REG - Filtronic PLC - Final Results
01/08/2023 07:00
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RNS Number : 8167H Filtronic PLC 01 August 2023
1 August 2023
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2023
Filtronic plc (AIM: FTC), the designer and manufacturer of products and
sub-systems for the aerospace & defence, telecommunications infrastructure
and space markets, announces its full year results for the 12 months ended 31
May 2023.
Financial Highlights
2023 2022
Revenue £16.3m £17.1m
Adjusted EBITDA* £1.3m £2.8m
Adjusted operating profit** £0.2m £1.6m
Exceptional items - £0.4m
Operating profit £0.2m £2.0m
Profit before taxation £0.1m £1.9m
Profit for the year £0.5m £1.5m
Basic earnings per share 0.22p 0.68p
Diluted earnings per share 0.21p 0.68p
Net cash balance as at 31 May £0.3m £2.2m
Net cash when excluding right of use property leases £1.6m £3.1m
Cash generated from operating activities £1.0m £2.3m
*Adjusted EBITDA is earnings before interest, taxation, depreciation,
amortisation and exceptional items.
** Adjusted operating profit is operating profit before exceptional items.
Operational Highlights
· Another year of profitable trading despite the headwinds from the
global semiconductor shortages, geopolitical uncertainty and a challenging
economic environment.
· First contract win in the low earth orbit space sector, valued at
£2.3m, to a market leader
· Launched the Morpheus X2 E-band transceiver and secured production
orders valued at £0.9m, that more than doubles the transmission range of
current 5G backhaul radio links.
· Two new defence contract wins with the MoD through the DSTL
framework.
· Series of recent contract wins totalling over £2.0m across a diverse
range of new telecommunication and private network customers, demonstrating
the execution of our objective to broaden the customer base.
· Further developed the opportunity pipeline, having improved our
direct and indirect sales channels improving customer engagement, as well as
strengthening the engineering team to facilitate revenue growth.
· Achieved IASME Governance Gold to augment our cyber security,
positioning us well to win more sensitive work.
· Eight new products launched during the year, spanning high-power
versions of standard telecom products, new filter designs for defence and
quantum computing and a range of solid state power amplifiers for space and
ground station applications.
Commenting on the outlook, Jonathan Neale, Chairman, said: "The broad
strategic goals of Filtronic remain the same. We seek value growth through
provision of high-speed, low-latency, radio frequency electronics subsystem
design and manufacture, for blue chip customers in growth markets. We are
encouraged by the increase in market activity and the rate of requests for
quotations in important complex products demanding world class capability.
Strengthening our business development and engineering teams has been critical
to be able to respond quickly. On several occasions this year we have proved
ourselves capable to deliver world class engineering with innovative, complex
solutions, demonstrating the kind of responsiveness to develop, and deliver at
volume, high-quality mission critical products. Recent wins in the important
and emerging low earth orbit space market, which is gathering pace, help us
demonstrate our leading-edge technology and high-performance culture.
We remain committed to R&D investment, to be ready to meet the needs of
those markets. We have progressively pivoted a proportion of our R&D to
align priority technology readiness programmes to ensure we are ready to
capitalise on opportunities at Ka, E and Q/V-band frequencies. We aim to have
a degree of configurable platform solutions on product categories to be able
to recycle IP and know-how for speed and efficiency. Of course, we seek
greater scale in our business. We believe this will come. There have been some
frustrations, inevitably, as the post-covid supply semiconductor issues
unwind, but we continue to be paced by some end customer significant contract
wins in key markets. Sovereign defence and communications technology demands
are exciting but predicting contract timing remains an art not a science. The
roll out of 5G telecommunication infrastructure technology remains important
as the world continues to digitise, however, we note the recent market
announcements from key providers in India indicating a somewhat stop-start
deployment. These are features not faults in our markets and consequently
these are the challenges we must meet. Agility and ambition remain tempered by
an understanding of the need for a strong balance sheet and cash focus."
Annual General Meeting
The Annual General Meeting will take place at 11am on 26 October 2023 at
Plexus building, Thomas Wright Way, Netpark, Sedgefield, County Durham, TS21
3FD.
Filtronic plc Tel. 01740 618800
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
finnCap Ltd Tel. 020 7220 0500
Jonny Franklin-Adams / George Dollemore (Corporate Finance)
Alice Lane / Sunila de Silva (ECM)
Walbrook PR Ltd Tel. 020 7933 8780
Paul Vann / Joe Walker or filtronic@walbrookpr.com (mailto:filtronic@walbrookpr.com)
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
Dear fellow shareholder
I am pleased to report that good progress has been made in the year ended 31
May 2023, particularly with our market engagement, product development and
improvement of operational capability.
We were optimistic about growing revenue in H2 FY2023 but shortages in the
semiconductor supply chain prevented us from realising this important
goal. Despite this, we delivered another successive year of profit
generation with adjusted earnings before interest, taxation, depreciation,
amortisation and exceptional items ("Adjusted EBITDA") of £1.3m (2022:
£2.8m). This led to a strengthened balance sheet, which, coupled with a
stronger order book and improved opportunity pipeline, provides a solid base
from which to continue developing the business to deliver long-term
shareholder value.
The Markets
The markets we operate in increasingly offer the potential for strong growth.
The recent sizeable contract win, awarded by a leading player in the low earth
orbit space market demonstrates the world-class capability of our business and
validates our confidence in successfully penetrating this emerging and high
growth sector. The market is currently led by a handful of well-known global
players, where our technology is highly relevant to their chosen solutions,
but there are numerous other disruptors with different mission objectives,
serving a broad range of end customers and markets.
We continue to see exciting opportunities being developed in aerospace and
defence particularly given the current geo-political landscape. Governments of
western countries acknowledge they have underfunded defence spending in recent
years but have reiterated a commitment to remedy this. The skills required to
develop technology solutions utilising radio frequency ("RF") are in short
supply and the major defence primes recognise that resourcing their key
programmes will be a significant challenge. This creates opportunities for
Filtronic to support and mitigate the skills gap that has developed.
In the telecommunications market, we note recent announcements by both Nokia
and Ericsson following a slowdown in consumer spending impacting their
telecoms sales. However, 5G networks are actively being rolled out around the
world and the long-awaited licencing of E-band spectrum in India has been
released for backhaul products. This is a market that has a high dependence on
wireless technology given the well-established road and building
infrastructure, making it difficult to offer cabled solutions. Given the scale
of rollouts, pricing can be highly competitive as the original equipment
manufacturers ("OEMs") compete for market share. As E-band spectrum bandwidth
starts to fill, the focus will move to other frequency bands such as W-band
and D-band. The telecommunications market has historically led technology
waves so these technological developments will be a key focus of our own
technology roadmaps.
Our relevance to new and prospective customers and the unique selling point we
offer is our ability to design, develop and manufacture a turn-key solution to
a high-quality standard. We ramp production quickly and in sufficiently large
volumes bringing an ethos that fundamentally differentiates us from our
competitors who do not have the heritage of rapid turnaround and large-scale
manufacture.
Investing in the right areas of the business, to deliver this sustainable
financial growth is a constant balancing act. To be successful in our chosen
markets we need to be agile, recognising that we may need to adapt strategy in
response to the fast-paced nature of the communications technology. The desire
of our prospective customers in terrestrial and space communication to get, or
stay, ahead of their competitors means we must be responsive in order to
thrive. Therefore, building and developing the engineering organisation is
critical as we seek to develop our technology roadmaps, undertake customer
developments and service the opportunity pipeline. Rapid execution of product
development with high quality products and solutions will remain a key focus
for the Group.
Financial Performance Summary
Group sales decreased in the year by 5% to £16.3m (FY2022: £17.1m).
The reduction in sales and a weaker sales mix, with a higher concentration of
revenue from price sensitive telecommunications infrastructure, led to an
Adjusted operating profit of £0.2m (2022: £1.6m) and operating profit of
£0.2m (2022: £2.0m).
The Group closed the year with £2.6m of cash at bank (2022: £4.0m) in
addition to the availability of undrawn working capital debt facilities in the
UK (£3.0m with Barclays) and the USA ($4.0m with Wells Fargo).
The Group's net cash position, including all debt except right of use property
leases, was £1.6m at the end of the financial year (2022: £3.1m). Net cash
including right of use property leases was £0.3m (2022: £2.2m).
Dividend
As with previous years, the Board continues to believe shareholders are better
served by cash being retained in the business to fund future business
development. Consequently, no dividend is proposed for the year (2022: £nil).
Environmental, Social and Governance ("ESG")
We are committed to building a sustainable business for the future, delivering
consistent financial returns and long-term value for all our stakeholders. We
formalised our ESG strategy in the year, which has been developed with an
emphasis on supporting the wider corporate strategy. Key elements include
building an organisation fit for the future by supporting STEM skills,
continuing with our established graduate programme, augmented with a new
apprenticeship initiative. We will also minimise our impact on the environment
with lower energy consumption and waste. Full details of the ESG strategy and
objectives can be found on the Filtronic website at
https://filtronic.com/investors/esg-strategy/
(https://filtronic.com/investors/esg-strategy/) .
Outlook
The markets we serve offer strong growth prospects and we remain confident,
given the opportunities that are being generated, that we can execute against
our strategic plans and build a business for all our stakeholders to be proud
of. Key milestones have been met against our core objectives in the year, with
stronger commercial engagement, innovative product solutions, well-aligned
technology roadmaps and robust business systems, and we therefore look forward
to FY2024 with enthusiasm and excitement.
Whilst the macro-economic environment remains uncertain, we are well equipped
to navigate through it with a stronger business. We will further strengthen
our sales and engineering organisations in the year to capitalise on near term
market opportunities.
I would like to finish by thanking all our stakeholders for the ongoing
support, and our talented employees who have continued to respond positively
with exceptional commitment. It is with their dedication, hard work and skill
that we will continue to drive the performance of the business.
Jonathan Neale
Chairman
31 July 2023
Chief Executive's review
I am pleased to present our full year results for FY2023, and with it a
reflection on the last 12 months, during which we have made significant
progress against the primary objective of creating sustainable growth in our
strategic markets of aerospace and defence, space and terrestrial
telecommunications infrastructure. Despite the faltering global economy, the
trading environment for Filtronic throughout the last financial year has
generally been favourable. It was only the availability of critical
semiconductor products in Q3 and Q4 that limited our ability to maximise
revenues prior to the financial year end. Notwithstanding the challenges
imposed by the breakdown in the global semiconductor supply chain, we ended
the year with revenues of £16.3m (FY2022: £17.1m), broadly in line with
market expectations.
Confident of the potential for Filtronic technology in our chosen strategic
markets we have continued to invest in our long-term future by strengthening
our business development and engineering teams throughout the year. This
increased investment is reflected in our Adjusted EBITDA of £1.3m (2022:
£2.8m) and cash at bank of £2.6m (2022: £4.0m). The initial return on this
investment is evidenced by the release of several new high-power
telecommunication infrastructure and space products, for which we have already
been successful in achieving initial customer order commitment. We end the
year with a healthy number of new product developments in the engineering
pipeline, and a well-defined technology roadmap aligned with customer and
market requirements.
Over the last 12 months I have seen first-hand the strength of relationships
with Filtronic's strategic accounts, who are amongst the market leaders in
each of our addressable markets. I have been delighted with the development of
our technology roadmaps and the progress made in strategic programmes that
will yield products for the next generation of telecommunication backhaul
communications and electronic warfare ("EW") solutions. I have also been
pleased with the progress made in opening exciting new applications such as
our breakthrough into the low earth orbit ("LEO") space market.
Radio frequency ("RF") design is a complex and fast developing engineering
discipline. With our global reputation, combined with over 45 years of
innovative IP development, we continue to see a growing number of prospective
customers wanting to engage our services in the design and manufacture of next
generation RF products. Our ability to undertake rapid cutting-edge RF design,
and subsequently scale the manufacturing of mmWave products, enables customers
to drive performance and accelerate time to market. This combination of
technical competence and agility is a significant competitive advantage for
customers in the telecommunication and LEO space markets.
A strong balance sheet has enabled us to continue to build on investments made
at our Sedgefield manufacturing site. The addition of state-of-the-art
equipment for rapid process and product development has significantly enhanced
our ability to efficiently bring new products to market in line with
customers' expectations. The ability to develop engineering prototypes and
create new manufacturing processes without the need to disrupt the volume
manufacturing lines has greatly improved delivery of engineering programmes
and eased the transition from prototype to mass production.
Talented people remain at the heart of our ability to deliver leading edge
products and future business growth. We have made significant efforts this
year to find and recruit the key skills required to realise our growth
ambitions. To further penetrate our strategic markets, we strengthened our
business development team with the addition of seasoned industry experts with
a strong track-record of sales delivery. We have also been successful in
hiring high-calibre RF engineers for our new design office in Manchester and
this team is now specifically engaged in addressing opportunities in the
emerging space and telecommunication infrastructure market.
Customers and Markets
Our stated mission at Filtronic is to drive the future of RF, microwave and
mmWave communications and we have aligned the business to focus efforts on
four strategic vertical markets that we believe have good growth potential and
a strong alignment with our RF capabilities. We have been careful to select
applications where we could add significant value, drive sustainable margins,
reuse existing IP, and leverage the investments in our existing hybrid
manufacturing capability. We are also mindful to avoid commodity markets and
consumer applications with low barriers to entry that offer little in the way
of RF technology development.
Our selected strategic growth markets are aerospace & defence particularly
EW and battlefield communications, terrestrial telecoms for 5G backhaul, and
gateway connectivity for LEO space communications. All of the strategic
markets have continued to invest in the development of RF technology over the
year, with a consistent drive towards higher power, lower latency, and
improved bandwidth applications where Filtronic can apply know-how and product
development expertise.
The aerospace market has long been a steady revenue contributor to our
business and this year we have expanded our footprint in the Active
Electronically Scanned Array ("AESA") radar market by capturing several
related filter design opportunities that position us well for strategic radar
programmes that will come in the next five years. We have continued to make
inroads into the UK defence market with several successful engagements with
Defence Science Technology Laboratories ("DSTL") following successful delivery
of our first battlefield communications product in FY2022. We were successful
in winning an additional two DSTL programmes in FY2023 and both of these
programmes align us closer with UK MoD's strategic requirements.
5G telecommunication infrastructure deployment continues around the world, and
critical to true 5G performance is the quality and reliability of high
frequency backhaul communications. Filtronic's E-band transceivers are
designed to deliver cost-effective, multi-gigabit connectivity for mobile
backhaul networks, in geographies where the E-band frequency has been licenced
and individual countries make the E-band frequency available for use. India
licenced E-band frequencies in 2022 as part of its long awaited 5G roll-out
and Filtronic took benefit of stock orders from our lead customer to cover
what is expected to be a sustained period of demand for backhaul products.
Recent concerns associated with the solvency of the licenced telecom operators
in India, together with surplus inventory from the stalled 5G roll-out in
Russia will inevitably result in some order book demand to be rescheduled.
However, the long-term potential in India remains significant. Recent orders
for high-power high-frequency trading modules, private network E-band modules
and custom power amplifier solutions suggest that there are several
interesting adjacent market opportunities for Filtronic's core
telecommunication technology.
The LEO space market is growing rapidly as the costs associated with the
launch and deployment of satellite technology continues to fall. Well-funded,
global corporations and ambitious regional start-up companies are racing to
build constellations of satellites that will accelerate the delivery of
broadband services across the globe. Ultimately these LEO networks will
converge with the established terrestrial telecommunication networks to
provide high-speed, low-latency ubiquitous broadband connectivity. Filtronic's
reputation as a supplier of compact, highly integrated, and extremely reliable
telecommunication backhaul solutions has positioned us well to respond to the
aggressive timelines demanded by the leading players in the LEO space market.
The ability to design and build scalable solid state power amplifiers
("SSPAs") at multiple frequency bands enabled Filtronic to win initial
production orders for the deployment of the first LEO space E-band backhaul
communication links during the year. We will look to build on this initial
market success by strengthening customer relationships and focusing on the
delivery of our technology roadmap over the next 24 months.
Achievements
There have been several notable achievements over the last year which set the
potential for sustainable growth and future revenues, some of which are as
follows:
• Our first development of an E-band SSPA module for
the market leader in LEO space communications.
• Secured production orders and enabled the launch
of the Morpheus X2 E-band transceiver that more than doubles the transmission
range of current 5G backhaul radio links.
• Taking advantage of new semiconductor process IP
we launched a series of prototype chip developments in CY2023 with promising
results
• We secured our second and third DSTL programmes in
FY2023 and continued to build our relationship as a supplier of turnkey RF
solutions to the UK MoD.
• Focusing on our filter design expertise we secured
orders in EW, air and shipborne radar, battlefield communications and emerging
quantum computing applications.
• Secured three separate programmes for custom
high-performance E-band transceivers in private network applications
associated with private data communications and high-frequency trading
platforms.
Outlook
We operate in a period of economic and geopolitical uncertainty, but one in
which our technology is in demand, and the expertise we offer is in short
supply. Our strategic markets are well positioned for growth and our lead
customers continue to invest in next generation RF solutions. The disruption
to semiconductor supply chains that impacted our business in FY2023 are
improving, and we feel that we now have the resources and skills necessary to
look forward with optimism to the new trading period.
Filtronic's core markets represent industry verticals that have a robust
outlook and align well with the needs of the post-pandemic world. Public
safety, mobile communications, a sovereign defence capability and the rapid
development of LEO space networks, are well funded sectors that resonate with
governments, investors, and the public at large.
Business plans for FY2024 reflect our confidence in the markets we serve to
deliver long term sustainable growth. We have an open and honest culture that
is proactive and highly motivated to deliver excellence in all aspects of our
business. We will further develop our prospects over the next 12 months with a
focus on the following activities:
· Maximise the opportunity associated with the fast-growing LEO Space
backhaul communications market, including both ground station and payload
applications.
· Development of next generation MMIC designs that will enable us to
continue the evolution of our mobile telecom backhaul solutions.
· Develop our scalable Cerus power amplifier platform to maximise the
range of power options at selected frequency bands required for LEO space
communication links.
· Champion the UK Government National Semiconductor Strategy and
position Filtronic as a trusted sovereign supplier of advanced RF packaging
solutions.
· Develop our manufacturing capability to add plastic encapsulated
devices to our portfolio of hybrids and SiP solutions.
· Selectively target funding from agencies and UK Government
initiatives that support and underpin the delivery of the Filtronic technology
roadmap.
· Continued investment in our marketing activities including enhanced
web content and strategic use of social media platforms for targeted
marketing.
· Strengthen the sales organisation with the deployment of direct sales
and business development resource in the UK and Western Europe and expand
indirect channels in the USA and Europe through distribution and
representative networks.
· Consolidate the return on the investment in capital equipment by
winning outsourced assembly and test ("OSAT") opportunities with customers who
require specialist hybrid and plastic QFN packaging capability.
· Continue to align our business processes and equip our facilities to
achieve the accreditation necessary to undertake a higher level of UK defence
programmes.
I am pleased with the progress that the business has made in the last
financial year and remain excited by the potential that exists at Filtronic.
There is an increasing demand for our high-performance products and unique RF
design capabilities, and based on our investments in FY2023, I believe we are
building the IP portfolio, resources, and expertise necessary to scale the
business. The specific market segments that we have identified for growth
continue to develop at pace and as we embark on a new financial year, I
believe we are well placed to deliver long term shareholder value.
Richard Gibbs
Chief Executive Officer
31 July 2023
Financial review
Notwithstanding a heavy focus on top-line growth, another successive year of
profit generation enabled further investment to achieve key strategic
objectives, despite macro-economic headwinds and well documented industry-wide
semiconductor shortages.
Good progress continues to be made by the Group with Adjusted EBITDA
generation delivering £1.3m (2022: £2.8m) for the year, in line with market
expectations. We maintained investment into the business, particularly in the
areas that will drive growth as we capitalise on the opportunities within our
core markets. We are in the fortunate position of continuing to see growth
prospects in our core sectors, when many markets are struggling with well
documented economic and political uncertainty. Given the elevated pipeline of
new business, we will maintain our focus on those that offer a high rate of
return and deliver shareholder value in the coming year.
Revenue
Had it not been for the widely publicised global semiconductor component
shortages, this report would have been heralding another year of revenue
growth. Having navigated the global semiconductor component shortage crisis
exceptionally well since the issue first surfaced a couple of years ago, it
was frustrating that a couple of niche component parts brought output of a
core product offering to a halt in Q3 of the financial year. This was a direct
result of the semiconductor supplier prioritising output of more widely
consumed parts to other markets, resulting in reschedules from the supplier
that could not be mitigated. The consequence of this was an annual revenue
decrease of 5% to £16.3m (2022: £17.1m). During the year, sales into the
telecommunications infrastructure market performed particularly well whilst we
were delighted to receive an order from a market leading player in the LEO
space market, of which a substantial amount was realised in FY2023.
We are pleased that the pipeline continues to build, particularly in aerospace
and defence and the emerging market of space. A key strategic objective of the
business has been to broaden our customer base, and this is evidenced in the
year by the decrease in the revenue concentration of our three largest
customers to 73% (2022: 81%), whilst we now have four (2022: three) customers
each generating over 10% of our revenue and in total 85%.
Sales to the telecommunications infrastructure market were particularly strong
this year as the pace of 5G backhaul rollouts accelerated, thanks in part to
the release of E-band spectrum by governments around the world. This led to
sales to this sector increasing year-on-year by 40%. This stronger demand can,
in some part, be apportioned to inventory stocking at our lead customer to
enable them to flex to demand requirements if they are successful in the
Indian market where E-band has recently been licenced.
Sales of Xhaul products to other markets, including the space market, were up
57% on the prior year mainly due to the new customer win in the LEO space
market. The contract win enabled us to deliver further growth within our
E-band and derivative technology products. This is an exciting and emerging
market for us, where our technology and expertise is highly relevant. The
initial contract from a major LEO player, valued at £2.3m, to undergo a trial
in the ground station using E-band technology, demonstrates the attractiveness
of our capability. Our ability to ramp and manufacture rapidly to keep the
pace with this fast-moving market gives us a competitive advantage relative to
traditional suppliers to the space industry.
Sales of aerospace & defence products saw a year-on-year reduction of 41%,
partly as a result of supply issues pushing shipments into FY2024, but mainly
due to a hiatus in supply of an established programme that ended in the
previous financial year. This market remains critical to our growth plans, and
despite the reduction, we continue to see contract wins for development work.
DSTL is the MoD's framework to engage with SMEs, and we were delighted to win
two new contracts in the year on this platform with revenue from both
programmes recognised in the year.
The legacy products supplied into the critical communications market were
impacted by upstream component issues within the system-level product. This
resulted in a decrease of revenue to this market of 20%. This trend is
expected to reverse in FY2024, with demand restored to normalised levels,
which we anticipate will provide an uplift in revenue in the next financial
year. The TTA product continued to perform well, having exceeded our
expectations in the prior year. We won more market share in the year and grew
our brand profile with key customer teams. We also won a number of other
contracts to this market outside of our lead customer, through both our direct
and indirect sales channels.
Operating costs and headcount
Operating costs increased by 6% in the year to £10.0m (2022: £9.4m) as
overheads were controlled tightly in the administrative areas of the business
to enable us to continue investing in engineering and sales and marketing
resource which will drive business growth.
The Group's largest overhead is salary-related costs, representing nearly 70%
of the operational cost base, which increased by £0.4m (7%). Whilst
maintaining headcount at a similar level to the prior year we did change the
mix of employees during the year with recruitment of employees in revenue
generating functions such as engineering and business development that
generally attract a higher salary. These increases were partly offset by
improvements in manufacturing efficiencies and further automation of operating
processes.
The recruitment of business development resource strengthens our direct
channel to market and is key to capitalising on opportunities in the high
growth markets we operate within. Continuing the investment into engineering
is critical and it was pleasing to see that we not only increased the number
of engineers, but they bring valuable expertise and experience, which has
significantly upskilled the team. This enables us to service a larger
opportunity pipeline, increase the number of product developments for
customers and expand our technology roadmap to position us well to execute our
strategic plans.
Given this shift, there was a slight increase in the total number of employees
in the Group during the year which is reflected in the average headcount
increasing to 125 (2022: 124). An analysis of the Group's average headcount is
presented below:
Number 2023 2022
Manufacturing 74 78
Research and development 31 26
Sales and marketing 7 5
Administration 13 15
Total headcount 125 124
We are planning to add further business development resource in FY2024, to
augment our direct access to market, whilst we also plan to bring in
additional engineering resource to deliver scheduled programmes and accelerate
new product delivery. Investment in our engineering teams is critical to
sustainable financial growth and we plan to maintain this spend at around 12%
or more of revenue. This will ensure we have the resource in place to
capitalise on growth opportunities and keep ahead of our competitors with the
latest technology.
Other costs were managed tightly throughout the year with cost savings of
£0.2m realised in administrative functions.
The Group has also been highly active in grant funding channels to further
support growth initiatives and investment. Whilst other operating income
reduced against the prior year, as we previously received Covid business
support from the US government, we have had a number of successes over recent
years with capital grants towards key pieces of machinery. Looking forward, we
are putting increased effort into securing revenue grants to help fund our
technology roadmaps.
A large portion of our product development in the year was customer funded
which maintained a healthy flow of cash during the development phase of the
engineering projects. However, we also invested our own money in developing
products as part of our technology roadmap, particularly to develop solutions
for the space market as well as Morpheus X2 to give our customers higher power
in telecommunications infrastructure. Consequently, we capitalised £0.5m of
development costs in the year. Further commentary on these capitalised
development costs can be seen in the Research and Development section of this
review.
Adjusted EBITDA
The Group utilises an alternative performance measure ("APM") to track
performance of the business. This APM is Adjusted EBITDA as it measures the
quality of earnings without the impact of exceptional items and non-cash
expenses such as depreciation and amortisation. Adjusted EBITDA for the year
was £1.3m (2022: £2.8m) representing a 55% decrease whilst Adjusted
operating profit was £0.2m (2022: £1.6m) representing an 85% decrease. This
was the result of weaker gross profit from lower revenue, and a weaker sales
mix due to lower representation of high margin aerospace and defence revenue
and higher representation of 5G telecommunications equipment which is a price
sensitive market.
The table below shows the reconciliation of operating profit delivered at
£0.2m (2022: £2.0m) and to Adjusted EBITDA.
2023 2022
Reconciliation of operating profit to Adjusted EBITDA £000 £000
Operating profit 237 1,975
Exceptional items - (391)
Adjusted operating profit 237 1,584
Depreciation 780 945
Amortisation 253 278
Adjusted EBITDA 1,270 2,807
Taxation
A tax credit of £0.4m (2022: tax charge of £0.4m) was recognised in the year
as a previously unrecognised deferred tax asset was realised given the
directors expect to utilise more of the deferred tax asset in future periods.
The Group also benefits from R&D tax credits given the development of new
technology which lowers the amount of taxable profit.
With substantial deferred tax assets, including those not recognised on the
balance sheet, the Group will continue to benefit from not having a tax
liability for the foreseeable future.
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and amortisation of
development costs were £2.0m (2022: £1.7m). The Group incurred engineering
costs on a mixture of customer funded developments and development of our own
technology roadmap.
The Group remains committed to investing in R&D for future growth and
consequently measures R&D spend as a KPI. Key areas of spend in the year
included product development for each of our key growth markets spanning
telecommunications infrastructure, aerospace and defence, space and
development of capability at new frequency bands including Q, V and W-band.
The year ahead will see us continue to invest in the development of our own
strategic technology roadmap and proprietary IP enabling us to build long-term
shareholder value in the years ahead.
Recruitment of RF engineers has been an industry-wide issue for some time, but
we are pleased with recent successes in attracting new talent to the business
at each of our three UK engineering development sites. We will augment this by
building an organisation fit for the future, maintaining our graduate
recruitment scheme and adding a new apprenticeship programme.
The Group capitalises its development costs in line with IAS 38 as set out in
note 1 to the financial statements. A reconciliation of R&D costs before
capitalisation and amortisation can be seen in the table below:
2023 2022
Reconciliation of R&D costs £000 £000
R&D costs in income statement 1,776 1,937
Capitalisation of development costs 481 -
Amortisation of development costs (222) (259)
R&D cash spend 2,034 1,678
Capital expenditure and right of use assets
Capital expenditure increased significantly in the year, with a large element
of investment occurring in Q4 of the financial year. The total amount of
capital purchased was £1.5m (2022: £0.6m) with investment made into QFN
plastic packaging equipment and engineering test systems suitable for
operating at frequency bands important for space applications utilising Q and
V-band.
Warranty provision
In line with industry practice, the Group provides warranties to customers
over the quality and performance of the products it sells. Reflecting a full
risk analysis of current commercial contracts at 31 May 2023, the warranty
provision was £0.3m (2022: £0.1m).
Funding and cash flow
The Group recorded a decrease in cash and cash equivalents to £2.6m (2022:
£4.0m) at the year-end. Cash generated from operating activities in the year
was £1.0m (2022: £2.3m) as Adjusted EBITDA performance drove cash generation
offset by increased working capital requirements.
Net cash, when including all debt except property leases at the end of the
period, was £1.6m (2022: £3.1m), whilst overall net cash including property
leases was £0.3m (2022: £2.2m).
We also have additional cash headroom available through a £3.0m invoice
discounting facility with Barclays Bank plc in the UK and a $4.0m invoice
factoring facility with Wells Fargo Bank in the USA. Both facilities were
undrawn at 31 May 2023 (2022: undrawn) and will need renewing within 12 months
of the date of signing the Annual Report.
Going concern
In assessing going concern, the Board have considered:
· The principal risks faced by the Group which are discussed within the
'Risk management' section of the Annual Report;
· The financial position of the Group including forecasts and financial
plans;
· The healthy cash position at 31 May 2023 of £2.6m (2022: £4.0m) and
the additional headroom available through the undrawn invoice discounting
facilities and overdraft (2022: undrawn);
· Global semiconductor component shortages impacting supply chains and
the potential for customer orders to remain unfulfilled for prolonged periods;
and
· The economic headwinds the world is facing with the potential for
customers to reassess their priorities, with opportunities postponed or
curtailed.
Following the above considerations, the Directors are satisfied that the Group
has adequate financial resources to continue in operational existence for a
period of at least 12 months from the date of this report. Accordingly, the
going concern basis has been adopted in the preparation of the Annual Report
for the year ended 31 May 2023.
Michael Tyerman
Chief Financial Officer
31 July 2023
The Board
The directors that served during the year ended 31 May 2023, and to the date
of this announcement, and their respective roles are set out below:
Jonathan Neale (Non-Executive Chairman)
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
Pete Magowan (Non-Executive Director)
John Behrendt (Non-Executive Director)
Consolidated Income Statement
for the year ended 31 May 2023
2023 2022
Note £000 £000
Revenue 2 16,268 17,052
====== ======
Adjusted Earnings before interest, taxation, depreciation, amortisation and 1,270 2,807
exceptional items
Amortisation of intangible assets (253) (278)
Depreciation of property, plant and equipment and right of use assets (780) (945)
---------- ----------
Adjusted operating profit 237 1,584
Exceptional items - 391
---------- ----------
Operating profit 237 1,975
Finance costs 3 (231) (194)
Finance income 58 111
---------- ----------
Profit before taxation 64 1,892
Taxation 5 400 (424)
---------- ----------
Profit for the year 464 1,468
====== ======
---------- ----------
Basic earnings per share 4 0.22p 0.68p
Diluted earnings per share 4 0.21p 0.68p
====== ======
The profit 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 2023
2023 2022
£000 £000
Profit for the year 464 1,468
---------- ----------
Other comprehensive income
Items that are or may be subsequently reclassified to profit and loss:
Currency translation movement arising on consolidation (1) 179
---------- ----------
Total comprehensive income for the year 463 1,647
====== ======
The total comprehensive income for the year is attributable to the equity
shareholders of the parent company Filtronic plc.
All income recognised in the year was generated from continuing operations.
Consolidated Balance Sheet
at 31 May 2023
2023 2022
Note £000 £000
Non-current assets
Goodwill and other intangible assets 1,774 1,495
Right of use assets 2,889 2,293
Property, plant and equipment 1,446 701
Deferred tax 1,254 868
---------- ----------
7,363 5,357
---------- ----------
Current assets
Inventories 2,778 2,598
Trade and other receivables 5,335 4,479
Cash and cash equivalents 2,610 4,006
---------- ----------
10,723 11,083
---------- ----------
---------- ----------
Total assets 18,086 16,440
---------- ----------
Current liabilities
Trade and other payables 3,673 2,993
Provisions 364 282
Deferred income 164 172
Lease liabilities 617 540
---------- ----------
4,818 3,987
---------- ----------
Non-current liabilities
Deferred Income 29 130
Lease liabilities 1,698 1,280
---------- ----------
1,727 1,410
---------- ----------
---------- ----------
Total liabilities 6,545 5,397
---------- ----------
---------- ----------
Net assets 11,541 11,043
---------- ----------
Equity
Share capital 6 10,796 10,796
Share Premium 7 11,077 11,060
Translation Reserve (470) (471)
Retained earnings (9,862) (10,342)
--------- ----------
Total equity 11,541 11,043
====== ======
The total equity is attributable to the equity shareholders of the parent
company Filtronic plc.
Company number 2891064
Richard Gibbs
Chief Executive Officer
Consolidated Statement of Changes in Equity
for the year ended 31 May 2023
Share capital Share premium Translation reserve Retained earnings Total equity
£000 £000 £000 £000 £000
Balance at 1 June 2021 10,795 11,039 (650) (11,826) 9,358
Profit for the year - - - 1,468 1,468
New shares issued 1 21 - - 22
Currency translation movement arising on consolidation - - 179 - 179
Share-based payments - - - 16 16
---------- ---------- ---------- ---------- ----------
Balance at 31 May 2022 10,796 11,060 (471) (10,342) 11,043
Profit for the year - - - 464 464
New shares issued - 17 - - 17
Currency translation movement arising on consolidation - - 1 - 1
Share-based payments - - - 16 16
---------- ---------- ---------- ----------- ----------
Balance at 31 May 2023 10,796 11,077 (470) (9,862) 11,541
====== ====== ====== ======= ======
Consolidated Cash Flow Statement
for the year ended 31 May 2023
2023 2022
£000 £000
Cash flows from operating activities
Profit for the year 464 1,468
Taxation (400) 424
Finance income (58) (111)
Finance costs 231 194
---------- ----------
Operating profit 237 1,975
Share-based payments 16 16
Depreciation of property, plant and equipment and right of use assets 780 945
Amortisation of intangible assets 253 278
Movement in inventories (157) (273)
Movement in trade and other receivables (833) (1,100)
Movement in trade and other payables 665 550
Movement in provisions 82 (115)
Change in deferred income (109) (10)
Tax received 16 19
---------- ----------
Net cash generated from operating activities 950 2,285
---------- ----------
Cash flows from investing activities
Capitalisation of development costs (481) -
Acquisition of other intangible assets (51) (57)
Acquisition of plant and equipment (946) (61)
Acquisition of right of use assets (53) (132)
Interest received 9 -
---------- ----------
Net cash used in investing activities (1,522) (250)
---------- ----------
Cash flows from financing activities
Interest paid (231) (194)
Repayment of bank loans - (131)
Exercise of employee share options 17 22
Repayment of principle element of lease liabilities (626) (653)
Repayment of interest-bearing borrowings - (8)
---------- ----------
Net cash used in financing activities (840) (964)
---------- ----------
Movement in cash and cash equivalents (1,412) 1,071
Currency exchange movement 16 29
Opening cash and cash equivalents 4,006 2,906
---------- ----------
Closing cash and cash equivalents 2,610 4,006
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
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 2023.
Whilst the information included in this preliminary announcement has been
prepared on the basis of International Accounting Standards in conformity of
the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to publish
full financial statements within two months of this announcement.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 May 2023 or 31 May 2022. The
financial information for 2022 is derived from the statutory accounts for 2022
which have been delivered to the registrar of companies. The auditor has
reported on the 2023 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 FY2023 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.
Going Concern
In accordance with corporate governance requirements and the statement of
directors' responsibilities, and
as disclosed in the Directors' Report, 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 2023, the Group had cash at bank of £2.6m and access to undrawn
invoice discounting facilities of
£3.0m and $4.0m in the UK and US respectively. The Board recognises the
uncertain economic and political environment that the world 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, to stress-test the business, where programme
curtailment and/or delays may adversely affect forward-looking demand to
levels lower than those initially modelled in the base case scenario including
reduced demand from a major customer. A severe but plausible scenario was also
modelled that took the downside scenario and removed a significant contract
win that the Group expected to convert from the outlook period.
The scenarios modelled including the severe but plausible model, demonstrate
the Group has adequate cash for the next twelve months. Therefore, the
directors continue to adopt the going concern basis to prepare the financial
statements.
New Accounting Standards
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.
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
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 Chief Executive Officer who reviews internal monthly
management reports, budget and forecast information as part of this.
Accordingly, the Chief Executive Officer 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 four customers representing individually over 10% of revenue
each and in aggregate 85% of revenue. This is split as follows:
• Customer A - 34% (2022: 36%)
• Customer B - 22% (2022: 23%)
• Customer C - 17% (2022: 22%)
• Customer D - 12% (2022: 0%)
Revenue by destination Total
2023 2022
£000 £000
United Kingdom 4,762 7,489
Europe 2,600 3,421
Americas 5,711 5,313
Rest of the World 3,195 829
---------- ----------
16,268 17,052
====== ======
Split of non-current assets by location 2023 2022
£000 £000
United Kingdom 6,925 5,109
Americas 438 248
--------- ---------
7,363 5,357
====== ======
Non-current assets relate to property, plant and equipment, right of use
assets, goodwill and other intangible assets and deferred tax.
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
3 Finance costs
Year Year
Ended Ended
31 May 31 May
2023 2022
£000 £000
Interest expense for lease agreements 139 127
Minimum service costs and interest charges on invoice discounting facilities 92 67
---------- ----------
231 194
====== ======
4 Earnings per share
Total Group
2023 2022
£000 £000
Profit for the year 464 1,468
====== ======
'000 '000
Basic weighted average number of shares 215,121 214,726
Dilution effect of share options 1,358 868
---------- ----------
Diluted weighted average number of shares 216,479 215,594
---------- ----------
Basic earnings per share 0.22p 0.68p
Diluted earnings per share 0.21p 0.68p
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
5 Taxation
The reconciliation of the effective tax rate is as follows:
2023 2022
£000 £000
Profit before taxation 64 1,892
====== ======
2023 2022
£000 £000
Profit before taxation multiplied by the average standard rate of corporation 13 359
tax in the UK - 20% (2022: 19%)
Disallowable items 46 155
Deferred tax asset not recognised 30 194
Enhanced R&D tax credit (89) (270)
Adjustment in respect of prior year - R&D tax credit (32) (24)
Foreign tax not at UK rate 18 15
(Recognition)/derecognition of deferred tax asset (386) 104
Rate change of deferred tax - (109)
--------- ---------
Taxation (400) 424
====== ======
The main rate of UK corporation tax was 19% for the first 10 months of the
year, although the corporation tax rate increased to 25% on 1 April 2023 for
companies with profits above £250,000. Consequently, the average rate of
corporation tax for the year was 20%. The US federal corporate tax rate is
21%.
The deferred tax assets recognised in the year have been calculated at the
rates expected to be in existence in the period of reversal.
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
6 Share
Capital
Deferred shares of 10p each Ordinary shares of 0.1p each issued and fully paid
Number '000 Number '000 £000
At 1 June 2021 106,877 214,415 10,795
Exercise of share options - 383 1
------------ -------------- ---------
At 31 May 2022 106,877 214,798 10,796
Exercise of share options - 323 -
------------ ------------ -----------
At 31 May 2023 106,877 215,121 10,796
======== ======== ======
All shares are allotted, called up and fully paid. 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.
The deferred shares have no rights to vote or receive dividends.
7 Share Premium
£000
At 1 June 2021 11,039
Exercise of share options 21
-----------
At 31 May 2022 11,060
Exercise of share options 17
-----------
At 31 May 2023 11,077
=======
8 Dividends
The directors are not proposing to pay a dividend for the year ended 31 May
2023 (2022: £nil).
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
9 Analysis of net cash
31 May Cash Flow Other movements 31 May 2023
2022
£000 £000 £000 £000
Cash and cash equivalents 4,006 (1,412) 16 2,610
Lease liabilities - plant and equipment (863) 419 (576) (1,020)
--------- --------- --------- ---------
Net cash when including all debt except property leases 3,143 (993) (560) 1,590
Lease liabilities - property leases (957) 346 (684) (1,295)
--------- --------- --------- ---------
Net cash 2,186 (647) (1,244) 295
====== ====== ====== ======
Reconciliation of cash flow to movement in net cash
2023 2022
£000 £000
Movement in cash and cash equivalents (1,412) 1,071
Movement in bank loans - 131
Movement in lease liabilities - plant and machinery (157) (28)
Movement in lease liabilities - property lease (338) 228
Effect of exchange rate fluctuations 16 29
---------- ----------
Movement in net cash (1,891) 1,431
Net opening cash 2,186 755
---------- ----------
Net closing cash 295 2,186
====== ======
Cash at bank earns interest at floating rates based on daily bank deposit
rates. There are no restrictions on the availability of the cash and cash
equivalents at 31 May 2023 (2022: £nil).
IFRS 16 requires the recognition of property leases on the balance sheet which
is classified as a debt item.
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