8 February 2022

FILTRONIC PLC

("Filtronic", the "Company" or the "Group")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2021

Positive Trading Momentum Maintained

Filtronic plc (AIM: FTC), the designer and manufacturer of products for the aerospace, defence, telecoms infrastructure and critical communications markets, announces its half year results for the six months ended 30 November 2021 ("H1 2022").

Financial Highlights                                                                                                                                              

¹ Adjusted EBITDA is earnings before interest, taxation, depreciation, amortisation and exceptional items.

² Adjusted operating profit is operating profit before exceptional items.

Operational Highlights

·   Appointment of Jonathan Neale as Non-Executive Chairman who was previously Chief Operating Officer of McLaren Group. Prior to that he was the CEO of McLaren Racing F1 and Managing Director of Hawk Military Aircraft at BAE Systems, UK.

·    Contract win from a leading RF test equipment company in the USA valued at $0.8m (£0.6m) for the pilot phase of the development supplying RF front-end modules for next generation over-the-air 5G test equipment.

·    Market adoption of our "best-in-class" Tower Top Amplifier ("TTA") with good sales traction to our lead Original Equipment Manufacturer ("OEM"); the largest OEM in the critical communications market.

·    Continued expansion of our indirect sales channels in the USA with Alpha Sales Group signed up in the Southeast territory to expand the coverage of our sales reach in North America.

·    Healthy cash position enables continued investment in revenue growth initiatives to deliver growth.

·    Margin improvement from a stronger sales mix leading to stronger adjusted EBITDA.

Commenting on the outlook, Jonathan Neale, Chairman, said: "We are confident we will achieve a third consecutive year of EBITDA growth despite the headwinds of supply chain disruption from global semiconductor shortages. Coupled with a healthy cash position, this provides a robust platform to further develop the business and continue investing in revenue growth initiatives and the technology roadmap. The Board and management team are highly motivated to build on this and execute the strategic plan with a desire and focus to drive and deliver shareholder value.

"Recent investments in product development and operational capability align with the UK government's ambition for sovereign capability within the core markets we serve, as well as emerging markets such as Low Earth Orbit Space. This positions us well to capitalise on these opportunities and we are now starting to see the flow down into the supply chain and our opportunity pipeline. To this end, we are confident we can achieve our key strategic objective of broadening the customer base to add to our recent contract win with a leading 5G over-the-air equipment provider.

"Whilst the previous two years impeded customer engagement, the measures taken to augment our channels to market, along with investment into more sophisticated selling tools, has enabled the business to keep moving forward. Combined with travel restrictions easing and key marketing activities such as trade exhibitions reopening, we feel positive about the prospects of the business and our ability to continue to deliver growth."

Enquiries

Notes: 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Forward-looking statements

Certain statements in this half-yearly financial report are forward-looking. Where the half-yearly financial report includes forward-looking statements, these are made by the directors in good faith based on the information available to them at the time of their approval of this report. Such statements are based on current expectations and are subject to a number of risks and uncertainties, including both economic and business risk factors that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Chairman's Statement

I am pleased to present my first statement as Chairman of Filtronic. I have been aware of the Company throughout my career in aerospace, defence and motor sport, and have always had great respect for the integrity and the depth of expertise of Filtronic employees in the field of RF electronic and sub-system design. My experience since being appointed, has only served to affirm the confidence I have in the Company and its potential to shape the future of RF communications.

I started my role as Non-Executive Chairman in November 2021 following the retirement of Reg Gott after 15 years of service. I have enjoyed getting to know the executive team as they develop and execute the strategic plan of the business and am delighted with the support that I have received from my fellow directors and the high standards of corporate governance. I also appreciate the way in which the Board cooperates as a team to keep the focus on the long-term potential of the business.

The Group has continued to build momentum and traded positively in H1, delivering revenue and EBITDA growth against the same period last year, despite a challenging business environment that has included a global shortage of semiconductor components and multiple waves of Covid restrictions.

Group revenue for the first half of FY2022 was 12% up on the prior year, with sales of £8.0m (H1 2021: £7.1m), broadly in line with internal forecasts. The recovery of the critical communications market in North America, and the culmination of some long-term development programmes, with margin improvement from a stronger sales mix, contributed to an operating profit of £0.6m (H1 2021: £0.1m) and an 83% increase in adjusted EBITDA to £1.1m (H1 2021: £0.6m).

At 30 November 2021, the Group recorded cash in the bank of £3.0m (31 May 2021: £2.9m), net cash of £2.2m when excluding right of use property leases (31 May 2021: £1.9m) and net cash including right of use property leases of £1.1m (31 May 2021: £0.7m).

We remained fully operational throughout the continued Covid challenges and adapted to meet all our customer product and engineering programme delivery obligations. Our management team has done a great job in keeping business disruption to a minimum and enabled our employees to work safely on-site. On behalf of the Board, I would like to thank all our employees and partners for their commitment and hard work throughout these challenging times.

The way we approach market communications and new customer acquisition continues to adapt and we have developed some sophisticated direct marketing communication tools and a focus on lead generation via online content to adjust for domestic and international travel restrictions which have made face-to-face customer engagement more challenging. To complement this, we further expanded our channel representatives' network with the goal of engaging customers on a more local basis. We now have most of the USA covered with a professional reseller network who market our products to the regional critical communications installer base, and we have added a number of representatives to cover major European countries. The Group welcomes the return of industry specific trade shows which have always been a key marketing tool for our business such as European Microwave Week and IMS Microwave Week 2022.

The North American critical communication market recovered well in H1 with clear evidence that funds are being redirected back into public infrastructure projects. Demand from a core customer continued to build and we have increased our inventory holding to capitalise on future requirements and mitigate the risk of component shortages. Supported by on-shore USA manufacturing, the order flow for our Tower Top Amplifier products, launched in FY2021, is finally matching our original expectations with the product designed into major infrastructure projects ahead of more established brands.

Increasing backhaul performance is a prerequisite for servicing the growing demand for telecom network capacity and realising the full benefit of 5G infrastructure investment. Industry forecasts indicate demand for E-band spectrum technology will steadily increase to support the global rollout of the 5G network, and Filtronic is well placed to benefit from this trend. Sales of our 5G Xhaul transceivers into our prime telecommunications infrastructure customer are back at pre-pandemic levels, and we continue to explore adjacent E-band market opportunities including "trackside to train", High Altitude Pseudo-Satellites ("HAPS"), and low latency private network applications where we are seeing pockets of spend. In H1 we completed the design phase of an over-the-air 5G test equipment development, and work has now started on the pilot production phase following the $0.8m contract award announced in October 2021.

Our aerospace & defence contracts remain important revenue streams which ensures a high-level of utilisation of our state-of-the-art hybrid microelectronics manufacturing operations in Sedgefield, with good yield and productivity improvements. Fulfilment of the battlefield communication contract is nearing completion with delivery of the first production units in H1 and the remainder of the order will complete in H2. The increase in UK defence spending in the field of radar and communications technologies has resulted in several small development contracts for our specialist filter technology. Whilst initially modest, these projects have the potential to develop into more substantial RF sub-system projects in the future.

Outlook

A robust orderbook, strong balance sheet, and the recent contract win for a new test equipment customer, positions us favourably for H2 revenue growth in line with expectations and delivery of EBITDA growth.  Our cash position remains healthy, enabling us to invest in our technology roadmap, expand engineering capacity and build capability to support future revenue growth initiatives in the delivery of shareholder value. There are still some headwinds in the supply chain for many technology businesses as a result of the global shortage of semiconductor components and it is not yet known as to when this situation will abate but we continue to work hard with customers and suppliers as we to invest to secure long lead-time components and anticipate future customer demand.

Looking further ahead, the Group's key addressable markets continue to benefit from long-term growth drivers. Our E-band backhaul transceivers play a critical role in the rollout of 5G networks in the telecommunications infrastructure market, and we can anticipate some step changes in demand as countries license E-band frequencies in response to ever increasing demand for network capacity. The UK Government is delivering on budget commitments to increase defence spending and we have secured several filter development opportunities linked to new strategic defence platforms. The Low Earth Orbit ("LEO") Space Market continues to develop at pace both in the UK and in North America, and we are finding opportunities to adapt intellectual property originally developed for the terrestrial telecoms and HAPS market, into solutions for the emerging LEO space constellations.

Consequently, the Board continues to look to the future with a degree of confidence and optimism.

Jonathan Neale

Chairman, 8 February 2022
 

Condensed Consolidated Interim Income Statement

For the period ended 30 November 2021

1              Adjusted EBITDA is defined as profit before interest, taxation, depreciation, amortisation and exceptional items which is a non-GAAP metric used by management and is not an IFRS disclosure.

2              Adjusted operating profit is defined as operating profit before exceptional items which is a non-GAAP metric used by management and is not an IFRS disclosure.

Condensed Consolidated Interim Statement of Comprehensive Income

For the period ended 30 November 2021

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.

Condensed Consolidated Interim Balance Sheet

At 30 November 2021

The total equity is attributable to the equity shareholders of the parent company Filtronic plc.

Company number 2891064

Condensed Consolidated Interim Statement of Changes in Equity

For the period ended 30 November 2021

Condensed Consolidated Interim Cash Flow Statement

For the period ended 30 November 2021            

Notes to the Condensed Financial Statements

1    Company information

      Filtronic plc is a company registered and domiciled in the United Kingdom and is listed on the AIM market of the London Stock Exchange. The Company's registered number is 2891064. The address of the Company's registered office is Filtronic plc, Filtronic House, Unit 3, Airport West, Lancaster Way, Yeadon, West Yorkshire, LS19 7ZA.

     Copies of the Company's annual report and interim financial report are available from the Company's registered  office or the Company's website at www.filtronic.com.

2    Basis of preparation

    Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, this statement does not itself contain sufficient information to comply with IFRS.

      These financial results for the six months ended 30 November 2021 do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The interim report should be read in conjunction with the annual report 2021, which includes annual financial statements for the year ended 31 May 2021. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

    The condensed consolidated financial statements for the six months ended 30 November 2021 consolidate the financial statements of the Company and all of its subsidiaries (together referred to as the "Group"). Transactions between Group companies, which are related parties, have been eliminated upon consolidation and therefore do not require disclosure.

    The condensed consolidated financial statements for the six months ended 30 November 2021 and comparative period have not been audited. The interim financial report for the six months ended 30 November 2021 was approved by the Board on 7 February 2021.

3    Going Concern

In accordance with corporate governance requirements the directors have undertaken a review of forecasts and the Group's cash requirements to consider whether it is appropriate that the Group continues to adopt the going concern assumption.

The directors have reviewed the projected cash flow and other relevant information, including a 'severe but plausible' scenario and have a reasonable expectation that the Group has adequate resources to continue in operational existence and therefore it remains appropriate to adopt the going concern basis in preparing the interim financial report for the six months ended 30 November 2021.

4      Accounting estimates and judgements

      The preparation of the financial statements requires the use of accounting estimates and judgements that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The accounting estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of the future that are believed to be reasonable under the circumstances. Actual results may differ from the expected results. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The accounting estimates and judgements that have a significant effect on the financial statements are considered in the Filtronic plc Annual Report for the year ended 31 May 2021 which can be found on the Filtronic website. Unless stated below there is no material change to those judgements from the Annual Report in the basis of calculation.

5   Segmental Analysis

      Operating Segments

     IFRS 8 requires consideration of the identity of the Chief Operating Decision Maker ('CODM') within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Chief Executive Officer, who reviews internal monthly management reports, budget and forecast information as part of this. Accordingly, the Chief Executive Officer is deemed to be the CODM.

     The CODM has identified one operating segment within the Group as defined under IFRS 8. In turn, this is the only reportable segment of the Group as the entities in the Group have similar products and services, production processes and economic characteristics. Therefore, there is no allocation of operating expenses, profit measures or assets and liabilities to specific commercial markets.

Accordingly, the CODM assesses the performance of the operating segment on financial information which is measured and presented in a manner consistent with those in the financial statements by reference to Group results against budget.

The Group profit measures are adjusted operating profit and adjusted EBITDA, both disclosed on the face of the consolidated income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial statements.

The Group has three customers representing individually over 10% each and in aggregate 88% of revenue.

      Revenue by Destination

The revenue presented is based on the geographic location of customers receiving the product/service from the continuing operations.

5   Segmental Analysis (continued)

Revenue from sales

The revenue presented is based on the Group deriving revenue from product sales and those received from Non-Recurring Engineering ("NRE") at a point in time when the performance obligation is satisfied.

6    Exceptional items

Exceptional items are costs or credits that are separately disclosed due to their material and non-recurring nature in order to reflect management's view of the underlying business.

Operating profit is stated after crediting exceptional items as follows:

The warranty item is a provision reversal relating to the Group's legacy telecoms antenna business previously costed through discontinued operations. The warranty period has now lapsed, and the provision is no longer required. 
 

7    Finance costs

8    Finance income

9    Basic and diluted loss per share

10  Share Capital

Holders of the ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company.

11  Share Premium

12            Analysis of net cash/(debt)

      Cash at bank earns interest at floating rates based on daily bank deposit rates.

     At 30 November 2021, the Company had a £3.0m invoice discounting facility in place with Barclays Bank plc against the UK debtor book and a $4.0m factoring facility with Wells Fargo against the US debtor book. There were no drawings on either of the facilities at 30 November 2021 (31 May 2021: undrawn).

      IFRS 16 requires the recognition of property leases on the balance sheet which is classified as a debt item.