Interim Results - 6 Months to 30 November 1999

Filtronic PLC 31 January 2000 FILTRONIC PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 1999 Sales up 13.6% to £93.9m; Operating profit before goodwill amortisation of £4m; Near and long term confident outlook Filtronic plc ('Filtronic'), a leading international designer and manufacturer of sophisticated microwave products for global wireless and cable telecommunications and electronic warfare applications, announces interim results for the six months ended 30 November 1999. Filtronic has 16 operational sites in the UK (Yorkshire, Co. Durham, the Midlands and Scotland), the United States (Maryland, New Hampshire, Massachusetts, California and Chicago), Australia (Brisbane), Finland (Oulu) and China (Suzhou). Results are in line with the Trading Statement issued on 7 December 1999. At that time, Filtronic said that 'the slow start to the new year for the US Wireless Infrastructure business means that results for the whole company will be even more strongly weighted towards the second half of the financial year than normal'. Highlights of the interim results * Sales up 13.6% to £93.9m (1998: £82.7m) * Operating profit before goodwill amortisation £4.0m (1998: £9.7m) * Loss before tax of £1.5m (1998: £5.8m profit), after charging goodwill amortisation of £1.7m, net interest payable of £5.5m and after crediting a foreign currency exchange gain of £1.7m and after £1.7m costs relating to establishing new semiconductor facility in Co. Durham * Adjusted loss per share 5.41p (1998: 10.18p EPS), 5.38p (1998: 7.22p EPS on unadjusted basis) * Interim dividend of 0.9p per share maintained (1998: 0.9p), payable 3 April. Trading and Operations * Strong sales from the UK in Wireless Infrastructure, increased operating margins to 18% * Sales from Australia doubled, now also addressing China * Internal management issues in US Wireless Infrastructure operations resolved * US operation designed in sole source for major Chinese programme * Filtronic Solid State rationalised to focus on semiconductors for mobile handset and base station products * Sales and operating profits for cellular handset products up * Market share in cellular handset antennas should double to 20% in 2000 * New facility established in China now supplying antennas * Handset module being actively promoted with three leading handset manufacturers * Launches of innovative power amplifiers for base stations * First handset to use integrated front end module due for production later this year * Production to commence this summer at new Co. Durham plant acquired from Fujitsu. Outlook In his statement to shareholders, Executive Chairman, Professor David Rhodes says: 'These significant opportunities lead me to have confidence in the near term prospects for growth in sales and profitability. Looking further ahead, the technical demands for Radio Frequency products in third generation mobile systems remain challenging in both the infrastructure and handset areas. Filtronic plc is devoting even greater engineering and technical resources to develop the products which these systems will require and to position the company at the forefront of high capacity wireless communications systems.' Enquiries: Professor David Rhodes, Executive Chairman, Filtronic plc Professor Christopher Snowden, Joint CEO, 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/Jane Mallinson, Binns & Co Tel: 0171 786 9600 Executive Chairman's Statement Current trading and operations On 7 December 1999 I issued a detailed statement on current trading activity and business developments. Results for the six months ended 30 November 1999 are in line with that statement and, as previously indicated, results for the whole company will be even more strongly weighted towards the second half of the financial year than normal. I am pleased to report that we have resolved the internal factors that were impeding progress in our US Wireless Infrastructure business. Nevertheless, uncertainties remain concerning second half performance as the timing and scale of certain customer programmes throughout the Wireless Infrastructure business continue to cause significant fluctuations in short term trading. We have also rationalised the Filtronic Solid State operation in California to focus primarily on the new semiconductor requirements for both mobile handset and base station products. Following this restructuring and the management changes implemented at Filtronic Comtek, Inc., I believe our US operations as a whole are now better placed to contribute to the overall objectives of Filtronic plc. Interim financial results Sales for the six months ended 30 November 1999 were £93.9m (1998: £82.7m), an increase of 13.6% over the comparable period for last year. Operating profit before goodwill amortisation was £4.0m (1998: £9.7m). After charging goodwill amortisation of £1.7m, net interest payable of £5.5m and crediting a foreign currency exchange gain of £1.7m, there was a loss before taxation of £1.5m (1998: £5.8m profit). After taxation charges of £2.0m which relate to our Australian and Finnish operations, the loss was £3.5m (1998: £4.0m profit). These results are after charging £1.7m of costs related to establishing our new semiconductor facility at Newton Aycliffe and central costs, which are not allocated to our business segments, of £1.4m. The loss per share is 5.38p (1998: 7.22p earnings) and 5.41p (1998: 10.18p earnings) on an adjusted basis. Dividend The Board is maintaining an interim dividend of 0.9 per share (1998: 0.9p) which will be paid on 3 April 2000 to shareholders on the register at 3 March 2000. Operations Wireless Infrastructure With sales of £55.5m (1998: £55.5m), Wireless Infrastructure remains our largest business segment recording an operating profit of £0.6m (1998: £5.9m). In the UK, the Wireless Infrastructure business has traded strongly, contributing sales of £30.3m (1998: £25.0m), an increase of 21%, and an operating profit of £5.5m (1998: £3.6m). This represents an increase in operating margin from 14.4% in 1998 to 18.2% as a result of improvements in manufacturing techniques and cost reduction programmes. Our Finnish operation in this segment, which is still in start-up mode, contributed sales of £3m and incurred a loss of £0.9m. Global demand for GSM and PCN systems continues, providing opportunity for further growth. In Australia, our operation has more than doubled sales to £4.4m (1998: £2.1m) and operating profit increased to £1.1m (1998: £0.2m). In August 1999, the business relocated to a purpose built 60,000 sq.ft. facility in Brisbane and is now addressing opportunities in China with indigenous Chinese original equipment manufacturers as well as demand from existing customers. As I indicated in both August and December, our US based Wireless Infrastructure business has had a weak first half of the financial year achieving sales of £14.1m (1998: £25.0m), incurring a loss of £3.8m (1998: £2.5m profit). In early December, I outlined the prospects for Filtronic Comtek, Inc. for the second half of the financial year and emphasised the importance of certain CDMA contracts for the Chinese market if original full year results expectations are to be achieved. Although China Unicom has not yet awarded the relevant contracts, our US operation has successfully developed and delivered prototype product to a major US original equipment manufacturer and is in a sole source position. The other part of our US Wireless Infrastructure business is located at Filtronic Solid State in Santa Clara, California where millimetre wave transceivers are manufactured for the base station point to point market. Demand in this area has fallen sharply to first half sales of only £3.7m. Despite reductions in costs, a loss of £1.3m was sustained in this business area. The near term outlook for this division has deteriorated since my statement in December and, as a result, in mid January, we began to phase out millimetre wave activity at Filtronic Solid State. Future programmes for millimetre wave commercial activity will be supported from our European operations. Cellular Handset Products Sales in the Cellular Handset Products segment were £23.0m with an operating profit of £6.9m. Over 17 million antennas were sold in the six months ended 30 November 1999 compared to 13 million in the six months to 31 May 1999. We estimate that with approximately 11% of the 1999 world market in cellular handset antennas, LK Products has the second largest share of that market. Additionally we have recently established an operation in Suzhou, China which has already started to supply antennas to the Chinese based operation of a European handset manufacturer. In the ceramic filter division, new opportunities for CDMA applications for two leading manufacturers strengthen the growth prospects. Electronic Warfare Our Electronic Warfare division contributed sales of £11.0m (1998: £10.3m) and sustained a small operating loss of £0.2m (1998: £0.3m profit) for the period. As a result of restructuring the activities at Filtronic Solid State, in mid January its Electronic Warfare operation was refocused to concentrate on manufacturing and YIG technology with a much leaner overhead structure. The second half of the financial year is expected to be profitable as a result of a strong order backlog. Cable Cable broke even on sales of £1.4m (1998: £1.0m) compared to a loss of £0.2m sustained in 1998. Second half performance is expected to be similar. Compound semiconductors Last summer, we established a separate business activity in compound semiconductors. This division has operations at Filtronic Solid State in California and at our new facility at Newton Aycliffe in the UK. Sales of £3.1m were achieved, all of which arose from Filtronic Solid State, and an operating loss of £0.2m resulted. Additionally, costs of £1.7m were incurred towards establishing manufacturing at Newton Aycliffe. The semiconductor engineering activity at Filtronic Solid State has been enhanced and now focuses entirely on the development of new products and research into compound semiconductor materials. The recommissioning of the Newton Aycliffe plant is proceeding in line with both cost and time estimates. It is expected that the first gallium arsenide wafers will be processed in March 2000 with production expected to commence in the summer. Board of directors In early November, I announced that Professor Christopher Snowden, who joined in October 1998 as Director of Technology, had been appointed as Joint Chief Executive Officer. At the same time, Graham Meek was appointed as a non- executive director. Financing In October 1999, the company raised £71.5m by way of a successful rights issue at 730p to fund the development and expansion of our semiconductor facility at Newton Aycliffe and our handset products operations at Kempele, Finland. Outlook Investment in wireless infrastructure systems worldwide is expected to increase at least in line with the growth in the total number of subscribers. As a result of subscriber density increasing, higher capacity base stations are to be introduced leading to a significant growth in demand for our current range of Radio Frequency products. Additionally, innovative power amplifiers are being developed for market introduction later this year to address the particular demands of CDMA and GSM-EDGE systems. The global market for sales of cellular handsets is independently forecast to grow by almost 50% in the year 2000 from 270 million to 400 million phones. With handset antenna production already in excess of 1 million units per week, we anticipate doubling our market share in the year 2000 to approximately 20%. To meet customer demand, we are also increasing capacity to manufacture ceramic filters fivefold, with production planned to increase to 1 million pieces per week within the next two years. In early December I announced that the unique concept of the Radio Frequency integrated front end module for mobile handsets is being actively promoted with three leading handset manufacturers. Further engineering innovations which add functionality, enhance performance and reduce the size and cost of the module are being developed with our key customers. The first handset incorporating Filtronic's integrated front end module is due for production late in this calendar year. These significant opportunities lead me to have confidence in the near term prospects for growth in sales and profitability. Looking further ahead, the technical demands for Radio Frequency products in third generation mobile systems remain challenging in both the infrastructure and handset areas. Filtronic plc is devoting even greater engineering and technical resources to develop the products which these systems will require and to position the company at the forefront of high capacity wireless communications systems. Professor J D Rhodes CBE OBE FRS FREng Executive Chairman 31 January 2000 Consolidated Profit and Loss Account Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 note £000 £000 £000 Sales 1,2 93,951 82,709 187,302 -------- -------- -------- Operating profit before goodwill amortisation 3,978 9,729 24,441 Goodwill amortisation 1,726 820 2,548 -------- -------- -------- Operating profit 1,2 2,252 8,909 21,893 -------- -------- -------- Exceptional gain - - 2,620 -------- -------- -------- Net interest payable 5,479 1,987 7,193 Net financing currency exchange (gain)/loss (1,749) - 3,653 Exceptional finance costs - 1,167 1,167 -------- -------- -------- 3,730 3,154 12,013 -------- -------- -------- (Loss)/profit on ordinary activities before taxation (1,478) 5,755 12,500 Taxation 1,995 1,781 1,724 -------- -------- -------- (Loss)/profit on ordinary activities after taxation (3,473) 3,974 10,776 Dividends 644 527 1,615 -------- -------- -------- (Deficit)/profit retained for the period (4,117) 3,447 9,161 ===== ===== ===== Adjusted (loss)/earnings per share Undiluted 3 (5.41p) 10.18p 24.07p Diluted 3 (5.41p) 9.44p 21.94p (Loss)/earnings per share Undiluted 3 (5.38p) 7.22p 18.49p Diluted 3 (5.38p) 6.70p 16.85p Dividend per share 0.90p 0.90p 2.70p Consolidated Balance Sheet Unaudited Unaudited Audited 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Fixed assets Intangible assets 64,817 70,483 67,384 Tangible assets 77,290 50,573 55,610 -------- -------- -------- 142,107 121,056 122,994 -------- -------- -------- Current assets Stocks 30,317 20,669 23,540 Debtors 38,222 36,355 45,078 Cash 71,231 43,504 22,459 -------- -------- -------- 139,770 100,528 91,077 -------- -------- -------- Creditors: amounts falling due within one year Borrowings 648 106,353 1,021 Other creditors 28,956 37,437 28,644 -------- -------- -------- 29,604 143,790 29,665 -------- -------- -------- Net current assets/(liabilities) 110,166 (43,262) 61,412 -------- -------- -------- Total assets less current liabilities 252,273 77,794 184,406 -------- -------- -------- Creditors: amounts falling due after one year Borrowings 103,637 3,982 104,288 Other creditors - 261 - -------- -------- -------- 103,637 4,243 104,288 -------- -------- -------- Net assets 148,636 73,551 80,118 ===== ===== ===== Capital and reserves Called up share capital 7,114 5,851 5,995 Share premium account 126,803 51,472 54,172 Revaluation reserve 106 106 106 Profit and loss account 14,613 16,122 19,845 -------- -------- -------- Equity shareholders' funds 148,636 73,551 80,118 ===== ===== ===== Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 note £000 £000 £000 Net cash flow from operating activities A 8,809 13,442 19,229 --------- --------- --------- Returns on investment and servicing of finance Net interest and finance costs paid (6,109) (2,702) (12,841) --------- --------- --------- Tax paid (1,742) (1,026) (6,823) --------- --------- --------- Capital expenditure Purchase of tangible fixed assets (26,522) (7,212) (16,704) Sale of tangible fixed assets 118 298 413 Exceptional proceeds from insurance claim 1,381 - 1,247 --------- --------- --------- Net cash flow from capital expenditure (25,023) (6,914) (15,044) --------- --------- --------- Acquisitions Purchase of subsidiary undertakings - (79,102) (81,311) Net cash acquired with subsidiary undertakings - 8,755 8,755 --------- --------- --------- Net cash flow from acquisitions - (70,347) (72,556) --------- --------- --------- Equity dividends paid (1,079) (662) (1,199) --------- --------- --------- Net cash flow before financing (25,144) (68,209) (89,234) --------- --------- --------- Financing Issue of shares 73,651 23,676 25,920 Capital element of finance lease payments (1,151) (312) (626) Loans taken out less payments (912) 103,311 100,810 --------- --------- --------- Net cash flow from financing 71,588 126,675 126,104 --------- --------- --------- --------- --------- --------- Increase in cash B 46,444 58,466 36,870 ===== ===== ===== Notes to the Consolidated Cash Flow Statement A. Reconciliation of operating profit to net cash inflow from operating activities Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Operating profit 2,252 8,909 21,893 Goodwill amortisation 1,726 820 2,548 Depreciation 4,514 3,134 7,284 Profit on sale of tangible fixed assets (6) (103) (171) (Increase)/decrease in stocks (6,790) 1,395 (1,418) Decrease/(increase) in debtors 5,212 (7,626) (14,969) Increase in creditors 1,901 6,913 4,062 --------- --------- --------- Net cash flow from operating activities 8,809 13,442 19,229 ===== ===== ===== B. Reconciliation of net cash flow Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Increase in cash 46,444 58,466 36,870 Cash flow from debt 1,832 (103,311) (95,922) Cash flow from finance leases 1,151 312 626 --------- --------- --------- Change in net debt resulting from cash flows 49,427 (44,533) (58,426) Loan acquired with subsidiary undertaking - (304) (304) Non-cash movement (1,239) - 409 Currency exchange movement 1,608 (1,703) (4,238) --------- --------- --------- Movement in net debt in the period 49,796 (46,540) (62,559) Opening net debt (82,850) (20,291) (20,291) --------- --------- --------- Closing net debt (33,054) (66,831) (82,850) ===== ===== ===== Statement of Total Recognised Gains and Losses Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 (Loss)/profit on ordinary activities after taxation (3,473) 3,974 10,776 Currency exchange movement arising on consolidation (1,016) 1,389 (500) Currency exchange movement on loan - (1,804) (304) Taxation on currency exchange movements - 559 (443) --------- --------- --------- Total recognised gains and losses (4,489) 4,118 9,529 ===== ===== ===== Reconciliation of Shareholders' Funds Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 (Loss)/profit on ordinary activities after taxation (3,473) 3,974 10,776 Dividends 644 527 1,615 --------- --------- --------- (Deficit)/profit retained for the period (4,117) 3,447 9,161 Contribution to QUEST (99) - (600) Currency exchange movement arising on consolidation (1,016) 1,389 (500) Currency exchange movement on loan - (1,804) (304) Taxation on currency exchange movements - 559 (443) Issue of shares 73,750 40,729 43,573 --------- --------- --------- Movement in shareholders' funds 68,518 44,320 50,887 Opening shareholders' funds 80,118 29,231 29,231 --------- --------- --------- Closing shareholders' funds 148,636 73,551 80,118 ===== ===== ===== Notes to the Interim Financial Information 1. Geographical segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Sales United Kingdom 37,829 32,615 67,723 Finland 26,061 16,910 41,835 United States of America 26,821 31,346 73,656 Australia 4,831 2,115 5,436 Inter segment (1,591) (277) (1,348) --------- --------- --------- 93,951 82,709 187,302 ===== ===== ===== Operating profit United Kingdom 3,858 3,836 9,877 Finland 5,959 4,220 9,813 United States of America (5,551) 2,394 5,712 Australia 1,148 100 819 --------- --------- --------- 5,414 10,550 26,221 Central costs 1,436 821 1,780 --------- --------- --------- Operating profit before goodwill amortisation 3,978 9,729 24,441 Goodwill amortisation 1,726 820 2,548 --------- --------- --------- Operating profit 2,252 8,909 21,893 ===== ===== ===== Notes to the Interim Financial Information 2. Business segment analysis Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Sales Wireless infrastructure 55,541 55,456 119,955 Cellular handset products 23,021 15,952 38,751 Electronic warfare 10,986 10,348 26,673 Cable 1,447 953 1,923 Semiconductors 3,078 - - Inter segment (122) - - --------- --------- --------- 93,951 82,709 187,302 ===== ===== ===== Operating profit Wireless infrastructure 615 5,901 12,650 Cellular handset products 6,877 4,512 11,508 Electronic warfare (156) 346 2,432 Cable (26) (209) (369) Semiconductors (1,896) - - --------- --------- --------- 5,414 10,550 26,221 Central costs 1,436 821 1,780 --------- --------- --------- Operating profit before goodwill amortisation 3,978 9,729 24,441 Goodwill amortisation 1,726 820 2,548 --------- --------- --------- Operating profit 2,252 8,909 21,893 ===== ===== ===== Notes to the Interim Financial Information 3. (Loss)/earnings per share Unaudited Unaudited Audited 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 1999 1998 1999 £000 £000 £000 Adjusted (loss)/earnings per share (5.41p) 10.18p 24.07p Effect of adjusted items net of taxation 0.03p (2.96p) (5.58p) ---------- --------- --------- (Loss)/earnings per share (5.38p) 7.22p 18.49p ====== ===== ===== Adjusted diluted (loss)/earnings per share (5.41p) 9.44p 21.94p Effect of adjusted items net of taxation 0.03p (2.74p) (5.09p) ---------- --------- --------- Diluted (loss)/earnings per share (5.38p) 6.70p 16.85p ====== ===== ===== £000 £000 £000 Adjusted (loss)/earnings (3,496) 5,599 14,030 Goodwill amortisation (1,726) (820) (2,548) Exceptional gain - - 2,620 Net financing currency exchange gain/(loss) 1,749 - (3,653) Exceptional finance costs - (1,167) (1,167) Taxation on adjusted items - 362 1,494 --------- --------- --------- (Loss)/profit on ordinary activities after taxation (3,473) 3,974 10,776 ===== ===== ===== Weighted average number of shares 64,612,757 55,022,733 58,293,803 Dilution effect of share options - 4,309,386 5,661,926 ------------ ------------ ------------ Diluted weighted average number of shares 64,612,757 59,332,119 63,955,729 ======== ======== ======== 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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