Rights Issue/Acquisition,etc
FILTRONIC PLC
2 September 1999
Filtronic plc ('Filtronic' or the 'Company')
Rights Issue to raise £71.2 million
Purchase of Newton Aycliffe Facility
* Filtronic plc ('Filtronic'), a world leader in
designing and manufacturing microwave and millimetre-
wave radio frequency components and sub-systems for
wireless communication infrastructure equipment,
cellular handsets and electronic warfare systems,
announces a 1 for 6 Rights Issue at 730 pence per share
to raise £71.2 million, net of expenses. The money will
be used to fund expansion in three major areas: the UK,
Finland and the United States.
* £13 million is in respect of the cash purchase from
Fujitsu Limited of its 310,000 square foot
semiconductor facility at Newton Aycliffe, County
Durham. An estimated further £22 million is required to
equip the facility over the next five years.
* Filtronic plans to establish an advanced 6 inch gallium
arsenide compound semiconductor fabrication plant at
this facility. Filtronic estimates that the new
facility will lead to the creation of over 500 new jobs
within 5 years. The Department of Trade and Industry
has offered Filtronic a grant of £5.0 million towards
the project under the Regional Selective Assistance
Scheme.
* Filtronic has developed an integrated RF front-end
module for cellular handsets which the Directors
believe offers improved handset performance, more
compact design and lower manufacturing costs for the
OEMs.
* The gallium arsenide semiconductor devices produced at
Newton Aycliffe will be used in the integrated RF front-
end module.
* £10 million will be used to relocate and expand
Filtronic's ceramic filter production facility in
Finland and a further £10 million to upgrade the
Filtronic Solid State ('FSS') facility in Santa Clara
(California) to 4 inch gallium arsenide semiconductor
fabrication with the remaining funds being used for
general working capital purposes associated with the
integrated RF front-end module.
* The rights issue has been fully underwritten by WestLB
Panmure Limited, who are also brokers to the issue.
Professor David Rhodes, Executive Chairman of Filtronic plc,
said:
'We are delighted to acquire this high quality facility
where we will manufacture semiconductor devices using
gallium arsenide ('GaAs') technology for incorporation into
integrated RF modules for use in the mobile telephone
handset market. The facility, which will be among the
world's first and largest 6 inch GaAs semiconductor
facilities for wireless applications, enables us to utilise
our outstanding GaAs capability in FSS and to apply it to
volume opportunities presented by the cellular handset and
wireless infrastructure markets.
'The Directors believe that the commercial potential of the
integrated RF module is extremely promising. Sales of mobile
handsets are forecast to grow strongly from approximately
175 million per annum in 1999 to approximately 375 million
by 31 December 2003.'
Filtronic plc ('Filtronic' or the 'Company')
Rights Issue to raise £71.2 million
Purchase of Newton Aycliffe Facility
Introduction
Filtronic announces the purchase of a semiconductor plant at
Newton Aycliffe, County Durham from Fujitsu Limited for a
consideration of £13.0 million paid in cash.
Filtronic proposes to raise £71.2 million (net of expenses)
by way of a Rights Issue of up to 10,005,018 new Ordinary
Shares at 730 pence per share on the basis of 1 new Ordinary
Share for every 6 Ordinary Shares held on the record date.
The placing has been fully underwritten by WestLB Panmure
Limited, who are also brokers to the issue.
Background
Filtronic is a world leader in the design and manufacture of
a broad range of customised microwave and millimetre-wave
radio frequency components and sub-systems used in wireless
communication infrastructure equipment, cellular handsets
and electronic warfare systems.
Filtronic's products receive, filter, amplify and transmit
RF signals. Filtronic can supply products for every
significant transmission standard and modulation system,
operating at any radio frequency. Its principal customers
are leading international OEMs serving the wireless
communication industry and other customers include prominent
defence contractors serving the electronic warfare market.
As part of the range of its products, Filtronic designs and
manufactures gallium arsenide semiconductor devices. Gallium
arsenide has inherent physical properties which allow
electrons to move up to five times faster than through
silicon. This higher electron mobility permits gallium
arsenide integrated circuits to operate at much higher
frequencies than silicon devices and to amplify signals with
reduced power consumption. Gallium arsenide devices also
have higher sensitivity to signals than silicon, allowing
better reception in mobile telephone handsets and thus
providing a larger range of coverage.
The integrated RF front-end module
Over the last ten years, mobile cellular telephone handsets
have become smaller whilst their performance has increased.
The Directors expect that this trend towards higher
performance will continue.
The acquisitions made last year of LK-Products Oy and the
Solid State division of Litton Systems, Inc. (now known as
Filtronic Solid State ('FSS')) brought to the Group handset
component volume manufacturing expertise and GaAs PHEMT
semiconductor technology. Using these technologies and the
Group's expertise in developing integrated RF and microwave
processes, Filtronic began developing in early 1999 an
integrated RF front-end module for cellular mobile telephone
handsets. The integrated module incorporates receive and
transmit channel thin profile ceramic RF filters, internal
transmit and receive antennas, power amplifiers, low noise
amplifiers and an amplifier control circuit in a single sub-
system, which will be supplied as a pre-tested and tuned
module. The integrated RF module concept is capable of being
applied to every significant transmission standard and
modulation system including GSM, CDMA and TDMA and typically
replaces 24 separate components in a dual-band cellular
handset, thereby significantly reducing manufacturing costs
for the OEM. In addition, the integrated module has been
designed to improve handset performance. GaAs PHEMT
semiconductor devices in the low noise amplifiers and power
amplifiers are key elements of the integrated RF front-end
module.
GaAs PHEMT technology already offers up to 60 per cent.
efficiency in power amplifier operation and improved
receiver sensitivity over silicon-based circuits for GSM
transmission standards. This leads to a corresponding
increase in battery life and reception range. Furthermore,
the Directors believe that the significantly superior
performance of GaAs PHEMTs for digital signal processing is
of critical importance when looking forward to future radio
applications which will require ultra high speed analogue to
digital and digital to analogue conversion. The importance
of GaAs PHEMT technology has been recognised by other
leading semiconductor device suppliers, including Anadigics,
Inc., Raytheon Company, Siemens AG, TriQuint Semiconductor,
Inc. and Vitesse Semiconductor Corporation, all of whom have
developed or have plans to develop 6 inch GaAs processing
facilities. The Newton Aycliffe Facility will be among the
first and largest of such facilities manufacturing RF
circuits.
In summary, the Directors believe that the integrated RF
module offers the following advantages:
* improved handset performance
* more compact design and fewer components
* lower manufacturing costs for the OEMs
* lower noise and higher sensitivity
* lower power consumption and hence longer battery life
* supplied as a pre-tested and tuned module
Filtronic has developed a specific version of the integrated
RF module for a leading OEM handset manufacturer. The first
prototype was delivered in May 1999 and the Directors
believe that it was very favourably received. Further
prototypes were delivered in August 1999. Following further
discussions with the OEM since March 1999, the Directors
believe that there is a good prospect that the integrated RF
module will be used in a handset due for market release
during the second half of 2000.
The Directors believe that there is considerable potential
for various customised designs of the integrated RF module
to be sold to other cellular handset manufacturers.
The Directors believe that the commercial potential of the
integrated RF module is extremely promising. Sales of mobile
handsets are forecast to grow strongly from approximately
175 million per annum in 1999 to approximately 375 million
by 31 December 2003.
Based on the silicon manufacturing capacity under the
management of Fujitsu, which produced approximately 175,000
6 inch wafers per annum, the Directors estimate that the
Newton Aycliffe Facility is capable, when operating at full
capacity, of supplying over 350 million GaAs semiconductor
devices per annum. The Directors believe that this
represents approximately 50 per cent. of the global
requirement for current levels of mobile handset sales and
25 per cent. of those forecast by European Mobile
Communications for the year 2003. The integrated RF module
puts Filtronic in an excellent position to profit from this
growth, as the Directors are not aware of any comparable
product currently in the market place. The Directors
therefore look forward to the future with great confidence.
Background to and reasons for the Rights Issue
The proceeds of the Rights Issue will be applied in three
major areas.
The Newton Aycliffe Facility
The Group already operates a 3 inch GaAs semiconductor
design and fabrication facility at FSS in Santa Clara,
California. In order for Filtronic to manufacture the
integrated RF module in large volumes, the Group needs to
expand significantly its existing manufacturing capacity for
GaAs PHEMT semiconductors to 4 inch and 6 inch fabrication
lines.
Through an introduction from the DTI, Filtronic identified
the Newton Aycliffe Facility, which was previously owned by
Fujitsu Limited. The Newton Aycliffe Facility is 310,000
square feet in size and is located on a 106 acre site. It
contains clean areas of approximately 100,000 square feet,
over half of which is currently capable of class 10
standard, enabling manufacture of advanced high resolution
semiconductor devices.
The Directors believe that the Newton Aycliffe Facility will
be among the world's first and largest GaAs semiconductor
facilities for wireless applications. It will, when fully
equipped, produce GaAs PHEMT semiconductor devices on 6 inch
fabrication lines for incorporation into integrated RF
modules for use within the mobile telephone handset market
and for sale as discrete items for use within the
electronics and defence industries. The 6 inch fabrication
line will produce GaAs PHEMTs in high volumes and in a
highly cost effective manner at approximately one quarter of
the cost of production on 3 inch fabrication lines.
For example, a 6 inch GaAs wafer can produce up to four
times more semiconductor devices per wafer based solely on
the number of semiconductor devices on the larger wafer
size. Additional efficiencies are available in manufacturing
6 inch wafers given the higher yields of semiconductor
devices per wafer through more efficient processing.
In addition to the purchase price for the Newton Aycliffe
Facility of £13.0 million, the Directors estimate that a
further £22.0 million will be required to equip it over the
next five years, £19 million of which will be required over
the next two years. The DTI has offered to provide Filtronic
with financial assistance of £5.0 million towards the
development of the Newton Aycliffe Facility by way of the
Regional Selective Assistance Scheme. The Newton Aycliffe
Facility has been decommissioned since it closed in
September 1998, although the facilities for the provision of
water, chemicals and clean room operations remain in full
working order and the clean room is operational.
The majority of the capital equipment items to be purchased
will consist of lithography, etching and handling systems,
comparable to standard 6 inch silicon manufacturing
equipment. Six molecular beam epitaxy 6 inch production
machines will be required by 2003, and these represent the
most costly items to be purchased. Automated testing systems
will also be required for DC and RF assessment of the
finished GaAs semiconductor devices. The Directors expect
that the Newton Aycliffe Facility will be operational by
late Spring 2000.
Relocation and expansion of ceramic filter production
In order to manufacture volumes of thin profile ceramic
filters for the integrated RF module and in order to
accommodate the expansion of the Group's business, Filtronic
will relocate and expand its ceramic filter production
facility in Finland. This facility is leased, and the term
of the lease expires in September 2000. Filtronic intends to
relocate this operation to its main production facility at
Kempele, near Oulu, in Northern Finland. At the same time,
Filtronic intends to expand the plant's production capacity
significantly. The Directors estimate that this relocation
and expansion will cost approximately £10 million, to be
incurred in the financial years ending 31 May 2000 and 31
May 2001.
Plant and equipment at FSS and working capital
The Directors estimate that approximately £10 million will
be required in order to upgrade FSS' facility to 4 inch GaAs
fabrication lines. The remaining balance of £15 million will
be used for general working capital purposes associated with
the integrated RF front-end module.
Principal terms of the Rights Issue
The Rights Issue will raise approximately £71.2 million, net
of expenses, for the Company. Up to 10,005,018 new Ordinary
Shares will be offered to Qualifying Shareholders at 730
pence per share, payable in full on acceptance no later than
3.00 p.m. on 13 October 1999 on the following basis:
1 new Ordinary Share for every 6 Ordinary Shares
held at the Record Date and so in proportion for any greater
number of Ordinary Shares then held. Fractional entitlements
to new Ordinary Shares will not be allotted and entitlements
of Qualifying Shareholders will be rounded down to the
nearest whole number of new Ordinary Shares.
The new Ordinary Shares will, when issued and fully paid,
rank pari passu in all respects with the existing issued
Ordinary Shares, so that they will not rank for the final
dividend of 1.80p per Ordinary Share in respect of the year
ended 31 May 1999, which is payable on 1 November 1999 to
Shareholders on the register at the close of business on 27
August 1999.
The Rights Issue has been fully underwritten by WestLB
Panmure who are also brokers to the issue. The Rights Issue
is conditional, inter alia, upon Shareholders' approval of
the resolutions to be proposed at the EGM to be held on 20
September 1999, the Underwriting Agreement becoming
unconditional in all respects and not being terminated prior
to Admission and Admission of the new Ordinary Shares, nil
paid, by 9.00 a.m. on 21 September 1999 or such later time
and/or date (not being later than 9.00 a.m. on 5 October
1999) as the Company and WestLB Panmure may agree.
WestLB Panmure will invite tenders from institutional
investors to sub-underwrite up to 4,002,007 new Ordinary
Shares at rates up to 1.125%. Institutional investors
wishing to submit an application to tender for the sub-
underwriting of new Ordinary Shares should contact Gilbert
Ellacombe at WestLB Panmure (0171-860 3559) in order to
request a Form of Tender and letter. Forms of Tender must be
received by WestLB Panmure no later than 1.00 p.m. on 2
September 1999.
It is expected that provisional allotment letters in respect
of the new Ordinary Shares will be despatched to Qualifying
Shareholders (other then certain overseas Shareholders)
following the EGM on 20 September 1999 and that Admission
will become effective and dealings in the new Ordinary
Shares, nil paid, will commence on 21 September 1999.
Further terms and conditions of the Rights Issue, including
the procedure for acceptance and payment and the procedure
in respect of rights not taken up, are set out in Part II of
the circular to be despatched to Qualifying Shareholders and
the provisional allotment letter.
APPENDIX
Timetable of principal 1999
events
Record date Close of business 13
September
Latest time and date for 10.00 a.m. on 18 September
receipt of forms of proxy
Extraordinary General 10.00 a.m. on 20 September
Meeting
Provisional allotment 20 September
letters despatched
Commencement of dealings in 21 September
new Ordinary Shares, nil
paid
Latest time and date for 3.00 p.m. on 11 October
splitting, nil paid
Latest time and date for 3.00 p.m. on 13 October
acceptance and payment in
full
The Company expects to post the circular to Qualifying
Shareholders today.
WestLB Panmure Limited, which is regulated by The Securities
and Futures Authority Limited, is acting exclusively for
Filtronic and will not be responsible to anyone other than
Filtronic for providing the protections afforded to
customers of WestLB Panmure Limited nor for providing advice
in relation to the contents of this document or any matter
referred to herein.
This announcement has been approved by WestLB Panmure
Limited solely for the purposes of section 57 of the
Financial Services Act 1986. It does not constitute an offer
or invitation to purchase or sell any securities.
This press announcement is not for distribution in or into
the United States, Canada, Australia or Japan. The new
Ordinary Shares have not been nor will they be registered
under the United States Securities Act of 1993, as amended,
or under the securities laws of any state of the United
States, any province or territory of Canada, Australia or
Japan. The new Ordinary Shares will not, subject to certain
exceptions, be offered, sold, taken up or delivered in the
United States, Canada, Australia or Japan or their
respective territories or possessions.
Filtronic welcomes enquiries from applicants for positions
at all levels and all disciplines associated with
semiconductor manufacturing.
There will be a demand for the full range of skills very
similar to those needed for semiconductor devices
manufactured on a silicon substrate.
Filtronic places strong emphasis on the development of
employee skills and competencies and its reward package is
geared at recognising the contribution to the business made
by its employees. Share option plans for all employees form
a key feature of the package.
2 September 1999
Enquiries:
Filtronic plc
Professor David Rhodes Tel: 0171 638 4010
John Samuel (2 September 1999 only)
or
01274 221000
WestLB Panmure Limited
Tim Linacre Tel: 0171 638 4010
Binns & Co.
Peter Binns Tel: 0171 786 9600
Paul Vann
Jane Mallinson
Notes to editors:
The Newton Aycliffe Facility is 310,000 square feet in size
and is located on a 106 acre site. The facility contains
clean areas of approximately 100,000 square feet, over half
of which is currently capable of class 10 standard, enabling
manufacture of advanced high resolution semiconductor
devices.
The Directors of Filtronic believe that the Newton Aycliffe
facility will be among the first and largest 6 inch GaAs
semiconductor facilities for wireless applications in the
world. When operating at full capacity the Directors
estimate that the facility would be capable of supplying
over 350 million GaAs semiconductor devices per annum. This
would represent approximately 50 per cent. of the global
requirements for current levels of mobile handset sales and
25 per cent. of those forecast by European Mobile
Communications for the year 2003.
Manufacture at Newton Aycliffe will be on 6 inch GaAs wafers
for incorporation into proprietary designed integrated
products for the mobile cellular handset and wireless
infrastructure markets. This is in addition to a new 4 inch
and existing 3 inch GaAs fabrication and semiconductor
design facility at FSS in Santa Clara, acquired in October
1998.
Using GaAs PHEMT (Pseudomorphic High Electron Mobility
Transistor) technology Filtronic has developed, since early
1999, an integrated RF front-end module for cellular
handsets, which the Directors of Filtronic believe offers
the following advantages:
* Improved handset performance
* More compact design and fewer components
* Lower manufacturing costs for the OEMs
* Lower noise and higher sensitivity
* Lower power consumption and hence longer battery life
* Supplied as a pre-tested and tuned module
The facility at Newton Aycliffe will enable Filtronic to
manufacture very high volumes of GaAs semiconductor devices
for use in the new integrated RF front-end modules.
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