TIDMFTC
RNS Number : 5287U
Filtronic PLC
02 August 2022
2 August 2022
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEARED 31 MAY 2022
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 2022.
Financial Highlights
2022 2021
Revenue GBP17.1m GBP15.6m
Adjusted EBITDA* GBP2.8m GBP1.8m
Adjusted operating profit** GBP1.6m GBP0.6m
Exceptional items GBP0.4m GBP0.06m
Operating profit GBP2.0m GBP0.6m
Profit before taxation GBP1.9m GBP0.2m
Profit for the year GBP1.5m GBP0.1m
Basic and diluted earnings per share 0.68p 0.03p
Net cash balance as at 31 May GBP2.2m GBP0.8m
Net cash when excluding right of use property GBP3.1m GBP1.9m
leases
Cash generated from operating activities GBP2.3m GBP2.5m
*Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation and exceptional items.
** Adjusted operating profit is operating profit before
exceptional items.
Operational Highlights
-- Healthy cash position provides a platform for continued investment in growth initiatives.
-- Delivered on existing development contracts and secured initial production orders.
-- Built our channels to market, strengthened the order book,
improved customer engagement and developed the opportunity pipeline
with a number of growth opportunities.
-- Sales of our "best-in-class" Tower Top Amplifier supplied to
the market leading Original Equipment Manufacturer ("OEM") in
critical communications surpassed GBP1m in the financial year.
-- Series of recent contract wins, totalling GBP1.9m across a
diverse range of new customers, demonstrating the execution of our
objective to broaden our client base.
-- Successfully managed the ongoing headwinds from global
semiconductor shortages, ensuring continuity of supply to our
customers, and generated new opportunities as a consequence.
-- Margin improvement from a stronger sales mix leading to stronger adjusted EBITDA.
-- Strengthened our engineering and business development teams
with active recruitment campaign.
Commenting on the outlook , Jonathan Neale, Chairman, said: "
The Group's trading performance strengthens the balance sheet and
provides a platform to further develop the business with continued
investment in R&D, new product development and process
capability. Execution of our technology roadmap will be a key focus
this year as we expand and augment our product offering whilst also
delivering bespoke developments to customers who trust us to solve
their technically challenging RF problems. Broadening our customer
base remains one of our key strategic objectives, and having
strengthened our sales channels, we look forward to further
progress having recently won several contracts to a range of new
customers and markets that can deliver sustainable growth and
long-term shareholder value.
With the growing opportunity pipeline and order book, we
anticipate further revenue growth, particularly as 5G
telecommunication infrastructure rollouts gather pace, although the
quality of earnings may be impacted due to price sensitivities in
this market. This would be a timing issue, rather than normalised
trading, given the development contracts we are working on in
aerospace & defence and space where the mix is much stronger.
The continued push by governments to utilise sovereign capability
in the supply chain of key programmes in these markets positions
the Group well with opportunities regularly presenting themselves
for us to capitalise on. Given the scale of some of these, we are
open to exploring partnerships and other revenue models as a means
of securing potential growth".
Annual General Meeting
The Annual General Meeting will take place at 11am on 27 October
2022 at Plexus building, Thomas Wright Way, Netpark, Sedgefield,
County Durham, TS21 3FD.
Filtronic plc Tel. 01740 618800
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
finnCap Ltd Tel. 020 7220 0500
Jonny Franklin-Adams / 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
I have written previously of the long-term potential of the
business that attracted me to join the Board of Filtronic plc
("Filtronic") and I am pleased to report that good progress
continues to be made on this overarching aim.
We have delivered revenue growth, and another successive year of
adjusted earnings before interest, taxation, depreciation and
amortisation ("adjusted EBITDA") growth. This has strengthened our
cash position and balance sheet providing us with the opportunity
to further invest in the business for continued growth and
sustainable value.
The Markets
The Group's key addressable markets continue to benefit from
long-term growth drivers. The aerospace & defence and security
markets have traditionally long sales cycles but retain strong
spending trends both domestically and overseas particularly given
current events. Our capability, products and know-how are very
relevant in this sector, and with greater emphasis on security
sourced from domestic or allied supply for government or original
equipment manufacturer ("OEM") contracts, it is an opportunity for
growth and diversification of our existing customer base.
In the telecommunications market 5G rollouts continue to gather
pace as the drive to build infrastructure capacity continues with
an increasing number of governments licencing their E-band spectrum
to enable this. Whilst there is always price pressure on
established technologies as they mature, the emergence of important
new frequencies and technologies remain strong opportunities for
growth.
The space market is an area that is becoming increasingly
important as global investment has gathered pace over the last few
years. Satellites in low earth orbit ("LEO") are ideal for enabling
high-speed, low-latency communication. Approximately 60 to 70
percent of space-company investment is now directed at LEO
endeavours. Filtronic has products and know-how derived from our
high-altitude pseudo satellite ("HAPS") projects that offer strong
potential for us to play a significant role in these important
communications sectors for both ground and flight platforms.
In the USA, the critical communications sector has shown some
recovery post covid as domestic spending has been re-prioritised.
However, this sector remains under pressure on the demand side, due
to semiconductor supply impacting the availability of non-Filtronic
system components.
At a macro-economic level, we face the same cost pressures of
energy, cost of living and continued component cost increases and
lead times as other businesses. The Company has worked well to
adapt, innovate and mitigate these challenges where possible,
whilst continuing to invest and find growth.
Our core ability to design and produce high performance
technology demonstrators to a high-quality which are manufacturable
at scale volume, continues to be a critical competitive
differentiator. The ability of our clients to customise our
products to their particular requirement, further strengthens our
proposition in our markets.
Financial Performance Summary
Group sales increased in the year by 10% to GBP17.1m (FY2021:
GBP15.6m).
A strong sales mix improved the quality of earnings giving
adjusted operating profit of GBP1.6m (2021: GBP0.6m), operating
profit of GBP2.0m (2021: GBP0.6m) and adjusted EBITDA growth of 55%
to GBP2.8m (2021: GBP1.8m).
The Group closed the year with GBP4.0m of cash at bank (2021:
GBP2.9m) in addition to the availability of undrawn working capital
debt facilities in the UK and USA.
The Group's net cash position, when including all debt except
right of use property leases, was GBP3.1m at the end of the
financial year (2021: GBP1.9m). Net cash including right of use
property leases was GBP2.2m (2021: GBP0.8m).
Dividend
As with previous years, the Board continues to believe
shareholders are better served by cash being retained in the
business to fund future business development. Consequently, no
dividend is proposed for the year (2021: GBPnil).
Board and Senior Management
FY2022 has seen a couple of changes to Filtronic's board
composition. Reg Gott retired as Chairman in October 2021, which
caused the Board to undertake a rigorous search process resulting
in my appointment to the Board as Chairman in November 2021.
Maura Moynihan, the Group's Company Secretary took the decision
to retire in May 2022 having served the business well for over 20
years. On behalf of the Board, I would like to thank Maura for her
significant and sustained contributions. She leaves a legacy of a
strong governance framework. Her duties as Company Secretary have
been adopted by the Group's Chief Financial Officer, Michael
Tyerman, who will fulfil both functions which we will keep under
review in accordance with the QCA governance code.
Outlook
We have successfully strengthened our sales and engineering
organisations in the year with the intention of addressing the
growth opportunities that we believe exist in these markets as well
as diversifying our customer base.
The technology we offer and the markets we serve align closely
with the sovereign capability requirements of both the UK and US
governments. Advances in telecommunication high frequency
technology and commercial satellite constellations are growth
markets in which we have relevant capability and whilst there are
evidently continuing factors producing turbulence, affecting many
markets, there are also opportunities in the radio frequency and
microwave domain. The Group remains well placed in the market to
deliver revenue growth supported by a healthy order book and
balance sheet.
Jonathan Neale
Chairman
1 August 2022
Chief Executive's review
I am pleased to report that sustained growth in our vertical
markets over the last twelve months has resulted in a solid set of
financial results for FY2022. With year-on-year revenue growth of
10%, and a third year of adjusted EBITDA growth, based on increased
operational efficiencies and demand for higher margin products, we
see momentum in the business continue to build as we make good
progress with our long-term strategic objectives.
Customers in our core markets of aerospace, defence, 5G
telecommunications infrastructure and critical communications have
strong underlying demand for their products and services and remain
committed to investing in new technology and emerging markets.
Radio frequency ("RF") design is a notoriously complex engineering
discipline, but with our global reputation, combined with over 40
years of iterative IP development in the field, we continue to see
demand from multinational corporations wanting to engage our
services in the design and manufacture of next generation RF
products.
Despite the lingering impact of the Covid pandemic, and
constraints on the supply chain caused by the global shortage of
critical semiconductor components, the first half of FY2022
continued the gradual recovery we experienced at the close of the
prior year. The second half of FY2022 was stronger still, with
customers in critical communication and telecommunications
infrastructure delivering on delayed project implementations, and
the benefit of new, higher margin, product introductions in the
defence and test instrument market. Once again, our trading results
reveal the underlying strength and profitability of the Filtronic
business despite unprecedented levels of business uncertainty. Our
cash at bank at year end of GBP4.0m (May 2021: GBP2.9m) affords us
the ability to make the investments we need to address new adjacent
markets and provision for future supply chain challenges, whilst
maintaining a robust balance sheet.
In addition to our established markets, there is now a
significant interest in RF communication solutions for low earth
orbit ("LEO") space, and high-altitude pseudo satellites ("HAPS"),
where our existing E-band technology can be adapted for use in the
converging terrestrial and non-terrestrial telecommunication
networks. Our growing family of E-band backhaul telecommunications
products, developed over 10 years have the benefit of being
compact, highly integrated, and extremely reliable. They are also
manufactured in commercial volumes, at a competitive price, which
allows LEO space equipment manufacturers to get solutions to market
quickly, at cost not usually associated with custom developed space
products.
The healthy balance sheet has enabled us to continue to build on
investments made at our Sedgefield manufacturing site. The addition
of state-of-the-art equipment for rapid process and product
development has significantly enhanced our ability to bring new
products to market. The ability to develop engineering prototypes
and create new manufacturing processes without the need to disrupt
the volume manufacturing lines has greatly improved delivery of
engineering programmes and eased the transition from prototype into
production.
Talented people remain at the heart of our ability to deliver
leading edge products and future business growth. We have made
significant efforts this year to find and recruit the specialist
engineering and marketing skills required to realise our growth
ambition. To further penetrate the UK aerospace and defence market
we have strengthened our business development team with the
addition of seasoned industry experts who have a strong
track-record of sales delivery. In FY2023 we will open a new
engineering design office in Manchester having recruited a
high-calibre team of RF engineers in the region specifically to
address the emerging space and telecommunication market.
The most significant management challenge of the last few years
has been Covid, and the associated restrictions placed on engaging
directly with customers which we previously communicated as our
biggest challenge of the pandemic. The strengthening of our
marketing team has yielded great results since the national
lockdowns and brand awareness has been raised in the markets we
serve. However, the welcome return of tradeshows, conferences and a
willingness of customers to accept face to face meetings and site
visits to Filtronic facilities in a normalised business development
environment is a critical factor for our future growth
prospects.
In 2020 we made the decision to consolidate manufacturing of
critical communication products in the USA, to better support our
customers, and respond to an increased preference for onshoring and
"buy America" sentiment. This move has been well received by
customers and enabled us to respond quickly as the critical
communication market recovered and supply chain issues in China
started to impact our competitors. Our made in America TTA product
launched in FY2020, achieved the milestone of surpassing GBP1m of
sales in January 2022, and it continues to be the TTA product of
choice for P25 programmes that will be implemented in the next 24
months.
The global semiconductor shortage has impacted our business, and
undoubtably restricted our ability to recognise revenue in FY2022.
We believe these supply shortages may continue to be a challenge in
the FY2023 trading period and beyond. Throughout the last twelve
months we have invested in critical inventory as the opportunity
has become available, however reacting to schedule changes and
fluctuating material delivery dates has become a significant
additional workload for the business. As a manufacturer and design
authority, we have the flexibility to be proactive in the sourcing
of components, and in some cases, we can redesign and requalify
products to make use of alternative material at short notice.
However, Filtronic RF products generally form part of a larger
communication solution, and increasingly it is other elements of
the equipment supply chain that cause customers to reschedule
product deliveries, adjust demand forecasts and in extreme cases,
postpone new product introductions until a later date.
Customers and Markets
The critical communications market has almost returned to
pre-pandemic levels of demand, with state and federal spending
programs redirected back to the upgrading and deployment of "first
responder" networks. Our combiner products are used in most P25
network base stations, and our filter and amplifier products are
extensively deployed across the Land Mobile Radio ("LMR") network.
LTE telecommunication networks carry more data traffic, but the
reliability of the LMR network when all other telecom networks
become saturated, makes it an important part of any private network
solution. Notwithstanding some short-term disruption to customer
schedules from supply chain issues we expect Filtronic products to
remain a part of the P25 network solution for some years to
come.
The aerospace market remains a strong and steady revenue
contributor, with shipments supported by a strategic inventory
holding, and consistent availability of customer supplied
materials. The multi-year manufacturing supply agreements won in
FY2020, will run into FY2024, and we are looking to secure
follow-on demand as future aerospace radar contracts are released.
We have expanded our footprint in the Active Electronically Scanned
Array ("AESA") radar market by capturing several related filter
design opportunities in the past year. Initial volumes are low, but
it has enabled us to strengthen our position with the major
aerospace primes, broadening our customer register, which is a key
strategic objective of ours.
We have made inroads into the UK defence market with the
successful completion and delivery of our first battlefield
communications product to the UK Ministry of Defence ("MOD"). The
product is undergoing field trials and we believe we are positioned
favourably for any repeat orders that may materialise as well as
other future design programmes as part of the framework.
5G telecommunication network deployment around the world is
accelerating, and critical to true 5G performance is the quality
and reliability of high frequency backhaul communications.
Filtronic's 71-76GHz and 81-86GHz mmWave transceivers are designed
to deliver cost-effective, multi-gigabit connectivity for mobile
backhaul networks, in geographies where the E-band frequency has
been licenced. The demand for our products will continue as users
come to expect true 5G performance, and individual countries make
the E-band frequency available for use, with India expected to be a
key market and licence approval anticipated shortly.
HAPS and LEO space communications are an attractive application
for our proven E-band technology, and initial customer engagements
are evolving into tangible commercial opportunities. We have
undertaken two important development programmes with large
west-coast USA technology companies that were early pioneers in
this field of converging telecommunication solutions. Consequently,
we now have a good understanding of how to apply our IP in both
stratospheric and LEO space platforms. We are further encouraged by
the UK government's interest in the commercial space market and the
publication of the National Space Strategy in September 2021.
There have been several notable achievements over the last year
which set the potential for sustainable growth and future revenues,
to which end, I would highlight the following:
-- Two separate design contracts with UK aerospace and defence
primes for bespoke, low power bandpass filters and switch filter
banks, for use in next generation radar systems. Design and
prototypes were delivered within the year and initial production
orders were placed for delivery in FY2023.
-- The successful delivery of a GBP1.3m defence contract for the
design, development, and production of a battlefield radio
communication product. This represents our first direct engagement
with the UK MoD and the timely delivery of the initial production
units positions us favourably for future production volumes.
-- The Tower Top Amplifier ("TTA") product, launched in FY2020,
passed the milestone of GBP1.0m of sales in FY2022, with some
important design wins for future system upgrades and new state-wide
installations in the USA.
-- Successful transition of a long running development programme
for over-the-air, mmWave test equipment, from prototype into full
production. We are working with the customer to explore future
production run rates based on market acceptance of the end
product.
-- Successful delivery of custom, high-performance E-band
transceivers for use in several separate private network
applications associated with high-frequency trading platforms.
Extreme low latency data communications being critical for the
delivery of timely trading data.
-- Continued delivery of the Morpheus E-band transceiver in
volume production with over 60,000 units shipped worldwide. This
achievement earned Filtronic the coveted Queen's Award for Export
in November 2021.
-- We closed the year with a significant opportunity pipeline of
new aerospace, defence and HAPS and LEO space opportunities, that
have the potential to materially drive the business forward in the
medium term.
Outlook
We are undoubtably in a period of economic and geopolitical
uncertainty but one in which our technology will be in demand, the
RF design expertise we offer is in short-supply and our core
markets well positioned for growth. The current disruption to
semiconductor supply chains will impact our business in the short
term. However, we feel we have the resources and reserves necessary
to weather the short-term impacts and look forward 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 over the last few years. They
also align well with the needs of the post-pandemic world, where
public safety, mobile communications, sovereign defence capability
and development of LEO non-terrestrial telecommunication networks,
resonate with governments and other stakeholders alike.
Business plans for FY2023 will reflect the somewhat
unpredictable nature of the economy and the current geopolitical
situation, but in general we remain committed to the growth
opportunities and technology roadmaps identified in our strategic
plan. We have a culture that is proactive and highly motivated to
create growth and diversification of our customer base. With this
in mind, we have a number of initiatives to develop our capability,
and secure a range of well-defined 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;
-- Develop our scalable Cerus power amplifier platform to
maximise the range of power options at selected frequency
bands;
-- Develop our E-band transceiver platform to include active diplexer and SiP solutions;
-- Continued investment in our marketing activities with an
updated website platform, enhanced web content, and strategic use
of social media platforms;
-- Strengthening the sales organisation with the deployment of
additional direct sales and business development resource in the UK
and Western Europe;
-- Expand our indirect channels to market through the
Manufacturing Representative Network across the USA and in Europe
through distribution and reps;
-- Further investment in capital equipment to continue the
extension of our engineering, design and test capability,
production capability aligned to new business opportunities and
incorporation of alternative frequency bands required for LEO space
applications; and
-- Align our business processes and equip our facilities to
achieve the accreditation necessary to undertake a higher level of
UK Defence programmes.
I am pleased with the progress we have made to date and remain
excited by the potential that exists at Filtronic. There is an
increasing demand for our high-performance products and unique RF
design capabilities, and I believe we have the resources and
expertise necessary to navigate the business challenges that will
come our way in the next twelve months. The specific market
segments that we have identified for future growth continue to
develop at pace, and as we embark on a new financial year, I
believe we are well placed to continue to deliver on our long-term
growth objectives.
Richard Gibbs
Chief Executive Officer
1 August 2022
Financial review
A year of continued progress delivering revenue growth and
another year of successive adjusted EBITDA growth, despite strong
macro-economic headwinds and industry-wide semiconductor shortages,
providing a solid platform from which we will invest in the future
of the business.
Filtronic achieved another year of adjusted EBITDA growth
delivering GBP2.8m (2021: GBP1.8m) thanks to a strong sales mix and
controlled overhead spend. Consequently, the balance sheet was
strengthened with a healthy cash position following cash generation
of GBP1.1m (2021: GBP0.9m) which will be used to invest in
opportunities that offer a high rate of return and provide the
building blocks for future growth.
Revenues
We are also pleased to report sales growth for the Group of 10%,
taking revenue to GBP17.1m (2021: GBP15.6m) with the uplifts coming
from aerospace & defence and critical communications. This was
especially pleasing given revenue would have been higher in the
period if output had not been constrained by material availability
caused by the widely publicised global semiconductor component
shortage. By encouraging customers to place longer-term orders we
have secured the visibility we need to align resources and
safeguard inventory. Consequently, we have been able to build our
order book, which is stronger leaving the year than we entered, and
gives optimism that we can continue on a growth trajectory. The
momentum is also building as we look to deliver on one of our key
strategic objectives, to broaden the customer base, with several
recent contract wins outside of our largest three customers.
5G Xhaul sales decreased year-on-year by 12% as revenue was
constrained by component availability in H1. Having received the
material towards the end of H1, we enjoyed a 38% increase of sales
to our lead customer in H2, as the demand profile returned to
customer-specified levels. Output continues to flex, and we have
the capacity in place to execute as 5G rollouts gather pace and an
increasing number of governments release E-band spectrum. Sales of
E-band derivatives to customers in adjacent markets saw growth with
a main contributor being 'over-the-air' equipment having
successfully completed the pilot phase of an engineering
development to a leading US customer.
Sales of aerospace & defence products saw year-on-year
growth of 27%, driven by our multi-year contracts running at
consistent levels of output combined with revenue from new contract
wins. The battlefield communications project, announced in January
2020, was the largest of these contract wins and saw over GBP1m of
revenue recognised in the period. This market is critical to our
growth plans, and it was pleasing to see several new customers
entering the register with initial NRE development contracts. The
sales cycle can be long in aerospace and defence, but once initial
prototype orders become established, they are generally long-term
and predictable, which helps to underwrite the business, improving
the risk appetite for more speculative high-return projects in
other areas.
The products supplied into the critical communications market
achieved good results in the period with 23% growth year-on-year.
The market suffered during the pandemic with funds diverted to
sectors such as healthcare, but government spend has now flowed
back into public infrastructure projects, with Filtronic
benefitting from new state and county level rollouts. Demand
recovered well in the year and our lead customer is reporting
year-on year revenue growth in Land Mobile Radio ("LMR"), which is
the segment of their business we supply into, and a record order
backlog primarily driven by LMR demand. The recently launched TTAs
performed beyond our expectation with the product successfully
designed into major infrastructure projects ahead of more
established suppliers in the market. Our procurement strategies,
including early sourcing of materials and elevated levels of
inventory, minimised the impact of component shortages but revenue
to this market would have been higher if not for shortages upstream
in the system-level product. However, this also created
opportunities for us, and we were able to capitalise, winning
additional business thanks to our ability to maintain supply, when
competitors hit fulfilment challenges.
Operating costs and headcount
Operating costs remained broadly flat in the year at GBP9.4m
(2021: GBP9.5m) as overheads were controlled in the administrative
areas of the business.
The Group's largest overhead is salary-related costs which
increased by GBP0.1m, although the mix of personnel changed in the
year. Improvements in manufacturing efficiency facilitated a lower
cost base to run our manufacturing operations, with the savings
invested back into the business with the recruitment of new
employees in engineering to support work on the technology
roadmap.
Given this shift, there was a reduction in the total number of
employees in the Group during the year which is reflected in the
average headcount for the year decreasing to 124 (2021: 130). An
analysis of the Group's average continuing headcount is presented
below:
Number 2022 2021
-------------------------- ----- -----
Manufacturing 78 86
Research and development 26 24
Sales and marketing 5 5
Administration 15 15
Total headcount 124 130
-------------------------- ----- -----
Further investment is planned for the year ahead with additional
engineers joining the business in Q1 FY2023 as we seek to
capitalise on new opportunities having strengthened our direct
channels to market. This follows a big push on recruitment of
senior sales personnel and engineers which incurred recruitment
costs of GBP0.2m, which is larger than we have previously incurred,
as given the high number of vacancies to fill we engaged a
recruitment process outsourcer ("RPO") to fill the open
vacancies.
Other costs were managed tightly throughout the year and
consequential cost savings from the pandemic such as business
travel prevailed. In my report last year, I advised that I was keen
to see our sales and marketing team return to trade exhibitions at
the earliest opportunity, and it was pleasing to see the restart of
these events in the year. They have been successful forums for
generating new customer leads in the past, and money will always be
made available to support these events as they are key to new
business acquisition.
In the USA, we secured a second round 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 and converted to a grant totalling $186k (GBP131k).
A large portion of our product development in the year was
customer funded which maintained a healthy flow of cash during the
development phase of the engineering projects. Consequently, there
was limited capitalisation of development costs as the costs are
expensed in line with revenue recognition. Further commentary can
be seen in the Research and Development section of this review.
Adjusted EBITDA
The Group continues to focus on an alternative performance
measure ("APM") to track performance of the business. This 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. Adjusted EBITDA for the operation
was GBP2.8m (2021: GBP1.8m) representing a 58% increase whilst
adjusted operating profit was GBP1.6m (2021: GBP0.6m) representing
a 174% increase. This was facilitated by a stronger sales mix and
controlled spend of the overhead cost base whilst maintaining
investment into R&D.
Gross profit increased considerably thanks to increased sales to
the critical communications and aerospace & defence market as
certain components are free issued by the customer which gives
improved margins, whilst sales to the telecommunications
infrastructure market were lower where pricing is more
competitive.
Amortisation increased as the full year impact of the Morpheus
and MMIC IP engineering developments, capitalised as an intangible
asset in a prior period, were borne.
The exceptional items relate to legacy Telecoms Antenna
Operation provisions that were released unused in the period.
Having previously recognised the cost in the discontinued
operation, the reversal has gone through exceptional items.
The table below shows the reconciliation of operating profit
delivered at GBP2.0m (2021: GBP0.6m) and to adjusted EBITDA.
2022 2021
Reconciliation of operating profit GBP000 GBP000
to adjusted EBITDA
------------------------------------ ------- -------
Operating profit 1,975 642
Exceptional items (391) (64)
------------------------------------ ------- -------
Adjusted operating profit 1,584 578
Impairment of development costs - 45
Depreciation 945 941
Amortisation 278 209
------------------------------------ ------- -------
Adjusted EBITDA 2,807 1,773
------------------------------------ ------- -------
Taxation
A tax charge of GBP0.4m (2021: GBP0.2m) was recognised for the
year. This is the result of a reduced deferred tax position
reflecting usage in the year within the profitable trading
subsidiaries in the UK and US. This is a non-cash entry so payments
will not be made to 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 provided over the last
couple of years. The UK has already increased the rate of
corporation tax with effect from 1 April 2023 for companies with
profits above GBP250,000 to 25% from 19%, and the US is currently
debating the merits of an increase. However, with substantial
deferred tax assets, including those not recognised on the balance
sheet, this is likely to have a minimal impact on cash in the Group
in the short and medium term.
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and
amortisation of development costs were GBP1.7m (2021: GBP1.7m). The
Group utilised most of its engineering resource on customer funded
developments generating near-term revenue with an increased chance
of commercialisation.
However, the Group remains committed to investment in R&D
for future growth of the business and consequently measures R&D
spend as a KPI. Given the importance, o ur investment strategy is
geared towards continual investment in R&D with the plan to
align annual spend at 12% or more of revenue. Key areas of spend in
the year included product development for markets spanning
'over-the-air' mmWave equipment, aerospace & defence, low earth
orbit and development of W-band capability. The healthy cash
position and strengthened balance sheet gives us a greater ability
to invest in the development of our own strategic technology
roadmap and proprietary IP. This will allow us to build long-term
shareholder value in the years ahead.
Recruitment of RF engineers has been an industry-wide issue for
some time, but a change of approach has yielded positive results
with the use of the RPO, as disclosed in the operating costs and
headcount subsection of this report. We have also recruited a
high-calibre team of engineers in the Manchester area, where we are
creating a low-cost footprint to base the team, who will drive our
technology roadmap in mmWave engineering for the space market.
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:
2022 2021
Reconciliation of R&D costs GBP000 GBP000
----------------------------------- ------- -------
R&D costs in income statement 1,937 1,845
Capitalisation of development
costs - 52
Impairment of development costs - (45)
Amortisation of development costs (259) (182)
----------------------------------- ------- -------
R&D cash spend 1,678 1,670
----------------------------------- ------- -------
Capital expenditure and right of use assets
Capital expenditure increased slightly in the year. The total
amount of capital purchased was GBP0.6m (2021: GBP0.4m) with the
purchase of another die-attach machine and solder reflow oven. The
die-attach machine increases overall capacity at our Sedgefield
site, enabling quick-turnaround of new product introductions and
servicing of a growing opportunity pipeline without disruption to
the production line. It also increases the bandwidth of our process
engineers, which is a key skillset of the business, to undertake
more development work. The solder reflow oven improves the
capability of the operation and opens new opportunities
particularly in the aerospace & defence market. The assets were
externally financed through asset finance agreements were
subsequently classified as right of use assets.
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 2022, the warranty
provision was GBP0.1m (2021: GBP0.3m). A provision relating to the
legacy Telecoms Antenna Operation was released unused in the year
and is recognised in exceptional items.
Funding and cash flow
The Group recorded an increase in cash and cash equivalents to
GBP4.0m (2021: GBP2.9m) at the year-end. Cash generated from
operating activities in the year was GBP2.3m (2021: GBP2.5m) as
solid adjusted EBITDA performance drove strong cash generation with
offset by increased working capital requirements. Industry-wide
semiconductor shortages have been well documented and are mentioned
a number of times in the Group's Annual Report, with a key
mitigation action being the increase of our inventory holding. This
has been key to continuity of supply at a time when availability is
scarce and lead times are stretching. Consequently, the net
inventory position grew by GBP0.4m in the year. The increase in
receivables and payables represents a strong period of trading in
Q4 FY2022, inflating the closing position, as working capital was
in line with payment terms.
Net cash of all lease obligations, when including all debt
except property leases at the end of the period, was GBP3.1m (2021:
GBP1.9m), whilst overall net cash including property leases was
GBP2.2m (2021: GBP0.8m). At a time when many sectors are struggling
with liquidity, coupled with economic headwinds from inflation,
cost of living increases and geopolitical uncertainty, our business
is in the fortunate position to have a platform from which to grow
with a cash position that will be used to invest for the
future.
We also have additional cash headroom available through 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 2022 (2021:
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 2022 of GBP4.0m (2021:
GBP2.9m) and the additional headroom available through the undrawn
invoice discounting facilities and overdraft (2021: undrawn);
-- Global semiconductor component shortages impacting supply
chains and the potential for customer orders to remain unfulfilled
for prolonged periods; and
-- The economic headwinds the world is facing with the potential
for customers to reassess their priorities, with opportunities
postponed or curtailed.
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
2022.
Michael Tyerman
Chief Financial Officer
1 August 2022
The Board
The directors that served during the year ended 31 May 2022, and
to the date of this announcement, and their respective roles are
set out below:
Jonathan Neale (Non-Executive Chairman) appointed 15 November
2021
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
Pete Magowan (Non-Executive Director)
John Behrendt (Non-Executive Director)
Reg Gott (Non-Executive Chairman) retired 28 October 2021
Consolidated Income Statement
for the year ended 31 May 2022
2022 2021
Continuing operations Note GBP000 GBP000
Revenue 2 17,052 15,556
====== ======
Adjusted Earnings before interest,
taxation, depreciation, amortisation
and exceptional items 2,807 1,773
Amortisation of intangible assets (278) (209)
Impairment of development costs - (45)
Depreciation of property, plant
and equipment and right of use
assets (945) (941)
---------- ----------
Adjusted operating profit 1,584 578
Exceptional items 3 391 64
---------- ----------
Operating profit 1,975 642
Finance costs 4 (194) (431)
Finance income 111 -
---------- ----------
Profit before taxation 1,892 211
Taxation 6 (424) (151)
---------- ----------
Profit for the year 1,468 60
====== ======
---------- ----------
Basic and diluted earnings per
share 5 0.68p 0.03p
====== ======
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 2022
2022 2021
GBP000 GBP000
Profit for the year 1,468 60
---------- ----------
Other comprehensive income/(expense)
Items that are or may be subsequently
reclassified to profit and loss:
Currency translation movement arising
on consolidation 179 (98)
---------- ----------
Total comprehensive income/(expense)
for the year 1,647 (38)
====== ======
The total comprehensive income 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 2022
2022 2021
Note GBP000 GBP000
Non-current assets
Goodwill and other intangible
assets 1,495 1,716
Right of use assets 2,293 2,268
Property, plant and equipment 701 1,014
Deferred tax 868 1,218
---------- ----------
5,357 6,216
---------- ----------
Current assets
Inventories 2,598 2,190
Trade and other receivables 4,479 3,294
Cash and cash equivalents 4,006 2,906
---------- ----------
11,083 8,390
---------- ----------
---------- ----------
Total assets 16,440 14,606
---------- ----------
Current liabilities
Trade and other payables 2,993 2,380
Provisions 282 397
Deferred income 172 184
Financial liabilities - 63
Lease liabilities 540 542
---------- ----------
3,987 3,566
---------- ----------
Non-current liabilities
Deferred Income 130 128
Financial liabilities - 76
Lease liabilities 1,280 1,478
---------- ----------
1,410 1,682
---------- ----------
---------- ----------
Total liabilities 5,397 5,248
---------- ----------
---------- ----------
Net assets 11,043 9,358
---------- ----------
Equity
Share capital 7 10,796 10,795
Share Premium 8 11,060 11,039
Translation Reserve (471) (650)
Retained earnings (10,342) (11,826)
----------12,16 ----------12,161
Total equity 11,043 9,358
====== ======
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 2022
Share Share premium Translation Retained Total
capital reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
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
Currency translation movement
arising on consolidation - - (98) - (98)
Share-based payments - - - 2 2
---------- ---------- ---------- ---------- ----------
Balance at 31 May 2021 10,795 11,039 (650) (11,826) 9,358
Profit for the year - - - 1,468 1,468
New shares issued 1 21 - - 22
Currency translation movement
arising on consolidation - - 179 - 179
Share-based payments - - - 16 16
---------- ---------- ---------- ----------- ----------
Balance at 31 May 2022 10,796 11,060 (471) (10,342) 11,043
====== ====== ====== ======= ======
Consolidated Cash Flow Statement
for the year ended 31 May 2022
2022 2021
GBP000 GBP000
Cash flows from operating activities
Profit for the year 1,468 60
Taxation 424 151
Finance income (111) -
Finance costs 194 431
---------- ----------
Operating profit 1,975 642
Share-based payments 16 2
Depreciation of property, plant and
equipment and right of use assets 945 941
Amortisation of intangible assets 278 209
Impairment of intangible assets - 45
Movement in inventories (273) 626
Movement in trade and other receivables (1,100) 1,489
Movement in trade and other payables 550 (1,026)
Movement in provisions (115) (712)
Change in deferred income (10) (255)
Tax received 19 495
---------- ----------
Net cash generated from operating
activities 2,285 2,456
---------- ----------
Cash flows from investing activities
Capitalisation of development costs - (52)
Acquisition of other intangible assets (57) (69)
Acquisition of plant and equipment (61) (177)
Acquisition of right of use assets (132) (106)
Proceeds on sale of assets - 12
---------- ----------
Net cash used in investing activities (250) (392)
---------- ----------
Cash flows from financing activities
Interest paid (194) (225)
Proceeds from bank loans - 131
Repayment of bank loans (131) (209)
Exercise of employee share options 22 40
Repayment of lease liabilities (653) (666)
Repayment of interest-bearing borrowings (8) (104)
---------- ----------
Net cash used in financing activities (964) (1,033)
---------- ----------
Movement in cash and cash equivalents 1,071 1,031
Currency exchange movement 29 (153)
Opening cash and cash equivalents 2,906 2,028
---------- ----------
Closing cash and cash equivalents 4,006 2,906
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2022
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
2022.
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 2022, the Group had cash at bank of GBP4.0m and access
to undrawn invoice discounting facilities of GBP3.0m and $4.0m in
the UK and USA respectively (2021: undrawn).
The Board recognises the uncertain economic and political
environment that the world faces and has reviewed the business
outlook to reflect this uncertainty. 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 programme curtailment and/or delays may adversely affect
forward-looking demand to levels lower than those initially
modelled in the base case scenario. A further 'severe but
plausible' scenario was modelled which reflected output in the
event semiconductor material availability prevented supply to
customers for a period of time.
The scenarios modelled above demonstrate the Group has adequate
cash and borrowing capacity for the next twelve months. 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 2022 or 31
May 2021. The financial information for 2021 is derived from the
statutory accounts for 2021 which have been delivered to the
registrar of companies. The auditor has reported on the 2022
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 2022 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.
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 81% of revenue. This is split as
follows:
-- Customer A - 36% (2021: 35%)
-- Customer B - 23% (2021: 33%)
-- Customer C - 22% (2021: 19%)
Revenue by destination Total
2022 2021
GBP000 GBP000
United Kingdom 7,489 4,693
Europe 3,421 4,178
Americas 5,313 4,197
Rest of the World 829 2,488
---------- ----------
17,052 15,556
====== ======
Split of non-current assets by location 2022 2021
GBP000 GBP000
United Kingdom 5,109 5,293
Americas 248 923
--------- ---------
5,357 6,216
====== ======
Non-current assets relate to property, plant and equipment,
right of use assets, goodwill and other intangible assets and
deferred tax.
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 exceptional items as
follows:
Year Year
Ended Ended
31 May 31 May
2022 2021
GBP000 GBP000
Antenna warranty (339) -
Historic claim (52) (64)
---------- ----------
(391) (64)
====== ======
The antenna warranty item also related to the Group's legacy
Telecoms Antenna Operation previously costed through discontinued
operations. The warranty period has now lapsed, and the provision
was released unused.
A provision relating to an historic claim was released unused
and credited to the income statement as it related to the Telecoms
Antenna Operation, sold in January 2020.
4 Finance costs
Year Year
Ended Ended
31 May 31 May
2022 2021
GBP000 GBP000
Interest expense on loans for
plant and equipment - 6
Interest expense for lease agreements 127 136
Minimum service costs and interest
charges on invoice discounting
facilities 67 82
Revaluation of foreign currency
denominated intercompany balance - 207
---------- ----------
194 431
====== ======
5 Earnings per share
Total Group
2022 2021
GBP000 GBP000
Profit for the year 1,468 60
====== ======
'000 '000
Basic weighted average number of shares 214,726 213,397
Dilution effect of share options 868 897
---------- ----------
Diluted weighted average number of shares 215,594 214,294
---------- ----------
Basic and diluted earnings per share 0.68p 0.03p
====== ======
6 Taxation
The reconciliation of the effective tax rate is as follows:
2022 2021
GBP000 GBP000
Profit before taxation 1,892 211
====== ======
2022 2021
GBP000 GBP000
Profit before taxation multiplied by standard
rate of corporation tax in the UK - 19% 359 40
Disallowable items 155 213
Deferred tax asset not recognised 194 213
Enhanced R&D tax credit (270) (176)
Adjustment in respect of prior year - R&D tax
credit (24) (371)
Foreign tax not at UK rate 15 (15)
Derecognition of deferred tax asset 104 247
Rate change of deferred tax (109) -
--------- ---------
Taxation 424 151
====== ======
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.
7 Share Capital
Ordinary shares
of 0.1p each issued
and fully paid
Number '000 GBP000
--------------- ------------
At 1 June 2020 213,698 10,794
--------------- ------------
Exercise of share options 717 1
--------------- ------------
-------------- ---------
--------------- ------------
At 31 May 2021 214,415 10,795
--------------- ------------
Exercise of share options 383 1
--------------- ------------
------------ -----------
--------------- ------------
At 31 May 2022 214,798 10,796
--------------- ------------
======== ======
--------------- ------------
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.
8 Share Premium
GBP000
At 31 May 2020 11,000
------------
Exercise of share options 39
------------
-----------
--- ------------
At 31 May 2021 11,039
------------
Exercise of share options 21
------------
-----------
------------
At 31 May 2022 11,060
------------
=======
--- ------------
9 Dividends
The directors are not proposing to pay a dividend for the year
ended 31 May 2022 (2021: GBPnil).
10 Analysis of net cash
Reconciliation of cash flow to movement 2022 2021
in net cash
GBP000 GBP000
Movement in cash and cash equivalents 1,071 1,059
Movement in bank loans 131 78
Movement in lease liabilities - plant
and machinery (28) 546
Movement in lease liabilities - property
lease 228 (39)
Effect of exchange rate fluctuations 29 (181)
---------- ----------
Movement in net cash 1,431 1,463
Net opening cash/(debt) 755 (710)
---------- ----------
Net closing cash 2,186 753
====== ======
31 May Cash Other movements 31 May
2021 Flow 2022
GBP000 GBP000 GBP000 GBP000
---------- ---------- ---------------- ----------
Cash and cash equivalents 2,906 1,071 29 4,006
---------- ---------- ---------------- ----------
Bank loans (131) 131 - -
---------- ---------- ---------------- ----------
Lease liabilities - plant and equipment (835) 417 (445) (863)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash when including all debt
except property leases 1,940 1,619 (416) 3,143
---------- ---------- ---------------- ----------
Lease liabilities - property leases (1,185) 236 (8) (957)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash 755 1,855 (424) 2,186
---------- ---------- ---------------- ----------
====== ====== ====== ======
---------- ---------- ---------------- ----------
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 2022 (2021: GBPnil).
IFRS 16 requires the recognition of property leases on the
balance sheet which is classified as a debt item.
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END
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