REG - Filtronic PLC - 2020 Audited Full Year Results
4 August 2020
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2020
Filtronic plc (AIM: FTC), the designer and manufacturer of products for the critical communications and wireless telecoms and defence and aerospace markets, announces its full year results for the 12 months ended 31 May 2020.
Financial Highlights
2020
2019
Revenue
£17.2m
£15.9m
Adjusted EBITDA*
£1.2m
£0.7m
Adjusted operating profit**
£0.4m
£0.2m
Exceptional items
(£0.6m)
-
Operating (loss)/profit
(£0.2m)
£0.2m
(Loss)/profit before taxation
(£0.4m)
£0.1m
Loss for the year from discontinued operations
(£1.4m)
(£3.5m)
Loss for the year
(£2.0m)
(£1.3m)
Basic and diluted loss per share
(0.93p)
(0.63p)
Net (debt)/cash balance as at 31 May
(£0.7m)
£2.5m
Net cash when excluding right of use property leases
£0.4m
£2.5m
Cash used in operating activities
(£2.6m)
£0.0m
*Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and exceptional items.
** Adjusted operating profit is operating (loss)/profit before exceptional items.
Operational Highlights
· A contract award from a leading US technology corporation for the development of high-power long-distance high-capacity low-latency transceiver modules for use in HAPS applications.
· A contract award from a leading OEM supplier for the development and delivery of module samples for Over-the-Air equipment.
· The installation and commissioning of automated placement and bonding machinery in our Sedgefield operation to double capacity and improve product yields.
· The approval and adoption as "best-in-class" of our new Tower Top Amplifier ("TTA") product line by our lead US public safety communications client.
· The in-sourcing and on-shoring of our public safety product assembly activity from our Chinese sub-contractor to our newly created capability in Maryland, USA.
· Successful completion of the sale of the Filtronic Telecoms Antenna Operation for an initial consideration of $5.5m to Microdata Telecoms Innovation Stockholm AB.
Commenting on the outlook, Reg Gott, Chairman, said: "The key strategic objective of the business has been to broaden the customer base and product portfolio. The progress made to address this has been pleasing, notably through recent contract wins to supply new customers and markets, whilst new products were launched into our existing customer base. The upgrade of our operational capability provides the infrastructure to support future growth, whilst the improvement of our cash reserves enables us to commit to engineering developments that deliver a high return on investment. The recent strengthening of our sales and marketing team will further facilitate execution of our strategic plans and gives the Group the ability to scale without significant uplifts on the cost base.
The business demonstrated resilience and effective management through the recent phase of the Covid-19 pandemic but, like our peers, we are cautious on the immediate outlook with the full economic fallout of the crisis unknown. However, we remain confident in the underlying fundamentals of the business and look to pursue the opportunities that present themselves to create long-term value for shareholders."
Annual General Meeting
The Annual General Meeting will take place at 11am on 29 October 2020 at Plexus building, Thomas Wright Way, Netpark, Sedgefield, County Durham, TS21 3FD.
Filtronic plc
Tel. 0113 220 0000
Reg Gott (Executive Chairman)
Michael Tyerman (Chief Financial Officer)
finnCap Ltd
Tel. 020 7220 0500
Jonny Franklin-Adam / Hannah Boros / Kate Washington (Corporate Finance)
Alice Lane / Sunila de Silva (ECM)
Walbrook PR Ltd
Tel. 020 7933 8780
Mob: 07768 807631
Paul Vann/Nick Rome
Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.
Forward-looking statements
The Chairman's statement and Chief Executive's review include statements that are forward looking in nature. 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 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.
Chairman's statement
FY2020 was a year of numerous and varied challenges that I am pleased to say management and staff navigated successfully under difficult circumstances.
As advised in the half-year statement the sale of the Telecoms Antenna Operation was completed on 2 January 2020 for a cash consideration the Board was very pleased with and on terms that were in line with our expectation. However, no sooner had we completed the process of decoupling the Antenna business operations from the continuing business than we were in the midst of Covid-19 measures, and then quickly into lockdown.
We are greatly relieved not to have suffered any Covid-19 illness amongst our staff and I take this opportunity to thank all members of the Filtronic team for their courage, support and loyalty during a very stressful period for all. As a result of the efforts of our team, we managed to maintain full 24/7 manufacturing capability and meet all contractual deliveries throughout the Covid-19 lockdown period, whilst also commissioning further capital investment projects and meeting all key customer deadlines on a number of very significant engineering development projects.
The measures we took to remain fully operational progressively impacted our productivity and efficiency as time went by and consequently our profitability suffered over the fourth quarter of the financial year. We were therefore very pleased to deliver annual results in line with market forecasts.
Whilst our end markets held up reasonably well during the lockdown period, enabling us to maintain delivery continuity, new business development and acquisition became progressively more difficult. Many of our customers had increasing difficulty in firming up future commitments, leading to a number of programmes being pushed out. Consequently, we entered the new financial year with a high level of confidence in our ability to perform under the restrictions presented by Covid-19, should conditions deteriorate again, but with a higher degree of uncertainty around customer requirements in terms of volumes and delivery schedules.
Notwithstanding these uncertainties we are confident that the measures we have taken position the business well to take advantage of improvements and opportunities within our markets as they arise.
Financial performance summary
Group sales from continuing operations increased by 8% in the year to £17.2m (2019: £15.9m). An adjusted operating profit of £0.4m was achieved (2019: £0.2m) with an operating loss of £0.2m (2019: £0.2m operating profit). Adjusted earnings before interest, taxation, depreciation, amortisation and exceptional items ("EBITDA") from continuing operations was £1.2m (2019: £0.7m).
The Group had net cash when excluding right of use property leases of £0.4m at the end of the financial year (2019: £2.5m). Net debt including right of use property leases was £0.7m (2019: £2.5m net cash). The Group was able to close the year with £2.0m of cash at bank (2019: £2.6m) giving healthy cash reserves in addition to our working capital debt facilities in the UK and USA which provide additional headroom. The reduction in cash is largely related to the loss-making discontinued Antenna operation and the payment of £1.2m to settle three of the four instalments of the warranty settlement agreement with £0.4m remaining on the outstanding liability.
Dividend
No dividend is proposed for the year (2019: £nil). The Board continues to be of the opinion that shareholders are better served by cash being retained in the company to fund future opportunities.
Board Composition
Rob Smith resigned from his position as CEO in October 2019 and I stepped in to fulfil the role of Executive Chairman until a new CEO could be appointed. The recruitment process was impacted by the Covid-19 situation but is back on track and has advanced to the final stages.
After seven years of excellent service as a Non-Executive Director, Michael Roller has decided to retire from the Board and will leave us at the 2020 Annual General Meeting. Michael has been a key figure in guiding the Company through some very difficult and some very rewarding challenges over these years and his input to the Executive, the Board in general and as Chairman of the Audit Committee in particular has been greatly appreciated. I would like to take this opportunity to thank Michael on behalf of all Filtronic stakeholders and wish him well for the future. We will look to appoint a replacement in due course.
Outlook
The slowdown in new business acquisition over the fourth quarter due to Covid-19 related constraints meant that we entered the new financial year with a slightly reduced order book compared with the prior year. Although we were very pleased to be able to announce a key two-year follow-on contract from our lead defence client early in the new year, there remains considerable uncertainty within our end markets. This uncertainty is compounded by the imminent conclusion of the Brexit transitional period with, as yet, little clarity regarding trading terms with Europe from January 2021. As a consequence, we remain cautious in our outlook for the current year.
Reg Gott
Chairman
3 August 2020
Chief executive's review
FY2020 was a year of considerable change and achievement against a very disruptive background.
The sale of our Telecoms Antenna Operation completed on 2 January 2020. Several parties were interested in acquiring the business and negotiations proved to be complex as we sought to maximise shareholder value from the sale. The sales process took three months longer than we anticipated and consequently we incurred extra costs for operating the business during this period. Nonetheless, we were very happy with the eventual sale price and the terms of the sale, with the consideration being received in cash, which returned the Company to a net cash position.
The sale enabled us to refocus the energies of our employees on managing and developing our continuing business operations. In particular, we were able to finance and complete key investments in manufacturing and engineering capability enhancement across all three of our operational sites. Substantial investments in manufacturing automation assets in Sedgefield were completed on time and the production volume expansion to satisfy demand for our 5G XHaul product offering was achieved. In addition, we completed the transfer of our public safety product line assembly activities from China to our facility in Maryland, USA in January 2020. Whilst we are now assembling the finished products in the USA a number of critical components are still sourced from China, however we will address this situation in FY2021.
Despite maintaining full 24/7 operational capability throughout the entire Covid-19 lockdown period, the measures we had to take to achieve this within a safe environment for employees affected our ability to maintain productivity and efficiency levels, and thus our profitability took a slight dip over the final quarter of the year. In addition, our customers similarly advised us of progressive impacts on their own businesses and, whilst we suffered no order cancellations, a number of delivery programmes were rescheduled out over a longer period.
A further consequence of Covid-19 was the slowdown of business development and sales acquisition activities during the final quarter of FY2020. Our customers and end-clients were unable to make the expected progress with existing project completions whilst new project developments fell victim to deferred decision-making. The key impact of this was a reduced level of order intake over the final quarter.
In order to mitigate reduced order intake and accommodate the rescheduling of certain client orders, we commenced a furlough programme using the UK government's Coronavirus Job Retention Scheme for 23 employees at the start of the new financial year. At the time of writing we have restart instructions from these customers and we expect to return furloughed staff progressively as the production programmes regain momentum, with all staff expected back by August 2020.
I am pleased to report that some of the orders delayed from Q4 FY2020 were received in the early part of the new financial year, including, in particular, a much anticipated £4.9m defence client contract for a two-year manufacturing supply agreement.
Notwithstanding the challenges of the year, we were delighted that revenue, adjusted operating profit and adjusted EBITDA all improved over the prior year and, despite the reduction in order intake during the final quarter, the total intake for the year matched annual sales revenue leaving us with a healthy order book entering the new year.
Our strategy and markets
The onset of the Covid-19 pandemic and the resultant lockdown came immediately on the heels of our Telecoms Antenna Operation sale completion. Understandably, management efforts during the lockdown period were focussed on maintaining operational capability whilst ensuring a safe working environment for our staff. As a consequence of this, and of a similar focus within our target markets, we have not made the progress we had hoped to make on strategic development of the continuing business. However, as we and our broader market are now emerging from the lockdown constraints, the development and articulation of a clear strategic roadmap are amongst our highest priorities for the current year.
That is not to say however that we have not made some significant achievements over the period, to which end I would highlight the following:
· The in-sourcing and on-shoring of our public safety product assembly activity from our Chinese sub-contractor to our newly created capability in Maryland, USA, with a full quality and process audit sign-off as an approved supply facility by our lead client in this market;
· The approval and adoption as "best-in-class" of our new Tower Top Amplifier ("TTA") product line by our lead US public safety communications client;
· A contract award from a leading US technology corporation for the development and delivery of evaluation and pre-commercialisation samples of high-power long-distance high-capacity low-latency transceiver modules for airborne communication links for use in High Altitude Pseudo-Satellites ("HAPS") applications;
· A contract award from a leading OEM supplier for the development and delivery of evaluation and pre-commercialisation module samples for Over-the-Air equipment;
· A contract for the supply of evaluation modules for new W-band frequency applications. W-band frequencies are significantly above those of our current E-band products and are expected to feature strongly in 5G phase 2 XHaul applications;
· The delivery of transceivers for a successful trial in Asia of a 10Gbps track-to-train backhaul solution. It is anticipated that this will lead to a further "metro scale" trial in 2021;
· The installation and commissioning of automated placement and bonding machinery in our Sedgefield operation to double capacity and improve product yields; and
· At the time of writing we have passed the 50,000 unit delivery milestone for our market leading E-band transceiver modules. The latest generation, Orpheus, will be superseded by our new Morpheus II product in Q2 FY2021.
The future
As we emerge from Covid-19 lockdown, we face increasing macroeconomic uncertainty and concerns for the impact it will have on infrastructure programmes. Consequently, it is very difficult to predict with any great accuracy how this will affect our business over the coming year. However, that does not mean we are not planning and agitating for success. Our business plan for FY2021 includes a wide range of measures to develop the capability of the business to win and deliver new opportunities including:
· Strengthening the sales organisation by establishing a new marketing function and the acquisition of further direct sales and business development resource;
· Establishing a Manufacturing Representative Network across the USA to enhance our sales reach with a faster route to market through established sales channels without the high overhead cost incurred from enlarging our own sales team;
· Further investment in new advanced equipment to continue the extension of our engineering design and test capability into higher-frequency higher-performance technologies; and
· A new talent acquisition, management and development investment plan.
I have been fulfilling the role of Executive Chairman since October 2019 and advised I would continue to do so until a new Chief Executive Officer ("CEO") is appointed and in position. At which point, I intend to step back into the role of Non-Executive Chairman. Understandably, the Covid-19 situation has impeded our search but I will continue in this role until a new CEO is on board, which we hope will be in the near future.
Reg Gott
Executive Chairman
3 August 2020
Financial review FY2020
The disposal of the Telecoms Antenna Operation for $5.5m (£4.1m) substantially improved the liquidity position of the Group. This provided the company with healthy cash reserves and a continuing business operation that demonstrated resilience during the Covid-19 crisis.
Filtronic achieved year-on-year revenue growth from continuing operations of 8% resulting in an uplift of adjusted EBITDA to £1.2m (2019: £0.7m). The balance sheet benefitted from the sale of the Telecoms Antenna Operation in January 2020 for £4.1m and a level of unwind of working capital in the second half of the year from a continuing operation that has generated improved adjusted EBITDA, our core metric for measuring underlying profitability, for three consecutive years.
Revenues
Sales revenue for the Group from continuing operations increased in the year by 8% to £17.2m (2019: £15.9m) driven by increased output of our core product offerings manufactured at Sedgefield. It was very pleasing to see the investment made in product development over recent years come to fruition and provide sufficient uplift to replace and surpass the revenue previously generated by telecoms filters. Sales of telecoms filters drew to a close in the early part of the year following our strategic withdrawal from this low margin business in 2016 and generated only £0.2m of revenue in this financial year (2019: £4.1m).
5G XHaul sales to our lead customer grew by 221% year-on-year due to strong demand for the Orpheus platform as Mobile Operators commenced their 5G network roll-out. In addition to sales of 5G XHaul products into our traditional wireless telecoms infrastructure market, sales of XHaul derivatives grew by 150% as we saw traction into adjacent markets such as mmWave 'over-the-air' equipment and HAPS.
Sales of defence products saw year-on-year growth of 34% as the multi-year agreement announced in September 2018 to supply modules for use in aerospace radar systems entered production. This added to the two existing contracts that reached full capacity in the previous financial year.
Sales to the public safety market saw a reduction of 30% hindered by weak trading in the final quarter of the year as Covid-19 impacted our end customer.
Operating costs and headcount
Operating costs increased in the year to £9.3m (2019: £7.6m). A substantial portion of this increase was due to salary related cost increases of £1.7m, including £0.4m of exceptional items due to restructuring of the overhead cost base. The operational team was enlarged substantially in the year to support the production ramp of 5G XHaul products whilst we made additional investments in our engineering team to support new product development and advancement of our technology roadmap. This is reflected in the average headcount for the year which has increased to 141 (2019: 100).
The Group's average continuing headcount is presented below:
2020
2019
Manufacturing
99
62
Research and development
21
17
Sales and marketing
5
6
Administration
16
15
Total headcount
141
100
Despite the increase in salary costs there were favourable changes to the cost base mainly from an additional £0.4m of development costs capitalised over the previous year as a number of product developments met the criteria of IAS 38. Further commentary can be seen in the Research and Development section of this review.
Adjusted EBITDA
Adjusted EBITDA for the continuing operation was £1.2m (2019: £0.7m). The increase in revenue supported a minimal increase in gross profit of £0.1m but gross margin declined due to an increase of manufacturing overheads. The production ramp of the 5G XHaul products consumed more cost as employees undertook product and equipment training following substantial capital expenditure investment and new employees worked through the learning curve. Added to this were operational inefficiencies from the Covid-19 social distancing measures implemented.
In the USA, the public safety business was on-shored from China which led to an increase in manufacturing fixed costs at a time that Covid-19 impacted volume output. Given the business is now operationally geared for higher volumes, increases in revenue will have a greater profit impact.
Depreciation increased as a result of investments made in plant and machinery during the second half of the year and the impacts of IFRS 16. Impairment of development costs previously capitalised was £89k as a key client experienced technical issues with their internal development. Whilst we are hopeful this technical uncertainty will be resolved a prudent approach has been taken to its recognition.
2020
2019
Reconciliation of adjusted operating profit/EBITDA
£000
£000
Operating (loss)/profit
(188)
234
Exceptional items
569
-
Adjusted operating profit
381
234
Impairment of development costs
89
-
Depreciation
677
355
Amortisation
18
75
Adjusted EBITDA
1,165
664
Taxation
A tax charge of £0.1m (2019: £2.1m credit) has been recognised for the year, as set out in note 7 to the financial statements. The Group benefits from R&D tax credits in the UK as we continue to invest in the development of advanced product and process technology. An R&D tax credit of £0.1m was recognised in the year as it is anticipated the business will revert to an acceleration of tax losses position rather than a 'cash-out' as has been the case in previous years (2019: £1.4m).
Discontinued operations
The Group sold the Filtronic Telecoms Antenna Operation ("FTAO") during the year for an initial cash consideration of $5.5m (£4.1m) to Microdata Telecom Innovation Stockholm AB on 2 January 2020. We are very pleased with the initial consideration received which may increase based on contingent consideration arising on an equal share of the gross profit that outperforms the mutually agreed gross profit targets of $2.0m and $3.0m over the next two calendar years. The fair value for this consideration has not been recognised in the financial results for the year.
The gain on sale of discontinued operations against the carrying value of the assets held for sale was £1.3m which reduced to an overall gain on sale of discontinued operations of £0.7m after advisor fees and other costs of sale were applied.
The discontinued operation continued to trade until the date the sale was completed. The loss from its operating activities was £2.1m (2019: £3.5m).
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and amortisation of development costs were £1.7m (2019: £1.2m). The Group saw an increase in R&D spend year-on-year as investment was made into expanding the product portfolio. The aim was to generate a mix of near-term revenue whilst also developing the strategic technology roadmap to build long-term shareholder value. The Group remains committed to investment in R&D for the future growth of the business and consequently measures this as a KPI. Key areas of spend in the year included product development of a range of TTAs for the public safety market and progression of the mmWave technology roadmap. This included the next-generation Morpheus II transceiver and applications for adjacent markets such as HAPS and 'over-the-air' mmWave equipment.
The Group capitalises its development costs in line with IAS 38 as set out in note 2 to the financial statements. A reconciliation of R&D costs before capitalisation and amortisation can be seen in the table below:
2020
2019
Reconciliation of R&D costs
£000
£000
R&D costs in income statement
1,152
1,026
Capitalisation of development costs
678
250
Impairment of development costs
(89)
-
Amortisation of development costs
-
(38)
R&D costs before capitalisation and amortisation
1,741
1,238
Capital expenditure and right of use assets
The Group undertook an extensive capital expenditure programme during the year made up of right of use assets and plant and equipment. The total amount of capital committed was £1.8m (2019: £0.4m) to increase production capacity at Sedgefield and improve our operational capability. The assets, externally financed through asset finance agreements, were subsequently classified as right of use assets.
Inventory provision
Inventory is valued at the lower of cost and net realisable value. It is the Group's policy to regularly review the carrying value of its inventories and to make a provision for excess and obsolete inventory. As at 31 May 2020, the inventory provision was £1.5m (2019: £1.1m).
Warranty provision
In line with industry practice, the Group provides warranties to customers over the quality and performance of the products it sells. The Group's policy is to make a provision, calculated as a percentage of cost of goods sold, after reviewing costs associated with faulty products returned. As at 31 May 2020, the warranty provision was £1.1m (2019: £2.2m). The Group has now paid 75% of a specific customer warranty settlement liability with the final instalment of $0.5m (£0.4m) due in December 2020.
Funding and cash flow
The Group recorded a decrease in cash and cash equivalents to £2.0m (2019: £2.6m) at the year-end.
Cash used in operating activities in the year was £2.6m (2019: £0.0m). The cash usage was primarily to fund losses from the discontinued operation along with exceptional items, payment of the customer warranty liability settled in the year and increased working capital to service the increased activity of 5G XHaul products.
The Group paid £1.2m (2019: £1.1m) for plant and machinery and internally generated intangible assets. However, overall, the Group generated cash from investing activities of £2.4m as a result of the incoming proceeds of £3.7m - net of sale costs from the disposal of FTAO. The full breakdown of this movement can be seen on the consolidated cash flow statement.
Net cash when excluding property leases at the end of the period was £0.4m (2019: £2.5m) whilst overall net debt including property leases was £0.7m (2019: net cash of £2.5m).
To provide additional cash headroom Filtronic has a £3.0m invoice discounting facility with Barclays Bank plc in the UK and an agreement with Wells Fargo Bank for an additional $4.0m invoice factoring facility to borrow against the debtors of our USA operation.
Cashflow responses to Covid-19 and going concern
The Covid-19 pandemic has brought a new liquidity risk to many businesses and a more cautious approach to the outlook. The initial response to the pandemic was to ensure Filtronic maintained manufacturing capability and keep meeting customer delivery commitments. This enabled us to strengthen the balance sheet during the crisis and continue to generate cash.
Several initiatives were implemented to strengthen the cash position in the face of potential Covid-19 impacts, including: negotiating an increase in the advance rate on the invoice discounting facility with Barclays from 65% to 70% to give additional access to debt should it be required; a three-month moratorium on payments to our asset finance partner; a three-month payment holiday with the landlord in Sedgefield on rent payments and a hold on VAT payments to HMRC. Having considered the government's Coronavirus Business Interruption Scheme (CBILS), it was determined that long-term debt to finance potential operational losses would be an inappropriate source of finance. Additionally, the Group already had sufficient cash reserves and access to finance through working capital debt facilities to continue as a going concern even after stress testing the business forecast with severe downside scenarios. This included a decrease of revenue across the projected period against the base case by an average of 36% to model a more restrictive second wave of Covid-19 resulting in total lockdown for the UK and USA and demand recovering to no more than 75% of base case revenue afterwards.
In the USA the government have sought to secure jobs for businesses by offering the Paycheck Protection Program where companies were able to apply for 250% of average monthly payroll to protect jobs. We successfully applied for a loan under this scheme for $237k (£192k) through Provident State Bank. This two-year loan carries a fixed 1% interest rate over the term and is not repayable for six months. Based on job retention the loan may be forfeited by the US government in the future.
Subsequent to 31 May 2020, Filtronic took advantage of the Coronavirus Job Retention Scheme made available by the UK government and secured a temporary overdraft facility for six months from Barclays for £500,000. It is not expected we will use this overdraft facility, but it is a more appropriate debt instrument than the invoice discounting facility when the Group could be prevented from generating sales in a lockdown situation.
Michael Tyerman
Chief Financial Officer
3 August 2020
The Board
The directors that served during the year ended 31 May 2020, and to the date of this announcement, and their respective roles are set out below:
Reg Gott (Executive Chairman)
Michael Tyerman (Chief Financial Officer)
Michael Roller (Non-Executive Director)
Pete Magowan (Non-Executive Director)
Rob Smith (Resigned 31 October 2019)
Consolidated Income Statement
for the year ended 31 May 2020
2020
2019
Continuing operations
Note
£000
£000
Revenue
3
17,181
15,932
======
======
Earnings before interest, taxation, depreciation, amortisation and exceptional items
1,165
664
Depreciation
(677)
(355)
Amortisation of other intangible assets
(18)
(75)
Impairment of development costs
(89)
-
----------
----------
Adjusted operating profit
381
234
Exceptional items
4
(569)
-
----------
----------
Operating (loss)/profit
(188)
234
Finance costs
(277)
(154)
Finance income
36
55
----------
----------
(Loss)/profit before taxation
(429)
135
Taxation
7
(89)
2,099
----------
----------
(Loss)/profit for the year from continuing operations
(518)
2,234
Loss for the year from discontinued operations
5
(1,437)
(3,547)
======
======
Loss for the year
(1,955)
(1,313)
======
======
----------
----------
Basic and diluted loss per share
6
(0.93p)
(0.63p)
======
======
The loss for the year is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2020
2020
2019
£000
£000
Loss for the year
(1,955)
(1,313)
----------
----------
Other comprehensive (expense)/income
Items that are or may be subsequently reclassified to profit and loss:
Transfer to income related to business disposal
117
-
Currency translation movement arising on consultation
(111)
60
----------
----------
Total comprehensive expense for the year
(1,949)
(1,253)
======
======
The total comprehensive expense for the year is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Balance Sheet
at 31 May 2020
2020
2019
Note
£000
£000
Non-current assets
Goodwill and other intangible assets
1,847
1,247
Right of use assets
8
2,685
-
Property, plant and equipment
1,124
1,030
Deferred tax
1,868
1,982
----------
----------
7,524
4,259
----------
----------
Current assets
Inventories
2,945
2,081
Trade and other receivables
4,848
4,220
Cash and cash equivalents
2,028
2,625
Assets held for sale
9
-
5,046
----------
----------
9,821
13,972
----------
----------
----------
----------
Total assets
17,345
18,231
----------
----------
Current liabilities
Trade and other payables
3,463
2,316
Provision
11
1,110
2,265
Deferred income
568
81
Financial liabilities
177
231
Liabilities directly associated with assets held for sale
9
-
2,207
Lease liabilities
10
662
-
----------
----------
5,980
7,100
----------
----------
Non-current liabilities
Financial liabilities
144
118
Lease liabilities
10
1,867
-
----------
----------
2,011
118
----------
----------
----------
----------
Total liabilities
7,991
7,218
----------
----------
----------
----------
Net assets
9,354
11,013
----------
----------
Equity
Share capital
12
10,794
10,789
Share Premium
13
11,000
10,715
Translation Reserve
(552)
(558)
Retained earnings
(11,888)
(9,933)
----------12,161
----------
Total equity
9,354
11,013
======
======
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Company number 2891064
Reg Gott
Executive Chairman
Consolidated Statement of Changes in Equity
for the year ended 31 May 2020
Share capital
Share premium
Translation reserve
Retained earnings
Total equity
£000
£000
£000
£000
£000
Balance at 31 May 2018
10,788
10,640
(618)
(8,649)
12,161
Loss for the year
-
-
-
(1,313)
(1,313)
New shares issued
1
75
-
-
76
Share based payments
-
-
-
29
29
Currency translation movement arising on consolidation
-
-
60
-
60
----------
----------
----------
----------
----------
Balance at 31 May 2019
10,789
10,715
(558)
(9,933)
11,013
Loss for the year
-
-
-
(1,955)
(1,955)
New shares issued
5
285
-
-
290
Transfer to income related to business
disposal
-
-
117
-
117
Currency translation movement arising on consolidation
-
-
(111)
-
(111)
----------
----------
----------
-----------
----------
Balance at 31 May 2020
10,794
11,000
(552)
(11,888)
9,354
======
======
======
=======
======
Consolidated Cash Flow Statement
for the year ended 31 May 2020
2020
2019
£000
£000
Cash flows from operating activities
(Loss)/profit for the year from continuing operations
(518)
2,234
Loss for the year from discontinued operations
(1,437)
(3,547)
Gain on sale of the Telecoms Antenna Operation
(671)
-
Taxation
100
(2,059)
Finance income
(36)
(55)
Finance costs
280
154
----------
----------
Operating loss including discontinued operations
(2,282)
(3,273)
Share-based payments
-
29
Profit on disposal of plant and equipment
-
(2)
Depreciation
677
459
Amortisation of intangible assets
18
217
Impairment of intangible assets
89
512
Movement in inventories
(731)
(348)
Movement in trade and other receivables
85
1,669
Movement in trade and other payables
(1,054)
(657)
Movement in provisions
(1,155)
1,780
Change in deferred income
488
(279)
Tax received/(paid)
1,227
(127)
----------
----------
Net cash used in operating activities
(2,638)
(20)
----------
----------
Cash flows from investing activities
Capitalisation of development costs
(678)
(666)
Acquisition of intangible assets
(27)
(11)
Acquisition of plant and equipment
(384)
(380)
Acquisition of right of use assets
(154)
-
Proceeds on sale of FTAO - net of sale costs
3,652
-
Proceeds on sale of assets
-
59
----------
----------
Net cash from/(used in) investing activities
2,409
(998)
----------
----------
Cash flows from financing activities
Interest paid
(258)
(103)
Proceeds from bank loans
192
-
Exercise of employee share options
290
76
Repayment of lease liabilities
(375)
-
Payment of interest-bearing borrowings
(202)
(182)
----------
----------
Net cash used in financing activities
(353)
(209)
----------
----------
Movement in cash and cash equivalents
(582)
(1,227)
Currency exchange movement
(15)
58
Opening cash and cash equivalents
2,625
3,794
----------
----------
Closing cash and cash equivalents
2,028
2,625
======
======
Notes to the Preliminary Financial Information
for the year ended 31 May 2020
1 Basis of Preparation
These preliminary results have been prepared on the basis of the accounting policies which are to be set out in Filtronic plc's Annual Report and financial statements for the year ended 31 May 2020.
In accordance with corporate governance requirements the directors have undertaken a review of forecasts and the Group's cash requirements to consider whether it is appropriate that the Group continues to adopt the going concern assumption.
At 31 May 2020, the Group had cash at bank of £2.0m and access to undrawn invoice discounting facilities of £3.0m and $4.0m in the UK and USA respectively. The sale of the Telecoms Antenna Operation provided $5.5m of cash creating a cash positive position from a net debt position and a much-improved cash reserve. Our cash and borrowing capacity therefore provide sufficient funds to meet the foreseeable needs of the Group.
As referred to in the Chairman's statement, the business continuity plans implemented during the Covid-19 pandemic have limited the adverse impact to date. The Board recognises the uncertain macroeconomic environment that the world now faces and has reviewed the business outlook to reflect this uncertainty. Cash flow forecasts have been prepared to model various scenarios over a three-year period based on the Group's financial and trading position, principal risks and uncertainties and strategic plans. A downside scenario was modelled where the pandemic may adversely affect forward-looking demand to levels significantly lower than those initially modelled in the base case scenario.
A further model was prepared with a severe downside stress test applied to the model by assuming a more restrictive lockdown resulting in a 36% drop in revenue across the projected period following a second wave of the Covid-19 virus that would be more disruptive to the business than the first wave. It was also assumed demand would not recover to base case levels after the lockdown with demand only achieving 75% of base case demand thereafter.
The scenarios modelled above demonstrate the Group has adequate cash and borrowing capacity for the next twelve months and therefore the directors continue to adopt the going concern basis to prepare the accounts.
There are a number of new standards, including, amendments to standards and interpretations that are effective for financial statements after this reporting period, but the Group has not adopted them early. None of these are expected to have a material impact on the results or financial position of the Group.
EU Law (IAS Regulation EC1606/2002) requires that the consolidated financial statements of the Group for the year ended 31 May 2020 be prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ('adopted IFRSs'). Whilst the information included in this preliminary announcement has been computed in accordance with adopted IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements in September 2020.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2020 or 31 May 2019. The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the registrar of companies. The auditor has reported on the 2020 accounts; their report 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.
The statutory accounts for 2020 were finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.
2 Adoption of IFRS 16 - new accounting standard on leases
The Group has adopted IFRS 16 "Leases" with effect from 1 June 2019, replacing IAS 17 "Leases". This means that previously unrecognised operating leases are now recognised in the Statement of financial position as lease liabilities and right of use assets. Rent payments on these leases are no longer treated as a charge within operating expenses in the income statement. Instead a depreciation charge on the right of use assets and an interest expense on the lease liabilities are now recognised in the income statement.
On adoption of IFRS 16 the Group has used the simplified approach to transition. When applying IFRS 16, the Group has used the following practical methods on transition:
· reliance on previous identification of a lease under IAS 17;
· exclusion of initial direct costs from the measurement of the right of use asset at transition;
· the classification of all long leases which had less than 12 months remaining at transition date as short-term leases;
· the measurement of the value of right of use assets on transition as an amount equal to the corresponding lease liability adjusted for any prepaid lease payments;
· the use of hindsight in determining the length of the lease.
The Group is applying the accounting policy recognition exemptions set out in paragraph 5 of IFRS 16 in respect of short-term leases (leases of less than 12 months) and small value leases.
The Group has applied judgement in its assessment of the length of certain leases where there are break clauses or options to extend the lease. The conclusions drawn by management in deciding whether lease break clauses or lease extension options are likely to be applied are based on its current assessment of the longer-term growth expectations of the Group and its associated future office space requirements.
The Group is applying the simplified approach to transition and has therefore not restated any prior period information. Accordingly, the results for the year ended 31 May 2020 are not directly comparable with those presented in the prior period under the previously applicable accounting standard IAS 17 "Leases".
In order to show the impact of IFRS 16 and to facilitate a comparison of results with the prior year, a reconciliation is presented below of results for the year ended 31 May 2020 as reported on an IFRS 16 basis with the former IAS 17 basis.
FY2020
FY2020
IAS 17 basis
IFRS 16 Impact
IFRS 16 basis
£000
£000
£000
Operating overheads
8,816
(310)¹
8,506
----------
----------
----------
Adjusted EBITDA
855
310
1,165
Depreciation
(450)
148
(302)
Right of use asset depreciation
-
(375)²
(375)
Amortisation of other intangible assets
(18)
-
(18)
Impairment of intangible assets
(89)
-
(89)
----------
----------
----------
Adjusted operating profit
298
83
381
Exceptional items
(569)
-
(569)
----------
----------
----------
Operating loss
(271)
83
(188)
Finance costs
(159)
(118)³
(277)
Financial income
36
-
36
----------
----------
----------
Loss before taxation
(394)
(35)
(429)
======
======
======
The impact on the Income Statement is summarised as follows:
1. Reduced lease rental charges on IFRS 16 basis;
2. Additional depreciation on right of use assets recognised under IFRS 16;
3. Additional interest costs on finance leases recognised under IFRS 16.
The outcome of this is that adjusted EBITDA and adjusted operating profit are higher on a comparative basis but the loss before taxation is lower.
The adoption of IFRS 16 on 1 June 2019 has impacted certain categories of assets and liabilities in the Group Statement of financial position as set out below:
At 1 June 2019
At 1 June 2019
IAS 17 basis
IFRS 16 Impact
IFRS 16 basis
£000
£000
£000
Non-current assets
Right of use assets
-
1,327
1,327
Current liabilities
Lease liability
-
243
243
Non-current liabilities
Lease liability
-
1,084
1,084
The right of use assets recognised under IFRS 16 are in respect of facilities and office premises the Group leases under non-cancellable agreements and finance agreements for plant and equipment.
There was no overall impact on Net Assets or Equity from the initial adoption of IFRS 16 on 1 June 2019.
Reconciliation of IAS 17 to IFRS 16
The reconciliation below demonstrates how operating lease commitments presented in the Annual Report and Accounts 2019 under IAS 17 at the end of FY2019 and before the application of IFRS 16 changes with the opening lease liability presented in the consolidated balance sheet at the start of the FY2020 on 1 June 2019.
£000
IAS 17 operating lease commitments based on gross cash flows
2,059
Discounted using the Group's incremental borrowing rate of 7%
(345)
Discounted using the Group's incremental borrowing rate of 5%
(94)
Reclassified to assets held for sale
(293)
----------
IFRS 16 lease liability as at 1 June 2019
1,327
======
3 Segmental analysis
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 Executive Chairman, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly, the Executive Chairman is deemed to be the CODM.
The CODM has identified one operating segment within the Group as defined under IFRS 8. In turn, this is the only reportable segment of the Group as the entities in the Group have similar products and services, production processes and economic characteristics. Therefore, there is no allocation of operating expenses, profit measures or assets and liabilities to specific commercial markets.
Accordingly, the CODM assesses the performance of the operating segment on financial information which is measured and presented in a manner consistent with those in the financial statements by reference to Group results against budget.
The Group profit measures are adjusted operating profit and adjusted EBITDA, both disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial statements.
The Group has three customers representing individually over 10% of revenue each and in aggregate 87% of revenue. This is split as follows:
• Customer A - 44%
• Customer B - 27%
• Customer C - 16%
Revenue by destination
Continuing operations
Discontinued operations
Total
2020
2019
2020
2019
2020
2019
£000
£000
£000
£000
£000
£000
United Kingdom
4,764
3,658
-
-
4,764
3,658
Europe
7,985
4,818
-
-
7,985
4,818
Americas
3,945
4,913
65
4,504
4,010
9,417
Rest of the World
487
2,543
991
134
1,478
2,677
---------
---------
----------
----------
----------
----------
17,181
15,932
1,056
4,638
18,237
20,570
======
======
======
======
======
======
Split of non-current assets by
location
2020
2019
£000
£000
United Kingdom
6,329
1,898
Americas
1,195
2,361
---------
---------
7,524
4,259
======
======
Non-current assets relate to property, plant and equipment, right of use assets, goodwill and other intangible assets and deferred tax.
4 Exceptional items
Exceptional items are costs that are separately disclosed due to their material and non-recurring nature in order to reflect management's view of the underlying business.
Operating costs are stated after charging exceptional items as follows:
Year
Year
Ended
Ended
31 May
31 May
2020
2019
£000
£000
Costs relating to the FTAO business disposal
145
-
Restructuring costs
184
-
Directors' resignation
240
-
----------
----------
569
-
======
======
Transaction costs of the FTAO business disposal are the costs incurred in the period relating to sale of the Filtronic Telecoms Antenna Operation ("FTAO") to Microdata Telecoms Innovation Stockholm AB on 2 January 2020 for an initial consideration of $5.5m.
Following the disposal of FTAO the Group undertook a programme to restructure the business to align the cost base and operation to the continuing business. Action was taken to significantly reduce our presence in China with a major reduction in employee headcount and the successful onshoring of manufacture of our public safety products to our site in the USA.
Rob Smith resigned as CEO of the Company on 31 October 2019, the costs relating to his departure were £240k.
5 Discontinued operations
The Group sold the Filtronic Telecoms Antenna Operation ("FTAO") for an initial consideration of $5.5m (£4.1m) to Microdata Telecom Innovation Stockholm AB on 2 January 2020. This may rise based on contingent consideration arising on an equal share of the gross profit that outperforms the mutually agreed gross profit targets of $2.0m and $3.0m over the next two calendar years. The directors have opted not to recognise a fair value for this consideration in the results for the year.
As a result of the sale, FTAO is reported in the current period as a discontinued operation. Financial information relating to the financial performance of the discontinued operation for the period to 2 January 2020, the date of disposal, and the year ended 31 May 2020 is set out below.
2020
2019
£000
£000
Revenue
1,056
4,638
======
======
Material cost of goods sold
903
3,393
----------
----------
Wages and salaries
936
1,770
Social security costs
169
274
Pension costs
141
245
----------
----------
Staff costs
1,246
2,289
----------
----------
Amortisation
-
142
Impairment of intangible assets
-
512
Depreciation
-
104
----------
----------
Depreciation and amortisation
-
758
----------
----------
Exceptional items
724
1,584
Other expenses
277
121
----------
----------
Total operating costs
2,247
4,752
----------
----------
Operating loss
(2,094)
(3,507)
Finance costs
(3)
-
----------
----------
Loss before taxation
(2,097)
(3,507)
Taxation
(11)
(40)
----------
----------
Loss for the year from operating activities
(2,108)
(3,547)
Gain on sale of discontinued operations
671
-
----------
----------
Loss for the year from discontinued operations
(1,437)
(3,547)
======
======
Gain on sale of discontinued operations
2020
2019
£000
£000
Consideration received
4,146
-
Carrying amount of net assets sold
(2,864)
-
Costs directly associated with the sale of FTAO
(494)
-
Currency translation adjustment
(117)
-
----------
----------
Gain on sale of discontinued operations
671
-
======
======
6 (Loss)/earnings per share
Continuing
operations
Discontinued operations
Total Group
2020
2019
2020
2019
2020
2019
£000
£000
£000
£000
£000
£000
(Loss)/profit for the year
(518)
2,234
(1,437)
(3,547)
(1,955)
(1,313)
======
======
======
======
======
======
'000
'000
'000
'000
'000
'000
Basic weighted average number of shares
211,021
207,578
211,021
207,578
211,021
207,578
Dilution effect of share options
-
3,370
-
-
-
-
----------
----------
----------
----------
----------
----------
Diluted weighted average number of shares
211,021
210,948
211,021
207,578
211,021
207,578
----------
----------
----------
----------
----------
----------
Basic (loss)/earnings per share
(0.25p)
1.08p
(0.68p)
(1.71p)
(0.93p)
(0.63p)
Diluted (loss)/earnings per share
(0.25p)
1.06p
(0.68p)
(1.71p)
(0.93p)
(0.63p)
======
======
======
======
======
======
Due to the Group having losses in each of the financial years, the fully diluted loss per share for disclosure purposes, as shown in the income statement, is the same as the basic loss per share.
7 Taxation
The reconciliation of the effective tax rate is as follows:
2020
2019
£000
£000
(Loss)/profit before tax from continuing operations
(429)
135
Loss before tax from discontinued operations
(2,097)
(3,507)
---------
---------
Loss before taxation
(2,526)
(3,372)
======
======
2020
2019
£000
£000
Loss before taxation multiplied by standard rate of corporation tax in the UK
(19%)
(480)
(19%)
(640)
Disallowable items
12%
286
7%
231
Income not taxable
-
-
0%
6
Deferred tax asset not recognised
24%
598
23%
777
Enhanced R&D tax credit
(25%)
(630)
(19%)
(628)
Adjustment in respect of prior year - R&D tax credit
9%
240
(22%)
(728)
Foreign tax not at UK rate
1%
25
4%
138
Recognition of deferred tax asset previously unrecognised
-
-
(7%)
(244)
Recognition of deferred tax asset from prior year
4%
61
(29%)
(971)
---------
---------
---------
---------
Taxation
6%
100
(62%)
(2,059)
======
======
======
======
Income tax charge/(credit) attributable to:
Continuing operations
89
(2,099)
Discontinued operations
11
40
---------
---------
100
(2,059)
======
======
The main rate of UK corporation tax for the financial year was 19%. The US Federal Corporate tax rate is 21% following recent tax reforms. The deferred tax assets recognised in the year have been calculated at the rates expected to be in existence in the period of reversal.
8 Right of use assets
Property leases
Plant and equipment
Total
£000
£000
£000
Cost
Opening balance recognised on adoption of IFRS 16
1,327
-
1,327
Additions
-
1,727
1,727
Exchange differences
6
-
6
----------
----------
----------
At 31 May 2020
1,333
1,727
3,060
----------
----------
----------
Depreciation
Provided in the year
226
149
375
----------
----------
----------
At 31 May 2020
226
149
375
----------
----------
----------
Carrying value at 31 May 2020
1,107
1,578
2,685
======
======
======
The Group's lease commitments are made up of property leases and plant and equipment under asset finance agreements.
The Group leases office premises at its sites in Sedgefield and Yeadon in the UK, Salisbury, Maryland in the USA and a virtual office space in Suzhou, China. Leases remaining are between one and nine years.
9 Assets held for sale
The directors committed to a plan to sell the Telecoms Antenna Operation in the previous financial year, so the assets and liabilities were consequently presented as held for sale at 31 May 2019. The business was sold on2 January 2020 to Microdata Telecoms Innovation Stockholm AB and is therefore reported in the current period as a discontinued operation. The following assets and liabilities were classified as held for sale in relation to the discontinued operation at 31 May 2019.
2020
2019
£000
£000
Goodwill and other intangible assets
-
2,605
Property, plant and equipment
-
237
Inventory
-
406
Trade and other receivables
-
1,798
------------
------------
Assets held for sale
-
5,046
=======
=======
Trade and other payables
-
2,207
------------
------------
Liabilities held for sale
-
2,207
=======
=======
Notes to the Preliminary Financial Information
for the year ended 31 May 2020
10 Lease liabilities
£000
Opening lease liability recognised on adoption of IFRS 16 (1 June 2019)
1,327
New leases entered into during the year
1,572
Payments made during the year
(375)
Exchange differences
5
-----------
At 31 May 2020
2,529
=======
Lease liability payable in less than one year
662
Lease liability payable in more than one year
1,867
-----------
At 31 May 2020
2,529
=======
The Group adopted IFRS 16 using the simplified approach effective from 1 June 2019 and has recognised a lease liability at 1 June 2019 for leases previously classified as operating leases using IAS 17. The Group has measured lease liabilities at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at the date of initial application. Details of the Group's liability in respect of right of use assets and their carrying amount are presented above with more detail in note 2.
Notes to the Preliminary Financial Information
for the year ended 31 May 2020
11 Provision
Warranty provision
2020
2019
£000
£000
Opening balance
2,205
425
Used during the year
(1,188)
(11)
Released unused during the year
(274)
(45)
Charge for the year
301
1,836
Exchange differences
9
-
---------
---------
Closing balance
1,053
2,205
======
======
The provision for warranty relates to the units sold during the last two financial years and the remaining liability of the warranty settlement agreement for £0.4m (2019: £1.6m). The provision is based on estimates made from historical warranty data.
Dilapidation provision
2020
2019
£000
£000
Opening balance
60
60
Released unused during the year
(5)
-
Exchange differences
2
-
---------
---------
Closing balance
57
60
======
======
The Group leases facilities at three sites in the UK and US, with each of these leases requiring the site to be restored to its original condition. The dilapidation provision reflects management's best estimates and ability to measure the likely costs that may be incurred restoring the building to its original state.
Total provision
2020
2019
£000
£000
Warranty provision
1,053
2,205
Dilapidation provision
57
60
---------
---------
Total provision
1,110
2,625
======
======
12 Share Capital
Ordinary shares of 0.1p each issued and fully paid
Number '000
£000
At 1 June 2018
206,910
10,788
Exercise of share options
1,219
1
--------------
---------
At 31 May 2019
208,129
10,789
Exercise of options
5,569
5
------------
------------
At 31 May 2020
213,698
10,794
========
======
Holders of the ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company.
13 Share Premium
£000
At 1 June 2018
10,640
Exercise of share options
75
-----------
At 31 May 2019
10,715
Exercise of share options
285
-----------
At 31 May 2020
11,000
=======
14 Dividends
The directors are not proposing to pay a dividend for the year ended 31 May 2020 (2019: £nil).
15 Analysis of net (debt)/cash
Reconciliation of cash flow to movement in net (debt)/cash
2020
2019
£000
£000
Movement in cash and cash equivalents
(582)
(1,227)
Movement in lease liability - plant and machinery
(1,381)
-
Movement in lease liability - property lease
(1,148)
-
Movement in bank loans
(92)
100
Effect of exchange rate fluctuations
(15)
58
----------
----------
Movement in net (debt)/cash
(3,218)
(1,069)
Net opening cash
2,508
3,577
----------
----------
Net closing cash
(710)
2,508
======
======
1 June 2019
Cash Flow
Other movements
31 May 2020
£000
£000
£000
£000
Cash and cash equivalents
2,625
(582)
(15)
2,028
Bank loans
(117)
(92)
-
(209)
Lease liability - property lease
-
183
(1,331)
(1,148)
Lease liability - plant and equipment
-
192
(1,573)
(1,381)
---------
---------
---------
---------
Net (debt)/cash
2,508
(299)
(2,919)
(710)
======
======
======
======
Cash at bank earns interest at floating rates based on daily bank deposit rates.
IFRS 16 requires the recognition of property leases on the balance sheet which is classified as a debt item. Previously, these have been off-balance sheet as operating lease commitments. The lease liability related to plant and equipment shows an increase of £1.4m at 31 May 2020 as asset finance was used to purchase machinery at our Sedgefield site in order to increase our production capacity and capability.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR SSUESDESSEEA
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