceptional finance costs paid - (1,167) ----------- ------------- Net cash flow from returns on investment and servicing of finance (10,030) (12,841) ----------- ------------- Tax paid (2,305) (6,823) ----------- ------------- Capital expenditure Purchase of tangible fixed assets (54,883) (16,704) Sale of tangible fixed assets 170 413 Government grants received 750 - Exceptional proceeds from insurance claim 1,373 1,247 ----------- ------------- Net cash flow from capital expenditure (52,590) (15,044) ----------- ------------- Acquisitions Purchase of subsidiary undertakings - (81,311) Net cash acquired with subsidiary undertakings - 8,755 ----------- ------------- Net cash flow from acquisitions - (72,556) ----------- ------------- Equity dividends paid (1,725) (1,199) ----------- ------------- ----------- ------------- Net cash flow before financing (59,724) (89,234) ----------- ------------- Financing Issue of shares 75,039 25,920 Capital element of finance lease payments (1,326) (626) Loans taken out - 216,731 Loans repaid (1,684) (115,921) ----------- ------------- Net cash flow from financing 72,029 126,104 ----------- ------------- ----------- ------------- Increase in cash B 12,305 36,870 ----------- ------------- Notes to the Consolidated Cash Flow Statement for the year ended 31 May 2000 A: Reconciliation of operating profit to net cash flow from operating activities 2000 1999 £000 £000 Operating profit 5,063 21,893 Goodwill amortisation 3,522 2,548 Depreciation 9,737 7,284 Loss/(profit) on disposal of tangible fixed assets 33 (171) Government grants released (17) (17) Increase in stocks (15,462) (1,418) Increase in debtors (17,217) (14,969) Increase in creditors 21,267 4,079 ----------- ------------- Net cash flow from operating activies 6,926 19,229 ----------- ------------- B: Reconciliation of net cash flow to movement in net debt 2000 1999 £000 £000 Increase in cash 12,305 36,870 Cash flow from debt 2,692 (95,922) Cash flow from finance leases 1,326 626 ----------- ------------- Change in net debt from cash flows 16,323 (58,426) Loan acquired with subsidiary undertaking - (304) Non-cash movement (1,672) 409 Currency exchange movement (3,108) (4,238) ----------- ------------- Movement in net debt 11,543 (62,559) Opening net debt (82,850) (20,291) ----------- ------------- Closing net debt (71,307) (82,850) ----------- ------------- Notes to the Consolidated Cash Flow Statement for the year ended 31 May 2000 C: Analysis of movement in net debt At Cash Non-cash Currency At 31 1 June flow movement exchange May 2000 1999 movement £000 £000 £000 £000 £000 Cash 22,459 12,305 - 4,781 39,545 -------- ---------- Loans due within one year (431) (240) Loans due after one year (103,452) (110,465) -------- ---------- Loans (103,883) 2,692 (1,672) (7,842) (110,705) -------- ---------- Finance leases due within one year (590) (147) Finance leases due after one year (836) - -------- ---------- Finance leases (1,426) 1,326 - (47) (147) -------- ---------- -------- ------ ---------- ---------- ---------- Net debt (82,850) 16,323 (1,672) (3,108) (71,307) -------- ---------- Statement of Total Recognised Gains and Losses for the year ended 31st May 2000 2000 1999 £000 £000 (Loss)/profit on ordinary activities after taxation (7,924) 10,776 Currency exchange movement arising on consolidation 4,214 (500) Currency exchange movement on loan (3,955) (304) Taxation on currency exchange movements - (443) ------------- ------------- Total recognised gains and losses (7,665) 9,529 ------------- ------------- Reconciliation of Shareholders' Funds for the year ended 31 May 2000 2000 1999 £000 £000 (Loss)/profit on ordinary activities after taxation (7,924) 10,776 Dividends 1,943 1,615 ------------- ------------- (Deficit)/profit retained for the year (9,867) 9,161 Contribution to QUEST (99) (600) Currency exchange movement arising on consolidation 4,214 (500) Currency exchange movement on loan (3,955) (304) Taxation on currency exchange movements - (443) Issue of shares (net of issue costs) 75,138 43,573 ------------- ------------- Movement in shareholders' funds 65,431 50,887 Opening shareholders' funds 80,118 29,231 ------------- ------------- Closing shareholders' funds 145,549 80,118 ------------- ------------- Notes to the Financial Statements for the year ended 31 May 2000 1: Geographical segment analysis 2000 1999 £000 £000 Sales United Kingdom 79,437 67,723 Finland 54,055 41,835 United States of America 86,118 73,656 Australia 8,445 5,436 China 373 - Inter segment (6,134) (1,348) ------------- ------------- 222,294 187,302 ------------- ------------- Operating profit United Kingdom 321 9,877 Finland 10,606 9,813 United States of America (989) 5,712 Australia 1,395 819 China (401) - ------------- ------------- 10,932 26,221 Central costs 2,347 1,780 ------------- ------------- Operating profit before goodwill amortisation 8,585 24,441 ------------- ------------- Goodwill amortisation Finland 1,839 1,446 Goodwill amortisation United States of America 1,683 1,102 ------------- ------------- Goodwill amortisation 3,522 2,548 ------------- ------------- Operating profit 5,063 21,893 ------------- ------------- Notes to the Financial Statements for the year ended 31 May 2000 2: Business segment analysis 2000 1999 £000 £000 Sales Wireless infrastructure 131,868 119,955 Cellular handset products 48,177 38,751 Electronic warfare 25,995 26,673 Broadband access 9,524 1,923 Compound semiconductors 7,212 - Inter segment (482) - ------------- ------------- 222,294 187,302 ------------- ------------- Operating profit Wireless infrastructure 9,296 12,650 Cellular handset products 11,917 11,508 Electronic warfare 1,295 2,432 Broadband access (3,365) (369) Compound semiconductors (8,211) - ------------- ------------- 10,932 26,221 Central costs 2,347 1,780 ------------- ------------- Operating profit before goodwill amortisation 8,585 24,441 ------------- ------------- Goodwill amortisation cellular handset products 1,839 1,446 Goodwill amortisation electronic warfare 242 1,102 Goodwill amortisation compound semiconductors 1,441 - ------------- ------------- Goodwill amortisation 3,522 2,548 ------------- ------------- Operating profit 5,063 21,893 ------------- ------------- Notes to the Financial Statements for the year ended 31 May 2000 3: Exceptional gain 2000 1999 £000 £000 Exceptional gain from an insurance claim - 2,620 ------------- ------------- During the year ended 31 May 1999 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 was received during the year. 4: Net interest payable 2000 1999 £000 £000 Interest receivable Bank interest receivable 2,545 1,243 ------------- ------------- Interest payable Interest on bank loans and overdrafts 81 2,929 Interest on other loan 11,333 4,865 Finance lease interest 153 153 Other interest - 82 Debt issue costs amortisation 856 407 ------------- ------------- 12,423 8,436 ------------- ------------- ------------- ------------- Net interest payable 9,878 7,193 ------------- ------------- Notes to the Financial Statements for the year ended 31 May 2000 5: Net financing currency exchange (gain)/loss 2000 1999 £000 £000 Currency exchange on cash balances (4,672) (848) Currency exchange loss on loan 3,749 4,501 ------------- ------------- (923) 3,653 ------------- ------------- 6: Exceptional finance costs 2000 1999 £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 Filtronic LK Oy (formerly LK- Products Oy) and Filtronic Solid State (formerly Litton Solid State). 7: Taxation on (loss)/profit on ordinary activities 2000 1999 £000 £000 Corporation tax 175 (297) Adjustment to prior year 55 (592) ------------- ------------- 230 (889) Overseas taxation 3,802 2,613 ------------- ------------- 4,032 1,724 ------------- ------------- Overseas taxation arises because taxable profits in Finland and Australia cannot be relieved by losses available in the UK and the USA. Notes to the Financial Statements for the year ended 31 May 2000 8: Dividends 2000 1999 2000 1999 per share per share £000 £000 Interim dividend - paid 0.90p 0.90p 647 537 Final dividend - proposed 1.80p 1.80p 1,296 1,078 ----------- ----------- ----------- ---------- 2.70p 2.70p 1,943 1,615 ----------- ----------- ----------- ---------- Notes to the Financial Statements for the year ended 31 May 2000 9: Earnings per share 2000 1999 Adjusted (loss)/earnings per share (7.82p) 24.07p Effect of adjusted items net of taxation (3.82p) (5.58p) ------------- ------------- (Loss)/earnings per share (11.64p) 18.49p ------------- ------------- Adjusted diluted (loss)/earnings per share (7.82p) 21.94p Effect of adjusted items net of taxation (3.82p) (5.09p) ------------- ------------- Diluted (loss)/earnings per share (11.64p) 16.85p ------------- ------------- £000 £000 Adjusted (loss)/earnings (5,325) 14,030 Goodwill amortisation (3,522) (2,548) Exceptional gain - 2,620 Net financing currency exchange gain/(loss) 923 (3,653) Exceptional finance costs - (1,167) Taxation on adjusted items - 1,494 ------------- ------------- (Loss)/profit on ordinary activities after taxation (7,924) 10,776 ------------- ------------- Weighted average number of shares in issue 68,054,710 58,293,803 Dilution effect of share options - 5,661,926 ------------- ------------- Diluted weighted average number of shares 68,054,710 63,955,729 ------------- ------------- 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. The weighted average number of shares in issue in the periods prior to the rights issue have been increased to take account of the bonus element of the rights issue.

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