Last checked at 1 Aug 2017 07:00
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2017
Filtronic plc, the designer and manufacturer of microwave electronics products for the wireless telecoms infrastructure market, announces its full year results for the 12 months ended 31 May 2017.
Financial Highlights
| 2017 | 2016 |
Sales Revenue | £35.4m | £13.6m |
Adjusted operating profit/(loss)* | £1.8m | (£6.8m) |
Operating profit/(loss) | £1.7m | (£7.0m) |
Profit/(loss) before taxation | £2.2m | (£7.0m) |
Basic earnings/(loss) per share | 1.51p | (3.20p) |
Diluted earnings/(loss) per share | 1.49p | (3.20p) |
Net cash/(debt) balance as at 31 May | £2.6m | (£0.3m) |
Cash from/(used in) operating activities | £3.9m | (£5.0m) |
*Operating profit/(loss) before amortisation of intangibles, exceptional items and R&D development cost capitalisation and amortisation (the definition of which is referenced in the income statement).
Operational Highlights
· Considerable progress made with revenues increasing by 160 percent year-on-year to £35.4m (2016: £13.6m), returning the Group to profitability.
· Successfully fulfilled the large order for ultra wide band antennas from a world leading mobile telecommunications infrastructure OEM, demonstrating our ability to introduce new products and rapidly ramp to volume production.
· Strong demand for filter products to mobile telecommunications infrastructure and public safety communications markets in the year expected to continue into FY2018.
· Investment in the sales and marketing teams across EMEA and the US resulting in a growing opportunity pipeline.
· Major contract win for Filtronic Broadband to a tier 1 European defence equipment supplier to manufacture their advanced radar transmit receive modules, broadening the customer base and markets we serve.
· Encouraging customer engagement in a broad range of markets, including major Silicon Valley technology companies, who see the value in our mmWave technology.
Commenting on the outlook, Reg Gott, Chairman, said:
"Both our Filtronic Wireless and Filtronic Broadband businesses have made excellent progress over the past year toward our key strategic objectives of broadening our customer base and expanding our product portfolio in order to widen our addressable market and return the Company to profit. Notwithstanding this progress, we are still in the early stages of this strategy and the bulk of our revenues will remain concentrated across a small number of customers in the mobile telecommunications infrastructure market for the near term.
"Following several years of growth in mobile infrastructure investment, we note recent market announcements by Nokia and Ericsson that 2017 may be slightly more challenging than they previously expected. However, we remain confident in our underlying strategy as market focus increasingly turns to 4G network densification and the nascent 5G opportunity to meet ever growing data capacity demand. We are confident these trends will play to our core strengths and position us well to capitalise on these opportunities as both 4G densification and 5G technology requirements align with our growing activities in the defence, public safety and satellite communications segments of the market."
Annual General Meeting
The Annual General Meeting will take place on 28 September 2017 at the offices of Panmure Gordon & Co, One New Change, London, EC4M 9AF.
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Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.
Chairman's letter
The year under review was one of considerable progress as the Group increased revenue and returned to profitability. The Board is very pleased with the progress made to date with the improved trading being a direct result of the more focussed strategy and reduced cost base that have been implemented over the past two financial years.
The success in the year was initially down to sales of our ultra wide band integrated antennas to a tier 1 telecoms customer backed up by a growth in demand for a broader range of filter products across the telecommunications and public safety markets.
The markets we serve and the technologies we offer are changing rapidly. Product lifecycles are compressing and this means that we are constantly refining our product and operating strategies to adapt to the evolving environment. To successfully develop the business, we recognise that we must broaden our customer base, enhance our product offerings and expand the market space we serve. With an improved balance sheet, we have been able to invest in these areas more than in recent years and we now have an exciting pipeline of new products and customer opportunities in a broader spread of market sectors.
Financial Performance Summary
Group financial performance for the year ended ahead of our initial expectations with sales of £35.4m (2016: 13.6m), an operating profit of £1.7m (2016: £7.0m loss) and an adjusted operating profit of £1.8m (2016: £6.8m adjusted operating loss). The consolidated income statement sets out the basis of calculation of the adjusted operating profit.
Filtronic Wireless business revenue was £30.5m (2016: £9.0m) with an operating profit of £3.5m (2016: 4.5m operating loss) and an adjusted operating profit of £3.6m (2016: £4.5m adjusted operating loss).
Filtronic Broadband business revenue was £4.9m (2016: £4.6m) with an operating loss of £0.9m (2016: £1.6m operating loss) and an adjusted operating loss of £0.9m (2016: £1.7m adjusted operating loss).
The Group had net cash of £2.6m at the end of the year (2016: £0.3m net debt). The cash generation in the year was a direct result of the improved trading performance. The Group maintains an invoice discounting facility in the UK with Barclays Bank plc of £3.0m that was undrawn at the year-end and through the year had a facility of $3.5m with Faunus Group International Inc. (FGI). However, the Group decided to terminate the FGI facility in May 2017 as the cost of the facility and its terms no longer met the business' requirements. We are currently reviewing our finance needs in the US with alternative debt providers to secure facilities should we need them that more closely match our needs.
Dividend
No dividend is proposed for the year (2016: £nil). The Board periodically reviews its dividend policy and concluded that, whilst cash reserves had increased substantially through the year, shareholders interests would be better served by retaining the cash to fund our working capital and further investment plans than by distributing cash at this time.
Outlook
The progress made in FY2017 has demonstrated the capability of Filtronic to grow and deliver profit. However, the growth achieved has been with a concentrated number of customers and with relatively few products. Notwithstanding the growing opportunity and product pipeline we continue to remind shareholders that until there has been a further widening of the customer base, growth will continue to be lumpy and difficult to forecast in the short term, we also note that our major telecoms OEM customers have downgraded their projections for the current financial year. This underscores the importance for Filtronic to continue to reduce dependence on these customers and to seek opportunities in other markets.
We are encouraged by the breadth of opportunities being generated and remind investors that the substantial multi-year contract win of a defence related programme underpins Filtronic Broadband business revenues for several years. Consequently, the Board continues to have a positive outlook for the longer-term prospects for the Group.
The terms and impact of 'Brexit' remain unclear but the global nature of our trade should provide a good degree of shelter from the currently anticipated major changes that will likely flow from the UK leaving the European Union.
Finally, I would like to thank our employees for all their hard work over the year in delivering a substantially improved performance and to thank our shareholders and bankers for their continued support.
Reg Gott
Chairman
31 July 2017
Chief executive's statement
FY2017 was a strong recovery year for Filtronic as the Group increased sales revenues by 160% and returned to profitability. The financial results stem from our strategic focus on servicing key markets with technically innovative products and excellence in execution to ensure we meet or exceed customer expectations for product quality and service.
Our strategy and markets
Filtronic is a leading designer and manufacturer of components and sub-systems used in advanced communication applications. The Group is organised into two independently managed business units, Filtronic Wireless and Filtronic Broadband, that respectively focus on RF conditioning and transceiver products.
Our strategy is to profitably grow our business by focussing on supplying, class leading, RF communication components and sub-systems for demanding applications across a number of target markets. Our key objectives are: -
• To offer a growing range of technically advanced, ultra wide band antennas, mmWave transceivers and associated products.
• To expand our customer base within existing markets.
• To widen the number of markets we address.
Our largest serviced market is the mobile telecommunications infrastructure equipment market. This market has seen robust levels of investment in increased capacity for 4G/LTE in recent years as end user demand for services continues to grow. However, we note the recent reductions in current calendar year forecasts from both Nokia and Ericsson and we are a little more cautious regarding the short term as a consequence, though remain confident in the mid-term to long-term and continue to expect renewed demand growth from calendar 2018 from the new spectrum releases. The sector offers significant opportunities for volume deliveries but is highly competitive and price sensitive. Consequently, we have focussed our efforts on offering products that are technically challenging and innovative to differentiate us from larger, vertically integrated, Asian based suppliers.
In addition to the mobile telecommunications infrastructure equipment market we have an established presence in public safety communications and have also recently won our first major contracts in the defence & aerospace and high speed wireless internet markets. A number of new opportunities are opening up for mmWave products and these include applications in the industrial, security, satellite communication, automotive and transportation sectors.
Filtronic Wireless
Filtronic Wireless is a specialist designer and manufacturer of RF conditioning products supplying antennas and filters to the telecommunications infrastructure equipment and public safety communications markets.
The Filtronic Wireless business more than tripled sales revenue in the year to £30.5m (2016: £9.0m) with an even split of sales between antenna and filter products achieving an operating profit of £3.5m (2016: £4.5m operating loss).
Sales of ultra wide band antennas to our lead customer were particularly strong in the first half of the year as we successfully completed the majority of the orders announced in FY2016. Executing these contracts has demonstrated our ability to introduce new products and rapidly ramp to volume production whilst controlling costs to ensure that we make a healthy margin for the business. Disappointingly, the follow-on demand for this product variant has been lower than initially forecast by our customer. However, this business has enabled us to gain good momentum into the antenna market and has established us as a credible player in the sector as confirmed by the growing number of trials underway with other customers.
Filter sales in FY2017 exceeded our expectations as we saw strong demand from both our main telecommunications original equipment manufacturer ("OEM") customers and in the public safety communications market. Demand was spread over several filter variants, which delivered improved margins as a result of excellent work by our operations and engineering teams on cost reduction initiatives.
New product development within Filtronic Wireless is focussed on antenna products, and filters that go into these antennas, where we see greater long-term potential due to the trend towards integrated antenna and filter products in the industry. During the year, we launched products that support the newly released frequency spectrums in the US (600MHz) and Europe (1400MHz) and we are currently working on antennas that provide additional high and low bands in different configurations.
Progress in Filtronic Wireless is expected to remain lumpy due to the high level of customer concentration with just over 80 percent of sales revenue being derived from our largest customer.
Over the past few years Filtronic Wireless has focussed on supplying western OEMs who service the mobile telecommunications infrastructure market. Following a series of consolidations in the industry in recent years, there are now only a handful of OEMs available for us to service. Filtronic Wireless has therefore looked to broaden its customer base by expanding its exposure to the public safety communications sector and to re-engage with mobile network operators ("MNOs") where there is no direct competition with our OEM sales. To execute this strategy we have reorganised and strengthened our sales function in EMEA and the US. To augment our direct sales channels, we have appointed agents and distributors in certain territories to enable us to gain traction without the high overhead associated with a direct salesforce.
The process of reintroducing Filtronic as a supplier to MNOs will take time to yield significant contracts. However, we are making good progress and we are starting to see some initial small successes with some orders for filter products and growing engagement with our antenna product development roadmap, including the supply of sample antennas to MNOs for evaluation. We anticipate this area of activity will grow over the coming months.
Filtronic Broadband
Filtronic Broadband is a specialist designer and manufacturer of high frequency transceivers, sub-systems and components for the mobile telecommunications backhaul, defence & aerospace and other adjacent markets.
Sales revenue in our Filtronic Broadband business was approximately £4.9m for the year (2016: £4.6m) giving year on year sales growth of 7 percent. During the year the business reduced its operating loss to £0.9m (2016: £1.6m operating loss). Whilst this financial performance is clearly unsatisfactory, substantial progress has been made to diversify our customer base and the markets that we serve.
We saw good growth in demand for Filtronic Broadband's flagship E-band transceiver product, Orpheus, in the first half of FY2017. However, it became apparent that our lead customer has struggled to compete with its Asian competitors and has sought price reductions from us that would have resulted in unacceptable margins. We have therefore declined to meet the target prices set by this customer and have focussed our resources on gaining business from customers who value our products more highly. Consequently, we saw a fall in demand from this customer in the second half of the year and we do not anticipate further significant volumes from them over the next year.
The prospects for Orpheus remain positive where customers understand the true value of our offering. Recent developments in our technology have seen Orpheus reliably operating at 10Gb per second. The superior specification and demonstrable value proposition that we offer has resulted in growing demand from several tier 2 clients and we are also pleased that Orpheus has been selected by another tier 1 OEM for their new backhaul E-band radio. We are further encouraged to note that we have been commissioned to develop a derivative of Orpheus for a high speed wireless internet network in the US. This client is planning to use E-band as a lower cost and faster to install alternative to fibre optic cable and represents a clear sign that broadband networks of the future will include wireless technology.
Filtronic Broadband has also seen an increase in demand for legacy multi-chip package ("MCP") assemblies at 6-11GHz and a new customer recently commissioned us to assemble 38GHz MCPs for a 5G trial system.
During the year, we completed the key milestones in the development of a long range (20km) sub-system E-band link that utilised Orpheus transceivers and our recently developed Cerus power amplifiers. These sub-systems are currently undergoing flight trials by our customer pending their decision to proceed with commercialisation of this technology. Our ability to develop complex E-band sub-systems capable of achieving long range high capacity data links opens up significant market opportunities in a number of adjacent sectors including satellite and battlefield communications where traditional frequency bands are capacity constrained.
Entering the defence & aerospace market has been a key objective for Filtronic Broadband for several years and following a number of prototype builds, we were pleased to announce that we were selected as a manufacturing partner for a tier 1 European defence equipment supplier to manufacture their advanced radar transmit receive modules. The working capital for this initial programme is financed by our customer as they buy all material and they supply that material to us on a "free issue" basis for manufacture and test.
The demand for high frequency transceivers, sub-systems and components is set to grow rapidly in the coming years and the business is ideally placed to benefit from this growth. We have further strengthened our sales team and attended several trade shows that have led to exciting new customer engagements that include major Silicon Valley technology companies who are seeing the value of our mmWave technology capabilities.
Future trends
In the telecommunications infrastructure sector, we see several trends that are defining the market and directly impact on product and technology development. The market data, as set out in the market overview section of the annual report and accounts, continues to indicate that future infrastructure expenditure will be driven by the need to increase capacity.
The development of 5G networks is a hot topic in trade and general press publications and considerable investment is being made by MNOs and OEMs in preparation for 5G.
5G promises a significant rise in capacity as data rates to devices are predicted to increase from their current 100Mb/ per second to 1Gb/per second. Currently the applications that require these data rates have not been defined but industry speculation suggests driverless cars and other IoT requirements will be sufficiently data hungry to require this capacity.
Pre 5G
3GPP have now named 5G as "5GNR" (5G New Radio) with a full specification expected to be announced in September 2018 (release 15). Leading up to the release of these specifications and in order to excite the market, both the OEMs and MNOs are starting to "beat the drum" about 5G.
We are seeing a number of operators increasing their 4G/LTE capacity and branding these updates variously as "Pre 5G" and "5G Evolution". In addition, there are a number of trials being undertaken of various enabling technologies that will be used in 5G.
Although specifications have not yet been released, there is an emerging consensus on the frequencies that will be required for the higher data rates that 5G envisages and OEMs are working on developing products and technologies accordingly.
True 5G
To date, the pre-commercialisation trials that have been announced are mostly being conducted at 28GHz and are based on point-to-point broadband delivery systems only (non-mobile/no handsets). It is our expectation that true 5G networks will not start to appear until 2020, once the considerable technical challenges have been overcome and finance for the significant infrastructure investment that 5G will require is available. We expect major metropolitan areas to see the first deployments.
The opportunities for Filtronic Wireless will commence in the Pre 5G phase where customers are looking to combine traditional spectrum with Sub 6GHz to achieve License Assisted Access. Backhaul capacity will continue to be stretched during this period and this is likely to lead to increased demand for E-band backhaul that will benefit Filtronic Broadband.
True 5G will see an integration of radio, antenna and backhaul as base stations become network access points. As the specifications and technologies required for 5G are developed, with our deep knowledge of high frequency sub-systems, integrated antennas and transceivers, Filtronic is well placed to play a part in this major market development.
Rob Smith
Chief Executive Officer
31 July 2017
Financial review
Revenues
Sales revenue for the Filtronic Group increased in the year by 160 percent to £35.4m (2016: £13.6m). Filtronic Wireless was the main driver of the growth with sales of £30.5m (2016: £9.0m) as the business successfully fulfilled orders of ultra wide band antennas to its lead customer and the filter product offering saw much stronger trading to OEM customers in both the mobile telecommunications infrastructure and the public safety communications markets. Filtronic Broadband saw revenue growth of 7 percent with sales increasing to £4.9m (2016: £4.6m). Whilst this growth was modest, it was very encouraging to see a large proportion of revenues coming from new products as the business continues to make significant progress in diversifying the customer base and the markets it serves.
Operating Costs
Operating costs reduced in the year as the Group benefitted from cost reductions implemented in FY2016. Further to this, we took the opportunity in the period under review to consolidate our operational footprint in the US down to a single site in Salisbury, Maryland, which has resulted in reduced property costs and associated overheads. We continue to invest in product development, engineering and customer support to grow our business whilst ensuring that we have an efficient operating structure in line with the size and nature of our business. Overheads, excluding depreciation, amortisation and share based payments, reduced to £9.6m (2016: £10.0m). The average headcount during the year was 116 (2016: 128) although a recent investment has been made to increase the size of the engineering and product development organisation to facilitate further organic growth.
Adjusted operating profit/(loss)
Adjusted operating profit/(loss) (the definition of which is referenced on the income statement was £1.8m (2016: £6.8m loss). Filtronic Wireless returned to profitability with an adjusted operating profit of £3.6m (2016: £4.5m loss) due to significantly higher revenues, improved product margins and a r educed overhead cost base. Filtronic Broadband posted an adjusted operating loss of £0.9m (2016: £1.7m) which, whilst unsatisfactory, represents a significant improvement on the prior year.
Operating profit/(loss)
Operating profit was £1.7m (2016: £7.0m loss) in the year. The difference between adjusted operating profit and operating profit in the year being a charge for amortisation of development costs in the year of £0.1m (2016: £nil).
Exceptional costs
Exceptional finance income of £0.7m (2016: £nil) was credited to the income statement due to the revaluation of a US Dollar denominated intercompany balance in the Filtronic Wireless UK entity. This was a result of the US Dollar strengthening against Sterling during the year and the intercompany loan to the US subsidiary being worth more in Sterling.
Capital expenditure
Capital expenditure of £0.8m (2016: £0.2m) included £0.3m for the Filtronic Wireless business (2016: £0.1m) and £0.5m for Filtronic Broadband (2016: £0.1m). Filtronic Wireless invested in production tooling to enable cost savings to improve product margins, whilst Filtronic Broadband invested in new test equipment to increase production capacity on the recently secured contract to supply a tier 1 European defence OEM over the next eight years.
Research and development costs
Total research and development costs in the year were £3.2m (2016: £4.3m). The Group continues to invest in research and development for the future growth of the business through new and enhanced products to meet the expanding demands of customer programmes. Key areas of expenditure included the development of a wider portfolio of antennas and E-band products, both of which we expect to deliver significant future revenue opportunities. The Group capitalises its research and development costs in line with IAS 38; no costs met the criteria for capitalisation in the current financial year (2016: £0.3m). Amortisation of intangible assets in the year relating to development costs previously capitalised was £0.1m (2016: £nil) giving an underlying research and development charge to the income statement of £3.1m (2016: £4.0m).
Inventory provision
Inventory is valued at the lower of cost or net realisable value. It is the Group's policy to regularly review the carrying value of its inventories and to make a provision for excess and obsolete inventory. As at 31 May 2017 the inventory provision was £1.6m (2016: £2.0m).
Warranty provision
In line with industry practice the Group provides warranties to customers over the quality and performance of the products it sells. The Group's policy is to make a provision, calculated as a percentage of sales revenue, after reviewing costs associated with faulty products returned. As at 31 May 2017 the warranty provision was £0.5m (2016: £0.2m); the increase in provision at the year-end reflected the higher sales attained during FY2017.
Funding and cash flow
The Group ended the year with net cash of £2.6m (2016: £0.3m net debt). Cash generation from operating activities in the year included receipts from research and development tax credits of £1.6m of which £0.8m related to development activities in FY2016 and £0.8m to activities in FY2015. The £0.8m relating to FY2015 was recognised in the income statement last year and a was a debtor on the balance sheet at 31 May 2016. Cash inflow from operating activities was £3.9m (2016: £5.0m outflow). The full breakdown of this movement can be seen on the consolidated cash flow statement.
Filtronic has a £3.0m invoice discounting facility with Barclays Bank plc in the UK, which was increased from £2.0m during the year. As at 31 May 2017 £nil was drawn down against this facility (2016: £0.5m). Following the increase of the Barclays facility and as a consequence of the Group's improved balance sheet, the Board took the decision to terminate the FGI US debtor book facility as the terms of this facility no longer met the Group's requirements. We maintain an ongoing review of our US debtor book financing requirement and will secure appropriate facilities that more closely match our future funding requirements if and when necessary.
Michael Tyerman
Finance Director
31 July 2017
The Board
The Directors that served during the year ended 31 May 2017, and to the date of this announcement, and their respective roles are set out below:
Rob Smith (Chief Executive Officer)
Reg Gott (Chairman)
Michael Tyerman (Finance Director)
Michael Roller (Non-executive Director)
Consolidated Income Statement
for the year ended 31 May 2017
|
| 2017 | 2016 |
| note | £000 | £000 |
|
|
|
|
Revenue |
| 35,373 | 13,580 |
|
| ====== | ====== |
|
|
|
|
Adjusted operating profit/(loss)* |
| 1,797 | (6,840) |
Amortisation of development costs | 7 | (95) | - |
Capitalisation of development costs | 7 | - | 286 |
Exceptional operating items | 4 | - | (426) |
|
| ---------- | ---------- |
Operating profit/(loss) |
| 1,702 | (6,980) |
|
|
|
|
Finance costs |
| (287) | (59) |
Exceptional finance items | 4 | 740 | - |
|
| ---------- | ---------- |
Finance income |
| 740 | - |
|
| ---------- | ---------- |
Profit/(loss) before taxation |
| 2,155 | (7,039) |
Taxation | 6 | 962 | 1,922 |
|
| ---------- | ---------- |
Profit/(loss) for the period |
| 3,117 | (5,117) |
|
| ====== | ====== |
|
|
|
|
|
| ---------- | ---------- |
Basic earnings/(loss) per share | 5 | 1.51p | (3.20p) |
Diluted earnings/(loss) per share | 5 | 1.49p | (3.20p) |
|
| ====== | ====== |
|
|
|
|
*Operating profit/(loss) before amortisation of other intangibles, exceptional items, R&D development cost capitalisation/amortisation and finance costs
The profit for the period is attributable to the equity shareholders of the parent company Filtronic plc.
The above results are all as a result of continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2017
| 2017 | 2016 |
| £000 | £000 |
|
|
|
Profit/(loss) for the period | 3,117 | (5,117) |
| ---------- | ---------- |
Currency translation movement arising on consolidation | (541) | (55) |
| ---------- | ---------- |
Total comprehensive income for the period | 2,576 | (5,172) |
| ====== | ====== |
The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.
Consolidated Balance Sheet
at 31 May 2017
|
| 2017 | 2016 |
| note | £000 | £000 |
Non-current assets |
|
|
|
Goodwill and other intangibles | 7 | 3,590 | 3,648 |
Property, plant and equipment |
| 1,354 | 1,230 |
Deferred tax | 8 | 1,015 | 834 |
|
| ---------- | ---------- |
|
| 5,959 | 5,712 |
|
| ---------- | ---------- |
Current assets |
|
|
|
Inventories |
| 2,249 | 1,685 |
Trade and other receivables |
| 8,643 | 8,960 |
Cash and cash equivalents |
| 2,598 | 990 |
|
| ---------- | ---------- |
|
| 13,490 | 11,635 |
|
| ---------- | ---------- |
|
|
|
|
|
| ---------- | ---------- |
Total assets |
| 19,449 | 17,347 |
|
| ---------- | ---------- |
Current liabilities |
|
|
|
Trade and other payables |
| 8,061 | 7,295 |
Provision | 9 | 545 | 161 |
Deferred income |
| 105 | 460 |
Interest bearing borrowings | 13 | - | 1,270 |
|
| ---------- | ---------- |
|
| 8,711 | 9,186 |
|
| ---------- | ---------- |
Non-current liabilities |
|
|
|
Deferred income |
| 11 | 32 |
|
| ---------- | ---------- |
|
| 11 | 32 |
|
| ---------- | ---------- |
|
|
|
|
|
| ---------- | ---------- |
Total liabilities |
| 8,722 | 9,218 |
|
| ---------- | ---------- |
|
| ---------- | ---------- |
Net assets |
| 10,727 | 8,129 |
|
| ---------- | ---------- |
Equity |
|
|
|
Share capital | 10 | 10,788 | 10,788 |
Share Premium | 11 | 10,640 | 10,640 |
Translation Reserve |
| (796) | (255) |
Retained earnings |
| (9,905) | (13,044) |
|
| ---------- | ---------- |
Total equity |
| 10,727 | 8,129 |
|
| ====== | ====== |
|
|
|
|
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Company number 2891064
Rob Smith
Chief Executive Officer
Consolidated Statement of Changes in Equity
for the year ended 31 May 2017
| Share capital | Share premium | Translation reserve | Retained earnings | Total equity
|
| £000 | £000 | £000 | £000 | £000 |
Balance at 1 June 2015 | 10,688 | 6,199 | (200) | (7,958) | 8,729 |
Loss for the year | - | - | - | (5,117) | (5,117) |
Share based payments | - | - | - | 31 | 31 |
Shares issued in the year | 100 | 4,441 | - | - | 4,541 |
Currency translation movement arising on consolidation | - | - | (55) | - | (55) |
| ---------- | ---------- | ---------- | ---------- | ---------- |
Balance at 31 May 2016 | 10,788 | 10,640 | (255) | (13,044) | 8,129 |
Profit for the year | - | - | - | 3,117 | 3,117 |
Share based payments | - | - | - | 22 | 22 |
Currency translation movement arising on consolidation | - | - | (541) | - | (541) |
| ---------- | ---------- | ---------- | ---------- | ---------- |
Balance at 31 May 2017 | 10,788 | 10,640 | (796) | (9,905) | 10,727 |
| ====== | ====== | ====== | ====== | ====== |
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Consolidated Cash Flow Statement
for the year ended 31 May 2017
|
| 2017 | 2016 |
|
| £000 | £000 |
Cash flows from operating activities |
|
|
|
Profit/(loss) for the period |
| 3,117 | (5,117) |
Taxation |
| (962) | (1,922) |
Finance income |
| (740) | - |
Finance costs |
| 287 | 59 |
|
| ---------- | ---------- |
Operating profit |
| 1,702 | (6,980) |
Share-based payments |
| 22 | 31 |
(Profit)/loss on disposal of plant and equipment |
| (85) | 76 |
Depreciation |
| 658 | 655 |
Amortisation of intangibles |
| 110 | 15 |
Movement in inventories |
| (493) | (25) |
Movement in trade and other receivables |
| (214) | (175) |
Movement in trade and other payables |
| 559 | 603 |
Movement in provision |
| 384 | 50 |
Change in deferred income |
| (376) | 439 |
Tax received |
| 1,599 | 261 |
|
| ---------- | ---------- |
Net cash from/(used in) operating activities |
| 3,866 | (5,050) |
|
| ---------- | ---------- |
|
|
|
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|
|
|
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Consolidated Cash Flow Statement
for the year ended 31 May 2017
|
| 2017 | 2016 |
|
| £000 | £000 |
|
|
|
|
Net cash from/(used in) operating activities |
| 3,866 | (5,050) |
|
| ---------- | ---------- |
Cash flows from investing activities |
|
|
|
Interest paid |
| (286) | (59) |
Capitalisation of development costs |
| - | (286) |
Acquisition of plant and equipment |
| (811) | (172) |
Proceeds on sale of assets |
| 86 | 36 |
|
| ---------- | ---------- |
Net cash used in investing activities |
| (1,011) | (481) |
|
| ---------- | ---------- |
Cash flows from financing activities |
|
|
|
Proceeds from new shares issued (Net of issue costs) |
| - | 4,541 |
Proceeds from interest bearing borrowings |
| - | 950 |
Payment of interest bearing borrowings |
| (1,270) | - |
|
| ---------- | ---------- |
Net cash (used in)/from financing activities |
| (1,270) | 5,491 |
|
| ---------- | ---------- |
|
|
|
|
Movement in cash and cash equivalents |
| 1,585 | (40) |
Currency exchange movement |
| 23 | (57) |
Opening cash and cash equivalents |
| 990 | 1,087 |
|
| ---------- | ---------- |
Closing cash and cash equivalents |
| 2,598 | 990 |
|
| ====== | ====== |
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Notes to the Preliminary Financial Information
for the year ended 31 May 2017
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 2017.
(a) A number of new standards, amendments to standards and interpretations are effective for the year ended 31 May 2017. These are either not relevant or have no material impact on the Group.
(b) There are also a number of new standards, amendments to standards and interpretations that are effective for financial statements after this reporting period, but the Group has not adopted them early except for the adoption of some disclosures which have been applied. None of these is expected to have a material impact on the results or financial position of the Group.
EU Law (IAS Regulation EC1606/2002) requires that the consolidated financial statements of the Group for the year ended 31 May 2017 be prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ('adopted IFRSs'). Whilst the information included in this preliminary announcement has been computed in accordance with adopted IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements in August 2017.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 May 2017 or 31 May 2016. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the registrar of companies. The auditor has reported on the 2017 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 2017 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the registrar of companies in due course.
2 Segmental analysis
IFRS 8 requires consideration of the identity of the chief operating decision maker ('CODM') within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the CEO, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly, the CEO is deemed to be the CODM.
Operating segments have then been identified based on the reporting information and management structures within the Group. The Group has two customers representing individually over 10% each in aggregate over 82 percent of the revenue.
The Group operates in two trading business segments:
· The design and manufacture of transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunications networks (Filtronic Broadband).
· The design of radio frequency conditioning product for base stations used in wireless telecommunications networks (Filtronic Wireless).
The Group also contains a central services segment that provides support to the trading businesses.
In the table below reportable segment assets and liabilities include inter segment balances. These have been included to reflect the assets and liabilities of the segment as monies are freely moved around the Group to provide funding for working capital where required.
| Filtronic Broadband | Filtronic Wireless | Central Services | Total | ||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
Revenue | 4,917 | 4,618 | 30,456 | 8,962 | - | - | 35,373 | 13,580 |
Depreciation | 304 | 330 | 354 | 316 | - | 9 | 658 | 655 |
Adjusted operating profit/(loss)* | (901) | (1,723) | 3,602 | (4,514) | (904) | (603) | 1,797 | (6,840) |
Amortisation of development costs | (33) | - | (62) | - | - | - | (95) | - |
Capitalisation of development costs | - | 100 | - | 186 | - | - | - | 286 |
Exceptional operating items | - | - | - | (209) | - | (217) | - | (426) |
Reportable segment operating profit/(loss) | (934) | (1,623) | 3,540 | (4,537) | (904) | (820) | 1,702 | (6,980) |
Finance costs | - | - | (264) | (59) | (23) | - | (287) | (59) |
Finance income | - | - | 740 | - | - | - | 740 | - |
Profit/(loss) before taxation | (934) | (1,623) | 4,016 | (4,596) | (927) | (820) | 2,155 | (7,039) |
Reportable segment assets | 3,082 | 2,475 | 12,817 | 11,306 | 15,012 | 15,601 | 30,911 | 29,382 |
Capital expenditure | 467 | 58 | 344 | 107 | - | 7 | 811 | 172 |
Reportable segment liabilities | 10,078 | 8,778 | 12,141 | 14,546 | 516 | 480 | 22,735 | 23,804 |
2 Segmental analysis (Continued)
| 2017 | 2016 |
| £000 | £000 |
|
|
|
Depreciation and amortisation |
|
|
Reportable segment totals | 658 | 655 |
Amortisation of development costs | 95 | - |
Amortisation of other intangible assets | 15 | 15 |
| ---------- | ---------- |
Consolidated depreciation and amortisation | 768 | 670 |
| ====== | ====== |
| 2017 | 2016 | |
| £000 | £000 | |
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| |
Assets |
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| |
Total assets for reportable segments | 30,911 | 29,382 | |
Inter company | (14,013) | (14,586) | |
Group/unallocated | 2,551 | 2,551 | |
| ---------- | ---------- | |
| Consolidated total assets | 19,449 | 17,347 |
| ====== | ====== | |
| 2017 | 2016 | |
| £000 | £000 | |
|
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| |
Liabilities |
|
| |
Total liabilities for reportable segments | 22,735 | 23,804 | |
Inter company | (14,013) | (14,586) | |
| ---------- | ---------- | |
| Consolidated total liabilities | 8,722 | 9,218 |
| ====== | ====== | |
3 Revenue by Destination
| 2017 | 2016 |
| £000 | £000 |
|
|
|
United Kingdom | 218 | 188 |
Europe | 18,696 | 5,606 |
Americas | 14,602 | 4,132 |
Rest of the World | 1,857 | 3,654 |
| --------- | ---------- |
| 35,373 | 13,580 |
| ====== | ====== |
4 Exceptional items
Operating profit/(loss) is stated after charging exceptional items as follows:
| 2017 | 2016 |
| £000 | £000 |
|
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Listing on AIM Market of London Stock Exchange | - | 209 |
Redundancy costs | - | 217 |
| --------- | ---------- |
| - | 426 |
| ====== | ====== |
Finance income is stated after crediting exceptional items as follows:
| 2017 | 2016 |
| £000 | £000 |
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Revaluation of US Dollar denominated intercompany balance | 740 | - |
| --------- | ---------- |
| 740 | - |
| ====== | ====== |
5 Earnings/(loss) per share
| 2017 | 2016 | |
| £000 | £000 | |
| ---------- | ---------- | |
Profit/(loss) for the period | 3,117 | (5,117) | |
| ====== | ====== | |
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| |
| 000 | 000 | |
Basic weighted average number of shares | 206,910 | 160,070 | |
Dilution effect of share options | 2,839 | - | |
| ---------- | ---------- | |
Diluted weighted average number of shares | 209,749 | 160,070 | |
|
| ====== | ====== |
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| ---------- | ---------- |
Basic earnings/(loss) per share |
| 1.51p | (3.20p) |
Diluted earnings/(loss) per share |
| 1.49p | (3.20p) |
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| ====== | ====== |
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6 Taxation
The reconciliation of the effective tax rate is as follows:
|
| 2017 |
| 2016 |
|
| £000 |
| £000 |
Profit/(loss) before taxation |
| 2,155 |
| (7,039) |
|
| ====== |
| ====== |
|
| 2017 |
| 2016 |
|
| £000 |
| £000 |
Profit/(loss) before taxation multiplied by standard rate of corporation tax in the UK | 20% | 427 | (20%) | (1,408) |
Disallowable item | 5% | 98 | (1%) | (57) |
Income not taxable | (9%) | (196) | 1% | 64 |
Deferred tax not recognised | 16% | 335 | 17% | 1,181 |
Impact of rate change on deferred tax | 4% | 83 | - | - |
Enhanced R&D tax credit | (17%) | (357) | - | - |
Adjustment in respect of prior year - R&D tax credit | (39%) | (843) | (16%) | (1,128) |
Recognition of deferred tax asset from prior year | (36%) | (771) | (4%) | (299) |
Foreign tax not at UK rate | 12% | 262 | (4%) | (275) |
| --------- | --------- | --------- | --------- |
Taxation | (44%) | (962) | (27%) | (1,922) |
| ====== | ====== | ====== | ====== |
The main rate of UK corporation tax was reduced from 20 percent to 19 percent on 1 April 2017 giving an effective tax rate for the financial year of 19.83 percent. This will reduce to 17 percent from 1 April 2020. The deferred tax assets recognised in the year have been calculated at the rates of their expected use.
7 Goodwill and other intangibles
|
Goodwill
| Other intangibles (core technology) | Licence Agreement | Software costs | Development costs | Total |
| £000 | £000 | £000 | £000 | £000 | £000 |
|
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Cost |
|
|
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At 1 June 2015 | 3,235 | 10,884 | - | - | - | 14,119 |
Additions | - | - | 160 | - | 286 | 446 |
| --------- | --------- | --------- | --------- | --------- | --------- |
At 31 May 2016 | 3,235 | 10,884 | 160 | - | 286 | 14,565 |
Reclassification of software costs | - | - | - | 567 | - | 567 |
| --------- | --------- | --------- | --------- | --------- | --------- |
At 31 May 2017 | 3,235 | 10,884 | 160 | 567 | 286 | 15,132 |
| ====== | ====== | ====== | ====== | ====== | ====== |
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Amortisation |
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At 1 June 2015 | - | 10,884 | 18 | - | - | 10,902 |
Provided in year | - | - | 15 | - | - | 15 |
| --------- | --------- | --------- | --------- | --------- | --------- |
At 31 May 2016 | - | 10,884 | 33 | - | - | 10,917 |
Provided in year | - | - | 15 | - | 95 | 110 |
Reclassification of software costs | - | - | - | 515 | - | 515 |
| ====== | ====== | ====== | ====== | ====== | ====== |
At 31 May 2017 | - | 10,884 | 48 | 515 | 95 | 11,542 |
| ====== | ====== | ====== | ====== | ====== | ====== |
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Carrying amount at 1 June 2015 | 3,235 | - | 142 | - | - | 3,377 |
| --------- | --------- | --------- | --------- | --------- | --------- |
Carrying amount at 31 May 2016 | 3,235 | - | 127 | - | 286 | 3,648 |
| --------- | --------- | --------- | --------- | --------- | --------- |
Carrying amount at 31 May 2017 | 3,235 | - | 112 | 52 | 191 | 3,590 |
| ====== | ====== | ====== | ====== | ====== | ====== |
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Goodwill and other intangibles relate to the acquisition of Isotek (Holdings) Limited. Goodwill is allocated to the Wireless cash generating unity (CGU) and this CGU represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, which is not higher than the Group's operating segments as reported in note 2. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
7 Goodwill and other intangibles (continued)
The carrying value of intangible assets and goodwill has been assessed for impairment by reference to its value in use. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The calculation of the value in use was based on the following key assumptions:
· Budgets incorporating cash flows have been prepared to 31 May 2018 based on past experience, actual operating results, known future cash flows and estimates of future cash flows;
· Cash flows for a further 3 years have been extrapolated from the year to 31 May 2018. A revenue growth factor of 5 percent was applied to the projections together with cost inflation of 3 percent. A perpetuity factor has been applied based on the year to 31 May 2021;
· The Group's discount rate of 12 percent (2016: 12 percent) was applied in determining the recoverable amount of the unit, being the estimated weighted average cost of capital for the Wireless CGU.
Based on this testing the Directors do not consider any of the goodwill or intangible assets to be impaired, even allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount rate.
The Licence agreement relates to a Remote Electrical Tilt ("RET") licence procured during the year to enable the use of RETs in the antenna products.
Software costs have historically been held in property, plant and equipment under the category 'computers'. Due to the immaterial level of the net book value the costs have never been reclassified. However, the Directors have taken the decision in the year to reclassify software costs so the Group is fully compliant with IFRS.
Development costs recognised in both the Filtronic Wireless and Filtronic Broadband businesses relate to ultra wide band antennas and E-band developments respectively.
8 Deferred tax
| 2017 | 2016 |
| £000 | £000 |
|
|
|
Opening balance | 834 | - |
Tax losses recognised | 264 | 834 |
Effect of change in UK corporation tax rate | (83) | - |
| --------- | --------- |
Deferred tax assets | 1,015 | 834 |
| ====== | ====== |
Deferred tax assets within the Filtronic Wireless subsidiaries in the UK and US have been recognised as the Directors consider that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Group and the reversal of temporary differences. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such deductions are reversed when the probability of future taxable profits improves.
9 Provision
Warranty provision | 2017 | 2016 |
| £000 | £000 |
|
|
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Opening balance | 161 | 101 |
Used during the year | (11) | (4) |
Released unused during the year | (36) | (31) |
Charge for the year | 361 | 95 |
| --------- | --------- |
Closing balance | 475 | 161 |
| ====== | ====== |
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The provision for warranty relates to the units sold during the last two financial years. The provision is based on estimates made from historical warranty data.
| ||
Dilapidation provision | 2017 | 2016 |
| £000 | £000 |
|
|
|
Opening balance | - | 10 |
Used during the year | - | - |
Released unused during the year | - | (10) |
Charge for the year | 70 | - |
| --------- | --------- |
Closing balance | 70 | - |
| ====== | ====== |
|
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The Group leases facilities at five sites in the UK, US, China and Sweden with each lease requiring the site to be restored to its original condition. | ||
10 Share Capital
|
| |
| Ordinary shares of 0.1p each issued and fully paid | |
| Number | £000 |
|
|
|
At 1 June 2015 | 106,876,986 | 10,688 |
Shares issued in year | 100,033,160 | 100 |
| -------------- | --------- |
At 31 May 2016 and 31 May 2017 | 206,910,146 | 10,788 |
| ======== | ====== |
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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.
11 Share Premium
|
| £000 | |
At 1 June 2015 |
| 6,199 | |
Premium on share issue |
| 4,441 | |
|
| ------- | |
At 31 May 2016 and 31 May 2017 |
| 10,640 | |
|
| ==== | |
12 Dividends
The Directors are not proposing to pay a dividend for the year ended 31 May 2017 (2016: nil).
13 Analysis of net funds/(debt)
| 1 June 2016 | Cash Flow | Other Changes | 31 May 2017 |
| £000 | £000 | £000 | £000 |
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Cash and cash equivalents | 990 | 1,585 | 23 | 2,598 |
Interest bearing borrowings | (1,270) | 1,270 | - | - |
| --------- | --------- | --------- | --------- |
| (280) | 2,855 | 23 | 2,598 |
| ====== | ====== | ====== | ====== |
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Reconciliation of cash flow to movement in net funds/(debt) | ||||
|
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| 2017 | 2016 |
|
|
| £000 | £000 |
Movement in cash and cash equivalents |
|
| 1,585 | (40) |
Cash flow from increase in debt financing |
|
| 1,270 | (950) |
Effect of exchange rate fluctuations |
|
| 23 | (57) |
|
|
| --------- | --------- |
Movement in net funds/(debt) |
|
| 2,878 | (1,047) |
Net (debt)/funds at 1 June 2016 |
|
| (280) | 767 |
|
|
| --------- | --------- |
Net funds/(debt) at 31 May 2017 |
|
| 2,598 | (280) |
|
|
| ====== | ====== |
The Group has invoice discounting facilities enabling it to borrow money against the UK debtor book.
14 Forward looking statements
The Chairman's letter and Chief Executive Officer's statement include statements that are forward looking in nature. These are made by the Directors in good faith based on the information available to them at the time of their approval of this report. Such statements are based on current expectations and are subject to a number of risks and uncertainties, including both economic and business risk factors that could cause actual events or results to differ materially from any expected future events referred to in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.