FILTRONIC PLC

Earnings Release • Jan 30, 2018

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RNS Number : 2625D

Filtronic PLC

30 January 2018

30 January 2018

FILTRONIC PLC

("Filtronic", the "Company" or the "Group")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2017

Filtronic plc (AIM: FTC), the designer and manufacturer of antennas, filters and mmWave products for the wireless telecoms infrastructure and adjacent markets, announces its half year results for the six months ended 30 November 2017 ("H1 2018").

Financial Summary

·     Revenue of £12.8m (H1 2017: £21.6 m)

·     Adjusted operating profit* of £0.9m (H1 2017: £1.8m)

·     Operating profit of £0.9m (H1 2017: £1.8m)

·     Net cash of £2.8m (31 May 2017: £2.6m)

·     Net cash inflow from operating activities £0.4m (H1 2017: £1.4m)

*Operating profit before exceptional items and development cost amortisation.

Highlights

·     Selected by a world leading mobile telecommunications infrastructure OEM to develop a Massive MIMO antenna product; a key enabler of 5G.

·     Approved as a vendor by a major US mobile network operator to supply 5G Evolution antennas.

·     Secured a second major contract from a tier 1 European defence equipment supplier to manufacture another variant of advanced radar transmit receive modules.

·     Strong demand for filter products to wireless telecoms and public safety communications markets in the first half of the financial year.

Commenting on the outlook, Reg Gott, Chairman, said:

"It is very pleasing to see our strategy to broaden our customer base and the markets we serve has been validated by recent contract wins that will position us to participate over the long term in the development of future communication networks and in particular in the nascent 5G technology space.  Recent extensions to our multi-year defence contracts also provide welcome baseline revenues for the next few years.

Notwithstanding these positive developments, we remain at the early stages on a number key initiatives and projects where progress toward production volume orders has been slower than anticipated. As a consequence, we now anticipate a 2nd half performance broadly similar to our 1st half performance, with further growth being pushed into FY2019."

Enquiries:

Filtronic plc

www.filtronic.com

Reg Gott, Chairman

0113 220 0000

Rob Smith, CEO

Michael Tyerman, FD

Panmure Gordon (UK) Limited

020 7886 2500

Dominic Morley / Alina Vaskina (Corporate Finance)
Erik Anderson (Corporate Broking)

Walbrook PR Limited

020 7933 8780 or filtronic@walbrookpr.com

Paul Cornelius

Helen Cresswell

Notes: 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Chairman's Statement

The Group continued to trade profitably through the first half of FY2018 despite a reduction in sales compared to the first half of the prior year. Group revenue in the period was £12.8m (H1 2017: £21.6m) resulting in an operating profit and adjusted operating profit of £0.9m (H1 2017: £1.8m), and net cash inflow from operating activities of £0.4m (H1 2017: £1.4m).

Sales of antennas declined against the comparative period last year, as the large original equipment manufacturer ("OEM") orders that dominated antenna sales over the past two financial years were completed. However, this reduction in antenna sales was partially offset by strong sales of filter products to telecoms and public safety market customers.

As previously announced, a second multi-year defence contract was secured in the period for transmit receive modules. The production ramp for this second contract has unfortunately taken longer than initially expected, with the first volume deliveries slipping into H2 FY2018. The delay in the production ramp is a result of ongoing supply issues with a customer specified component that has limited our output. We are working closely with our customer and the supplier to resolve this issue and it is expected that contractual production volumes will be achieved in H2 FY2018. We are also encouraged by news that further orders have been received by the end customer for the aircraft that contains arrays of one of these transmit receive module variants manufactured and supplied by Filtronic. This should result in additional work for Filtronic and we look forward to being able to announce further details in due course.

As part of our strategy to engage with mobile network operators ("MNOs") we are pleased to report that we have now been approved as one of the vendors of a major US MNO for a "5G evolution" antenna. Having only recently been advised of our approval, it will take some time to work with our client's regional network planning teams and installers before we can determine our likely volume and value allocations and before any firm orders are received. This particular product has been developed to meet the MNO's specification and uses licensed assisted access ("LAA") frequencies as well as licensed high band spectrum. These frequencies are utilised by a number of MNOs and OEMs and we therefore anticipate that this achievement will open up further opportunities for other variants in due course.

In addition to our work to secure new customers, we continue to develop opportunities with our existing OEM clients and we are particularly pleased to report that we have been awarded a development contract for a high band Massive MIMO antenna. The development road map contains some aggressive timescales for delivery and is a technically challenging product to develop but we are pleased to report that we are currently on track to meet these goals. This project is strategically significant to both us and our OEM customer as it enables MNOs to significantly increase capacity within their networks at spectrums for which they already hold licences by deploying 3D beamforming techniques. This ability to steer beams to individual devices is a fundamental technique that will be required under the much higher frequencies proposed for 5G networks. Whilst there is no assurance that this development contract will convert to a volume production contract we are optimistic that initial production orders will be received in FY2019.

Filtronic has a strong technology proposition for 5G. Our knowledge of network access products, both filtering and antennas and our know-how of mmWave products and manufacturing techniques are key, as is our relationship with the leading OEMs. We are now aligning our technology and sales teams so that we can leverage these strengths, to secure a strong position in the nascent 5G technology market. In support of this strategy we recently partnered with the University of Surrey's 5G Innovation Centre in order to align our activities with world leading academic research.

The Board is monitoring and assessing the impact of Brexit on our business as information becomes available. However, we continue to believe that the geographical spread of our trading means that the effects of the UK's withdrawal will likely be marginal for the Group.

Whilst the Group continues to make good progress and is delighted to have been selected for key projects on the developing 5G roadmap, we are mindful that until we still further widen our customer base the business will continue to be subject to volume swings. Due to the lack of current order clarity for our new antenna products we expect trading for the second half of the financial year to be broadly in line with the first half. As a consequence of this, along with the current supplier delays impacting our defence contracts, it is anticipated that sales and operating profit for the year will be lower than previously indicated. Whilst short-term forecasting continues to be challenging we are confident that the steps taken over the last few years have enabled the business to better manage the peaks and troughs in demand and we are confident that the long-term outlook for the business remains positive.

Reg Gott

Chairman

January 2018

Condensed Consolidated Interim Income Statement

For the period ended 30 November 2017

		6 months	6 months	Year
		Ended	Ended	Ended
		30 November	30 November	31 May
		2017	2016	2017
		(Unaudited)	(Unaudited)	(Audited)
	Note	£000	£000	£000
Revenue		12,801	21,608	35,373
		\======	\======	\======
Adjusted operating profit *		904	1,797	1,797
Amortisation of development costs		(47)	(47)	(95)
		----------	----------	----------
Operating profit		857	1,750	1,702
Finance costs before exceptional items		(28)	(45)	(287)
Exceptional finance items	5	(247)	-	-
		----------	----------	----------
Finance costs		(275)	(45)	(287)
Exceptional finance items	5	-	-	740
		----------	----------	----------
Finance income		-	-	740
		----------	----------	----------
Profit before taxation		582	1,705	2,155
Taxation	6	221	(275)	962
		----------	----------	----------
Profit for the period		803	1,430	3,117
		\======	\======	\======
Basic and diluted earnings per share (stated in pence)
		----------	----------	----------
Basic earnings per share	7	0.39p	0.69p	1.51p
Diluted earnings per share	7	0.38p	0.69p	1.49p
		\======	\======	\======

*Operating profit before exceptional items and development cost amortisation.

The profit for the period is attributable to the equity shareholders of the parent company Filtronic plc.

The above results are all as a result of continuing operations.

Condensed Consolidated Interim Statement of Comprehensive Income

For the period ended 30 November 2017

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	(Unaudited)	(Unaudited)	(Audited)
	£000	£000	£000
Profit for the period	803	1,430	3,117
	----------	----------	----------
Items that are or may be subsequently reclassified to profit and loss
Currency translation movement arising on consolidation	52	202	(541)
	----------	----------	----------
Other comprehensive income/(expense)	52	202	(541)
	----------	----------	----------
	----------	----------	----------
Total comprehensive income for the period	855	1,632	2,576
	\======	\======	\======

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.

Condensed Consolidated Interim Balance Sheet

At 30 November 2017

		6 months	## 6 months	Year
		Ended	## Ended	Ended
		30 November	## 30 November	31 May
		2017	2016	2017
		(Unaudited)	(Unaudited)	(Audited)
	Note	£000	£000	£000
Non-current assets
Goodwill and other intangibles		3,526	3,634	3,590
Property, plant and equipment		1,207	1,175	1,354
Deferred tax	8	1,308	582	1,015
		----------	----------	----------
		6,041	5,391	5,959
		----------	----------	----------
Current assets
Inventories		1,995	1,927	2,249
Trade and other receivables		5,985	12,369	8,643
Cash and cash equivalents		3,114	1,680	2,598
		----------	----------	----------
		11,094	15,976	13,490
		----------	----------	----------
		----------	----------	----------
Total assets		17,135	21,367	19,449
		----------	----------	----------
Current liabilities
Trade and other payables		4,728	9,972	8,061
Provisions	9	499	448	545
Deferred Income		46	232	105
Interest bearing borrowings		107	920	-
		----------	----------	----------
		5,380	11,572	8,711
		----------	----------	----------
Long term liabilities
Deferred income		-	21	11
Interest bearing borrowings		160	-	-
		----------	----------	----------
		160	21	11
		----------	----------	----------
		----------	----------	----------
Total liabilities		5,540	11,593	8,722
		----------	----------	----------
		----------	----------	----------
Net assets		11,595	9,774	10,727
		\======	\======	\======
Equity
Share capital		10,788	10,788	10,788
Share premium		10,640	10,640	10,640
Translation reserve		(744)	(53)	(796)
Retained earnings		(9,089)	(11,601)	(9,905)
		----------	----------	----------
Total equity		11,595	9,774	10,727
		\======	\======	\======

The total equity is attributable to the equity shareholders of the parent company Filtronic plc.

Company number 2891064

Condensed Consolidated Interim Statement of Changes in Equity

For the period ended 30 November 2017

	Share	Share	## Translation	Retained	Total
	capital	premiumn	reserve	earnings	equity
	£000	£000	£000	£000	£000
Balance at 1 June 2017	10,788	10,640	(796)	(9,905)	10,727
Profit for the period	-	-	-	803	803
Share based payments	-	-	-	13	13
Currency translation movement arising on consolidation	-	-	52	-	52
	----------	----------	----------	----------	----------
Balance at 30 November 2017	10,788	10,640	(744)	(9,089)	11,595
	\======	\======	\======	\======	\======

Condensed Consolidated Interim Cash Flow Statement

For the period ended 30 November 2017

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	(Unaudited)	(Unaudited)	(Audited)
	£000	£000	£000
Cash flows from operating activities
Profit for the period	803	1,430	3,117
Taxation	(221)	275	(962)
Finance income	-	45	(740)
Finance costs	275	-	287
	----------	----------	----------
Operating profit	857	1,750	1,702
Share based payments	13	13	22
Profit on disposal of plant and equipment	(43)	(22)	(85)
Tax (paid)/received	(84)	(23)	1,599
Depreciation	270	335	658
Amortisation of intangibles	69	47	110
Movement in inventories	219	(130)	(493)
Movement in trade and other receivables	2,458	(2,939)	(214)
Movement in trade and other payables	(3,219)	2,319	559
Movement in provisions	(46)	287	384
Change in deferred income including government grants	(48)	(240)	(376)
	----------	----------	----------
Net cash from operating activities	446	1,397	3,866
	----------	----------	----------
Cash flows used in investing activities
Interest paid	(7)	(45)	(286)
Acquisition of plant and equipment	(125)	(293)	(811)
Acquisition of intangible assets	(6)	-	-
Proceeds on sale of assets	46	24	86
	----------	----------	----------
Net cash used in investing activities	(92)	(314)	(1,011)
	----------	----------	----------
Cash flows from/(used in) financing activities
Movement in interest bearing borrowings	267	(350)	(1,270)
	----------	----------	----------
Net cash from/(used in) financing activities	267	(350)	(1,270)
	----------	----------	----------
Movement in cash and cash equivalents	621	733	1,585
Currency exchange movements	(105)	(43)	23
Opening cash and cash equivalents	2,598	990	990
	----------	----------	----------
Closing cash and cash equivalents	3,114	1,680	2,598
	\======	\======	\======

Notes to the Condensed Financial Statements

1    Company information

Filtronic plc is a company registered and domiciled in the United Kingdom, and is listed on the AIM market of the London Stock Exchange. The Company's registered number is 2891064. The address of the Company's registered office is Filtronic plc, Filtronic House, Unit 3, Airport West, Lancaster Way, Yeadon, West Yorkshire, LS19 7ZA.

Copies of the Company's annual report and interim financial report are available from the Company's registered office or the Company's website at www.filtronic.com.

2    Basis of preparation

Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 30 November 2017, this statement does not itself contain sufficient information to comply with IFRS.

These financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The interim report should be read in conjunction with the annual report 2017, which includes annual financial statements for the year ended 31 May 2017.

The interim financial report for the six months ended 30 November 2017 was approved by the Board on 30 January 2018.

The directors have reviewed the projected cash flow and other relevant information and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the interim financial report.

The condensed consolidated financial statements for the six months ended 30 November 2017 consolidate the financial statements of the Company and all of its subsidiaries (together referred to as the 'Group'). Transactions between Group companies, which are related parties, have been eliminated upon consolidation and therefore do not require disclosure.

The condensed consolidated financial statements for the six months ended 30 November 2017 and comparative period have not been audited.

The comparative figures for the financial year ended 31 May 2017 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

3    Accounting estimates and judgements

The preparation of the financial statements requires the use of accounting estimates and judgements that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The accounting estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of the future that are believed to be reasonable under the circumstances. Actual results may differ from the expected results. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The accounting estimates and judgements that have a significant effect on the financial statements are considered in the Filtronic plc Annual Report for the year ended 31 May 2017 which can be found on the Filtronic website. Unless stated below there is no material change from the Annual Report in the basis of calculation.

4    Segmental Analysis

Operating Segments

IFRS 8 requires consideration of the identity of the chief operating decision maker ('CODM') within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the CEO, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly, the CEO is deemed to be the CODM.

Operating segments have then been identified based on the interim reporting information and management structures within the Group. The Group has two customers representing individually over 10% each and in aggregate over 75% of revenue.

The Group operates within two trading business segments:

·     The design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunication networks and phased array radar for the defence market (Filtronic Broadband).

·     The design of antennas and radio frequency conditioning product for base stations used in wireless telecommunication networks (Filtronic Wireless).

The Group also contains a central services segment that provides support to the trading businesses.

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	£000	£000	£000
Revenue
Filtronic Broadband	1,800	2,891	4,917
Filtronic Wireless	11,001	18,717	30,456
	-----------	----------	----------
	12,801	21,608	35,373
	\======	\======	\======
Adjusted operating profit/(loss)*
Filtronic Broadband	(615)	(148)	(901)
Filtronic Wireless	1,939	2,387	3,602
Central Services	(420)	(442)	(904)
	----------	----------	----------
Adjusted operating profit	904	1,797	1,797
Amortisation of development costs	(47)	(47)	(95)
	----------	----------	----------
Operating profit	857	1,750	1,702
Finance costs	(275)	(45)	(287)
Finance income	-	-	740
	-----------	----------	----------
Profit before taxation	582	1,705	2,155
	\======	\======	\======

*Operating profit before amortisation of exceptional items and development cost amortisation.

Revenue by Destination

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	£000	£000	£000
Revenue
United Kingdom	574	14	218
Europe	2,675	13,788	18,696
Americas	8,082	7,025	14,602
Rest of the world	1,470	781	1,857
	-----------	----------	----------
	12,801	21,608	35,373
	\======	\======	\======

5    Exceptional items

Finance costs/(income) is stated after charging/(crediting) exceptional items as follows:

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	£000	£000	£000
Revaluation of US dollar denominated intercompany balance	247	-	(740)
	-----------	----------	----------
Balance	247	-	(740)
	\======	\======	\======

An intercompany balance owed by the US legal entity to the UK for management charges and royalties is held in US dollars. The revaluation of the intercompany debtor in the UK is posted in finance items as an exceptional item.

6    Taxation

A tax credit of £293,000 arises as a result of the recognition of a deferred tax asset as the directors believe that future taxable profits will be available against which they can be used (H1 2017: £252,000 utilisation of deferred tax asset).

A tax charge of £72,000 was incurred in the period for taxes relating to the Filtronic Wireless entity in China (H1 2017: £23,000).

7    Basic and diluted earnings per share

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	£000	£000	£000
	----------	----------	----------
Profit for the period	803	1,430	3,117
	\======	\======	\======
	'000	'000	'000
Basic weighted average number of shares	206,910	206,910	206,910
Dilution effect of share options	2,933	1,369	2,839
	------------	----------	----------
Diluted weighted average number of shares	209,843	208,279	209,749
	\=======	\======	\======
Basic earnings per share	0.39p	0.69p	1.51p
Diluted earnings per share	0.38p	0.69p	1.49p
	\======	\======	\======

8    Deferred Tax

	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
	£000	£000	£000
Opening balance	1,015	834	834
Tax losses recognised	293	-	264
Utilisation of deferred tax asset	-	(252)	-
Effect of change in UK corporation tax rate	-	-	(83)
	-----------	----------	----------
Balance	1,308	582	1,015
	\======	\======	\======

Deferred tax assets have been recognised within the Filtronic Wireless subsidiaries in the UK and US where the directors consider that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business forecasts for individual subsidiaries in the Group and the reversal of temporary differences.

9    Provisions

Warranty provision	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
Warranty provision	£000	£000	£000
Opening balance	476	161	161
Used during the year	(5)	(7)	(11)
Released unused during the year	(90)	(23)	(36)
Charge for the year	48	237	361
	---------	---------	---------
Closing balance	429	368	475
	\======	\======	\======
The provision for warranty relates to the units sold during the last two financial years. The provision is based on estimates made from historical warranty data. There is limited historical data for our new product range, ultra wide band antennas, so a prudent warranty returns rate percentage has been used to compute the charge until more data is available.
	6 months	6 months	Year
	Ended	Ended	Ended
	30 November	30 November	31 May
	2017	2016	2017
Dilapidation provision	£000	£000	£000
Opening balance	70	-	-
Charge for the year	-	80	70
	---------	---------	---------
Closing balance	70	80	70
	\======	\======	\======

The Group leases facilities at five sites in the UK, US, China and Sweden with each lease requiring the site to be restored to its original condition.

10  Analysis of net funds/(debt)

	1 June	Cash Flow	Other	30 Nov
	2017		Changes	2017
	£000	£000	£000	£000
Cash and cash equivalents	2,598	621	(105)	3,114
Interest bearing borrowings	-	(267)	-	(267)
	---------	---------	---------	---------
	2,598	354	(105)	2,847
	\======	\======	\======	\======

Cash at bank earns interest at floating rates based on daily bank deposit rates.

At 30 November 2017 the Company had a £3.0m invoice discounting facility in place with Barclays Bank plc against the UK debtor book. During the period, an asset based loan was used to finance plant and machinery to increase production capacity on defence contracts within Filtronic Broadband.

11  Forward looking statements

Certain statements in this half-yearly financial report are forward-looking. Where the half-yearly financial report includes forward-looking statements, these are made by the directors in good faith based on the information available to them at the time of their approval of this report. Such statements are based on current expectations and are subject to a number of risks and uncertainties, including both economic and business risk factors that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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