Filtronic Regulatory News (FTC)

31 Jan 2005 07:01

Filtronic PLC31 January 2005 FILTRONIC PLC INTERIM RESULTS SIX MONTHS ENDED 30 NOVEMBER 2004 Results in line with market expectations; Production Contracts with all major OEMs; Increasing presence in Defence in US; Positive Outlook Filtronic plc ("Filtronic"), a leading global designer and manufacturer ofcustomised microwave electronic subsystems for the wireless telecommunicationsand defence industries, announces its Interim results for the six months ended30 November 2004. Worldwide sites are in the UK (North of England, Yorkshire,Midlands, Scotland), USA, Finland, China and Australia. Filtronic is one of the world's leading independent suppliers of transmitreceive modules for mobile base stations and a world leading manufacturer ofmobile handset antennas. The contribution to sales is: Wireless Infrastructure(63%), Handset Products (21%), Integrated Products (16%). Financial Highlights • Group sales of £130.1m (2003: £123.6m)• Operating profit of £2.6m (2003: £5.2m).• Exceptional profit on disposals of property of £2.4m (2003: nil)• Net interest payable of £2.0m (2003 £2.8m)• Pre-tax profit of £3.3m (2003: £2.7m)• Diluted earnings per share of 2.21p (2003: diluted EPS of 1.59p)• Interim dividend maintained at 0.90p (2003: 0.90p), payable 1 April 2005• Gearing reduced from 51% to 43% Operational Highlights • Wireless Infrastructure: Over 50% of module products now manufactured in China - Now supply major OEMs in production quantities and improved market leading position - Stable margins at 13% (2003: 13%) - Development of integrated power amplifiers and focus on 3G sector• Handset Products: Maintained market position, supplying c.18% global antennas market for mobile handsets - Supply of 'internal antennas' to broadening customer base, including Samsung and other ODMs - Operating margins improved compared with preceding six months• Integrated Products: Strong revenue growth of 29% after excluding disposed of activities - Increasing demand for catalogue products and more complex higher value Monolithic Microwave Integrated Circuits - Operating losses reduced to £5.7m - Point to point microwave links now being supplied to two OEMs for use in mobile networks• Board Appointments: Group Finance Director (14 Dec. 2004), CEO designate Integrated Products (21 Feb. 2005)• Disposal of sites in Merrimack, USA and Brisbane, Australia for £7.4m on leaseback basis• Capital expenditure of £7.3m (2003: £5.0m) Outlook Professor J. David Rhodes said: 'We are expecting growth in WirelessInfrastructure to remain in line with the strengthening market in 2.5 and 3Gwith focus on GSM, EDGE, CDMA and WCDMA products. Power amplifier productionshould increase by financial year end and a further new product is set for nextfinancial year. Continued growth is also expected from electronic warfare inthe US and point to point microwave links. Improved product mix should lead torevenue growth in semi-conductors.' 'In Handset Products, revenue is expected to remain seasonal. Demand from ourkey customer's new models is not expected to start until next financial year.Management focus will remain on achieving efficiency although operating marginsmay be under pressure.' 'The Board is continuing with the activities for the disposal of the HandsetProducts division. However, in light of current market conditions, the Board isnot pursuing an IPO at this stage.' Filtronic plcProfessor David Rhodes, Chairman Mob: 07850 827 280John Roulston, Chief Executive Mob: 07800 706 318Charles Hindson, Group Finance Director Mob: 07800 706 319Binns & Co PR Ltd Peter Binns Tel: 020 7786 9600 / Mob: 07768 392 582Paul McManus Tel: 020 7153 1485 / Mob: 07980 541 893 The analyst presentation is available on the Filtronic website.(www.filtronic.com) Chairman's Statement Interim financial results Sales for the six months ended 30 November 2004 were £130.1m (*2003 £123.6m) andoperating profit was £2.6m (*2003 £5.2m). Exceptional profit on disposals ofproperty was £2.4m (2003 nil). Financing costs totalled £1.7m (2003 £2.5m) comprising net interest payable£2.0m (2003 £2.8m) and a net currency exchange gain of £0.3m (2003 £0.8m). The profit before taxation was £3.3m (*2003 £2.7m). After taxation charges of£1.6m (*2003 £1.5m), the profit was £1.7m (*2003 £1.2m). Basic earnings pershare is 2.21p (*2003 1.60p). Diluted earnings per share is 2.21p (*20031.59p). Dividend The Board is maintaining an interim dividend of 0.90p (2003 0.90p) per sharepayable on 1 April 2005 to shareholders on the register at 25 February 2005. Operations The segmental analysis of the operating results is as follows: Sales Operating profit Six months ended 30 November 2004 *2003 2004 *2003 £m £m £m £m Wireless Infrastructure 82.3 69.8 7.4 7.2Handset Products 27.0 34.1 3.3 8.2Integrated Products 20.4 19.0 (5.7) (8.3)Central Services 1.8 2.0 (2.4) (1.9)Inter segment (1.4) (1.3) - - 130.1 123.6 2.6 5.2 \* The results for the six months ended 30 November 2003 have been restated usingthe revised accounting policy described in note 6 to the interim financialinformation. The average rate of exchange for the period is now used totranslate the results of overseas subsidiaries. Wireless Infrastructure This business segment has two main areas of activity for mobile base stations,these being filter based transmit/receive modules and integrated poweramplifiers. The filter based transmit/receive modules represent the established part of theactivity. The overall market expansion is estimated to be 15% in the calendaryear 2004, which we outperformed with 18% sales growth compared with the priorperiod in 2003. We consider that our total available market for these modulesincreased by more than 20% with the inclusion of Ericsson. We further consider that we have improved our market leading position, where wehold 28% of the expanded available market, through commencing shipments to twonew Original Equipment Manufacturers ("OEMs"), so that we now supply all majorOEMs in production quantities. Margins remain stable at 13% compared to theprior period in 2003 as we continue the transition to low cost manufacturing.More than 50% of our module products are now manufactured in China, usinglocally sourced material. The integrated power amplifiers are a new product area, which has been theprincipal development priority. We are focusing on products for the 3G sector,where the WCDMA market for power amplifiers is considered to be showing 20%CAGR. Development and initial production costs in the six months to 30 November2004 were £3.0m (2003 £2.0m) and shipments of the product started on a smallscale at the end of this reporting period. Handset Products This business segment has maintained its market position supplying about 18% ofthe global market in antennas for mobile handsets. We have kept our focus onthe growing 'internal antenna' market and on supplying major handset OEMs,broadening our customer base with Samsung and others including Chinesemanufacturers and Original Design Manufacturers. Our internal antennas continueto require high levels of mechanical integration. During the six months ended 30 November 2004, the operating margin has improved,compared with the preceding six months, to 16% before goodwill amortisation, and12% after goodwill amortisation. The margins were 27% and 24% respectively forthe corresponding period of 2003, reflecting the very high level of demand witha customer for a product family in this period and the lower level ofintegration within antennas. Integrated Products We group within this business segment activities supporting the semiconductorsand defence sectors and point to point microwave links. Overall, this divisionis showing revenue growth of 29% compared to the six month period of 2003, afterexcluding the turnover of the electronic warfare business of Filtronic SolidState that was sold in December 2003. Similarly, operating losses reduced by£2.8m to £5.7m for the six month period ended 30 November 2004. Within semiconductors, progress has been made to broaden the product mix and useof the capacity of the semiconductor foundry at Newton Aycliffe. Our switcheshave been selected by RFMD for several products under a strategic supplieragreement. Our catalogue products are selling strongly and are used in spaceapplications. We are experiencing increasing demand for more complex, highervalue MMICs (Monolithic Microwave Integrated Circuits), and our foundry productshave been accepted for critical applications by cellular OEMs. The outstanding deferred licence fee from BAE SYSTEMS is now being recognised asrevenue equally over the minimum period for which the Filtronic group is liableto make reimbursement. This period is to 1 May 2008. This results in anincrease in such revenue in the six months to 30 November 2004 of £0.8m to£1.2m. We are benefiting from strong growth in the US, based on highly integratedsub-systems for pulse frequency measurement, including a recent contract forupgrade to military aircraft. Point to point microwave links are now being supplied to two OEMs for use inmobile networks. Central R&D The main focus for this activity has been to support the developments for theintegrated power amplifiers, including digital pre-distortion techniques. Finance Interest costs have reduced by 29% compared to the prior period in 2003. The group's lending banks have confirmed their support, including continuing towaive the current breach of covenants, whilst reserving their rights. Thegroup's overdraft facility has been renewed at £9m until 31 January 2006. Theadditional finance charges arising from the breach of covenants will beapproximately £0.5m in the year to 31 May 2005. Capital expenditure Capital expenditure in the six months to 30 November 2004 was £7.3m (2003£5.0m). Its main focus was for generic automated production lines for HandsetProducts to support customer projects (£2.4m) and expansion of WirelessInfrastructure's manufacturing resources in China (£1.4m), with limitedinvestment in Wireless Infrastructure's power amplifiers product (£0.8m) forinitial production requirements. Cash flow and closing net debt Net cash flow from operations for the six months to 30 November 2004 was £10.9m(including a decrease in working capital of £1.6m), along with £7.4m proceedsprincipally from the sale of properties at Merrimack, USA and Brisbane,Australia on a sale and leaseback basis, resulted in an increase of cash of£4.9m after meeting capital expenditure of £7.3m, financing tax, dividends,interest and loan repayments of £7.0m. This compares with a decrease in cash of£9.5m for the six months to 30 November 2003, which included loan repayments of£8.4m, and reflects our focus on improving the cash performance in the currentperiod. As a result of the improved increase in cash, closing net debt was £44.0m, areduction of £10.6m compared to 30 November 2003, which reduced our debt equityratio from 51% to 43%. Outlook In Wireless Infrastructure, continued volume growth is expected in line with thestrengthening market in 2.5 and 3G, with particular value coming from our focuson GSM, EDGE, CDMA and WCDMA products. The power amplifier production isexpected to increase by the end of this financial year, and a second poweramplifier product is also planned for production during the following financialyear. In Integrated Products, continued growth is expected from electronic warfare inthe US and point to point microwave links in line with recent performance.Improved product mix should lead to revenue growth in compound semiconductors.This profile gives the potential overall growth equivalent to the past halfyear. In Handset Products, revenue is expected to remain seasonal with growth indemand from our key customer's new models not expected to start until nextfinancial year. Management focus will remain on achieving efficiency althoughoperating margins may be under pressure during this period of reduced demand. The Board is continuing with the activities for the disposal of the HandsetProducts division, that was envisaged to be by way of either an IPO or a sale.To facilitate this, we have effected the legal separation of the associatedbusinesses. In the light of current market conditions the Board is not pursuingan IPO at this stage. Company directors In line with the decision to split the roles of Chairman and CEO, John Roulstonjoined as CEO on 6 September 2004. Charles Hindson joined as Group FinanceDirector on 14 December 2004. Iain Gibson will join as CEO designate ofIntegrated Products Division on 21 February 2005, replacing Professor ChrisSnowden when he leaves to take up the appointment as Vice Chancellor and CEO ofSurrey University on 5 April 2005. Professor J D Rhodes CBE FRS FREngChairman 31 January 2005 Consolidated Profit and Loss Account Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 2003 31 May 2004 £000 2004 note £000 £000 Sales 1, 2 130,141 123,594 245,076 -------------- -------------- ---------- Operating profit 1, 2 2,580 5,210 4,804 -------------- -------------- ----------Exceptional profit on disposal of 2,372 - -tangible fixed assets -------------- -------------- ----------Exceptional profit on disposal of - - 4,842business -------------- -------------- ---------- Net interest payable (2,018) (2,808) (5,550)Currency exchange gains/(losses) 386 776 (644)Exceptional loss on repayment of debt - (460) (2,498) -------------- ------------- ---------- (1,632) (2,492) (8,692) ------------- ------------- ----------Profit on ordinary activities before taxation 3,320 2,718 954 Taxation (1,668) (1,530) (2,730) -------------- -------------- ----------Profit/(loss) on ordinary activitiesafter taxation 1,652 1,188 (1,776) Dividends (674) (671) (2,015) -------------- -------------- ----------Profit retained/(deficit) for the period 978 517 (3,791) -------------- -------------- ---------- Earnings/(loss) per share Basic 3 2.21p 1.60p (2.38)pDiluted 3 2.21p 1.59p (2.38)p Dividend per share 0.90p 0.90p 2.70p Consolidated Balance Sheet Unaudited Unaudited Audited 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000Fixed assets Intangible assets 30,900 33,529 30,902Tangible assets 81,601 90,885 86,300 -------------- -------------- -------------- 112,501 124,414 117,202 -------------- -------------- --------------Current assets Stocks 30,862 34,560 36,618Debtors 59,417 57,900 54,480Cash at bank and in hand 6,322 4,389 2,070 -------------- -------------- -------------- 96,601 96,849 93,168 -------------- -------------- --------------Creditors: amounts falling due withinone year Bank overdraft and loan 10,369 7,558 9,369Other creditors 43,240 41,229 42,398 -------------- -------------- -------------- 53,609 48,787 51,767 -------------- -------------- -------------- Net current assets 42,992 48,062 41,401 -------------- -------------- --------------Total assets less current liabilities 155,493 172,476 158,603 Creditors: amounts falling due afterone year Loans 40,000 51,462 44,000Provision for deferred tax 608 728 582 Deferred income 12,295 12,583 12,908 -------------- -------------- --------------Net assets 102,590 107,703 101,113 -------------- -------------- -------------- Capital and reserves Called up share capital 7,484 7,453 7,465Share premium account 139,172 137,461 137,641Shares to be issued - 2,168 2,255Revaluation reserve 106 106 106Other reserve 1,937 788 2,020Profit and loss account (46,109) (40,273) (48,374) -------------- -------------- --------------Equity shareholders' funds 102,590 107,703 101,113 -------------- -------------- -------------- Consolidated Cash Flow Statement Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 note £000 £000 £000 Net cash flow from operating A 10,953 9,998 16,951activities -------------- -------------- ------------- Returns on investment andservicing of financeNet interest paid and similar charges (2,018) (2,880) (6,774) -------------- -------------- ------------- Tax paid (1,662) (1,990) (2,811) -------------- -------------- ------------- Capital expenditure Purchase of tangible fixed assets (7,255) (5,044) (11,718)Sale of tangible fixed assets 7,362 147 305Government grants received 1,000 - 1,297Government grants repaid (150) - - -------------- -------------- -------------Net cash flow from capital 957 (4,897) (10,116)expenditure -------------- -------------- ------------- Net cash flow from disposals - - 6,499 -------------- -------------- ------------- Equity dividends paid (1,344) (1,337) (2,008) -------------- -------------- ------------- -------------- -------------- -------------Net cash flow before financing 6,886 (1,106) 1,741 -------------- -------------- ------------- FinancingIssue of shares - 83 275Loans taken out - - 60,000Loans repaid (2,000) (8,463) (66,947) -------------- -------------- -------------Net cash flow from financing (2,000) (8,380) (6,672) -------------- -------------- ------------- -------------- -------------- -------------Increase/ (decrease) in cash B 4,886 (9,486) (4,931) -------------- -------------- ------------- Notes to the Consolidated Cash Flow Statement A Reconciliation of operating profit to net cash flow from operating activities Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Operating profit 2,580 5,210 4,804 Goodwill amortisation 1,109 1,145 2,256 Share compensation 43 145 232 Depreciation 7,235 9,341 17,542 Profit on disposal of tangible fixed assets (136) (111) (44) Licence fee released (1,167) (395) (789) Government grants released (296) (165) (743) Movement in stocks 5,466 (1,057) (4,901) Movement in debtors (4,915) (8,307) (7,541) Movement in creditors 1,034 4,192 6,135 -------------- -------------- -------------- Net cash flow from operating activities 10,953 9,998 16,951 -------------- -------------- -------------- B Reconciliation of net cash flow to movement in net debt Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Increase/ (decrease) in cash 4,886 (9,486) (4,931) Cash flow from debt 2,000 8,463 6,947 -------------- -------------- -------------- Change in net debt resulting from 6,886 (1,023) 2,016 cash flows Non-cash movement - (388) (1,274) Currency exchange movement 366 2,200 3,379 -------------- -------------- -------------- Movement in net debt in the period 7,252 789 4,121 Opening net debt (51,299) (55,420) (55,420) -------------- -------------- -------------- Closing net debt (44,047) (54,631) (51,299) -------------- -------------- -------------- Statement of Total Recognised Gains and Losses Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Profit/(loss) on ordinary activities 978 1,188 (1,776)after taxation Currency exchange movement arising on consolidation 456 (3,716) (9,011)Currency exchange movement on loan - 1,515 4,249 -------------- -------------- --------------Total recognised gains and losses 1,434 (1,013) (6,538)for the period -------------- -------------- -------------- Consolidated Reconciliation of Shareholders' Funds Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Profit/(loss) on ordinary activities after taxation 1,652 1,188 (1,776)Dividends (674) (671) (2,015) -------------- -------------- --------------Profit retained/(deficit) for the period 978 517 (3,791) Currency exchange movement arising on consolidation 456 (3,716) (9,011)Currency exchange movement on loan - 1,515 4,249Issue of shares 2,298 2,381 2,573Shares to be issued - shares issued (2,298) (2,298) (2,298) - share compensation 43 145 232 -------------- -------------- --------------Movement in shareholders' funds 1,477 (1,456) (8,046) Opening shareholders' funds 101,113 109,159 109,159 -------------- -------------- --------------Closing shareholders' funds 102,590 107,703 101,113 -------------- -------------- -------------- Notes to the Interim Financial Information 1 Geographical origin segment analysis Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Sales United Kingdom 54,614 46,924 92,486 Finland 29,597 31,760 63,479 United States of America 27,030 26,571 52,523 Australia 2,405 2,313 4,982 China 38,637 25,059 50,887 Inter segment (22,142) (9,033) (19,281) -------------- -------------- ------------ 130,141 123,594 245,076 -------------- -------------- ------------ Operating profit United Kingdom (9,408) (5,587) (15,896) Finland 1,112 1,022 2,216 United States of America 987 161 2,963 Australia (1,309) (634) (1,418) China 11,198 10,248 16,939 -------------- -------------- ------------ 2,580 5,210 4,804 -------------- -------------- ------------ Operating profit is after charging goodwill amortisation: Finland 1,010 1,035 2,046 United States of America 99 110 210 -------------- -------------- ------------ 1,109 1,145 2,256 -------------- -------------- ------------ 2 Business segment analysis Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Sales Wireless Infrastructure 82,287 69,762 145,219 Handset Products 26,973 34,166 60,154 Integrated Products 20,442 18,989 38,450 Central Services 1,799 1,973 3,857 Inter segment (1,360) (1,296) (2,604) -------------- -------------- ------------ 130,141 123,594 245,076 -------------- -------------- ------------ Operating profit Wireless Infrastructure 7,412 7,150 10,753 Handset Products 3,333 8,204 11,180 Integrated Products (5,732) (8,255) (13,392) Central Services (2,433) (1,889) (3,737) -------------- -------------- ------------ 2,580 5,210 4,804 -------------- -------------- ------------ Operating profit is after charging goodwill amortisation: Handset Products 1,010 1,035 2,046 Intergrated Products 99 110 210 -------------- -------------- ------------ 1,109 1,145 2,256 -------------- -------------- ------------ 3 Earnings/(loss) per share Unaudited Restated Restated 6 Months 6 Months Year Ended Ended Ended 30 November 30 November 31 May 2004 2003 2004 £000 £000 £000 Profit/(loss) on ordinary activities 1,652 1,188 (1,776) after taxation -------------- -------------- ------------ 000 000 000 Weighted average number of shares 74,753 74,418 74,508 Dilution effect of share options 33 98 - Dilution effect of contingently 89 283 - issuable shares -------------- -------------- ------------ Diluted weighted average number 74,875 74,799 74,508 of shares -------------- -------------- ------------ Basic earnings/(loss) per share 2.21p 1.60p (2.38)p -------------- -------------- ------------ Diluted earnings/(loss) per share 2.21p 1.59p (2.38)p -------------- -------------- ------------ 4 Deferred licence fee Deferred income includes deferred licence fee, of £9,145,000 as at 31 May 2004, which comprises the part of the cash fee paid by BAE SYSTEMS Avionics Limited that has not been recognised as revenue in the profit and loss account. This balance is now being recognised as revenue in the profit and loss account in equal monthly amounts from 1 June 2004 to 1 May 2008. This represents a shortening of the period over which the fee is being recognised as revenue from 31 December 2015 to 1 May 2008 so that the period for the recognition of revenue does not extend beyond the obligations for repayment of the fee by Filtronic plc and Filtronic Compound Semiconductors Limited (together "Filtronic"). The change in the period of revenue recognition reflects the directors' assessment of the feasibility for Filtronic to implement its rights under the agreement to terminate the agreement after 1 May 2008 without financial penalty. This results in an increase of the amount recognised as revenue in the six months ended 30 November 2004 of £772,000 to £1,167,000 and on an annual basis an increase of £1,545,000 to £2,334,000. 5 Basis of preparation Although the group's trading performance has strengthened in the last six months, the group remains in breach of certain of its covenants within its banking facilities.The group's lending banks have re-confirmed their continuing support, including extending the waiving of the covenant breaches, whilst reserving their rights. The group's overdraft facility has been renewed at £9,000,000 until 31 January 2006. The Board has developed working capital forecasts and has considered various business scenarios. Whilst recognising uncertainties principally relating to customer demand and its impact on revenues, cost profiles and the timescales for implementing capital expenditure programmes, the Board has concluded, based on these considerations, that the group's funding remains adequate and therefore that it is appropriate for the financial statements to be prepared on a going concern basis. 6 Change in accounting policy The accounting policy for the translation of the profit and loss accounts and cash flow statements of overseas subsidiaries has been changed. Under the previous policy the profit and loss accounts and cash flow statements of the overseas subsidiaries were translated at the rate of exchange ruling at the balance sheet date. From 1 June 2004 the profit and loss accounts and cash flow statements of the overseas subsidiaries are translated at the average rate of exchange for the reporting period. The balance sheets of the overseas subsidiaries continue to be translated at the rate of exchange ruling at the balance sheet date. The directors consider that the revised accounting policy provides a fairer view of the group's results as a significant proportion of the group's operations are overseas. The results for the comparative periods have been restated using the revised accounting policy. There is no change to the previously reported balance sheets. The effect of the change in accounting policy on the prior period results is as follows: As Previously Prior Period Reported Adjustment Restated 6 Months 6 Months 6 Months Ended Ended Ended 30 November 30 November 30 November 2003 2003 2003 £000 £000 £000 Sales 121,520 2,074 123,594 -------------- -------------- -------------- Operating profit 4,723 487 5,210 -------------- -------------- -------------- Profit on ordinary activities 727 461 1,188 after taxation -------------- -------------- ------------ Currency exchange movement (3,255) (461) (3,716) arising on consolidation -------------- -------------- ------------ As Previously Prior Year Reported Adjustment Restated Year Ended Year Ended Year Ended 31 May 31 May 31 May 2004 2004 2004 £000 £000 £000 Sales 237,203 7,873 245,076 -------------- -------------- -------------- Operating profit 3,707 1,097 4,804 -------------- -------------- -------------- Loss on ordinary activities (3,007) 1,231 (1,776) after taxation -------------- -------------- -------------- Currency exchange movement (7,780) (1,231) (9,011) arising on consolidation -------------- -------------- -------------- 7 Interim financial information The accounting policies adopted in preparing this interim financial information are consistent with those set out on pages 20 and 21 of the Filtronic plc Annual Report 2004, except as described in note 6. The interim financial information contained in this report does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The figures for the year ended 31 May 2004 are extracted from the Financial Statements included in the Filtronic plc Annual Report 2004 dated 2 August 2004, except where they have been restated as a result of the change in accounting policy described in note 6. Those Financial Statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies in England and Wales. Copies of this Interim Report are available from the registered office of the company: Filtronic plc The Waterfront Salts Mill Road Saltaire Shipley West Yorkshire BD18 3TT Tel: + 44 1274 530622 Fax: + 44 1274 531561 www.filtronic.com Independent Review Report to Filtronic plc Introduction We have been engaged by the company to review the financial information consisting of the profit and loss account, balance sheet, statement of total recognised gains and losses, reconciliation of shareholders funds, cash flow statement and notes and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be 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 Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 November 2004. KPMG Audit Plc Chartered Accountants Leeds 31 January 2005 This information is provided by RNS The company news service from the London Stock Exchange