TIDMFTC
RNS Number : 8167H
Filtronic PLC
01 August 2023
1 August 2023
FILTRONIC PLC
AUDITED FULL YEAR RESULTS FOR THE YEARED 31 MAY 2023
Filtronic plc (AIM: FTC), the designer and manufacturer of
products and sub-systems for the aerospace & defence,
telecommunications infrastructure and space markets, announces its
full year results for the 12 months ended 31 May 2023.
Financial Highlights
2023 2022
Revenue GBP16.3m GBP17.1m
Adjusted EBITDA* GBP1.3m GBP2.8m
Adjusted operating profit** GBP0.2m GBP1.6m
Exceptional items - GBP0.4m
Operating profit GBP0.2m GBP2.0m
Profit before taxation GBP0.1m GBP1.9m
Profit for the year GBP0.5m GBP1.5m
Basic earnings per share 0.22p 0.68p
Diluted earnings per share 0.21p 0.68p
Net cash balance as at 31 May GBP0.3m GBP2.2m
Net cash when excluding right of use property GBP1.6m GBP3.1m
leases
Cash generated from operating activities GBP1.0m GBP2.3m
*Adjusted EBITDA is earnings before interest, taxation,
depreciation, amortisation and exceptional items.
** Adjusted operating profit is operating profit before
exceptional items.
Operational Highlights
-- Another year of profitable trading despite the headwinds from
the global semiconductor shortages, geopolitical uncertainty and a
challenging economic environment.
-- First contract win in the low earth orbit space sector, valued at GBP2.3m, to a market leader
-- Launched the Morpheus X2 E-band transceiver and secured
production orders valued at GBP0.9m, that more than doubles the
transmission range of current 5G backhaul radio links.
-- Two new defence contract wins with the MoD through the DSTL framework.
-- Series of recent contract wins totalling over GBP2.0m across
a diverse range of new telecommunication and private network
customers, demonstrating the execution of our objective to broaden
the customer base.
-- Further developed the opportunity pipeline, having improved
our direct and indirect sales channels improving customer
engagement, as well as strengthening the engineering team to
facilitate revenue growth.
-- Achieved IASME Governance Gold to augment our cyber security,
positioning us well to win more sensitive work.
-- Eight new products launched during the year, spanning
high-power versions of standard telecom products, new filter
designs for defence and quantum computing and a range of solid
state power amplifiers for space and ground station
applications.
Commenting on the outlook , Jonathan Neale, Chairman, said: "
The broad strategic goals of Filtronic remain the same. We seek
value growth through provision of high-speed, low-latency, radio
frequency electronics subsystem design and manufacture, for blue
chip customers in growth markets. We are encouraged by the increase
in market activity and the rate of requests for quotations in
important complex products demanding world class capability.
Strengthening our business development and engineering teams has
been critical to be able to respond quickly. On several occasions
this year we have proved ourselves capable to deliver world class
engineering with innovative, complex solutions, demonstrating the
kind of responsiveness to develop, and deliver at volume,
high-quality mission critical products. Recent wins in the
important and emerging low earth orbit space market, which is
gathering pace, help us demonstrate our leading-edge technology and
high-performance culture.
We remain committed to R&D investment, to be ready to meet
the needs of those markets. We have progressively pivoted a
proportion of our R&D to align priority technology readiness
programmes to ensure we are ready to capitalise on opportunities at
Ka, E and Q/V-band frequencies. We aim to have a degree of
configurable platform solutions on product categories to be able to
recycle IP and know-how for speed and efficiency. Of course, we
seek greater scale in our business. We believe this will come.
There have been some frustrations, inevitably, as the post-covid
supply semiconductor issues unwind, but we continue to be paced by
some end customer significant contract wins in key markets.
Sovereign defence and communications technology demands are
exciting but predicting contract timing remains an art not a
science. The roll out of 5G telecommunication infrastructure
technology remains important as the world continues to digitise,
however, we note the recent market announcements from key providers
in India indicating a somewhat stop-start deployment. These are
features not faults in our markets and consequently these are the
challenges we must meet. Agility and ambition remain tempered by an
understanding of the need for a strong balance sheet and cash
focus."
Annual General Meeting
The Annual General Meeting will take place at 11am on 26 October
2023 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 / George Dollemore
(Corporate Finance)
Alice Lane / Sunila de Silva (ECM)
Walbrook PR Ltd Tel. 020 7933 8780
Paul Vann / Joe Walker 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 am pleased to report that good progress has been made in the
year ended 31 May 2023, particularly with our market engagement,
product development and improvement of operational capability.
We were optimistic about growing revenue in H2 FY2023 but
shortages in the semiconductor supply chain prevented us from
realising this important goal. Despite this, we delivered another
successive year of profit generation with adjusted earnings before
interest, taxation, depreciation, amortisation and exceptional
items ("Adjusted EBITDA") of GBP1.3m (2022: GBP2.8m). This led to a
strengthened balance sheet, which, coupled with a stronger order
book and improved opportunity pipeline, provides a solid base from
which to continue developing the business to deliver long-term
shareholder value.
The Markets
The markets we operate in increasingly offer the potential for
strong growth. The recent sizeable contract win, awarded by a
leading player in the low earth orbit space market demonstrates the
world-class capability of our business and validates our confidence
in successfully penetrating this emerging and high growth sector.
The market is currently led by a handful of well-known global
players, where our technology is highly relevant to their chosen
solutions, but there are numerous other disruptors with different
mission objectives, serving a broad range of end customers and
markets.
We continue to see exciting opportunities being developed in
aerospace and defence particularly given the current geo-political
landscape. Governments of western countries acknowledge they have
underfunded defence spending in recent years but have reiterated a
commitment to remedy this. The skills required to develop
technology solutions utilising radio frequency ("RF") are in short
supply and the major defence primes recognise that resourcing their
key programmes will be a significant challenge. This creates
opportunities for Filtronic to support and mitigate the skills gap
that has developed.
In the telecommunications market, we note recent announcements
by both Nokia and Ericsson following a slowdown in consumer
spending impacting their telecoms sales. However, 5G networks are
actively being rolled out around the world and the long-awaited
licencing of E-band spectrum in India has been released for
backhaul products. This is a market that has a high dependence on
wireless technology given the well-established road and building
infrastructure, making it difficult to offer cabled solutions.
Given the scale of rollouts, pricing can be highly competitive as
the original equipment manufacturers ("OEMs") compete for market
share. As E-band spectrum bandwidth starts to fill, the focus will
move to other frequency bands such as W-band and D-band. The
telecommunications market has historically led technology waves so
these technological developments will be a key focus of our own
technology roadmaps.
Our relevance to new and prospective customers and the unique
selling point we offer is our ability to design, develop and
manufacture a turn-key solution to a high-quality standard. We ramp
production quickly and in sufficiently large volumes bringing an
ethos that fundamentally differentiates us from our competitors who
do not have the heritage of rapid turnaround and large-scale
manufacture.
Investing in the right areas of the business, to deliver this
sustainable financial growth is a constant balancing act. To be
successful in our chosen markets we need to be agile, recognising
that we may need to adapt strategy in response to the fast-paced
nature of the communications technology. The desire of our
prospective customers in terrestrial and space communication to
get, or stay, ahead of their competitors means we must be
responsive in order to thrive. Therefore, building and developing
the engineering organisation is critical as we seek to develop our
technology roadmaps, undertake customer developments and service
the opportunity pipeline. Rapid execution of product development
with high quality products and solutions will remain a key focus
for the Group.
Financial Performance Summary
Group sales decreased in the year by 5% to GBP16.3m (FY2022:
GBP17.1m).
The reduction in sales and a weaker sales mix, with a higher
concentration of revenue from price sensitive telecommunications
infrastructure, led to an Adjusted operating profit of GBP0.2m
(2022: GBP1.6m) and operating profit of GBP0.2m (2022:
GBP2.0m).
The Group closed the year with GBP2.6m of cash at bank (2022:
GBP4.0m) in addition to the availability of undrawn working capital
debt facilities in the UK (GBP3.0m with Barclays) and the USA
($4.0m with Wells Fargo).
The Group's net cash position, including all debt except right
of use property leases, was GBP1.6m at the end of the financial
year (2022: GBP3.1m). Net cash including right of use property
leases was GBP0.3m (2022: GBP2.2m).
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 (2022: GBPnil).
Environmental, Social and Governance ("ESG")
We are committed to building a sustainable business for the
future, delivering consistent financial returns and long-term value
for all our stakeholders. We formalised our ESG strategy in the
year, which has been developed with an emphasis on supporting the
wider corporate strategy. Key elements include building an
organisation fit for the future by supporting STEM skills,
continuing with our established graduate programme, augmented with
a new apprenticeship initiative. We will also minimise our impact
on the environment with lower energy consumption and waste. Full
details of the ESG strategy and objectives can be found on the
Filtronic website at https://filtronic.com/investors/esg-strategy/
.
Outlook
The markets we serve offer strong growth prospects and we remain
confident, given the opportunities that are being generated, that
we can execute against our strategic plans and build a business for
all our stakeholders to be proud of. Key milestones have been met
against our core objectives in the year, with stronger commercial
engagement, innovative product solutions, well-aligned technology
roadmaps and robust business systems, and we therefore look forward
to FY2024 with enthusiasm and excitement.
Whilst the macro-economic environment remains uncertain, we are
well equipped to navigate through it with a stronger business. We
will further strengthen our sales and engineering organisations in
the year to capitalise on near term market opportunities.
I would like to finish by thanking all our stakeholders for the
ongoing support, and our talented employees who have continued to
respond positively with exceptional commitment. It is with their
dedication, hard work and skill that we will continue to drive the
performance of the business.
Jonathan Neale
Chairman
31 July 2023
Chief Executive's review
I am pleased to present our full year results for FY2023, and
with it a reflection on the last 12 months, during which we have
made significant progress against the primary objective of creating
sustainable growth in our strategic markets of aerospace and
defence, space and terrestrial telecommunications infrastructure.
Despite the faltering global economy, the trading environment for
Filtronic throughout the last financial year has generally been
favourable. It was only the availability of critical semiconductor
products in Q3 and Q4 that limited our ability to maximise revenues
prior to the financial year end. Notwithstanding the challenges
imposed by the breakdown in the global semiconductor supply chain,
we ended the year with revenues of GBP16.3m (FY2022: GBP17.1m),
broadly in line with market expectations.
Confident of the potential for Filtronic technology in our
chosen strategic markets we have continued to invest in our
long-term future by strengthening our business development and
engineering teams throughout the year. This increased investment is
reflected in our Adjusted EBITDA of GBP1.3m (2022: GBP2.8m) and
cash at bank of GBP2.6m (2022: GBP4.0m). The initial return on this
investment is evidenced by the release of several new high-power
telecommunication infrastructure and space products, for which we
have already been successful in achieving initial customer order
commitment. We end the year with a healthy number of new product
developments in the engineering pipeline, and a well-defined
technology roadmap aligned with customer and market
requirements.
Over the last 12 months I have seen first-hand the strength of
relationships with Filtronic's strategic accounts, who are amongst
the market leaders in each of our addressable markets. I have been
delighted with the development of our technology roadmaps and the
progress made in strategic programmes that will yield products for
the next generation of telecommunication backhaul communications
and electronic warfare ("EW") solutions. I have also been pleased
with the progress made in opening exciting new applications such as
our breakthrough into the low earth orbit ("LEO") space market.
Radio frequency ("RF") design is a complex and fast developing
engineering discipline. With our global reputation, combined with
over 45 years of innovative IP development, we continue to see a
growing number of prospective customers wanting to engage our
services in the design and manufacture of next generation RF
products. Our ability to undertake rapid cutting-edge RF design,
and subsequently scale the manufacturing of mmWave products,
enables customers to drive performance and accelerate time to
market. This combination of technical competence and agility is a
significant competitive advantage for customers in the
telecommunication and LEO space markets.
A strong 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 efficiently
bring new products to market in line with customers' expectations.
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 to mass
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 key skills
required to realise our growth ambitions. To further penetrate our
strategic markets, we strengthened our business development team
with the addition of seasoned industry experts with a strong
track-record of sales delivery. We have also been successful in
hiring high-calibre RF engineers for our new design office in
Manchester and this team is now specifically engaged in addressing
opportunities in the emerging space and telecommunication
infrastructure market.
Customers and Markets
Our stated mission at Filtronic is to drive the future of RF,
microwave and mmWave communications and we have aligned the
business to focus efforts on four strategic vertical markets that
we believe have good growth potential and a strong alignment with
our RF capabilities. We have been careful to select applications
where we could add significant value, drive sustainable margins,
reuse existing IP, and leverage the investments in our existing
hybrid manufacturing capability. We are also mindful to avoid
commodity markets and consumer applications with low barriers to
entry that offer little in the way of RF technology
development.
Our selected strategic growth markets are aerospace &
defence particularly EW and battlefield communications, terrestrial
telecoms for 5G backhaul, and gateway connectivity for LEO space
communications. All of the strategic markets have continued to
invest in the development of RF technology over the year, with a
consistent drive towards higher power, lower latency, and improved
bandwidth applications where Filtronic can apply know-how and
product development expertise.
The aerospace market has long been a steady revenue contributor
to our business and this year we have expanded our footprint in the
Active Electronically Scanned Array ("AESA") radar market by
capturing several related filter design opportunities that position
us well for strategic radar programmes that will come in the next
five years. We have continued to make inroads into the UK defence
market with several successful engagements with Defence Science
Technology Laboratories ("DSTL") following successful delivery of
our first battlefield communications product in FY2022. We were
successful in winning an additional two DSTL programmes in FY2023
and both of these programmes align us closer with UK MoD's
strategic requirements.
5G telecommunication infrastructure deployment continues around
the world, and critical to true 5G performance is the quality and
reliability of high frequency backhaul communications. Filtronic's
E-band transceivers are designed to deliver cost-effective,
multi-gigabit connectivity for mobile backhaul networks, in
geographies where the E-band frequency has been licenced and
individual countries make the E-band frequency available for use.
India licenced E-band frequencies in 2022 as part of its long
awaited 5G roll-out and Filtronic took benefit of stock orders from
our lead customer to cover what is expected to be a sustained
period of demand for backhaul products. Recent concerns associated
with the solvency of the licenced telecom operators in India,
together with surplus inventory from the stalled 5G roll-out in
Russia will inevitably result in some order book demand to be
rescheduled. However, the long-term potential in India remains
significant. Recent orders for high-power high-frequency trading
modules, private network E-band modules and custom power amplifier
solutions suggest that there are several interesting adjacent
market opportunities for Filtronic's core telecommunication
technology.
The LEO space market is growing rapidly as the costs associated
with the launch and deployment of satellite technology continues to
fall. Well-funded, global corporations and ambitious regional
start-up companies are racing to build constellations of satellites
that will accelerate the delivery of broadband services across the
globe. Ultimately these LEO networks will converge with the
established terrestrial telecommunication networks to provide
high-speed, low-latency ubiquitous broadband connectivity.
Filtronic's reputation as a supplier of compact, highly integrated,
and extremely reliable telecommunication backhaul solutions has
positioned us well to respond to the aggressive timelines demanded
by the leading players in the LEO space market. The ability to
design and build scalable solid state power amplifiers ("SSPAs") at
multiple frequency bands enabled Filtronic to win initial
production orders for the deployment of the first LEO space E-band
backhaul communication links during the year. We will look to build
on this initial market success by strengthening customer
relationships and focusing on the delivery of our technology
roadmap over the next 24 months.
Achievements
There have been several notable achievements over the last year
which set the potential for sustainable growth and future revenues,
some of which are as follows:
-- Our first development of an E-band SSPA module for the market
leader in LEO space communications.
-- Secured production orders and enabled the launch of the
Morpheus X2 E-band transceiver that more than doubles the
transmission range of current 5G backhaul radio links.
-- Taking advantage of new semiconductor process IP we launched
a series of prototype chip developments in CY2023 with promising
results
-- We secured our second and third DSTL programmes in FY2023 and
continued to build our relationship as a supplier of turnkey RF
solutions to the UK MoD.
-- Focusing on our filter design expertise we secured orders in
EW, air and shipborne radar, battlefield communications and
emerging quantum computing applications.
-- Secured three separate programmes for custom high-performance
E-band transceivers in private network applications associated with
private data communications and high-frequency trading
platforms.
Outlook
We operate in a period of economic and geopolitical uncertainty,
but one in which our technology is in demand, and the expertise we
offer is in short supply. Our strategic markets are well positioned
for growth and our lead customers continue to invest in next
generation RF solutions. The disruption to semiconductor supply
chains that impacted our business in FY2023 are improving, and we
feel that we now have the resources and skills necessary to look
forward with optimism to the new trading period.
Filtronic's core markets represent industry verticals that have
a robust outlook and align well with the needs of the post-pandemic
world. Public safety, mobile communications, a sovereign defence
capability and the rapid development of LEO space networks, are
well funded sectors that resonate with governments, investors, and
the public at large.
Business plans for FY2024 reflect our confidence in the markets
we serve to deliver long term sustainable growth. We have an open
and honest culture that is proactive and highly motivated to
deliver excellence in all aspects of our business. We will further
develop our prospects over the next 12 months with a focus on the
following activities:
-- Maximise the opportunity associated with the fast-growing LEO
Space backhaul communications market, including both ground station
and payload applications.
-- Development of next generation MMIC designs that will enable
us to continue the evolution of our mobile telecom backhaul
solutions.
-- Develop our scalable Cerus power amplifier platform to
maximise the range of power options at selected frequency bands
required for LEO space communication links.
-- Champion the UK Government National Semiconductor Strategy
and position Filtronic as a trusted sovereign supplier of advanced
RF packaging solutions.
-- Develop our manufacturing capability to add plastic
encapsulated devices to our portfolio of hybrids and SiP
solutions.
-- Selectively target funding from agencies and UK Government
initiatives that support and underpin the delivery of the Filtronic
technology roadmap.
-- Continued investment in our marketing activities including
enhanced web content and strategic use of social media platforms
for targeted marketing.
-- Strengthen the sales organisation with the deployment of
direct sales and business development resource in the UK and
Western Europe and expand indirect channels in the USA and Europe
through distribution and representative networks.
-- Consolidate the return on the investment in capital equipment
by winning outsourced assembly and test ("OSAT") opportunities with
customers who require specialist hybrid and plastic QFN packaging
capability.
-- Continue to 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 that the business has made in the
last financial year 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
based on our investments in FY2023, I believe we are building the
IP portfolio, resources, and expertise necessary to scale the
business. The specific market segments that we have identified for
growth continue to develop at pace and as we embark on a new
financial year, I believe we are well placed to deliver long term
shareholder value.
Richard Gibbs
Chief Executive Officer
31 July 2023
Financial review
Notwithstanding a heavy focus on top-line growth, another
successive year of profit generation enabled further investment to
achieve key strategic objectives, despite macro-economic headwinds
and well documented industry-wide semiconductor shortages.
Good progress continues to be made by the Group with Adjusted
EBITDA generation delivering GBP1.3m (2022: GBP2.8m) for the year,
in line with market expectations. We maintained investment into the
business, particularly in the areas that will drive growth as we
capitalise on the opportunities within our core markets. We are in
the fortunate position of continuing to see growth prospects in our
core sectors, when many markets are struggling with well documented
economic and political uncertainty. Given the elevated pipeline of
new business, we will maintain our focus on those that offer a high
rate of return and deliver shareholder value in the coming
year.
Revenue
Had it not been for the widely publicised global semiconductor
component shortages, this report would have been heralding another
year of revenue growth. Having navigated the global semiconductor
component shortage crisis exceptionally well since the issue first
surfaced a couple of years ago, it was frustrating that a couple of
niche component parts brought output of a core product offering to
a halt in Q3 of the financial year. This was a direct result of the
semiconductor supplier prioritising output of more widely consumed
parts to other markets, resulting in reschedules from the supplier
that could not be mitigated. The consequence of this was an annual
revenue decrease of 5% to GBP16.3m (2022: GBP17.1m). During the
year, sales into the telecommunications infrastructure market
performed particularly well whilst we were delighted to receive an
order from a market leading player in the LEO space market, of
which a substantial amount was realised in FY2023.
We are pleased that the pipeline continues to build,
particularly in aerospace and defence and the emerging market of
space. A key strategic objective of the business has been to
broaden our customer base, and this is evidenced in the year by the
decrease in the revenue concentration of our three largest
customers to 73% (2022: 81%), whilst we now have four (2022: three)
customers each generating over 10% of our revenue and in total
85%.
Sales to the telecommunications infrastructure market were
particularly strong this year as the pace of 5G backhaul rollouts
accelerated, thanks in part to the release of E-band spectrum by
governments around the world. This led to sales to this sector
increasing year-on-year by 40%. This stronger demand can, in some
part, be apportioned to inventory stocking at our lead customer to
enable them to flex to demand requirements if they are successful
in the Indian market where E-band has recently been licenced.
Sales of Xhaul products to other markets, including the space
market, were up 57% on the prior year mainly due to the new
customer win in the LEO space market. The contract win enabled us
to deliver further growth within our E-band and derivative
technology products. This is an exciting and emerging market for
us, where our technology and expertise is highly relevant. The
initial contract from a major LEO player, valued at GBP2.3m, to
undergo a trial in the ground station using E-band technology,
demonstrates the attractiveness of our capability. Our ability to
ramp and manufacture rapidly to keep the pace with this fast-moving
market gives us a competitive advantage relative to traditional
suppliers to the space industry.
Sales of aerospace & defence products saw a year-on-year
reduction of 41%, partly as a result of supply issues pushing
shipments into FY2024, but mainly due to a hiatus in supply of an
established programme that ended in the previous financial year.
This market remains critical to our growth plans, and despite the
reduction, we continue to see contract wins for development work.
DSTL is the MoD's framework to engage with SMEs, and we were
delighted to win two new contracts in the year on this platform
with revenue from both programmes recognised in the year.
The legacy products supplied into the critical communications
market were impacted by upstream component issues within the
system-level product. This resulted in a decrease of revenue to
this market of 20%. This trend is expected to reverse in FY2024,
with demand restored to normalised levels, which we anticipate will
provide an uplift in revenue in the next financial year. The TTA
product continued to perform well, having exceeded our expectations
in the prior year. We won more market share in the year and grew
our brand profile with key customer teams. We also won a number of
other contracts to this market outside of our lead customer,
through both our direct and indirect sales channels.
Operating costs and headcount
Operating costs increased by 6% in the year to GBP10.0m (2022:
GBP9.4m) as overheads were controlled tightly in the administrative
areas of the business to enable us to continue investing in
engineering and sales and marketing resource which will drive
business growth.
The Group's largest overhead is salary-related costs,
representing nearly 70% of the operational cost base, which
increased by GBP0.4m (7%). Whilst maintaining headcount at a
similar level to the prior year we did change the mix of employees
during the year with recruitment of employees in revenue generating
functions such as engineering and business development that
generally attract a higher salary. These increases were partly
offset by improvements in manufacturing efficiencies and further
automation of operating processes.
The recruitment of business development resource strengthens our
direct channel to market and is key to capitalising on
opportunities in the high growth markets we operate within.
Continuing the investment into engineering is critical and it was
pleasing to see that we not only increased the number of engineers,
but they bring valuable expertise and experience, which has
significantly upskilled the team. This enables us to service a
larger opportunity pipeline, increase the number of product
developments for customers and expand our technology roadmap to
position us well to execute our strategic plans.
Given this shift, there was a slight increase in the total
number of employees in the Group during the year which is reflected
in the average headcount increasing to 125 (2022: 124). An analysis
of the Group's average headcount is presented below:
Number 2023 2022
-------------------------- ----- -----
Manufacturing 74 78
Research and development 31 26
Sales and marketing 7 5
Administration 13 15
Total headcount 125 124
-------------------------- ----- -----
We are planning to add further business development resource in
FY2024, to augment our direct access to market, whilst we also plan
to bring in additional engineering resource to deliver scheduled
programmes and accelerate new product delivery. Investment in our
engineering teams is critical to sustainable financial growth and
we plan to maintain this spend at around 12% or more of revenue.
This will ensure we have the resource in place to capitalise on
growth opportunities and keep ahead of our competitors with the
latest technology.
Other costs were managed tightly throughout the year with cost
savings of GBP0.2m realised in administrative functions.
The Group has also been highly active in grant funding channels
to further support growth initiatives and investment. Whilst other
operating income reduced against the prior year, as we previously
received Covid business support from the US government, we have had
a number of successes over recent years with capital grants towards
key pieces of machinery. Looking forward, we are putting increased
effort into securing revenue grants to help fund our technology
roadmaps.
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. However, we also
invested our own money in developing products as part of our
technology roadmap, particularly to develop solutions for the space
market as well as Morpheus X2 to give our customers higher power in
telecommunications infrastructure. Consequently, we capitalised
GBP0.5m of development costs in the year. Further commentary on
these capitalised development costs can be seen in the Research and
Development section of this review.
Adjusted EBITDA
The Group utilises 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 year was GBP1.3m (2022:
GBP2.8m) representing a 55% decrease whilst Adjusted operating
profit was GBP0.2m (2022: GBP1.6m) representing an 85% decrease.
This was the result of weaker gross profit from lower revenue, and
a weaker sales mix due to lower representation of high margin
aerospace and defence revenue and higher representation of 5G
telecommunications equipment which is a price sensitive market.
The table below shows the reconciliation of operating profit
delivered at GBP0.2m (2022: GBP2.0m) and to Adjusted EBITDA.
2023 2022
Reconciliation of operating profit GBP000 GBP000
to Adjusted EBITDA
------------------------------------ ------- -------
Operating profit 237 1,975
Exceptional items - (391)
------------------------------------ ------- -------
Adjusted operating profit 237 1,584
Depreciation 780 945
Amortisation 253 278
------------------------------------ ------- -------
Adjusted EBITDA 1,270 2,807
------------------------------------ ------- -------
Taxation
A tax credit of GBP0.4m (2022: tax charge of GBP0.4m) was
recognised in the year as a previously unrecognised deferred tax
asset was realised given the directors expect to utilise more of
the deferred tax asset in future periods. The Group also benefits
from R&D tax credits given the development of new technology
which lowers the amount of taxable profit.
With substantial deferred tax assets, including those not
recognised on the balance sheet, the Group will continue to benefit
from not having a tax liability for the foreseeable future.
Research and development costs ("R&D")
Total R&D costs in the year before capitalisation and
amortisation of development costs were GBP2.0m (2022: GBP1.7m). The
Group incurred engineering costs on a mixture of customer funded
developments and development of our own technology roadmap.
The Group remains committed to investing in R&D for future
growth and consequently measures R&D spend as a KPI. Key areas
of spend in the year included product development for each of our
key growth markets spanning telecommunications infrastructure,
aerospace and defence, space and development of capability at new
frequency bands including Q, V and W-band. The year ahead will see
us continue to invest in the development of our own strategic
technology roadmap and proprietary IP enabling 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 we are pleased with recent successes in attracting
new talent to the business at each of our three UK engineering
development sites. We will augment this by building an organisation
fit for the future, maintaining our graduate recruitment scheme and
adding a new apprenticeship programme.
The Group capitalises its development costs in line with IAS 38
as set out in note 1 to the financial statements. A reconciliation
of R&D costs before capitalisation and amortisation can be seen
in the table below:
2023 2022
Reconciliation of R&D costs GBP000 GBP000
----------------------------------- ------- -------
R&D costs in income statement 1,776 1,937
Capitalisation of development 481 -
costs
Amortisation of development costs (222) (259)
----------------------------------- ------- -------
R&D cash spend 2,034 1,678
----------------------------------- ------- -------
Capital expenditure and right of use assets
Capital expenditure increased significantly in the year, with a
large element of investment occurring in Q4 of the financial year.
The total amount of capital purchased was GBP1.5m (2022: GBP0.6m)
with investment made into QFN plastic packaging equipment and
engineering test systems suitable for operating at frequency bands
important for space applications utilising Q and V-band.
Warranty provision
In line with industry practice, the Group provides warranties to
customers over the quality and performance of the products it
sells. Reflecting a full risk analysis of current commercial
contracts at 31 May 2023, the warranty provision was GBP0.3m (2022:
GBP0.1m).
Funding and cash flow
The Group recorded a decrease in cash and cash equivalents to
GBP2.6m (2022: GBP4.0m) at the year-end. Cash generated from
operating activities in the year was GBP1.0m (2022: GBP2.3m) as
Adjusted EBITDA performance drove cash generation offset by
increased working capital requirements.
Net cash, when including all debt except property leases at the
end of the period, was GBP1.6m (2022: GBP3.1m), whilst overall net
cash including property leases was GBP0.3m (2022: GBP2.2m).
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 2023 (2022:
undrawn) and will need renewing within 12 months of the date of
signing the Annual Report.
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 2023 of GBP2.6m (2022:
GBP4.0m) and the additional headroom available through the undrawn
invoice discounting facilities and overdraft (2022: 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.
Following the above considerations, 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 2023.
Michael Tyerman
Chief Financial Officer
31 July 2023
The Board
The directors that served during the year ended 31 May 2023, and
to the date of this announcement, and their respective roles are
set out below:
Jonathan Neale (Non-Executive Chairman)
Richard Gibbs (Chief Executive Officer)
Michael Tyerman (Chief Financial Officer)
Pete Magowan (Non-Executive Director)
John Behrendt (Non-Executive Director)
Consolidated Income Statement
for the year ended 31 May 2023
2023 2022
Note GBP000 GBP000
Revenue 2 16,268 17,052
====== ======
Adjusted Earnings before interest,
taxation, depreciation, amortisation
and exceptional items 1,270 2,807
Amortisation of intangible assets (253) (278)
Depreciation of property, plant
and equipment and right of use
assets (780) (945)
---------- ----------
Adjusted operating profit 237 1,584
Exceptional items - 391
---------- ----------
Operating profit 237 1,975
Finance costs 3 (231) (194)
Finance income 58 111
---------- ----------
Profit before taxation 64 1,892
Taxation 5 400 (424)
---------- ----------
Profit for the year 464 1,468
====== ======
---------- ----------
Basic earnings per share 4 0.22p 0.68p
Diluted earnings per share 4 0.21p 0.68p
====== ======
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 2023
2023 2022
GBP000 GBP000
Profit for the year 464 1,468
---------- ----------
Other comprehensive income
Items that are or may be subsequently
reclassified to profit and loss:
Currency translation movement arising
on consolidation (1) 179
---------- ----------
Total comprehensive income for the
year 463 1,647
====== ======
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 2023
2023 2022
Note GBP000 GBP000
Non-current assets
Goodwill and other intangible
assets 1,774 1,495
Right of use assets 2,889 2,293
Property, plant and equipment 1,446 701
Deferred tax 1,254 868
---------- ----------
7,363 5,357
---------- ----------
Current assets
Inventories 2,778 2,598
Trade and other receivables 5,335 4,479
Cash and cash equivalents 2,610 4,006
---------- ----------
10,723 11,083
---------- ----------
---------- ----------
Total assets 18,086 16,440
---------- ----------
Current liabilities
Trade and other payables 3,673 2,993
Provisions 364 282
Deferred income 164 172
Lease liabilities 617 540
---------- ----------
4,818 3,987
---------- ----------
Non-current liabilities
Deferred Income 29 130
Lease liabilities 1,698 1,280
---------- ----------
1,727 1,410
---------- ----------
---------- ----------
Total liabilities 6,545 5,397
---------- ----------
---------- ----------
Net assets 11,541 11,043
---------- ----------
Equity
Share capital 6 10,796 10,796
Share Premium 7 11,077 11,060
Translation Reserve (470) (471)
Retained earnings (9,862) (10,342)
--------- ----------
Total equity 11,541 11,043
====== ======
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 2023
Share Share premium Translation Retained Total
capital reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 June 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
Profit for the year - - - 464 464
New shares issued - 17 - - 17
Currency translation movement
arising on consolidation - - 1 - 1
Share-based payments - - - 16 16
---------- ---------- ---------- ----------- ----------
Balance at 31 May 2023 10,796 11,077 (470) (9,862) 11,541
====== ====== ====== ======= ======
Consolidated Cash Flow Statement
for the year ended 31 May 2023
2023 2022
GBP000 GBP000
Cash flows from operating activities
Profit for the year 464 1,468
Taxation (400) 424
Finance income (58) (111)
Finance costs 231 194
---------- ----------
Operating profit 237 1,975
Share-based payments 16 16
Depreciation of property, plant and
equipment and right of use assets 780 945
Amortisation of intangible assets 253 278
Movement in inventories (157) (273)
Movement in trade and other receivables (833) (1,100)
Movement in trade and other payables 665 550
Movement in provisions 82 (115)
Change in deferred income (109) (10)
Tax received 16 19
---------- ----------
Net cash generated from operating
activities 950 2,285
---------- ----------
Cash flows from investing activities
Capitalisation of development costs (481) -
Acquisition of other intangible assets (51) (57)
Acquisition of plant and equipment (946) (61)
Acquisition of right of use assets (53) (132)
Interest received 9 -
---------- ----------
Net cash used in investing activities (1,522) (250)
---------- ----------
Cash flows from financing activities
Interest paid (231) (194)
Repayment of bank loans - (131)
Exercise of employee share options 17 22
Repayment of principle element of lease
liabilities (626) (653)
Repayment of interest-bearing borrowings - (8)
---------- ----------
Net cash used in financing activities (840) (964)
---------- ----------
Movement in cash and cash equivalents (1,412) 1,071
Currency exchange movement 16 29
Opening cash and cash equivalents 4,006 2,906
---------- ----------
Closing cash and cash equivalents 2,610 4,006
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
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
2023.
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 as applicable to companies reporting under those standards,
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 2023 or 31
May 2022. The financial information for 2022 is derived from the
statutory accounts for 2022 which have been delivered to the
registrar of companies. The auditor has reported on the 2023
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 FY2023 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.
Going Concern
In accordance with corporate governance requirements and the
statement of directors' responsibilities, and
as disclosed in the Directors' Report, 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 2023, the Group had cash at bank of GBP2.6m and access
to undrawn invoice discounting facilities of
GBP3.0m and $4.0m in the UK and US respectively. 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, to stress-test the business,
where programme curtailment and/or delays may adversely affect
forward-looking demand to levels lower than those initially
modelled in the base case scenario including reduced demand from a
major customer. A severe but plausible scenario was also modelled
that took the downside scenario and removed a significant contract
win that the Group expected to convert from the outlook period.
The scenarios modelled including the severe but plausible model,
demonstrate the Group has adequate cash for the next twelve months.
Therefore, the directors continue to adopt the going concern basis
to prepare the financial statements.
New Accounting Standards
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.
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
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 four customers representing individually over 10%
of revenue each and in aggregate 85% of revenue. This is split as
follows:
-- Customer A - 34 % (2022: 36%)
-- Customer B - 22 % (2022: 23%)
-- Customer C - 17 % (2022: 22%)
-- Customer D - 12 % (2022: 0%)
Revenue by destination Total
2023 2022
GBP000 GBP000
United Kingdom 4,762 7,489
Europe 2,600 3,421
Americas 5,711 5,313
Rest of the World 3,195 829
---------- ----------
16,268 17,052
====== ======
Split of non-current assets by location 2023 2022
GBP000 GBP000
United Kingdom 6,925 5,109
Americas 438 248
--------- ---------
7,363 5,357
====== ======
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 2023
3 Finance costs
Year Year
Ended Ended
31 May 31 May
2023 2022
GBP000 GBP000
Interest expense for lease agreements 139 127
Minimum service costs and interest
charges on invoice discounting
facilities 92 67
---------- ----------
231 194
====== ======
4 Earnings per share
Total Group
2023 2022
GBP000 GBP000
Profit for the year 464 1,468
====== ======
'000 '000
Basic weighted average number of shares 215,121 214,726
Dilution effect of share options 1,358 868
---------- ----------
Diluted weighted average number of shares 216,479 215,594
---------- ----------
Basic earnings per share 0.22p 0.68p
Diluted earnings per share 0.21p 0.68p
====== ======
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
5 Taxation
The reconciliation of the effective tax rate is as follows:
2023 2022
GBP000 GBP000
Profit before taxation 64 1,892
====== ======
2023 2022
GBP000 GBP000
Profit before taxation multiplied by the average
standard rate of corporation tax in the UK
- 20% (2022: 19%) 13 359
Disallowable items 46 155
Deferred tax asset not recognised 30 194
Enhanced R&D tax credit (89) (270)
Adjustment in respect of prior year - R&D tax
credit (32) (24)
Foreign tax not at UK rate 18 15
(Recognition)/derecognition of deferred tax
asset (386) 104
Rate change of deferred tax - (109)
--------- ---------
Taxation (400) 424
====== ======
The main rate of UK corporation tax was 19% for the first 10
months of the year, although the corporation tax rate increased to
25% on 1 April 2023 for companies with profits above GBP250,000.
Consequently, the average rate of corporation tax for the year was
20%. 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.
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
6 Share Capital
Deferred shares Ordinary shares
of 10p each of 0.1p each issued
and fully paid
Number '000 Number '000 GBP000
At 1 June 2021 106,877 214,415 10,795
Exercise of share options - 383 1
------------ -------------- ---------
At 31 May 2022 106,877 214,798 10,796
Exercise of share options - 323 -
------------ ------------ -----------
At 31 May 2023 106,877 215,121 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.
The deferred shares have no rights to vote or receive
dividends.
7 Share Premium
GBP000
At 1 June 2021 11,039
------------
Exercise of share options 21
------------
-----------
--- ------------
At 31 May 2022 11,060
------------
Exercise of share options 17
------------
-----------
------------
At 31 May 2023 11,077
------------
=======
--- ------------
8 Dividends
The directors are not proposing to pay a dividend for the year
ended 31 May 2023 (2022: GBPnil).
Notes to the Preliminary Financial Information
for the year ended 31 May 2023
9 Analysis of net cash
31 May Cash Other movements 31 May
2022 Flow 2023
GBP000 GBP000 GBP000 GBP000
---------- ---------- ---------------- ----------
Cash and cash equivalents 4,006 (1,412) 16 2,610
---------- ---------- ---------------- ----------
Lease liabilities - plant and equipment (863) 419 (576) (1,020)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash when including all debt
except property leases 3,143 (993) (560) 1,590
---------- ---------- ---------------- ----------
Lease liabilities - property leases (957) 346 (684) (1,295)
---------- ---------- ---------------- ----------
--------- --------- --------- ---------
---------- ---------- ---------------- ----------
Net cash 2,186 (647) (1,244) 295
---------- ---------- ---------------- ----------
====== ====== ====== ======
---------- ---------- ---------------- ----------
Reconciliation of cash flow to movement in net cash
2023 2022
GBP000 GBP000
Movement in cash and cash equivalents (1,412) 1,071
Movement in bank loans - 131
Movement in lease liabilities - plant
and machinery (157) (28)
Movement in lease liabilities - property
lease (338) 228
Effect of exchange rate fluctuations 16 29
---------- ----------
Movement in net cash (1,891) 1,431
Net opening cash 2,186 755
---------- ----------
Net closing cash 295 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 2023 (2022: 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
FR DGGDRXDXDGXB
(END) Dow Jones Newswires
August 01, 2023 02:00 ET (06:00 GMT)
Grafico Azioni Filtronic (LSE:FTC)
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Grafico Azioni Filtronic (LSE:FTC)
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