30th Jan 2006 07:01
Filtronic PLC30 January 2006 For release 7.00am 30 January 2006 FILTRONIC PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2005 Underlying performance of continuing operations broadly in line with market expectations; Handset Products division sale completed on 8 September for £45m; Foundry's growth meeting plans; Group debt reduced; Dividend maintained 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 2005. Worldwide sites are in the UK (North of England, Yorkshire,Midlands, Scotland), USA, Finland, China and Hungary. Filtronic is one of the world's leading independent suppliers of transmit/receive modules for base stations and a leading manufacturer of semiconductorswitches for mobile handsets. The contribution to sales for continuingoperations is: Wireless Infrastructure (80%), Defence Electronics (13%);Compound Semiconductors (7%). Financial Highlights • Revenue from continuing operations of £110.8m (2004: £103.2m) • Operating loss from continuing operations before non recurring items of £0.4m (2004 loss: £1.3m) • Operating loss from continuing operations of £2.9m (2004 loss: £1.3m) • Loss on disposal of property of £0.4m (2004 gain: £2.4m) • Net interest expense of £1.1m (2004: £2.0m) • Pre-tax loss of £5.6m (2004 profit: £3.5m) • Gain on disposal of discontinued operation £2.9m (2004: £nil) • Diluted loss per share of 5.66p (2004: diluted EPS of 2.45p) • Interim dividend maintained at 0.90p (2004: 0.90p), payable 31 March 2006 • Net debt of £12.0m (2004: £44.0m), with working capital facilities of £20.0m Operational Highlights • Wireless Infrastructure: - Maintaining market share in stable market for transmit / receive filters - Volume production of integrated power amplifier achieved - Sector now includes backhaul radio products - Operations in Australia closed with non recurring cost of £0.6m • Defence Electronics - US operations integrated as Filtronic Signal Solutions with move to new facilities in New Hampshire, £1.5m inventory write down - Site in US sold for £1.4m • Compound Semiconductors: - Performance in line with revenue plan with established demand whilst operational challenges remain - West coast sales office closed with non recurring cost of £0.4m • Handset Products division sale completed on 8 September for £45m • Capital expenditure of £6.8m (2004: £7.3m) Outlook Professor J. David Rhodes said: "Wireless Infrastructure is experiencing a flatmarket in the second half of the financial year with operating margins for thecore transmit / receive filters at over 10%. Revenue growth awaits some delayedcontracts and new OEM platforms moving into production. Our market driven approach to Power Amplifiers is gaining traction and will be agrowth mechanism in the coming financial year. New products in remote radioheads for 3G and WiMAX, some of which are at the prototype stage, will givegrowth in 2007. In Defence Electronics, consolidation in the US is positioning the businessfavourably with old and new customers. Completion of large contracts will reducerevenue in the next financial year, with the lead time to production on sizeablenew opportunities being 12 to 18 months. In Compound Semiconductors, the loading of the foundry is increasing, with morecustomers expected. The foundry ramp up supports Compound Semiconductorsreaching run rate breakeven at the end of this financial year. Additionalcapital expenditure of £4m is being undertaken to increase foundry capacity from17,500 to nearly 27,000 wafers a year during the coming period. The net cash flow for the coming half year is expected to be neutral after theadditional capital expenditure committed for the foundry, without the benefit of£4m collected from overdue debtors in December 2005. The contingentconsideration arising from the sale of the Handset Products division is expectedto be around €10m (£7m) and is due to be received in August 2006." EnquiriesFiltronic plc:Professor J David Rhodes, Chairman Tel: 01274 530622 / Mob: 07850 827 280Charles Hindson, Group Finance Director Tel: 01274 530622 / Mob: 07800 706 319 Binns & Co PR Ltd:Peter Binns Tel: 020 7786 9600 / Mob: 07768 392 582Paul McManus Tel: 020 7786 9600 / Mob: 07980 541 893 Chairman's Statement Interim financial resultsThese results have been prepared for the first time on the basis ofInternational Financial Reporting Standards. Revenue for continuing operations for the six months ended 30 November 2005 was£110.8m (2004 £103.2m) and the operating loss for continuing operations was£2.9m (2004 £1.3m). Loss on disposal of property was £0.4m (2004 profit £2.4m). Net financing costs totalled £2.2m (2004 £1.9m) including net interest payable£1.1m (£2004 £2.0m) and a net currency exchange loss of £0.4m (2004 gains£0.4m). The loss before taxation was £5.6m (2004 profit £3.5m). After taxation chargesof £1.6m (2004 £1.7m) and gain on sale of discontinued operations of £2.9m (2004£nil), the loss was £4.2m (2004 profit £1.8m). Basic and diluted loss per shareare 5.66p (2004 earnings 2.46p and 2.45p respectively). Dividend The Board is maintaining an interim dividend of 0.90p (2004 0.90p) per sharepayable on 31 March 2006 to shareholders on the register on 24 February 2006. Operations The Group completed the sale of the Handset Products division in September 2005for an initial consideration of £45.5m, along with a potential furtherconsideration on an earn out based on revenue for the year ending 31 May 2006.The proceeds were used to repay the company's long term debt and enabled thegroup's working capital facilities to be increased to £20m. Overall continuing operations grew 7% over the comparable period, and underlyingoperating performance was near breakeven for the period after excluding nonrecurring costs of £2.5m arising on the closure of operations in two sites andan inventory write down in the US Defence activities. The segmental analysis of the operating results for continuing operations is asfollows: Sales Operating (loss) / profit 6 months ended 30November 2005 2004 2005 2004 £m £m £m £m WirelessInfrastructure 89.4 86.7 5.6 7.1Defence Electronics 15.3 15.2 (0.7) 1.2CompoundSemiconductors 8.5 3.6 (5.1) (6.3)Central Services - - (2.1) (2.7)Inter segment (2.4) (2.3) - -Unallocated pensioncharge - - (0.6) (0.6) ------ ------ ------ ------ 110.8 103.2 (2.9) (1.3) ====== ====== ====== ====== The business segments were redefined with effect from 1 June 2005. The businesssegment results for the comparative periods have been re-analysed to beconsistent with the current period. Wireless Infrastructure This business segment provides transmit / receive filters, power amplifiers andbackhaul radio products for mobile base stations to all of the leading OriginalEquipment Manufacturers (OEMs). It has maintained its market share at 28% of the available market, in a marketthat is stable, with new programmes for major customers under development toenter production in the second half of the coming financial year. We are seeingcontinued strength of demand for backhaul radio products as OEMs continue tooutsource their requirements. Significant opportunities with OEMs for power amplifiers are startingdevelopment, along with new OEM requirement secured for remote radio heads usingoptical interfaces for all 3G bands plus the expansion bands and for WiMAX atboth 3.5GHz and 2.5GHz. The operations in Australia have been closed, resulting in non recurring costsof £0.6m. Defence Electronics Defence Electronics covers the Group's defence interests in the UK and the US.The latter were brought together as Filtronic Signal Solutions and strategy hasbeen repositioned to take advantage of the integration of its expertise indigital and analogue signal processing. The main manufacturing plant was movedto new facilities in New Hampshire and the previous manufacturing site has beensold. As a result of these changes, the management team has changed and aninventory write down of £1.5m has been made. Compound Semiconductors Compound Semiconductors are principally the operations established at thefoundry at Newton Aycliffe, UK. This segment's performance is in line with ourrevenue plan. Its principal product is semiconductor switches for mobilehandsets, for which the demand is now established, with a second customersecured. Wafer production has increased substantially in the period andoperational challenges remain as capacity expansion continues faster thanoriginally planned to meet demand. Its sales office based on the West coast ofthe USA has been closed, with non recurring costs of £0.4m. Finance Net finance costs were £2.2m (2004 £1.9m) reflecting a reduced interest expenseof £1.1m (2004 £2.0m), bank loan renewal fee of £0.3m (2004 £nil) and currencyexchange losses of £0.4m (2004 gains £0.4m). Working capital facilities total£20m comprising revolving committed facilities of £18m and overdraft facilitiesof £2m. Capital expenditure Capital expenditure in the six months to 30 November 2005 was £6.8m (2004 £7.3m)including investment in additional capacity in the foundry, the establishment ofthe new site for Defence Electronics in the US and the start of the new facilityin Hungary for Wireless Infrastructure. Cash flow and closing net debt The Group's long term loan of £44.0m was repaid from the proceeds of the sale ofthe Handset Products division. Net cash from operating activities was an outflowof £5.1m (2004 inflow £10.1m) reflecting increased working capital of £6.4m(2004 £1.6m). This included some £4m of overdue and non trading debtors thatwere collected in December 2005 and increased creditor payments in the period.Capital expenditure net of disposals of £5.1m and financing and tax payments of£2.6m resulted in a closing net debt of £12.0m (2004 £44.0m). Outlook Wireless Infrastructure is experiencing a flat market in the second half of thefinancial year with operating margins for the core transmit / receive filters atover 10%. Revenue growth awaits some delayed contracts and new OEM platformsmoving into production. Our market driven approach to Power Amplifiers is gaining traction and will be agrowth mechanism in the coming financial year. New products in remote radioheads for 3G and WiMAX, some of which are at the prototype stage, will givegrowth in 2007. In Defence Electronics, consolidation in the US is positioning the businessfavourably with old and new customers. Completion of large contracts will reducerevenue in the next financial year, with the lead time to production on sizeablenew opportunities being 12 to 18 months. In Compound Semiconductors, the loading of the foundry is increasing, with morecustomers expected. The foundry ramp up supports Compound Semiconductorsreaching run rate breakeven at the end of this financial year. Additionalcapital expenditure of £4m is being undertaken to increase foundry capacity from17,500 to nearly 27,000 wafers a year during the coming period. The net cash flow for the coming half year is expected to be neutral after theadditional capital expenditure committed for the foundry, without the benefit of£4m collected from overdue debtors in December 2005. The contingentconsideration arising from the sale of the Handset Products division is expectedto be around €10m (£7m) and is due to be received in August 2006. Professor J D Rhodes CBE FRS FREngChairman30 January 2006 Independent Review Report to Filtronic plc IntroductionWe have been engaged by the company to review the financial informationconsisting of the income statement, statement of recognised income and expense,balance sheet, cash flow statement and notes and we have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin 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 forour review work, for this report, or for the conclusions we have reached. Directors' responsibilitiesThe 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 which require that the accounting policies and presentation applied to theinterim figures should be consistent with those applied in preparing thepreceding annual accounts except where they are to be changed in the next annualaccounts in which case any changes, and the reasons for them, are to bedisclosed. As disclosed in basis of preparation note (note 11) to the financialinformation, the next annual financial statements of the group will be preparedin accordance with IFRS as adopted for use in the European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. As the basis of preparation note to thefinancial information explains, there is a possibility that the directors maydetermine that some changes to the accounting policies adopted in preparing thefinancial information are necessary when the group prepares its full annualfinancial statements for the first time in accordance with IFRS as adopted foruse in the European Union. Review work performedWe 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 United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusionOn 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 2005. KPMG Audit PlcChartered AccountantsLeeds30 January 2006 Consolidated Income Statement 6 months ended 30 November 2005 Continuing Discontinued operations operation Total note £000 £000 £000Revenue 110,753 13,645 124,398 ========== ========== ========== Operating (loss)/profit 3 (2,916) (85) (3,001) (Loss)/gain on disposal ofproperty (376) - (376)Finance income 4 94 - 94Finance costs 5 (2,278) - (2,278) ---------- ---------- ----------(Loss)/profit before taxation (5,476) (85) (5,561)Taxation (1,569) - (1,569) ---------- ---------- ----------(Loss)/profit after taxation (7,045) (85) (7,130)Gain on sale ofdiscontinuedoperation 6 - 2,894 2,894 ---------- ---------- ----------(Loss)/profit for the period (7,045) 2,809 (4,236) ========== ========== ==========(Loss)/earnings per shareBasic 7 (9.41)p 3.75p (5.66)pDiluted 7 (9.41)p 3.75p (5.66)p The (loss)/profit for the period is attributable to the equity shareholders ofthe parent. Consolidated Income Statement 6 months ended 30 November 2004 Continuing Discontinued operations operation Total note £000 £000 £000 Revenue 103,168 26,973 130,141 ========== ========== ========== Operating (loss)/profit 3 (1,329) 4,311 2,982 (Loss)/gain on disposal ofproperty 2,372 - 2,372Finance income 4 431 - 431Finance costs 5 (2,281) - (2,281) ---------- ---------- ----------(Loss)/profit before taxation (807) 4,311 3,504Taxation (1,668) - (1,668) ---------- ---------- ----------(Loss)/profit after taxation (2,475) 4,311 1,836Gain on sale of discontinuedoperation 6 - - - ---------- ---------- ----------(Loss)/profit for the period (2,475) 4,311 1,836 ========== ========== ========== (Loss)/earnings per shareBasic 7 (3.31)p 5.77p 2.46pDiluted 7 (3.31)p 5.76p 2.45p The (loss)/profit for the period is attributable to the equity shareholders ofthe parent. Consolidated Income Statement Year ended 31 May 2005 Continuing Discontinued operations operation Total note £000 £000 £000 Revenue 212,891 49,974 262,865 ========== ========== ========== Operating (loss)/profit 3 5,650 5,554 11,204 (Loss)/gain on disposal ofproperty 2,356 - 2,356Finance income 4 607 - 607Finance costs 5 (4,624) - (4,624) ---------- ---------- ----------(Loss)/profit before taxation 3,989 5,554 9,543Taxation (241) - (241) ---------- ---------- ----------(Loss)/profit after taxation 3,748 5,554 9,302Gain on sale of discontinuedoperation 6 - - - ---------- ---------- ----------(Loss)/profit for the period 3,748 5,554 9,302 ========== ========== ========== (Loss)/earnings per shareBasic 7 5.01p 7.43p 12.44pDiluted 7 5.00p 7.41p 12.41p The (loss)/profit for the period is attributable to the equity shareholders ofthe parent. Consolidated Statement of Recognised Income and Expense 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000 (Loss)/profit for the period (4,236) 1,836 9,302Actuarial gain/(loss) on definedbenefitpension scheme 1,304 (3,584) (6,784)Currency translation movement arisingonconsolidation 3,149 471 1,314 ---------- ---------- ----------Total recognised income and expensefor the period 217 (1,277) 3,832 ========== ========== ========== Consolidated Balance Sheet 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Non-current assetsGoodwill 2,944 32,024 31,400Property, plant and equipment 69,716 81,601 79,793Deferred tax 2,433 - 2,309 ---------- ---------- ---------- 75,093 113,625 113,502 ---------- ---------- ----------Current assetsInventories 33,808 30,862 34,802Trade and other receivables 63,016 58,731 67,924Income tax receivable - 686 -Cash and cash equivalents 3,955 6,322 6,563 ---------- ---------- ---------- 100,779 96,601 109,289 ---------- ---------- ---------- ---------- ---------- ----------Total assets 175,872 210,226 222,791 ---------- ---------- ----------Current liabilitiesBank overdraft - 2,369 5,958Bank revolving credit 16,000 - -Bank loan - 8,000 11,000Trade and other payables 39,283 40,224 49,844Income tax payable 2,387 1,954 1,880 ---------- ---------- ---------- 57,670 52,547 68,682 ---------- ---------- ----------Non-current liabilitiesBank loan - 40,000 33,000Defined benefit pension 15,700 15,804 16,149Deferred income 9,168 12,295 10,730Deferred tax 665 608 661 ---------- ---------- ---------- 25,533 68,707 60,540 ---------- ---------- ---------- ---------- ---------- ----------Total liabilities 83,203 121,254 129,222 ---------- ---------- ---------- ---------- ---------- ----------Net assets 92,669 88,972 93,569 ========== ========== ==========EquityShare capital 7,484 7,484 7,484Share premium 139,172 139,172 139,172Translation reserve 4,011 554 1,302Other reserve 6,024 1,937 5,584Accumulated losses (64,022) (60,175) (59,973) ---------- ---------- ----------Total equity 92,669 88,972 93,569 ========== ========== ========== Consolidated Cash Flow Statement 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Cash flows from operating activities (Loss)/profit for the period (4,236) 1,836 9,302Gain on sale of discontinued operation (2,894) - -Taxation 1,569 1,668 241Finance costs 2,278 2,281 4,624Finance income (94) (431) (607)Loss/(gain) on disposal of property 376 (2,372) (2,356) ---------- ---------- ----------Operating (loss)/profit (3,001) 2,982 11,204Defined benefit pension charge/(credit) 1,849 1,476 (422)Defined benefit pension contributionspaid (1,260) (855) (2,029)Share-based payment 230 129 291Depreciation 5,866 7,235 14,572Loss/(gain) on disposal of plant andequipment 278 (136) (235)Licence fee released (1,167) (1,167) (2,335)Government grants released (395) (296) (693)Government grants received - 1,000 1,000Government grants repaid - (150) (150)Movement in inventories (2,010) 5,466 2,107Movement in trade and other receivables (2,248) (4,915) (13,249)Movement in trade and other payables (2,175) 1,034 10,384 ---------- ---------- ----------Cash flow from operations (4,033) 11,803 20,445Taxation paid (1,041) (1,662) (1,846) ---------- ---------- ----------Net cash from operating activities (5,074) 10,141 18,599 ---------- ---------- ---------- Consolidated Cash Flow Statement continued 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 note £000 £000 £000 Net cash from operating activities (5,074) 10,141 18,599 ---------- ---------- ----------Cash flows from investingactivitiesProceeds from sale of property 1,383 6,358 6,349Proceeds from sale of plant andequipment 282 1,004 1,555Interest received 94 45 85Acquisition of property, plantandequipment (6,776) (7,255) (12,963)Sale of discontinued operation 42,523 - - ---------- ---------- ----------Net cash from investing activities 37,506 152 (4,974) ---------- ---------- ----------Cash flows from financingactivitiesBank revolving credit drawn 16,000 - -Bank loan repaid (44,000) (2,000) (6,000)Bank loan renewal fee paid (343) - -Interest paid (1,244) (2,063) (4,189)Dividends paid (1,347) (1,344) (2,018) ---------- ---------- ----------Net cash from financing activities (30,934) (5,407) (12,207) ---------- ---------- ----------Increase in cash and cashequivalents 1,498 4,886 1,418Currency exchange gain on saleofdiscontinued operation 1,007 - -Currency exchange movement 845 366 486Opening cash and cash equivalents 605 (1,299) (1,299) ---------- ---------- ----------Closing cash and cash equivalents 9 3,955 3,953 605 ========== ========== ========== Notes to the Interim Financial Information1 Business segment analysis 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000RevenueWireless Infrastructure 89,370 86,631 177,733Defence Electronics 15,337 15,216 31,590Compound Semiconductors 8,466 3,610 8,572Inter segment (2,420) (2,289) (5,004) ---------- ---------- ----------Continuing operations 110,753 103,168 212,891Handset Products - discontinuedoperation 13,645 26,973 49,974 ---------- ---------- ---------- 124,398 130,141 262,865 ========== ========== ========== Operating (loss)/profitWireless Infrastructure 5,548 7,062 17,524Defence Electronics (668) 1,197 3,070Compound Semiconductors (5,055) (6,289) (11,701)Central Services (2,152) (2,678) (5,694)Unallocated pension (charge)/credit (589) (621) 2,451 ---------- ---------- ----------Continuing operations (2,916) (1,329) 5,650Handset Products - discontinuedoperation (85) 4,311 5,554 ---------- ---------- ----------Operating (loss)/profit (3,001) 2,982 11,204(Loss)/gain on disposal of property (376) 2,372 2,356Finance income 94 431 607Finance costs (2,278) (2,281) (4,624) ---------- ---------- ----------(Loss)/profit before taxation (5,561) 3,504 9,543Taxation (1,569) (1,668) (241) ---------- ---------- ----------(Loss)/profit after taxation (7,130) 1,836 9,302 ========== ========== ========== The business segments were redefined with effect from 1 June 2005. The businesssegment results for the comparative periods have been re-analysed to beconsistent with the current period. 2 Geographical origin segment analysis 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000RevenueUnited Kingdom 56,661 54,614 106,447Finland 22,133 16,223 31,214Hungary 18 - -United States of America 26,234 27,030 65,880China 32,505 23,647 57,147Australia 1,026 2,405 4,300Inter segment (27,824) (20,751) (52,097) ---------- ---------- ----------Continuing operations 110,753 103,168 212,891 ---------- ---------- ----------Finland 4,405 13,374 23,220China 11,067 14,990 29,841Inter segment (1,827) (1,391) (3,087) ---------- ---------- ----------Discontinued operation 13,645 26,973 49,974 ---------- ---------- ---------- 124,398 130,141 262,865 ========== ========== ========== Operating (loss)/profitUnited Kingdom (9,439) (10,077) (20,798)Finland 3,040 2,227 3,041Hungary (558) - -United States of America (2,411) 1,080 9,538China 7,430 6,750 16,198Australia (978) (1,309) (2,329) ---------- ---------- ----------Continuing operations (2,916) (1,329) 5,650 ---------- ---------- ----------Finland (3,473) (137) (2,923)China 3,388 4,448 8,477 ---------- ---------- ----------Discontinued operation (85) 4,311 5,554 ---------- ---------- ----------Operating (loss)/profit (3,001) 2,982 11,204(Loss)/gain on disposal of property (376) 2,372 2,356Finance income 94 431 607Finance costs (2,278) (2,281) (4,624) ---------- ---------- ----------(Loss)/profit before taxation (5,561) 3,504 9,543Taxation (1,569) (1,668) (241) ---------- ---------- ----------(Loss)/profit after taxation (7,130) 1,836 9,302 ========== ========== ========== 3 Reorganisation costsOperating (loss)/profit is stated after charging reorganisation costs: 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Closure costs of the WirelessInfrastructure facility in Australia 560 - -Closure costs of the CompoundSemiconductors facility in California,USA 406 - -Inventory write down in the USDefenceElectronics business 1,512 - - ---------- ---------- ---------- 2,478 - - ========== ========== ========== The write down of the inventory in the US Defence Electronics business hasarisen as a result of its strategic repositioning, and after its move to a newfacility. 4 Finance income 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Interest income 94 45 85Currency exchange gains - 386 522 ---------- ---------- ---------- 94 431 607 ========== ========== ==========5 Finance costs 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Interest expense (1,244) (2,063) (4,189)Bank loan renewal fee (343) - -Net pension finance cost (266) (218) (435)Currency exchange losses (425) - - ---------- ---------- ---------- (2,278) (2,281) (4,624) ========== ========== ========== 6 Gain on sale of discontinued operationOn 8 September 2005 the Handset Products business was sold. The sale is analysedas follows: £000Consideration and costsCash consideration 47,113Currency exchange gain on consideration 1,007Sale costs (2,711)Currency translation adjustment 53 ---------- 45,462 ==========Assets and liabilities soldGoodwill 28,466Property, plant and equipment 9,425Inventories 4,064Trade and other receivables 10,110Cash and cash equivalents 208Trade and other payables (9,667)Income tax payable (38) ----------Net assets sold 42,568Gain on sale of discontinued operation 2,894 ---------- 45,462 ========== In September 2005 cash consideration of £45,442,000 was received. The balance of£1,671,000 was received in December 2005. Further cash consideration may bereceivable in August 2006 depending on the revenue achieved by the HandsetProducts business in the period 1 June 2005 to 30 June 2006. The amount of thiscontingent consideration will be recognised at 31 May 2006. The Handset Products business had the following cash flows: 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000 Cash flows from operating activities (1,567) 6,090 10,358 ====== ====== ====== Cash flows from investing activities (973) (3,120) (4,471) ====== ====== ====== 7 (Loss)/earnings per share 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000(Loss)/profit for the period- continuing operations (7,045) (2,475) 3,748- discontinued operation 2,809 4,311 5,554 ---------- ---------- ----------(Loss)/profit for the period (4,236) 1,836 9,302 ========== ========== ========== 000 000 000Weighted average number of shares 74,842 74,753 74,797Dilution effect of share options 238 33 84Dilution effect of contingentlyissuable shares - 89 45 ---------- ---------- ----------Diluted weighted average numberof shares 75,080 74,875 74,926 ========== ========== ==========Basic (loss)/earnings per share- continuing operations (9.41)p (3.31)p 5.01p- discontinued operation 3.75p 5.77p 7.43p ---------- ---------- ----------Basic (loss)/earnings per share (5.66)p 2.46p 12.44p ========== ========== ==========Diluted (loss)/earnings per share- continuing operations (9.41)p (3.31)p 5.00p- discontinued operation 3.75p 5.76p 7.41p ---------- ---------- ----------Diluted (loss)/earnings per share (5.66)p 2.45p 12.41p ========== ========== ========== 8 DividendsThe 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 2005 2004 2005 Per share £000 £000 £000Final dividend year ended31 May 2004 1.80p - 1,344 1,344Interim dividend yearended31 May 2005 0.90p - - 674Final dividend year ended31 May 2005 1.80p 1,347 - - ---------- ---------- ---------- 1,347 1,344 2,018 ========== ========== ========== The interim dividend declared for the year ending 31 May 2006 is 0.90p per sharepayable on 31 March 2006 to shareholders on the register on 24 February 2006. 9 Cash and cash equivalents and net debt 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000Cash and cash equivalents 3,955 6,322 6,563Bank overdraft - (2,369) (5,958) ---------- ---------- ----------Cash and cash equivalents in thecash flow statement 3,955 3,953 605 ---------- ---------- ----------Bank revolving credit (16,000) - -Bank loan - current - (8,000) (11,000)- non-current - (40,000) (33,000) ---------- ---------- ----------Debt (16,000) (48,000) (44,000) ---------- ---------- ---------- ---------- ---------- ----------Net debt (12,045) (44,047) (43,395) ========== ========== ========== 10 Reconciliation of movements in equity 6 months 6 months Year ended ended ended 30 November 30 November 31 May 2005 2004 2005 £000 £000 £000 Opening equity 93,569 91,464 91,464Total recognised income and expensefor the period 217 (1,277) 3,832Share-based payments 230 129 291Dividends (1,347) (1,344) (2,018) ---------- ---------- ----------Closing equity 92,669 88,972 93,569 ========== ========== ========== 11 Basis of preparationThese interim financial statements have been prepared on the basis ofInternational Financial Reporting Standards (IFRS) as adopted for use in theEuropean Union that are effective at 31 May 2006, which is the group's firstannual reporting date under IFRS. IFRS are subject to ongoing amendment by theInternational Accounting Standards Board and subsequent endorsement by theEuropean Union, and therefore are subject to change. The consolidated financial statements for the year ended 31 May 2006 will be thegroup's first full IFRS financial statements. The date of transition to IFRS is1 June 2004. The financial information for the comparative periods has beenrestated on the basis of IFRS. Reconciliations from UK GAAP to IFRS of theprofit for the period and total equity for the comparative periods are set outin note 12. Explanations of the differences between the UK GAAP and the IFRSfinancial statements are provided in note 13. The group has elected to takecertain IFRS first-time adoption options and these are described in note 14. The accounting policies adopted when reporting under UK GAAP have been revisedwhere necessary to comply with IFRS. The accounting policies adopted by thegroup under IFRS are laid out in note 15. The accounting policies have beenapplied consistently to all the periods presented in these interim financialstatements. 12 Reconciliations from UK GAAP to IFRSThe reconciliations from UK GAAP to IFRS of the profit for the period and totalequity for the comparative periods are as follows:Profit for the period 6 months Year ended ended 30 November 31 May 2004 2005 £000 £000Profit for the period per UK GAAP 1,652 5,312Goodwill amortisation 1,109 2,222Share-based payments (86) (248)Defined benefit pension operating(charge)/credit (621) 2,451Defined benefit pension net financecost (218) (435) ---------- ----------Profit for the period per IFRS 1,836 9,302 ========== ==========Total equity 1 June 30 November 31 May 2004 2004 2005 £000 £000 £000 Total equity per UK GAAP 101,113 102,590 105,778Proposed dividends 1,344 674 1,347SSAP 24 pension accrual 388 388 388Defined benefit pension liability (11,381) (15,804) (16,149)Goodwill amortisation - 1,109 2,222Goodwill currency translation movement - 15 (17) ---------- ---------- ----------Total equity per IFRS 91,464 88,972 93,569 ========== ========== ========== 13 Differences between the UK GAAP and the IFRS financial statementsExplanations of the differences between the UK GAAP and the IFRS financialstatements are as follows: Presentation of financial statementsThe formats of the income statement, balance sheet and particularly the cashflow statement are different under IFRS as compared to those used for UK GAAP. Segment reportingThe reportable business segments were redefined to comply with the requirementsof IAS 14 Segment Reporting. Each reportable business segment is subject torisks and returns that are different from the other business segments. GoodwillGoodwill is not amortised under IFRS. Instead goodwill is subject to annualimpairment testing, which indicated there was no impairment. Share-based paymentUnder IFRS, the fair value of share options at the date of grant is expensed inthe income statement over the vesting periods of the options. Defined benefit pensionIAS 19 Employee Benefits requires the separate recognition of the operating andfinancing costs of the defined benefit pension scheme in the income statement.Service costs are spread systematically over the working lives of the employees.Financing costs are recognised in the periods in which they arise. There was apast service credit in the year ended 31 May 2005 as a result of a reduction inthe benefits payable under the scheme. The defined benefit pension liability isthe present value of the defined benefit obligation less the fair value of thepension scheme assets. Actuarial gains and losses are recognised immediately inthe statement of recognised income and expense. Previously under UK GAAP the defined benefit pension scheme was accounted for inaccordance with SSAP 24. The SSAP 24 charge to the income statement for thecomparative periods presented was the same as the employers pensioncontributions for the period. The defined benefit pension costs and pension liability under IAS 19 are thesame as disclosed under FRS 17 in the UK GAAP financial statements for the yearended 31 May 2005. DividendsUnder IFRS, interim dividends are recognised in the period they are declared,and final dividends are recognised in the period they are approved byshareholders. Dividends are recognised directly in equity, and not in the incomestatement. Translation reserveUnder IFRS, currency translation movements arising from the consolidation ofoverseas subsidiaries are accumulated in the translation reserve, which is aseparate component of equity. Revaluation reserveThe UK GAAP revaluation reserve of £106,000 has been reclassified to accumulatedlosses under IFRS. The amount was the balance on the revaluation reserve at thetransition date in respect of assets that are measured on the basis of deemedcost under IFRS. 14 IFRS first-time adoption optionsThe group has elected to take certain IFRS first-time adoption options asfollows: Business combinationsAll prior business combination accounting has been frozen at the transitiondate. This includes goodwill on the balance sheet and goodwill deducted fromequity. Share-based paymentsOnly share options granted since 7 November 2002 have been fair valued andexpensed in the income statement over the vesting periods. Employee benefitsAll cumulative actuarial gains and losses in respect of the defined benefitpension scheme have been recognised at the transition date. Foreign exchangeThe translation reserve arising from the consolidation of foreign subsidiarieswas set to zero at the transition date. 15 Accounting policies Basis of accountingThe financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union. The financial statements have been prepared under the historical costconvention, except for the defined benefit pension liability which is measuredat fair value. The accounting policies have been applied consistently throughout the group. Basis of consolidationThe financial statements consolidate the income statements, balance sheets andcash flow statements of the company and all of its subsidiaries. Subsidiaries are all entities over which the group has the power to govern thefinancial and operating policies. Subsidiaries are consolidated from the date onwhich control is transferred to the group. Subsidiaries are not consolidatedfrom the date that control ceases. Intra group transactions and balances are eliminated on consolidation. Segment reportingThe business segments are the primary segments and the geographical originsegments are the secondary segments. Each reportable segment is subject to risksand returns that are different from the other segments. Foreign currency translationThe functional currency of each subsidiary is the currency of the primaryeconomic environment in which the subsidiary operates. The financial statementsare presented in sterling which is the functional and presentational currency ofthe company. Transactions denominated in foreign currencies are translated into thefunctional currency of each subsidiary at the exchange rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are translated into sterling at the rate of exchange ruling at thebalance sheet date. Foreign exchange gains and losses arising on the settlement of such transactionsand translation of monetary assets and liabilities are recognised in the incomestatement. On consolidation, the financial statements of subsidiaries with a functionalcurrency other than sterling are translated into sterling as follows: - The assets and liabilities in their balance sheets plus any goodwill aretranslated at the rate of exchange ruling at the balance sheet date.- The income statements and cash flow statements are translated at the averagerate of exchange for the period.Currency translation movements arising on the translation of the net investmentsin foreign subsidiaries are recognised in the translation reserve, which is aseparate component of equity. RevenueRevenue is recognised for goods and services provided to customers during theperiod. Revenue excludes any related value added or sales tax. Research and developmentAll research costs are expensed as incurred. Development costs chargeable to the customer are recognised as an expense in thesame period as the associated customer revenue. Development costs incurred on projects requiring product qualification tests tosatisfy customer specifications are generally expensed as incurred, reflectingthe technical risks associated with meeting the resultant product qualificationtest. Development costs incurred on projects are capitalised where firstly thetechnical feasibility can be tested against relevant milestones, secondly theprobable revenue stream foreseen over the life of the resulting product cansupport the development and thirdly sufficient resources are available tocomplete the development. These capitalised costs are amortised on a straightline basis over the expected life of the associated product. Once a new product is qualified, further development costs are expensed as theyarise because they are incurred in response to continual customer demand toenhance the product functionality and to reduce product selling prices. Government grantsGovernment grants related to operating expenditure are recognised in the incomestatement in the same period as the expenditure.Government grants related to capital expenditure are credited to deferred incomein the balance sheet on receipt. The deferred government grant income isrecognised in the income statement over the expected life of the related assets. Operating leasesOperating lease rentals are charged to the income statement on a straight linebasis over the lease term. Share-based paymentsThe group operates share option schemes, under which share options are grantedto certain employees. The granting of the share options is a share-basedpayment. The fair value of the share options at the date of grant is calculated using anoption pricing model, taking into account the terms and conditions applicable tothe option grant. The fair value of the number of share options expected to vestis expensed in the income statement on a straight line basis over the expectedvesting period. Each reporting period these vesting expectations are revised asappropriate. A credit is made to equity, equal to the share-based payment expense in theperiod. GoodwillGoodwill represents the excess of the cost of acquisitions over the fair valueof the net identifiable assets of the subsidiary acquired at the date ofacquisition. Goodwill is stated at cost less any accumulated impairment losses.Goodwill is allocated to cash generating units. Goodwill is tested forimpairment annually and when there is an indication of impairment. If impaired,the goodwill carrying value is written down to its recoverable amount. Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciationand less any accumulated impairment losses.Depreciation is provided on a straight line basis over the estimated usefullives of the assets as follows: Freehold land Not depreciatedFreehold buildings 50 yearsPlant and equipment 3 to 10 years Property, plant and equipment are tested for impairment when there is anindication of impairment. If impaired, the carrying values of the assets arewritten down to their recoverable amounts. InventoriesInventories are stated at the lower of cost and net realisable value. Costcomprises weighted average cost of materials and components together withattributable direct labour and overheads. Net realisable value is the estimatedselling price less estimated costs of completion and sale. Trade receivablesTrade receivables are stated net of any provision for doubtful debts. Cash and cash equivalentsCash and cash equivalents comprise cash balances and bank deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayable ondemand and form an integral part of the group's cash management are included asa component of cash and cash equivalents for the purpose of the cash flowstatement. Net debtNet debt is cash and cash equivalents less bank overdrafts, bank revolvingcredits and bank loans. DividendsInterim dividends are recognised in equity in the period they are declared.Final dividends are recognised in equity in the period they are approved byshareholders. Share capitalOrdinary shares issued are classified as share capital in equity. Pension schemesDefined contribution pension schemes are operated for overseas employees.Contributions are recognised as an expense in the income statement as incurred. A defined benefit pension scheme is operated for United Kingdom employees. Thedefined benefit pension liability is the present value of the defined benefitobligation less the fair value of the pension scheme assets. The defined benefitobligation is calculated by independent actuaries using the projected unitmeasure. The discount rate used to calculate the present value of the definedbenefit obligation is the yield on AA credit rated corporate bonds that havematurity dates approximating the terms of the benefit obligations. Service costs are spread systematically over the working lives of the employees,and are recognised within operating costs in the income statement. Financingcosts are recognised in the periods in which they arise within finance costs inthe income statement.Actuarial gains and losses arising from experience adjustments and changes inactuarial assumptions are recognised immediately in the statement of recognisedincome and expense. Deferred taxationDeferred tax is provided using the balance sheet liability method. Provision ismade for temporary differences between the carrying amounts of assets andliabilities in the financial statements and the amounts for taxation purposes.Temporary differences are not provided for the initial recognition of assets orliabilities that affect neither accounting nor taxable profit. No provision ismade for differences relating to investments in subsidiaries to the extent thatthey will probably not reverse in the foreseeable future. The amount of deferredtax provided is based on the expected manner of realisation or settlement of thecarrying amount of the assets and liabilities, using tax rates enacted orsubstantially enacted at the balance sheet date. Deferred tax assets arerecognised only to the extent that it is probable that future taxable profitswill be available against which the asset can be utilised. 16 Interim financial informationThe comparative financial information previously published under UK GAAP hasbeen restated in accordance with IFRS. Reconciliations of this restatement aregiven in note 12. The interim financial information contained in this report does not constitutestatutory financial statements within the meaning of Section 240 of theCompanies Act 1985. The financial information for the year ended 31 May 2005 is based on the UK GAAPFinancial Statements included in the Filtronic plc Annual Report 2005 dated 1August 2005. Those Financial Statements, upon which the auditors issued anunqualified opinion, have been delivered to the Registrar of Companies inEngland and Wales. Copies of this Interim Report are available from the registered office of thecompany: Filtronic plcThe WaterfrontSalts Mill RoadSaltaireShipleyWest YorkshireBD18 3TTTel: 01274 530622Fax: 01274 531561www.filtronic.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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