Last checked at 2 Aug 2016 07:00
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 31 MAY 2016
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 2016.
Financial Highlights
| 2016 | 2015 |
Sales Revenue | £13.6m | £17.5m |
Adjusted operating loss* | (£6.8m) | (£8.1m) |
Operating loss | (£7.0m) | (£11.0m) |
Loss before taxation | (£7.0m) | (£11.0m) |
Basic and diluted loss per share | (3.20p) | (10.16p) |
Net (debt)/cash balance as at 31 May | (£0.3m) | £0.8m |
Cash outflow from operating activities | (£5.0m) | (£3.7m) |
*Operating 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).
The net debt position is funded from the Group's invoice discounting facilities with Barclays Bank plc and Faunus Group International Inc (FGI). The Barclays facility is a temporary £4.0m reducing back to £2.0m in October whilst the FGI facility is $3.5m.
Operational Highlights
· Receipt of several materially significant orders from a world leading Wireless Infrastructure OEM for our new Integrated Antenna product line.
· Orpheus, our new E-band transceiver, has seen demand ramping progressively with our lead customer whilst sample orders have been received and fulfilled from a further eight customers.
· Strong sales order book and growing customer opportunity pipeline resulting from improved sales and marketing activity.
· Investment in key senior management team including the appointment of a Managing Director in Filtronic Broadband with substantial sales and marketing experience.
· Restructured Filtronic Wireless business delivering annualised cost savings of £1.2m with strategic focus on UWB antennas.
· Second half sales 100% higher than first half carrying good momentum into FY2017
Commenting on the outlook, Reg Gott, Chairman, said:
"The market outlook for mobile telecommunications infrastructure remains positive with the demand for mobile data continuing to grow. We were delighted with the recently announced contract wins in both of our businesses, which along with a growing opportunity pipeline, validates our strategy to return the business to profitability. We will continue our focus on addressing demand volatility by broadening both our customer base and our product portfolio in order to increase our options for growth and reduce our dependency on a narrow customer base".
Annual General Meeting
The Annual General Meeting will take place on 29 September 2016 at the offices of KPMG LLP at 11am, Sovereign Square, 1 Sovereign Street, Leeds, LS1 4DA.
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Note: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.
Chairman's letter
Over recent years the Company has focused considerable resources on developing advanced technologies and product capabilities across both the Wireless and Broadband businesses. However, the market demand for these new products emerged more slowly than anticipated. To provide a more secure financial platform to bring these new products to market the Board took the decision to raise additional equity in the form of a Placing and Open Offer which together raised a net £4.5m after issue costs. In addition, the Board took the decision to substantially restructure the operational cost base of the Wireless business enabling an annualised £1.2m of cost to be removed from the business, of which £0.6m was realised in the year ending 31 May 2016.
At this point the Board took the opportunity to move from the Main List to the AIM Market on the London Stock Exchange, which it considered would provide a more appropriate corporate environment for the scale and nature of the Company.
On behalf of the Board I would like to thank shareholders for their overwhelming support for these major developments.
At the time of the move to AIM, the Board reduced in size with the retirements at the 2015 AGM of Howard Ford as Chairman and Graham Meek as Senior NED. I would like to thank Howard and Graham for their unswerving commitment to the Company over many years and in particular for their diligence during the difficulties of the past two years.
Following the refinancing and restructuring measures, the previously anticipated demand for the new products started to materialise and the year closed with an encouraging opportunity pipeline and a strong opening order book for the current year.
During Q4 we announced several materially significant, orders from a world leading Wireless Infrastructure OEM for our new Integrated Antenna product line which leverages our long established excellence in Filter design, with further enquiries for additional variants currently under development for trial this year.
Our new E-band module, Orpheus, has been enthusiastically embraced by the market with our lead customer progressively ramping demand and a further 8 new customers having ordered sample units to date. In addition the application sphere for our Broadband products in general has been significantly enhanced, providing a much needed broadening of our addressable market.
Financial Performance Summary
Overall, the performance for the year ended broadly as anticipated at the time of refinancing the business.
Group revenue for the year was £13.6m (2015: £17.5m) with a second half recovery of £9.1m (2015: £10.2m) following delays earlier in the year to the roll out of the ultra-wide band antennas from our OEM customer.
An adjusted operating loss of £6.8m (the consolidated income statement sets out the basis of calculation of the adjusted operating loss) was recorded for the year (2015: £8.1m loss) with cost reduction measures and new product orders coming through in the second half.
Filtronic Wireless business revenue was £9.0m (2015: £10.3m) with £7.0m being delivered in the second half. A Filtronic Wireless adjusted operating loss of £4.5m (2015: £5.7m loss) was delivered overall.
Filtronic Broadband business revenue was £4.6m (2015: £7.2m) with an adjusted operating loss of 1.7m (2015: £1.6m loss).
The Group had net debt of £0.3m at the end of the year (2015: £0.8m net cash). In addition to the equity funds raised during the year, the Group's UK Invoice Discounting Facility with Barclays was raised from £2.0m to £4.0m and a new Invoice discounting facility in the US of $3.5m with Faunus Group International Inc (FGI) was secured in order to ensure we had sufficient headroom to finance the working capital requirements of our growing order book.
Dividend
No dividend is proposed for the year (2015: £nil).
Outlook
The growth in both orders and further opportunities for our new products is very encouraging and forms the basis for our continued confidence that we are on the right strategic pathway toward delivering a return to profitable growth. We remain, however, at the early post-launch stages for these new products and rely heavily on our end customer roll-out programmes performing to plan. Consequently, until these roll-out programmes are in full swing and the customer base has been further broadened, we expect to see some continued volatility in demand.
As I write this Chairman's statement we face considerable uncertainty as to the impact of "Brexit" and it would be remiss not to mention it. We serve a global telecommunications and related sectors market working to global standards. Overall, at this time, we do not anticipate any significant impact from Brexit on our ability to design, manufacture and sell our products in Europe and the wider world. The more immediate impact of Brexit relates to currency exchange movements and whilst this situation is still very fluid, and its impact difficult to accurately predict, it is reassuring that much of our business is transacted in USD (both buying and selling) thus providing us with a good degree of natural hedging.
Finally, I would like to thank all Filtronic employees for their significant contribution and efforts over the past year in putting the business back on a path to profitability in addition to our shareholders and bankers for their continued support and patience. I look forward to the team delivering the success that we have all worked for.
Reg Gott
Chairman
2 August 2016
Chief executive's statement
Our focus and strategy
FY2016 was a critical turnaround year for Filtronic. It was important for us to act decisively to address the poor financial performance caused both by the slow take up of products developed in recent years and by increased commoditisation and falling prices in our traditional filter business.
Our primary market is the mobile telecommunications infrastructure market and the key trends in this industry have been the continuing roll out of 4G services and the ever increasing demand for data, principally in the form of streaming video services. The challenge in the industry has been to provide greater capacity in a highly competitive cost environment. Mobile network operators are increasingly moving to pricing models that charge for data consumption with the traditional service of voice telephony and text messaging bundled in at no extra charge.
For Filtronic to compete in this market environment we have to offer innovative product solutions that deliver fundamentally lower cost of ownership for the end user or provide a quantum shift at capacity bottlenecks. The key products we have focussed on have been integrated UWB antennas and E-band transceivers.
The organisation has been restructured to support this strategy and that has resulted in a reduction in our overall operating expenses. We have become more critical in our product development activities and carefully consider the return on investment when committing our resources. This rigour has forced us to ensure that we value our engineering assets more and move away from developing "commodity products".
During the second half of FY2016 we were delighted to make a number of contract award announcements that have validated our strategy. Whilst the progress we have made so far has been very encouraging, we are still in the early days of our turnaround strategy and until we have expanded our product portfolio and customer base we will remain exposed to short term variations in demand patterns at our main customer.
To this end we have recognised the need to improve our selling and marketing activities and have taken a number of initiatives to address this requirement, which have resulted in a substantially better opportunity pipeline that we are working hard to convert. This pipeline includes opportunities within the mobile telecommunications infrastructure industry and in the adjacent markets of satellite communications, defence & aerospace, and network communications.
Organisation
Filtronic is organised into two business units, both of which are independently managed to ensure that they are focussed on better serving their customers and delivering a profitable return.
The business units are: -
• Filtronic Wireless - specialising in integrated antennas, filters and combiners for the mobile telecommunications infrastructure industry.
• Filtronic Broadband - specialising in high-frequency transceivers, associated components and systems, primarily for the mobile telecommunications infrastructure industry, but with a growing presence in the satellite communications, defence & aerospace, and network communications sectors.
In addition to the business units we have a small central cost centre that includes the Directors and the costs associated with being a plc.
Filtronic Wireless
Filtronic Wireless is a technology leader in the design and manufacture of ultra-wide band integrated antennas, RF filters and combiners for the mobile telecommunications market, supplying both OEMs and network operators.
The segment of the market served by Wireless is more widely known in the industry as RF conditioning and manages the various transmissions to and from base stations. The trend in recent years has been to reduce the total cost of RF conditioning by integrating as many functions at the top of base station masts as possible. By integrating RF conditioning into the antenna Filtronic has successfully achieved this objective as well as lowering total system investment and running costs and achieving an overall weight and wind loading reduction on the tower.
Our fundamental knowledge of antenna and filter design, management of PIM (Passive Intermodulation distortion) and electronics has enabled us to launch a range of products built upon a modular design philosophy meaning that we can quickly release new product variants that address new frequency releases in the market place.
Good initial commercial success for our new antenna range has been achieved with a leading OEM to whom we supply a customised version of our core antenna design. We are now shipping this unit in volume after a successful production ramp in Q4 FY2016. Feedback from this lead customer continues to be positive and the long term demand projection is healthy.
We are now offering the core antenna products direct to Operators and are beginning to see interest from a number of these potential customers. Whilst we are building this antenna business we can expect to see peaks and troughs in demand that will be smoothed as more product variants are released and more customers are converted.
The market for our traditional filter products has become increasingly commoditised and a number of trends in the market have conspired to make this a less attractive business proposition going forward. These trends include continued consolidation in the OEM customer base and a change in their business models toward outsourcing designed & manufactured product, combined with a slowdown in domestic demand in China that has released significant excess manufacturing capacity at low cost Chinese manufacturers who are now directly competing for this business in the west.
Notwithstanding the competitive pressures in the traditional filter market, there continue to be developments that will present opportunities for Filtronic. These include the release of new spectrum in the US (600MHz) and Europe (1,400MHz) that will result in the demand for filters and combiners as operators look to deploy these frequencies. We expect therefore that there will be opportunities for operator direct business where there are more attractive requirements for combining the new bands with legacy spectrum.
Filtronic Broadband
Filtronic Broadband's core technology is mm-Wave transceiver products that operate in the E-band spectrum. These products have been developed, using Filtronic's proprietary chip set, to backhaul voice and data traffic, wirelessly, around the cellular network.
E-band is a particularly attractive technology for backhaul as it has far higher data rates than legacy wireless backhaul. Filtronic's latest offering, Orpheus, has consistently performed at data rates in excess of 4Gb /per second and is competitive with fibre optic cable in terms of speed whilst offering a far higher degree of flexibility in terms of installation.
Orpheus was launched in October 2015 and has been well received by our lead customer and has been trialled by a further 8 potential clients who have taken over 150 evaluation units to date. Output of the Orpheus line has continued to ramp since launch and we expect to see further growth in demand as we convert our pipeline of opportunities to production volume.
In addition to Orpheus, Filtronic Broadband has been developing its contract product development, manufacturing and test services to a range of clients who have high frequency transmit and receive requirements.
In early 2016, we were delighted to announce that we had been awarded a contract to develop long range (20Km) E-band communication modules for a prestigious US technology multinational. This contract has progressed well and a number of milestones have now been successfully achieved.
In October 2015 we appointed a Managing Director for Broadband who has introduced a new commercial rigour and drive into the business. As a result, we have a growing pipeline of enquiries from a number of industry sectors that augment our traditional telecommunications market and the business will greatly benefit from the stability a more diversified customer base will bring.
Trends for the future
4G deployment is currently the dominant industry trend with Operators' spend on infrastructure growing globally. We concur with analysts who anticipate that 4G roll out will continue into the 2020's and we will continue to position our product development roadmaps to where Operators are
investing.
5G development is increasingly being discussed within the industry. Whilst we feel it is too early for Filtronic to invest in product development while 5G is in the definition phase, we are confident that the higher data rates perceived as being required by 5G will mean that we will have a very active role to play when the time is right.
Rob Smith
2 August 2016
Financial review
Revenues
Sales revenue in the year ended 31 May 2016 for the Filtronic Group was £13.6m (2015: £17.5m) with a stronger performance in the second half of the year of £9.1m (2016 H1: £4.5m). This was predominantly due to the encouraging growth in the second half of the new antenna product range in the Wireless business as it underwent a production ramp in the final quarter. The Broadband business, however, saw sales in the year decline as the new E-band production volumes took longer than expected to ramp and so failed to fully offset the anticipated legacy product sales reduction.
Operating Costs
As set out in the table below, operating costs were reduced as the cost base of the organisation was aligned with reductions in revenues. Cash overheads reduced to £10.0m (2015: £13.6m). This was achieved by two programmes of cost reduction; one implemented in the year under review with an annualised £1.2m of cost removed from the business, mainly from headcount reduction, with £0.6m of benefit delivered in this financial year and the second from a programme implemented in FY15 with the Group benefitting from a full year of cost savings in this financial year valued at £2.0m. The headcount at 31 May 2016 was 118 (2015: 133).
Cost savings from cost reduction programmes
| FY15 Impact | FY16 Impact | FY17 Impact |
| £m | £m | £m |
FY15 cost reductions | 0.2 | 2.0 | 2.0 |
FY16 cost reductions | - | 0.6 | 1.2 |
| ---------- | ---------- | ---------- |
Annualised impact | 0.2 | 2.6 | 3.2 |
| ====== | ====== | ====== |
The table shows the cumulative impact is a £3.2m cost saving in 2017 over the 2015 base line costs.
Adjusted operating loss
Adjusted operating loss (the definition of which is referenced on the income statement) was £6.8m (2015: £8.1m loss). Wireless saw its adjusted operating loss reduce to £4.5m (2015: £5.7m) despite reduced revenues. Financial performance improved as the year progressed with an adjusted operating loss in the second half of £1.8m (2016 H1: £2.7m). The margins on the antenna products, which started shipping in volume in Q4, were initially low as start-up yield and volume ramp issues were overcome and significantly improved margins will be realised in FY17. For the year as a whole, Broadband's adjusted operating loss was slightly higher than the previous year at £1.7m (2015: £1.6m). However, in the second half of the year, Broadband's performance was significantly improved, and much better than the second half of the previous year, largely as a result of the previously announced contract win with a large US multinational. A table of these results is set out below.
| H1 FY16 | H2 FY16 | FY16 Total | H1 FY15 | H2 FY15 | FY15 Total |
| £m | £m | £m | £m | £m | £m |
Wireless | (2.7) | (1.8) | (4.5) | (2.6) | (3.1) | (5.7) |
Broadband | (1.1) | (0.6) | (1.7) | (1.1) | (0.5) | (1.6) |
Central | (0.3) | (0.3) | (0.6) | (0.4) | (0.4) | (0.8) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Annualised impact | (4.1) | (2.7) | (6.8) | (4.1) | (4.0) | (8.1) |
| ====== | ====== | ====== | ====== | ====== | ====== |
Exceptional costs
Exceptional costs of £0.4m (2015: £0.5m) primarily related to the costs associated with reducing the overhead cost base and the Company's move from the Official List to the AIM Market of the London Stock Exchange.
Taxation
A tax credit of £1.9m (2015: £0.5m) has been recognised for the year, as set out in note 12 to the financial statements. An R&D tax credit from the prior year accounts for a large part of this value and will be realised in FY17 as cash to assist cash flow. The remaining part of the tax credit is the recognition of a deferred tax asset of £0.8m in respect of brought forward losses.
Capital expenditure
Capital expenditure of £0.2m (2015: £0.2m) included £0.1m for the Wireless business (2015: £0.2m) and £0.1m for Broadband (2015: £nil).
Research and development costs
Total research and development costs in the year were £4.3m (2015: £6.5m). Historically, the Group has expensed all its research and development costs as they did not meet the criteria for capitalisation under IAS 38, as set out in note 2 to the financial statements. In the current financial year, some £0.3m of research and development costs (£0.2m in Wireless and £0.1m in Broadband) were judged to have met the criteria for capitalisation and have accordingly been capitalised. Amortisation of these capitalised costs was negligible in the financial year and therefore the total charge to the income statement in respect of Research and Development costs was £4.0m (2015: £6.5m).
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 2016 the inventory provision was £1.7m (2015: £1.6m).
Warranty provision
In line with industry practice the Group provides warranties to customers over the quality and performance of the products it sells. The Group's policy is to make a provision, calculated as a percentage of sales revenue, after reviewing costs associated with faulty products returned. As at 31 May 2016 the warranty provision was £0.2m (2015: £0.1m).
Funding and cash flow
The Group ended the year with net debt of £0.3m (2015: £0.8m net cash). The decrease resulted from the operating losses incurred in the year, offset by the proceeds of the placing and open offer (net of issue costs) of £4.5m. Cash outflow from operating activities was £5.0m (2015: £3.7m).
With volume ramps expected on both the antenna product range and Orpheus, our E-band product, a key focus for the Group is the management of cash to facilitate each of the production ramps and their increased working capital requirements, in addition to enabling continued investment and development of our product ranges to ensure we remain well positioned in the market.
Filtronic has two invoice discounting facilities in place with Barclays Bank plc in the UK and Faunus Group International Inc (FGI) in the US. The Barclays facility has increased to £4.0m following the successful negotiation of a temporary increase from £2.0m, which is the Group's long term agreed facility level. It is anticipated this increased facility will revert to £2.0m in October 2016 once we have overcome the working capital impact of the volume production ramp. As at 31 May 2016 £0.5m was drawn down against this facility (2015: £0.3m). The FGI facility enables the US Wireless entity to borrow up to $3.5m against its debtor book. As at 31 May 2016 £0.7m (2015: £nil) was drawn down against this facility which is our minimum borrowing requirement at any given time.
On 16 November 2015 the Company completed a move to the AIM Market of the London Stock Exchange. AIM is a more appropriate market for a Company of Filtronic's size which should help attract new investors, providing a platform to promote the Company and trading in its shares. It also offers greater flexibility with regard to potential future corporate transactions enabling the Company to agree and execute certain transactions quicker and more cost effectively than on the Official List. This move to the AIM market was accomplished at the same time as the share placing and open offer.
Michael Tyerman
Finance Director
2 August 2016
The Board
The Directors that served during the year ended 31 May 2016 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)
Howard Ford (Retired 27 November 2015)
Graham Meek (Retired 27 November 2015)
Consolidated Income Statement
for the year ended 31 May 2016
|
| 2016 | 2015 |
| note | £000 | £000 |
|
|
|
|
Revenue |
| 13,580 | 17,524 |
|
| ====== | ====== |
|
|
|
|
Adjusted operating loss* |
| (6,840) | (8,136) |
Amortisation of intangibles |
| - | (2,418) |
Capitalisation of development costs |
| 286 | - |
Exceptional items | 6 | (426) | (491) |
|
| ---------- | ---------- |
Operating loss |
| (6,980) | (11,045) |
|
|
|
|
Finance costs |
| (59) | - |
|
| ---------- | ---------- |
Loss before taxation |
| (7,039) | (11,045) |
Taxation |
| 1,922 | 537 |
|
| ---------- | ---------- |
Loss for the period |
| (5,117) | (10,508) |
|
| ====== | ====== |
|
|
|
|
|
| ---------- | ---------- |
Basic and Diluted loss per share | 7 | (3.20p) | (10.16p) |
|
| ====== | ====== |
|
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|
|
*Operating loss before amortisation of other intangibles, exceptional items, R&D development cost capitalisation/amortisation and finance costs
The loss 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 2016
| 2016 | 2015 |
| £000 | £000 |
|
|
|
Loss for the period | (5,117) | (10,508) |
| ---------- | ---------- |
Currency translation movement arising on consolidation | (55) | 236 |
| ---------- | ---------- |
|
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|
|
Total comprehensive income for the period | (5,172) | (10,272) |
| ====== | ====== |
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 2016
|
| 2016 | 2015 |
| note | £000 | £000 |
Non-current assets |
|
|
|
Goodwill and other intangibles | 9 | 3,648 | 3,377 |
Property, plant and equipment |
| 1,230 | 1,796 |
Deferred tax | 10 | 834 | - |
|
| ---------- | ---------- |
|
| 5,712 | 5,173 |
|
| ---------- | ---------- |
Current assets |
|
|
|
Inventories |
| 1,685 | 1,646 |
Trade and other receivables |
| 8,960 | 7,906 |
Cash and cash equivalents |
| 990 | 1,087 |
|
| ---------- | ---------- |
|
| 11,635 | 10,639 |
|
| ---------- | ---------- |
|
|
|
|
|
| ---------- | ---------- |
Total assets |
| 17,347 | 15,812 |
|
| ---------- | ---------- |
Current liabilities |
|
|
|
Trade and other payables |
| 7,295 | 6,577 |
Provision | 11 | 161 | 111 |
Deferred income |
| 460 | 21 |
Interest bearing borrowings | 15 | 1,270 | 320 |
|
| ---------- | ---------- |
|
| 9,186 | 7,029 |
|
| ---------- | ---------- |
Non-current liabilities |
|
|
|
Deferred income |
| 32 | 54 |
|
| ---------- | ---------- |
|
| 32 | 54 |
|
| ---------- | ---------- |
|
|
|
|
|
| ---------- | ---------- |
Total liabilities |
| 9,218 | 7,083 |
|
| ---------- | ---------- |
|
| ---------- | ---------- |
Net assets |
| 8,129 | 8,729 |
|
| ---------- | ---------- |
Equity |
|
|
|
Share capital | 12 | 10,788 | 10,688 |
Share Premium | 13 | 10,640 | 6,199 |
Translation Reserve |
| (255) | (200) |
Retained earnings |
| (13,044) | (7,958) |
|
| ---------- | ---------- |
Total equity |
| 8,129 | 8,729 |
|
| ====== | ====== |
|
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|
|
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 2016
|
| 2016 | 2015 |
|
| £000 | £000 |
Opening total equity |
| 8,729 | 16,899 |
Total comprehensive income for the period |
| (5,172) | (10,272) |
New shares issued (net of issue costs) |
| 4,541 | 2,026 |
Share-based payments |
| 31 | 76 |
|
| ---------- | ---------- |
Closing total equity |
| 8,129 | 8,729 |
|
| ====== | ====== |
|
|
|
|
Consolidated Cash Flow Statement
for the year ended 31 May 2016
|
| 2016 | 2015 |
|
| £000 | £000 |
Cash flows from operating activities |
|
|
|
Loss for the period |
| (5,117) | (10,508) |
Taxation |
| (1,922) | 537 |
Finance income |
| 59 | - |
|
| ---------- | ---------- |
Operating loss |
| (6,980) | (11,045) |
Share-based payments |
| 31 | 76 |
Loss on disposal of plant and equipment |
| 76 | 50 |
Depreciation |
| 655 | 1,045 |
Amortisation of intangibles |
| 15 | 2,436 |
Movement in inventories |
| (25) | 2,375 |
Movement in trade and other receivables |
| (175) | 2,930 |
Movement in trade and other payables |
| 603 | (1,094) |
Movement in provision |
| 50 | (222) |
Change in deferred income including government grants |
| 439 | (169) |
Tax received/(paid) |
| 261 | (62) |
|
| ---------- | ---------- |
Net cash used in operating activities |
| (5,050) | (3,680) |
|
| ---------- | ---------- |
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Consolidated Cash Flow Statement
for the year ended 31 May 2016
|
| 2016 | 2015 |
|
| £000 | £000 |
|
|
|
|
Net cash used in operating activities |
| (5,050) | (3,680) |
|
| ---------- | ---------- |
Cash flows from investing activities |
|
|
|
Interest paid |
| (59) | - |
Acquisition of intangible assets |
| - | (160) |
Capitalisation of development costs |
| (286) | - |
Acquisition of plant and equipment |
| (172) | (201) |
Proceeds on sale of assets |
| 36 | 219 |
|
| ---------- | ---------- |
Net cash used in investing activities |
| (481) | (142) |
|
| ---------- | ---------- |
Cash flows from financing activities |
|
|
|
Proceeds from new shares issued (Net of issue costs) |
| 4,541 | 2,026 |
Movement in interest bearing borrowings |
| 950 | 320 |
|
| ---------- | ---------- |
Net cash from/(used in) financing activities |
| 5,491 | 2,346 |
|
| ---------- | ---------- |
|
|
|
|
Movement in cash and cash equivalents |
| (40) | (1,476) |
Currency exchange movement |
| (57) | 32 |
Opening cash and cash equivalents |
| 1,087 | 2,531 |
|
| ---------- | ---------- |
Closing cash and cash equivalents |
| 990 | 1,087 |
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| ====== | ====== |
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Notes to the Preliminary Financial Information
for the year ended 31 May 2016
1 Basis of Preparation
Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 31 May 2016, this statement does not itself contain sufficient information to comply with IFRS.
These financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity, and Group Statement of Cash Flows, and selected notes for the year ended 31 May 2016 have been extracted from the Group's audited Financial Statements for the year then ended.
The financial information contained within the preliminary announcement for the year ended 31 May 2016 was approved by the Board on 1 August 2016. Statutory accounts for the year ended 31 May 2016 were approved on the same date and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on these Financial Statements. Their report was unqualified and did not contain a statement under s.498 (2) or (3) of the Companies Act 2006.
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
2 Accounting Estimates and Judgements
The preparation of the financial statements requires the use of accounting estimates and judgements, that affect the application of accounting policies and reported amount of assets and liabilities, income and expenses. The accounting estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of the future, that are believed to be reasonable under the circumstances. Actual results may differ from the expected results.
The accounting estimates and judgements that have a significant effect on the financial statements are considered below.
Goodwill and other intangibles impairment
Goodwill and other intangibles are tested for impairment by reference to the expected cash generated by the business unit. This is deemed to be the best approximation of value, but is subject to the same uncertainties as the cash flow forecast being used.
Inventory
Inventories are stated at the lower of cost and net realisable value. The assessment of net realisable value of inventory requires forecasts of the future demand and selling prices of the inventory.
Debtors
In line with industry practice Filtronic extends credit terms to its customers. Due to the concentration of debtors the effect of any one debtor defaulting would be material on the Group's financial statements.
Deferred tax asset
The recognition of the deferred tax assets relating to tax losses carried forward depends on the forecasts of the future taxable profits of the Company and its subsidiaries. These forecasts require the use of estimates and judgements about the future performance of the Company and its subsidiaries.
Warranty provision
Warranties are given to customers on products sold to them. A warranty provision is recognised when products are sold. The provision is based on historical warranty data. Actual warranty costs in the future may differ from the estimates based on historical performance. The level of warranty provision required is reviewed on a product by product basis and adjusted accordingly in light of actual experience.
Capitalisation of development costs
Development costs incurred on projects requiring product qualification tests to satisfy customer specifications are generally expensed as incurred, reflecting the technical risks associated with resultant product qualification test.
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
Other certain research and development costs are likely to meet the definition of enhancement type costs, as they do not substantially improve the product, and therefore do not meet the definition of development costs to be capitalised.
The process is to be continually reviewed to ascertain whether any development costs meet the criteria for capitalisation. This requires various judgements by management as to whether the various criteria have been met.
The period over which development costs are amortised are reviewed on a case by case basis in line with the expected life of the product.
3 Notes to the preliminary announcement
The results comprise those of Filtronic plc and its subsidiaries for the year ended 30 May 2016 and does not constitute the Group's statutory accounts for the years ended 31 May 2016 or 2015, but is derived from those accounts. Both the Company Financial Statements and the Group Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("IFRSs").
Statutory accounts for the years ended 31 May 2016 and 31 May 2015 have been reported on by the auditors who issued an unqualified opinion in respect of both periods and the auditors' reports for 2016 and 2015 did not contain statements under 498(2) or 498(3) of the Companies Act 2006.
The Group Financial Statements for the year ended 31 May 2016 were authorised for issue by the Board of Directors on 1 August 2016.
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
4 Segmental analysis
IFRS 8 requires consideration 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 interim reporting information and management structures within the Group. The Group has four customers representing individually over 10% each in aggregate over 74% 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 (Broadband).
· The design of radio frequency conditioning product for base stations used in wireless telecommunications networks (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.
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| Broadband | Wireless | Central Services | Total | |||||||||||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||||||
Revenue | 4,618 | 7,241 | 8,962 | 10,283 | - | - | 13,580 | 17,524 | |||||||
Depreciation | 330 | 482 | 316 | 557 | 9 | 6 | 655 | 1,045 | |||||||
Adjusted operating loss* | (1,723) | (1,648) | (4,514) | (5,697) | (603) | (791) | (6,840) | (8,136) | |||||||
Amortisation of other intangibles | - | - | - | - | - | - | - | (2,418) | |||||||
Capitalisation of development costs | 100 | - | 186 | - | - | - | 286 | - | |||||||
Exceptional items | - | (256) | (209) | (180) | (217) | (55) | (426) | (491) | |||||||
Reportable segment operating loss | (1,623) | (1,904) | (4,537) | (5,877) | (820) | (846) | (6,980) | (8,627) | |||||||
Finance costs | - | - | (59) | - | - | - | (59) | - | |||||||
Loss before taxation | (1,623) | (1,904) | (4,596) | (5,877) | (820) | (846) | (7,039) | (11,045) | |||||||
Reportable segment assets | 2,475 | 4,883 | 11,306 | 7,251 | 15,601 | 11,959 | 29,382 | 24,093 | |||||||
Capital expenditure | 58 | 5 | 107 | 151 | 7 | 45 | 172 | 201 | |||||||
Reportable segment liabilities | 8,778 | 9,877 | 14,546 | 7,381 | 480 | 657 | 23,804 | 17,915 | |||||||
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
4 Segmental analysis (Continued)
| 2016 | 2015 |
| £000 | £000 |
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Depreciation and amortisation |
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Reportable segment totals | 655 | 1,045 |
Amortisation of intangibles | 15 | 2,436 |
| ---------- | ---------- |
Consolidated depreciation and amortisation | 670 | 3,481 |
| ====== | ====== |
| 2016 | 2015 | |
| £000 | £000 | |
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Loss before taxation |
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Total loss before taxation for reportable segments | (7,039) | (8,627) | |
Group/unallocated amortisation of intangibles | - | (2,418) | |
| ---------- | ---------- | |
| Consolidated loss before taxation | (7,039) | (11,045) |
| ====== | ====== | |
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| 2016 | 2015 | |
| £000 | £000 | |
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Assets |
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Total assets for reportable segments | 29,382 | 24,093 | |
Inter company | (14,586) | (10,832) | |
Group/unallocated | 2,551 | 2,551 | |
| ---------- | ---------- | |
| Consolidated total assets | 17,347 | 15,812 |
| ====== | ====== | |
| 2016 | 2015 | |
| £000 | £000 | |
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Liabilities |
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Total liabilities for reportable segments | 23,804 | 17,915 | |
Inter company | (14,586) | (10,832) | |
| ---------- | ---------- | |
| Consolidated total liabilities | 9,218 | 7,083 |
| ====== | ====== | |
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
5 Revenue by Destination
| 2016 | 2015 |
| £000 | £000 |
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United Kingdom | 188 | 1,772 |
Europe | 5,606 | 4,412 |
Americas | 4,132 | 7,727 |
Rest of the World | 3,654 | 3,613 |
| --------- | ---------- |
| 13,580 | 17,524 |
| ====== | ====== |
6 Exceptional items
Operating loss is stated after charging exceptional items as follows:
| 2016 | 2015 |
| £000 | £000 |
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Listing on AIM Market of London Stock Exchange | 209 | - |
Redundancy costs | 217 | 244 |
Director Resignation | - | 131 |
Redundancy costs | - | 244 |
Closure of Wireless California operation | - | 67 |
Filtronic Broadband relocation | - | 98 |
Dilapidation of premises of discontinued operations | - | (75) |
Electrical damage | - | 26 |
| --------- | ---------- |
| 426 | 491 |
| ====== | ====== |
The Company delisted from the Official List on the Main Market of the London Stock Exchange on 16 November 2015 and moved its listing to the AIM market of the London Stock Exchange. The cost of doing this including professional advisors was £209,000.
The Wireless business completed a restructure of its operational cost base to deliver annualised cost savings of over£1.0m. The cost to implement this was £217,000.
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
7 Loss per share
| 2016 | 2015 | |
| £000 | £000 | |
| ---------- | ---------- | |
Loss for the period | (5,117) | (11,045) | |
| ====== | ====== | |
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| 000 | 000 | |
Basic weighted average number of shares | 160,070 | 103,417 | |
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| ---------- | ---------- |
Basic and diluted loss per share |
| (3.20p) | (10.16p) |
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| ====== | ====== |
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Notes to the Preliminary Financial Information
for the year ended 31 May 2016
8 Taxation
The reconciliation of the effective tax rate is as follows:
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| 2016 |
| 2015 |
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| £000 |
| £000 |
Loss before taxation |
| (7,039) |
| (11,045) |
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| ====== |
| ====== |
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| 2016 |
| 2015 |
|
| £000 |
| £000 |
Loss before taxation multiplied by standard rate of corporation tax in the UK | (20%) | (1,408) | (21%) | (2,300) |
Disallowable item | (1%) | (57) | 2% | 245 |
Income not taxable | 1% | 64 | 1% | 167 |
Deferred tax not recognised | 17% | 1,181 | 16% | 1,722 |
Impact of rate change on deferred tax | - | - | 1% | 19 |
Adjustment in respect of prior year - R&D tax credit | (16%) | (1,128) | (6%) | 673 |
Recognition of deferred tax asset from prior year | (4%) | (299) | - | - |
Foreign tax not at UK rate | (4%) | (275) | (2%) | (202) |
De-recognition of deferred tax asset | - | - | 4% | 485 |
| --------- | --------- | --------- | --------- |
Taxation | (27%) | (1,922) | (5%) | (537) |
| ====== | ====== | ====== | ====== |
The main rate of UK Corporation Tax for the full financial year was 20%. This will reduce to 19% from 1 April 2017, and it is 18% from 1 April 2020. The deferred tax assets recognised in the year have been calculated at the rates of their expected use.
Notes to the Preliminary Financial Information
for the year ended 31 May 2016
9 Goodwill and other intangibles
|
Goodwill
| Other intangibles (core technology) | Licence Agreement | Development costs | Total |
| £000 | £000 | £000 | £000 | £000 |
Cost |
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At 1 June 2014 | 3,235 | 10,884 | - | - | 14,119 |
Additions | - | - | 160 | - | 160 |
| --------- | --------- | --------- | --------- | --------- |
At 31 May 2015 | 3,235 | 10,884 | 160 | - | 14,279 |
Additions | - | - | - | 286 | 286 |
| --------- | --------- | --------- | --------- | --------- |
At 31 May 2016 | 3,235 | 10,884 | 160 | 286 | 14,565 |
| ====== | ====== | ====== | ====== | ====== |
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Amortisation |
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At 1 June 2014 | - | 8,466 | - | - | 8,466 |
Provided in year | - | 2,418 | 18 | - | 2,436 |
| --------- | --------- | --------- | --------- | --------- |
At 31 May 2015 | - | 10,884 | 18 | - | 10,902 |
Provided in year | - | - | 15 | - | 15 |
| ====== | ====== | ====== | ====== | ====== |
At 31 May 2016 | - | 10,884 | 33 | - | 10,917 |
| ====== | ====== | ====== | ====== | ====== |
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Carrying amount at 1 June 2014 | 3,235 | 2,418 | - | - | 5,653 |
| --------- | --------- | --------- | --------- | --------- |
Carrying amount at 31 May 2015 | 3,235 | - | 142 | - | 3,377 |
| --------- | --------- | --------- | --------- | --------- |
Carrying amount at 31 May 2016 | 3,235 | - | 127 | 286 | 3,648 |
| ====== | ====== | ====== | ====== | ====== |
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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 4. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The carrying value of intangible assets and goodwill has been assessed for impairment by reference to its value in use. Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The calculation of the value in use was based on the following key assumptions:
Notes to the Preliminary Financial Information
For the year ended 31 May 2016
9 Goodwill and other intangibles (continued)
· 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% was applied to the projections together with cost inflation of 3%. A perpetuity factor has been applied based on the year to 31 May 2021;
· A post tax discount rate of 12% (2015: 12%) 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 Downtilt ("RET") licence procured during the year to enable the use of RETs in the antenna products.
The accounting policy for intangible assets is set out in note 1. Development costs have been recognised in both the Wireless and Broadband businesses relating to Ultra Wide Band antennas and E-band developments respectively.
Notes to the Preliminary Financial Information
For the year ended 31 May 2016
10 Deferred tax
| 2016 | 2015 |
| £000 | £000 |
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Deferred tax assets | 834 | - |
| ====== | ====== |
The deferred tax asset from the Wireless UK business has been recognised as the Directors consider that the Wireless UK legal entity will return to profitability in the next year.
| 2016 | 2015 |
| £000 | £000 |
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Deferred tax liability | - | 485 |
| ====== | ====== |
Notes to the Preliminary Financial Information
For the year ended 31 May 2016
11 Provision
Warranty provision | 2016 | 2015 |
| £000 | £000 |
Opening balance | 101 | 108 |
Used during the year | (4) | (12) |
Released unused during the year | (31) | (35) |
Charge for the year | 95 | 40 |
| --------- | --------- |
Closing balance | 161 | 101 |
| ====== | ====== |
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Dilapidation provision | 2016 | 2015 |
| £000 | £000 |
Opening balance | 10 | 225 |
Used during the year | - | (140) |
Released unused during the year | (10) | (75) |
Charge for the year | - | - |
| --------- | --------- |
Closing balance | - | 10 |
| ====== | ====== |
12 Share Capital
| Group | |
| Ordinary shares of 0.1p each issued and fully paid | |
| Number | £000 |
At 1 June 2014 | 97,160,986 | 9716 |
Shares issued in year | 9,716,000 | 972 |
| -------------- | --------- |
At 31st May 2014 | 106,876,986 | 10,688 |
Shares issued in year | 100,033,160 | 100 |
| -------------- | --------- |
At 31 May 2015 | 206,910,146 | 10,788 |
| ======== | ====== |
Holders of the ordinary shares are entitled to receive dividends when declared, and are entitled to one vote per share at meetings of the Company.
On 16 November 2015 the Company successfully moved from the Official List on the Main Market of the London Stock Exchange to the AIM market of the London Stock Exchange. The primary purpose of this move was to undertake a share placing of 90,000,000 new shares at 5.0p per share generating £4.5m before issue costs. This placing successfully concluded on the same date with issue costs charged to the share premium account of £321,000. The net proceeds from the new shares issued was £4,179,000.
Notes to the Preliminary Financial Information
For the year ended 31 May 2016
In order to execute this, the Company completed a capital reorganisation by reducing the nominal value attached to the existing shares prior to the placing. This resulted in the nominal value of each existing share reducing from 10p per share to 0.1p per share with each share also carrying a deferred share with a value of 9.9p. The deferred shares have no voting rights.
An announcement was also made that the Company intended to allow all of the shareholders on the share register at 16 November 2015 to take part in an open offer, subject to shareholder approval, with a further issue of up to 19,999,373 shares. On 16 December 2015, shareholders voted in favour of the resolutions relating to the open offer. This resulted in a further issue of 10,033,160 shares at 5.0p per share. This generated a further £500,000 before issue costs of £138,000 with the payment received into the Company's bank account in December 2015.
13 Share Premium
|
| Group £000 |
At 1 June 2014 |
| 5,145 |
Premium on share issue |
| 1,054 |
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| ------- |
At 31 May 2015 |
| 6,199 |
Premium on share issue |
| 4,441 |
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| ------- |
At 31 May 2016 |
| 10,640 |
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| ==== |
14 Dividends
The Directors are not proposing to pay a dividend for the year ended 31 May 2016 (2015: nil).
Notes to the Preliminary Financial Information
For the year ended 31 May 2016
15 Analysis of net (debt)/funds
| 1 June 2015 | Cash Flow | Other Changes | 31 May 2016 |
| £000 | £000 | £000 | £000 |
Cash and cash equivalents | 1,087 | (40) | (57) | 990 |
Interest bearing borrowings | (320) | (950) | - | (1,270) |
| --------- | --------- | --------- | --------- |
| 767 | (990) | (57) | (280) |
| ====== | ====== | ====== | ====== |
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Reconciliation of cash flow to movement in net (debt)/funds | ||||
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| 2016 | 2015 |
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| £000 | £000 |
Movement in cash and cash equivalents |
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| (40) | (1,476) |
Cash flow from increase in debt financing |
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| (950) | (320) |
Effect of exchange rate fluctuations |
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| (57) | 32 |
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| --------- | --------- |
Movement in net (debt)/funds |
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| (1,047) | (1,764) |
Net funds at 1 June 2015 |
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| 767 | 2,531 |
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| --------- | --------- |
Net (debt)/funds at 31 May 2016 |
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| (280) | 767 |
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| ====== | ====== |
17 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.