Filtronic plc
Annual Report and Accounts 2020
Stock Code: FTC
www.filtronic.com
2
Welcome to
Filtronic
Filtronic plc is a designer and
manufacturer of advanced RF
communications products supplying
a number of market sectors,
including mobile telecommunications
infrastructure, defence and aerospace
and public safety.
Our objective is to grow profitably by being a trusted
supplier to our customers of technically advanced
products that deliver value to our clients. We focus on
markets where we have a deep understanding of the
sector and customer requirements and where we can
leverage our know-how and IP portfolio.
Our strategy to achieve this objective is:
• To nurture close working relationships with
our customers to understand their needs and
requirements;
• To develop class leading products in our core
technology areas of mmWave transceivers, filters,
tower top amplifiers and antennas;
• To develop sub-systems and solutions that meet
customer specific and general market requirements;
• To expand our customer base within the markets
we serve; and
• To widen the number of markets we serve.
The rapid deployment of 5G Mobile
Telecommunications networks is leading to significant
investment in high speed / high capacity backhaul
infrastructure. Filtronic 5G backhaul transceivers are
being deployed in leading 5G networks.
Investment in better connected blue light services
around the world continues. The need for high
quality voice and data networks that are secure and
independent from commercial telecommunications
systems has never been greater. The public safety
market demands high reliability equipment for its
mission critical networks and Filtronic has become a
trusted supplier to this sector.
Filtronic plc Annual Report and Accounts 2020
Filtronic plc Annual Report 2015
Filtronic plc Annual Report 2015
Filtronic plc Annual Report 2015
Advanced RF technologies are essential in
communication and radar systems utilised by
today’s defence forces. Filtronic offers design and
manufacturing services at our UK facilities that are
valued by leading defence contractors.
In addition to providing products and services to our
established markets, Filtronic is at the vanguard of
designing and supplying RF technology to emerging
markets ranging from 5G test equipment, ultra-low
latency RF connections for the financial services
industry, gigabit Internet connections to high-speed
rail networks and long-range data links to high-altitude
pseudo satellites (“HAPS”).
Forward-looking statements
Certain statements in this Annual Report are forward-
looking. Where the Annual Report includes forward-
looking statements, these are made by the directors
in good faith based on the information available to
them at the time of their approval of this report. Such
statements are based on current expectations and are
subject to a number of risks and uncertainties, including
both economic and business risk factors that could
cause actual events or results to differ materially from
any expected future events or results referred to in
these forward-looking statements. Unless otherwise
required by applicable law, regulation or accounting
standard, the Group undertakes no obligation to update
any forward-looking statements whether as a result of
new information, future events or otherwise.
Filtronic plc Annual Report and Accounts 2020 Contents
Glossary
Strategic report
Financial highlights
Operational highlights
Chairman’s statement
Chief Executive’s review
Market review
Objective and strategy
Financial review
Key performance indicators
Risk management
Corporate social responsibility report
Corporate governance report
Board of Directors
Introductory letter from the Chairman
of the Board on the Governance report
Audit Committee report
Directors’ remuneration report
Directors’ report
Financials
Independent auditors’ report to
the members of Filtronic plc
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated balance sheet
Consolidated statement of
changes in equity
Company statement of changes in equity
Consolidated cash flow statement
Company balance sheet
Company cash flow statement
Notes to the financial statements
Shareholder information
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What’s inside:
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www.filtronic.com Stock Code: FTCChairman’s statementFY2020 was a year of numerous and varied challenges that I am pleased to say management and staff navigated successfully under difficult circumstances.Chief Executive’s reviewThe sale enabled us to refocus the energies of our employees on managing and developing our continuing business operations. In particular, we were able to finance and complete key investments in manufacturing and engineering capability enhancement across all three of our operational sites.Objective and strategyOur objective is to grow profitably by being a trusted supplier of technically advanced products that deliver value to our clients. We focus on markets where we have a deep understanding of the sector and customer requirements and where we can leverage our know-how and IP portfolio.Market reviewThe technical and economic advantages of E-band over fibre in many situations will underpin the continued growth of deployment of E-band wireless links in backhaul applications, and our intent is to become the independent “go to” partner of choice for advanced mmWave applications. 02
Glossary
3GPP:
4G:
5G:
5G NR:
Backhaul:
CAGR:
CY:
D-band:
dB:
E-band:
EBITDA:
EMEA:
ETSI:
Fronthaul:
FY:
GHz:
Gigabit:
HAPS:
IoT:
IP:
LBITDA:
LEO:
LMR:
LTE:
MHz:
Midhaul:
The 3rd Generation Partnership Project
4th Generation mobile networks
5th Generation mobile networks
5G New Radio is the global standard for a unified, more capable 5G wireless
air interface
The portion of a hierarchical telecommunications network that comprises the
intermediate links between the core network and the small subnetworks at
the edge of the network
Compound Average Growth Rate
Calendar year
130GHz to 175GHz
Decibel
71GHz to 86GHz
Earnings Before Interest, Taxation, Depreciation and Amortisation
Europe, the Middle East and Africa
European Telecommunication Standards Institute
The portion of a C-RAN telecommunications architecture that comprises the
intermediate links between the centralised radio controllers and the radio heads at
the edge of a cellular network
Financial year
Gigahertz: 10^9 Hertz
10^9 bits
High Altitude Pseudo-Satellites
Internet of Things
Intellectual Property
Loss Before Interest, Taxation, Depreciation and Amortisation
Low Earth Orbit
Land Mobile Radio
Long-Term Evolution
Megahertz: 10^6 Hertz
The link in a telecommunications network between the controller or the radio head
that feeds the next link in the network
Millimetre Wave
NRE:
NSA:
ODU:
OEM:
P25:
mmWave:
Mobile router: A device with a cellular network connection to the internet and Wi-Fi or ethernet
connection to one or several clients (such as PCs or tablets)
Non-recurring engineering
Non-Stand Alone. The non-standalone (NSA) mode of 5G that depends on the
control plane of an existing 4G LTE network for control functions
Outdoor Unit
Original Equipment Manufacturer
Project 25: a suite of standards for digital mobile radio communications designed
for use by public safety organisations
Point of presence is the point at which two or more different networks or
communication devices build a connection with each other
Radio Frequency: a rate of oscillation in the range of around 3kHz to 300GHz
Stand Alone 5G: the deployment of 5G without relying on the 4G LTE network
The Telecom Infra Project was formed in 2016 as an engineering-focused,
collaborative methodology for building and deploying global telecom network
infrastructure, with the goal of enabling global access for all
Transmit Receive Module
Tower Top Amplifier
Transmit
92GHz to 115GHz
TRM:
TTA:
TX:
W-band
RF:
SA:
TIP:
PoP:
Filtronic plc Annual Report and Accounts 2020
Filtronic plc Annual Report and Accounts 2020 Strategic report
Financial highlights
Sales revenue
Adjusted earnings before interest, taxation, depreciation, amortisation and exceptional items
Adjusted operating profit*
Exceptional items
Operating (loss)/profit
(Loss)/profit before taxation
Loss for the year from discontinued operations
Loss for the year
Basic and diluted loss per share
Net cash when excluding right of use property leases
Net (debt)/cash balance at 31 May
Cash used in operating activities
* Operating (loss)/profit before exceptional items.
Note: All adjusted measures set out throughout this
document which are described as ‘adjusted’ represent
alternative performance measures (APMs) and are defined
and reconciled in the financial review.
03
2019
£15.9m
£0.7m
£0.2m
-
£0.2m
£0.1m
(£3.5m)
(£1.3m)
(0.63p)
£2.5m
£2.5m
£0.0m
2020
£17.2m
£1.2m
£0.4m
(£0.6m)
(£0.2m)
(£0.4m)
(£1.4m)
(£2.0m)
(0.93p)
£0.4m
(£0.7m)
(£2.6m)
Operational highlights
A contract award from a leading US technology
corporation for the development of high-
power long-distance high-capacity low-
latency transceiver modules for use in HAPS
applications.
A contract award from a leading OEM supplier
for the development and delivery of module
samples for Over-the-Air equipment.
The installation and commissioning of
automated placement and bonding machinery in
our Sedgefield operation to double capacity and
improve product yields.
The approval and adoption as “best-in-class” of
our new Tower Top Amplifier (“TTA”) product line
by our lead US public safety communications
client.
The in-sourcing and on-shoring of our public
safety product assembly activity from our
Chinese sub-contractor to our newly created
capability in Maryland, USA.
Successful completion of the sale of the Filtronic
Telecoms Antenna Operation for an initial
consideration of $5.5m to Microdata Telecoms
Innovation Stockholm AB.
Pictured: Automatic wire bonder
Strategic reportwww.filtronic.com Stock Code: FTC 04
Chairman’s statement
FY2020 was a year of numerous and varied challenges
that I am pleased to say management and staff navigated
successfully under difficult circumstances.
As advised in the half-year statement, the sale of the
Telecoms Antenna Operation was completed on 2 January
2020 for a cash consideration the Board was very pleased
with and on terms that were in line with our expectation.
However, no sooner had we completed the process of
decoupling the Antenna business operations from the
continuing business than we were in the midst of Covid-19
measures, and then quickly into lockdown.
We are greatly relieved not to have suffered any Covid-19
illness amongst our staff and I take this opportunity to
thank all members of the Filtronic team for their courage,
support and loyalty during a very stressful period for all. As
a result of the efforts of our team, we managed to maintain
full 24/7 manufacturing capability and meet all contractual
deliveries throughout the Covid-19 lockdown period, whilst
also commissioning further capital investment projects and
meeting all key customer deadlines on a number of very
significant engineering development projects.
The measures we took to remain fully operational
progressively impacted our productivity and efficiency as
time went by and consequently our profitability suffered over
the fourth quarter of the financial year. We were therefore
very pleased to deliver annual results in line with market
forecasts.
Whilst our end markets held up reasonably well during the
lockdown period, enabling us to maintain delivery continuity,
new business development and acquisition became
progressively more difficult. Many of our customers had
increasing difficulty in firming up future commitments,
leading to a number of programmes being pushed out.
Consequently, we entered the new financial year with a
high level of confidence in our ability to perform under
the restrictions presented by Covid-19, should conditions
deteriorate again, but with a higher degree of uncertainty
around customer requirements in terms of volumes and
delivery schedules.
Notwithstanding these uncertainties we are confident that
the measures we have taken position the business well to
take advantage of improvements and opportunities within
our markets as they arise.
Financial performance summary
Group sales from continuing operations increased by
8% in the year to £17.2m (2019: £15.9m). An adjusted
operating profit of £0.4m was achieved (2019: £0.2m) with
an operating loss of £0.2m (2019: £0.2m operating profit).
Adjusted earnings before interest, taxation, depreciation,
amortisation and exceptional items (“EBITDA”) from
continuing operations was £1.2m (2019: £0.7m).
The Group had net cash when excluding right of use
property leases, of £0.4m at the end of the financial year
(2019: £2.5m). Net debt including right of use property
leases was £0.7m (2019: £2.5m net cash). The Group was
able to close the year with £2.0m of cash at bank (2019:
£2.6m) giving healthy cash reserves in addition to our
working capital debt facilities in the UK and USA which
provide additional headroom. The reduction in cash is
largely related to the loss-making discontinued Antenna
operation and the payment of £1.2m to settle three of the
four instalments of the warranty settlement agreement with
£0.4m remaining on the outstanding liability.
Dividend
No dividend is proposed for the year (2019: £nil). The Board
continues to be of the opinion that shareholders are better
served by cash being retained in the company to fund future
opportunities.
Board Composition
Rob Smith resigned from his position as CEO in October
2019 and I stepped in to fulfil the role of Executive Chairman
until a new CEO could be appointed. The recruitment
process was impacted by the Covid-19 situation but is back
on track and has advanced to the final stages.
After seven years of excellent service as a Non-Executive
Director, Michael Roller has decided to retire from the Board
and will leave us at the 2020 Annual General Meeting.
Michael has been a key figure in guiding the Company
through some very difficult and some very rewarding
challenges over these years and his input to the Executive,
the Board in general and as Chairman of the Audit
Committee in particular has been greatly appreciated. I
would like to take this opportunity to thank Michael on behalf
of all Filtronic stakeholders and wish him well for the future.
We will look to appoint a replacement in due course.
Outlook
The slowdown in new business acquisition over the fourth
quarter due to Covid-19 related constraints meant that we
entered the new financial year with a slightly reduced order
book compared with the prior year. Although we were very
pleased to be able to announce a key two-year follow-on
contract from our lead defence client early in the new year,
there remains considerable uncertainty within our end
markets. This uncertainty is compounded by the imminent
conclusion of the Brexit transitional period with, as yet, little
clarity regarding trading terms with Europe from January
2021. As a consequence, we remain cautious in our outlook
for the current year.
Reg Gott
Chairman
3 August 2020
Filtronic plc Annual Report and Accounts 2020 Chief Executive’s review
05
In order to mitigate reduced order intake and accommodate
the rescheduling of certain client orders, we commenced a
furlough programme using the UK government’s
Coronavirus Job Retention Scheme for 23 employees at
the start of the new financial year. At the time of writing
we have restart instructions from these customers and
we expect to return furloughed staff progressively as the
production programmes regain momentum, with all staff
expected back by August 2020.
I am pleased to report that some of the orders delayed
from Q4 FY2020 were received in the early part of the new
financial year, including, in particular, a much anticipated
£4.9m defence client contract for a two-year manufacturing
supply agreement.
Notwithstanding the challenges of the year, we were
delighted that revenue, adjusted operating profit and
adjusted EBITDA all improved over the prior year and, despite
the reduction in order intake during the final quarter, the total
intake for the year matched annual sales revenue leaving us
with a healthy order book entering the new year.
Our strategy and markets
The onset of the Covid-19 pandemic and the resultant
lockdown came immediately on the heels of our Telecoms
Antenna Operation sale completion. Understandably,
management efforts during the lockdown period were
focussed on maintaining operational capability whilst
ensuring a safe working environment for our staff. As a
consequence of this, and of a similar focus within our target
markets, we have not made the progress we had hoped to
make on strategic development of the continuing business.
However, as we and our broader market are now emerging
from the lockdown constraints, the development and
articulation of a clear strategic roadmap are amongst our
highest priorities for the current year.
FY2020 was a year of considerable change and achievement
against a very disruptive background.
The sale of our Telecoms Antenna Operation completed on
2 January 2020. Several parties were interested in acquiring
the business and negotiations proved to be complex as we
sought to maximise shareholder value from the sale. The
sale process took three months longer than we anticipated
and consequently we incurred extra costs for operating
the business during this period. Nonetheless, we were very
happy with the eventual sale price and the terms of the
sale, with the consideration being received in cash, which
returned the Company to a net cash position.
The sale enabled us to refocus the energies of our
employees on managing and developing our continuing
business operations. In particular, we were able to finance
and complete key investments in manufacturing and
engineering capability enhancement across all three of our
operational sites. Substantial investments in manufacturing
automation assets in Sedgefield were completed on time
and the production volume expansion to satisfy demand
for our 5G XHaul product offering was achieved. In addition,
we completed the transfer of our public safety product line
assembly activities from China to our facility in Maryland,
USA in January 2020. Whilst we are now assembling
the finished products in the USA a number of critical
components are still sourced from China, however, we will
address this situation in FY2021.
Despite maintaining full 24/7 operational capability
throughout the entire Covid-19 lockdown period, the
measures we had to take to achieve this within a safe
environment for employees affected our ability to maintain
productivity and efficiency levels, and thus our profitability
took a slight dip over the final quarter of the year. In addition,
our customers similarly advised us of progressive impacts
on their own businesses and, whilst we suffered no order
cancellations, a number of delivery programmes were
rescheduled out over a longer period.
A further consequence of Covid-19 was the slowdown of
business development and sales acquisition activities during
the final quarter of FY2020. Our customers and end-clients
were unable to make the expected progress with existing
project completions whilst new project developments fell
victim to deferred decision-making. The key impact of this
was a reduced level of order intake over the final quarter.
Pictured: Orpheus, mmWave Transceiver Module
www.filtronic.com Stock Code: FTC
Strategic reportwww.filtronic.com Stock Code: FTC 06
Chief Executive’s review continued
That is not to say however that we have not made some
significant achievements over the period, to which end I
would highlight the following:
• The in-sourcing and on-shoring of our public safety
product assembly activity from our Chinese sub-
contractor to our newly created capability in Maryland,
USA, with a full quality and process audit sign-off as an
approved supply facility by our lead client in this market;
• The approval and adoption as “best-in-class” of our new
Tower Top Amplifier (“TTA”) product line by our lead US
public safety communications client;
• A contract award from a leading US technology
corporation for the development and delivery of
evaluation and pre-commercialisation samples of high-
power long-distance high-capacity low-latency transceiver
modules for airborne communication links for use in High
Altitude Pseudo-Satellites (“HAPS”) applications;
• A contract award from a leading OEM supplier for
the development and delivery of evaluation and pre-
commercialisation module samples for Over-the-Air
equipment;
• A contract for the supply of evaluation modules for new
W-band frequency applications. W-band frequencies are
significantly above those of our current E-band products
and are expected to feature strongly in 5G phase 2 XHaul
applications;
• The delivery of transceivers for a successful trial in
Asia of a 10Gbps track-to-train backhaul solution. It is
anticipated that this will lead to a further “metro scale”
trial in 2021;
• The installation and commissioning of automated
placement and bonding machinery in our Sedgefield
operation to double capacity and improve product yields;
and
• At the time of writing we have passed the 50,000
unit delivery milestone for our market leading E-band
transceiver modules. The latest generation, Orpheus, will
be superseded by our new Morpheus II product in Q2
FY2021.
Pictured: Tower Top Amplifier and TTA Controller Unit
The future
As we emerge from Covid-19 lockdown, we face increasing
macroeconomic uncertainty and concerns for the impact
it will have on infrastructure programmes. Consequently, it
is very difficult to predict with any great accuracy how this
will affect our business over the coming year. However,
that does not mean we are not planning and agitating for
success. Our business plan for FY2021 includes a wide
range of measures to develop the capability of the business
to win and deliver new opportunities including:
• Strengthening the sales organisation by establishing a
new marketing function and the acquisition of further
direct sales and business development resource;
• Establishing a Manufacturing Representative Network
across the USA to enhance our sales reach with a faster
route to market through established sales channels
without the high overhead cost incurred from enlarging
our own sales team;
• Further investment in new advanced equipment to
continue the extension of our engineering design and
test capability into higher-frequency higher-performance
technologies; and
• A new talent acquisition, management and development
investment plan.
I have been fulfilling the role of Executive Chairman since
October 2019 and advised I would continue to do so until
a new Chief Executive Officer (“CEO”) is appointed and in
position. At which point, I intend to step back into the role
of Non-Executive Chairman. Understandably, the Covid-19
situation has impeded our search but I will continue in this
role until a new CEO is on board, which we hope will be in the
near future.
Reg Gott
Chairman
3 August 2020
Filtronic plc Annual Report and Accounts 2020 Market review
Filtronic serves a number of markets with advanced RF
communications equipment, the main markets being mobile
telecommunications infrastructure (“XHaul”), public safety
networks and defence & aerospace. In addition to these
markets we have targeted other adjacent sectors where we
can add value through leveraging our IP and know-how.
Mobile telecommunications infrastructure
(XHaul)
XHaul is a collective term that covers front, mid and
backhaul representing the various connections between
the edge of the network, base stations, remote radio heads
and the core fibre network. XHaul is achieved through a
combination of fibre and wireless links and traditionally,
backhaul has employed licensed microwave bands (between
6GHz and 42GHz). However, as the data demands on
networks increases, the capacity of XHaul links has had
to keep up, by employing the significant extra bandwidth
available with the lightly licensed mmWave bands, primarily
E-band (71-76GHz / 81-86GHz).
Mobile Network Operators have now started to roll out their
5G networks in many countries. Initial rollouts will be based
on Non-Stand Alone (“NSA”) technology whereby existing
4G LTE network infrastructure is augmented by increasing
capacity through carrier aggregation techniques, enabling
the basic 5G New Radio (“5G NR”) phase 1 performance
requirements to be met. Later, Stand Alone (“SA”) network
rollouts will deliver full 5G NR phase 2 performance.
The full range of 5G performance requires the use of
significantly higher capacity mmWave frequencies to
the user. This results in shorter wireless link distances
and so more cell sites will be needed within the network.
Consequently, the overall market size for wireless XHaul
links connecting the cell sites back into the network will
increase.
Mobile subscriptions by technology (billion)
07
Microwave transport is a well-established backhaul
technology and has been used in mobile networks for
decades. To a large extent, LTE’s success has been built
on the capacity, flexibility and short roll-out times that
microwave links provide. The use of fibre optic links in
networks has increased in recent years as the use of copper
has declined, however, fibre and wireless have co-existed in
networks for many years and will continue to do so as there
are a number factors to consider in deciding whether to
deploy fibre or wireless:
• Fibre is not ubiquitously available, especially in suburban/
rural areas. When a fibre Point of Presence (“PoP”) is a
few hundred metres away from the radio access point,
the cost of adding new fibre may be significantly higher
than adding a wireless link.
• In current mobile networks, wireless is used in more
than 50 percent of cell sites. Replacing existing lower
frequency wireless backhaul with fibre is not always
economically viable and therefore upgrading to E-band
links is the most effective way to increase capacity.
• Whilst the cost of fibre cable itself may be reducing, this
cost is a fraction of the cost to trench and install the
cable, whereas the cost to supply and install wireless
links continues to fall while performance continues to
improve.
• E-band backhaul technology links meet 5G’s current
capacity requirements and can offer lower latency than
that of a fibre cable of the same length, which makes it a
more attractive solution for latency-critical applications.
In summary, the deployment of 5G networks is a major
driver for the deployment of wireless, E-band XHaul
products. The technical and economic advantages of
E-band over fibre in many situations will underpin the
10
9
8
7
10
6
9
5
8
4
7
3
6
2
5
1
4
0
3
2
1
0
7.9
billion
7.9
billion
2.8bn
In 2025, 2.8 billion 5G
subscriptions are forecast.
8.9
billion
8.9
billion
5G
LTE (4G)
WCDMA/HSPA (3G)
GSM/EDGE-only (2G)
TD-SCDMA (3G)
CDMA-only (2G/3G)
Note: IoT connections are not
included in this graph. Fixed wire-
less access (FWA) connections
are included.
Source: Ericsson Mobility Report June 2020
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Strategic reportwww.filtronic.com Stock Code: FTC 08
Market review continued
continued growth of deployment of E-band wireless links
in backhaul applications, and our intent is to become the
independent “go to” partner of choice for advanced mmWave
applications.
analogue networks. Product life cycles in this industry tend
to be significantly longer than in commercial mobile phone
networks and therefore return on investment cases are more
attractive for Filtronic.
Filtronic’s approach to the 5G backhaul
market
Filtronic differentiates itself from other players in the 5G
backhaul market by offering highly integrated, fully calibrated
transceiver modules which simply drop-in between the
baseband modem module and the antenna. This plug
and play architecture eliminates the need for customers
to develop in-house mmWave expertise, enabling them to
focus on their core competencies and results in significantly
reduced time to market, lower overall development costs
and minimised cost of quality (due to extremely high radio
level yield).
Filtronic’s new Morpheus II transceiver module, launched
earlier this year, is a further update on our class leading
Orpheus module which was introduced in 2016. Morpheus
II has the advantage of being backwards compatible
with Orpheus, enabling simple insertion, but is more
compact, lighter in weight, lower in cost and higher in
performance than Orpheus. Therefore, it offers customers
a significant upgrade to both new and legacy designs. In
addition, Morpheus II has an Enhanced Tx performance
option which more than doubles the linear Tx power,
significantly extending link range. Like Orpheus, Morpheus II
incorporates our own design MMIC chipsets to ensure
cost effective, class-leading module performance. However,
we remain device agnostic and have considerable
experience of working with clients to integrate their preferred
chipset solutions into appropriate, high yielding module
architectures.
Whilst some Original Equipment Manufacturers (“OEMs”)
choose to develop their own in-house design and
manufacturing capabilities, Filtronic’s unique approach has
allowed us to create a differentiated offering that provides
our clients with significant flexibility, cost and (crucially)
time to market advantages. Furthermore, our class-leading
chipsets mean that our 5G backhaul products continue to
offer significant performance advantages.
Public safety networks
Public safety networks are communications networks
operated for emergency services. Reliability, availability and
security are critical attributes for these services and they are
normally provided over separate infrastructure, independent
of commercial networks.
Filtronic has historically focussed on the North American
market which deploys the “P25” network standard and where
market dynamics and the demand for higher resilience and
longer range have allowed us to differentiate our products.
Overall expenditure on public safety networks continues
to grow as emergency services look to expand coverage,
integrate services and continue to replace legacy FM
Public safety networks have historically been designed to
supply high-quality, high-reliability voice communication
and so these networks have tended to be narrowband. In
recent years there has been a steady increase in the desire
to exploit technologies such as “body worn cameras” to
augment the on-scene voice communications. The market
is therefore progressively developing hybrid solutions
whereby the mission-critical voice communications will
continue to run over the specialist public safety network
whilst non-critical data communications will be carried over
commercial grade mobile networks.
Filtronic’s approach to the public safety
market
Filtronic has concentrated on supplying mission-critical
filters and combiners to the North American P25 market and
has established a strong relationship with the leading OEM
in this sector. In FY2019, we embarked on a programme to
expand our product offering to this sector and in FY2020
we launched a range of TTAs as the first of these new
products. Although our TTA products have been designed to
be OEM agnostic and will be marketed under our own brand,
our lead client in this market (who is in turn the US P25
infrastructure market leader), has adopted our TTA range
and declared it to have “best in class” performance. We
are actively developing further products to expand our P25
network product portfolio which we hope to launch over the
coming year.
During FY2020 we in-sourced and on-shored the
manufacturing of our public safety network products away
from our Chinese subcontractor and into our own facility
in Salisbury, Maryland, USA. This move was made not only
to address security of supply issues due to growing trade
relationship concerns, but also to enable us to provide a
“closer to the customer” more flexible response
with lead-times reduced by up to 75%.
Overall the public safety market
continues to show good levels of
investment. Filtronic’s strategic
objective is to maximise the
opportunity in this sector
by expanding our range
of products in order to
deepen existing customer
relationships and build new
ones.
Defence and
aerospace
Filtronic has long been a supplier
of RF components and sub-systems
to the defence and aerospace industry.
In recent years we have significantly grown
Filtronic plc Annual Report and Accounts 2020 09
partnered with a niche OutDoor Unit (“ODU”) manufacturer
to successfully complete a major demonstration project
in Asia. A follow-on project of “Metro scale” is currently
being planned for execution in CY2021 and it is hoped
that commercialisation of the application will follow from
CY2022.
mmWave modules for over the air
equipment
In FY2020 we were awarded a project to design and deliver
a mmWave sub-module as part of an “Over the Air” system
for a leading US RF equipment company. The design phase
is due to complete in early CY2021 with the supply of
evaluation samples. It is hoped that production supply will
commence later in CY2021.
High altitude pseudo-satellites/low earth
orbit satellites (“LEO”)
In recent years there has been considerable work
undertaken to develop airborne communications networks
that overcome the limitations of terrestrial networks. A
number of challenges exist in designing these systems,
one of which is the development of communications
transport links that deliver sufficient bandwidth and range
to provide comprehensive internet services. Filtronic has
developed class-leading power combining technologies
at mmWave and has supplied evaluation transceiver
modules for a number of West Coast, USA technology
organisations actively developing this market. In FY2020 we
were awarded a major contract to develop and deliver pre-
commercialisation, long range E-band transceivers based on
a customised version of our latest generation Morpheus II
product.
Whilst the commercial deployments of HAPS and LEO
satellites for mobile internet applications may be a little way
off, we continue to position ourselves to participate in this
market segment as part of our future growth strategy.
this part of the business through multi-year contracts to
supply transmit and receive modules (“TRMs”) for latest
generation airborne radars. An attraction of this market
is that the need to maintain an “operational edge” and
extend asset life-in-service results in planned through-
life performance upgrades and wear & tear replacement
business.
Increasing geopolitical tensions are expected to lead to
increased defence spending over the coming years and it is
anticipated that the focus of this increased spending will be
to provide enhanced capability and interoperability, such as
is provided by these advanced radar systems which utilise
more sophisticated RF solutions.
Filtronic’s approach to the defence and
aerospace market
Filtronic’s target market in defence and aerospace is the
manufacture of TRMs, Filters and other RF components
and sub-systems where our engineering, design and highly
specialised manufacturing capabilities can add value. By
focusing on TRMs and associated sub-systems Filtronic can
leverage its advanced, specialist manufacturing capabilities.
This long-cycle business activity can involve up to several
years of collaborative development with the end client before
volume manufacturing commences. However, once in the
field, these programmes normally enjoy many years of
continuing supply and support revenues.
Whilst the market for land-based and naval radars is
relatively small by comparison, they still require significant
numbers of TRMs per system and so represent an attractive
development market opportunity. Additionally, opportunities
are also being sought with missile system manufacturers as
these applications have similarly attractive attributes.
Other growth markets
We continue to seek and develop opportunities in
other adjacent markets and in particular for mmWave
applications. These include low latency private networks for
high speed, high capacity applications, track-to-train gigabit
wireless links, mmWave test systems and HAPS systems.
Low latency private networks
Filtronic has designed and supplied customised versions
of Orpheus E-band links to a customer supplying the
financial services markets. Low latency financial networks
are becoming recognised as an essential part in reducing
transaction times in automated high-frequency trading
systems.
Track-to-train communication links
The provision of high-speed, high-capacity, high-reliability
internet connections on rail journeys has become a strategic
objective of both governments and rail operators alike
around the world. However, the provision of such services on
high-speed trains presents a number of interesting technical
and commercial challenges. During FY2020 Filtronic
Strategic reportwww.filtronic.com Stock Code: FTC 10
Objective and strategy
Filtronic plc is a designer and manufacturer of advanced RF communications products supplying a
number of different market sectors, including mobile telecommunications infrastructure, defence and
aerospace and public safety communications.
Our objective is to grow profitably by being a trusted supplier
of technically advanced products that deliver value to
our clients. We focus on markets where we have a deep
understanding of the sector and customer requirements and
where we can leverage our know-how and IP portfolio.
Our objectives within the strategy to achieve this are:
• To nurture close working relationships with our
customers to understand their needs and requirements;
• To develop class-leading products in our core technology
areas and to expand our areas of expertise;
• To develop solutions to address both customer-specific
and general market requirements;
• To grow our customer base within the market verticals
we serve; and
• To broaden the range of markets we serve.
Product & technology strategy
Filtronic designs, manufactures and supplies technically
advanced RF products that transmit, receive, condition and
manage radio waves.
Our product range and wider technology capabilities are
rich in IP and know-how, with over 80 patents/applications
across the portfolio. Our aim is to be an applied technology
and capability leader in our markets but avoid the risk of
being a research pioneer.
Leeds and Sedgefield, UK
Sales, Manufacturing, Filter
and mmWave Design and
Central Services.
Filtronic plc, Head Office.
Salisbury, MD, USA
Sales, Manufacturing,
Logistics, Service
and Repair
Filter & combiner products
Filtronic’s filter products cover a range of product classes,
with solutions to support a variety of legacy, current and
future applications. Our filters and combiners are designed
to meet exacting operating specifications and are designed
for resilience in critical communications applications.
mmWave 5G transceiver products
Filtronic’s mmWave transceiver products are based
around our class-leading, high-capacity, E-band transceiver
technology and have been optimised for 5G mobile backhaul
and wireless link applications such as track-to-train and
HAPS/LEO ground to air communication.
Tower top amplifiers
TTAs are used in many mission-critical public safety Land
Mobile Radio (“LMR”) systems to enhance the received
signal strength and quality. This receive-only system
consists of low-loss, high rejection filters coupled to low
noise amplifiers with a high level of built-in redundancy.
Filtronic’s solution employs a separate control unit that
monitors overall system performance and distributes the
received signal to multiple separate receivers.
Manufacturing Process Capability
The specialist manufacturing capability and know-how
Filtronic has developed over many years of manufacturing
its own products are highly valued by many companies in
our market. Verticals also ask us to manufacture and test
their own, or third-party designed, products for them. This
is not only an additional and valuable source of revenue and
profit but it also provides an excellent vehicle for continued
process development and investment that we can in turn
apply to our own product portfolio.
Organisational overview
Filtronic operates from three sites; Leeds and Sedgefield in
the UK and Salisbury, Maryland in the USA.
Leeds, UK
Engineering & Development of Filters, TTAs and associated
RF systems and sub-systems.
Sedgefield, UK
Transceiver and TRM manufacturing, microwave and
mmWave engineering, Sales (EMEA) and central services.
Salisbury, MD, USA
North American sales, service, repair and manufacturing of
public safety products.
Business ethos
Our aim is to be agile and responsive to customer
needs. To achieve this, we provide an environment to our
employees with a high degree of delegated authority and
empowerment. We have established a framework of ten
behaviours and values which guide our business ethos.
Filtronic plc Annual Report and Accounts 2020 11
consumer terminals. This in turn will create a demand for
very high volumes of components operating at frequencies
up to 55GHz, where previously production volumes have
been relatively low. This increase in volume presents a
challenge not only for OEMs but also for test equipment
manufacturers, and offers an opportunity for Filtronic to
design and manufacture mmWave solutions for use in
automatic test equipment (ATE).
Frequencies above 100GHz for future
XHaul
Filtronic’s highly integrated E-band (71–76GHz and
81–86GHz) transceiver modules, including Orpheus and
the new Morpheus II, offer an attractive and cost-effective
high capacity solution for mmWave backhaul, fronthaul
and midhaul applications (collectively known as XHaul),
supporting radio links up to 20Gbps. However, due to the
ever-increasing demand for data, even higher capacity will be
required in future for 5G XHaul networks and a requirement
for links up to 100Gbps has already been identified.
Systems operating in W-band (92–114.5GHz) and D-band
(130–175GHz), where huge amounts of further bandwidth
are available, are likely to provide part of that solution. The
atmospheric attenuation at D-band is very similar to that at
E-band, while the rain attenuation in D-band is only around
2dB higher and is almost flat across the band. In addition, an
antenna will give higher gain in this band compared to the
same size antenna at a lower frequency. All these features
make the D-band system a good candidate for the next
generation ultra-high capacity wireless links.
Innovative test methods
Working at D-band will bring further new challenges in
test and measurement techniques. Filtronic recently
collaborated with the UK’s National Physical Laboratory
(“NPL”) in a research programme funded by Innovate UK
to study ultra-high frequency interconnects and calibration
methods. During the project, which concluded successfully
in January 2019, transitions between mmWave integrated
circuits (MMIC) and various external circuits were designed,
fabricated and demonstrated in D-band (130GHz–175GHz).
Calibration and measurement techniques were developed in
collaboration with NPL.
Filtronic continues to cooperate with NPL on D-band
measurements. NPL was recently awarded a grant from
EURAMET for “Knowledge Transfer of Planar Calibration and
Measurement Techniques at Millimetre-wave Frequencies”,
for which Filtronic is the primary industry supporter.
Filtronic is also an Industrial Partner within the UK EPSRC
“DLINK” project, led by Lancaster University and the
University of Glasgow, established to explore use cases
within D-band.
Our people
We firmly believe that it is our people who drive the success
of our business. We have a diverse, experienced, and highly
qualified team focused on delivering outstanding products
and service to our customers.
Filtronic has considerable depth of technology, engineering,
manufacturing and operational management skills across
its business operations. The Company operates in very
specialised technical markets and can only effectively
compete over the long term if it continually develops these
capabilities through a comprehensive talent acquisition,
development and retention strategy that nurtures aspiration
and rewards achievement.
mmWave Technology Developments
Reaching the Unconnected – How Satellites and HAPS
can Connect Everyone and Everything, Everywhere
by Mike Geen,
Chief Scientist - mmWave Technology, Filtronic
The ambition to connect everyone and everything,
everywhere, cannot be fulfilled by ground-based
communication networks alone. This is why HAPS, operating
in the stratosphere, and also constellations of LEO satellites,
are beginning to be deployed to address the challenge of
providing ubiquitous connectivity. As the technology evolves,
we can expect to see non-terrestrial networks integrate with
terrestrial infrastructure.
Filtronic is currently engaged in developing the mmWave
subsystem needed to beam data at multi-gigabit rates
between earth and HAPS, and between HAPS platforms, in
order to form mesh networks in the sky.
As demand for broadband capacity from these space
and air-borne systems grows, additional spectrum will be
needed to support it. The telecommunications industry
has successfully lobbied for more spectrum for HAPS, and
the allocation of new and wider bands around 26GHz and
38GHz was agreed during the 2019 Word Radio Conference.
In addition, experimental licences have been granted
for E-band (71–86GHz), where there is growing interest.
These are frequencies where Filtronic has world-beating
experience, which can be exploited in supplying transceivers
for HAPS and high-power amplifiers needed for the links that
feed data from Earth to the satellite constellations.
Further evidence of the growing interest in HAPS technology
has been demonstrated by the formation of a Non Terrestrial
Connectivity project group within the Telecom Infra Project
(TIP) https://telecominfraproject.com/, an engineering-
focused collaboration sponsored by Facebook. TIP boasts
a global membership of over 500 companies, representing
all the major telecom operators and equipment providers.
Filtronic is an active member of TIP, and is contributing to
the definition of backhaul payload requirements.
While many HAPS networks will communicate directly
with existing mobile phones, LEO satellite constellations
will also generate the need for huge numbers of new
Strategic reportwww.filtronic.com Stock Code: FTC 12
Financial review
The disposal of the Telecoms Antenna Operation
for $5.5m (£4.1m) substantially improved the
liquidity position of the Group. This provided
the company with healthy cash reserves and a
continuing business operation that demonstrated
resilience during the Covid-19 crisis.
Filtronic achieved year-on-year revenue growth from
continuing operations in the year of 8% resulting in an
uplift of adjusted EBITDA to £1.2m (2019: £0.7m). The
balance sheet benefitted from the sale of the Telecoms
Antenna Operation in January 2020 for £4.1m and a level
of unwind of working capital in the second half of the year
from a continuing operation that has generated improved
adjusted EBITDA, our core metric for measuring underlying
profitability, for three consecutive years.
Revenues
Sales revenue for the Group from continuing operations
increased in the year by 8% to £17.2m (2019: £15.9m)
driven by increased output of our core product offerings
manufactured at Sedgefield. It was very pleasing to see
the investment made in product development over recent
years come to fruition and provide sufficient uplift to replace
and surpass the revenue previously generated by telecoms
filters. Sales of telecoms filters drew to a close in the early
part of the year following our strategic withdrawal from this
low margin business in 2016 and generated only £0.2m of
revenue in this financial year (2019: £4.1m).
5G XHaul sales to our lead customer grew by 221% year-
on-year due to strong demand for the Orpheus platform as
Mobile Operators commenced their 5G network roll-out. In
addition to sales of 5G XHaul products into our traditional
wireless telecoms infrastructure market, sales of XHaul
derivatives grew by 150% as we saw traction into adjacent
markets such as mmWave ‘over-the-air’ equipment and
HAPS.
Sales of defence products saw year-on-year growth of 34%
as the multi-year agreement announced in September 2018
to supply modules for use in aerospace radar systems
entered production. This added to the two existing contracts
that reached full capacity in the previous financial year.
Sales to the public safety market saw a reduction of 30%
hindered by weak trading in the final quarter of the year as
Covid-19 impacted our end customer.
Operating costs and headcount
Operating costs increased in the year to £9.3m (2019:
£7.6m). A substantial portion of this increase was due to
salary related cost increases of £1.7m, including £0.4m
of exceptional items due to restructuring of the overhead
cost base. The operational team was enlarged substantially
in the year to support the production ramp of 5G XHaul
products whilst we made additional investments in our
engineering team to support new product development and
advancement of our technology roadmap. This is reflected in
the average headcount for the year which has increased to
141 (2019: 100).
The Group’s average continuing headcount is presented
below:
Manufacturing
Research and development
Sales and marketing
Administration
Total headcount
2020
2019
99
21
5
16
141
62
17
6
15
100
Despite the increase in salary costs there were favourable
changes to the cost base mainly from an additional £0.4m
of development costs capitalised over the previous year
as a number of product developments met the criteria of
IAS38. Further commentary can be seen in the Research and
Development section of this review.
Adjusted EBITDA
Adjusted EBITDA for the continuing operation was £1.2m
(2019: £0.7m). The increase in revenue supported a
minimal increase in gross profit of £0.1m but gross margin
declined due to an increase of manufacturing overheads.
The production ramp of the 5G XHaul products consumed
more cost as employees undertook product and equipment
training following substantial capital expenditure investment
and new employees worked through the learning curve.
Added to this were operational inefficiencies from the
Covid-19 social distancing measures implemented.
In the USA, the public safety business was on-shored from
China which led to an increase in manufacturing fixed costs
at a time that Covid-19 impacted volume output. Given the
Filtronic plc Annual Report and Accounts 2020
13
business is now operationally geared for higher volumes,
increases in revenue will have a greater profit impact.
Depreciation increased as a result of investments made in
plant and machinery during the second half of the year and
the impacts of IFRS16. Impairment of development costs
previously capitalised was £89k as a key client experienced
technical issues with their internal development. Whilst
we are hopeful this technical uncertainty will be resolved a
prudent approach has been taken to its recognition.
Reconciliation of adjusted
operating profit/EBITDA
Operating (loss)/profit
Exceptional items
Adjusted operating profit
Impairment of development costs
Depreciation
Amortisation
Adjusted EBITDA
2020
£000
(188)
569
381
89
677
18
1,165
2019
£000
234
-
234
-
355
75
664
Taxation
A tax charge of £0.1m (2019: £2.1m credit) has been
recognised for the year, as set out in note 14 to the financial
statements. The Group benefits from R&D tax credits in the
UK as we continue to invest in the development of advanced
product and process technology. An R&D tax credit of £0.1m
was recognised in the year as it is anticipated the business
will revert to an acceleration of tax losses position rather
than a ‘cash-out’ as has been the case in previous years
(2019: £1.4m).
Discontinued operations
The Group sold the Filtronic Telecoms Antenna Operation
(“FTAO”) during the year for an initial cash consideration of
$5.5m (£4.1m) to Microdata Telecom Innovation Stockholm
AB on 2 January 2020. We are very pleased with the initial
consideration received which may increase based on
contingent consideration arising on an equal share of the
gross profit that outperforms the mutually agreed gross
profit targets of $2.0m and $3.0m over the next two calendar
years. The fair value for this consideration has not been
recognised in the financial results for the year.
The gain on sale of discontinued operations against the
carrying value of the assets held for sale was £1.3m which
reduced to an overall gain on sale of discontinued operations
of £0.7m after advisor fees and other costs of sale were
applied.
The discontinued operation continued to trade until the
date the sale was completed. The loss from its operating
activities was £2.1m (2019: £3.5m).
Research and development costs (“R&D”)
Total R&D costs in the year before capitalisation and
amortisation of development costs were £1.7m (2019:
£1.2m). The Group saw an increase in R&D spend year-on-
year as investment was made into expanding the product
portfolio. The aim was to generate a mix of near-term
revenue whilst also developing the strategic technology
roadmap to build long-term shareholder value. The Group
remains committed to investment in R&D for the future
growth of the business and consequently measures this
as a KPI. Key areas of spend in the year included product
development of a range of TTAs for the public safety market
and progression of the mmWave technology roadmap. This
included the next-generation Morpheus II transceiver and
applications for adjacent markets such as HAPS and ‘over-
the-air’ mmWave equipment.
The Group capitalises its development costs in line with
IAS 38 as set out in note 2 to the financial statements.
A reconciliation of R&D costs before capitalisation and
amortisation can be seen in the table below:
Reconciliation of R&D costs
R&D costs in income statement
Capitalisation of development costs
Impairment of development costs
Amortisation of development costs
R&D costs before capitalisation
and amortisation
2020
£000
1,152
678
(89)
-
2019
£000
1,026
250
-
(38)
1,741
1,238
Capital expenditure and right of use assets
The Group undertook an extensive capital expenditure
programme during the year made up of right of use assets
and plant and equipment. The total amount of capital
committed was £1.8m (2019: £0.4m) to increase production
capacity at Sedgefield and improve our operational
capability. The assets, externally financed through asset
finance agreements, were subsequently classified as right of
use assets.
Inventory provision
Inventory is valued at the lower of cost and net realisable
value. It is the Group’s policy to regularly review the carrying
value of its inventories and to make a provision for excess
and obsolete inventory. As at 31 May 2020, the inventory
provision was £1.5m (2019: £1.1m).
Strategic reportwww.filtronic.com Stock Code: FTC
14
Financial review continued
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 2020, the warranty provision was £1.1m (2019:
£2.2m). The Group has now paid 75% of a specific customer
warranty settlement liability with the final instalment of
$0.5m (£0.4m) due in December 2020.
Funding and cash flow
The Group recorded a decrease in cash and cash
equivalents to £2.0m (2019: £2.6m) at the year-end.
Cash used in operating activities in the year was £2.6m
(2019: £0.0m). The cash usage was primarily to fund losses
from the discontinued operation along with exceptional
items, payment of the customer warranty liability settled
in the year and increased working capital to service the
increased activity of 5G XHaul products.
The Group paid £1.2m (2019: £1.1m) for plant and
machinery and internally generated intangible assets.
However, overall, the Group generated cash from investing
activities of £2.4m as a result of the incoming proceeds
of £3.7m - net of sale costs from the disposal of FTAO.
The full breakdown of this movement can be seen on the
consolidated cash flow statement.
Net cash when excluding property leases at the end of the
period was £0.4m (2019: £2.5m) whilst overall net debt
including property leases was £0.7m (2019: net cash of
£2.5m).
To provide additional cash headroom Filtronic has a £3.0m
invoice discounting facility with Barclays Bank plc in the UK
and an agreement with Wells Fargo Bank for an additional
$4.0m invoice factoring facility to borrow against the debtors
of our USA operation.
Cashflow responses to Covid-19 and
going concern
The Covid-19 pandemic has brought a new liquidity risk
to many businesses and a more cautious approach to the
outlook. The initial response to the pandemic was to ensure
Filtronic maintained manufacturing capability and keep
meeting customer delivery commitments. This enabled us to
strengthen the balance sheet during the crisis and continue
to generate cash.
Several initiatives were implemented to strengthen the
cash position in the face of potential Covid-19 impacts,
including: negotiating an increase in the advance rate on
the invoice discounting facility with Barclays from 65% to
70% to give additional access to debt should it be required; a
three-month moratorium on payments to our asset finance
partner; a three-month payment holiday with the landlord in
Sedgefield on rent payments and a hold on VAT payments
to HMRC. Having considered the government’s Coronavirus
Business Interruption Scheme (CBILS), it was determined
that long-term debt to finance potential operational losses
would be an inappropriate source of finance. Additionally,
the Group already had sufficient cash reserves and access
to finance through working capital debt facilities to continue
as a going concern even after stress testing the business
forecast with severe downside scenarios. This included a
decrease of revenue across the projected period against the
base case by an average of 36% to model a more restrictive
second wave of Covid-19 resulting in total lockdown for the
UK and USA and demand recovering to no more than 75% of
base case revenue afterwards.
In the USA the government have sought to secure jobs for
businesses by offering the Paycheck Protection Program
where companies were able to apply for 250% of average
monthly payroll to protect jobs. We successfully applied for a
loan under this scheme for $237k (£192k) through Provident
State Bank. This two-year loan carries a fixed 1% interest
rate over the term and is not repayable for six months.
Based on job retention the loan may be forfeited by the US
government in the future.
Subsequent to 31 May 2020, Filtronic took advantage of the
Coronavirus Job Retention Scheme made available by the
UK government and secured a temporary overdraft facility
for six months from Barclays for £500,000. It is not expected
we will use this overdraft facility, but it is a more appropriate
debt instrument than the invoice discounting facility when
the Group could be prevented from generating sales in a
lockdown situation.
Michael Tyerman
Chief Financial Officer
3 August 2020
Pictured: Cerus E-band Power Amplifier
Filtronic plc Annual Report and Accounts 2020 15
Key performance indicators
The Group’s management team uses various Key Performance Indicators (“KPIs”) to monitor the
financial and non-financial performance of the business. Below are the measures and metrics
which the Board believes best indicate the performance of the Group’s continuing operations.
Revenue (£m)
£17.2m
.
6
1
2
.
5
9
1
.
9
5
1
Adjusted EBITDA/
(LBITDA) (£m)
£1.2m
6
3
.
7
0
.
.
2
7
1
0
.
Adjusted EBITDA/(LBITDA)
per employee (£k)
£8.3k
.
5
7
3
.
3
8
7
7
.
.
2
9
7
5
1
1
2017
2018
2019
2020
2017
2018
2019
2020
)
5
1
(
.
.
)
5
6
1
(
2017
2018
2019
2020
The total amount the Group earns
from the sale of products and
services.
The Board recognises adjusted
EBITDA/(LBITDA) as a key metric of the
underlying health of the business.
Employees are a critical asset in our
business and we monitor the adjusted
EBITDA/(LBITDA) per employee to
measure productivity.
Research and
development costs (£m)
£1.7m
Cash (used in)/from
operating activities (£m)
£(2.6m)
7
1
.
2
1
.
1
2
.
.
7
2
1
1
.
9
3
.
8
1
.
0
0
.
2017
2018
2019
2020
2017
2018
2019
2020
The Board recognises that the Group
needs to invest in new products,
capabilities and technologies to
participate in a technology-driven
market and measures the investment
made in research and development.
)
6
2
(
.
The Board recognises that cash flow
from operating activities indicates
whether the Group is able to generate
sufficient positive cash flow to
maintain and grow its operations, or
it may require external funding for
financing.
Strategic reportwww.filtronic.com Stock Code: FTC 16
Risk management
Effective risk management is key to our success, both in the industry that we operate in and within
our chosen business model. Filtronic supplies microwave, mmWave and RF conditioning products
to the wireless telecommunications and criticial communication markets. The Group operates
in a fast-changing sector with a small number of sophisticated customers, demanding high-
performance standards and international competition, all of which pose risks to the business.
The directors recognise that risk is inherent in any business and seek to manage risk in a controlled manner. The key business
risks are set out as follows:
Risk
Nature
Mitigation strategies
Change
in year
Market
We supply a range of niche products to a small
number of large OEM customers.
The loss of any of these customers, material
reduction in orders from any such customer or
the timing of customer project roll-outs may have
a material adverse effect upon Filtronic’s financial
condition.
With the rapid evolution of product technology
and other corporate decisions, the size of our
addressable market may be affected. We may
also fail to forecast market movements correctly
thus missing opportunities or wrongly predicting
product longevity.
Manufacturing For most of the products, production is demand
led and customers may vary their requirements
at short notice, which also impacts inventory
management.
Customers in these businesses expect
consistently high-quality products, decreasing
prices and rapid product ramps, hence we
depend on control of our operating environment,
including management of security of supply
in our supply chain, the provision of correctly
designed technological solutions including the
achievement of target cost-reduction plans
and supply of product to specified timescales.
Non-performance in these areas would result in
a diminished market position.
The Group seeks to mitigate this risk by working
closely with customers, at all levels, to ensure
that we are designed into their products at an
early stage, enabling us to develop products that
meet their specifications and requirements.
Filtronic aim to provide customers with a well
resourced programme and a high level of service
with a focus on product quality and delivery. This
gives an advantage over our competitors that
has facilitated new contract wins. The Group
monitors its competitve position with regular
competitor analysis and engagement with
customers.
The sales teams are actively seeking to increase
the number of contract wins across a range
of products and markets, within existing and
new customers. To support this, the sales and
marketing team has been strengthened and
marketing activity has increased.
In a market of rapid technology changes, it is
imperative the Group chooses opportunities
that will yield a good rate of return and have
an extended product life. All new opportunities
are appraised to ensure there is a good match
between our capacity, capabilities and likely
adoption in a growing market with a good rate
of return.
The Group’s manufacturing processes are
accredited under ISO 9001.
We manufacture and assemble at our highly
automated facility at NETPark, Sedgefield,
UK whilst our public safety product offering
is manufactured at our site in Salisbury, MD,
USA, based on our core competencies. Where
appropriate, we outsource non-core processes
to suppliers who can offer advantages over
internal supply. Investment in capital equipment
and additional headcount has increased
production capacity and capability enabling us
to ramp existing customer projects and win new
business. Consequently, single point
dependency on key people and machinery
has reduced.
All of our products are provided to customers
after detailed qualification testing. We work
closely with our customers to ensure that
the test processes employed are appropriate
so all products supplied are compliant to the
customer’s specification.
Filtronic plc Annual Report and Accounts 2020 17
Change
in year
Risk
Nature
Mitigation strategies
Technology
Our product competitiveness is heavily
influenced by technology choices at
product concept stage and throughout the
execution of design to product launch.
The market is time-sensitive and
opportunities may be lost if the technology
we develop is inappropriate or fails to
achieve customer specification or meet
the timescales required to match market
demand.
For products in the production cycle,
technology insertion is often required as a
means of achieving price reductions, which
underpin sales.
Recruitment
and retention
The Group is reliant on the key skills and
knowledge of its people in a range of areas
especially in the engineering function.
Failure to recruit, develop and retain an
appropriate number of suitably qualified
people in critical areas could affect our
ability to design new products and meet our
customers’ needs.
We have also benefited from a number of
non-UK employees filling key roles within
the business. Due to the highly technical
nature of our activities, these skills are not
always readily available within the UK and
any restrictions on the employment of these
people could have an adverse effect on the
Group.
Financial
management
Brexit
The Group has specific exposure to credit
risk and exchange rate fluctuations as
a consequence of its global presence. A
large proportion of the Group’s sales are
denominated in US dollars, so the Group is
subject to risks associated with currency
movements.
As a consequence of the UK’s decision
to leave the European Union, there is
international uncertainty around the impact
this will have on business and trade.
Our ability to remain competitive in terms of
technology and product design is underpinned by
retaining key staff and effective design methodologies.
We work closely with our customers and suppliers
to gain a thorough knowledge of the technology
being developed in the marketplace. We are also
members of key forums such as The European
Telecommunications Standards Institute (ETSI) and
The 5G Innovation Centre (5GIC). By staying close to
the market, we position ourselves to react quickly to
any technology changes that develop.
When undertaking new product introductions, we
follow a process which facilitates a thorough review
of the engineering development at various milestones
throughout the project. This methodology is designed
to ensure the product has no design defects, meets
the required specification and is on time to exploit the
market opportunity.
In order to protect our intellectual property, we
maintain and apply for patents when appropriate.
The Group has a competitive remuneration package
that is reflective of market conditions for key roles and
is under review as conditions change. The Group also
operates a long-term incentive plan for key employees
and SAYE schemes for all UK employees.
We continue to invest in our engineering teams to
ensure we have engineers with the right skills to
execute our strategy.
We also provide regular communications to all
employees through communication meetings in each
of our business locations along with a bi-monthly
newsletter including an Executive Director blog giving
updates about business performance. By giving our
employees an understanding of our strategic direction
and objectives, we believe it enables them to make
meaningful contributions to the achievement of our
goals.
The Group has established a number of policies
to mitigate these risks, further details of which are
presented in note 40 to the financial statements.
Predominantly, currency risk on the US dollar is
managed through a hedge by matching the currency
in which revenues are generated and expenses incurred.
The Group has operations and market presence in
non-EU territories such as the USA. As a result, Brexit is
not expected to have a material impact on the Group,
however, management continues to monitor the current
economic climate regularly for any potential future
impacts.
Risk Key
Increased risk
No change
Decreased risk
Strategic reportwww.filtronic.com Stock Code: FTC 18
Risk management continued
The Board has established a continuous process for
identifying, evaluating, and managing the significant risks
the Group faces which has operated throughout the year
and up to the date of this report. Such a system is designed
to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and
not absolute assurance with respect to the preparation of
financial information and the safeguarding of assets against
material misstatement or loss.
The Board regularly reviews the effectiveness of the
Group’s system of internal control which covers all controls,
including financial, operational and compliance controls,
and risk management systems. It is based principally on
reviewing reports from management to consider whether
significant risks are identified, evaluated, managed and
controlled and whether any significant weaknesses are
promptly remedied and indicate a need for more extensive
monitoring.
Covid 19
The Covid-19 pandemic continues to significantly impact
individuals, businesses, markets and economies and despite
coping well during the crisis the unprecedented period of
uncertainty presents risk that require consideration and
management. Filtronic was able to maintain full 24/7
operational capability during the lockdown period at its
sites in the UK and the USA and has met all customer
commitments to date, albeit, some measures implemented
to ensure a Covid-19 safe environment came at the cost
of operational efficiency and increased costs of working.
Notwithstanding the fact that the Board and Covid-19
Business Continuity Team have implemented positive
measures during the pandemic there remains a high degree
of uncertainty over future events and the consequences for
The Company. The table below details some of the key risks
and the strategies to mitigate the risks:
Risk
Nature
Mitigation strategies
Market
Major economic disruption may result
in reduced demand for our products.
Governments have undertaken extensive
fiscal spending programmes which may
inhibit their infrastructure rollouts and
planned expenditure.
The new business pipeline has been
impacted during the crisis with prospect
interface much reduced and other sales
initiatives such as trade exhibitions and
customer training cancelled. Therefore,
the Group has not been able to execute on
customer acquisition initiatives.
Filtronic has continually worked to diversify the markets
it operates in with a major focus on adjacent markets for
its products, in addition to the traditional market of wireless
telecommunications.
The markets we operate in are typically classified as essential
industry and were accordingly classified during the Covid-19
crisis which enabled the business to remain operational
throughout the whole of ‘lockdown’.
As a large portion of businesses reacted to the crisis by moving
to remote working the need for robust technology to facilitate
this increased which will inevitably create new opportunities for
Filtronic.
The defence and aerospace and public safety markets generally
involve longer-term projects with large up-front commitments
which provides reliability of revenue over a prolonged period and
protection against some of the immediate economic fallout.
The commercial team are also actively working on marketing
initiatives effective in a remote sales environment.
Filtronic plc Annual Report and Accounts 2020 19
Risk
Nature
Mitigation strategies
Financial
Increased market risk and reduced
revenues heighten the liquidity risk whilst
deterioration of the economic market
heightens credit risk.
Economic disruption may also impact
financial markets including currencies,
interest rates, borrowing costs and the
availability of debt finance.
Health and
safety
The health and safety of our employees is
of paramount importance. There is a risk
that our colleagues may come into contact
with carriers of Covid-19 and bring it in
to our facilities. In order to manage the
risks and adhere to government guidelines
the Group had to change the method of
operation and implement measures to
mitigate the risk.
Cyber security Covid-19 has increased cyber threats from
cyber criminals and other malicious groups
who are targeting businesses by deploying
Covid-19 related scams and phishing
emails. Employees working from home
have also heightened cyber security risks.
The Group was able to strengthen its cash position following
the sale of the Telecoms Antenna Operation and an unwind of
working capital in the second half of the financial year.
A successful application to the Paycheck Protection Programme
in the USA was made in May 2020 for $237k (£192k). Adherence
to certain criteria may result in the US government forfeiting this
loan and converting it into a grant. In the UK, Barclays increased
the advance rate on the invoice discounting facility to 70% from
65% giving additional access to borrowing.
The Group is also tightly controlling overhead spend and actively
reducing spend where possible.
The Group has established policies in place to manage currency
and credit risk as seen in the general business risk section
and note 40. Whilst credit risk is elevated during economic
downturns Filtronic generally supplies to large OEMs with strong
balance sheets.
The Group maintains relationships with a number of debt
providers should we need to access debt finance, but capital
expenditure on plant and machinery will be minimised to
business critical spend only.
The Group was quick to set up a Covid-19 Business Continuity
Team and implement a range of measures to combat the risks
of Covid-19. This included asking all employees to work from
home that were able to do so. This worked well as our principal
IT systems are cloud based and being a defence supplier
requires us to have strong cyber security protocols.
As a manufacturing business a large percentage of our
employees were not able to work from home. Therefore, we
implemented a range of measures which included changing
factory layouts to allow social distancing, adjusting shift and
staff movement patterns, increased cleaning routines and the
cleaning product inventory, additional PPE and introduction
of Perspex screens in both the manufacturing and office
environment.
Filtronic has effective cyber security controls and has increased
the focus on addressing security alerts as soon as they arise.
Security education of employees has been increased with emails
regularly distributed highlighting security threats.
Strategic reportwww.filtronic.com Stock Code: FTC 20
Corporate social responsibility report
Acting with integrity and behaving responsibly is central to the execution of our strategy and
underpins our business model. This report covers how Filtronic interacts with its stakeholders, its
approach to key issues and its aims for the future.
Health and safety
The Board is committed to ensuring the health and safety
(“H&S”) of the Group’s employees and applies high standards
throughout the Group in the control and management
of its operations. The Board regularly reviews the Group’s
arrangements for the planning, organisation and control of
H&S matters. Global H&S meetings are held periodically with
participants from each of the Group’s three operational sites.
Employees
The Group’s success depends on its employees and
the Board recognises that it is their commitment and
contribution that is vital to the execution of the Group’s
strategy.
Our focus is on creating a high performance culture
through effective employee engagement, excellent people
development and resource management.
Employee development
Employee development is an important element of employee
retention and motivation. The Group has an education
and training policy in place which is being implemented
through developing a Group-wide infrastructure to support
the identification of staff development needs through
meetings and staff appraisals. The aim is to provide quality
staff development which supports the Group’s strategic
objectives, whilst simultaneously aiding talent management
and succession planning. Progress on specific talent
management objectives will be reported to the Board in
FY2021.
Looking to the future
Filtronic continues to work towards future-proofing the
business to ensure we have the right skills for the future to
support business growth. Succession planning was an area
of focus in FY2020 and a number of promotions were made.
Structural change and potential new roles were created to
action our strategic growth plan.
Equal opportunities
The Group is committed to a policy of equal opportunity
by which it ensures that all employment-related activities
are based on merit and suitability for the job alone. Further
information on our equal opportunities policy may be found
on our website: www.filtronic.com/group-policies/.
Diversity and inclusion
Filtronic has diversity and equal opportunity policies to
support our aim of providing equal opportunities for all
without discrimination. These policies form part of the
Group’s core values (expected of employees, suppliers and
other stakeholders). Our policies and practices emphasise
the importance of treating people in a non-discriminatory
manner across the full employment life cycle, including
hiring, reward, development, promotions, mobility and
departure. In the event that an employee becomes disabled,
the Group will make reasonable appropriate adjustments,
and so far as is practicable, will continue to provide
employment. Training is provided to those making decisions
on these factors so that no individual is disadvantaged and
to prevent discrimination on the grounds of gender, religion,
belief, race, creed, age, disability, sexual orientation, ethnic
origin, or marital status.
The Executive Chairman is the board member responsible
for human resources.
Human rights
Filtronic applies human rights considerations to the way it
does business, for example through our supplier and anti-
bribery and anti-corruption policies, our code of ethics, which
is an integral part of our management policies, our practices
in relation to health and safety, equal pay and employees’
freedom to join trade unions. Filtronic is committed to
ensuring transparency in our approach to tackling modern
slavery through the flow down of our Modern Slavery Policy
throughout our supply chain.
Filtronic plc Annual Report and Accounts 2020 The environment
Care for the environment is an integral part of the Group’s
business activities. It is the Group’s policy to ensure that its
facilities are safe and the Group is committed to ensuring
that its impact on the environment is minimised. The
Group supports and trains its personnel to act responsibly
in matters relating to the environment. The Group takes
account of relevant legislation and regulations and analyses
its practices, processes and products to reduce their
environmental impact, and works with our customers and
suppliers to achieve a high standard of environmental
stewardship.
Our site in Sedgefield, Co. Durham is certified under the
ISO 14001 Environmental Management Systems
Requirement.
Charitable and community support
We have established a charity forum made up of volunteer
employees from across the Group, the aim of which is
to ensure we are more involved in supporting our local
communities through charitable work. Over the course of the
year, Filtronic employees have participated in and sponsored
various events. The Group provides paid leave of one day
per annum for staff who wish to undertake voluntary or
charitable work.
21
Supply chain
The adoption of an advanced product life cycle management
software system has allowed for Group-wide management
and control of our documentation to include product
design, suppliers and change management as well as a
module to address specific quality processes. Supply chain
management is working to develop partnerships with our
main suppliers to ensure they have systems in place that
focus on quality, environment, corporate social responsibility
and health and safety. The Group has adopted a specific
policy on conflict minerals and works with our suppliers to
ensure implementation including reporting on the use of
conflict minerals throughout our supply chain.
The implementation of these management systems, which
are designed to monitor and control processes such as
quality, the environment and health and safety, provide
Filtronic with the confidence that each and every product
that is delivered to our customers is at an appropriate level
of quality, and has been designed and manufactured in a
way that considers our impact on the environment and
the ultimate health and safety of our employees and our
broader stakeholders who contribute to our success. We
are continuing with the roll-out of a customer relationship
management system in Filtronic that complements this
approach.
Our Sedgefield site is working towards SC21 accreditation.
SC21 (Supply Chains for the 21st Century) is an
improvement programme designed to accelerate the
competitiveness of the defence and aerospace industry by
raising the performance of its supply chains.
The FY2020 Strategic report, has been reviewed and
approved by the Board of Directors on 3 August 2020 and
signed on its behalf by
Reg Gott
Chairman
3 August 2020
Strategic reportwww.filtronic.com Stock Code: FTC
22
Governance report
Board of Directors
Executive Directors
Reginald (Reg) Gott (aged 63) has been a Non-Executive Director since 2006. He was
appointed as Chairman of the Board at the AGM held in 2015 and became Executive
Chairman on 1 November 2019 until a new Chief Executive Officer is recruited. He
was Chief Executive of Resource Group Limited until early 2016. From 2002 to 2008,
he was an Executive Director of FKI plc, an international diversified engineering group,
and from 2009 to 2012 he was Chief Executive of Nuaire Group. He has an extensive
background in the machinery, automation and controls segments of the capital goods
markets across Europe and North America.
Michael Tyerman (aged 41) was appointed as Chief Financial Officer with effect from
1 April 2016. Prior to joining Filtronic, Michael held various positions within Procter
and Gamble, Huntsman Polyurethanes and Komatsu. He joined Filtronic in 2007 as
Financial Controller of Filtronic Broadband and was promoted to the position of Group
Financial Controller in 2009. He was Interim Head of Finance for the Filtronic Group
from June 2015 and served in this position until his appointment to the Board on
1 April 2016. Michael is a Chartered Management Accountant.
Non-Executive Directors
Michael Roller (aged 55) was appointed as a Non-Executive Director on 1 June 2013;
and was appointed Chairman of the Audit Committee on 27 November 2015. In
January 2020, Michael was appointed CFO of Circassia Group plc (formally Circassia
Pharmaceuticals plc). From March 2014 to May 2019, Michael was a member of the
board of Bioquell plc as Group Finance Director. Michael has previously been Finance
Director of a number of quoted companies, such as Corin Group plc. He has also held a
number of other senior finance roles in a broad range of listed and private companies.
Michael qualified as a Chartered Accountant with KPMG.
Peter (Pete) Magowan (aged 53) was appointed as a Non-Executive Director on
19 November 2018 and as Chairman of the Remuneration Committee in March 2019.
He was previously an early employee and main board member of ARM Holdings, an
Executive at Fidelity International Ltd and General Partner at Alta Berkeley Venture
Partners. Pete´s early operational career was in sales and marketing at leading
technology companies. He received a Bachelor of Science degree in Electrical and
Electronic Engineering from the University of Manchester Institute of Science and
Technology and a Diploma in Marketing from the University of Bristol Business School.
Photographs of directors by Simon Hill
Filtronic plc Annual Report and Accounts 2020
23
Introductory letter from the Chairman of
the Board on the Governance Report
The Board recognises the importance of good corporate
governance in promoting the long-term success and
sustainability of the business for the benefit of our
shareholders and wider stakeholders. As Chair, I am
responsible for ensuring the Company has corporate
governance arrangements in place which are appropriate
for the size and complexity of the Company and that these
arrangements are followed in practice.
During the year we have applied the principles of the Quoted
Companies Alliance Code 2018 (“the QCA Code”). We
have continued to consider and reflect on the principles
of the QCA Code and their application throughout the year
as the business has evolved. The Board is committed to
delivering growth in long-term shareholder value and seeks
to put in place an efficient, effective, dynamic management
framework underpinned, above all, by good communication,
with employees, shareholders, customers and suppliers, to
achieve this.
Following the resignation of the previous CEO in October
2019, I stepped in, to act, on a temporary basis, as Executive
Chairman while the Nominations Committee sought a
replacement CEO. The search process has gone well, and
we expect the new CEO to be in post in good time before the
AGM.
In my role as Executive Chairman, it’s been my privilege
to observe, first-hand, the values and behaviours among
our staff that have helped Filtronic successfully navigate
the difficult times presented firstly during the sale of the
Telecoms Antenna Operation, then immediately followed
by the Covid-19 pandemic. Having had the opportunity to
observe and reflect on these values in operation, we have
taken the decision to articulate them into ten core Filtronic
values. These values represent the best of Filtronic. They
should be visible in every aspect of our business and should
help us to establish a stronger, more resilient culture, in
the face of rapid change, as we move forward, together,
to innovate, grow and succeed. The Group values act as a
complement to the Group policies and can be found in the
corporate governance section of our website.
We keep our governance arrangements under constant
review. A formal Board evaluation exercise was conducted
again this year the findings of which are being implemented.
I hope you find this report helpful in understanding our
ongoing commitment to good governance.
Reg Gott
Chairman
Long-term value and strategy
The Company’s business model is focussed on promoting
long-term value for all stakeholders. It is explained in detail in
the Objectives and strategy section of this Annual Report.
Shareholder engagement
The Board places great value on maintaining open
relationships with shareholders and the primary point of
contact in the Company for this function is usually the
CEO, supported by the Chief Financial Officer (“CFO”) and
guided by the Chairman. The CEO and CFO undertake an
extensive programme of meetings with shareholders at least
twice a year, following the announcement of the financial
results. This year the Executive Chairman will attend all
of these meetings and will also be available to speak with
shareholders at their request. The Senior Independent
Director is also available as an alternative communication
channel for shareholders who may wish to raise any
concerns. Presentations are also made to analysts to
present the Group’s results. This assists with the promotion
of knowledge of the Group in the investment marketplace
and with shareholders and also helps the directors to
understand the needs and expectations of shareholders.
Please refer to the corporate governance section of our
website for more details: www.filtronic.com/investors/
corporate-governance.
Risk management
For full details on how the risk management framework is
embedded and how the Board ensures that the Company’s
risk management system identifies and manages the
relevant risks, please see the Risk management section of
this report.
Maintaining a well-functioning, balanced
team led by the Chair including a
governance framework that is fit for purpose
At present, while the recruitment of a new CEO is on-going,
the Board is currently comprised of an Executive Chairman
(Reg Gott), one Executive Director (Michael Tyerman, CFO)
and two Non-Executive Directors (Pete Magowan and
Michael Roller). Michael Roller is the Senior Independent
Non-Executive Director and he, together, with Pete Magowan
are regarded by the Board as being independent Non-
Executive Directors. The Board is supported and assisted
by the Company Secretary and General Counsel (Maura
Moynihan), who attends, contributes to and minutes each
board meeting. All members of the Board have access to the
advice and services of the General Counsel and Company
Secretary and are able to take independent professional
advice at the Company’s expense in the discharge of their
duties. The Company has procedures to deal with directors’
conflicts of interest and the Board is satisfied that these
procedures operate effectively. There is a formal schedule of
matters reserved for the Board which is summarised below.
To enhance the Board’s communication with management
and achieve greater operational transparency the Chief
Commercial Officer, Chief Operations Officer and Chief
Technology Officer also attend the performance review part
of the board meeting where these officers present their
reports in person.
Governance reportwww.filtronic.com Stock Code: FTC 24
Governance report continued
Board meetings
The Board meets regularly each month against a defined
reporting timetable and at times in between the scheduled
meetings when required. As far as is reasonably practical,
the board meetings are held at the Company’s operational
sites to enable local management teams to present
operational and strategic programme progress to the
Board. The Board believes this arrangement fosters greater
transparency and enhanced relationships between the
management and the Board. During the year, the Board held
meetings at its sites in Sedgefield and Yeadon.
Remit of the Board
Whilst many day-to-day operational matters are managed by
the Executive Chairman, other matters, including those listed
below, are reserved for the Board:
• Strategy and oversight of the management of the
Company;
• Approval of the Company and consolidated financial
statements;
• Approval of major corporate transactions and
commitments;
• Succession planning (appointment/removal of directors,
PDMRs and the Company Secretary);
• Approval of all terms of reference for the committees of
the Board;
• Review of the Group’s overall corporate governance
arrangements including systems of internal controls and
risk management; and
• Approval of the delegation of authority to the Executive
Chairman or where appropriate to the relevant Board
committee.
Committees
The Board continues to operate with three committees: The
Audit Committee, the Remuneration Committee and the
Nominations Committee. Detailed written terms of reference
for each committee are maintained and are available to view
on the Company website. In addition to formal meetings,
the Nominations Committee and Remuneration Committee
meet informally during the year to review and discuss Board
composition and compensation.
Audit Committee
The primary function of the Audit Committee is to assist
the Board in fulfilling its financial and risk oversight
responsibilities.
During the year, it met three times. The committee reviews
items such as the half-year and full-year results and then
make a recommendation to the Board. The Audit Committee
is chaired by Michael Roller and includes Reg Gott and Pete
Magowan.
Nominations Committee
The Nominations Committee is chaired by Reg Gott
and includes Michael Roller and Pete Magowan. The
Nominations Committee’s duties are confined to the
nomination of appointments, reappointments and
termination of employment or engagement of directors and
the Company Secretary.
Remuneration Committee
The Remuneration Committee is chaired by Pete Magowan
and includes Michael Roller and Reg Gott. The members
of the Remuneration Committee have no personal interest
in the matters considered other than as shareholders. No
potential conflicts of interest exist in relation to any member
of the committee and their duties. The Remuneration
Committee’s responsibilities include ensuring that the
remuneration policy of the Company and its implementation
are appropriate. It ensures that levels of remuneration are
sufficient to attract, retain and motivate directors, senior
managers and executives of the quality required to run the
Company successfully whilst avoiding paying more than
is necessary for this purpose. During the period of Reg
Gott acting as Executive Chairman his remuneration and
benefits were decided by a Remuneration Sub-Committee
comprising Pete Magowan and Michael Roller.
Directors’ attendance FY2020
The Board normally schedules at least 10 meetings during
the year. Last year the Board met 12 times.
Attendance at board meetings and Committee meetings during the year ended 31 May 2020
Total meetings in FY2020
Reg Gott
Michael Roller
Pete Magowan
Michael Tyerman
Rob Smith*
*Rob Smith resigned on 31 October 2019
Board
12
12
12
12
12
5/5
Audit
3
3
3
3
N/A
N/A
Remuneration
3
3
3
3
N/A
N/A
Nominations
3
3
3
3
N/A
N/A
Filtronic plc Annual Report and Accounts 2020
25
Board Composition, Skills, Time
Commitment, Performance and
Performance Evaluation
At present, the Board is making progress on recruiting a new
CEO after which Reg Gott will revert to being Non-Executive
Chairman. The Board believes that, once these changes
have been implemented, its overall size and composition will
again reflect an appropriate balance of sector, financial and
public markets skills and experience. Composition of the
Board will be reviewed at least annually by the Nominations
Committee, with a view to ensuring it comprises the skills
necessary for achieving the company’s strategy and
diversity.
The Board receives regular updates from the Company’s
Nominated Adviser (NomAd) and from time to time the
Company’s lawyers. All members of the Board have access
to the advice and support of the Company Secretary who is
also responsible for facilitating an induction programme for
new directors.
All directors are expected to devote such time as is
necessary for the proper performance of their duties. This
includes the need to make themselves available if an event
occurs that requires Board involvement. It is expected that
Non-Executive Directors who chair committees and/or who
are the Senior Non-Executive Director will increase their time
commitment to the Company accordingly.
A formal board evaluation process is normally carried
out once every calendar year. The evaluation questions
the performance of the directors individually both in their
capacity as board member and for their specific role as
well as the performance of the Board itself and each of its
committees. The 2020 evaluation took place in July 2020.
Company Culture and Values
Acting with integrity and behaving responsibly are central
to the execution of our strategy and underpin our business
model. During the year, the Company adopted a set of ten
Group values that together with a comprehensive suite
of Group policies were communicated to all employees
in the Spring of 2020. Employees have been invited to
share thoughts on these values and how they are adopted,
recognised and respected. The Group values and policies are
available to view and download on the corporate governance
section of the Company’s website at: www.filtronic.com.
The Company has a Procedures and Authorisations Manual
(“PAM”), updated when required, which sets out among other
matters the approved authority levels within the Filtronic
Group. To reinforce the values and cultures of Filtronic,
training on the Group policies and PAM is periodically
provided at all sites where each employee is reminded of the
essence of each policy and its objective.
A new HR system was implemented during the year which,
amongst other advanced features, enables employees to
provide valuable feedback on how the company is living up
to its culture and values ambitions.
Communications
The Company is committed to open communication with all
its shareholders. Communication with members is driven
primarily through the Company’s website and the Annual
General Meeting. All shareholders will receive a copy of
the Annual Report and Accounts (hard copy or electronic
depending on shareholder preference). The half-year results
are published on the Company’s website. The Company
reports on the activities and responsibilities of the Audit
Committee and the Remuneration Committee each year in
the Annual Report and Accounts. Copies of historic annual
reports and notices of general meetings for the last five
years are available on the website.
Engaging with our employees helps to ensure the values
and culture the Board wants to promote are embraced
throughout the Group. The Company encourages open
two-way communication to promote innovative and
collaborative working. Communications with employees
takes place ordinarily through communications sessions at
each of the Company’s sites as well as through the recently
implemented HR system, team meetings, health and safety
meetings and training sessions. As the new HR system is
embedded there will be further opportunities for employee
feedback (anonymously if desired) on any aspect of the
business. A technology leadership recognition policy was
implemented in the year as a mechanism to reward those
whose inventions or publications achieve acclaim and
promote and progress the company’s technology roadmap.
The longevity of our business can only be secured
through maintaining and expanding our customer base.
Communication with customers is a priority and is mediated
through dedicated commercial managers overseen by
the Chief Commercial Officer. Customers are solicited for
feedback on products and business operations performance,
market landscape and demand trends.
Regular contact and an open-door policy are key to
maintaining good and stable relations with our supply
chain. The procurement department, aided by clear website
sections, ensures that Filtronic’ s key policies and values, or
their equivalent, are adopted by the supply chain including
but not limited to its policies on bribery, modern slavery and
conflict minerals. Engagement with suppliers is overseen by
the Chief Operating Officer.
Governance reportwww.filtronic.com Stock Code: FTC 26
Governance report continued
Section 172 (1) Statement on the Discharge
of Directors’ Duties
In compliance with the Companies Act 2006, the Board are
required to act in accordance with a set of general duties.
During the year ending 31 May 2020, the Board consider that
they have individually and collectively acted in a way they
consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its shareholders
as a whole having regard to the six matters listed in s. 172
(1) (a) to (f) of the Companies Act 2006. In order to achieve
long term success for the benefit of all shareholders,
the Board recognises the importance of building and
maintaining relationships with key stakeholders as well as
considering the likely consequences of its decisions in the
long term.
Duty to Promote the Success of the
Company
Filtronic’s objective is to grow profitably by being a trusted
supplier of technically advanced products that deliver value
to our customers. Matters that impacted our key decisions
and strategies towards meeting this objective during the
year, including the disposal of the Telecoms Antenna
Operations, are set out in the Executive Chairman’s Review.
That decision in particular underlined the Board’s long-term
objective of serving markets that value our know-how, IPR,
and culture of working in partnership with stakeholders to
create better technical and commercial solutions that meet
our customer requirements to lead to long term profitable
growth.
Stakeholder Engagement
The Board recognises its responsibility to take into
consideration the needs and concerns of Filtronic’s key
stakeholders as part of its decision-making process. The
table below demonstrates how the Group engages with its
stakeholders and the target outcomes:
Stakeholder
How we engage
Key outcomes
Customers
The Board receives feedback from its customer
facing teams. Each key account has dedicated
account management who act as “the voice of the
customer”. The Chief Commercial Officer briefs the
Board each month as to how we are performing with
each of our customers.
Increased level of engagement with customers at
strategic level.
A greater understanding of both customer and
market trend requirements better informs the
development and refinement of our own strategy.
The Executive Directors, along with senior members
of the sales and engineering teams will attend
meetings with strategic-level influencers within our
customer’s organisation.
A board-level engagement with our customers will
help us convey our commitment to understand and
meet their business needs.
We continually seek opportunities to collaborate
at a product and technology strategy level with our
key clients, but all collaborations are under Non-
Disclosure Agreement (“NDA”) and require director-
level approval
Disclosure of our product development and
technology roadmaps to customers increases the
opportunity to align our mutual interests but the NDA
protects our IP interests.
Customer feedback is regularly sought and collected
by the business through a wide range of channels.
This information is processed and analysed as part of
our business improvement initiatives.
Listening to “the voice of the customer” enables us to
be more effective in pre-empting and meeting their
evolving needs and wants.
We regularly participate in a wide range of trade
shows, conferences and symposia. They play an
important role in our business development planning.
Covid-19 prevented attendance at most events this
year, including Mobile World Congress and APCO.
Trade show and conference attendance not only
allows us to present a shop window for attracting the
widest range, and deepest concentration of potential
clients over a short time period, but also enables us
to observe in one place the broader market mood,
emerging trends and in particular allows us to
benchmark ourselves directly against competitors.
The Board receives a summary report on all such
events that we participate in.
Filtronic plc Annual Report and Accounts 2020 27
Stakeholder
How we engage
Key outcomes
Employees
The Executive Directors communicate with
employees through ‘communication sessions’ to
update them on the performance of the business
and progress on key initiatives. Employees are
encouraged to ask questions in a Q&A session at the
end of the meetings.
Wider and deeper communication leads to greater
transparency throughout the business and facilitates
a more engaged, motivated and effective team.
The Group relies upon highly specialised skill sets
that are in increasingly short supply. We are therefore
actively developing a new talent management
strategy.
The Group aims to become a “destination employer”
by providing a rewarding long-term personal
development opportunity environment.
The Executive Directors are required to be actively
visible across our sites to take the pulse of the
business and offer an open-door policy to employees
who would like to ask a question or offer a view.
A Covid-19 Business Continuity Team (“BCT”) was
established early in 2020 to ensure the safety of
our employees as a principal objective during the
crisis. The BCT ensures that government guidance is
adopted across the company and provides a two-way
forum for ensuring staff concerns are heard and
addressed.
Participation in the Company Sharesave scheme.
A better informed and consulted workforce is more
likely to be both better motivated and more effective.
We maintained full 24/7 operations during the
Covid-19 lockdown with no Covid-19 related
sickness and no deterioration in overall sickness and
absenteeism. We met all customer delivery targets.
Share scheme participation has aligned interests of
UK shareholders and employees and enabled staff to
hold a stake in the business.
Investors
The Executive Chairman and Chief Financial Officer
hold analyst and investor meetings throughout the
year both on request and specifically following the
release of the annual and half year results. Feedback
from these meetings is shared with the Board.
Major shareholders are regularly engaged to hear
their views on a range of issues such as strategy,
remuneration and corporate governance.
A wide range of communication channels are used
to engage with investors during the year. Feedback
from investors has informed the Board’s discussions
and decisions on the Company’s strategy such as
the disposal of FTAO. All material information that is
worthy of investor announcement is made available
simultaneously to both shareholders and potential
shareholders.
The Annual General Meeting is our primary method
of engagement with private investors along with the
Annual Report. We encourage investors to attend
and ask questions they may have. At the end of the
meeting, the Board engage in an open and informal
forum with attendees.
The Group’s Annual Report and Accounts is available
to shareholders in both hard copy form and online.
All announcements and presentations are available
on the Company’s website whilst we also engage on
social media platforms such as LinkedIn.
We value the opportunity to meet with our
shareholders and engage in an exchange of views
and ideas and, post AGM, we review the feedback we
have received.
We respect that not everyone is “on-line” and
continue to provide shareholders with a choice.
The Company’s broker, finnCap, provides briefings to
the Board on shareholder opinions and independent
feedback from investor meetings. Their views
are sought on all market related matters or
announcements.
Regular and frequent interaction between the
company and our broker ensures we receive regular
guidance and remain aligned on our engagement
with the investment community.
Governance reportwww.filtronic.com Stock Code: FTC 28
Governance report continued
Stakeholder
How we engage
Key outcomes
Suppliers
Meetings are held with key suppliers at both their
facilities and ours. This ensures a more intimate
knowledge of each other’s capabilities and objectives
and leads to closer alignment of values.
The Group’s supplier base is a key part of the
company’s ecosystem and effective relationships
with our suppliers are essential to the delivery of
Group performance. We engage with our suppliers
through our engineering and operations teams and
we work closely with key suppliers to ensure we take
advantage of innovative technical and commercial
solutions in the supply chain in order to secure a
competitive advantage.
Our Group policies are flowed down to our supply
chain to ensure compliance with social responsibility
and good governance policies
We minimise our exposure to supplier related risks
by requiring them to adhere to our Group policies and
for them to confirm they are not in conflict with these
policies before or during engagement.
Supply contracts of material significance to the Group
are subject to internal controls with a summary of the
key terms being provided to the Executive Directors
for approval.
Supplier gating processes ensure management
is kept abreast of supplier risks, opportunities
and governance matters and able to act promptly
when required. The Board receives regular updates
regarding key supplier performance metrics and any
issues under review.
The Group aims to play fair with is suppliers and pay
in line with the contractual payment terms.
By playing fair with our suppliers we gain their
respect, support and commitment to meeting our
own business objectives.
The Company’s engagement with key stakeholder groups
and the impact our business operations have on the local
community and the environment are considered within the
implementation of the Company’s objective and strategy and
the Corporate social responsibility report.
Standards of Business Conduct
The Board is committed to a culture of integrity and
openness and this year has adopted a set of ten Group
values that embody the essence of Filtronic’s ethos. These
values are being actively promoted amongst our staff. The
Board is confident that through our people, our values, our
policies and processes we are fostering the right culture to
make a positive impact on the business, our employees, our
customers, suppliers, the environment and the communities
in which we operate. The Board is committed to identifying
other means to drive further positive impact through our
products, processes and foremost our people, all of which
will contribute to the success of the Company.
Filtronic plc Annual Report and Accounts 2020 29
Audit Committee Report
During the year the Audit Committee comprised three
independent Non-Executive Directors:
During the year ended 31 May 2020, the Audit Committee
discharged its responsibilities by:
Michael Roller (Chairman), Reg Gott and Pete Magowan.
• Reviewing and approving the external auditor’s terms of
The Audit Committee’s terms of reference include the
following roles and responsibilities:
• Monitoring and making recommendations to the Board in
relation to the Company’s published financial statements
and other formal announcements relating to the
Company’s financial performance;
• Advising the Board on whether the Committee believes
the Annual Report and Accounts, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the
Company’s performance, business model and strategy;
• Monitoring and making recommendations to the Board in
relation to the Company’s internal financial controls and
financial risk management systems;
• Annually considering the need for an internal audit
function;
• Making recommendations to the Board in relation to the
appointment, re-appointment and removal of the external
auditor and approving the remuneration and terms of
engagement of the external auditor;
• Reviewing and monitoring the external auditor’s
independence and objectivity and the effectiveness of the
audit process, taking into consideration the relevant UK
professional and regulatory requirements;
• Monitoring the extent to which the external auditor is
engaged to supply non-audit services; and
• Ensuring that the Company has arrangements in place
for the investigation and follow-up of any concerns
raised confidentially by staff in relation to the propriety of
financial reporting or other matters.
The Committee reviews its terms of reference and its
effectiveness annually and recommends to the Board
any changes required as a result of the review. The
terms of reference are available on request from the
Company Secretary and are available on the Company
website, www.filtronic.com. The Audit Committee meets
at least three times a year and has direct access to
PricewaterhouseCoopers LLP (“PwC”), the Company’s
external auditor. The Board considers that the members
of the Committee are independent and collectively have
the skills and experience required to discharge their duties
effectively, and that the Chairman of the Committee has
recent and relevant financial experience.
The Company outsources its internal audit activity to third
parties as it is not deemed appropriate given the size of the
Company to have its own internal audit function. However,
the Committee considers annually whether there is a need
for an in-house internal audit function to be established and,
were it to conclude that this would be more appropriate than
the current arrangements, would recommend this to the
Board.
engagement, remuneration and independence;
• Reviewing the external auditor’s plan for the audit of
the Company’s financial statements, including the
identification of key risks;
• Reviewing the Company’s internal financial controls
operated in relation to the business and assessing the
effectiveness of those controls in minimising the impact
of key risks;
• Reviewing the appropriateness of the Company’s
accounting policies;
• Reviewing the Company’s draft Annual Report and
Accounts, Interim Report and interim management
statements prior to Board approval;
• Reviewing the external auditor’s detailed report to the
Committee on the annual financial statements; and
• Reviewing the need for an internal audit function, and
determining what aspects of the Company’s operations
should be subject to outsourced internal audit scrutiny.
The following key areas of risk and judgement have been
identified and considered by the Audit Committee in relation
to the business activities and financial statements of the
Group and Parent Company:
• Group - Going concern as a result of Covid-19
• Group - Discontinued operations and related exceptional
items; and
• Group - Goodwill
• Parent Company – Carrying value of the investment in the
subsidiary.
These issues were discussed with management and the
auditor, in particular at the pre-year end audit planning
meeting and at the conclusion of the audit of the financial
statements.
Going concern as a result of Covid-19:
The Group’s going concern assessment is set out in the
Directors’ report on page 34. The Group disposed of the
Telecoms Antenna Operation in the year receiving an
initial consideration of $5.5m which strengthened the
cash reserves of the business and left it well positioned
to mitigate any downside scenario that may result from
Covid-19 and an economic downturn.
The Committee evaluated a detailed analysis presented by
management of future cash flows for a three-year period.
The paper set out the views and considerations in support
of preparing the financial statements on a going concern
basis which was based on the Group’s financial and trading
position, principal risks and uncertainties and strategic
plans. The viability was further tested by applying some
plausible downside scenarios along with mitigation actions
that could be implemented. The Committee concluded the
going concern basis should be adopted.
Governance reportwww.filtronic.com Stock Code: FTC 30
Audit Committee Report continued
The Company’s management and the auditor confirmed
to the Audit Committee that they were not aware of any
material misstatements. Having reviewed the reports
received from management and the auditor, the Committee
is satisfied that the key areas of risk and judgement have
been appropriately addressed in the financial statements
and that the significant assumptions used in determining the
value of assets and liabilities have been properly appraised
and are sufficiently robust. The Committee considers that
PwC has carried out its duties as the auditor in a diligent and
professional manner.
As part of the review of auditor independence, PwC has
confirmed that it is independent of the Company and has
complied with applicable auditing standards. PwC has
held office as auditor for two years and therefore the Audit
Partner is in accordance with professional guidelines of
serving no longer than five years to maintain independence.
In assessing the auditor’s effectiveness, the Committee:
• Challenged the work done by the auditor to test
management’s assumptions and estimates in the key risk
areas;
• Reviewed reports received from the auditor on these and
other matters;
• Received and considered feedback from management;
and
• Held private meetings with the auditor that provided the
opportunity for open dialogue and feedback between the
Committee and the auditor without management being
present.
In addition, the Chairman of the Committee has discussions
by telephone and in person with the audit lead partner
outside the formal committee process throughout the year.
Having completed its review, the Audit Committee is
satisfied that PwC remained effective and independent in
carrying out its responsibilities up to the date of signing this
report.
After careful consideration of the advice of the Audit
Committee, the Board has concluded that the 2020 Annual
Report and Accounts is fair, balanced and understandable
and provides the necessary information for the Company’s
shareholders to assess the Group’s risks, performance,
business model and strategy.
The Committee also considered the short-term and long-
term impacts of the Covid-19 pandemic on the Group. The
business has navigated through the crisis to date with
limited impact due to several mitigating actions taken to
reduce disruption to the business. A second paper was
presented by management that assessed an additional
downside scenario where the pandemic adversely affected
forward-looking demand to levels significantly lower than
those initially modelled. It stress-tested the model further
by assuming a more restrictive lockdown during a second
wave of the Covid-19 virus that would be more disruptive to
the business than the first wave. The Committee concluded
that the Group still had sufficient cash and debt facilities to
handle the crisis and agreed with the management’s view to
adopt a going concern basis of preparation.
Discontinued operations and related exceptional items:
The Group sold the Telecoms Antenna Operation for
an initial consideration of $5.5m in January 2020. IFRS
5 dictates that revenues and expenses incurred whilst
operating the antenna business are presented separately
from the continuing operations in the financial statements.
The Group consequently makes judgements to allocate
revenues and expenses between the discontinued and
continuing operations.
The Committee was satisfied that the criteria of IFRS 5 to
present the Telecoms Antenna Operation as a disposal
group was met in FY2019 and the discontinued operation
was separately disclosed in the prior year financial
statements. Consequently, the income statements
presented in the monthly board papers during FY2020
separated the income statement of the disposal group
to evaluate performance of the continuing business. The
Committee assessed the monthly allocation presented by
management and concluded the nature of the revenue and
expenses were analysed correctly.
The exceptional items incurred by the Group required
judgement as to how they were allocated and presented
in the financial statements. The Committee evaluated a
paper from management analysing the exceptional items
expensed between continuing and discontinued operations
including the amount, nature of the cost and the related
narrative. Having considered the paper and challenged the
output, the Committee concluded the judgement applied
was appropriate and accurately categorised the nature of
the expenses.
Carrying value of goodwill and the investment in the
subsidiary:
The Committee considered the judgements made in relation
to the valuation methodology adopted by management and
the model inputs used. These are set out in notes 17 and 18
to the financial statements.
The Committee agreed with the judgements made by
management and concluded that the impairment of the
carrying value of the investment in the subsidiary in the
Parent Company accounts was necessary.
Filtronic plc Annual Report and Accounts 2020 31
Directors’ remuneration report
Annual statement on remuneration
On behalf of the Board, I am pleased to present the Filtronic
Directors’ remuneration report for the year ended 31 May
2020.
The Company, being listed on AIM, is not required to produce
a comprehensive Directors’ remuneration report or to submit
a remuneration policy to a binding vote. However, the Board
does wish to maintain transparency and demonstrate good
governance and so provides the following remuneration
report.
account when setting remuneration packages for Executive
Directors and senior management.
The Remuneration Committee has reviewed the
remuneration packages of the Executive Directors and
senior management to ensure they continue to attract,
retain and motivate talented people, while recognising
wider shareholder interest. The Committee reviews all
incentive-based rewards before they are awarded and has
full discretion to adjust awards downwards if deemed
appropriate.
The remuneration report sets out payments and awards
made to the directors.
The Remuneration Committee terms of reference are
available to view at www.filtronic.com/investors/.
The Remuneration Committee comprises the Non-Executive
Directors, including the Chairman. It defines the Company’s
policy on remuneration, benefits and terms of employment
for Executive Directors and senior management. The
Committee also reviews and approves general increases in
staff salaries and bonus arrangements and takes these into
The Remuneration Committee met formally three times
during the year with additional ad hoc meetings when
needed.
Pete Magowan
Chairman, Remuneration Committee
3 August 2020
Details of the service contracts currently in place for directors are as follows:
Name
Executive service agreement appointment date
Key current terms
Reg Gott
Executive Chairman Nominations Committee Chairman
Appointed to the Board on 13 July 2006
Michael Tyerman
Chief Financial
Officer
Appointed to the Board on 1 April 2016
Base salary £180,000
Annual bonus
Health Insurance
Base salary £120,000
Car allowance
Annual bonus
Health insurance
Pension
Notice period
6 months
6 months
Name
Role
Non-Executive terms of appointment date
Fee
Notice period
Michael Roller Audit Committee Chairman Appointed to the Board on 1 June 2013
£40,000
3 months
Pete Magowan Remuneration Committee
Chairman
Appointment to the Board on 19 November 2018 £40,000
3 months
Governance reportwww.filtronic.com Stock Code: FTC
32
Directors’ remuneration report continued
Certain sections constitute the audited part of the reports of the remuneration report.
Total single figure of remuneration for directors - audited
The directors’ total remuneration in respect of the year under review is shown below and compared to the previous year. The
information in these tables has been audited by the Company’s independent auditor.
£000
FY2020 FY2019
FY2020 FY2019
FY2020 FY2019 FY2020 FY2019
FY2020 FY2019
Salary or fee
Bonus
Benefits
Long-term
incentive
Total remuneration excluding
pension contributions
Executive Directors
Reg Gott
Rob Smith1
Michael Tyerman
Non-Executive Directors
Michael Roller
Pete Magowan
Total
133
246
102
40
40
561
60
162
92
40
20
374
71
52
76
-
-
199
-
-
-
-
-
-
-
15
8
-
-
23
-
11
8
-
-
19
-
-
19
-
-
19
-
31
16
-
-
47
204
313
205
40
40
802
60
204
116
40
20
440
1Rob Smith received contractually governed exit payments as part of his remuneration in the year, see ‘payments to past
directors and exit payments’ below.
Notes to the single figure table of remuneration for directors - audited
Taxable benefits
Taxable benefits in kind were unchanged in FY2020 and comprised car allowance and private health insurance. In addition to
these taxable benefits, the Executive Directors are provided with life assurance.
Incentive outcomes for FY2020
Michael Tyerman and Reg Gott were awarded a bonus in recognition of the key role they played in successfully completing
the sale of the Telecoms Antenna Operation. They also accrued a bonus payment during the year for delivering profit targets
aligned to the FY2020 business plan.
Rob Smith was awarded a bonus of £41,000 during the year for his achievement of securing agreement with a customer
relating to a warranty settlement.
Annual performance-related bonus plan
An annual performance-related bonus plan has been introduced for the year ending 31 May 2021 which will reward Executive
Directors and key management cash bonuses for delivering stretching profit targets aligned to the 2021 business plan.
Payments to past directors and exit payments
Rob Smith, the Group’s former CEO, resigned during the year on 31 October 2019. Included in the salary column of the table
entitled ‘total single figure for remuneration for directors’ is £166k for payment in lieu of notice paid to him, equivalent to 12
months salary. This is payable in twelve monthly instalments at the end of each month concluding in October 2020. Mr Smith
will also be paid a pro-rata performance bonus based on delivery of the annual profit targets in the FY2020 business plan.
Filtronic plc Annual Report and Accounts 2020
33
Total single figure of pension benefits for directors - audited
The Executive Directors’ total pension benefits in respect of the year under review are shown below and compared to the
previous year. The information in these tables has been audited by the Company’s independent auditor.
Pension contributions
FY2020 FY2019
£000
Rob Smith
Michael Tyerman
Total
Contributions were made to the Company’s defined contribution scheme.
5
8
13
13
7
20
Directors’ and relevant senior management holdings of Filtronic shares - audited
Directors are not required but are expected to have holdings in the ordinary share capital of the Company. The information in
the following tables has been audited by the Company’s independent auditor.
The interests of the directors, who were serving as at 31 May 2020, in the Company’s ordinary shares, which excludes
interests under the share option schemes, are set out below:
Michael Tyerman
Reg Gott
Michael Roller
Pete Magowan
2020
2019
Shares
339,478
455,369
101,762
750,000
1,646,609
%
0.2%
0.2%
0.0%
0.4%
0.8%
Shares
11,882
354,429
101,762
750,000
1,218,073
%
0.0%
0.2%
0.0%
0.4%
0.6%
The above shareholdings include holdings of directors’ connected parties.
Management share option scheme - audited
The Executive Directors who were serving at 31 May 2020 held the following options over the ordinary shares of the Company:
Michael Tyerman
Michael Tyerman
Plan
ESOP
SAYE
Exercise period
Option price
2020
2019
01/03/2019—28/02/2026
01/06/2019—30/11/2019
5.37p
5.20p
300,000
-
300,000
300,000
275,478
575,478
The 2010 ESOP scheme award introduced in May 2016 was open to Executive Directors and key management across the
Group with the specific intent to retain staff by awarding share options for delivering a significant increase in the share price,
which if sustained for a defined minimum period will trigger vesting, but which can only be exercised by directors after three
years of the scheme opening. However, the Remuneration Committee is able to adjust the outcome at its discretion to ensure
it is fair and appropriate, taking into account the overall performance of the Group. Information relating to share options can
be found in note 35.
The closing middle market price on 31 May 2020 was 10p, and on 31 May 2019 it was 8p. The range of middle market share
prices during the year ended 31 May 2020 was 12p—5p.
There were no changes in directors’ interests between 31 May 2020 and 3 August 2020. The Company’s register of directors’
interests, which is open to inspection at the Registered Office, contains full details of directors’ shareholdings.
Governance reportwww.filtronic.com Stock Code: FTC
34
Directors’ report
The directors present their report together with the audited
consolidated financial statements for the year ended 31 May
2020.
Directors’ conflicts of interest
There are no declarations to be made under Article 182 of
the Companies Act 2006.
Going concern
The Group’s business, and the factors likely to affect its
future development, performance and position are set out in
the Strategic report.
The revenue, trading results and cash flows are explained in
the financial review on page 12.
After a review of forecasts including projections of
profitability and cash flows for the year to 31 May 2021, the
directors believe that the Group has adequate resources to
continue to operate for the foreseeable future and that it is
therefore appropriate to continue to adopt the going concern
basis of accounting in the preparation of the consolidated
and Company financial statements. The basis of preparation,
in note 1, provides more detail on this. The Group undertook
a review of the potential impact of Covid-19 over a three year
period by modelling a severe downside scenario to form this
view.
Directors and their interests
The directors of the Company during the year, and up to the
date of this report, were as follows:
Rob Smith (Resigned 31 October 2019)
Michael Tyerman
Reg Gott
Michael Roller
Pete Magowan
Details of directors’ interests in the share capital of the
Company are set out in the remuneration report on page 33.
Reg Gott, having served on the Board for more than nine
years, retires by rotation and, being eligible, offers himself for
re-election at the Annual General Meeting.
Directors’ indemnity
The Company has in place directors’ and officers’ liability
insurance on behalf of its directors and officers in
accordance with the provisions of the Companies Act. In
addition, certain directors benefit from an indemnity from
the Company, to the extent not prohibited by law, in respect
of losses incurred as a result of the discharge of their duties
in the management or supervision of any Company in the
Group. The indemnity does not automatically terminate
when the indemnified person ceases to be a director.
Top Investors
Investor
Rank
Mark & Diana Dixon
1
Canaccord Genuity Group Inc
2
3
Mr David Newlands and Mrs Monique Newlands
River & Mercantile Asset Mgt
4
Techinvest
5
Mr John S Rockliff
6
Research and development expenditure
Research and development costs in the year before
capitalisation and amortisation relating to continuing
operations were £1.7m (2019: £1.2m), of which £0.7m was
capitalised (2019: £0.2m). Amortisation/impairment of
development costs in the year was £0.1m (2019: £nil).
Substantial shareholdings
Up to 31 May 2020, the Company had been notified,
in accordance with chapter 5 of the disclosure and
transparency rules, of the following voting rights as
shareholders of the Company. An analysis of shareholders
as at 31 May 2020 (as disclosed by shareholders via TR1) is
set out in the table below. As at 31 May 2020, the Company
had issued share capital of 213,698,416 ordinary shares of
0.1p each.
Financial results and dividend
The results for the year are set out in the income statement
on page 41. The position at the end of the year is shown in
the balance sheet on page 43.
The directors are not recommending payment of a dividend
(2019: £nil).
Future developments
The Group’s future developments for FY2021 are disclosed
in the Strategic Report on pages 3 to 21.
Share capital
The Company’s share capital consists of 0.1p ordinary
shares. The rights and obligations attached to each share
are equal. Each share carries the right to one vote at the
Annual General Meeting of the Company and carries no
right to fixed income. There are no limitations on holding or
transfer of the shares. The Board has no powers to issue or
buy back the Company’s shares, other than those approved
by the shareholders at the Annual General Meeting held in
November 2019.
31 May 2020
46,523,085
18,702,626
18,240,000
15,395,061
7,691,515
7,319,990
%
21.77
8.75
8.54
7.20
3.60
3.43
Filtronic plc Annual Report and Accounts 2020 35
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and parent company will continue in business.
The directors are also responsible for safeguarding the
assets of the group and parent company and hence for
taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the group and parent company’s transactions and disclose
with reasonable accuracy at any time the financial position
of the group and parent company and enable them to ensure
that the financial statements comply with the Companies
Act 2006.
The directors are responsible for the maintenance and
integrity of the parent company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
In the case of each director in office at the date the Directors’
Report is approved:
• so far as the director is aware, there is no relevant audit
information of which the group and parent company’s
auditors are unaware; and
• they have taken all the steps that they ought to have
taken as a director in order to make themselves aware of
any relevant audit information and to establish that the
group and parent company’s auditors are aware of that
information.
Independent Auditors
PricewaterhouseCoopers LLP has expressed a willingness
to continue in office as the auditor and a resolution to
reappoint PricewaterhouseCoopers LLP will be proposed at
the forthcoming Annual General Meeting.
On behalf of the Board
Maura Moynihan
Company Secretary
3 August 2020
Political and charitable contributions
No contributions were made for political purposes (2019:
£nil). The Group made charitable donations of £404 in the
year (2019: £1,004).
Equal opportunities
The directors are committed to ensuring that there are equal
opportunities throughout the Group for all employees with
no discrimination on account of race, gender, age, sexual
orientation, disability, political views or religious beliefs.
Employee communication
Employee engagement with our strategy and values is
vital to the success of the Group. The directors place great
importance on keeping employees informed on matters that
affect them as employees as well as matters that affect
the performance of the Group. This is achieved through
formal and informal meetings as well as through Group
communication sessions.
Annual General Meeting
The Annual General Meeting of the Company will be held on
29 October 2020 at 11am at Plexus building, Thomas Wright
Way, Netpark, Sedgefield, County Durham, TS21 3FD. Full
details of the business to be transacted at the meeting will
be set out in the notice of the Annual General Meeting.
Statement of directors’ responsibilities in
respect of the Annual Report, the Directors’
report and the financial statements
The directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have prepared the group financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
parent company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under company law the
directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the group and parent company and of
the profit or loss of the group and parent company for that
period. In preparing the financial statements, the directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the
European Union have been followed for the group
financial statements and IFRSs as adopted by the
European Union have been followed for the company
financial statements, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
Governance reportwww.filtronic.com Stock Code: FTC 36
Independent auditors’ report
to the members of Filtronic plc
Opinion
In our opinion, Filtronic plc’s group financial statements and company financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the company’s affairs as at 31 May 2020 and of the group’s loss
and the group’s and the company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the company’s financial statements, as applied in accordance with the provisions of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which
comprise: the consolidated and company balance sheets as at 31 May 2020; the consolidated income statement and
consolidated statement of comprehensive income, the consolidated and company cash flow statements, and the
consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements,
which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
• Overall group materiality: £171,810 (2019: £205,000), based on 1% of revenue.
• Overall company materiality: £120,570 (2019: £122,000), based on 1% of total assets.
Audit scope
• Three full scope audit components have been identified alongside the Company. This approach provided 100% coverage
over the Group’s revenue.
• All full scope audits were performed by the Group engagement team.
• Analytical review procedures were performed by the Group engagement team over all out of scope components.
Key audit matters
• Going concern as a result of COVID-19 (Group and company)
• Discontinued operations (Group)
• Carrying value of goodwill (Group) and investments (Company)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all
of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Filtronic plc Annual Report and Accounts 2020 37
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Going concern as a result of COVID-19 (Group and company)
From February 2020 the scale and impact of the COVID-19
pandemic on the global economy has increased significantly.
Although this has not had a significant impact on the group
results for the 2020 financial year it has increased the level of
uncertainty in the market and future outlook of the business.
Therefore it has been necessary for management to consider
the impact that the pandemic has had or may have on the
group’s balance sheet, cash flows, liquidity and accordingly its
ability to continue as a going concern.
In order to conclude that it is appropriate for the financial
statements to be drawn up on a going concern basis,
management have prepared a detailed ‘base case’ cashflow
model and applied various sensitivities in order to model a
number of scenarios given the period of uncertainty. Note 1
to the financial statements indicates the challenges posed
by the COVID-19 pandemic and the impact this has on the
group’s and the company’s ability to continue as a going
concern, along with detail on the key assumptions included in
management’s modelling and sensitivities calculated.
Management have a reasonable expectation that the group
and company will have adequate resources to continue in
operation and have therefore adopted the going concern basis
of accounting in preparing the financial statements.
We challenged management on the key assumptions
included in the scenarios and determined that management’s
mitigating actions are within their control.
We assessed management’s forecasts and stress test
scenarios including levers available to management to
mitigate the impact on the group’s and company’s liquidity
should the downside scenarios arise.
We have reviewed the trading results from February 2020 to
the financial year end and assessed the impact of COVID-19
on these results.
We have reviewed the trading results up to February 2020 and
‘looked back’ to compare them with management’s original
budget, to consider historical forecasting accuracy when
assessing forecast results for future periods.
We evaluated management’s disclosures in relation to the
COVID-19 impact and found them to be consistent with
the stress test scenarios performed and the accounting
framework.
Based on the information available at the time of the
directors’ approval of the financial statements, we consider
the scenarios to be reasonable and that preparation of the
financial statements on a going concern basis remains
appropriate, whilst noting that the impact of COVID-19
on future trading performance is difficult to quantify with
certainty.
Discontinued operations (Group)
During the year the Group completed the sale of the Telecoms
Antenna operation, resulting in a gain on sale of £671,000.
See note 15.
We focused on this area due to the detailed requirements of
IFRS in determining the appropriate classification of income
statement and balance sheet items between continuing and
discontinued operations.
We obtained an understanding of the disposal and agreed the
transaction to signed sale agreements.
We substantively tested management’s carve out process,
assessing the assets and liabilities included in the disposal
group and the after tax result from discontinued operations,
including the gain on disposal, to be presented in the
consolidated income statement.
A number of exceptional costs have been recognised in
relation to both the sale and restructure of the group. A key
focus was to ensure that all costs which had been drawn out
as exceptional met the criteria to be categorised as such and
have been classified correctly between the continuing and
discontinued operations.
We have obtained a detailed listing of the costs classified
as exceptional and management’s assessment of whether
these costs related to either the continuing or discontinued
operations. We obtained supporting documentation for the
costs recognised and understood the classification of the
costs.
Based on the procedures we performed we were able to
obtain sufficient audit evidence in respect of the appropriate
classification of exceptional costs and application of IFRS 5 in
the Annual Report.
Governance reportwww.filtronic.com Stock Code: FTC
38
Independent auditors’ report
to the members of Filtronic plc continued
Key audit matter
How our audit addressed the key audit matter
Carrying value of goodwill (Group) and investments
(Company)
We focused on this area due to the material goodwill balance
held on the consolidated balance sheet and the material
investment balance held on the company’s balance sheet and
the estimates and judgements required to determine their
value in use.
We considered the carrying value of the investment in the
company balance sheet and the goodwill in the consolidated
balance sheet by reference to the ‘value in use’ model
prepared by management, which was based on discounted
cash flows of the continuing Wireless operation.
Both the investment carrying value and the goodwill relates to
Filtronic plc’s investment in the Wireless operation as held by
Isotek (Holdings) Limited.
We tested the inputs to the model to Board approved
budgets, which included growth rates and capital expenditure
forecasts.
An impairment totalling £4,013,000 has been recognised
against the investment in the company financial statements.
As such, any change in assumptions applied would alter the
impairment charge recognised. See note 17.
We determined that the calculations were most sensitive to
growth and discount rate assumptions and calculated the
degree to which these assumptions would need to move
before any further impairment was required.
We engaged with our valuation experts in order to assess
the discount rate applied by reference to both the group’s
weighted average cost of capital and a comparator group.
We assessed both the short term and long term growth
rate assumptions against available market data for the
telecommunications infrastructure sector.
Based on the procedures we performed we were able to
obtain sufficient audit evidence in respect of the carrying
value of the investment balance and the goodwill balance.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the company, the accounting processes and
controls, and the industry in which they operate.
There are three components which required a full scope audit of their financial information, due to their size and contribution
to the financial results of the group. These were the trading entities within the UK, being Filtronic Broadband Limited and
Filtronic Wireless Limited, in addition to the trading entity in the US, Filtronic Wireless Inc.
Filtronic plc is also subject to a full scope audit of its financial information, due to the separate presentation of these financial
statements within this report. All audit work supporting the group opinion was performed by the PwC UK engagement team,
with the exception of existence testing of physical inventory which was performed by a PwC team in the US.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£171,810 (2019: £205,000).
£120,570 (2019: £122,000).
1% of revenue.
1% of total assets.
Based upon the Group’s trading
performance in the year, revenue is
considered to be the most stable and
appropriate benchmark in appraising
financial performance, and is a generally benchmark.
accepted auditing benchmark.
We believe that as a holding company,
the most appropriate benchmark for
materiality is total assets, which is a
generally accepted auditing
Filtronic plc Annual Report and Accounts 2020
39
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £170,000 and £25,000. Certain components were audited
to a local statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £8,600
(Group audit) (2019: £10,250) and £6,000 (Company audit) (2019: £6,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate;
or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s and company’s ability to continue to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and
company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to
report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 May 2020 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities in respect of the Annual Report, the Directors’ report
and the financial statements set out on page 35, the directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic
alternative but to do so.
Governance reportwww.filtronic.com Stock Code: FTC 40
Independent auditors’ report
to the members of Filtronic plc continued
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Tom Yeates (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
3 August 2020
Filtronic plc Annual Report and Accounts 2020 Consolidated income statement
for the year ended 31 May 2020
Continuing operations
Revenue
Adjusted earnings before interest, taxation, depreciation, amortisation and
exceptional items
Amortisation
Impairment of development costs
Depreciation
Adjusted operating profit
Exceptional items
Operating (loss)/profit
Finance costs
Finance income
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year from continuing operations
Loss for the year from discontinued operations
Loss for the year
Basic loss per share
Diluted loss per share
41
Group
2020
£000
2019
£000
17,181
15,932
1,165
(18)
(89)
(677)
381
(569)
(188)
(277)
36
(429)
(89)
(518)
(1,437)
(1,955)
664
(75)
-
(355)
234
-
234
(154)
55
135
2,099
2,234
(3,547)
(1,313)
(0.93p)
(0.93p)
(0.63p)
(0.63p)
Note
18
18
19, 20
6
5
12
13
14
15
16
16
The loss for the year is attributable to the equity shareholders of the Parent Company, Filtronic plc.
The notes on pages 48 to 78 form part of these financial statements.
Financialswww.filtronic.com Stock Code: FTC
42
Consolidated statement of
comprehensive income
for the year ended 31 May 2020
Loss for the year
Other comprehensive (expense)/income
Items that are or may be subsequently reclassified to profit and loss:
Transfer to income related to business disposal
Currency translation movement arising on consolidation
Total comprehensive expense for the year
Note
32
32
Group
2019
£000
2020
£000
(1,955)
(1,313)
117
(111)
-
60
(1,949)
(1,253)
The total comprehensive expense for the year is attributable to the equity shareholders of the Parent Company, Filtronic plc.
For the Company, there were no items of comprehensive (expense)/income other than the loss for the year. Accordingly, no
Company statement of comprehensive income has been presented.
The notes on pages 48 to 78 form part of these financial statements.
Filtronic plc Annual Report and Accounts 2020 Consolidated balance sheet
for the year ended 31 May 2020
Non-current assets
Goodwill and other intangible assets
Right of use assets
Property, plant and equipment
Deferred tax
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Trade and other payables
Provisions
Deferred income
Financial liabilities
Liabilities directly associated with the assets held for sale
Lease liabilities
Non-current liabilities
Financial liabilities
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Translation reserve
Retained earnings
Total equity
43
Group
2019
£000
1,247
-
1,030
1,982
4,259
2,081
4,220
2,625
5,046
13,972
18,231
2,316
2,265
81
231
2,207
-
7,100
118
-
118
7,218
11,013
10,789
10,715
(558)
(9,933)
11,013
2020
£000
1,847
2,685
1,124
1,868
7,524
2,945
4,848
2,028
-
9,821
17,345
3,463
1,110
568
177
-
662
5,980
144
1,867
2,011
7,991
9,354
10,794
11,000
(552)
(11,888)
9,354
Note
18
19
20
21
22
23
24
25
26
27
28
24
29
28
29
30
31
32
34
The total equity is attributable to the equity shareholders of the Parent Company, Filtronic plc.
Company number 2891064.
The notes on pages 48 to 78 form part of these financial statements. These financial statements have been approved by the
Board on 3 August 2020 and signed on its behalf by
Reg Gott
Chairman
3 August 2020
Financialswww.filtronic.com Stock Code: FTC 44
Consolidated statement of
changes in equity
for the year ended 31 May 2020
Balance at 31 May 2018
Loss for the year
New shares issued
Share-based payments
Currency translation movement arising on consolidation
Balance at 31 May 2019
Loss for the year
New shares issued
Currency translation movement arising on consolidation
Transfer to income related to business disposal
-
1
-
-
-
75
-
-
10,789
10,715
-
5
-
-
-
285
-
-
Balance at 31 May 2020
10,794
11,000
Share
capital
£000
10,788
Share
premium
£000
Translation
reserve
£000
10,640
(618)
Retained
earnings
£000
(8,649)
(1,313)
-
29
-
(9,933)
(1,955)
-
-
-
(11,888)
Total
equity
£000
12,161
(1,313)
76
29
60
11,013
(1,955)
290
(111)
117
9,354
-
-
-
60
(558)
-
-
(111)
117
(552)
Company statement of
changes in equity
for the year ended 31 May 2020
Balance at 31 May 2018
Loss for the year
New shares issued
Share-based payments
Balance at 31 May 2019
Loss for the year
New shares issued
Balance at 31 May 2020
The notes on pages 48 to 78 form part of these financial statements.
Share
capital
£000
10,788
Share
premium
£000
10,640
-
1
-
-
75
-
10,789
10,715
-
5
-
285
Retained
earnings
£000
(4,245)
(819)
-
63
(5,001)
(5,440)
-
Total
equity
£000
17,183
(819)
76
63
16,503
(5,440)
290
10,794
11,000
(10,441)
11,353
Filtronic plc Annual Report and Accounts 2020 Consolidated cash flow statement
for the year ended 31 May 2020
Cash flows from operating activities
(Loss)/profit for the year from continuing operations
Loss for the year from discontinued operations
Gain on sale of the Telecoms Antenna Operation
Taxation
Finance income
Finance costs
Operating loss including discontinued operations
Share-based payments
Profit on disposal of plant and equipment
Depreciation
Amortisation of intangible assets
Impairment of intangible assets
Movement in inventories
Movement in trade and other receivables
Movement in trade and other payables
Movements in provisions
Change in deferred income
Tax received/(paid)
Net cash used in operating activities
Cash flows from investing activities
Capitalisation of development costs
Acquisition of intangible assets
Acquisition of plant and equipment
Acquisition of right of use assets
Proceeds on sale of the Telecoms Antenna Operation - net of sale costs
Proceeds on sale of assets
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Interest paid
Proceeds from bank loans
Exercise of employee share options
Repayment of lease liabilities
Repayment of interest-bearing borrowings
Net cash used in financing activities
Movement in cash and cash equivalents
Currency exchange movement
Opening cash and cash equivalents
Closing cash and cash equivalents
The notes on pages 48 to 78 form part of these financial statements.
45
Group
2020
£000
2019
£000
(518)
(1,437)
(671)
100
(36)
280
2,234
(3,547)
-
(2,059)
(55)
154
(2,282)
(3,273)
-
-
677
18
89
(731)
85
(1,054)
(1,155)
488
1,227
(2,638)
(678)
(27)
(384)
(154)
3,652
-
2,409
(258)
192
290
(375)
(202)
(353)
(582)
(15)
2,625
2,028
29
(2)
459
217
512
(348)
1,669
(657)
1,780
(279)
(127)
(20)
(666)
(11)
(380)
-
-
59
(998)
(103)
-
76
-
(182)
(209)
(1,227)
58
3,794
2,625
Financialswww.filtronic.com Stock Code: FTC 46
Company balance sheet
at 31 May 2020
Non-current assets
Investments in subsidiaries
Intangible assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Share based payments
Loss for the year
Retained earnings brought forward
Total equity
Company number 2891064.
Note
17
18
23
25
30
31
36
34
34
Company
2020
£000
6,551
28
6,579
5,286
192
5,478
2019
£000
10,564
19
10,583
6,148
196
6,344
12,057
16,927
704
704
424
424
11,353
16,503
10,794
11,000
-
(5,440)
(5,001)
11,353
10,789
10,715
63
(819)
(4,245)
16,503
The notes on pages 48 to 78 form part of these financial statements. These financial statements have been approved by the
Board on 3 August 2020 and signed on its behalf by
Reg Gott
Chairman
3 August 2020
Filtronic plc Annual Report and Accounts 2020 Company cash flow statement
for the year ended 31 May 2020
Cash flows from operating activities
Loss for the year
Finance costs
Operating loss
Amortisation of intangibles
Impairment of investments in subsidiaries
Share-based payments
Movement in trade and other receivables
Movement in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Acquisition of intangible assets
Sale proceeds of assets
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from exercise of share options
Payment of lease liabilities
Interest paid
Net cash generated from financing activities
Movement in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
The notes on pages 48 to 78 form part of these financial statements.
47
Company
2020
£000
(5,440)
60
(5,380)
12
4,013
-
862
289
(204)
(21)
-
(21)
290
(9)
(60)
221
(4)
196
192
2019
£000
(819)
38
(781)
30
-
63
5,380
(4,949)
(257)
(2)
75
73
76
-
(38)
38
(146)
342
196
Financialswww.filtronic.com Stock Code: FTC 48
Notes to the financial statements
for the year ended 31 May 2020
1
Accounting policies
Reporting entity
Filtronic plc is a Company registered in England and Wales, domiciled in the United Kingdom, and listed on AIM on the
London Stock Exchange.
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and the
Companies Act 2006 as applicable to companies using IFRS.
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 2020, the Group had cash at bank of £2.0m and access to undrawn invoice discounting facilities of £3.0m
and $4.0m in the UK and US respectively. The sale of the Telecoms Antenna Operation provided $5.5m of cash creating
a net positive position from a net debt position and a much-improved cash reserve. The cash and borrowing capacity
therefore provide sufficient funds to meet the foreseeable needs of the Group.
As referred to in the Strategic report, the business continuity plans implemented during the Covid-19 pandemic have
limited the adverse impact to date. The Board recognises the uncertain macroeconomic environment that the world
now 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 the pandemic may adversely affect
forward-looking demand to levels significantly lower than those initially modelled in the base case scenario.
A further model was prepared with a severe downside stress-test applied to the model by assuming a more restrictive
lockdown resulting in a 36% drop in revenue across the projected period following a second wave of the Covid-19 virus
that would be more disruptive to the business than the first wave. It was also assumed demand would not recover to
base case levels after the lockdown with demand only achieving 75% of base case demand thereafter.
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.
The financial statements have been prepared under the historical cost convention except for forward foreign exchange
contracts that are accounted for on a fair value basis.
The accounting policies have been applied consistently throughout the Group.
Basis of consolidation and foreign currency translation
The financial statements consolidate the income statements, balance sheets and cash flow statements of the Company
and all of its subsidiaries.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group, and are not consolidated from
the date that control ceases. Intragroup transactions and balances are eliminated on consolidation.
In publishing the Parent Company financial statements here together with the Group financial statements, the Company
has taken advantage of the exemptions in s408 of the Companies Act 2006 not to present its individual income
statement and related notes that form part of these approved financial statements. On consolidation, the financial
statements of subsidiaries with a functional currency other than sterling are translated into sterling as follows:
• The assets and liabilities in their balance sheets plus any goodwill are translated at the rate of exchange ruling at the
balance sheet date; and
• The income statements and cash flow statements are translated at the average rate of exchange each month in the
period, which approximates the rate of exchange ruling at the date of the transactions.
Currency translation movements arising on the translation of the net investments in foreign subsidiaries are recognised
in the translation reserve, which is a separate component of equity.
The functional currency of each Group company is the currency of the primary economic environment in which the
Group company operates. The financial statements are presented in sterling which is the functional and presentational
currency of the Company.
Transactions denominated in foreign currencies are translated into the functional currency of each Group company at
the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are translated into the functional currency at the rate of exchange ruling at the balance sheet date.
Filtronic plc Annual Report and Accounts 2020 49
1
Accounting policies (continued)
Foreign exchange gains and losses arising on the settlement of such transactions and translation of monetary assets
and liabilities are recognised in the income statement.
Discontinued operations
A discontinued operation is a component of the Group’s business, of which the operation and cash flows can be clearly
distinguished from the rest of the Group and which:
• represents a separate major line of business; and
• is part of a single co-ordinated plan to dispose of a separate major line of business.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be
classified as held-for-sale under IFRS 5.
When an operation is classified as a discontinued operation, the comparative income statement and other
comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.
Revenue
IFRS 15 establishes principles for determining when and how revenue arising from contracts with customers should
be recognised. Filtronic recognises revenue when it transfers goods or services to a customer with an amount of
consideration to which we expect to be entitled in exchange for fulfilling our performance obligations with the customer.
The Group reviews all income streams against the requirements of IFRS 15. Management undertakes an assessment
of all contracts and revenue streams across the business using the five-step approach specified by IFRS 15: identify
the contract(s) with the customer; identify the performance obligations in the contract; determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and recognise revenue when (or as) a
performance obligation is satisfied.
In determining the appropriate method of recognising revenue, management is required to make judgements as to
whether performance obligations are satisfied over a period of time or at a point in time. For performance obligations
that are satisfied over a period of time, judgements are made as to whether the output method or the input method is
more appropriate to measure progress towards complete satisfaction of the performance obligation. If performance
obligations are not satisfied over time, the Group recognises revenue at a point in time.
Limited revenue was recognised against development milestones in the current or prior financial year as most of the
revenue is recognised at a point in time as a finished goods product sale.
Revenue is measured at the fair value of consideration received or receivable for goods and services provided or
performed in the normal course of business net of value added tax or sales tax.
Sale of finished goods product
Sales of finished goods product to customers are recognised when control of the product has transferred to the third
party. This is usually when title passes to the customer, either on shipment or on receipt of goods depending on the
delivery terms of the customer contract. The performance obligation is satisfied when control has passed to the
customer. The transaction price is specified in the customer contract.
Sale of consignment inventory
Filtronic supports one of its customers by holding inventory in a third-party location near to the customer’s production
facility. Revenue is recognised when the goods have been moved out of the location by the customer and a consumption
advice has been provided. The performance obligation is satisfied when control has passed to the customer. This
treatment has not changed following the adoption of IFRS 15.
Non-recurring engineering (“NRE”)
NRE comprises contracts to provide engineering services, such as the design and development of a product, funded by
the customer. The transaction price of the contract is known from inception of the contract. Each contract is reviewed
to identify the number of distinct performance obligations and the transaction price is assigned accordingly, usually
by the value of work performed on an input cost basis. Based on the performance of the contract to date, revenue is
recognised over time. If relevant, an expected loss on a contract is recognised immediately in the income statement.
Share-based payments
The Group operates equity settled share option schemes, under which share options are granted to certain employees.
The fair value of the share options at the date of grant was calculated using an option pricing model, taking into account
the terms and conditions applicable to the option grant. The fair value of the number of share options expected to vest
was expensed in the income statement on a straight-line basis over the expected vesting period. At each reporting
period, these vesting expectations were revised as appropriate.
Financialswww.filtronic.com Stock Code: FTC 50
Notes to the financial statements continued
for the year ended 31 May 2020
1
Accounting policies (continued)
A credit is made to equity equal to the share-based payment charge in the period.
Exceptional items
Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable
a full understanding of the financial results.
Business combinations
All business combinations are accounted for by applying the acquisition method. Business combinations are accounted
for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the
Group.
The Group measures goodwill at the acquisition date as:
• The fair value of the consideration transferred; plus
• The recognised amount of any non-controlling interests in the acquiree; plus
• The fair value of any existing equity interest in the acquiree; less
• The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a gain is recognised immediately in the consolidated income statement.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as
incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration
is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent
changes to the fair value of the contingent consideration are recognised in the consolidated income statement. Where
contingent consideration is linked to continued employment it is classified as an employment cost and recognised in the
consolidated income statement over the relevant period.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present
ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, at
its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date.
Investments in subsidiaries
Investments in subsidiaries are stated in the Company’s financial statements at cost less any accumulated impairment
losses. Investments in subsidiaries are tested for impairment when there is an indication of impairment.
Goodwill
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets.
Goodwill is measured at cost less accumulated impairment losses.
Goodwill, which is allocated to cash-generating units, is tested for impairment at least annually and when there is an
indication of impairment. The goodwill carrying value is written down to its recoverable amount. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal.
Internally-generated intangible assets
All research costs are expensed as incurred.
Development costs chargeable to the customer are recognised as an expense in the same period as the associated customer
revenue.
Development costs incurred on projects requiring product qualification tests to satisfy customer specifications are
generally expensed as incurred, reflecting the technical risks associated with meeting the resultant product qualification
test.
Development costs incurred on projects are capitalised where firstly, the technical feasibility can be tested against
relevant milestones, secondly, the probable revenue stream foreseen over the life of the resulting product can support
the development, and thirdly, sufficient resources are available to complete the development. These capitalised costs are
amortised on a straight-line basis over the expected life of the associated product.
Once a new product is in volume production, further development costs are expensed as they arise because they are
incurred in response to continual customer demand to enhance the product functionality and to reduce product selling
prices.
Filtronic plc Annual Report and Accounts 2020 51
1
Accounting policies (continued)
Other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is calculated over the cost of the asset less its residual value.
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangible
assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected
pattern of consumption of the future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative periods are as follows:
• Software licence
4 to 5 years
Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if
appropriate.
Impairment charges
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed
at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then
the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that
are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount
of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of
impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the “cash-generating unit, or CGU”). For the purpose of goodwill impairment testing, CGUs to which goodwill has
been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill
is monitored for internal reporting purposes.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in
prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Right of use assets and lease liabilities
The Group assesses whether a contract is a lease at inception of the contract. The Group recognises a right of use asset
and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-
term leases and leases of low value assets. For these leases, the Group recognises the lease payment as an operating
expense on a straight-line basis over the term of the lease.
The lease is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease. The lease liability is subsequently increased by the interest cost
on the lease and decreased by payments made. In the event of a change in future lease payments, the lease liability will
be remeasured and the difference recognised in the right of use asset. The lease liability is presented as a separate line
in the consolidated statement of financial position.
The Group remeasures the lease liability and makes a corresponding adjustment to the right of use asset whenever
there has been a lease payment change, the lease contract is modified or any other significant event.
The right of use asset is initially measured at cost and subsequently at cost less accumulated depreciation and
impairment losses. The right of use asset is depreciated over the shorter of the period of the lease term and useful life
of the underlying asset. Where there is reasonable certainty the Group will purchase the asset at the end of the lease, the
asset is depreciated over the useful life. The depreciation starts at the commencement date of the lease.
Financialswww.filtronic.com Stock Code: FTC 52
Notes to the financial statements continued
for the year ended 31 May 2020
1
Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and less any accumulated impairment
losses.
Depreciation is provided on a straight-line basis over the estimated useful lives of the assets as follows:
• Land
• Buildings
• Plant and equipment
• Computer hardware
Not depreciated
50 years
3 to 10 years
2 to 4 years
Property, plant and equipment are tested for impairment when there is an indication of impairment. If impaired, the
carrying values of the assets are written down to their recoverable amounts.
The gain or loss arising on disposal or scrappage of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in income.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises the weighted average cost of
materials and components together with attributable direct labour and overheads. Net realisable value is the estimated
selling price less estimated costs of completion and sale.
Trade and other receivables
Trade and other receivables are stated net of any provision for doubtful debts.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and bank deposits with an original maturity of three months or less.
Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly
probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs
to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and
liabilities.
Once classified as held-for-sale, intangible assets are no longer amortised and property, plant and equipment are no
longer depreciated.
Defined contribution pension schemes
Defined contribution pension schemes are operated for employees. Contributions are recognised as an expense in the
income statement as incurred.
Financial liabilities
Financial liabilities comprise interest bearing borrowings and are initially recognised at fair value and subsequently
measured at amortised cost with any net gains or losses, including any interest expense, recognised in profit or loss.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the Consolidated Statement of Financial Position and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from
the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Filtronic plc Annual Report and Accounts 2020 53
1
Accounting policies (continued)
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised based on tax laws and rates that have been enacted or substantively enacted at the statement of financial
position date. Deferred tax is charged or credited in the income statement, except when it relates to items charged
or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive
income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Grants
Capital-based grants, when present, are included within deferred income in the balance sheet and credited to the profit
and loss account over the estimated useful economic lives of the assets to which they relate.
Grants that compensate the Group for expenses incurred are recognised in the profit or loss account as other operating
income on a systematic basis in the same periods in which the expenses are recognised.
Warranty provision
A provision is recognised in the balance sheet when there is a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of resources will be required to settle the obligation and the amount can
be reliably estimated. A warranty provision is recognised when products are sold based on historical warranty data. The
level of warranty provision required is reviewed on a product-by-product basis and adjusted accordingly in light of actual
experience.
Dilapidations and onerous leases
A provision for dilapidations and onerous leases is recognised in the balance sheet on a lease-by-lease basis and is
based on the Group’s best estimates of the required cost to settle the relevant obligations.
Share capital
Ordinary shares issued are classified as share capital in equity.
Dividends
Interim dividends are recognised in equity in the period they are paid. Final dividends are recognised in equity in the
period they are approved by shareholders.
Forward currency contracts
Forward currency contracts are held at fair value. The gain or loss on re-measurement to fair value is recognised
immediately in the consolidated income statement.
Accounting developments and new standards
At the date of authorisation of these financial statements, new and revised standards issued but not yet effective are
set out below. It is anticipated the adoption of these standards and interpretations in future periods will have no material
impact on the financial statements of the Group. These have not been adopted in the Group’s accounting policies:
Effective from 1 June 2020:
• IFRS 17 Insurance contracts
• IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture
• Amendments to IFRS 3 Definition of a Business
• Amendments to IAS 1 and IAS 8 Definition of Material
• Conceptual framework Amendments to References to the Conceptual Framework in IFRS
Financialswww.filtronic.com Stock Code: FTC 54
Notes to the financial statements continued
for the year ended 31 May 2020
2
Adoption of IFRS 16 – new accounting standard on leases
The Group has adopted IFRS 16 “Leases” with effect from 1 June 2019, replacing IAS 17 “Leases”. This means that
previously unrecognised operating leases are now recognised in the Statement of financial position as ‘lease liabilities’
and ‘right of use’ assets. Rent payments on these leases are no longer treated as a charge within operating expenses
in the Income Statement. Instead a depreciation charge on the right of use assets and an interest expense on the lease
liabilities are now recognised in the income statement.
On adoption of IFRS 16 the Group has used the simplified approach to transition. When applying IFRS 16, the Group has
used the following practical methods on transition:
• reliance on previous identification of a lease under IAS 17;
• exclusion of initial direct costs from the measurement of the right of use asset at transition;
• the classification of all long leases which had less than 12 months remaining at transition date as short-term leases;
• the measurement of the value of right of use assets on transition as an amount equal to the corresponding lease
liability adjusted for any prepaid lease payments;
• the use of hindsight in determining the length of the lease.
The Group is applying the accounting policy recognition exemptions set out in paragraph 5 of IFRS 16 in respect of
short-term leases (leases of less than 12 months) and small value leases.
The Group has applied judgement in its assessment of the length of certain leases where there are break clauses or
options to extend the lease. The conclusions drawn by management in deciding whether lease break clauses or lease
extension options are likely to be applied are based on its current assessment of the longer-term growth expectations of
the Group and its associated future office space requirements.
The Group is applying the simplified approach to transition and has therefore not restated any prior period information.
Accordingly, the results for the year ended 31 May 2020 are not directly comparable with those presented in the prior
period under the previously applicable accounting standard IAS 17 “Leases”.
In order to show the impact of IFRS 16 and to facilitate a comparison of results with the prior year, a reconciliation is
presented below of results for the year ended 31 May 2020 as reported on an IFRS 16 basis with the former IAS 17
basis.
Operating overheads
Adjusted EBITDA
Depreciation
Right of use asset depreciation
Amortisation
Impairment of intangible assets
Adjusted operating profit
Exceptional items
Operating loss
Finance costs
Finance income
Loss before taxation
FY2020
IAS 17
basis
£000
8,816
855
(450)
-
(18)
(89)
298
(569)
(271)
(159)
36
(394)
IFRS 16
Impact
£000
(310)1
310
148
(375)2
-
-
83
-
83
(118)3
-
(35)
FY2020
IFRS 16
basis
£000
8,506
1,165
(302)
(375)
(18)
(89)
381
(569)
(188)
(277)
36
(429)
Filtronic plc Annual Report and Accounts 2020 55
2
Adoption of IFRS 16 – new accounting standard on leases (continued)
The impact on the income statement is summarised as follows:
1. Reduced lease rental charges on IFRS 16 basis;
2. Additional depreciation on right of use assets recognised under IFRS 16;
3. Additional interest costs on finance leases recognised under IFRS 16.
The outcome of this is that adjusted EBITDA and adjusted operating profit are higher on a comparative basis but the
loss before taxation is lower.
The adoption of IFRS 16 on 1 June 2019 has impacted certain categories of assets and liabilities in the Group Statement
of financial position as set out below:
Non-current assets
Right of use assets
Current liabilities
Lease liabilities
Non-current liabilities
Lease liabilities
At 1 June
2019
IAS 17
basis
£000
At 1 June
2019
IFRS 16
basis
£000
IFRS 16
Impact
£000
-
-
-
1,327
1,327
243
243
1,084
1,084
The right of use assets recognised under IFRS 16 are in respect of facilities and office premises the Group leases under
non-cancellable agreements and finance agreements for plant and equipment.
There was no overall impact on Net Assets or Equity from the initial adoption of IFRS 16 on 1 June 2019.
Reconciliation of IAS 17 to IFRS 16
The reconciliation below demonstrates how operating lease commitments presented in the Annual Report and Accounts
2019 under IAS 17 at the end of FY2019 and before the application of IFRS 16 changes with the opening lease liability
presented in the consolidated balance sheet at the start of the FY2020 on 1 June 2019.
IAS 17 operating lease commitments based on gross cash flows
Discounted using an incremental borrowing rate of 7%
Discounted using an incremental borrowing rate of 5%
Reclassified to assets held for sale
IFRS 16 lease liability as at 1 June 2019
£000
2,059
(345)
(94)
(293)
1,327
Financialswww.filtronic.com Stock Code: FTC
56
Notes to the financial statements continued
for the year ended 31 May 2020
3
Accounting estimates and judgements
The preparation of the financial statements requires the use of accounting estimates and judgements, that affect the
application of accounting policies and reported amounts of assets and liabilities, income and expenses. The accounting
estimates and judgements are continually evaluated. They are based on historical experience and other factors,
including expectations of the future, that are believed to be reasonable under the circumstances. Actual results may
differ from the expected results.
The accounting estimates and judgements that have a significant effect on the financial statements are considered
below.
Goodwill and other intangibles—impairment
Goodwill and other intangibles are tested for impairment by reference to the expected cash generated by the business
unit. This is deemed to be the best approximation of value, but is subject to the same uncertainties as the cash flow
forecast being used.
Investments in subsidiaries
Investments in subsidiaries are tested for impairment by reference to the expected cash generated by the business unit.
This is deemed to be the best approximation of value, but is subject to the same uncertainties as the cash flow forecast
being used.
Inventory
Inventories are stated at the lower of cost and net realisable value. The assessment of the net realisable value of
inventory requires forecasts of the future demand and selling prices of inventory based on sales order book, market
intelligence and inventory ageing.
Deferred tax asset
The recognition of deferred tax assets relating to tax losses carried forward depends on forecasts of the future taxable
profits of the Company and its subsidiaries. These forecasts require the use of estimates and judgements about the
future performance of the Company and its subsidiaries using the current order book, forecasts and market knowledge.
Warranty provision
Warranties are given to customers on products sold to them. A warranty provision is recognised when products are sold
and is based on historical warranty data. Actual warranty costs in the future may differ from the estimates based on
historical performance. The level of warranty provision required is reviewed on a product-by-product basis and adjusted
accordingly in light of actual experience.
Capitalisation of development costs
In line with the requirements of IAS 38, the Group’s policy is to capitalise development expenditure as intangible assets
when all of the following criteria are met:
• The technical feasibility of completing the asset so that it will be available for use or sale;
• The intention to complete the asset and use or sell it;
• The ability to use or sell the asset;
• The asset will generate probable future economic benefits and demonstrate the existence of a market or the
usefulness of the asset, if it is to be used internally;
• The availability of adequate technical, financial and other resources to complete the development and to use or sell it;
and
• The ability to measure reliably the expenditure attributable to the intangible asset.
This process is continually reviewed to ascertain whether any development costs meet the criteria for capitalisation.
This requires various judgements by management as to whether the various criteria have been met. The period over
which development costs are amortised is reviewed on a case-by-case basis in line with the expected product life.
The Group does not consider there to be any critical accounting judgements.
Filtronic plc Annual Report and Accounts 2020 57
4
Segmental analysis
Operating segments
IFRS 8 requires consideration of the identity of the chief operating decision maker (‘CODM’) within the Group. In line with
the Group’s internal reporting framework and management structure, the key strategic and operating decisions are made
by the Executive Chairman, who reviews internal monthly management reports, budget and forecast information as part
of this. Accordingly, the Executive Chairman is deemed to be the CODM.
The CODM has identified one operating segment within the Group as defined under IFRS 8. In turn, this is the only
reportable segment of the Group as the entities in the Group have similar products and services, production processes
and economic characteristics. Therefore, there is no allocation of operating expenses, profit measures or assets and
liabilities to specific commercial markets.
Accordingly, the CODM assesses the performance of the operating segment on financial information which is measured
and presented in a manner consistent with those in the financial statements by reference to Group results against
budget.
The Group profit measures are adjusted operating profit and adjusted EBITDA, both disclosed on the face of the
consolidated income statement. No differences exist between the basis of preparation of the performance measures
used by management and the figures in the Group financial statements.
The Group has three customers representing individually over 10% of revenue each and in aggregate 87% of revenue.
This is split as follows:
• Customer A - 44%
• Customer B - 27%
• Customer C - 16%
Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers. Segment assets are based on the geographical location of the assets.
Revenue by destination
United Kingdom
Europe
Americas
Rest of the world
Split of non-current assets by location
United Kingdom
Americas
Continuing
operations
2020
£000
4,764
7,985
3,945
487
2019
£000
3,658
4,818
4,913
2,543
Discontinued
operations
2020
£000
2019
£000
-
-
65
991
-
-
4,504
134
4,638
17,181
15,932
1,056
Total
2020
£000
4,764
7,985
4,010
1,478
2019
£000
3,658
4,818
9,417
2,677
18,237
20,570
2020
£000
6,329
1,195
7,524
2019
£000
1,898
2,361
4,259
Non-current assets relate to property, plant and equipment, right of use assets, goodwill and other intangible assets and
deferred tax.
Financialswww.filtronic.com Stock Code: FTC 58
Notes to the financial statements continued
for the year ended 31 May 2020
5
Operating (loss)/profit from continuing operations
Revenue
Material cost of goods sold
Wages and salaries
Social security costs
Pension costs
Share-based payments
Exceptional redundancy and resignation costs
Staff costs
Impairment of development costs
Amortisation
Depreciation
Depreciation and amortisation
Other operating income
Non-salary related exceptional items
Other expenses
Total operating costs
Operating (loss)/profit
2020
£000
2019
£000
17,181
15,932
8,079
5,325
518
276
-
417
6,536
89
18
677
784
(5)
152
1,823
9,290
(188)
8,073
4,105
434
239
29
-
4,807
-
75
355
430
(152)
-
2,540
7,625
234
Development costs of £678,000 were capitalised in the year (2019 : £250,000).
6
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 charging exceptional items as follows:
Costs relating to the FTAO business disposal
Restructuring costs
Directors’ resignation
2020
£000
2019
£000
145
184
240
569
-
-
-
-
Transaction costs of the FTAO business disposal are the costs incurred in the period relating to sale of the Filtronic
Telecoms Antenna Operation (“FTAO”) to Microdata Telecoms Innovation Stockholm AB on 2 January 2020 for an initial
consideration of $5.5m.
Following the disposal of FTAO the Group undertook a programme to restructure the business to align the cost base
and operation of the continuing business. Action was taken to significantly reduce our presence in China with a major
reduction in employee headcount and the successful onshoring of manufacture of our public safety products to our site
in the USA.
Rob Smith resigned as CEO of the Company on 31 October 2019, the costs relating to his departure were £240,000.
Filtronic plc Annual Report and Accounts 2020
7
Operating items
Operating (loss)/profit is stated after charging/(crediting):
Depreciation
Research and development costs in the income statement
Amortisation
Foreign exchange gains
8
Auditor’s remuneration
The Company’s auditor is PricewaterhouseCoopers LLP. The auditor’s remuneration was as follows:
Company auditor:
Audit of the Group and Company financial statements
Company auditor and their associates:
Audit of subsidiaries’ financial statements pursuant to legislation
Other services pursuant to legislation
Other services
59
2019
£000
355
1,026
75
(27)
2020
£000
677
1,152
18
(235)
2020
£000
2019
£000
25
49
-
17
91
25
44
2
-
71
9
Employees
The average number of employees comprised:
Manufacturing
Research and development
Sales
Administration
Continuing
operations
Discontinued
operations
Group
2020
Number
2019
Number
2020
Number
2019
Number
2020
Number
2019
Number
99
21
5
16
62
17
6
15
141
100
9
14
1
2
26
13
13
2
3
31
108
35
6
18
167
75
30
8
18
131
Financialswww.filtronic.com Stock Code: FTC 60
Notes to the financial statements continued
for the year ended 31 May 2020
10
Compensation of directors
Details of the remuneration, pension entitlements and share options of the individual directors are set out in the
Directors’ remuneration report on pages 31 to 33. The compensation of the directors was:
Salary or fees
Bonus
Benefits
Long term incentives
Total remuneration excluding pension contributions
Pension contributions
2020
£000
561
199
23
19
802
13
815
2019
£000
374
-
19
47
440
20
460
The Directors’ remuneration is paid through the Company.
The schedule 5 disclosure requirements are included in the Directors’ remuneration report in the table entitled ‘Total
single figure of remuneration for directors - audited’ and the table entitled ‘Total single figure of pension benefits for
directors - audited’. The elements that are audited are identified as such in that report.
11
Related party transactions
Identity of related parties
The Group has a related party relationship with its subsidiaries and with its directors.
Transactions with subsidiaries
The main transactions between the Company and its subsidiaries are management administration recharges to its
subsidiaries of £432,000 (2019: £432,000) and a royalty charge of 1% of sales of filters and antennas to Filtronic
Wireless Limited of £40,000 (2019: £184,000). These intercompany transactions are eliminated on consolidation.
The Company also acts as a central service to distribute money around the Group to ensure subsidiaries are adequately
funded to meet obligations and to invest funds from subsidiaries where surplus cash exists. The total figures for these
transactions along with the management and royalty charge can be seen in notes 23 and 25 through the movement in
the Company’s intercompany receivables and payables.
Transactions with key management personnel
Key management personnel are considered to be the Executive Directors of the Company. The remuneration given to
these individuals is disclosed in the Directors’ remuneration report on pages 31 to 33.
12
Finance costs
Interest expense on loans for plant and equipment
Interest expense for lease arrangements
Minimum service costs and interest charges on invoice discounting facilities
Revaluation of foreign currency denominated intercompany balance
2020
£000
18
118
125
16
277
2019
£000
19
-
69
66
154
Filtronic plc Annual Report and Accounts 2020
61
2019
£000
55
55
2019
£000
268
(728)
(628)
(1,088)
(971)
(971)
(2,059)
2019
£000
(2,099)
40
(2,059)
2019
£000
135
(3,507)
(3,372)
2020
£000
25
240
(310)
(45)
145
145
100
2020
£000
89
11
100
2020
£000
(429)
(2,097)
(2,526)
13
Finance income
Revaluation of foreign currency denominated intercompany balance
2020
£000
36
36
14
Taxation
Recognised in the income statement
Current tax charge/(credit)
Overseas taxation in the period
Adjustment in respect of prior year — R&D tax credit
R&D tax credit
Total current tax credit
Deferred tax charge/(credit)
Origination and reversal of temporary differences
Total deferred tax charge/(credit)
Income tax charge/(credit)
Income tax charge/(credit) is attributable to:
Continuing operations
Discontinued operations
The reconciliation of the effective tax rate is as follows:
(Loss)/profit before tax from continuing operations
Loss before tax from discontinued operations
Loss before taxation
Loss before taxation multiplied by standard rate of corporation tax
in the UK (19%)
Disallowable items
Income not taxable
Deferred tax asset not recognised
Enhanced R&D tax credit
(19%)
(480)
(19%)
(640)
12%
-
24%
286
-
598
(25%)
(630)
7%
0%
23%
(19%)
(22%)
4%
(7%)
(29%)
231
6
777
(628)
(728)
138
(244)
(971)
Adjustment in respect of prior year R&D tax credit
Foreign tax not at UK rate
Recognition of deferred tax asset previously unrecognised
Recognition of deferred tax asset from prior year
Taxation
9%
1%
-
4%
6%
240
25
-
61
100
(62%)
(2,059)
The main rate of UK corporation tax for the financial year was 19%. The US federal corporate tax rate is 21% following
recent tax reform. The deferred tax assets recognised in the year have been calculated at the rates expected to be in
existence in the period of reversal.
Financialswww.filtronic.com Stock Code: FTC 62
Notes to the financial statements continued
for the year ended 31 May 2020
15
Discontinued operations
The Group sold the Filtronic Telecoms Antenna Operation (“FTAO”) for an initial consideration of $5.5m (£4.1m) to
Microdata Telecom Innovation Stockholm AB on 2 January 2020. This may rise based on contingent consideration
arising on an equal share of the gross profit that outperforms the mutually agreed gross profit targets of $2.0m and
$3.0m over the next two calendar years. The directors have opted not to recognise a fair value for this consideration in
the results for the year.
As a result of the sale, FTAO is reported in the current period as a discontinued operation. Financial information relating
to the financial performance and cash flow information of the discontinued operation for the period to 2 January 2020,
the date of disposal, and the year ended 31 May 2020 is set out below.
Revenue
Material cost of goods sold
Wages and salaries
Social security costs
Pension costs
Staff costs
Amortisation of other intangible assets
Impairment of development costs
Depreciation
Depreciation and amortisation
Exceptional items
Other expenses
Total operating costs
Operating loss
Finance costs
Loss before taxation
Taxation
Loss for the year from operating activities
Gain on sale of discontinued operations
Loss for the year from discontinued operations
Details of the gain on sale of discontinued operations
Consideration received
Carrying amount of net assets sold
Costs directly associated with the sale of FTAO
Currency translation adjustment
Gain on sale of discontinued operations
2020
£000
2019
£000
1,056
4,638
903
936
169
141
3,393
1,770
274
245
1,246
2,289
-
-
-
-
724
277
2,247
142
512
104
758
1,584
121
4,752
(2,094)
(3,507)
(3)
-
(2,097)
(3,507)
(11)
(40)
(2,108)
(3,547)
671
-
(1,437)
(3,547)
2020
£000
4,146
(2,864)
(494)
(117)
671
2019
£000
-
-
-
-
-
Filtronic plc Annual Report and Accounts 2020 63
2020
£000
2019
£000
(1,937)
(1,205)
3,652
(3)
-
-
1,712
(1,205)
15
Discontinued operations (continued)
Cash flows generated from/(used in) discontinued operations
Net cash used in operating activities
Net cash generated from investing activities
Net cash used in financing activities
Net cash flows for the year
16
(Loss)/earnings per share
(Loss)/profit for the year
Continuing
operations
2020
£000
(518)
2019
£000
2,234
Discontinued
operations
2020
£000
2019
£000
Total
Group
2020
£000
2019
£000
(1,437)
(3,547)
(1,955)
(1,313)
000
000
000
000
000
000
Basic weighted average number of shares
211,021
207,578
211,021
207,578
211,021
207,578
Dilution effect of share options
-
3,370
-
-
-
-
Diluted weighted average number of shares
211,021
210,948
211,021
207,578
211,021
207,578
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
(0.25p)
(0.25p)
1.08p
1.06p
(0.68p)
(0.68p)
(1.71p)
(1.71p)
(0.93p)
(0.93p)
(0.63p)
(0.63p)
Due to the Group having losses in each of the financial years, the fully diluted loss per share for disclosure purposes, as
shown in the income statement, is the same as the basic loss per share.
Financialswww.filtronic.com Stock Code: FTC 64
Notes to the financial statements continued
for the year ended 31 May 2020
17
Investments in subsidiaries
Cost
At 1 June 2018, 31 May 2019 and 31 May 2020
Impairment
At 1 June 2018 and 31 May 2019
Impairment in the year
At 31 May 2020
Carrying amount at 31 May 2019
Carrying amount at 31 May 2020
The Company’s subsidiaries are related parties.
The subsidiaries at 31 May 2020, which were owned by Filtronic plc, were as follows:
Company
investments in
subsidiaries
£000
21,110
(10,546)
(4,013)
(14,559)
10,564
6,551
Name of subsidiary
Filtronic Broadband Limited1
Country of
incorporation
Description of
equity held
Proportion
held
Activity
UK
1p ordinary shares
100%
Filtronic Holdings UK Limited1
Isotek (Holdings) Limited1
Filtronic Inc2
UK
UK
USA
Owned by Isotek (Holdings) Limited:
Filtronic Wireless Limited1
UK
£1 ordinary shares
1p ordinary shares
US$1 ordinary shares
100%
100%
100%
1p ordinary shares
100%
Filtronic Wireless Inc.2
USA
US$1 ordinary shares
100%
Isotek Limited1
UK
1p ordinary shares
100%
Design and manufacture
of microwave products for
telecommunication systems
Holding Company
Holding Company
Dormant Company
Design and manufacture of
filters and related products for
telecommunication systems
Design and manufacture of
filters and related products for
telecommunication systems
Dormant Company
Owned by Filtronic Wireless Limited:
Isotek Hong Kong Holdings
Limited3
Hong Kong
Owned by Isotek Hong Kong Holdings Limited:
Isotek Suzhou Limited4
China
Filtronic Wireless Suzhou4
China
HK$1 ordinary shares
100%
Holding Company
US$350,000
paid in share capital
100%
US$162,000
paid in share capital
100%
Design and manufacture
of filters and related products for
telecommunication systems
Design and manufacture
of filters and related products
for telecommunication
systems
1 Filtronic House, 3 Airport West, Lancaster Way, Yeadon, Leeds, West Yorkshire, LS19 7ZA, UK
2 700 Marvel Road, Salisbury, Maryland, 21801, USA
3 RM 1501, C1 Grand Millennium Plaza (lower block), 181 Queen’s Road Central, Hong Kong
4 Suzhou Industrial Park, 199 Sinegang Street, Oriental Gate Building 2, Room 2201, Seat A172
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The
calculation of the value in use was based on the following key assumptions:
• Budgets incorporating post-tax cash flows have been prepared to 31 May 2021 based on past experience, actual
operating results, known future cash flows and estimates of future cash flows;
Filtronic plc Annual Report and Accounts 2020
65
17
Investments in subsidiaries (continued)
• Cash flows for a further three years have been extrapolated from the year to 31 May 2021. A revenue growth factor
of 10% was applied to the projections together with cost inflation of 3%. A perpetuity factor has been applied based
on the year to 31 May 2025. A long-term growth factor of nil was applied to the perpetuity cash flows; and
• The Group’s discount rate of 12% (2019:12%) was applied in determining the recoverable amount of the unit, being
the estimated weighted average cost of capital for the CGU.
The investments in subsidiaries are assessed annually to determine if there is any indication that any of the
investments might be impaired. At 31 May 2020 it was identified that the investment in the CGU responsible for RF
conditioning products would need to be impaired by £4.0m based on discounting the future cashflows following
a review of budgets. The recoverable amount of £6.6m was determined based on a value-in-use calculation which
requires the use of key assumptions. The calculation used to determine the carrying value of the investment is based
on the same model and assumptions referenced above. A key input of the model is the discount rate used. Therefore a
+/- 1% difference in the discount rate would impact impairment by £617,000.
18
Goodwill and other intangible assets
Goodwill
£000
Other intangibles
(core technology)
£000
Licence
agreement
£000
Software
costs
£000
Development
costs
£000
Total
£000
Group
Cost
At 31 May 2018
Additions
3,235
-
Reclassification to assets held for sale
(2,261)
Exchange differences
At 31 May 2019
Additions
Exchange differences
At 31 May 2020
Amortisation
At 31 May 2018
Provided in the year
Impairment of intangible assets
Reclassification to assets held for sale
Exchange differences
At 31 May 2019
Provided in the year
Impairment of intangible assets
Exchange differences
At 31 May 2020
-
974
-
-
974
-
-
-
-
-
-
-
-
-
-
Carrying amount at 31 May 2019
Carrying amount at 31 May 2020
974
974
Analysis of amortisation
Continuing operations
Discontinued operations
10,884
-
-
-
10,884
-
-
10,884
10,884
-
-
-
-
10,884
-
-
-
10,884
-
-
160
-
(160)
-
-
-
-
-
63
14
-
(77)
-
-
-
-
-
-
-
-
543
11
(27)
15
542
27
4
573
503
24
-
(25)
15
517
18
-
2
537
25
36
722
666
15,544
677
(1,038)
(3,486)
-
350
678
-
15
12,750
705
4
1,028
13,459
190
179
512
11,640
217
512
(779)
(881)
-
15
102
11,503
-
89
-
191
248
837
18
89
2
11,612
1,247
1,847
2020
£000
18
-
18
2019
£000
75
142
217
Financialswww.filtronic.com Stock Code: FTC
66
Notes to the financial statements continued
for the year ended 31 May 2020
18
Goodwill and other intangible assets (continued)
Goodwill and other intangibles relate to the acquisition of Isotek (Holdings) Limited. Goodwill is allocated to the CGU
responsible for RF conditioning products and this CGU represents the lowest level within the Group at which the goodwill is
monitored for internal management purposes. The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill may be impaired.
The carrying value of intangible assets and goodwill has been assessed for impairment by reference to its value in use.
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit. The
calculation of the value in use was based on the following key assumptions:
• Budgets incorporating post-tax cash flows have been prepared to 31 May 2021 based on past experience, actual
operating results, known future cash flows and estimates of future cash flows;
• Cash flows for a further three years have been extrapolated from the year to 31 May 2021. A revenue growth factor
of 10% was applied to the projections together with cost inflation of 3%. A perpetuity factor has been applied based
on the year to 31 May 2025. A long-term growth factor of nil was applied to the perpetuity cash flows; and
• The Group’s discount rate of 12% (2019:12%) was applied in determining the recoverable amount of the unit, being
the estimated weighted average cost of capital for the CGU.
Based on this testing the directors do not consider any of the goodwill or intangible assets to be impaired, even
allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount rate.
Company intangible assets - Software costs
Opening Balance
Additions
Disposals
Amortisation provided in the year
Carrying amount at 31 May
2020
£000
19
21
-
(12)
28
2019
£000
122
2
(75)
(30)
19
19
Right of use assets
The Group has applied the simplified approach to the transition of IFRS 16 and has therefore not restated any prior
period information. Consequently, the opening balance is effective from 1 June 2019 as detailed in note 2.
Opening balance recognised on adoption of IFRS 16
Additions
Exchange differences
At 31 May 2020
Depreciation
Provided in the year
At 31 May 2020
Carrying amount at 31 May 2020
Property
leases
£000
1,327
-
6
1,333
226
226
1,107
Plant and
equipment
£000
-
1,727
-
1,727
149
149
Total
£000
1,327
1,727
6
3,060
375
375
1,578
2,685
The Group’s lease commitments are made up of property leases and plant and equipment under asset finance
agreements.
The Group leases office premises at its sites in Sedgefield and Yeadon in the UK, Salisbury, Maryland in the USA and a
virtual office space in Suzhou, China. Leases remaining are between one and nine years.
Filtronic plc Annual Report and Accounts 2020
20
Property, plant and equipment
At 31 May 2018
Additions
Disposals
Reclassification to assets held for sale
Exchange differences
At 31 May 2019
Additions
Disposals
Exchange differences
At 31 May 2020
Depreciation and impairment
At 31 May 2018
Depreciation
Disposals
Reclassification to assets held for sale
Exchange differences
At 31 May 2019
Depreciation
Disposals
Exchange differences
At 31 May 2020
Carrying amount at 31 May 2019
Carrying amount at 31 May 2020
67
Group
plant and
equipment
£000
Company
plant and
equipment
£000
7,371
380
(507)
(667)
19
6,596
384
(51)
19
6,948
5,960
459
(435)
(430)
12
5,566
302
(51)
7
5,824
1,030
1,124
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Financialswww.filtronic.com Stock Code: FTC 68
Notes to the financial statements continued
for the year ended 31 May 2020
21
Deferred tax
Deferred tax assets
Opening balance
Tax losses recognised
Utilisation of tax losses
Exchange differences
Group
2020
£000
1,982
61
(206)
31
2019
£000
965
971
-
46
1,868
1,982
Deferred tax assets within the UK and the USA have been recognised as the directors consider that future taxable profits
will be available against which they can be used. Future taxable profits are determined based on business plans for
individual subsidiaries in the Group and the reversal of temporary differences. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such
deductions are reversed when the probability of future taxable profits improves.
Deferred tax assets which have not been recognised:
Depreciation in advance of capital allowances
Tax losses carried forward
Share options deferment
Group
Company
2020
£000
1,077
2019
£000
1,957
11,336
10,817
80
91
2020
£000
455
9,638
80
2019
£000
455
9,449
91
12,493
12,865
10,173
9,995
The deferred tax assets have not been recognised where the directors consider that it is unlikely that future taxable
profits will be available against which they can be used. There is no expiry date for these unrecognised deferred tax
assets which are reassessed at each reporting date.
22
Inventories
Group
Company
Raw materials
Work in progress
Finished goods
Inventory provision
Inventories are stated net of provision
2020
£000
2,851
1,038
513
4,402
2019
£000
2,408
518
254
3,180
(1,457)
(1,099)
2,945
2,081
2020
£000
2019
£000
-
-
-
-
-
-
-
-
-
-
-
-
Raw materials, consumables and changes in finished goods and work in progress recognised in cost of sales in the year
amounted to £8,982,000 (2019: £7,773,000).
The amount charged to the income statement in the year in respect of write-downs of inventories is £358,000
(2019: £nil). The amount credited to the income statement in the year in respect of reversals of write-downs of
inventories is £nil (2019: £nil).
Filtronic plc Annual Report and Accounts 2020 69
Group
Company
2020
£000
4,147
-
701
4,848
2019
£000
2,419
2020
£000
-
2019
£000
-
-
5,221
6,105
1,801
4,220
65
43
5,286
6,148
23
Trade and other receivables
Trade receivables
Group receivables
Other receivables and prepayments
There are no provisions for bad debt.
The Group receivables in the Company were reviewed in the year for expected credit losses in accordance with IFRS 9.
24
Assets held for sale
The directors committed to a plan to sell the Telecoms Antenna Operation in the previous financial year so
the assets and liabilities were consequently presented as held for sale at 31 May 2019. The business was sold on
2 January 2020 to Microdata Telecoms Innovation Stockholm AB and is therefore reported in the current period as a
discontinued operation. The following assets and liabilities were classified as held for sale in relation to the discontinued
operation at 31 May 2019.
Goodwill and other intangible assets
Property, plant and equipment
Inventory
Trade and other receivables
Assets held for sale
Trade and other payables
Liabilities held for sale
25
Trade and other payables
Trade payables
Other payables and accruals
2020
£000
-
-
-
-
-
£000
-
-
2019
£000
2,605
237
406
1,798
5,046
£000
2,207
2,207
Group
Company
2020
£000
1,562
1,901
3,463
2019
£000
1,364
952
2,316
2020
£000
33
671
704
2019
£000
74
350
424
Financialswww.filtronic.com Stock Code: FTC 70
Notes to the financial statements continued
for the year ended 31 May 2020
26
Provisions
Warranty provision
Opening balance
Used during the year
Released unused during the year
Charge for the year
Exchange differences
Group
2020
£000
2,205
(1,188)
(274)
301
9
2019
£000
425
(11)
(45)
1,836
-
1,053
2,205
Company
2020
£000
2019
£000
-
-
-
-
-
-
-
-
-
-
-
-
The provision for warranty relates to the units sold during the last two financial years and the remaining liability of the
warranty settlement agreement for £0.4m (2019 : £1.6m). The provision is based on estimates made from historical
warranty data.
Dilapidation provision
Opening balance
Released unused during the year
Exchange differences
Group
2020
£000
60
(5)
2
57
2019
£000
60
-
-
60
Company
2019
£000
2018
£000
-
-
-
-
-
-
-
-
The Group leases facilities at three sites in the UK and USA with each of these leases requiring the site to be restored to
its original condition. The dilapidation provision reflects management’s best estimates and ability to measure the likely
costs that may be incurred restoring the building to its original state.
Total provision
Warranty provision
Dilapidation provision
27
Deferred income
2020
£000
1,053
57
2019
£000
2,205
60
1,110
2,265
2020
£000
2019
£000
-
-
-
-
-
-
Deferred income of £437,000 (2019 : £81,000) classified as current mainly consists of billings in advance of work
completed for customers that will be recognised as income in the next year.
A capital grant was also secured in the year for £150,000 to assist with the purchase of plant and machinery to support
the production ramp of our 5G Backhaul products. The carrying value of this grant at 31 May 2020 was £131,000 with a
£19,000 credit to the income statement recognised in the year. The grant will be amortised over a period of four years.
Total deferred income was £568,000 (2019 : £81,000).
Filtronic plc Annual Report and Accounts 2020 71
28
Financial liabilities
This note provides information about the contractual terms of the Group’s interest-bearing bank loans and borrowings
which are measured at carrying value.
Bank loans—current
Obligations under finance agreements—current
Total current financial liabilities
Bank loans—non-current
Obligations under finance agreements—non-current
Total non-current financial liabilities
Total financial liabilities
Terms and debt repayment schedule
Bank loan
Bank loan
Finance agreements
Currency
GBP
USD
GBP
Group
2020
£000
2019
£000
Company
2020
£000
2019
£000
65
112
177
144
-
144
321
100
131
231
17
101
118
349
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Nominal
interest
rate
Carrying
amount
2020
£000
Carrying
amount
2019
£000
Date of
maturity
7.6%
1.0%
4.1%
31 August 2020
31 December 2022
31 May 2021
17
192
112
321
Future minimum lease payments under finance leases, together with the carrying amount of lease obligations, are
analysed as follows:
Debt reconciliation
Balance at 31 May 2018
Acquisition of finance agreements
Interest paid
Repayment of borrowings
Balance at 31 May 2019
Acquisition of finance agreements
Interest paid
Repayment of borrowings
Balance at 31 May 2020
Banking facilities
Bank loans
£000
217
-
(12)
(88)
117
192
(12)
(88)
209
Finance
agreements
£000
301
31
(6)
(94)
232
-
(6)
(114)
112
At 31 May 2020, the Group had an undrawn invoice discount facility with Barclays Bank of £3.0m which enables it to
borrow up to 70% of the debtor book in the UK. In addition to the facility with Barclays Bank, the Group has a facility with
Wells Fargo Bank of $4.0m enabling it to borrow up to 85% of the US debtor book.
The bank loan, with a current carrying value of £17k, relates to an asset-based loan for plant and equipment at our
facility in Sedgefield.
The Group secured a loan of $237K (£192K) from the US Government as part of their Paycheck Protection Programme
(PPP) to secure jobs in the USA during the Covid-19 pandemic which is included in the table as bank loans. Companies
are required to start repaying the loan after 6 months for a two year period at a low rate of interest. The US Government
have indicated they will forfeit repayment and turn the loan into a grant if recipients retain all of the employees the funds
were secured for.
117
-
232
349
Total
£000
518
31
(18)
(182)
349
192
(18)
(202)
321
Financialswww.filtronic.com Stock Code: FTC 72
Notes to the financial statements continued
for the year ended 31 May 2020
29
Lease liabilities
Opening lease liability recognised on adoption of IFRS 16 (1 June 2019)
New leases entered into during the year
Payments made during the year
Exchange differences
At 31 May 2020
Lease liability payable in less than a year
Lease liability payable in more than one year
Group
£000
1,327
1,572
(375)
5
2,529
2020
£000
662
1,867
2,529
The Group adopted IFRS 16 using the simplified approach effective from 1 June 2019 and has recognised a lease
liability at 1 June 2019 for leases previously classified as operating leases using IAS 17. The Group has measured lease
liabilities at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate
at the date of initial application. Details of the Group’s liability in respect of right of use assets and their carrying amount
are presented above with more detail in note 2.
30
Share capital
At 1 June 2018
Exercise of share options
At 31 May 2019
Exercise of share options
At 31 May 2020
Group and Company
ordinary shares of 0.1p each
Number
‘000
206,910
1,219
208,129
5,569
213,698
£000
10,788
1
10,789
5
10,794
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.
31
Share premium
At 1 June 2018
Exercise of share options
At 31 May 2019
Exercise of share options
At 31 May 2020
Group and
Company
£000
10,640
75
10,715
285
11,000
Filtronic plc Annual Report and Accounts 2020
32
Translation reserve
At 1 June 2018
Currency translation movement arising on consolidation
At 1 June 2019
Transfer to income related to business disposal
Currency translation movement arising on consolidation
At 31 May 2020
73
Group
£000
(618)
60
(558)
117
(111)
(552)
The translation reserve comprises foreign currency differences arising from the translation of the financial statements
of foreign operations.
33
Dividends
The directors are not proposing to pay a dividend for the year ended 31 May 2020 (2019: £nil).
34
Retained earnings
At 1 June 2018
Loss for the year
Share-based payments
At 31 May 2019
Loss for the year
At 31 May 2020
Group
£000
(8,649)
(1,313)
29
(9,933)
(1,955)
Company
£000
(4,245)
(819)
63
(5,001)
(5,440)
(11,888)
(10,441)
35
Share options
Sharesave plans
There are six sharesave plans that have been offered to employees at the date of this report. All of the schemes offered
to employees have now closed. Under these plans employees who join the plan save up to £500 per month for three
years. The members of the plans were granted a number of share options based on the amount they would save over
the three years. At the end of the three years, the members have a six-month period in which they can exercise the share
options. The exercise price for an option for the first five schemes was the middle market quotation of Filtronic plc’s
ordinary shares as derived from the Official List of London Stock Exchange on the dealing day immediately prior to the
plan offer date. The sixth scheme had an exercise price calculated by reference to the average of the middle market
closing price of the shares on AIM for the three dealing days prior to the invitation date.
Sharesave Plan—Scheme 6
Outstanding at the beginning of the year
Exercised during the year
Cancelled during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted average
exercise price 2020
Number of
options 2020
Weighted average
exercise price 2019
Number of
options 2019
5.2p
5.2p
5.2p
5.2p
5.2p
5.2p
5,827,465
(4,419,469)
(470,954)
(937,042)
-
-
5.2p
5.2p
5.2p
5.2p
5.2p
5.2p
5,965,899
(96,135)
(42,299)
-
5,827,465
5,827,465
A sixth sharesave scheme was offered to employees in June 2016, which is now closed.
Financialswww.filtronic.com Stock Code: FTC 74
Notes to the financial statements continued
for the year ended 31 May 2020
35
Share options (continued)
Management incentive plans
The options granted in the year to directors, key management and staff have specific performance targets attached
to them. The target requires that the average mid-market closing price of a share over any period of 40 consecutive
business days between the date of grant and the third anniversary of the date of grant is greater than 20 pence per
share. Directors can only exercise their shares three years after grant after the target has been met. All other staff can
exercise their shares in three equal tranches after each year if the performance target has been met during the relevant
financial year. The exercise price for an option was the middle market quotation of Filtronic plc’s ordinary shares as
derived from the Official List of the London Stock Exchange or AIM depending on the timing of the award and the market
Filtronic traded on the dealing day immediately prior to the plan offer date. The Remuneration Committee is able to
adjust the outcome at its discretion to ensure it is fair and appropriate, taking into account the overall performance of
the Group.
The following options under this scheme were outstanding at 31 May 2020:
Ordinary shares of 0.1p
Date granted
Earliest date
exercisable
Latest date
exercisable
Exercise price
2,406,251
300,000
300,000
233,333
200,000
200,000
200,000
3,839,584
01/03/2016
01/03/2016
11/04/2016
30/09/2016
28/09/2017
28/03/2018
11/02/2020
01/03/2017
01/03/2017
11/04/2017
30/09/2017
28/09/2018
28/03/2019
11/02/2021
28/02/2026
28/02/2026
10/04/2026
29/09/2026
27/09/2027
27/03/2028
11/02/2030
5.4p
5.7p
8.5p
11.6p
13.0p
9.0p
9.3p
The weighted average price of options of the outstanding options under this scheme at 31 May 2020 was 6.82p.
Number of share
options 2020
Number of share
options 2019
Outstanding at the beginning of the year
Granted during the year
Cancelled during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year
5,483,584
200,000
(694,000)
(1,150,000)
3,839,584
3,503,584
6,906,250
-
(300,000)
(1,122,666)
5,483,584
5,085,251
Filtronic plc Annual Report and Accounts 2020 75
36
Share-based payments
Share options expense
Group
2020
£000
2019
£000
Company
2020
£000
2019
£000
-
-
29
29
-
-
63
63
The share options expense is the fair value of the share options at the date of grant spread over the expected vesting period
of the share options. The fair value of the share options at the date of grant was measured using the Black–Scholes model.
The inputs to the Black–Scholes model and the weighted average fair value of the share options granted during the year
were as follows:
Number of share options granted
Weighted average share price
Expected volatility
Expected life
Risk-free interest rate
Weighted average fair value
Group
Company
2020
2019
2020
2019
200,000
9.25p
50%
3.0 years
0.1%
3.1p
-
-
-
-
-
-
200,000
9.25p
50%
3.0 years
0.1%
3.1p
-
-
-
-
-
-
Expected volatility is the estimate of the volatility of the share price over the expected life of the share options.
37
Pension costs
Defined contribution schemes
38
Capital expenditure commitments
Capital expenditure contracted for at the balance sheet date
but not provided in the financial statements
Group
Company
2020
£000
417
2019
£000
485
2020
£000
32
2019
£000
38
Group
2020
£000
2019
£000
Company
2020
£000
2019
£000
9
134
-
-
39
Analysis of net (debt)/cash
Cash and cash equivalents
Bank loans
Lease liability - plant and machinery
Lease liability - property lease
1 June
2019
£000
2,625
(117)
-
-
Cash
flow
£000
Other
changes
£000
31 May
2020
£000
(582)
(92)
192
183
(15)
-
(1,573)
(1,331)
(2,919)
2,028
(209)
(1,381)
(1,148)
(710)
2,508
(299)
Financialswww.filtronic.com Stock Code: FTC 76
Notes to the financial statements continued
for the year ended 31 May 2020
39
Analysis of net (debt)/cash (continued)
Reconciliation of cash flow to movement in net (debt)/cash
Movement in cash and cash equivalents
Movement in lease liability - plant and machinery
Movement in lease liability - property lease
Movement in bank loans
Exchange differences
Movement in net (debt)/cash
Opening net cash
Closing net (debt)/cash
2020
£000
(582)
(1,381)
(1,148)
(92)
(15)
2019
£000
(1,227)
-
-
100
58
(3,218)
(1,069)
2,508
(710)
3,577
2,508
Cash at bank earns interest at floating rates based on daily bank deposit rates.
IFRS 16 requires the recognition of property leases on the balance sheet which is classified as a debt item. Previously, these
have been off-balance sheet as operating lease commitments. The lease liability related to plant and equipment shows
an increase of £1.4m at 31 May 2020 as asset finance was used to purchase machinery at our Sedgefield site in order to
increase production capacity and capability.
40
Financial instruments
Fair value
The carrying amount of all the financial assets and liabilities approximates to their fair value as described below.
Cash and cash equivalents comprise bank balances and bank deposits with a maturity of three months or less.
Trade and other receivables are all receivable in less than one year. Trade receivables are generally receivable within
90 days.
Trade and other payables are all payable in less than one year. Trade payables are generally payable within 90 days.
Liquidity risk
The Group has cash at bank of £2.0m whilst the Company has cash at bank of £0.2m. The Group has access to a £3.0m
sales invoicing facility with Barclays Bank and a $4.0m invoice factoring facility with Wells Fargo Bank.
Cash is held on bank deposit for varying periods from overnight to six months to ensure all liabilities can be met as they
fall due.
The sales invoicing facility with Barclays Bank allows the Company to borrow 70% of the UK entities’ debtors
denominated in US dollars and sterling up to a value of £3.0m.
The sales invoice factoring facility with Wells Fargo Bank allows the Company to borrow 85% of the US entities’ debtors
denominated in US dollars up to a value of $4.0m.
The amount of cash available to the Group and the headroom available on debt facilities results in a low liquidity risk.
Credit risk
The exposure to credit risk is limited to the carrying amount of cash and cash equivalents and trade and other
receivables in the balance sheet as follows:
Cash and cash equivalents
Trade and other receivables
Group
Company
2020
£000
2,028
4,848
6,876
2019
£000
2,625
4,220
6,845
2020
£000
192
5,286
5,478
2019
£000
196
6,148
6,344
Filtronic plc Annual Report and Accounts 2020 77
40
Financial instruments (continued)
The credit risk related to cash and cash equivalents is considered to be low due to the cash being held at banks with
high credit ratings.
Credit risk is primarily related to trade receivables. The Group’s businesses are concentrated on long-term relationships
with a small number of larger and long-established OEMs. Overdue receivables are regularly monitored and appropriate
action is taken to collect payment. The Group has historically incurred only low levels of unrecoverable receivables.
Therefore credit risk is considered to be low.
The Company has no trade receivables.
Trade receivables included the following amounts for the Group’s largest customers:
Customer one
Customer two
Customer three
Other customers
The age of trade receivables that have not been provided for was as follows:
Not past due
Past due less than three months
Past due more than three months
No trade receivables have been provided for in either FY2020 or FY2019.
Group
2020
£000
2,293
1,415
286
153
2019
£000
830
786
468
335
4,147
2,419
Group
2020
£000
2019
£000
3,699
2,251
424
24
122
46
4,147
2,419
Interest rate risk
Cash is generally held on short-term bank deposits which earn interest at variable money market deposit rates. At 31 May
2020, there was £nil held on short-term deposit. The remaining cash in the Group is held in very low interest rate accounts.
Sterling interest rates are very low and therefore interest rate risk is considered to be low.
The interest rate sensitivity of the expected annual interest income/(expense) assuming a balance on deposit or loan of
£1,000,000 is as follows:
1.5%
1.0%
0.5%
Expected
annual
interest
income
£000
Expected
annual
interest
expense
£000
15
10
5
(15)
(10)
(5)
Financialswww.filtronic.com Stock Code: FTC 78
Notes to the financial statements continued
for the year ended 31 May 2020
40
Financial instruments (continued)
Foreign currency risk
The Group’s and Company’s reporting currency is sterling, which is also the Company’s functional currency. The functional
currencies of the subsidiaries are sterling, US dollar and Chinese yuan.
The Group’s results and financial position are affected by fluctuations in foreign currency exchange rates.
The Group has generated a surplus of US dollars during the year due to an increasing number of projects being supplied in
US dollars. Whilst the Group aims to maintain a natural hedge, it is not adequate to offset the exposure on currency risk.
Therefore, the Group has used forward foreign exchange contracts to reduce the currency risk from surplus US dollars. The
nature of the Group’s businesses means there is limited visibility of the currency required in US dollars. Therefore, when
forward contracts are used to reduce currency risk, they are usually only for short periods of no more than six months. If
the US dollar were to weaken significantly, this could materially reduce the Group’s revenue and operating profit.
Cash is mainly held in sterling and the US dollar.
The Group’s exposure to foreign currency risk for cash and cash equivalents, trade receivables and trade payables was as
follows:
2020
2019
Group
SEK
£000
-
-
-
-
EUR
£000
165
10
(400)
(225)
RMB
£000
6
-
(54)
(48)
USD
£000
890
2,702
(253)
3,339
SEK
£000
EUR
£000
98
-
-
98
-
-
(175)
(175)
RMB
£000
188
-
-
188
USD
£000
1,635
1,589
(667)
2,557
Cash and cash equivalents
Trade receivables
Trade payables
Net exposure
The sensitivity of the Group operating profit to the US dollar to sterling exchange rate, assuming all other variables remain
constant, is as follows:
If the US dollar had been 1% stronger/weaker against sterling throughout the year ended 31 May 2020, then the Group
operating profit would have been £70,000 higher/lower.
Capital management
The capital structure of the Group and Company consists of equity and debt. Equity comprises ordinary share capital and
retained earnings. Debt includes sales invoice financing facilities with large banks, asset finance and lease liabilities.
The objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to
maximise future returns for shareholders.
Cash flow is controlled by ongoing justification, monitoring and reporting of capital expenditure and regular monitoring and
reporting of operational costs.
Filtronic plc Annual Report and Accounts 2020 79
Shareholder information
Directors
(All at Filtronic House, 3 Airport West,
Lancaster Way, Yeadon, Leeds,
West Yorkshire, LS19 7ZA, UK)
Michael Tyerman - Chief Financial Officer
Reg Gott - Executive Chairman
Michael Roller - Non-Executive Director
Pete Magowan - Non-Executive Director
Company Secretary
Maura Moynihan
Company number
2891064
Registered office
Filtronic plc
Filtronic House
3 Airport West
Lancaster Way
Yeadon, Leeds
West Yorkshire
LS19 7ZA
Tel: 0113 220 0000
Auditor
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Central South Square
Orchard Street
Newcastle upon Tyne
NE1 3AZ
Bankers
Barclays Bank plc
10 Market Street
Bradford
BD1 1NR
Financial public relations
Walbrook PR Limited
4 Lombard Street
London
EC3V 9HD
Tel: 020 7933 8780
Annual General Meeting
The Company’s Annual General Meeting will
be held at 11am on 29 October 2020 at Plexus
building, Thomas Wright Way, Netpark, Sedgefield,
County Durham, TS21 3FD.
Registrars
Link Asset Services
Enquiries regarding shareholdings, change of
address or similar particulars should be directed
in the first instance to our Registrars, Link Asset
Services whose address is: The Registry, 34
Beckenham Road, Beckenham, Kent BR3 4TU, or
call +44 371 664 0300 (calls are charged at the
standard geographic rate and will vary by provider.
Calls outside the United Kingdom are charged at
the applicable international rate). Lines are open
9.00am - 5.30pm Monday to Friday excluding bank
holidays in England and Wales.
Shareholder Portal
You can register online to view your holdings
using the Signal Shares shareholder portal, a
service offered by Link Asset Services at www.
signalshares.com. This
is an online service
enabling you to quickly and easily access and
maintain your shareholding online – reducing the
need for paperwork and providing 24 hour access
for your convenience. Through the shareholder
portal you can:
• Cast your proxy vote online
• View your holding balance and get an indicative
valuation
• View movements on your holding
• Update your address
• Elect to receive shareholder communications
electronically
• Access a wide range of shareholder information
including the ability to download shareholder
forms
Filtronic website
Shareholders are encouraged to visit our website
(www.filtronic.com) which has more information
about the Company.
Financialswww.filtronic.com Stock Code: FTC Filtronic plc
Filtronic House
3 Airport West
Lancaster Way
Yeadon
Leeds
West Yorkshire
LS19 7ZA
UK
+44 (0) 113 220 0000
www.filtronic.com