Filtronic Regulatory News (FTC)

Filtronic plc

Interim Management Statement

Filtronic, the designer and manufacturer of microwave electronics products for the wireless telecoms infrastructure market, issues its Interim Management Statement for the period from 1 December 2010.

Point to Point ("PTP") business

The Point to Point business continues to be faced with a number of challenges but also new opportunities as its product mix changes significantly over the next 18 months.

Recent conversations with customers suggest a faster than expected phase-out of certain mature module products. This will have a negative impact on trading in the remainder of the financial year ending in May as well as into FY 2012. The business has also had to adjust to the impact of Ceragon's acquisition of NERA in January. Whilst sales of short-haul products to Ceragon are tailing off more sharply than expected, long haul product volumes (typically around 40% of historic sales to NERA) are expected to be sustained well into FY 2012.

More positively, Filtronic's PTP business transition strategy is gaining traction with first production orders received from Selex Galileo for module supply into their electronic radar system. In addition initial orders for Gigabit radio modules have recently been secured with a further new customer. These new lines will result in initial revenues in FY 2012 and full scale production from FY 2013 onwards. Volume production of modules for another major OEM has now commenced, and the supply of semiconductor solutions for this customer will ramp during FY 2012.

FY 2011 PTP sales are expected to be circa £12 million. The early part of FY2012 will be hit by the Ceragon reductions and mature product phase-outs, whilst the second half will start to benefit from the new customers and products detailed above. The overall expectation is for FY2012 PTP sales of just above £10m, weighted towards the second half.

Isotek

Isotek is well-positioned to participate on several key programmes, especially in the US 4G market, and has been selected by Alcatel-Lucent as a supplier for both its AT&T and Sprint LTE programs.

However, there have been some recent customer programme delays during the early rollout phase. These delays are expected to reduce FY 2011 Isotek sales to £4m with consequent margin impacts compounded by short term component shortages. More encouragingly, investments to replace machined units with cast units on higher volume products in H1 FY 2012 will deliver cost reductions and improved margins on both new and the deferred shipments. Production rates and capacity are starting to ramp, though as stressed in the interim statement, Isotek's programmes largely remain at an early stage.

Combined Business

Action has been taken to reduce costs in the PTP business where an appropriate headcount reduction has been implemented. Meanwhile the integration of the Isotek and PTP businesses is being accelerated across the group, and specialist PTP resources are being redeployed to maximise mobile basestation product opportunities. In parallel, the company is expanding its business development activity on new opportunities for its innovative filtering products as operational capacity is scaled up.

Group sales are now projected to grow from £16m for FY 2011 to circa £25m for FY 2012 with Isotek FY 2012 expectations maintained at £15m.

Further consolidation is continuing in the wireless telecomm market at all levels of the value chain, but both OEM's and network operators see significant market opportunities arising from the rapid growth in mobile data traffic. Filtronic believes that its investment in 4G enabling hardware technology is well timed to address these opportunities.

Enquiries