TIDMFTC
RNS Number : 3165H
Filtronic PLC
03 August 2021
3 August 2021
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEARED 31 MAY 2021
Filtronic plc (AIM: FTC), the designer and manufacturer of
products for the aerospace, defence, telecoms infrastructure and
critical communications markets , announces its full year results
for the 12 months ended 31 May 2021.
Financial Highlights
2021 2020
Revenue GBP15.6m GBP17.2m
Adjusted EBITDA* GBP1.8m GBP1.2m
Adjusted operating profit** GBP0.6m GBP0.4m
Exceptional items GBP0.06m (GBP0.6m)
Operating profit/(loss) GBP0.6m (GBP0.2m)
Profit/(loss) before taxation GBP0.2m (GBP0.4m)
Loss for the year from discontinued operations - (GBP1.4m)
Profit/loss for the year GBP0.1m (GBP2.0m)
Basic and diluted earnings/(loss) per share 0.03p (0.93p)
Net cash/(debt) balance as at 31 May GBP0.4m (GBP0.7m)
Net cash when excluding right of use property GBP1.9m GBP0.4m
leases
Cash generated from/(used in) operating activities GBP2.5m (GBP2.6m)
*Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation and exceptional items.
** Adjusted operating profit is operating profit/(loss) before
exceptional items.
Operational Highlights
-- Healthy cash position will be used to drive further organic
growth in our served markets which are showing strong signs of
recovery from the pandemic with a stronger order book, improved
customer forecasts and increased opportunities.
-- Awarded a contract to develop and supply battlefield radio
communications equipment valued at GBP1.3m through a new channel to
market.
-- Our "best-in-class" Tower Top Amplifier supplied to the
market leading Original Equipment Manufacturer in critical
communications saw its first significant revenue recognition in Q4
of the financial year.
-- Expansion of our direct and indirect sales channels in the
USA, Europe and Asia through a mix of agents and distributors to
expand our sales reach.
-- Winner of the prestigious Queen's Award for Enterprise in International Trade 2021.
Commenting on the outlook , Reg Gott, Chairman, said: " Our
healthy cash reserves and continued generation of EBITDA provide a
solid platform from which to build the business and make the
necessary investments to facilitate further revenue growth. The
biggest challenge we faced throughout the pandemic was customer
engagement and new customer acquisition due to travel restrictions.
We countered this by expanding our channels to market, across
multiple territories, and executed on the marketing plan to raise
the brand profile which has provided fresh momentum, stimulating a
growing opportunity pipeline and a number of initial contract wins
with key target customers. Alongside increased order-flow and
strengthened customer forecasts there are signs of pent-up demand
in our served markets that we are positioning ourselves to
capitalise on.
The recent refresh of our strategic plan identified key
objectives, milestones and the required advancement of our
technology roadmap to further develop the business which we look
forward to executing on over the coming year."
Annual General Meeting
The Annual General Meeting will take place at 11am on 28 October
2021 at Plexus building, Thomas Wright Way, Netpark, Sedgefield,
County Durham, TS21 3FD.
Filtronic plc Tel. 0113 220 0000
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
finnCap Ltd Tel. 020 7220 0500
Jonny Franklin-Adam / Tim Harper (Corporate
Finance)
Alice Lane / Sunila de Silva (ECM)
Walbrook PR Ltd Tel. 020 7933 8780
Paul Vann / Nick Rome or filtronic@walbrookpr.com
Note: This announcement contains inside information which is
disclosed in accordance with the Market Abuse Regulation.
Forward-looking statements
The Chairman's statement and Chief Executive's review include
statements that are forward looking in nature. 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 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
Dear fellow shareholder
At the time of writing this last year, we had just been through
our first lockdown, and I was able to report the business had
proved its resilience and met all customer commitments with minimal
disruption to operational output. We entered FY2021 with cautious
optimism, confident we could develop the business despite the
global disruption from Covid-19. I am pleased to report the
business has continued to demonstrate a strong level of robustness
in the face of one of the most challenging environments most of us
have ever faced. I must therefore take this opportunity to thank
our employees for their efforts, strength of character and
commitment shown over the last year. Whilst these strong character
traits do not appear on the balance sheet, they have proved to be
an invaluable asset to Filtronic as we have experienced another
year of progress with material growth in adjusted earnings before
interest, taxation, depreciation, amortisation and exceptional
items ("adjusted EBITDA"), despite three periods of lockdown.
The key challenge presented by the pandemic has been to new
customer acquisition as traditional selling channels have been
constrained by travel restrictions. We have worked hard to counter
this during the year by developing alternative methods to address
the market through expansion of our agent and distribution network
in a number of territories, revitalisation of the Filtronic brand
and corporate identity and increased marketing communication to
build brand awareness. These initiatives will serve us well as we
look to satisfy key strategic objectives of revenue growth and
on-boarding of new customers in the coming year.
Richard Gibbs, appointed as CEO last September, has brought a
renewed vigour and strategic vision to the business and as a board
we are delighted with his progress to date. Under his leadership of
the business, we took the opportunity to realign our strategic
plans to exploit the strengths of our capability, technology and
market positions that we have developed since the business was
refocused in FY2020, following the sale of the Telecoms Antenna
Operation.
We are looking to support this realignment with the recruitment
of key engineering management to our Senior Leadership Team, who
have strong links to both industry and research institutions in our
served markets. They will be tasked with further development of the
technology roadmap, expansion of the product portfolio and,
together with our commercial team, broadening our customer
base.
Financial performance summary
Group sales from continuing operations increased in the second
half of the year by 20% to GBP8.5m (H1 FY2021: GBP7.1m) albeit
sales for the full year reduced by 9% to GBP15.6m. (2020: GBP17.2m)
following the softer trading in H1 due to the impact of Covid.
Quality of earnings continued to improve with an operating profit
of GBP0.6m being achieved (2020: GBP0.2m operating loss). Adjusted
EBITDA from continuing operations was GBP1.8m (2020: GBP1.2m) due
to a stronger sales mix.
The Group was able to close the year with GBP2.9m of cash at
bank (2020: GBP2.0m) giving healthy cash reserves in addition to
our undrawn working capital debt facilities in the UK and USA which
provide further headroom. The cash position grew as a consequence
of improved operating cash generation from adjusted EBITDA. The
Group had net cash when including all debt except right of use
property leases, of GBP1.9m at the end of the financial year (2020:
GBP0.4m). Net cash including right of use property leases was
GBP0.8m (2020: GBP0.7m net debt).
Dividend
No dividend is proposed for the year (2020: GBPnil). The Board
continues to be of the opinion that shareholders are better served
by cash being retained in the business to fund future business
development.
Board composition
After 15 years as a Non-Executive Director, with the last six
years as Chairman, I have advised the Board of my intention to step
down and retire at the AGM in October 2021. The Company is now
stronger and is well positioned to continue to build and grow, and
I feel the time is right for me to retire from the Board in order
to complete the Board and Executive refresh process and make way
for a new Chairman bringing new perspectives. I have enjoyed my
time with Filtronic immensely and would like to extend a deep
personal thank-you to all staff and shareholders for their support,
especially during some of those more difficult times, but I would
especially like to thank my fellow board members, for whom I have
the greatest respect. I wish you all every success for the
future.
A process to appoint my successor is currently underway. The
Board will provide a further update once an appointment has been
made.
Outlook
The Board is encouraged by the progress made in developing the
business over the course of the year and, combined with the
prospect of improved trading conditions, we look forward with
renewed confidence to continuing our growth in both revenue and
profitability. There are clear signs of pent-up demand in our end
markets, which we are well positioned to capitalise on given the
recent investments we have made and the evolving market landscape.
The key short-term risk to delivery will be the global
semiconductor component shortage which is affecting all sectors and
companies relying on embedded electronics components. It is already
proving disruptive with significantly increased supplier lead
times, but we will leverage our supply chain expertise, our
engineering capability and our operational agility to minimise the
impact of this.
Further investment is planned for new product development
including in W-band technology which will become a key frequency
band in 5G telecoms and space applications as capacity within
E-band is progressively consumed. These investments, along with
further development of our core process technologies and channels
to market will provide the building blocks for sustained growth in
future years.
We started the new year with increased optimism based upon an
improved opening order book over last year and a growing
opportunity pipeline across a widening customer base.
Reg Gott
Chairman
2 August 2021
Chief executive's review
I am delighted to have the opportunity to write my first Chief
Executive's Review after nine months at Filtronic. I have, of
course, been aware of Filtronic throughout my career in the
electronics industry, and during previous interactions with the
Company I have always been impressed by the breadth of Filtronic's
technology and the integrity of the Filtronic employees, both past
and present. When presented with the chance to join the Filtronic
team in September last year, I did not have to think too long and
hard about taking up the opportunity. I am pleased to report that
there have been no hidden surprises to date, and I remain more
convinced than ever regarding the strength of the business, the
quality of the Filtronic brand and our potential for growth by
delivering innovative RF solutions.
FY2021 was a year of first half consolidation, followed by
second half recovery and further adjusted EBITDA growth. After a
slow start in the wake of a challenging market environment and the
continuation of restrictions imposed by the global Covid pandemic,
we had a more encouraging second half and finished the year with a
strong order book and signs of confidence returning to our
markets.
With the successful sale of the Telecom Antenna Operation in
January 2020, the FY2021 trading results reveal the underlying
strength and profitability of the core Filtronic business. Revenue
is down slightly by 9% on prior year, mainly due to changes in
customer schedules and delayed execution of critical communications
programmes in the USA during the first half of the year. Adjusted
EBITDA grew year-on-year by 51% based on increased operational
efficiencies, coupled with consistent demand for higher margin
products and strong demand for Filtronic engineering services.
The management team continue to ensure that Filtronic remains
fully operational despite numerous lockdowns and disruption. We
have modified our workspace and developed work procedures to the
point where we can now accommodate all our employees back on site,
and we are already starting to see the benefits of a strong
collaborative team environment. This was in part, enabled by
expanding our operational footprint at our largest site in
Sedgefield which was key to maintaining a covid-safe environment,
but it is also an important step to facilitate more space and
capacity as we execute on our growth plans with additional
headcount and increased operational capability. I would like to
take this opportunity to recognise the resilience of the Filtronic
team and thank them for their outstanding commitment and support
during the last twelve months.
The most significant consequence of Covid-19 has been the
impediment to business development and sales acquisition activities
during the year. Our Business Development teams have not had the
opportunity to visit customers, attend trade events, or host
customer meetings at our facilities. To compensate, we have made
considerable efforts to connect with customers via alternative
channels. We have moved most of our marketing efforts online and
made considerable enhancements to our website and social media
presence. In doing so we have managed to significantly raise the
profile of Filtronic in the market and improve the levels of lead
generation. Voice of the customer ("VoC") feedback conducted during
the year confirmed the strength of the Filtronic brand and our
reputation for delivering innovative RF solutions. With a minor
refresh we feel there is significant value in the Filtronic brand,
and we will be working hard to promote this in the coming year.
The recent investments made in manufacturing automation in the
facility at Sedgefield have resulted in significant improvements in
capacity, productivity and quality, whilst offering enhanced
capability to our customers. With well-executed inventory
management, we have avoided supply chain issues and maintained a
steady rate of production throughout the year, with excellent
yields, and increasingly high levels of operational efficiency.
This has given us the opportunity to respond quickly to fluctuating
customer demand cycles and ensure that we remain on schedule with
delivery commitments.
We made appropriate use of the UK and US government support
schemes at various points throughout the year, and this allowed us
to balance our cost base during the changing lockdown restrictions.
Last financial year we consolidated manufacturing of critical
communication products in the USA, to better support our customers
and respond to an increased preference for onshoring and "buy
America" products. This was well received by customers and enabled
us to respond quickly as the critical communication market
recovered, and federal stimulus packages begin to positively impact
spending. There are signs that large organisations are looking
towards moving to western supply chains as geo-political issues
persist. The onshoring project has positioned us well to be part of
any early-stage movement on this if the appetite to do so comes to
fruition.
Customers and markets
Our customers in the critical communications market have seen
demand fluctuate over the last year. End users revised deployment
plans and our customers were unable to make the expected progress
with existing project completions. New procurement decisions have
been delayed subject to revised spending plans. The impact of this
has been a fluctuating level of order intake throughout the year,
and a reluctance to commit to next generation programmes and new
product introductions.
By contrast, the aerospace and defence market has been a strong
and steady contributor this year. In July 2020 we received a long
awaited GBP4.9m defence contract, which provides for a two-year
manufacturing supply agreement, and justifies the recent
investments made in the advanced hybrid manufacturing facility on
the Sedgefield site.
Demand for our 5G transceiver products reached a peak at the end
of FY2020 as the major customer accumulated inventory in readiness
for the rollout of their backhaul product portfolio. Deployment of
5G networks themselves has proved challenging to forecast, due in
part to the slow rate at which governments around the world release
E-band licences, and the mix of backhaul solutions within a
proposed system configuration. We have worked closely with our
customers to align delivery schedules and managed to level-load the
production schedules for FY2021 and FY2022.
We continue to see the High-Altitude Pseudo Satellites ("HAPS")
and Low Earth Orbit ("LEO") telecom applications as an attractive
market for our E-band technology and we became full members of the
HAPS Alliance during the last year. Having undertaken several
successful engagements with US technology companies that are
pioneers in this field, we now believe that we have a strong
portfolio for both stratospheric and LEO space platforms and will
look to capitalise on this IP as the applications evolve.
We closed the year with the welcome news that we had been
awarded the prestigious Queen's Award for Enterprise 2021. This was
a fitting recognition of the efforts made to support the global
telecoms market over the last few years, and a testament to the
reputation of Filtronic as a flag carrier for British
technology.
There have been several other notable achievements over the last
12 months, all of which set the potential for future revenues, to
which end I would highlight the following:
-- The award of two funded development contracts for defence
products associated with next generation radar systems. An early
indication of the UK Government's commitment to significant
Electronic Warfare ("EW") platform upgrades and an opportunity for
Filtronic to influence the ultimate Original Equipment Manufacturer
("OEM") design.
-- The award of a GBP1.3m defence contract for the design,
development, and low-rate production of battlefield communication
products. This represents our first direct engagement with a
defence agency, and it will utilise the expertise of our Leeds
design centre.
-- We have started to see volume sales for our "best-in-class"
Tower Top Amplifier ("TTA") product with design wins for both
system upgrades and new state-wide installations in the USA.
-- After successful conclusion of the trials associated with our
10Gbps backhaul track to train transceiver product in Asia, we have
received enquiries for initial production volumes and delivered
transceiver units for the start of UK trials.
-- We successfully delivered high performance E-Band
transceivers for use in two separate low latency private network
applications associated with high frequency trading.
-- We successfully transitioned from our Orpheus E-Band
transceiver product to the next generation Morpheus II product
during Q2 FY2021. Shortly afterwards we passed the milestone of
50,000 installations for our market leading E-band modules.
Outlook
As the world emerges from the devastating impact of the Covid-19
pandemic, we will inevitably face a period of economic uncertainty,
an example of this being the current disruption to semiconductor
supply chains. However, we feel we have the resources and reserves
necessary to navigate against these headwinds and we look forward
positively to the new trading period.
Filtronic's core markets of mobile telecommunications, critical
communications and aerospace and defence, represent industry
segments that have remained robust throughout the pandemic, and are
well positioned to benefit from economic recovery and efforts to
stimulate the economy. We can expect a renewed commitment to the
roll out of 5G networks worldwide, and we believe that some of the
delayed spending on critical communications infrastructure will
begin to materialise.
Aerospace and defence programs are naturally longer-term
initiatives, but we see an increased appetite by the governments in
the UK, USA and Europe to support investment in next generation EW
technologies, commercial space programmes and sovereign telecom
supply chains, all of which plays to our strengths and provides
potential growth opportunities for Filtronic.
Business plans for FY2022 reflect the somewhat unpredictable
nature of the economic recovery, and in support of this we have
conducted a full Strategic Planning Process ("STRAP") to generate
our technology roadmaps and identify additional growth
opportunities. We have a culture that is proactive and highly
motivated to create sustainable growth and diversification of our
customer base, and we have put in place initiatives to further
develop our capability and secure new business opportunities
including:
-- Development of next generation MMIC designs that will enable
us to continue the evolution of our mobile telecom backhaul
solutions, from E-band into the adjacent licence bands of V-Band,
W-Band and ultimately D-Band.
-- Continued investment in our marketing organisation with an
updated website platform and enhanced user content, a refresh of
the Filtronic brand and a renewed commitment to respond to feedback
from customers.
-- Strengthening the sales organisation with the deployment of
additional direct sales and business development resource in the UK
and Western Europe.
-- Establishing a Manufacturing Representative Network across
the USA and Europe to enhance our sales reach, with a faster route
to market through established sales channels without the high
overhead cost incurred from enlarging our own sales team.
-- Further investment in advanced equipment to continue the
extension of our engineering design & test capability and
incorporate higher-frequency higher-performance technologies.
-- Aligning our business processes and equipping our facilities
to achieve the accreditation necessary to undertake a higher
security level of UK Defence programme work.
I am pleased with the progress we have made over the past year
and I am excited by the potential that exists at Filtronic. We have
come through the pandemic well, and there is an increasing need
globally for our high-performance products and unique RF design
capabilities. We have identified the specific market segments that
we will pursue as the economy recovers and business constraints are
removed and as a result we approach the new financial year with a
renewed sense of optimism.
Richard Gibbs
Chief Executive Officer
2 August 2021
Financial review
Filtronic achieved material adjusted EBITDA growth within the
continuing operation for the third consecutive year thanks to a
strong sales mix and controlled overhead spend. Adjusted EBITDA for
the year rose to GBP1.8m (2020: GBP1.2m) with GBP1.2m being
generated in the second half following an uplift in sales against
the first half. Consequently, the balance sheet strengthened and
cash generation of GBP1.1m (2020: GBP0.6m outflow) in the period
has given an excellent platform to develop the business and invest
in opportunities that offer a high rate of return and provide the
building blocks for future growth.
Revenues
Sales revenue for the Group decreased in the year by 9% to
GBP15.6m (2020: GBP17.2m) because of delays to key programmes in
the first half and the impact of Covid on one of our key markets.
Despite this, it was encouraging to see 20% revenue growth to
GBP8.5m in the second half of the year over the first half (H1
FY2021: GBP7.1m) as markets recovered and spending on core
communication programmes increased having seen funds diverted to
sectors tackling the pandemic. Trading in the second half gives
optimism that companies are keen to progress their deferred
infrastructure projects, evidenced by the stronger order book we
carry into the new financial year and an increase in the number of
enquiries received.
5G XHaul sales decreased year-on-year as our lead customer had
built buffer stocks in the prior year to capitalise on market
opportunities as they arose. Consequently, the reduction in demand
was anticipated but further exacerbated as the switch to the next
generation, Morpheus product, was delayed due to technical
challenges unrelated to our product. Sales of XHaul derivatives to
adjacent markets including HAPS, 'over-the-air' equipment and
trackside-to-train applications were in line with those generated
in the prior year. However, several customer funded product
developments offer an opportunity to not only lower customer
dependency but are themselves significant players in their
respective markets.
Sales of defence products saw year-on-year growth of 24% and we
are now enjoying consistent output of the products, helped by the
substantial investments we made in plant and machinery in the
previous year. In addition to this, we have been working on a
number of smaller engineering programmes as we seek to develop
further opportunities within our existing customer base. Broadening
our customer base has been a key strategic objective of the
business for some time and it is pleasing to see conversion of
numerous opportunities with other defence contractors which, whilst
small, and early-stage developments, have the potential to grow
into something more significant if adopted into a defence
programme.
Critical communication markets suffered during the pandemic with
reduced demand for product but sales in the second half of the year
increased by 41% to give 7% growth year-on-year. Given order-flow
and customer forecasts it appears the pent-up demand in the market
is now flowing down the supply chain. It was especially pleasing to
see the first significant sales of the newly launched TTA products
in the final quarter of the year. These sales are an important
milestone for the product as it gains prominence throughout the
network of field engineers, and we can position ourselves better to
participate in state-wide rollouts.
Operating costs and headcount
Operating costs increased in the year to GBP9.5m (2020:
GBP9.3m). The Group's largest overhead is salary related costs
which increased by GBP0.2m following recruitment of additional
engineering resource and the reinstatement of a marketing function
to support revenue growth.
We were also able to fund part of this by naturally reducing the
size of our manufacturing team due to efficiency and yield
improvements from the capex investment last year, which is now
optimised. Consequently, we have been able to reduce the total
number of employees which is reflected in the average headcount for
the year decreasing to 130 (2020: 141).
An analysis of the Group's average continuing headcount is
presented below:
2021 2020
-------------------------- ----- -----
Manufacturing 86 99
Research and development 24 21
Sales and marketing 5 5
Administration 15 16
Total headcount 130 141
-------------------------- ----- -----
Costs have been managed tightly throughout the year and have
included some consequential cost savings from the pandemic such as
business travel and trade exhibitions which are not expected to
continue in the long run. These are important expenses that
facilitate customer engagement so we will be looking to take
advantage of travel restrictions easing at the earliest
opportunity.
We benefitted from the UK government's furlough scheme in the
first half with GBP83k received following programme delays to a
couple of key projects which offset overhead spend. This was offset
against the salary cost in operating costs. In the USA, we secured
$237k (GBP192k) of financial support through the Paycheck
Protection Programme ("PPP") to retain staff during the pandemic.
The loan was forgiven for repayment by the US government in the
year and converted to a grant.
A large portion of our product development in the year was
customer funded which maintains a healthy flow of cash during the
project. Consequently, there was limited capitalisation of
development costs as the costs are expensed in line with the
revenue recognition. The impact of this was GBP0.6m more
engineering costs being expensed than the prior year with only
GBP0.1m capitalised (2020: GBP0.7m). Further commentary can be seen
in the 'Research and development costs' section of this review.
Adjusted EBITDA and operating profit
The Group focuses on an alternative performance measure ("APM")
to track performance of the business and a GAAP measure of
operating profit. The APM is adjusted EBITDA as it measures the
quality of earnings without the impact of exceptional items and
non-cash expenses such as depreciation and amortisation. Operating
profit was GBP0.6m (2020: GBP0.2m operating loss) whilst adjusted
EBITDA was GBP1.8m (2020: GBP1.2m) representing a 50% increase.
This was possible as the reduction in revenue was mitigated by a
stronger sales mix. Gross profit increased considerably thanks to
increased sales to the defence market where certain components are
free issued by the customer and reduced sales into the telecoms
market which is more price sensitive. Lower manufacturing overheads
from reduced headcount and furlough payments more than offset the
increased depreciation charge from the capital expenditure
programme last year.
Given the operational gearing of our facility in the USA, where
critical communications products are manufactured, increased volume
enabled an uplift in the profitability of that site.
The full year impact of investments made last year in plant and
machinery can be seen in the table below from an increased
depreciation charge. Impairment of development costs previously
capitalised was GBP45k as we mothballed a development due to
concerns over successful commercialisation after further
discussions with the customer. Amortisation has increased as we
have started to amortise the Morpheus and TTA product
developments.
2021 2020
Reconciliation of adjusted operating GBP000 GBP000
profit/EBITDA
-------------------------------------- ------- -------
Operating profit/(loss) 642 (188)
Exceptional items (64) 569
-------------------------------------- ------- -------
Adjusted operating profit 578 381
Impairment of development costs 45 89
Depreciation 941 677
Amortisation 209 18
-------------------------------------- ------- -------
Adjusted EBITDA 1,773 1,165
-------------------------------------- ------- -------
Taxation
A tax charge of GBP0.2m (2020: GBP0.1m) has been recognised for
the year. This is a result of the deferred tax position being
reduced reflecting the usage in the year. This is a non-cash entry
so payments will not be made of this value.
It is highly likely that governments around the world will
increase their rates of corporation tax over the next few years to
help pay for the cost of economic support during the pandemic.
However, with substantial deferred tax assets, including those not
recognised on the balance sheet, this is likely to have a minimal
impact on cash.
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and
amortisation of development costs were GBP1.7m (2020: GBP1.7m). The
Group has utilised most of the engineering resource in the year on
customer funded developments. This ensures we generate near-term
revenue whilst there is an increased chance of
commercialisation.
The Group remains committed to investment in R&D for the
future growth of the business and consequently measures this as a
KPI. Key areas of spend in the year included product development
for markets spanning 5G XHaul, HAPS, 'over-the-air' mmWave
equipment and defence. In addition to these, our stronger balance
sheet gives us greater ability to invest in development of our own
strategic technology roadmap to build long-term shareholder value
in the years ahead.
The Group capitalises its development costs in line with IAS 38.
A reconciliation of R&D costs before capitalisation and
amortisation can be seen in the table below:
2021 2020
Reconciliation of R&D costs GBP000 GBP000
----------------------------------- ------- -------
R&D costs in income statement 1,845 1,152
Capitalisation of development
costs 52 678
Impairment of development costs (45) (89)
Amortisation of development costs (184) -
----------------------------------- ------- -------
R&D cash spend 1,668 1,741
----------------------------------- ------- -------
Capital expenditure and right of use assets
Capital expenditure was reduced in the year following
substantial investment in the prior year. The total amount of
capital committed was GBP0.4m (2020: GBP1.8m) mainly for
engineering equipment at our site in Sedgefield which will be used
to expand our capability at higher frequencies. The assets
externally financed through asset finance agreements were
subsequently classified as right of use assets.
Inventory provision
Inventory is valued at the lower of cost and net realisable
value. It is the Group's policy to regularly review the carrying
value of its inventories and to make a provision for excess and
obsolete inventory. As at 31 May 2021, the inventory provision was
GBP1.5m (2020: GBP1.5m).
Warranty provision
In line with industry practice, the Group provides warranties to
customers over the quality and performance of the products it
sells. The Group's policy is to make a provision, calculated as a
percentage of cost of goods sold, after reviewing costs associated
with faulty products returned. As at 31 May 2021, the warranty
provision was GBP0.3m (2020: GBP1.1m). The Group paid the final
instalment of a specific customer warranty settlement liability in
the year of $0.5m (GBP0.4m) drawing the matter to a close.
Funding and cash flow
The Group recorded an increase in cash and cash equivalents to
GBP2.9m (2020: GBP2.0m) at the year-end.
Cash generated from operating activities in the year was GBP2.5m
(2020: GBP2.6m outflow) as solid adjusted EBITDA coupled with an
unwind of the working capital position drove strong cash
generation. The inventory position unwound in the second half
following the successful conclusion of the onshoring project of
critical communication products from China to the USA. It was
essential to hold higher levels of inventory during this project
whilst we developed and gained confidence in the new supply chain
whilst in the UK higher levels of inventory were held as mitigation
against any disruption from Brexit.
However, we are currently in the middle of a global shortage of
electronic components. Therefore, we plan to increase our inventory
position once again to ensure we have material availability to
fulfil orders and capitalise on opportunities when our competitors
are forced to extend their lead times.
Net cash of all lease obligations when including all debt except
property leases at the end of the period was GBP1.9m (2020:
GBP0.4m) whilst overall net cash including property leases was
GBP0.8m (2020: GBP0.7m net debt). At a time when many sectors are
struggling with liquidity it is very pleasing to move the business
into a net cash position demonstrating the resilience of the
business during a very difficult trading environment.
To provide additional cash headroom Filtronic has a GBP3.0m
invoice discounting facility with Barclays Bank plc in the UK and a
$4.0m invoice factoring facility with Wells Fargo Bank in the USA.
Both facilities were undrawn at 31 May 2021 (2020: undrawn).
Going concern
In assessing going concern, the Board have considered:
-- The principal risks faced by the Group which are discussed
within the 'Risk management' section of the Annual Report.
-- The financial position of the Group including forecasts and financial plans.
-- The healthy cash position at 31 May 2021 of GBP2.9m (2020:
GBP2.0m) and the additional headroom available through the undrawn
invoice discounting facilities.
-- The ongoing impact of Covid-19 as the business has maintained
its operational capability throughout the pandemic and met all
customer commitments. Whilst travel restrictions impacted on new
contract wins in FY2021, the improvement in customer forecasts and
increased order-flow give confidence there is pent-up demand in our
markets and new opportunities are starting to present
themselves.
Therefore, the Directors are satisfied that the Group has
adequate financial resources to continue in operational existence
for a period of at least 12 months from the date of this report.
Accordingly, the going concern basis has been adopted in the
preparation of the Annual Report for the year ended 31 May
2021.
Michael Tyerman
Chief Financial Officer
2 August 2021
The Board
The directors that served during the year ended 31 May 2021, and
to the date of this announcement, and their respective roles are
set out below:
Reg Gott (Chairman)
Richard Gibbs (Chief Executive Officer) appointed 1 September
2020
Michael Tyerman (Chief Financial Officer)
Pete Magowan (Non-Executive Director)
John Behrendt (Non-Executive Director) appointed 1 January
2021
Michael Roller (Non-Executive Director) retired 29 October
2020
Consolidated Income Statement
for the year ended 31 May 2021
2021 2020
Continuing operations Note GBP000 GBP000
Revenue 2 15,556 17,181
====== ======
Adjusted Earnings before interest,
taxation, depreciation, amortisation
and exceptional items 1,773 1,165
Depreciation (941) (677)
Amortisation of intangible assets (209) (18)
Impairment of development costs (45) (89)
---------- ----------
Adjusted operating profit 578 381
Exceptional items 3 64 (569)
---------- ----------
Operating profit/(loss) 642 (188)
Finance costs (431) (277)
Finance income - 36
---------- ----------
Profit/(loss) before taxation 211 (429)
Taxation 5 (151) (89)
---------- ----------
Profit/(loss) for the year from
continuing operations 60 (518)
Loss for the year from discontinued
operations - (1,437)
====== ======
Profit/(loss) for the year 60 (1,955)
====== ======
---------- ----------
Basic and diluted earnings/(loss)
per share 4 0.03p (0.93p)
====== ======
The profit for the year is attributable to the equity
shareholders of the parent company, Filtronic plc.
Consolidated Statement of Comprehensive Income
for the year ended 31 May 2021
2021 2020
GBP000 GBP000
Profit/(loss) for the year 60 (1,955)
---------- ----------
Other comprehensive (expense)/income
Items that are or may be subsequently
reclassified to profit and loss:
Transfer to income related to business
disposal - 117
Currency translation movement arising
on consultation (98) (111)
---------- ----------
Total comprehensive expense for the
year (38) (1,949)
====== ======
The total comprehensive expense for the year is attributable to
the equity shareholders of the parent company Filtronic plc.
All income recognised in the year was generated from continuing
operations.
Consolidated Balance Sheet
at 31 May 2021
2021 2020
Note GBP000 GBP000
Non-current assets
Goodwill and other intangible
assets 1,716 1,847
Right of use assets 2,268 2,685
Property, plant and equipment 1,014 1,124
Deferred tax 1,218 1,868
---------- ----------
6,216 7,524
---------- ----------
Current assets
Inventories 2,190 2,945
Trade and other receivables 3,294 4,848
Cash and cash equivalents 2,906 2,028
---------- ----------
8,390 9,821
---------- ----------
---------- ----------
Total assets 14,606 17,345
---------- ----------
Current liabilities
Trade and other payables 2,380 3,463
Provision 397 1,110
Deferred income 184 568
Financial liabilities 63 177
Lease liabilities 542 662
---------- ----------
3,566 5,980
---------- ----------
Non-current liabilities
Deferred Income 128 -
Financial liabilities 76 144
Lease liabilities 1,478 1,867
---------- ----------
1,682 2,011
---------- ----------
---------- ----------
Total liabilities 5,248 7,991
---------- ----------
---------- ----------
Net assets 9,358 9,354
---------- ----------
Equity
Share capital 6 10,795 10,794
Share Premium 7 11,039 11,000
Translation Reserve (650) (552)
Retained earnings (11,826) (11,888)
----------12,161 ----------
Total equity 9,358 9,354
====== ======
The total equity is attributable to the equity shareholders of
the parent company Filtronic plc.
Company number 2891064
Richard Gibbs
Chief Executive Officer
Consolidated Statement of Changes in Equity
for the year ended 31 May 2021
Share capital Share premium Translation Retained Total equity
reserve earnings
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 31 May 2019 10,789 10,715 (558) (9,933) 11,013
Loss for the year - - - (1,955) (1,955)
New shares issued 5 285 - - 290
Share based payments - - 117 - 117
Currency translation movement
arising on consolidation - - (111) - (111)
---------- ---------- ---------- ---------- ----------
Balance at 31 May 2020 10,794 11,000 (552) (11,888) 9,354
Profit for the year - - - 60 60
New shares issued 1 39 - - 40
Share based payments - - - 2 2
Currency translation movement
arising on consolidation - - (98) - (98)
---------- ---------- ---------- ----------- ----------
Balance at 31 May 2021 10,795 11,039 (650) (11,826) 9,358
====== ====== ====== ======= ======
Consolidated Cash Flow Statement
for the year ended 31 May 2021
2021 2020
GBP000 GBP000
Cash flows from operating activities
Profit/(loss) for the year from continuing
operations 60 (518)
Loss for the year from discontinued
operations - (1,437)
Gain on sale of the Telecoms Antenna
Operation - (671)
Taxation 151 100
Finance income - (36)
Finance costs 431 280
---------- ----------
Operating profit/(loss) including discontinued
operations 642 (2,282)
Share-based payments 2 -
Depreciation 941 677
Amortisation of intangible assets 209 18
Impairment of intangible assets 45 89
Movement in inventories 626 (731)
Movement in trade and other receivables 1,489 85
Movement in trade and other payables (1,026) (1,054)
Movement in provisions (712) (1,155)
Change in deferred income (255) 488
Tax received 495 1,227
---------- ----------
Net cash generated from/(used in) operating
activities 2,456 (2,638)
---------- ----------
Cash flows from investing activities
Capitalisation of development costs (52) (678)
Acquisition of intangible assets (69) (27)
Acquisition of plant and equipment (177) (384)
Acquisition of right of use assets (106) (154)
Proceeds on sale of FTAO - net of sale
costs - 3,652
Proceeds on sale of assets 12 -
---------- ----------
Net cash (used in)/generated from investing
activities (392) 2,409
---------- ----------
Cash flows from financing activities
Interest paid (225) (258)
Proceeds from bank loans 131 192
Repayment of bank loans (209) -
Exercise of employee share options 40 290
Repayment of lease liabilities (666) (375)
Repayment of interest-bearing borrowings (104) (202)
---------- ----------
Net cash used in financing activities (1,033) (353)
---------- ----------
Movement in cash and cash equivalents 1,031 (582)
Currency exchange movement (153) (15)
Opening cash and cash equivalents 2,028 2,625
---------- ----------
Closing cash and cash equivalents 2,906 2,028
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
1 Basis of Preparation
These preliminary results have been prepared on the basis of the
accounting policies which are to be set out in Filtronic plc's
Annual Report and financial statements for the year ended 31 May
2021.
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.
At 31 May 2021, the Group had cash at bank of GBP2.9m and access
to undrawn invoice discounting facilities of GBP3.0m and $4.0m in
the UK and USA respectively (2020: undrawn).
As referred to in the Chairman's statement, the business
continuity plans implemented during the Covid-19 pandemic have
limited the adverse impact of Covid-19 and the business has
sustained full 24/7 operational capability throughout the pandemic.
Cash flow forecasts have been prepared to model various scenarios
over a three-year period based on the Group's financial and trading
position, principal risks and uncertainties and strategic plans. A
downside scenario was modelled where sales were impacted by a range
of adverse scenarios and forward-looking demand reduced to levels
significantly lower than those initially modelled in the base case
scenario.
A further model was prepared with a severe but plausible
downside stress test applied to the downside model by assuming the
loss of a significant contract within one its major customers. The
scenarios modelled demonstrate the Group has adequate cash and
borrowing capacity for the next twelve months despite the downside
scenarios and therefore the directors continue to adopt the going
concern basis to prepare the accounts.
There are a number of new standards, including, amendments to
standards and interpretations that are effective for financial
statements after this reporting period, but the Group has not
adopted them early. None of these are expected to have a material
impact on the results or financial position of the Group.
Whilst the information included in this preliminary announcement
has been prepared on the basis of International Accounting
Standards in conformity of the requirements of the Companies Act
2006, this announcement does not itself contain sufficient
information to comply with IFRSs. The Company expects to publish
full financial statements within two months of this
announcement.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 May 2021 or 31
May 2020. The financial information for 2020 is derived from the
statutory accounts for 2020 which have been delivered to the
registrar of companies. The auditor has reported on the 2021
accounts; their report 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 statutory accounts for 2021 were finalised on the basis of
the financial information presented by the directors in this
preliminary announcement and will be delivered to the registrar of
companies in due course.
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
2 Segmental analysis
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%
of revenue each and in aggregate 87% of revenue. This is split as
follows:
-- Customer A - 35% (2020: 27%)
-- Customer B - 33% (2020: 44%)
-- Customer C - 19% (2020: 16%)
Discontinued
Revenue by destination Continuing operations operations Total
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
United Kingdom 4,693 4,764 - - 4,693 4,764
Europe 4,178 7,985 - - 4,178 7,985
Americas 4,197 3,945 - 65 4,197 4,010
Rest of the World 2,488 487 - 991 2,488 1,478
--------- --------- ---------- ---------- ---------- ----------
15,556 17,181 - 1,056 15,556 18,237
====== ====== ====== ====== ====== ======
Split of non-current assets by location 2021 2020
GBP000 GBP000
United Kingdom 5,293 6,329
Americas 923 1,195
--------- ---------
6,216 7,524
====== ======
Non-current assets relate to property, plant and equipment,
right of use assets, goodwill and other intangible assets and
deferred tax.
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
3 Exceptional items
Exceptional items are costs that are separately disclosed due to
their material and non-recurring nature in order to reflect
management's view of the underlying business.
Operating costs are stated after (crediting)/charging
exceptional items as follows:
Year Year
Ended Ended
31 May 31 May
2021 2020
GBP000 GBP000
Costs relating to the FTAO business
disposal - 145
Restructuring costs - 184
Directors' resignation - 240
Historic claim (64) -
---------- ----------
(64) 569
====== ======
A provision relating to an historic claim is no longer required
and has been credited to the income statement.
4 Earnings/(loss) per share
Continuing Discontinued
operations operations Total Group
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Profit/(loss) for the year 60 (518) - (1,437) 60 (1,955)
====== ====== ====== ====== ====== ======
'000 '000 '000 '000 '000 '000
Basic weighted average
number of shares 213,397 211,021 213,397 211,021 213,397 211,021
Dilution effect of share
options 897 - 897 - 897 -
---------- ---------- ---------- ---------- ---------- ----------
Diluted weighted average
number of shares 214,294 211,021 214,294 211,021 214,294 211,021
---------- ---------- ---------- ---------- ---------- ----------
Basic and diluted
earnings/(loss)
per share 0.03p (0.25p) - (0.68p) 0.03p (0.93p)
====== ====== ====== ====== ====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
5 Taxation
The reconciliation of the effective tax rate is as follows:
2021 2020
GBP000 GBP000
Profit/(loss) before tax from continuing operations 211 (429)
Loss before tax from discontinued operations - (2,097)
--------- ---------
Profit/(loss) before taxation 211 (2,526)
====== ======
2021 2020
GBP000 GBP000
Profit/(loss) before taxation multiplied by
standard rate of corporation tax in the UK
- 19% 40 (480)
Disallowable items 213 286
Deferred tax asset not recognised 213 598
Enhanced R&D tax credit (176) (630)
Adjustment in respect of prior year - R&D tax
credit (371) 240
Foreign tax not at UK rate (15) 25
Derecognition of deferred tax asset 247 61
--------- ---------
Taxation 151 100
====== ======
Income tax charge attributable to:
Continuing operations 151 89
Discontinued operations - 11
--------- ---------
151 100
====== ======
The main rate of UK corporation tax for the financial year was
19% whilst the US Federal Corporate tax rate is 21%. The deferred
tax assets recognised in the year have been calculated at the rates
expected to be in existence in the period of reversal.
On 3 March 2021, in the Budget, the UK government announced that
the corporation tax rate will increase to 25% for companies with
profits above GBP250,000 with effect from 1 April 2023, as well as
announcing several other changes to allowances and treatment of
losses. These changes were enacted on 24 May 2021.
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
6 Share Capital
Ordinary shares
of 0.1p each issued
and fully paid
-----------------------------------
Number '000 GBP000
--------------------- ------------
At 1 June 2019 208,129 10,789
--------------------- ------------
Exercise of share options 5,569 5
--------------------- ------------
-------------- ---------
--------------------- ------------
At 31 May 2020 213,698 10,794
--------------------- ------------
Exercise of share options 717 1
--------------------- ------------
------------ -----------
--------------------- ------------
At 31 May 2021 214,415 10,795
--------------------- ------------
======== ======
--------------------- ------------
All shares are allotted, called up and fully paid. 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.
7 Share Premium
GBP000
At 31 May 2019 10,715
------------
Exercise of share options 285
------------
-----------
---- ------------
At 31 May 2020 11,000
--- ------------
Exercise of share options 39
--- ------------
-----------
--- ------------
At 31 May 2021 11,039
--- ------------
=======
---- ------------
8 Dividends
The directors are not proposing to pay a dividend for the year
ended 31 May 2021 (2020: GBPnil).
Notes to the Preliminary Financial Information
for the year ended 31 May 2021
9 Analysis of net cash/(debt)
Reconciliation of cash flow to movement 2021 2020
in net cash/(debt)
GBP000 GBP000
Movement in cash and cash equivalents 1,059 (582)
Movement in bank loans 78 (92)
Movement in lease liability - plant and
machinery 546 (1,381)
Movement in lease liability - property
lease (39) (1,148)
Effect of exchange rate fluctuations (181) (15)
---------- ----------
Movement in net cash/(debt) 1,463 (3,218)
Net opening (debt)/cash (710) 2,508
---------- ----------
Net closing cash/(debt) 753 (710)
====== ======
31 May Cash Other movements 31 May
2020 Flow 2021
GBP000 GBP000 GBP000 GBP000
---------- ---------- ---------------- ----------
Cash and cash equivalents 2,028 1,059 (181) 2,906
---------- ---------- ---------------- ----------
Bank loans (209) 73 5 (131)
---------- ---------- ---------------- ----------
Lease liability - plant and equipment (1,381) 411 135 (835)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash when including all debt
except property leases 438 1,543 (41) 1,940
---------- ---------- ---------------- ----------
Lease liability - property lease (1,148) 255 (292) (1,185)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash/(debt) (710) 1,798 (333) 755
---------- ---------- ---------------- ----------
====== ====== ====== ======
---------- ---------- ---------------- ----------
Cash at bank earns interest at floating rates based on daily
bank deposit rates. There are no restrictions on the availability
of the cash and cash equivalents at 31 May 2021 (2020: GBPnil).
IFRS 16 requires the recognition of property leases on the
balance sheet which is classified as a debt item.
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