REG - Filtronic PLC - Final Results
30/07/2024 07:00
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RNS Number : 2844Y Filtronic PLC 30 July 2024
30 July 2024
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2024
Filtronic plc (AIM: FTC), the designer and manufacturer of products for the
aerospace, defence, space and telecommunications infrastructure markets,
announces its full year results for the 12 months ended 31 May 2024.
Financial Highlights
2024 2023
Revenue £25.4m £16.3m
Adjusted EBITDA* £4.9m £1.3m
Operating profit £3.6m £0.2m
Profit before taxation £3.4m £0.1m
Profit for the year £3.1m £0.5m
Basic earnings per share 1.45p 0.22p
Diluted earnings per share 1.41p 0.21p
Cash at bank £7.2m £2.6m
Net cash when excluding right of use property leases £5.2m £1.6m
Net cash balance as at 31 May £4.2m £0.3m
Cash generated from operating activities £6.3m £1.0m
*Adjusted EBITDA is earnings before interest, taxation, depreciation,
amortisation and share-based payments.
Operational Highlights
• Signed a 5-year Strategic Partnership with SpaceX, a
market leader in low earth orbit ("LEO") space communications, for the supply
of Cerus solid state power amplifier ("SSPA") products at multiple frequency
bands. Given the customer's preference for vertical integration, this is a
significant testament to our ability to design and deliver best in class
technology.
• Contract award of £3.2m from the European Space Agency
to develop a series of mmWave products with strategic importance for next
generation LEO constellations including payload applications.
• Contract wins from strategic target clients, BAE
Maritime Services and QinetiQ, for £4.5m and £2.0m respectively for radar
systems.
• Launched and secured production orders for E-band
derivative products from telecommunication infrastructure OEMs and several
specialist private telecom network providers.
• Secured a fourth programme from DSTL to design and
develop a tuneable filter solution for future defence radar applications.
• Won the King's award for Enterprise in Innovation
recognising our outstanding product development.
• Flexed the operation to meet growing market demand for
our products demonstrating our ability to respond and scale the business
rapidly and efficiently.
Post-period Highlights
• Follow-on contract award from SpaceX for E-band SSPAs
valued at $9.0m (£7.1m).
Commenting on the outlook, Jonathan Neale, Chairman, said: "The success in
FY2024 has given us a very strong basis for our business as we look ahead into
FY2025. We continue to prove that we have the technology, products and skills
to compete internationally with the best.
"Contract wins in FY2024 require us to expand the Group's engineering and
manufacturing operations into our growing sales orderbook. At the same time as
we develop our electronic communications products and technology in the low
earth orbit space sector, we have ambitions to do more in the defence,
aerospace and security sectors. These markets have very similar needs and
problems of integrating high volumes of sensors and data whilst making that
data available securely, quickly and at large scale to end users. When we
review what our core business is and what is adjacent market opportunity this
is shifting gradually over time, and we have shown the ability to pivot when
the opportunities have arisen.
"Behind the scenes, our technology roadmaps remain robust. The underpinning
engineering and manufacturing capability, that are future facing, remain the
focus of our investment plans enabling us to bid confidently into high value
opportunities.
"The UK is still short of skilled engineers and technicians, but this is a
feature of the economic environment and neither new, nor a surprise. We will
have to work hard to compete to attract talent, but we are excited to be able
to offer exciting career opportunities to both experienced engineers and
leaders as well as younger people in the early stage of their career.
"Whilst we wait to see what the new government's UK industrial strategy will
look like, we remain confident that in the critical technology areas,
including sovereign semiconductor packaging capability, we have a meaningful
role to play."
Annual General Meeting
The Annual General Meeting will take place at 11am on 31 October 2024 at
Plexus building, Thomas Wright Way, Netpark, Sedgefield, County Durham, TS21
3FD.
Filtronic plc Tel. 01740 618800
Nat Edington (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
Cavendish Capital Markets Ltd Tel. 020 7220 0500
Jonny Franklin-Adams / George Dollemore (Corporate Finance)
Sunila de Silva (ECM)
Walbrook PR Ltd Tel. 020 7933 8780
Nick Rome / 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 the year ended 31 May 2024 has been one of
significant progress. We have successfully capitalised on the momentum built
in prior years in bringing to market our core technology projects and enhanced
market focus. This culminated in the business securing a strategic partnership
with SpaceX in addition to numerous contract wins with key target clients
including BAE, QinetiQ and the European Space Agency, and our opportunity
pipeline continues to grow across our core markets.
These achievements have given us an excellent platform to deliver long-term
sustainable growth and is a major step forward in the execution, and
de-risking, of our wider strategy. To that end, we will not lose sight of the
need to focus developing business opportunities in our core and adjacent
markets. Expanding and diversifying our customer base remains key to growth
and resilience planning.
Strong trading and workforce commitment in H2 enabled us to deliver good
growth in revenue and profit with material improvements seen over the prior
year. We have kept the market and investors up to date with this dynamic
situation by upgrading market expectations via a series of trading updates
during the course of FY2024.
These pleasing efforts and results have enabled us to deliver adjusted
earnings before interest, taxation, depreciation, amortisation and share-based
payments ("adjusted EBITDA") of £4.9m (2023: £1.3m), and significantly
strengthened the balance sheet and cash position. This underpins our ability
to invest in growing the operational capability to match the improved
orderbook and extend the innovation and technology road map to support our
collective revenue growth ambitions.
The Markets
This year we experienced our highest levels of customer engagement, which
reflects the growing demand for our core capabilities and innovative products
across the markets we serve.
The low earth orbit ("LEO") space communications market, whilst an emerging
market, continues to produce sizeable opportunities from a range of
prospective clients. The success we have had in the LEO market offers not only
the potential for transformational growth, but also for us to accelerate the
technology we believe this sector will need. Initially, this is through our
innovative Cerus32 E-band product that is being actively deployed into ground
stations of the Starlink constellation which is the first and only operational
commercial E-band link in the world today. Whilst the market is currently led
by a small number of household names, there are many well capitalised
companies looking to participate in this market with the aim of providing
low-cost internet to remote locations and direct to cell phone capability
which will bolster the market opportunity for us to exploit.
The aerospace and defence industry outlook remains strong. There is increasing
global need for high bandwidth, fast and secure data telemetry and
infrastructure and we continue to explore opportunities on land, sea and air.
As well as security and defence market opportunities, the private network and
high-speed trading opportunities are a meaningful part of our current and
future portfolio.
The telecommunications infrastructure market has become a less dominant part
of our growth plan as the rollout of 5G stalls in some markets, but it remains
an important market given the leading players tend to be first adopters of new
technology. This 'first to market' drive helps accelerate our own technology
roadmap and positions us well in adjacent markets where the product offering
is highly desirable with strong revenue and earnings potential.
Of critical interest and relevance to new and existing customers is our
ability to design, develop, test and manufacture a turn-key solution to a
high-quality standard, at volume.
Scaling up our business is a key focus for the year ahead as we keep pace with
the increased rate of trading. Financially, the Group's cash position provides
the means to make meaningful prudent investments in the business to facilitate
further growth. We are currently exploring the possibility of moving to a
larger facility which will offer more manufacturing space customised to our
precise needs with room to expand our respective teams. We are also mindful
that well run businesses are efficient and protecting profit leakage is
equally important. Recruiting additional resource into our engineering team
will be critical in the year ahead, to not only service the development needs
of our current programmes, with their new technology requirements, but the new
business opportunities we are pursuing.
Financial Performance Summary
Group sales increased in the year by 56% to £25.4m (FY2023: £16.3m).
The increase in sales and a stronger sales mix, with a lower concentration of
revenue from telecommunications infrastructure, led to an operating profit of
£3.6m (2023: £0.2m) and adjusted EBITDA of £4.9m (2023: £1.3m).
The Group closed the year with £7.2m of cash at bank (2023: £2.6m) in
addition to the availability of undrawn working capital debt facilities in the
UK (£3.0m with Barclays).
The Group's net cash position, including all debt except right of use property
leases, was £5.2m at the end of the financial year (2023: £1.6m). Net cash
including right of use property leases was £4.2m (2023: £0.3m).
Dividend
As with previous years, and after continued dialogue with investors the Board
supports the view that the long-term interests of shareholders are better
served by cash being retained in the business to fund future business
development. Consequently, no dividend is proposed for the year (2023: £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.
Having formalised our ESG strategy last year we have made appropriate and
meaningful progress on sustainability, building on the three pillars of:
· Sustainable commercial enterprise;
· Sustainable culture and organisation; and
· Sustainable environmental impact.
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/) and more detail can be found
in the Sustainability section of the Annual Report.
Board Composition
Following Richard Gibbs's decision to step down from his role as Chief
Executive Officer, the Nomination Committee undertook a rigorous selection
process to find a suitable candidate to drive the business through its next
phase of growth. We were delighted to welcome Nathaniel ("Nat") Edington to
the Board on 13 May 2024 as the Group's new Chief Executive Officer. Nat
brings a wealth of experience and knowledge in the electronics industry and a
pedigree of executing growth plans. I would like to take this opportunity, on
behalf of all of us, to thank Richard for his hard work, leadership and
dedication over the duration of his tenure. Through his vision and drive,
Filtronic has established a solid platform with a much-improved market
position.
Outlook
The demand drivers for our business, as I have outlined above, remain strong
and the markets we serve are robust. We have increasing confidence in our
ability to deliver further growth in the year ahead, but we recognise the need
to work fast and not be complacent. We will be matching our resources with the
enlarged business that we are now operating, investing in key areas including
exceptional and experienced engineering and manufacturing talent, developing
opportunities with those in the early stages of their career and leveraging
strong commercial relationship builders to deliver greater customer focus and
support. We have also identified the essential capital equipment needed to
position ourselves to exploit the existing and new market opportunities.
I would like to finish by thanking, on behalf of the Board, everyone who has
contributed to the Group's success this year including our talented and driven
employees as well as our discerning and demanding customers, suppliers,
partners and shareholders.
Jonathan Neale
Chairman
29 July 2024
Chief Executive's review
I am delighted to present my first Chief Executive's review covering the full
year results for FY2024. Since joining the business, I have been hugely
impressed with the energy and commitment of the organisation, the deep
understanding of RF technology and the strength of customer relationships with
the industry leaders in our chosen markets of LEO space, aerospace and defence
and telecommunications infrastructure.
The Company has delivered an excellent set of results for the FY2024 trading
period, and we end the year with revenue growing by 56% to £25.4m (FY2023:
£16.3m), ahead of market expectations. Reported adjusted EBITDA also exceeded
market expectations at £4.9m (FY2023: £1.3m), based on the strength of
second half earnings and is a testament to the controlled scaling of the
operating cost base throughout the trading period. We also close the year with
a growing, healthy cash balance of £7.2m (2023: £2.6m).
We have invested in the long-term future of the business by building our IP
portfolio and strengthening our business development and engineering teams.
With a strengthened balance sheet and a record orderbook we are planning for
future growth, which includes looking at new facilities to expand our
manufacturing footprint in Sedgefield and the continued development of our
world class RF engineering capability. I am excited to be leading the business
through the next exciting phase of growth.
We are shaping the future of microwave and millimetre wave communications, and
a growing number of companies are engaging our services for the design and
manufacture of next generation communication products. The ability to
undertake rapid cutting-edge RF design and scale the manufacturing of mmWave
products enables customers to drive performance improvement and accelerate
time to market for demanding applications. Our global reputation, ability to
push the boundaries of what is possible in RF design and the service offering
of a turnkey solution to design and manufacture remain the key competitive
advantages that Filtronic provides to customers in our strategic markets.
RF design is a complex engineering discipline requiring a highly specialised
set of design skills and deep understanding of analogue design principles.
Critical to our success is the recruitment and retention of world class RF
engineers. Filtronic has over 45 years' experience in the RF market and
unrivalled history of innovation and IP development. The ability to offer
exciting careers working at the leading edge of RF technology with the world's
leading communication and aerospace companies has proved essential in our
ability to attract the talent we need.
We have successfully coupled our engineering expertise with investment in
state-of-the-art production equipment that enables the rapid transition from
product development to full scale manufacturing at volume. The addition of
dedicated engineering lines to create new processes without disrupting
mainstream operations, has greatly improved delivery of engineering programmes
and allowed us to move at the speed our customers demand. The move to a new
purpose-built manufacturing facility would significantly improve the
efficiency of our manufacturing operations and enhance our ability to meet
future scale-up opportunities.
In the last twelve months Filtronic has released several new high-power
products for use in the telecommunications and LEO space market based on
specific customer requirements. We end the year with a healthy number of new
product developments in the engineering pipeline, and a well-defined
technology roadmap aligned with both customer and future market requirements.
During my first few months in post, I have seen first-hand the strength of
relationships with Filtronic's strategic customers, who are amongst the
leaders in their respective markets. The engagement with SpaceX, with whom we
signed a five-year Strategic Partnership in April 2024, demonstrates the value
we bring to all of our clients. Leveraging our engineering capabilities, and
the responsiveness and speed of execution to develop product and ramp
manufacturing output quickly, we were able to take the Cerus 32 SSPA product
from concept to volume production in less than six months, in this rapidly
evolving market.
Customers and Markets
Our mission at Filtronic is to enable the future of RF, microwave and mmWave
communications, and our focus markets are those that operate at the leading
edge and offer growth potential for our products. The strategic markets we are
serving of LEO space and aerospace and defence remain the focus of our
investments where we can add significant value, and where we can realise long
term sustainable margins and deliver shareholder value.
The LEO space market is growing rapidly as the costs associated with the
launch and deployment of satellite technology continues to dramatically
reduce. Well-funded, private corporations like SpaceX, together with
established global aerospace contractors and ambitious regional start-up
companies, are racing to build constellations of satellites that will
accelerate the delivery of internet and 'direct to cell' services across the
globe. Gateway communications between the LEO satellite and the ground enable
convergence with the established terrestrial telecommunication networks, that
in turn provide the world with high speed, low latency and ubiquitous
connectivity. Filtronic's leadership as a supplier of compact, highly
integrated, and extremely reliable telecommunication backhaul solutions
position us well to respond to the aggressive timelines demanded by the
leading players in the LEO space market. The ability to design and build
SSPAs, at multiple frequency bands, enabled Filtronic to win initial
production orders with SpaceX for the deployment of the first LEO space E-band
backhaul communication links in early 2023. Over the past year we have
successfully built on this relationship to establish a Strategic Partnership
to secure supply of E-band SSPAs and work in partnership to develop the
technology roadmap associated with the Starlink constellation over the next
five years. In July we announced our first follow-on order since announcing
our partnership; a new contract worth $9.0m (£7.1m).
The accelerating convergence of ground-based telecommunications with LEO space
enabled connectivity, will continue to drive demand for efficient use of
high-performance terrestrial telecom solutions. Increasing demand for high
power transceiver modules and custom power amplifier solutions for private
telecommunication networks, demonstrates significant adjacent market
opportunities for Filtronic.
The aerospace and defence market has been a consistent long term revenue
contributor to Filtronic over the years, and our technology is well adapted
for use in electronic warfare ("EW") applications associated with Active
Electronically Scanned Array ("AESA") radar. We have retained a position in
the aerospace radar market with the supply of hybrid transmit/receive modules
and highly customised filter designs. Whilst supply to this market has seen a
hiatus, we remain well positioned for strategic airborne radar programmes that
will follow in the next few years once procurement decisions have been made by
several governments. In FY2024, after a long selling cycle, we were successful
in winning contracts in both land-based radar and maritime radar applications
from QinetiQ and BAE respectively. In addition to radar applications, we have
continued to make inroads into the UK defence market for the supply of next
generation RF communication products. Following an initial engagement with
Defence Science Technology Laboratories ("DSTL") for the delivery of our first
battlefield communications product in FY2022, we were successful in winning an
additional two DSTL programmes in FY2023 and a fourth programme in FY2024.
Battlefield communication solutions are evolving quickly, with commercial
space and telecommunication technology augmenting the legacy defence
communication solutions. Our DSTL engagements will align us closer with UK MoD
strategic requirements and ultimately provide consistent and long-term revenue
streams for highly customised products.
Outlook
We operate in a world with an ever-increasing demand for broadband
connectivity, and with it the search for opportunities to open additional RF
spectrum. Filtronic is the leader in the field of millimetre wave solutions,
and we benefit from the fact that the expertise we offer is in short supply.
Filtronic's strategic markets represent industry verticals that have a robust
outlook and align well with the needs of the post-pandemic world. Public
safety, mobile telecommunications, 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. Alongside the growth
opportunities for the business generated from the SpaceX partnership, our
pipeline with other customers and in other focus markets is also healthy and
increasing, providing good growth opportunities across our markets and
customer base.
Business plans for FY2025 and beyond reflect our confidence. We have a dynamic
and proactive culture that is highly motivated to drive the Company forward
and deliver excellence in all aspects of our business. With momentum behind us
we will focus our efforts in the following areas in FY2025:
· Continue to develop the close partnership with SpaceX for the supply
and development of ground station applications and continue to try and
penetrate into the payload.
· Ensure timely execution of new chip and module developments in
alternative frequency bands, to maintain our technology leadership, and
underpin our products for several years to come.
· Invest in our sales organisation to accelerate the opportunities in
focus markets.
· Position the business to move up the value chain and provide a higher
level of integration for UK Defence programmes.
· Strengthen our Senior Leadership Team with key experience to manage
growth and scale up the business.
· Move to a new world class manufacturing facility in Sedgefield to
further scale manufacturing volumes and support turn-key customer development
programmes.
· Develop new manufacturing capabilities to strengthen Filtronic's
position as a trusted sovereign supplier of advanced RF packaging for
aerospace and defence and high reliability applications.
There is an increasing demand for our high-performance products and unique RF
design capabilities, and we are building the IP portfolio, resources, and
expertise necessary to scale the business in response to a growing pipeline of
opportunity.
Embarking on a new financial year, I am extremely excited by the potential
that exists at Filtronic and believe we are well placed to continue to build
sustainable shareholder value.
Nat Edington
Chief Executive Officer
29 July 2024
Financial Review
The business delivered a break-through set of results with significant
improvement in revenue, profit and cash reflecting the successful execution of
our strategy. The strong performance provides the platform to invest in the
long-term growth of the Group with momentum building from customer demand and
pipeline opportunities.
FY2024 saw major progress for the Group, with the signing of a Strategic
Partnership with SpaceX offering potential for significant growth. Revenue
growth in the year of 56% and adjusted EBITDA growth of 285% to £4.9m (2023:
£1.3m) saw the Group upgrade market expectations a number of times in the
year as trading was very strong in H2. Revenue growth initiatives continue to
be the major benefactor of investment as we capitalise on market opportunities
and deliver on key strategic objectives, particularly to broaden the customer
base and increase revenue in the markets we serve. Whilst there have been
economic headwinds in the wider economy, we have benefitted from operating in
core markets such as space and aerospace and defence, that are seeing huge
investment and are high on the priority of government spending plans.
Revenue
Group revenue increased to £25.4m (2023: £16.3m) with the emerging market of
LEO space driving much of the growth, mainly due to SpaceX rapidly deploying
and expanding their Starlink constellation. As more subscribers are added to
the network, bandwidth and low-latency become critical to the end-user
experience and therefore more E-band SSPAs are needed to keep pace with the
network rollout and new user additions. Whilst we announced significant order
wins in the year to strategically important customers such as the European
Space Agency, BAE Maritime and QinetiQ, revenue in FY2024 has not benefitted
from any meaningful recognition of these contracts, which are expected to
positively impact FY2025 and beyond.
Our LEO space customer Space X, contributed 48% of revenue in FY2024. We are
mindful of the short-term consequence on customer concentration and dependency
arising from this. The three largest customers represent 84% of turnover
(2023: 73%). However, we are confident that this will rebalance over time as
the sector develops and we continue to win business in other markets.
As expected, the 5G telecommunications infrastructure market has seen a
slowdown in demand coupled with the original equipment manufacturers ("OEM")
holding excess inventory. This led to sales to this sector decreasing
year-on-year by 12% but whilst the cyclical nature of the market meant we were
down in the period, we still see this market as an important one for the
Group, particularly as we continue to push the boundaries of innovation and
technology with our customers, who are often early adopters of new
technologies.
Sales of Xhaul products to other markets were up 77% on the prior year mainly
due to three new customers that we won orders from covering a range of end
markets including high-frequency trading platforms and private networks. These
products are a blend of E-band derivative technology products that have been
customised from our core offering and use of our highly automated process
capability.
Aerospace and defence revenue was lower than the prior year by 49% due to a
hiatus in supply of components to airborne radar systems from an established
programme. This is a timing issue with demand expected to return as new
aircraft orders are received. Despite this, the underlying fundamentals in
this market remain strong and it is fully expected that significant growth
will be delivered over FY2024 in the coming year based on order intake and
opportunity pipeline. This is a key market to our growth plans, and we are
investing to further penetrate within the defence primes and the Ministry of
Defence ("MoD"). Our technology is highly relevant and the skills we offer are
in short supply within our key target customers who are all expressing a need
to engage with SMEs who can offer sovereign capability. This is supported by
the MoD which has placed increasing importance on maximising small and medium
sized enterprises ("SME") integration into defence procurement, not only to
invigorate the sector and shorten the supply chain, but to ensure the defence
industry has access to the innovation and technologies that SMEs develop.
The legacy products supplied into the critical communications market saw
demand return to normalised levels after upstream component issues within the
system-level product last year. This resulted in an increase of revenue to
this market of 53%. This increase was seen throughout the product portfolio we
offer to the P25 network in the USA including the TTA product.
Operating costs and headcount
Operating costs increased by 25% in the year to £12.5m (2023: £10.0m) as
investment increased to realise the growing opportunity pipeline. The key area
of spend was in our engineering organisation where we increased the headcount,
particularly in Q4, and worked with partners to undertake product developments
on a variable cost basis. In addition to this, the annual bonus target was
met, having not been achieved in the prior year, whilst we also increased
manufacturing overhead to facilitate the rapid ramp of production in H2.
As mentioned above, the annual bonus performance target was met in the year as
the directors and key management were rewarded for achieving a stretch revenue
target. This bonus will be paid in August 2024 payroll, after publication of
the audited accounts, but has been accrued in the FY2024 financial statements.
We also implemented a one-off bonus in FY2024 for all of our employees who
were not already part of a variable bonus scheme, based on the achievement of
the same stretch target given the effort needed to enable the production ramp.
The Group's largest overhead is salary-related costs, representing 67% of the
operational cost base, which increased by 22% lifting overheads by £1.5m,
accounting for much of the overall operating cost uplift. The mix of our
manufacturing employees shifted from lower cost production operatives to
higher cost specialist engineers in process engineering who are critical for
implementing new products and processes.
Engineering resource is key for our growth, and it was pleasing to see that we
not only increased the number of engineers, but also the quality and quantity
of candidates we are attracting with valuable expertise and experience, which
has helped to significantly upskill the team from the prior year. This has
enabled 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 some of the changing dynamics described above, the headcount increased
to 133 (2023: 130) at 31 May 2024 with a mix change from manufacturing to
research and development. An analysis of the Group's headcount is presented
below:
Number 2024 2023
Manufacturing 73 78
Research and development 39 33
Sales and marketing 7 6
Administration 14 13
Total headcount 133 130
We are planning to add further business development resource in FY2025, 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 the engineering team is critical to
sustainable financial growth and we plan to maintain this spend at around 13%
of revenue. Given the speed of revenue growth and relative difficulty in
recruiting RF engineers quickly, this number was around 11% this year (2023:
13%) despite an increase in engineering costs of £0.8m. Continuing to focus
on this metric will ensure we have the resource in place to capitalise on
growth opportunities and keep ahead of our competitors with the latest
technology.
Where product development is customer specific, we seek to receive a
Non-Recurring Engineering ("NRE") charge to maintain a healthy flow of cash
during the development phase of the engineering projects and ensure commitment
from our customer. When developing our own technology roadmap and IP, we
invested from our cash reserves. This was the case when we developed
technology for the LEO space market, and we'll develop further technology from
our own reserves at a range of other frequencies in both ground station
applications and the payload. Consequently, we capitalised £0.7m 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.
Other costs increased in line with scaling a business including recruitment
fees, equipment hire and insurance costs whilst electricity costs reflected a
new fixed term contract having concluded the contract that was locked in prior
to inflationary pressures in the energy industry.
The Group continues to be active in securing grant funding to further support
growth initiatives and investment. We benefitted from a further £0.15m of
grant income in the year from the Defence Technology Exploitation Programme
("DTEP") and local support from Business Durham for the purchase of some key
machinery. Looking forward, we are engaged in a number of open calls in both
regional funding programmes and national technology grants that we hope to be
awarded in the next year.
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 non-cash expenses such as
depreciation, amortisation and share-based payments. Share-based payments have
been added to the APM this year, having been calculated as part of IFRS2 fair
value accounting, to reflect the grant of options in FY2024 to Executive
Directors and key management.
Adjusted EBITDA for the year was £4.9m (2023: £1.3m) representing a 285%
increase whilst operating profit was £3.6m (2023: £0.2m) representing a
1,423% uplift. This was the result of stronger gross profit from higher
revenue, whilst the sales mix was also stronger due to a reduction to the
concentration of low margin 5G telecommunications equipment which is a highly
price sensitive market.
The table below shows the reconciliation of operating profit delivered at
£3.6m (2023: £0.2m) to adjusted EBITDA of £4.9m (2023: £1.3m):
2024 2023
Reconciliation of operating profit to adjusted EBITDA £000 £000
Operating profit 3,610 237
Depreciation 945 780
Amortisation 287 253
Share-based payments 47 -
Adjusted EBITDA 4,889 1,270
Taxation
A tax charge of £0.2m (2023: tax credit of £0.4m) was recognised in the
year, as deferred tax assets were amended to recognise a shorter period of
asset usage. The Group also benefits from R&D tax credits, due to the
advancement of science and technology in the new products we develop, which
lowers the amount of taxable profit on qualifying R&D activities. We also
make use of the Annual Investment Allowance ("AIA") which offers tax relief on
capital expenditure purchases, and utilise first year allowances on capital
purchases above the AIA threshold.
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 £2.8m (2023: £2.0m). The Group incurred engineering
costs on a mixture of customer funded developments and progression of the
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 LEO space applications in both the ground
station and the payload, private networks and aerospace and defence. 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, increasing the intake of graduate
recruits and augmenting our 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:
2024 2023
Reconciliation of R&D costs £000 £000
R&D costs in income statement 2,408 1,776
Capitalisation of development costs 677 481
Amortisation of development costs (245) (222)
R&D cash spend 2,840 2,035
When capitalising development costs, an impairment review is undertaken of
each development programme to test the carrying value does not require
impairment in line with IAS 36.
Capital expenditure and right of use assets
Capital expenditure in the year remained in line with the prior year, with
investments focussed on automated test capability which enables the R&D
team to engineer at higher frequency bands, critical for execution of the
strategic plans. The total amount of capital purchased was £1.5m (2023:
£1.5m).
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 2024, the warranty
provision was £0.4m (2023: £0.3m).
Funding and cash flow
The Group recorded an increase in cash and cash equivalents to £7.2m (2023:
£2.6m) at the year-end. Cash generated from operating activities in the year
was £6.3m (2023: £1.0m) as adjusted EBITDA performance drove cash generation
and customers prepaid an element of the contract value for product development
of bespoke solutions.
Net cash, when including all debt except property leases at the end of the
period, was £5.2m (2023: £1.6m), whilst overall net cash including property
leases was £4.2m (2023: £0.3m).
We also have additional cash headroom available through a £3.0m invoice
discounting facility with Barclays Bank plc in the UK. We had a $4.0m invoice
factoring facility with Wells Fargo Bank in the USA but terminated this
agreement on 12 July 2024. Both facilities were undrawn at 31 May 2024 (2023:
undrawn).
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 2024 of £7.2m (2023: £2.6m) and
the additional headroom available through the undrawn invoice discounting
facilities and overdraft (2023: undrawn); and
· Economic headwinds 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 2024.
Michael Tyerman
Chief Financial Officer
29 July 2024
The Board
The directors that served during the year ended 31 May 2024, and to the date
of this announcement, and their respective roles are set out below:
Jonathan Neale (Non-Executive Chairman)
Nat Edington (Chief Executive Officer) (Appointed 13 May 2024)
Michael Tyerman (Chief Financial Officer)
Pete Magowan (Non-Executive Director)
John Behrendt (Non-Executive Director)
Richard Gibbs (Resigned 13 May 2024)
Consolidated Income Statement
for the year ended 31 May 2024
2024 2023
Note £000 £000
Revenue 2 25,432 16,268
====== ======
Adjusted Earnings before interest, taxation, depreciation, amortisation and 4,889 1,270
share-based payments
Amortisation of intangible assets (287) (253)
Depreciation of property, plant and equipment and right of use assets (945) (780)
Share-based payments (47) -
---------- ----------
Operating profit 3,610 237
Finance costs 3 (332) (231)
Finance income 83 58
---------- ----------
Profit before taxation 3,361 64
Taxation 5 (220) 400
---------- ----------
Profit for the year 3,141 464
====== ======
---------- ----------
Basic earnings per share 4 1.45p 0.22p
Diluted earnings per share 4 1.41p 0.21p
====== ======
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 2024
2024 2023
£000 £000
Profit for the year 3,141 464
---------- ----------
Other comprehensive income
Items that are or may be subsequently reclassified to profit and loss:
Currency translation movement arising on consolidation (52) (1)
---------- ----------
Total comprehensive income for the year 3,089 463
====== ======
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 2024
2024 2023
Note £000 £000
Non-current assets
Goodwill and other intangible assets 2,271 1,774
Right of use assets 3,756 2,889
Property, plant and equipment 1,153 1,446
Deferred tax 1,047 1,254
---------- ----------
8,227 7,363
---------- ----------
Current assets
Inventories 3,273 2778
Trade and other receivables 6,550 5,335
Cash and cash equivalents 7,215 2,610
---------- ----------
17,038 10,723
---------- ----------
---------- ----------
Total assets 25,265 18,086
---------- ----------
Current liabilities
Trade and other payables 5,406 3,673
Provisions 493 364
Deferred income 1,403 164
Lease liabilities 895 617
---------- ----------
8,197 4,818
---------- ----------
Non-current liabilities
Deferred income 132 29
Lease liabilities 2,121 1,698
---------- ----------
2,253 1,727
---------- ----------
---------- ----------
Total liabilities 10,450 6,545
---------- ----------
---------- ----------
Net assets 14,815 11,541
---------- ----------
Equity
Share capital 6 10,798 10,796
Share premium 7 11,213 11,077
Translation reserve (522) (470)
Retained earnings (6,674) (9,862)
----------12,16 ----------12,16
Total equity 14,815 11,541
====== ======
The total equity is attributable to the equity shareholders of the parent
company Filtronic plc.
Company number 2891064
Nat Edington
Chief Executive Officer
Consolidated Statement of Changes in Equity
for the year ended 31 May 2024
Share capital Share premium Translation reserve Retained earnings Total equity
£000 £000 £000 £000 £000
Balance at 31 May 2022 10,796 11,060 (471) (10,342) 11,043
Profit for the year - - - 464 464
Currency translation movement arising on consolidation - - 1 - 1
Share-based payments - - - 16 16
New shares issued - 17 - - 17
---------- ---------- ---------- ---------- ----------
Balance at 31 May 2023 10,796 11,077 (470) (9,862) 11,541
Profit for the year - - - 3,141 3,141
Currency translation movement arising on consolidation - - (52) - (52)
Share-based payments - - - 47 47
New shares issued 2 136 - - 138
---------- ---------- ---------- ---------- ----------
Balance at 31 May 2024 10,798 11,213 (522) (6,674) 14,815
====== ====== ====== ====== ======
Consolidated Cash Flow Statement
for the year ended 31 May 2024
2024 2023
£000 £000
Cash flows from operating activities
Profit for the year 3,141 464
Taxation 220 (400)
Finance income (83) (58)
Finance costs 332 231
---------- ----------
Operating profit 3,610 237
Share-based payments 47 16
Depreciation of property, plant and equipment and right of use assets 945 780
Amortisation of intangible assets 287 253
Movement in inventories (531) (157)
Movement in trade and other receivables (1,235) (833)
Movement in trade and other payables 1,749 665
Movement in provisions 129 82
Change in deferred income 1,342 (109)
Tax received (16) 16
---------- ----------
Net cash generated from operating activities 6,327 950
---------- ----------
Cash flows from investing activities
Capitalisation of development costs (677) (481)
Acquisition of other intangible assets (107) (51)
Acquisition of plant and equipment (666) (946)
Acquisition of right of use assets (120) (53)
Interest received 83 9
---------- ----------
Net cash used in investing activities (1,487) (1,522)
---------- ----------
Cash flows from financing activities
Interest paid (332) (231)
Proceeds from financing agreements 750 -
Exercise of employee share options 138 17
Repayment of principle element of lease liabilities (784) (626)
---------- ----------
Net cash used in financing activities (228) (840)
---------- ----------
Movement in cash and cash equivalents 4,612 (1,412)
Currency exchange movement (7) 16
Opening cash and cash equivalents 2,610 4,006
---------- ----------
Closing cash and cash equivalents 7,215 2,610
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2024
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 2024.
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 2024 or 31 May 2023. The
financial information for 2023 is derived from the statutory accounts for 2023
which have been delivered to the registrar of companies. The auditor has
reported on the 2024 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 FY2024 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 2024, the Group had cash at bank of £7.2m and access to undrawn
invoice discounting facilities of £3.0m and $4.0m in the UK and US
respectively although the US facility of $4.0m was terminated on 12 July 2024.
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 from the date of the
approval accounts.
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.
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 Board who reviews internal monthly management reports, budget
and forecast information as part of this. Accordingly, the Board is deemed to
be the CODM.
The CODM has identified one operating segment within the Group as defined
under IFRS 8. In turn, this is the only reportable segment of the Group as the
entities in the Group have similar products and services, production processes
and economic characteristics. Therefore, there is no allocation of operating
expenses, profit measures or assets and liabilities to specific commercial
markets.
Accordingly, the CODM assesses the performance of the operating segment on
financial information which is measured and presented in a manner consistent
with those in the financial statements by reference to Group results against
budget.
The Group profit measures are adjusted operating profit and adjusted EBITDA,
both disclosed on the face of the consolidated income statement. No
differences exist between the basis of preparation of the performance measures
used by management and the figures in the Group financial statements.
The Group has three customers representing individually over 10% of revenue
each and in aggregate 84% of revenue. This is split as follows:
• Customer A - 48% (2023: 12%)
• Customer B - 19% (2023: 34%)
• Customer C - 17% (2023: 17%)
Revenue by destination Total
2024 2023
£000 £000
United Kingdom 2,239 4,762
Europe 2,154 2,600
Americas 17,121 5,711
Rest of the World 3,918 3,195
---------- ----------
25,432 16,268
====== ======
Split of non-current assets by location Total
2024 2023
£000 £000
United Kingdom 7,972 6,925
Americas 255 438
---------- ----------
8,227 7,363
====== ======
Non-current assets relate to property, plant and equipment, right of use
assets, goodwill and other intangible assets and deferred tax.
3 Finance costs
Year Year
Ended Ended
31 May 31 May
2024 2023
£000 £000
Interest expense for lease agreements 236 139
Minimum service costs and interest charges on invoice discounting facilities
96 92
---------- ----------
332 231
====== ======
4 Earnings per share
Total Group
2024 2023
£000 £000
Profit for the year 3,141 464
====== ======
'000 '000
Basic weighted average number of shares 216,340 215,121
Dilution effect of share options 6,555 1,358
---------- ----------
Diluted weighted average number of shares 222,895 216,479
---------- ----------
Basic earnings per share 1.45p 0.22p
Diluted earnings per share 1.41p 0.21p
====== ======
5 Taxation
The reconciliation of the effective tax rate is as follows:
2024 2023
£000 £000
Profit before taxation 3,361 64
====== ======
2024 2023
£000 £000
Profit before taxation multiplied by the average standard rate of corporation 840 13
tax in the UK - 25% (2023: 20%)
Disallowable items 209 46
Deferred tax asset not recognised 237 30
Enhanced R&D tax credit (589) (89)
Adjustment in respect of prior year - R&D tax credit - (32)
Foreign tax not at UK rate 27 18
Recognition of deferred tax asset (504) (386)
---------- ----------
Taxation 220 (400)
====== ======
The main rate of UK corporation tax was 25% for companies with profit above
£250,000. The US federal corporate 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.
6 Share Capital
Deferred shares of 10p each Ordinary shares of 0.1p each issued and fully paid
Number '000 Number '000 £000
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
Exercise of share options - 2,000 2
------------- ------------ -----------
At 31 May 2024 106,877 217,121 10,798
======== ======== =======
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 31 May 2022 11,060
Exercise of share options 17
-----------
At 31 May 2023 11,077
Exercise of share options 136
-----------
At 31 May 2024 11,213
=======
8 Dividends
The directors are not proposing to pay a dividend for the year ended 31 May
2024 (2023: £nil).
9 Analysis of net cash
31 May Cash Flow Other movements 31 May 2024
2023
£000 £000 £000 £000
Cash and cash equivalents 2,610 4,612 (7) 7,215
Lease liabilities - plant and equipment (1,020) 518 (1,488) (1,990)
---------- --------- --------- ---------
Net cash when including all debt except property leases 1,590 5,130 (1,495) 5,225
Lease liabilities - property leases (1,295) 264 4 (1,027)
---------- --------- --------- ---------
Net cash 295 5,394 (1,491) 4,198
====== ====== ====== ======
Reconciliation of cash flow to movement in net cash
2024 2023
£000 £000
Movement in cash and cash equivalents 4,612 (1,412)
Movement in lease liabilities - plant and machinery (971) (157)
Movement in lease liabilities - property lease 269 (338)
Effect of exchange rate fluctuations (7) 16
---------- ----------
Movement in net cash 3,903 (1,891)
Net opening cash 295 2,186
---------- ----------
Net closing cash 4,198 295
====== ======
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 2024 (2023: £nil).
IFRS 16 requires the recognition of property leases on the balance sheet which
is classified as a debt item.
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