RNS Number : 9519X
Filtronic PLC
16 August 2018
16 August 2018
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2018
Filtronic plc, the designer and manufacturer of microwave electronics products for the wireless telecoms infrastructure market, announces its full year results for the 12 months ended 31 May 2018.
Financial Highlights
2018
2017
Sales Revenue
£24.0m
£35.4m
Earnings before interest, taxation, depreciation and amortisation
£2.5m
£2.5m
Operating profit
£1.8m
£1.7m
Profit before taxation
£1.2m
£2.2m
Basic earnings per share
0.59p
1.51p
Diluted earnings per share
0.59p
1.49p
Net cash balance as at 31 May
£3.6m
£2.6m
Cash from operating activities
£1.8m
£3.9m
Operational Highlights
· Secured a major development contract with a major OEM to design and supply Massive MIMO antennas; a key product in network densification using techniques that will form the basis of 5G systems.
· Second major contract win secured in the year to supply our Tier 1 European defence customer. The contract, valued at £4.8m, is to be supplied over three years. Production rates reached full contractual requirements by the close of the year.
· Another year of strong demand for filter products, with the main growth driven by the largest OEM supplier in the public safety communications market.
· Approved as a vendor by a major US mobile network operator to supply 5G Evolution antennas and recently qualified by a major Mobile Network Operator in EMEA for another of our antenna products.
· Selected by a leading OEM to supply Orpheus E-band transceivers into their new E-band backhaul radio.
· Reorganisation of the business identified to capitalise on opportunities in 5G as we leverage our operational and engineering capabilities.
Commenting on the outlook, Reg Gott, Chairman, said:
"We are pleased with the progress we have made along our strategic pathway and our focus on higher margin products and applications has further improved operating profitability over the past year. Our substantial investment in new products and technologies over the past two years has started to deliver on our objectives of broadening our customer base and expanding our product range. This remains a key strategic objective.
We are gaining increasing market recognition for our expertise in network access and mmWave engineering and we believe this positions us very well to take advantage of the huge opportunities that exist in the future development of 5G networks. Massive MIMO antennas utilise techniques that will be a key enabler of 5G and our recent contract win to engineer and supply these antennas to a major global OEM demonstrates our capability and credibility to take advantage of these opportunities as they arise."
Annual General Meeting
The Annual General Meeting will take place at 11am on 25 October 2018 at the offices of Pinsent Masons, 1 Park Row, Leeds, LS1 5AB.
Filtronic plc
Tel. 0113 220 0000
Michael Tyerman (FD) / Rob Smith (CEO)
Panmure Gordon (UK) Limited
Tel. 020 7886 2500
Dominic Morley / Alina Vaskina
Walbrook PR Ltd
Tel. 020 7933 8780
Paul Cornelius
orfiltronic@walbrookpr.com
Sam Allen
Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.
Chairman's statement
The year under review saw steady progress as we further developed our strategy of broadening our customer base and the markets we serve. Although sales revenue reduced, a good sales mix along with the initial fulfilment of the previously announced defence contracts enabled gross margins to improve, with the result that operating profitability was marginally higher than in the comparative period.
The reduction in sales resulted from a combined impact of lower than expected demand for our customer specific integrated ultra-wide band antennas and delays in the production ramp of our new defence contracts that did not achieve full production capacity until the final quarter of the year. In the second half of the year we also saw a softening of demand for legacy filter products as some of these programme rollouts naturally concluded.
We are, however, very pleased with the progress made through the year in developing, refining and executing our strategies to prepare the business for 5G deployment and to increase our participation in markets other than mobile telecommunications infrastructure. We were particularly pleased to announce the award of a development contract for Massive MIMO ("mMIMO") antennas from Nokia. This is strategically significant as mMIMO is a fundamental technique that will be used in the development and deployment of 5G systems. The mMIMO antenna is complex, but we have been able to leverage our prior IP to accelerate the development phase and we anticipate that, having recently received initial orders, production will commence in the first half of FY2019.
Financial performance summary
Group sales for the year were £24.0m (2017: £35.4m) and an operating profit of £1.8m was achieved (2017: £1.7m). Earnings before interest, taxation, depreciation and amortisation ("EBITDA") was £2.5m (2017: £2.5m).
Filtronic Wireless business revenue was £18.4m (2017: £30.5m) with an operating profit of £2.4m (2017: £3.5m) and EBITDA of £2.7m (2017: £4.0m).
Filtronic Broadband business revenue was £5.6m (2017: £4.9m) with an operating profit of £0.2m (2017: £0.9m operating loss) and EBITDA of £0.5m (2017: £0.6m loss before interest, taxation, depreciation and amortisation).
The Group had net cash of £3.6m at the end of the financial year (2017: £2.6m). The cash generation for the year reflected the continuing profitability of the Group. The Group maintains an invoice discounting facility in the UK with Barclays Bank plc of £3.0m that was undrawn at the year-end (2017: £nil). We have recently secured a further financing agreement with Wells Fargo Bank for an invoice factoring facility in the United States of $4.0m. This facility will support our sales growth in the US market.
Dividend
No dividend is proposed for the year (2017: £nil). The Board continues to review its dividend policy and remains of the opinion that, whilst cash reserves remain healthy, shareholder interests are better served by retaining cash to fund our working capital and further investment plans than by distributing cash at this time.
Outlook
The progress made over the past few years has demonstrated the Group's ability to grow both profits and profitability. Whilst progress has been made in diversifying our customer base our sales remain highly concentrated and are still exposed to fluctuations in demand due to the nature of our business and the significant size of projects we supply into. However, the shorter product life cycles associated with the mobile telecommunications infrastructure market are being offset by the revenues that we are now starting to generate from the critical communications market which has a longer-term demand profile and more predictable revenue streams.
As the technologies deployed within our Filtronic Wireless and Filtronic Broadband products progressively converge, we have concluded that merging our two engineering and operations organisations and trading as one business will better optimise the use of our resources for the benefit of both customers and shareholders. Consequently, this is the last year that we will report Filtronic Wireless and Filtronic Broadband within the Group as two separate business segments.
We continue to be encouraged by the breadth of opportunities being developed and remain optimistic for the long-term prospects for the Group.
The terms and impact of "Brexit" remain unclear, but the global nature of our trade should provide a good degree of shelter from any major changes that may arise when the UK leaves the European Union.
I would like to thank our employees for all their continued hard work over the past year and to also thank our shareholders and other stakeholders for their continuing support as we work to build the business.
Reg Gott
Chairman
15 August 2018
Chief executive's review
FY2018 saw good underlying profitability despite reduced sales revenue compared to FY2017. The decline in sales revenue was a consequence of a faster than expected reduction in demand for ultra-wide band integrated antennas as the programme roll-out that saw such good demand in FY2017 concluded. Whilst a year-on-year drop in sales revenue is disappointing, we were very pleased to see a strengthening of demand for higher margin products in the year, which led to improved profitability. With good order visibility on established programme rollouts from defence contracts and our selection by a major OEM to supply Filtronic designed Massive MIMO ("mMIMO") antennas, we are confident for the business over the mid to long-term.
Our strategy and markets
Our objective is to grow profitably as an organisation by being a key supplier of advanced RF communications products to the mobile telecommunications infrastructure and critical communications markets. We focus on growth markets, where we have a deep understanding of the sector and customer requirements and where we can leverage our know-how and significant IP portfolio.
Our strategy to fulfil this objective includes:
· To offer a growing range of technically advanced antennas, mmWave transceivers and filters which are developed to meet the specific needs of our customers;
· To expand our customer base within existing markets; and
· To widen the number of markets we serve.
We have made significant progress in broadening both our customer base and the markets we serve and FY2018 saw major contributions to sales and profits from outside our traditional mobile telecommunications infrastructure market. Revenues and profits from customers in the defence and aerospace and public safety networks markets grew strongly in the year, providing a good platform for the future.
Our core technology know-how is in antennas, RF conditioning and transceiver products. We have gained a strong and growing reputation in the markets we serve for innovation, flexibility and the ability to deliver technically advanced products to demanding specifications. The fast-moving nature of the markets we serve means that we have to be flexible and adapt rapidly to changes.
Within our traditional telecommunications market, the evolution to 5G has begun to shape the nature of customer demand. The recently announced orders for mMIMO antennas is one example of how Filtronic is participating in this technology evolution. As 5G develops to use mmWave bands, our know-how in high frequency transceivers, filtering and antennas becomes increasingly relevant to our customers.
Over recent years, the technologies deployed across our two businesses have been on progressively converging pathways. We have therefore concluded that merging our two business units into a single operating structure will enable us to better address the opportunities that 5G is presenting to us and allow the organisation to better utilise its engineering, operations and sales resources. This change will also enable us to simplify our messaging to new and existing customers as we will simply go to market as Filtronic, eliminating some confusion that existed whilst trading as two separate business units.
The mobile telecoms infrastructure market has been the main focus for Filtronic for a number of years. However, as we execute our strategy to grow our customer base and target adjacent market opportunities, we must ensure our sales organisation reflects the different drivers and characteristics of these target markets. We have therefore also realigned our sales force into two sales teams to give specific market focus to our selling activities. One team will focus on our core mobile telecommunications infrastructure market whilst the other will focus on the critical communications market, which includes defence and aerospace, public safety and emerging applications such as high-altitude pseudo satellites ("HAPS"). We are convinced that having sector specialists will enable us to meet our customers' needs and expectations more closely.
As a consequence, Filtronic Wireless and Filtronic Broadband business segments have been combined, and this review will be the last one that references the previous operating segments and reports discrete financials for each.
Filtronic Wireless
FY2018 saw a reduction in revenues compared with FY2017 due to the faster than expected reduction in demand for our first generation of custom integrated antenna. However, based upon our achievements with this product, we secured a major follow-up product development contract for a mMIMO antenna. This antenna is currently undergoing end customer trials with an expected production ramp in FY2019. We are pleased to note that initial orders have now been received and we are in the process of setting up production lines to meet this demand.
We have made considerable efforts to sell antennas direct to Mobile Network Operators ("MNOs") to further diversify our customer base. Establishing ourselves in this sub-set of the market has however taken longer than we had originally expected. During FY2018, one of our antenna products was approved by a major US MNO and we are pleased to report that another MNO in EMEA recently qualified another of our antenna products. We are working diligently to convert these product approvals into sales and will keep investors informed of progress.
In FY2017, we saw good demand for legacy filter products and this demand continued through the first half of FY2018. However, we started to see this demand tailing-off in the second half of FY2018 and we expect to see further tailing-off as the programmes for these filter products conclude during FY2019. We took a conscious decision to exit the OEM base station filter market in FY2016 as this market had become increasingly commoditised by a number of Chinese suppliers bidding aggressively to secure business. This trend has continued, and we have no intention of re-entering this space. However, we do continue to sell filters into the public safety market along with our advanced antennas, which are system level products with integrated filters. In addition, we sell complex filter combiners to MNOs where the application has not been commoditised.
FY2018 saw very healthy demand for filters and combiners from the public safety market. This demand is project driven and during FY2018 we benefited from several major new system deployments. Whilst demand is uneven, product life cycles are long and underlying demand has steadily increased in recent years.
Filtronic Broadband
During FY2018, we saw production ramps for the two main defence contracts we had previously announced, which require Filtronic to build high specification transmit receive modules (TRMs) to our customers' specification. Our know-how in the manufacture of transceivers along with our specialised production capability was key to winning these contracts. The component materials used are specified and, for the most part, procured by the customer and then "free issued" to us for manufacture, assembly and testing. The scale-up of production proved to be challenging due to third party supply issues with some of these components, and this significantly delayed achieving the anticipated revenues. However, by working closely with our customer, we were able to identify solutions to these component issues and by the final quarter of FY2018 the two contracts were at full contractual production rates. These two initial contracts run for three and eight years, respectively. We note that more orders have been placed for the defence application where these TRMs are embedded and we are thus well positioned to win more work in due course.
After a slow start to the year for sales of our backhaul Orpheus transceiver products, we are pleased to report that Orpheus sales picked up in the second half as a leading OEM adopted this transceiver and embedded it in their new E-band backhaul radio. We continue to seek opportunities for these products in other applications and are working on developing new design variants and configurations that meet the specification requirements and price points demanded by the telecoms market.
In addition to our focus on our traditional core markets, we are working to develop opportunities for our mmWave transceiver products in emerging applications such as high capacity communications links to satellites, HAPS and track-side to train links. During FY2018, we also secured and delivered development contracts for fibre replacement and 5G related test equipment applications.
We are pleased with our progress in growing our customer base and reducing our customer concentration but recognise that we sell our products into a small number of large clients and so addressing this concentration issue remains a long-term project.
Future trends
The markets that we serve are dynamic, growing and continue to present good opportunities for us.
MNOs continue to invest in networks to increase capacity. Within 4G LTE networks, MNOs are increasing capacity by densification of their networks. There are two specific trends in densification: -
a) MNOs acquiring additional spectrum and building out networks to deploy additional bands. This is resulting in a requirement for multi-band antennas that can service as many as six different frequency bands.
b) The introduction of mMIMO increases spectral efficiency within existing licensed bands. This technique is a cost-effective way for MNOs to increase capacity and reduces the significant investment in additional spectrum.
These dense networks, primarily at frequencies less than 6GHz, are being marketed as 4.5G, 4.9G and 5G evolution by MNOs and this is where we expect to see the majority of hardware investment over the next few years. Filtronic is well positioned to participate in the densification of 4G LTE networks with our multi-port, ultra-wide band antennas and our mMIMO antenna offering.
We are also starting to see investment in the development of mmWave 5G technologies. In the 26-28GHz band, concept models have been produced with fully integrated front ends where the mMIMO antennas are closely coupled to dedicated chipsets incorporating multiple TRMs.
We are very well placed to participate in the development of these 5G systems. Our combination of key relationships with OEMs, high frequency transceiver and TRM expertise and knowledge of advanced antenna and filtering technologies provides us with solid commercial and technical platforms upon which we can build our market position.
The critical communications market is driven by government and quasi-governmental spending. Geo-political instability is leading to renewed expenditure on more advanced defence and public security equipment and technology.
Investment in public safety networks continues to grow and effective communications networks for emergency services are seen as a high priority in an era of increasing focus on national security. Whilst longer term there is a desire to use commercially available broadband networks, such as 4G LTE, that can accommodate public safety data requirements, most budget holders value the quality, operational independence, performance and stability of narrow-band public safety systems such as P25 and Tetra.
Looking ahead
The future of RF communication continues to be exciting and Filtronic's relevance to its customers and markets continues to grow. We are supplying products and technologies to leading businesses in mobile telecommunications infrastructure and critical communications markets that will see major deployments in the coming years. We continue to develop relationships with existing and new customers that will yield long-term growth for the business.
Rob Smith
Chief Executive Officer
15 August 2018
Financial review
The financial year saw steady progress with another year of profitable trading a strengthening of the balance sheet and good cash generation.
Revenues
Sales revenue for the Group decreased in the year by 32% to £24.0m (2017: £35.4m).
Filtronic Wireless saw sales reduction of 40% to £18.4m (2017: £30.5m) contributing 77% (2017: 86%) to Group revenue. Despite revenue being down, our strategy of refocusing the business into higher margin products and applications enabled us to substantially mitigate the revenue decline.
Filtronic Broadband saw revenue growth of 14% with sales increasing to £5.6m (2017: £4.9m) accounting for 23% (2017: 14%) of group revenue. In line with the strategy to broaden the customer base and markets we serve, it was particularly pleasing to see much of this growth coming from new markets and product offerings which have much longer product life cycles and therefore provide more visibility over future revenues.
Operating costs
Operating costs reduced in the year as overheads, excluding depreciation, amortisation and other non-cash items, reduced to £8.8m (2017: £9.6m). We continue to invest in our engineering and manufacturing teams to support product development and delivery of contract wins respectively and this is reflected in the average headcount for the year which has increased to 126 (2017: 116). The reduction in overheads is accounted for by the investment in intangible assets as we have capitalised £0.4m (2017: £nil) of product development costs to match against future revenues generated from the development.
EBITDA
During the year we took the decision to move from adjusted operating profit to EBITDA as an alternative performance measurement. EBITDA is a more widely recognised metric by key stakeholders giving a good indication of the cash generation from the business operations before working capital and capital expenditure requirements. EBITDA for the Group in the year was £2.5m (2017: £2.5m). Filtronic Wireless EBITDA reduced to £2.7m (2017: £4.0m) due to lower revenues although improved product margins helped mitigate the impact. Filtronic Broadband posted EBITDA of £0.5m (2017: £0.6m loss) which represents a significant improvement on the prior year and validates the strategy put in place to return the business unit to profitability.
2018
2017
Reconciliation of EBITDA
£000
£000
Operating profit
1,773
1,702
Depreciation
542
658
Amortisation
141
110
EBITDA
2,456
2,470
Exceptional cost/(income)
An exceptional cost of £0.5m (2017: £0.7m income) was charged to the income statement due to the revaluation of a US dollar denominated intercompany balance in the Filtronic Wireless UK entity. This was a result of the US Dollar weakening against Sterling during the year and the intercompany loan to the US subsidiary being worth less in Sterling.
Taxation
A small tax credit of £5k (2017: £0.9m) has been recognised for the year, as set out in note 6. The Group continues to benefit from R&D tax credits in the UK as we continue to invest in advanced product and process technology development. An R&D tax credit of £0.2m, which relates to the previous financial year, is included in the total credit and was realised as cash in the period.
Following the recent reduction in the US federal corporate tax rate, a write down of £0.1m was made on the deferred tax asset held in the US relating to net operating losses carried forward giving a one off, non-cash impact to reflect the new, lower rate of corporate taxation.
Capital expenditure
Capital expenditure of £0.6m (2017: £0.8m) included £0.2m for the Filtronic Wireless business (2017: £0.3m) and £0.4m for Filtronic Broadband (2017: £0.5m). Filtronic Wireless invested in production tooling to enable cost savings to improve product margins, whilst Filtronic Broadband invested in new equipment to increase production capacity and improve capability.
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and amortisation of development costs were £3.1m (2017: £3.1m). The Group continues to invest in R&D for the future growth of the business through new and enhanced products to meet the expanding demands of customer programmes. Key areas of expenditure in the year included the development of a wider portfolio of antennas, the mMIMO antenna we have developed in collaboration with Nokia, and E-band products which we anticipate will deliver significant future revenue opportunities.
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:
2018
2017
Reconciliation of R&D costs
£000
£000
R&D costs in income statement
2,755
3,214
Capitalisation of development costs
436
-
Amortisation of development costs
(95)
(95)
R&D costs before capitalisation and amortisation
3,096
3,119
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 2018 the inventory provision was £1.2m (2017: £1.6m).
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 sales revenue, after reviewing costs associated with faulty products returned. As at 31 May 2018 the warranty provision was £0.4m (2017: £0.5m); the decrease in provision at the year-end reflected the fact some of the provision was released unused during FY2018.
Funding and cash flow
The Group continues to be cash generative and has recorded an increase in cash and cash equivalents to £3.8m (2017: £2.6m) at the year end.
Cash generation from operating activities in the year was £1.8m (2017: £3.9m). The Group invested £1.1m (2017: £1.0m) in capital expenditure and intangible assets. To preserve cash liquidity, capital expenditure in the year was financed through a bank loan and a hire purchase agreement together totalling £0.5m. The full breakdown of this movement can be seen on the consolidated cash flow statement.
Net cash at the end of the period was £3.6m (2017: £2.6m) being £3.8m cash and cash equivalents and £0.2m of interest bearing borrowings from the bank loan.
To provide additional cash headroom Filtronic has a £3.0m invoice discounting facility with Barclays Bank plc in the UK. As at 31 May 2018 £nil was drawn down against this facility (2017: £nil). Furthermore, after the year end the Group entered into an agreement with Wells Fargo Bank for an additional $4.0m invoice factoring facility in our US operation. This facility is designed to help finance our future growth plans in this key market.
Michael Tyerman
Finance Director
15 August 2018
The Board
The Directors that served during the year ended 31 May 2018, and to the date of this announcement, and their respective roles are set out below:
Rob Smith (Chief Executive Officer)
Reg Gott (Chairman)
Michael Tyerman (Finance Director)
Michael Roller (Non-executive Director)
Consolidated Income Statement
for the year ended 31 May 2018
2018
2017
Note
£000
£000
Revenue
23,995
35,373
======
======
Earnings before interest, taxation, depreciation and amortisation
2,456
2,470
Depreciation Amortisation of other intangible assets
(542) (46)
(658) (15)
Amortisation of development costs
(95)
(95)
----------
----------
Operating profit
1,773
1,702
----------
----------
Finance costs
(61)
(287)
Exceptional finance items
3
(486)
-
----------
----------
Finance costs
(547)
(287)
----------
----------
Exceptional finance items
3
-
740
----------
----------
Finance income
-
740
----------
----------
Profit before taxation
1,226
2,155
Taxation
6
5
962
----------
----------
Profit for the period
1,231
3,117
======
======
----------
----------
Basic earnings per share
5
0.59p
1.51p
Diluted earnings per share
5
0.59p
1.49p
======
======
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.
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2018
2018
2017
Note
£000
£000
Profit for the period
1,231
3,117
----------
----------
Other Comprehensive Income Items that are or may be subsequently reclassified to profit and loss: Currency translation movement arising on consultation
178
(541)
----------
----------
Total comprehensive income for the period
1,409
2,576
======
======
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Balance Sheet
at 31 May 2018
2018
2017
Note
£000
£000
Non-current assets
Goodwill and other intangibles
7
3,904
3,590
Property, plant and equipment
1,411
1,354
Deferred tax
8
965
1,015
----------
----------
6,280
5,959
----------
----------
Current assets
Inventories
2,138
2,249
Trade and other receivables
6,388
8,643
Cash and cash equivalents
3,794
2,598
----------
----------
12,320
13,490
----------
----------
----------
----------
Total assets
18,600
19,449
----------
----------
Current liabilities
Trade and other payables
5,076
8,061
Provisions
9
485
545
Deferred income
360
105
Financial liabilities
10
206
-
----------
----------
6,127
8,711
----------
----------
Non-current liabilities
Deferred income
-
11
Financial liabilities
10
312
-
----------
----------
312
11
----------
----------
----------
----------
Total liabilities
6,439
8,722
----------
----------
----------
----------
Net assets
12,161
10,727
----------
----------
Equity
Share capital
11
10,788
10,788
Share Premium
12
10,640
10,640
Translation Reserve
(618)
(796)
Retained earnings
(8,649)
(9,905)
----------
----------
Total equity
12,161
10,727
======
======
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Company number 2891064
Rob Smith
Chief Executive Officer
Consolidated Statement of Changes in Equity
for the year ended 31 May 2018
Share capital
Share premium
Translation reserve
Retained earnings
Total equity
£000
£000
£000
£000
£000
Balance at 1 June 2016
10,788
10,640
(255)
(13,044)
8,129
Profit for the year
-
-
-
3,117
3,117
Share based payments
-
-
-
22
22
Currency translation movement arising on consolidation
-
-
(541)
-
(541)
----------
----------
----------
----------
----------
Balance at 31 May 2017
10,788
10,640
(796)
(9,905)
10,727
Profit for the year
-
-
-
1,231
1,231
Share based payments
-
-
-
25
25
Currency translation movement arising on consolidation
-
-
178
-
178
----------
----------
----------
----------
----------
Balance at 31 May 2018
10,788
10,640
(618)
(8,649)
12,161
======
======
======
======
======
Consolidated Cash Flow Statement
for the year ended 31 May 2018
2018
2017
£000
£000
Cash flows from operating activities
Profit for the period
1,231
3,117
Taxation
(5)
(962)
Finance income
-
(740)
Finance costs
547
287
----------
----------
Operating profit
1,773
1,702
Share-based payments
25
22
Profit on disposal of plant and equipment
(48)
(85)
Depreciation
542
658
Amortisation of intangibles
141
110
Movement in inventories
111
(493)
Movement in trade and other receivables
2,259
(214)
Movement in trade and other payables
(3,292)
559
Movement in provision
(60)
384
Change in deferred income
244
(376)
Tax received
56
1,599
----------
----------
Net cash from operating activities
1,751
3,866
----------
----------
Consolidated Cash Flow Statement
for the year ended 31 May 2018
2018
2017
£000
£000
Net cash from operating activities
1,751
3,866
----------
----------
Cash flows from investing activities
Interest paid
(61)
(286)
Capitalisation of development costs
(436)
-
Acquisition of intangible assets
(19)
-
Acquisition of plant and equipment
(604)
(811)
Proceeds on sale of assets
49
86
----------
----------
Net cash used in investing activities
(1,071)
(1,011)
----------
----------
Cash flows from financing activities
Proceeds from bank loans
300
-
Payment of bank loans
(75)
-
Proceeds from hire purchase agreements
301
-
Payment of interest bearing borrowings
-
(1,270)
----------
----------
Net cash from/ (used in) financing activities
526
(1,270)
----------
----------
Movement in cash and cash equivalents
1,206
1,585
Currency exchange movement
(10)
23
Opening cash and cash equivalents
2,598
990
----------
----------
Closing cash and cash equivalents
3,794
2,598
======
======
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
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 2018.
(a) The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 June 2017:
· IFRS 9 "Financial Instruments" will supersede IAS39 "Financial Instruments - Recognition and Measurement" and is effective for annual periods beginning on or after 1 June 2018. IFRS 9 covers classification and measurement of financial assets and financial liabilities, impairment of financial assets and hedge accounting.
· IFRS 15 "Revenue from Contracts with Customers" provides a single model for accounting for revenue arising from contracts with customers, focusing on the identification and satisfaction of performance obligations, and is effective for annual periods beginning on or after 1 June 2018. IFRS 15 will supersede IAS18 "Revenue" IAS 11 Construction Contracts.
· IFRS 16 "Leases" provides a new model for lessee accounting in which all leases, other than short-term and small-ticket item leases, will be accounted for by the recognition on the balance sheet of a right- to-use asset and a lease liability, and the subsequent amortisation of the right- to-use over the lease term, IFRS 16 will be effective for annual periods beginning on or after 1 June 2019.
(b) There are also a number of new standards, amendments to standards and interpretations that are effective for financial statements after this reporting period, but the Group has not adopted them early except for the adoption of some disclosures which have been applied. None of these is 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 2018 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 2018.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2018 or 31 May 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the registrar of companies. The auditor has reported on the 2018 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 2018 will be 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.
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
2 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 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 reporting information and management structures within the Group. The Group has three customers representing individually over 10% each in aggregate over 76 percent of the revenue.
The Group operates in two trading business segments:
· The design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunications networks (Filtronic Broadband).
· The design of radio frequency conditioning product for base stations used in wireless telecommunications networks (Filtronic Wireless).
The Group also contains a central services segment that provides support to the trading businesses.
In the table below reportable segment assets and liabilities include inter segment balances. These have been included to reflect the assets and liabilities of the segment as monies are freely moved around the Group to provide funding for working capital where required.
Filtronic Broadband
Filtronic Wireless
Central Services
Total
2018
2017
2018
2017
2018
2017
2018
2017
£000
£000
£000
£000
£000
£000
£000
£000
Revenue
5,593
4,917
18,402
30,456
-
-
23,995
35,373
Earnings/(loss) before interest, taxation, depreciation and amortisation
543
(597)
2,722
3,956
(809)
(889)
2,456
2,470
Depreciation
(286)
(304)
(256)
(354)
-
-
(542)
(658)
Amortisation of other intangible(s) assets
(5)
-
(13)
-
(28)
(15)
(46)
(15)
Amortisation of development costs
(33)
(33)
(62)
(62)
-
-
(95)
(95)
Reportable segment operating profit/(loss)
219
(934)
2,391
3,540
(837)
(904)
1,773
1,702
Finance costs
(10)
-
(494)
(264)
(43)
(23)
(547)
(287)
Finance income
-
-
-
740
-
-
-
740
Profit/(loss) before taxation
209
(934)
1,897
4,016
(880)
(927)
1,226
2,155
Reportable segment assets
5,550
3,082
9,300
12,817
14,267
15,012
29,117
30,911
Capital expenditure
359
467
245
344
-
-
604
811
Reportable segment liabilities
12,182
10,078
6,863
12,141
462
516
19,507
22,735
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
2 Segmental analysis (Continued)
Recognition of reportable segment assets and liabilities
2018
2017
£000
£000
Assets
Total assets for reportable segments
29,117
30,911
Inter company
(13,068)
(14,013)
Group/unallocated
2,551
2,551
----------
----------
Consolidated total assets
18,600
19,449
======
======
2018
2017
£000
£000
Liabilities
Total liabilities for reportable segments
19,507
22,735
Inter company
(13,068)
(14,013)
----------
----------
Consolidated total liabilities
6,439
8,722
======
======
3 Revenue by Destination
2018
2017
£000
£000
United Kingdom
2,529
218
Europe
4,898
18,696
Americas
13,780
14,602
Rest of the World
2,788
1,857
---------
----------
23,995
35,373
======
======
Split of non-current assets by location
2018
2017
£000
£000
United Kingdom
4,797
4,459
Europe
76
107
Americas
1,256
1,255
Rest of the World
151
138
---------
----------
6,280
5,959
======
======
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
4 Exceptional items
Finance costs/(income) is stated after charging/(crediting) exceptional items as follows:
2018
2017
£000
£000
Revaluation of US Dollar denominated intercompany balance
486
(740)
---------
----------
486
740
======
======
5 Earnings per share
2018
2017
£000
£000
----------
----------
Profit for the period
1,231
3,117
======
======
000
000
Basic weighted average number of shares
206,910
206,910
Dilution effect of share options
3,219
2,839
----------
----------
Diluted weighted average number of shares
210,129
209,749
----------
----------
Basic earnings per share
0.59p
1.51p
Diluted earnings per share
0.59p
1.49p
======
======
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
6 Taxation
The reconciliation of the effective tax rate is as follows:
2018
2017
£000
£000
Profit before taxation
1,226
2,155
======
======
2018
2017
£000
£000
Profit before taxation multiplied by standard rate of corporation tax in the UK
19%
319
20%
427
Disallowable item
9%
157
(5%)
98
Income not taxable
(1%)
(18)
(9%)
(196)
Deferred tax not recognised
14%
237
16%
335
Impact of rate change on deferred tax
9%
143
4%
83
Enhanced R&D tax credit
(4%)
(67)
(17%)
(357)
Adjustment in respect of prior year - R&D tax credit
(14%)
(243)
(39%)
(843)
Foreign tax not at UK rate
11%
188
12%
262
Recognition of deferred tax asset previously unrecognised
(6%)
(93)
-
-
Recognition of deferred tax asset from prior year
(37%)
(628)
(36%)
(771)
---------
---------
---------
---------
Taxation
0%
(5)
(44%)
(962)
======
======
======
======
The main rate of UK corporation tax was reduced from 20 percent to 19 percent on 1 April 2017 giving an effective tax rate for the financial year of 19.83 percent. This will reduce to 17 percent from 1 April 2020. During the year the US Federal Corporate tax rate was reduced to 21%. The deferred tax assets recognised in the year have been calculated at the rates of their expected use.
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
7 Goodwill and other intangibles
Goodwill
Other intangibles (core technology)
License agreement
Software costs
Development costs
Total
£000
£000
£000
£000
£000
£000
Cost
At 1 June 2016
3,235
10,884
160
-
286
14,565
Reclassification of software costs
-
-
-
567
-
446
---------
----------
---------
----------
----------
----------
At 31 May 2017
3,235
10,884
160
567
286
15,132
Additions
-
-
-
19
436
455
Disposals
-
-
-
(30)
-
(30)
Currency translation movement
-
-
-
(13)
-
(13)
---------
---------
---------
---------
---------
---------
At 31 May 2018
3,235
10,884
160
543
722
15,544
======
======
======
======
======
======
Amortisation
At 1 June 2016
-
10,884
33
-
-
10,917
Provided in year
-
-
15
-
95
110
Reclassification of software costs
-
-
-
515
-
515
---------
---------
---------
---------
---------
---------
At 31 May 2017
-
10,884
48
515
95
11,542
Provided in year
-
-
15
31
95
141
Disposals
-
-
-
(30)
-
(30)
Currency translation movement
-
-
-
(13)
-
(13)
======
======
======
======
======
======
At 31 May 2018
-
10,884
63
503
190
11,640
======
======
======
======
======
======
Carrying amount at 1 June 2016
3,235
-
127
-
286
3,648
---------
---------
---------
---------
---------
---------
Carrying amount at 31 May 2017
3,235
-
112
52
191
3,590
---------
---------
---------
---------
---------
---------
Carrying amount at 31 May 2018
3,235
-
97
40
532
3,904
======
======
======
======
======
======
Reconciliation of other intangible assets
Group
Company
2018
2017
2018
2017
£000
£000
£000
£000
Amortisation of license agreements
15
15
15
15
Amortisation of software costs
31
-
13
11
---------
----------
---------
----------
Amortisation of other intangible assets
46
15
28
26
======
======
======
======
Notes to the Preliminary Financial Information
for the year ended 31 May 2018
7 Goodwill and other intangibles (continued)
Goodwill and other intangibles relate to the acquisition of Isotek (Holdings) Limited. Goodwill is allocated to the Wireless cash generating unity (CGU) and this CGU represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, which is not higher than the Group's operating segments as reported in note 2. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The carrying value of intangible assets and goodwill has been assessed for impairment by reference to its value in use. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The calculation of the value in use was based on the following key assumptions:
· Budgets incorporating cash flows have been prepared to 31 May 2018 based on past experience, actual operating results, known future cash flows and estimates of future cash flows;
· Cash flows for a further 3 years have been extrapolated from the year to 31 May 2018. A revenue growth factor of 10 percent was applied to the projections together with cost inflation of 3 percent. A perpetuity factor has been applied based on the year to 31 May 2021;
· The Group's discount rate of 12 percent (2017: 12 percent) was applied in determining the recoverable amount of the unit, being the estimated weighted average cost of capital for the Wireless CGU.
Based on this testing the Directors do not consider any of the goodwill or intangible assets to be impaired, even allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount rate.
The Licence agreement relates to a Remote Electrical Tilt ("RET") licence procured during the year to enable the use of RETs in the antenna products.
The accounting policy relating to capitalisation of development costs can be seen in note 1 of the Annual Report.
8 Deferred tax
2018
2017
£000
£000
Opening balance
1,015
834
Tax losses recognised
93
264
Effect of change in UK corporation tax rate
(42)
(83)
Effect of charge overseas corporation tax rate
(101)
-
---------
---------
Deferred tax assets
965
1,015
======
======
Deferred tax assets within the Filtronic Wireless subsidiaries in the UK and US have been recognised as the Directors consider that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group and the reversal of temporary differences. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such deductions are reversed when the probability of future taxable profits improves.
Notes to the Preliminary Financial Information
For the year ended 31 May 2018
9 Provision
Warranty provision
2018
2017
£000
£000
Opening balance
475
161
Used during the year
(18)
(11)
Released unused during the year
(79)
(36)
Charge for the year
47
361
---------
---------
Closing balance
425
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.
Dilapidation provision
2018
2017
£000
£000
70
Opening balance
-
-
Used during the year
(10)
-
Released unused during the year
-
-
Charge for the year
-
70
---------
---------
Closing balance
60
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.
Total provision
2018
2017
£000
£000
Warranty provision
425
475
Dilapidation provision
60
70
---------
---------
Total provision
485
545
======
======
Notes to the Preliminary Financial Information
For the year ended 31 May 2018
10 Financial Liabilities
2018
2017
£000
£000
Bank loans - current
100
-
Obligations under finance leases - current
106
-
---------
---------
Total current financial liabilities
206
-
---------
---------
Bank loans - non-current
117
-
Obligations under finance leases - non-current
195
-
---------
---------
Total non-current financial liabilities
312
-
---------
---------
Total financial liabilities
518
-
======
======
Terms and Debt repayment schedule
Currency
Nominal interest rate
Date of maturity
Carrying amount
Carrying amount
2018
2017
£000
£000
Bank loan
GBP
7.6%
31 August 2020
217
-
Finance lease
GBP
4.1%
31 May 2021
301
-
Future minimum lease payments under finance leases, together with the carrying amount of lease obligations, are analysed as follows:
2018
2017
Finance lease
£000
£000
Less than one year
106
-
Between one and five years
195
-
---------
---------
Total finance lease
301
-
======
======
Notes to the Preliminary Financial Information
For the year ended 31 May 2018
10 Financial Liabilities (continued)
Debt reconciliation
Bank loans
Finance lease
Invoice discounting
Total
£000
£000
£000
£000
Balance at 1 June 2016
-
-
1,270
1,270
Repayments of borrowings and interest
(1,270)
(1,270)
---------
---------
---------
---------
Balance at 31 May 2017
-
-
-
-
Proceeds from bank loans
300
-
300
Proceeds from finance leases
-
301
-
301
Interest paid
(10)
-
-
(10)
Repayment of Borrowings
(73)
-
-
(73)
---------
---------
---------
---------
Balance at 31 May 2018
217
301
-
518
======
======
======
======
11 Share Capital
Ordinary shares of 0.1p each issued and fully paid
Number
£000
At 1 June 2016
106,876,986
10,688
Shares issued in year
100,033,160
100
--------------
---------
At 31 May 2017 and 31 May 2018
206,910,146
10,788
========
======
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.
12 Share Premium
£000
At 1 June 2016
6,199
Premium on share issue
4,441
-------
At 31 May 2017 and 31 May 2018
10,640
====
13 Dividends
The Directors are not proposing to pay a dividend for the year ended 31 May 2018 (2017: nil).
Notes to the Preliminary Financial Information
For the year ended 31 May 2018
14 Analysis of net cash/(debt)
1 June 2017
Cash Flow
Other Changes
31 May 2018
£000
£000
£000
£000
Cash and cash equivalents
2,598
1,206
(10)
3,794
Interest bearing borrowings
-
(217)
-
(217)
---------
---------
---------
---------
2,598
989
(10)
3,577
======
======
======
======
Reconciliation of cash flow to movement in net cash/(debt)
2018
2017
£000
£000
Movement in cash and cash equivalents
1,206
1,585
Cash flow from increase in debt financing
(217)
1,270
Effect of exchange rate fluctuations
(10)
23
---------
---------
Movement in net cash
979
2,878
Net opening cash/(debt)
2,598
(280)
---------
---------
Net closing cash
3,577
2,598
======
======
15 Forward looking statements
The Chairman's letter and Chief Executive Officer's statement 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.
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.
END
FR BCGDIBUBBGIU
