Filtronic Regulatory News (FTC)

29 Jan 2007 07:02

Filtronic PLC29 January 2007 FILTRONIC PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2006 Filtronic plc ("Filtronic"), a leading designer and manufacturer of customisedmicrowave electronic subsystems and components for the wirelesstelecommunications and defence industries, announces its Interim Results for thesix months ended 30 November 2006. Financial Highlights • Revenue for continuing operations up 24% to £35.8m (2005: £28.9m) • Operating loss for continuing operations before non-recurring items reduced to £4.2m (2005: £6.6m) • Operating loss for continuing operations reduced to £5.9m (2005: £8.6m) • Profit for discontinued operations of £82.6m mainly arising from sale of the Wireless Infrastructure business • Profit for the period of £75.8m (2005: loss of £4.2m) • Cash of £64.0m (2005: net debt of £12.0m) • Holding 17.7m Powerwave Technologies Inc shares, valued at £57.6m at 30 November 2006 • Return of cash of £10m proposed for end of March 2007 Operational Highlights • Compound Semiconductors has had a year of growth, reducing losses before non-recurring items, although it now expects demand to be lower than previously anticipated. As a consequence, the previously announced capital expenditure programme has been reduced to align with this demand and will not exceed £10m. • Point to Point has achieved a step change in sales and has moved into profitability with 10% operating margin in the current period, so is well positioned to exploit a growing market. • UK Defence has achieved solid underlying growth for its ongoing products and should be capable of double digit operating margins going forward. • US Defence remains loss-making and the Board will complete its plans for an exit by the end of the financial year. • Central R&D discontinued, and central costs reduced by £1m a year, with surplus property earmarked for disposal. • First return of cash of £10m announced today uses the mechanism of the B Share scheme. This should allow shareholders to receive cash as either an income or a capital receipt. This return reflects the current level of the company's distributable reserves. • The Board expects to announce a further return of cash no earlier than October 2007, reflecting the expiry of the principal warranty obligations given to Powerwave, once agreement has been reached on funding for the group's pension scheme and completion of the necessary approvals from shareholders and the court. • 7.4m shares in Powerwave Technologies Inc, received as part of the consideration for the sale of the Wireless Infrastructure business in October 2006, have been sold since 30 November 2006, realising £24.2m. Filtronic Chairman, John Poulter, said: "Following the completion of the Wireless Infrastructure disposal, progress hasbeen made in reducing the losses in the continuing group and in taking actionsto achieve the goal of a profitable and cash-positive performance. However,much remains to be done, and the second half outlook is still for the group tobe loss-making. The delay in making a more substantial return of cash to shareholders is anunfortunate consequence of the company's current level of distributablereserves. However, the Board reaffirms the intentions expressed in the EGMcircular." Enquiries Filtronic plc John Poulter, Chairman Tel: 01274 231 021 Charles Hindson, Group Chief Executive Mob: 07800 706 319 Parkgreen Communications Ltd Tel: 020 7851 7480 Paul McManus Mob: 07980 541 893 Chairman's Statement The first half of 2006/7 has been eventful for Filtronic. Revenue from continuing operations was £35.8 million for the six months ended 30November 2006 (£28.9 million for the six months ended 30 November 2005), agrowth of 24%. Net profit was £75.8 million (loss of £4.2 million for priorperiod), reflecting the sale of the Wireless Infrastructure business. For thecontinuing activities, the operating loss before non-recurring items reduced by36% to a loss of £4.2 million for the period compared to the prior period. I shall comment briefly on the current position and on the prospects for thecontinuing businesses, with the results for the half year being reviewed in moredetail in the Group Chief Executive's report that follows. The sale of the company's main Wireless Infrastructure business was completed inOctober, after some beneficial renegotiation in August and its approval at theEGM at the end of September. At the time of writing, we have disposed of 7.4million Powerwave Inc shares out of 17.7 million received in part consideration,for proceeds of £24.2 million, having adopted a measured disposal strategy inthe light of Powerwave's trading announcements in the autumn and marketliquidity. Since the AGM the Board has, as indicated on that occasion, been addressing thestrategic positioning of the continuing businesses in the group with theobjective of improving operating performance and profitability. Compound Semiconductors expects demand to be lower than previously anticipatedfrom its concentrated customer base. Production capacity is being aligned withour current view of these likely longer term requirements and the capitalinvestment programme has been curtailed within the limitations of contractualcommitments and logical steps in installing equipment, resulting in a provisionof £7.0 million. As indicated in our trading update at the half year end, thecommitment will not now exceed £10 million, including contract cancellationcharges. Our objective is to restructure this business to at least a consistent breakevenand cash-neutral position, which will not be achieved in the second half of thisfinancial year. Taking account of these trading prospects, the Board has decided to reduce thecarrying value of the company's investment in Filtronic Compound SemiconductorsLimited ("FCSL") to reflect the provision for its past losses. This hasresulted in a non-cash charge in the company's accounts of £80.4 million,reducing the carrying value to the net asset value of £38.0 million. The small US defence business seems unlikely to secure adequate new contracts inthe foreseeable future to augment its sub-critical level of activity. As aresult, the goodwill related to this business is now impaired and has beenwritten off (£2.7 million charge). The Board will complete its plans for anexit by the end of the financial year. The UK defence business has continued to make progress in restoring its orderbook and should be capable of double digit operating margins going forward. Our Point-to-Point business will, after an excellent first half, experience aperiod of consolidation in the second half, and remains well positioned toexploit, profitably, a growing market. The central R&D activity, which supported primarily the Wireless Infrastructurebusiness before its sale, has been discontinued. Together with other costadjustments, the central corporate overhead has been reduced by an annualised £1million, as indicated in the trading update. Surplus freehold properties,including the main building in Shipley, have been earmarked for disposal. In the shareholder circular covering the disposal of the Wireless Infrastructurebusiness, the Board set out its expectations for return of cash to shareholders. The company intends to make a first return of cash to shareholders of £10million by end of March, using the mechanism of the B Share scheme approved atthe EGM. This is the level of return of cash that the Board considers prudentwithin the limit of the company's distributable reserves, after the reductionfor the carrying value of the company's investment in FCSL. The B Share schemeshould permit a shareholder to receive the return of cash as either income orcapital. Any further return of cash requires the company to undertake a reorganisation ofits shareholders funds to have sufficient distributable reserves for a furtherimplementation of the B Share scheme. As part of seeking the necessaryapprovals from shareholders and the court, the company would also wish to reachagreement with the Trustees of the company's defined benefit pension scheme onfurther funding for the scheme. Therefore, such return of cash is anticipatedto be announced no earlier than October 2007, which also permits the expiry ofthe principal warranty obligations given to Powerwave. The delay in making a more substantial return of cash to shareholders is anunfortunate consequence of the company's current level of distributablereserves. However, the Board reaffirms the intentions expressed in the EGMcircular. In the light of the proposed distribution, the Board is not declaring an interimdividend. Changes to the board of the company have been the appointment of Charles Hindsonto the position of Group Chief Executive after the retirement of David Rhodes atthe AGM. Rhys Williams also retired at that time. Subsequently Chris Mobbsresigned with the discontinuance of the central R&D activity. Richard Blakewill be retiring from the Board in March. Reg Gott and I were appointed to theboard in July and our appointments were confirmed at the AGM. For the six months ending 31 May 2007, revenue for the group is now foreseen tobe flat compared to the first half of the financial year, with neither CompoundSemiconductors nor Point to Point expecting to show revenue growth. The overall outlook for the second half is that losses in CompoundSemiconductors and the US Defence businesses, together with central costs, willexceed the operating profits from the UK Defence and Point to Point businesses.The Board remains clear that this is not an acceptable situation and will bepursuing further measures in the coming months. John PoulterChairman29 January 2007 Group Chief Executive's Review Interim financial results Revenue arising from continuing operations for the six months ended 30 November2006 was £35.8m (2005: £28.9m), a growth of 24% compared with the prior period,and the operating loss including non-recurring costs was £5.9m compared with anoperating loss of £8.6m for the prior period in 2005. The sale of the WirelessInfrastructure business in October 2006 has generated a profit for the periodfor discontinued operations of £82.6m, resulting in the retained profit for theperiod being £75.8m (2005: loss of £4.2m). Continuing operations The segmental analysis of the operating results for continuing operations is asfollows: Revenue Operating (loss)/profitSix months ended 30 November 2006 2005 2006 2005 £m £m £m £m Compound Semiconductors 15.1 8.5 (8.5) (5.1)Defence Electronics 11.6 15.3 (3.8) (0.7)Point to Point 10.5 5.7 1.0 (0.1)Central Services - - (3.0) (2.1)Inter segment (1.4) (0.6) - -Unallocated pension credit/(charge) - - 8.4 (0.6) ----- ----- ----- ----- 35.8 28.9 (5.9) (8.6) ----- ----- ----- ----- The operating result for the period has been affected by non-recurring itemsarising in the continuing businesses. These include the provision for fixedassets that will not be used and project cancellation costs arising from thecurtailment of the capital expenditure programme in Compound Semiconductors of£7.0m, the impairment of goodwill for the US Defence business of £2.7m andreorganisation costs in Central Services incurred in the period of £0.2m. In addition, the change of the pension scheme to a Career Average RevaluedEarnings (CARE) basis has resulted in a credit in the consolidated incomestatement of £8.6m in the period reflecting a reduction in past service costliabilities with the overall defined benefit pension liability reduced by £7.3m. Excluding these non-recurring items the underlying operating loss reduced by36%, compared with the prior period, to £4.2m. Compound Semiconductors Compound Semiconductors has achieved growth in revenue to £15.1m in the periodcompared with £8.5m in the prior period. This also represents a growth of 23%compared with the preceding six months ended 31 May 2006. This growth hasmainly taken place in switches for cellular handsets supplied to US customerswhere the products are priced in US dollars, with some broadening of thecustomer base. Underlying operating losses before non-recurring items have been reduced from£4.7m in the prior period to £1.4m in the current period. The break even runrate position achieved in the preceding period ended 31 May 2006 has not beensustained in the current period reflecting mainly the impact of product pricereduction and exchange rate effects. Production capacity is being aligned with the lower demand now expected. As aresult, the expansion plan has been curtailed, reducing investment by £5m. Defence Electronics Overall, revenue in Defence has declined from £15.3m in the prior period to£11.6m for the current period, reflecting the effective completion of deliveriesunder three large contracts. This has also resulted in a reduction in overallperformance, with an underlying operating loss of £1.1m (before the goodwillimpairment charge for the US business of £2.7m) compared with an operatingprofit of £0.8m in the prior period (before impairment of inventory). The UK Defence business has continued to improve order book cover and, excludingits large contracts substantially completed last financial year, revenue hasgrown by 19% compared with the prior period. The US Defence business is not achieving a sustained recovery of its order book,and incurred an operating loss for the period of £1.2m on a sub-critical levelof activity. As a result, goodwill of £2.7m has been written off, and the Boardwill complete its plans for an exit by the end of the financial year. Point to Point The Point to Point business's focus is transceiver modules and filters forbackhaul microwave radios linking mobile base stations. Revenue increased verysubstantially from £5.7m in the prior period to £10.5m in the current period,along with moving from an operating loss of £0.1m in the prior period to anoperating profit of £1.0m in the current period. This step up in the level of activity is also reflected in performance comparedwith the preceding period, with sequential revenue growth of 78% and improvementof the operating profit margin from a loss of 5% to a profit of 10% in thecurrent period. This strengthened operating performance reflects the benefit ofproduct and customer diversification over the last two years. Discontinued operations - Wireless Infrastructure The sale of the Wireless Infrastructure business to Powerwave was completed on16 October 2006 for a consideration of £96.9m ($185m) cash and 17.7m Powerwaveshares. This has resulted in a gain on sale of £86.0m, although there is acontingent liability arising under a notified product liability claim underinvestigation with the customer, for which no provision has yet been made. On receipt of the cash portion of the proceeds of the sale of the WirelessInfrastructure business, the group's bank debt was fully repaid. After 30 November 2006, 7.4m Powerwave shares have been sold to date, realisingnet proceeds of £24.2m. Our holding of Powerwave shares as at 26 January 2007is 10.3m. Group matters In the latter part of the period following the disposal of the WirelessInfrastructure business, Central activities have been refocused with thediscontinuance of the Central R&D function. Other activities have also beenreduced to those that support the requirements of the ongoing quoted group.These changes, at a cost of £0.2m, provide an annualised cost saving of £1mgoing forward. In addition, the freehold properties surplus to operational requirements in theUK have been earmarked for disposal. Therefore, our main freehold operationalsites are in the UK at Newton Aycliffe, County Durham and Charlestown, Shipley. The company is pleased to welcome Stephen Mole, who joined us as Director ofFinance at the beginning of December. Pension scheme The group's UK pension scheme has been changed to a career average salary basisin August 2006 at which time an additional contribution of £4.6m was made by thecompany. As at 30 November 2006, the company has been notified of an actuarialdeficit on a going concern basis of £5.5m of which it is committed to fund £3.5mover the current and next financial years as part of the arrangements for themove to the new benefit structure for the scheme. As at 30 November 2006 thedefined benefit pension liability, on the IAS19 basis, is £13.3m compared with£20.6m at 31 May 2006. The main changes since 31 May 2006 are an £8.6mreduction in past service liabilities on the move to CARE basis and anadditional contribution by the company of £4.6m offset by an actuarial loss of£6.6m. Finance Net finance costs were £0.9m (2005: £2.2m) including the benefit of interestreceived on the cash element of the proceeds on the sale of the WirelessInfrastructure business. Working capital facilities are now financed with thegroup's retained cash balances and the group does not have any net borrowingfacilities. Capital expenditure Capital expenditure in the six months to 30 November 2006 was £9.4m (2005:£6.8m) including investment of £6.5m in Compound Semiconductors. Cash flow and closing net debt The Group's borrowings were repaid from the proceeds of the sale of the WirelessInfrastructure business. Net cash from operating activities was an outflow of£13.3m (2005: £5.1m) including the additional contribution to the pension schemeof £4.6m and underlying working capital increase, before non-recurring itemaccruals, of £6.7m (2005: £6.4m). Sale of the Wireless Infrastructure businessgenerated £94.6m and £10.5m was received under the earn out from the sale of theHandset Products division. Capital expenditure net of disposals of £9.3m andfinancing payments of £21.5m including repayment of the bank revolving credit,resulted in closing cash of £64.0m (2005: net debt of £12.0m). Charles HindsonGroup Chief Executive29 January 2007 Independent Review Report to Filtronic plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 November 2006 which comprises the group incomestatement, the group statement of recognised income and expense, the groupbalance sheet, the group cash flow statement and related notes. We have readthe other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the company in accordancewith the terms of our engagement to assist the company in meeting therequirements of the Listing Rules of the Financial Services Authority. Ourreview has been undertaken so that we might state to the company those matterswe are required to state to it in this report and for no other purpose. To thefullest extent permitted by law, we do not accept or assume responsibility toanyone other than the company for our review work, for this report, or for theconclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing PracticesBoard for use in the UK. A review consists principally of making enquiries ofgroup management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 November 2006. KPMG Audit PlcChartered AccountantsLeeds29 January 2007 Consolidated Income Statement 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006Continuing operations note £000 £000 £000 Revenue 1, 2 35,779 28,950 62,992 ====== ====== ====== Operating loss before non-recurring items (4,182) (6,558) (10,877)Non-recurring items 3 (1,711) (1,993) 732 ---------- ---------- ----------Operating loss 1, 2 (5,893) (8,551) (10,145) (Loss)/gain on sale of property - (376) 523Finance income 9 1,610 835 1,706Finance costs 10 (2,467) (3,019) (4,934) ---------- ---------- ----------Loss before taxation (6,750) (11,111) (12,850)Taxation - - - ---------- ---------- ----------Loss for the period from continuing operations (6,750) (11,111) (12,850)Profit for the period from discontinued operations 11 82,577 6,875 18,861 ---------- ---------- ----------Profit/(loss) for the period 75,827 (4,236) 6,011 ====== ====== ====== Basic earnings/(loss) per share- continuing operations 19 (9.03)p (14.85)p (17.17)p- discontinued operations 19 110.46p 9.19p 25.20p ---------- ---------- ----------Basic earnings/(loss) per share 19 101.43p (5.66)p 8.03p ====== ====== ======Diluted earnings/(loss) per share- continuing operations 19 (9.03)p (14.85)p (17.17)p- discontinued operations 19 110.40p 9.19p 25.19p ---------- ---------- ----------Basic earnings/(loss) per share 19 101.37p (5.66)p 8.02p ====== ====== ====== The profit/(loss) for the period is attributable to the equity shareholders ofthe parent company Filtronic plc. Consolidated Statement of Recognised Income and Expense 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Profit/(loss) for the period 75,827 (4,236) 6,011 ---------- ---------- ----------Actuarial (loss)/gain on defined benefit pension scheme (5,521) 1,304 (2,849)Loss on investments (2,322) - -Transfer to income from translation reserve related to 61 (53) (42)business disposalCurrency translation movement arising on consolidation 115 3,202 (531) ---------- ---------- ---------- (7,667) 4,453 (3,422) ---------- ---------- ---------- ---------- ---------- ----------Total recognised income and expense for the period 68,160 217 2,589 ====== ====== ====== The total recognised income and expense for the period is attributable to theequity shareholders of the parent company Filtronic plc. Consolidated Balance Sheet 30 November 30 November 31 May 2006 2005 2006 note £000 £000 £000Non-current assetsGoodwill 6 - 2,944 2,723Property, plant and equipment 50,031 69,716 69,248Deferred tax - 2,433 2,249 ---------- ---------- ---------- 50,031 75,093 74,220 ---------- ---------- ----------Current assetsInventories 12,685 33,808 33,623Trade and other receivables 20,675 63,016 67,615Income tax receivable - - 550Investments 20 57,587 - -Cash and cash equivalents 63,983 3,955 5,293 ---------- ---------- ---------- 154,930 100,779 107,081 ---------- ---------- ---------- ---------- ---------- ----------Total assets 204,961 175,872 181,301 ---------- ---------- ----------Current liabilitiesBank revolving credit - 16,000 18,000Trade and other payables 26,184 39,283 41,412Income tax payable 1,482 2,387 1,764 ---------- ---------- ---------- 27,666 57,670 61,176 ---------- ---------- ----------Non-current liabilitiesDefined benefit pension 13,281 15,700 20,585Deferred income 3,308 9,168 4,475Deferred tax - 665 688 ---------- ---------- ---------- 16,589 25,533 25,748 ---------- ---------- ---------- ---------- ---------- ----------Total liabilities 44,255 83,203 86,924 ---------- ---------- ---------- ---------- ---------- ----------Net assets 160,706 92,669 94,377 ====== ====== ======EquityShare capital 7,432 7,484 7,484Share premium 138,174 139,172 139,172Capital redemption reserve 21 1,137 - -Translation reserve 727 4,011 698Other reserve 22 - 6,024 6,237Retained earnings/(accumulated losses) 13,236 (64,022) (59,214) ---------- ---------- ----------Total equity 160,706 92,669 94,377 ====== ====== ====== The total equity is attributable to the equity shareholders of the parentcompany Filtronic plc. Consolidated Cash Flow Statement 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 note £000 £000 £000Cash flows from operating activities Profit/(loss) for the period 75,827 (4,236) 6,011Gain on sale of discontinued operation (86,001) (2,894) (14.146)Taxation 631 1,569 1,390Finance costs 2,706 3,019 4,934Finance income (1,610) (835) (1,706)Loss/(gain) on sale of property - 376 (523) ---------- ---------- ----------Operating loss 25 (8,447) (3,001) (4,040)Defined benefit pension (credit)/charge (7,032) 1,849 3,624Defined benefit pension contributions paid (5,944) (1,260) (2,561)Share-based payment 567 230 240Goodwill impairment 2,716 - -Depreciation 5,121 5,866 11,744Loss on sale of plant and equipment 144 278 402Licence fee released to income (1,167) (1,167) (2,335)Government grants released to income - (395) (3,920)Movement in inventories (5,271) (2,010) (3,215)Movement in trade and other receivables (3,222) (2,248) 1,490Movement in trade and other payables 9,171 (2,175) 1,086 ---------- ---------- ----------Cash flow from operations (13,364) (4,033) 2,515Taxation received/(paid) 79 (1,041) (1,998) ---------- ---------- ----------Net cash from operating activities 25 (13,285) (5,074) 517 ---------- ---------- ---------- Consolidated Cash Flow Statement 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 note £000 £000 £000 Net cash from operating activities 25 (13,285) (5,074) 517 ---------- ---------- ----------Cash flows from investing activitiesProceeds from sale of property - 1,383 3,508Proceeds from sale of plant and equipment 78 282 348Interest received 449 94 172Acquisition of property, plant and equipment (9,391) (6,776) (14,422)Sale of discontinued operations 105,107 42,523 44,138 ---------- ---------- ----------Net cash from investing activities 25 96,243 37,506 33,744 ---------- ---------- ----------Cash flows from financing activitiesBank revolving credit (repaid)/drawn (18,000) 16,000 18,000Bank loan repaid - (44,000) (44,000)Bank loan renewal fee paid (508) (343) (543)Interest paid (573) (1,244) (1,841)Shares issued 87 - -Shares bought back (1,137) - -Dividends paid (1,348) (1,347) (2,021) ---------- ---------- ----------Net cash from financing activities 25 (21,479) (30,934) (30,405) ---------- ---------- ---------- Increase in cash and cash equivalents 61,479 1,498 3,856Currency exchange (loss)/gain on sale of discontinued (2,784) 1,007 1,007operationsCurrency exchange movement (5) 845 (175)Opening cash and cash equivalents 5,293 605 605 ---------- ---------- ----------Closing cash and cash equivalents 63,983 3,955 5,293 ====== ====== ====== Notes to the Interim Financial Information 1 Business segment analysis continuing operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000RevenueCompound Semiconductors 15,073 8,466 20,756Defence Electronics 11,609 15,337 32,079Point to Point 10,536 5,744 11,631Inter segment (1,439) (597) (1,474) ---------- ---------- ---------- 35,779 28,950 62,992 ====== ====== ======Operating (loss)/profitCompound Semiconductors (8,525) (5,055) (5,114)Defence Electronics (3,794) (668) 564Point to Point 1,002 (87) (382)Central Services (2,952) (2,152) (4,150)Unallocated pension credit/(charge) 8,376 (589) (1,063) ---------- ---------- ----------Operating loss (5,893) (8,551) (10,145)(Loss)/gain on sale of property - (376) 523Finance income 1,610 835 1,706Finance costs (2,467) (3,019) (4,934) ---------- ---------- ----------Loss before taxation (6,750) (11,111) (12,850)Taxation - - - ---------- ---------- ----------Loss for the period from continuing operations (6,750) (11,111) (12,850) ====== ====== ====== The operating loss is stated after crediting the release of deferred income asfollows: Compound Semiconductors- licence fee 1,167 1,167 2,335- government grants - 363 3,440Defence Electronics- government grants - 1 64 ---------- ---------- ---------- 1,167 1,531 5,839 ====== ====== ====== 2 Geographical origin segment analysis continuing operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000RevenueUnited Kingdom 31,789 22,085 49,453United States of America 4,121 7,122 14,026Inter segment (131) (257) (487) ---------- ---------- ---------- 35,779 28,950 62,992 ---------- ---------- ---------- Operating lossUnited Kingdom (2,038) (6,787) (8,803)United States of America (3,855) (1,764) (1,342) ---------- ---------- ----------Operating loss (5,893) (8,551) (10,145)(Loss)/gain on sale of property - (376) 523Finance income 1,610 835 1,706Finance costs (2,467) (3,019) (4,934) ---------- ---------- ----------Loss before taxation (6,750) (11,111) (12,850)Taxation - - - ---------- ---------- ----------Loss for the period from continuing operations (6,750) (11,111) (12,850) ====== ====== ====== 3 Non-recurring items Operating loss is stated after charging/(crediting) non-recurring items asfollows: 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 note £000 £000 £000 Reorganisation costs 4 7,217 1,918 1,922Government grants released 5 - - (2,717)Goodwill impairment 6 2,716 - -Share-based payments 7 333 75 63Pension past service credit 8 (8,555) - - ---------- ---------- ---------- 1,711 1,993 (732) ====== ====== ====== 4 Reorganisation costs 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 - Closure of the Compound Semiconductor facility in - 406 406California, USA- Inventory write down in the US Defence Electronics - 1,512 1,516business- Capital charges at the UK Compound Semiconductor facility 7,000 - -- Central Services redundancy costs 217 - - ---------- ---------- ---------- 7,217 1,918 1,922 ====== ====== ====== The capital charges relate to capital equipment that will not be used andproject cancellation costs resulting from the curtailment of the expansion planat the UK Compound Semiconductor facility. The write down of the inventory in the US Defence Electronics business arose asa result of its strategic repositioning and after its move to a new facility. 5 Government grants released 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Government grants released - - 2,717 ====== ====== ====== Deferred Government grants of £2,717,000, related to the Compound Semiconductorfacility at Newton Aycliffe, County Durham, were released to income followingthe renegotiation of their arrangements. 6 Goodwill impairment 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Goodwill impairment 2,716 - - ====== ====== ====== Following an impairment review the goodwill related to Sage Laboratories, Inc.was impaired. Sage Laboratories, Inc. is located in the United States ofAmerica and forms part of the Defence Electronics division. 7 Share-based payments 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000Share option expense:Compound Semiconductors 155 24 48Central Services 178 51 15 ---------- ---------- ---------- 333 75 63 ====== ====== ====== All outstanding share options vested on the completion of the sale of theWireless Infrastructure business on 16 October 2006. Consequently all theremaining share-based payment cost was expensed in the period. 8 Pension past service credit 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Pension past service credit 8,555 - - ====== ====== ====== In August 2006 the defined benefits pension scheme was changed from a finalsalary basis to a career average revalued earnings basis. This resulted in apast service credit of £8,555,000 in the period, due to a reduction in the pastservice pension liabilities. Notes to the Interim Financial Information 9 Finance income 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Interest income 449 94 172Expected return on pension scheme assets 1,161 741 1,534 ---------- ---------- ---------- 1,610 835 1,706 ====== ====== ====== 10 Finance costs 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Interest expense 573 1,244 1,841Bank loan renewal fee 508 343 543Interest on pension scheme liabilities 1,312 1,007 2,058Currency exchange losses 74 425 492 ---------- ---------- ---------- 2,467 3,019 4,934 ====== ====== ====== 11 Profit for the period from discontinued operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006Discontinued operations note £000 £000 £000 Revenue 12, 13 58,039 97,271 174,714 ====== ====== ======Operating (loss)/profit 12, 13, 14, (2,554) 5,550 6,105 15Finance costs 16 (239) - - ---------- ---------- ----------(Loss)/profit before taxation (2,793) 5,550 6,105Taxation (631) (1,569) (1,390) ---------- ---------- ----------(Loss)/profit after taxation (3,424) 3,981 4,715Gain of sale of discontinued operations 17 86,001 2,894 14,146 ---------- ---------- ----------Profit for the period from discontinued 82,577 6,875 18,861operations ====== ====== ====== 12 Business segment analysis discontinued operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000RevenueWireless Infrastructure 58,039 83,626 161,069Handset Products - 13,645 13,645 ---------- ---------- ---------- 58,039 97,271 174,714 ====== ====== ======Operating (loss)/profitWireless Infrastructure (2,554) 5,635 5,907Handset Products - (85) 198 ---------- ---------- ----------Operating (loss)/profit (2,554) 5,550 6,105Finance costs (239) - - ---------- ---------- ----------(Loss)/profit before taxation (2,793) 5,550 6,105Taxation (631) (1,569) (1,390) ---------- ---------- ----------(Loss)/profit after taxation (3,424) 3,981 4,715 ====== ====== ====== The operating loss is stated after crediting the release of deferred income as follows: Wireless Infrastructure- government grants - 31 416 ====== ====== ====== 13 Geographical origin segment analysis discontinued operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000RevenueUnited Kingdom 24,170 35,007 68,327Finland 8,654 26,538 42,056Hungary 7,427 18 3,402United States of America 14,816 19,112 39,000China 22,720 43,572 72,220Australia - 1,026 1,481Inter segment (19,748) (28,002) (51,772) ---------- ---------- ---------- 58,039 97,271 174,714 ====== ====== ======Operating (loss)/profitUnited Kingdom (4,331) (2,652) (6,856)Finland (1,201) (433) (1,751)Hungary 2,206 (558) (412)United States of America 738 (647) 1,685China 34 10,818 14,693Australia - (978) (1,254) ---------- ---------- ----------Operating (loss)/profit (2,554) 5,550 6,105Finance costs (239) - - ---------- ---------- ----------(Loss)/profit before taxation (2,793) 5,550 6,105Taxation (631) (1,569) (1,390) ---------- ---------- ---------- (3,424) 3,981 4,715 ====== ====== ====== 14 Reorganisation costs discontinued operations Operating (loss)/profit from discontinued operations is stated after chargingreorganisation costs: 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Closure cost of the Wireless Infrastructure facility in - 560 1,080Australia ====== ====== ====== 15 Share-based payments discontinued operations Operating (loss)/profit from discontinued operations is stated after charging/(crediting): 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000Share options expense:- Wireless Infrastructure 234 (26) (4)- Handset Products - 181 181 ---------- ---------- ---------- 234 155 177 ====== ====== ====== All outstanding share options vested on the completion of the sale of theWireless Infrastructure business on 16 October 2006. Consequently all theremaining share-based payment cost was expensed in the period. 16 Finance costs discontinued operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Currency exchange losses 239 - - ====== ====== ====== 17 Gain on sale of discontinued operations 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000Gain on sale of:Handset Products business - 2,894 14,146Wireless Infrastructure business 86,001 - - ---------- ---------- ---------- 86,001 2,894 14,146 ====== ====== ====== On 16 October 2006 the Wireless Infrastructure business was sold for$185,000,000 cash and 17,700,000 shares of Powerwave Technologies, Inc. commonstock. The cash consideration was covered by forward foreign exchange contractswhen the sale was agreed in September 2006. This fixed the cash considerationat £96,925,000. The sale is analysed as follows: £000Consideration and costsCash consideration 99,709Currency exchange loss on consideration (2,784) ----------Cash consideration after currency exchange loss 96,925Powerwave shares consideration 59,909Sale costs (6,608)Currency translation adjustment (61) ---------- 150,165 ======Assets and liabilities soldProperty, plant and equipment 23,082Deferred tax asset 2,269Inventories 26,342Trade and other receivables 39,506Cash and cash equivalents 406Trade and other payables (26,306)Income tax payable (460)Deferred tax liability (675) ----------Net assets sold 64,164Gain on sale of discontinued operation (see note 18) 86,001 ---------- 150,165 ====== 18 Contingent liability Following completion of the sale of the Wireless Infrastructure business, thecompany has been notified of a potential product liability claim. This claim iscurrently under investigation with the customer. In the event that a financialsettlement is required, this will reduce the gain on sale of the WirelessInfrastructure business. 19 Earnings/(loss) per share 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000Profit/(loss) for the period- continuing operations (6,750) (11,111) (12,850)- discontinued operations 82,577 6,875 18,861 ---------- ---------- ----------Profit/(loss) for the period 75,827 (4,236) 6,011 ====== ====== ====== 000 000 000 Weighted average number of shares 74,762 74,842 74,842Dilution effect of share options 42 238 93 ---------- ---------- ----------Diluted weighted average number of shares 74,804 75,080 74,935 ====== ====== ======Basic earnings/(loss) per share- continuing operations (9.03)p (14.85)p (17.17)p- discontinued operation 110.46p 9.19p 25.20p ---------- ---------- ----------Basic earnings/(loss) per share 101.43p (5.66)p 8.03p ====== ====== ======Diluted earnings/(loss) per share- continuing operations (9.03)p (14.85)p (17.17)p- discontinued operation 110.40p 9.19p 25.19p ---------- ---------- ----------Diluted earnings/(loss) per share 101.37p (5.66)p 8.02p ====== ====== ====== 20 Investments 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Investments 57,587 - - ====== ====== ====== At 30 November 2006 investments were the 17,700,000 shares in PowerwaveTechnologies, Inc. common stock, which were received as part of theconsideration for the sale of the Wireless Infrastructure business on 16 October2006. The shares are held in the balance sheet at their market value on 30November 2006. Since 30 November 2006 a total of 7,421,000 Powerwave shares have been sold for£24,238,000. 21 Capital redemption reserve 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Capital redemption reserve 1,137 - - ====== ====== ====== Following the authority given at the Extraordinary General Meeting on 29September 2006, the company bought back and cancelled 576,965 of its own sharesfor £1,137,000 on 23 October 2006. An amount of £1,137,000 was transferred fromretained earnings to the capital redemption reserve as required by the CompaniesAct 1985. 22 Other reserve 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Other reserve - 6,024 6,237 ====== ====== ====== The other reserve was undistributable surplus and additional capital of theChinese subsidiary that was sold as part of the sale of the WirelessInfrastructure business on 16 October 2006. Following the sale the otherreserve was transferred to retained earnings. 23 Dividends The dividends recognised in equity and paid during the period were as follows: 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 Per share £000 £000 £000 Final dividend year ended 31 May 2005 1.80p - 1,347 1,347 Interim dividend year ended 31 May 2006 0.90p - - 674 Final dividend year ended 31 May 2006 1.80p 1,348 - - ---------- ---------- ---------- 1,348 1,347 2,021 ====== ====== ====== 24 Reconciliation of movements in total equity 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000 Opening total equity 94,377 93,569 93,569Total recognised income and expense for the period 68,160 217 2,589Share-based payments 567 230 240Dividends (1,348) (1,347) (2,021)Shares issued 87 - -Shares bought back (1,137) - - ---------- ---------- ----------Closing equity 160,706 92,669 94,377 ====== ====== ====== 25 Note to the consolidated cash flow statement 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2006 2005 2006 £000 £000 £000Operating loss- continuing operations (5,893) (8,551) (10,145)- discontinued operations (2,554) 5,550 6,105 ---------- ---------- ---------- (8,447) (3,001) (4,040) ====== ====== ======Net cash from operating activities- continuing operations (12,551) (8,660) (6,828)- discontinued operations (734) 3,586 7,345 ---------- ---------- ---------- (13,285) (5,074) 517 ====== ====== ======Net cash from investing activities- continuing operations (6,749) (1,827) (4,257)- discontinued operations (2,115) (3,190) (6,137)- sale of discontinued operations 105,107 42,523 44,138 ---------- ---------- ---------- 96,243 37,506 33,744 ====== ====== ======Net cash from financing activities- continuing operations (21,479) (30,934) (30,405)- discontinued operations - - - ---------- ---------- ---------- (21,479) (30,934) (30,405) ====== ====== ====== 26 Interim financial information The interim financial information contained in this report does not constitutestatutory financial statements. The interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the financialstatements included in the Filtronic plc Annual Report 2006 dated 31 July 2006,except for the presentation of discontinued operations. In this interimfinancial information the result of the discontinued operations has beenincluded as a single item in the consolidated income statement. In the AnnualReport 2006 the result of the discontinued operations was presented on the faceof the consolidated income statement in a columnar format. The financial information for the year ended 31 May 2006 has been extracted fromthe Filtronic plc Annual Report 2006 dated 31 July 2006. The report of theauditors was (i) unqualified, (ii) did not include a reference to any matters towhich the auditors drew attention by way of emphasis without qualifying theirreport, and (iii) did not contain a statement under section 237(2) or (3) of theCompanies Act 1985. Copies of this Interim Report are available from the registered office of thecompany: Filtronic plcThe WaterfrontSalts Mill RoadSaltaireShipleyWest YorkshireBD18 3TT Tel: 01274 530622Fax: 01274 531561 www.filtronic.com This information is provided by RNS The company news service from the London Stock Exchange