Annual Report
and Accounts 2022
Filtronic plc – Stock code: FTC
2021
filtronic.com
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Our values:
Integrity
Act with integrity; being honest, always keeping our promises.
Respect
Be respectful to all; it is the foundation of our culture.
Excellence
Strive for excellence; it is what our clients and colleagues expect
and what we endeavour to deliver.
Our purpose
Our vision
Our mission
To be the trusted provider
of innovative RF solutions.
Enabling the future of RF,
Microwave and mmWave
communication.
Creating value for our
clients through technology
leadership.
www.filtronic.com
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Filtronic plc Annual Report and Accounts 2022 01
What’s inside:
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Contents
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
Our people
Corporate social responsibility report
Governance report
Board of Directors
Governance report
Stakeholder engagement
Nominations Committee report
Audit and Risk 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
Company information
Glossary
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www.filtronic.com Stock Code: FTCChairman’s statement“The technology we offer and the markets we serve align closely with the sovereign capability requirements of both the UK and US governments.”Chief Executive’s review“The specific market segments that we have identified for future growth continue to develop at pace, and as we embark on a new financial year, I believe we are well placed to continue to deliver on our long-term growth objectives.”Objective and strategy“Being a trusted supplier of technically advanced products in markets that place value on quality and reliability enables us to differentiate ourselves from competition and deliver profitable growth and a positive return for our shareholders.”Financial review“A year of continued progress delivering revenue growth and another year of successive adjusted EBITDA growth… providing a solid platform from which we will invest in the future of the business.”
02
History of Innovation
1970
1977 Company
founded by Professor
David Rhodes at
Leeds University.
1979 First employees
recruited
1999 Acquisition of
Fujitsu Silicon plant
in Newton Aycliffe to
produce GaAs (Gallium
arsenide) wafers.
1994 Filtronic Comtek
plc listed on the UK
stock exchange.
2000
2002 Triton chipset,
transmit and receive
multi-function MMICs
developed for mobile
backhaul.
2003 Company
reorganises into three
divisions: Wireless
Infrastructure,
Handset Products and
Integrated Products.
2020
1980
1989 Filtronic
components receive
a Queens award for
technology. Wireless
infrastructure business
established.
1992 Filtronic Comtek
established to focus
on 2G – global
systems for mobile
communications
(GSM).
2010
2011 Development of
mmWave capabilities,
including Neptune,
Proteus and later
versions including
Theseus, Orpheus and
Morpheus II.
1990
2013 Headquarters
relocate to NETPark
science park in
Sedgefield,
County Durham.
2021 Awarded
Queens Award
for Enterprise:
International Trade.
2020 Launched
Morpheus II, market
leading transceiver
product and Tower
Top Amplifier range.
2017 Launch
of contract
manufacturing
services, principally
for defence and
aerospace.
2015 Company listing
moves to the AIM
stock market.
2022 Launched Hades
E-band Active Diplexer
and extended range
of Cerus high-power
amplifiers.
www.filtronic.com
Filtronic plc Annual Report and Accounts 2022 Financial highlights
Strategic report
Financial highlights
Revenue
£17.1m (10%)
Adjusted EBITDA*
£2.8m (58%)
Adjusted operating profit**
£1.6m (174%)
Cash at bank
* Adjusted EBITDA is earnings before interest,
taxation, depreciation, amortisation and
exceptional items.
£4.0m (38%)
** Adjusted operating profit is operating profit
before exceptional items.
Net cash (net of all lease obligations
except right of use property lease)
£3.1m (62%)
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Operational highlights
Healthy cash position provides a platform for
continued investment in growth initiatives.
Delivered on existing development contracts
and secured initial production orders.
Built our channels to market, strengthened the
Financial highlights
order book, improved customer engagement
and developed the opportunity pipeline with a
number of growth opportunities.
Financial highlights
Sales of our “best-in-class” Tower Top
Amplifier supplied to the market leading
Original Equipment Manufacturer (“OEM”) in
critical communications surpassed £1m in the
financial year.
Revenue
Series of recent contract wins, totalling £1.9m
£17.1m (10%)
across a diverse range of new customers,
demonstrating the execution of our objective
to broaden our client base.
Adjusted EBITDA*
Successfully managed the ongoing headwinds
from global semiconductor shortages,
ensuring continuity of supply to our customers,
and generated new opportunities as a
consequence.
£2.8m (58%)
Margin improvement from a stronger sales mix
leading to stronger adjusted EBITDA.
Adjusted operating profit**
Strengthened our engineering and business
development teams with active recruitment
campaign.
£1.6m (174%)
Cash at bank
£4.0m (38%)
Net cash (net of all lease obligations
except right of use property lease)
£3.1m (62%)
04
Chairman’s statement
Dear fellow shareholder
Welcome to the Filtronic plc Annual Report for the year
ended 31 May 2022. I have written previously of the long-
term potential of the business that attracted me to join
the Board of Filtronic plc (“Filtronic”) and I am pleased to
report that good progress continues to be made on this
overarching aim.
We have delivered revenue growth, and another
successive year of adjusted earnings before interest,
taxation, depreciation and amortisation (“adjusted
EBITDA”) growth. This has strengthened our cash position
and balance sheet providing us with the opportunity to
further invest in the business for continued growth and
sustainable value.
The Markets
The Group’s key addressable markets continue to benefit
from long-term growth drivers. The aerospace & defence
and security markets have traditionally long sales cycles
but retain strong spending trends both domestically and
overseas particularly given current events. Our capability,
products and know-how are very relevant in this sector,
and with greater emphasis on security sourced from
domestic or allied supply for government or original
equipment manufacturer (“OEM”) contracts, it is an
opportunity for growth and diversification of our existing
customer base.
In the telecommunications market 5G rollouts continue to
gather pace as the drive to build infrastructure capacity
continues with an increasing number of governments
licencing their E-band spectrum to enable this. Whilst
there is always price pressure on established technologies
as they mature, the emergence of important new
frequencies and technologies remain strong opportunities
for growth.
The space market is an area that is becoming increasingly
important as global investment has gathered pace
over the last few years. Satellites in low earth orbit
(“LEO”) are ideal for enabling high-speed, low-latency
communication. Approximately 60 to 70 percent of space-
company investment is now directed at LEO endeavours.
Filtronic has products and know-how derived from our
high-altitude pseudo satellite (“HAPS”) projects that offer
strong potential for us to play a significant role in these
important communications sectors for both ground and
flight platforms.
In the USA, the critical communications sector has shown
some recovery post covid as domestic spending has
been re-prioritised. However, this sector remains under
pressure on the demand side, due to semiconductor
supply impacting the availability of non-Filtronic system
components.
At a macro-economic level, we face the same cost
pressures of energy, cost of living and continued
component cost increases and lead times as other
businesses. The Company has worked well to adapt,
innovate and mitigate these challenges where possible,
whilst continuing to invest and find growth.
Our core ability to design and produce high performance
technology demonstrators to a high-quality which are
manufacturable at scale volume, continues to be a critical
competitive differentiator. The ability of our clients to
customise our products to their particular requirement,
further strengthens our proposition in our markets.
Financial performance summary
Group sales increased in the year by 10% to £17.1m
(FY2021: £15.6m).
A strong sales mix improved the quality of earnings
giving adjusted operating profit of £1.6m (2021: £0.6m),
operating profit of £2.0m (2021: £0.6m) and adjusted
EBITDA growth of 55% to £2.8m (2021: £1.8m).
The Group closed the year with £4.0m of cash at bank
(2021: £2.9m) in addition to the availability of undrawn
working capital debt facilities in the UK and USA.
The Group’s net cash position, when including all debt
except right of use property leases, was £3.1m at the end
of the financial year (2021: £1.9m). Net cash including
right of use property leases was £2.2m (2021: £0.8m).
Dividend
As with previous years, the Board continues to believe
shareholders are better served by cash being retained
in the business to fund future business development.
Consequently, no dividend is proposed for the year (2021:
£nil).
Board and Senior Management
FY2022 has seen a couple of changes to Filtronic’s board
composition. Reg Gott retired as Chairman in October
2021, which caused the Board to undertake a rigorous
search process resulting in my appointment to the Board
as Chairman in November 2021.
Maura Moynihan, the Group’s Company Secretary
took the decision to retire in May 2022 having served
the business well for over 20 years. On behalf of the
Board, I would like to thank Maura for her significant
and sustained contributions. She leaves a legacy of a
strong governance framework. Her duties as Company
Secretary have been adopted by the Group’s Chief
Financial Officer, Michael Tyerman, who will fulfil both
functions which we will keep under review in accordance
with the QCA governance code.
Filtronic plc Annual Report and Accounts 2022 Outlook
We have successfully strengthened our sales and
engineering organisations in the year with the intention of
addressing the growth opportunities that we believe exist
in these markets as well as diversifying our customer base.
The technology we offer and the markets we serve
align closely with the sovereign capability requirements
of both the UK and US governments. Advances in
telecommunication high frequency technology and
commercial satellite constellations are growth markets
in which we have relevant capability and whilst there
are evidently continuing factors producing turbulence,
affecting many markets, there are also opportunities in
the radio frequency and microwave domain. The Group
remains well placed in the market to deliver revenue
growth supported by a healthy order book and balance
sheet.
Jonathan Neale
Chairman
1 August 2022
Pictured: Hades active E-band mmWave diplexers
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www.filtronic.com Stock Code: FTC
www.filtronic.com
www.filtronic.com
www.filtronic.com Stock Code: FTCStrategic report 06
Chief Executive’s review
I am pleased to report that sustained growth in our
vertical markets over the last twelve months has resulted
in a solid set of financial results for FY2022. With year-
on-year revenue growth of 10%, and a third year of
adjusted EBITDA growth, based on increased operational
efficiencies and demand for higher margin products,
we see momentum in the business continue to build as
we make good progress with our long-term strategic
objectives.
Customers in our core markets of aerospace, defence,
5G, telecommunications infrastructure and critical
communications have strong underlying demand for
their products and services, and remain committed to
investing in new technology and emerging markets.
Radio frequency (“RF”) design is a notoriously complex
engineering discipline, but with our global reputation,
combined with over 40 years of iterative IP development
in the field, we continue to see demand from multinational
corporations wanting to engage our services in the design
and manufacture of next generation RF products.
Despite the lingering impact of the Covid pandemic,
and constraints on the supply chain caused by the global
shortage of critical semiconductor components, the
first half of FY2022 continued the gradual recovery we
experienced at the close of the prior year. The second
half of FY2022 was stronger still, with customers in critical
communication and telecommunications infrastructure
delivering on delayed project implementations, and the
benefit of new, higher margin, product introductions in
the defence and test instrument market. Once again,
our trading results reveal the underlying strength
and profitability of the Filtronic business despite
unprecedented levels of business uncertainty. Our cash
at bank at year end of £4.0m (May 2021: £2.9m) affords
us the ability to make the investments we need to address
new adjacent markets and provision for future supply
chain challenges, whilst maintaining a robust balance
sheet.
In addition to our established markets, there is now
a significant interest in RF communication solutions
for low earth orbit (“LEO”) space, and high-altitude
pseudo satellites (“HAPS”), where our existing
E-band technology can be adapted for use in
the converging terrestrial and non-terrestrial
telecommunication networks. Our growing family
of E-band backhaul telecommunications products,
developed over 10 years have the benefit of being
compact, highly integrated, and extremely reliable.
They are also manufactured in commercial
volumes, at a competitive price, which allows LEO
space equipment manufacturers to get solutions to
market quickly, at cost not usually associated with
custom developed space products.
The healthy balance sheet has enabled us to
continue to build on investments made at our
Sedgefield manufacturing site. The addition of
Pictured: Cerus E-band power amplifier.
state-of-the-art equipment for rapid process and product
development has significantly enhanced our ability to
bring new products to market. The ability to develop
engineering prototypes and create new manufacturing
processes without the need to disrupt the volume
manufacturing lines has greatly improved delivery of
engineering programmes and eased the transition from
prototype into production.
Talented people remain at the heart of our ability to
deliver leading edge products and future business
growth. We have made significant efforts this year to
find and recruit the specialist engineering and marketing
skills required to realise our growth ambition. To further
penetrate the UK aerospace and defence market we
have strengthened our business development team with
the addition of seasoned industry experts who have a
strong track-record of sales delivery. In FY2023 we will
open a new engineering design office in Manchester
having recruited a high-calibre team of RF engineers in
the region specifically to address the emerging space and
telecommunication market.
The most significant management challenge of the last
few years has been Covid, and the associated restrictions
placed on engaging directly with customers which we
previously communicated as our biggest challenge of the
pandemic. The strengthening of our marketing team has
yielded great results since the national lockdowns and
brand awareness has been raised in the markets we serve.
However, the welcome return of tradeshows, conferences
and a willingness of customers to accept face to face
meetings and site visits to Filtronic facilities in a normalised
business development environment is a critical factor for
Filtronic plc Annual Report and Accounts 2022 07
our future growth prospects.
In 2020 we made the decision to consolidate
manufacturing of critical communication products in the
USA, to better support our customers, and respond to an
increased preference for onshoring and “buy America”
sentiment. This move has been well received by customers
and enabled us to respond quickly as the critical
communication market recovered and supply chain issues
in China started to impact our competitors. Our made in
America TTA product launched in FY2020, achieved the
milestone of surpassing £1m of sales in January 2022,
and it continues to be the TTA product of choice for P25
programmes that will be implemented in the next 24
months.
The global semiconductor shortage has impacted
our business, and undoubtably restricted our ability to
recognise revenue in FY2022. We believe these supply
shortages may continue to be a challenge in the FY2023
trading period and beyond. Throughout the last twelve
months we have invested in critical inventory as the
opportunity has become available, however reacting
to schedule changes and fluctuating material delivery
dates has become a significant additional workload for
the business. As a manufacturer and design authority,
we have the flexibility to be proactive in the sourcing of
components, and in some cases we can redesign and
requalify products to make use of alternative material at
short notice. However, Filtronic RF products generally form
part of a larger communication solution, and increasingly
it is other elements of the equipment supply chain that
cause customers to reschedule product deliveries, adjust
demand forecasts and in extreme cases, postpone new
product introductions until a later date.
Customers and markets
The critical communications market has almost returned
to pre-pandemic levels of demand, with state and federal
spending programs redirected back to the upgrading and
deployment of “first responder” networks. Our combiner
products are used in most P25 network base stations, and
our filter and amplifier products are extensively deployed
across the Land Mobile Radio (“LMR”) network. LTE
telecommunication networks carry more data traffic, but
the reliability of the LMR network when all other telecom
networks become saturated, makes it an important part
of any private network solution. Notwithstanding some
short-term disruption to customer schedules from supply
chain issues we expect Filtronic products to remain a part
of the P25 network solution for some years to come.
The aerospace market remains a strong and steady
revenue contributor, with shipments supported by a
strategic inventory holding, and consistent availability
of customer supplied materials. The multi-year
manufacturing supply agreements won in FY2020, will
run into FY2024, and we are looking to secure follow-
on demand as future aerospace radar contracts are
released. We have expanded our footprint in the Active
Electronically Scanned Array (“AESA”) radar market by
capturing several related filter design opportunities in the
past year. Initial volumes are low, but it has enabled us to
strengthen our position with the major aerospace primes,
broadening our customer register, which is a key strategic
objective of ours.
We have made inroads into the UK defence market
with the successful completion and delivery of our first
battlefield communications product to the UK Ministry of
Defence (“MOD”). The product is undergoing field trials
and we believe we are positioned favourably for any
repeat orders that may materialise as well as other future
design programmes as part of the framework.
5G telecommunication network deployment around the
world is accelerating, and critical to true 5G performance
is the quality and reliability of high-frequency backhaul
communications. Filtronic’s 71-76GHz and 81-86GHz
mmWave transceivers are designed to deliver cost-
effective, multi-gigabit connectivity for mobile backhaul
networks, in geographies where the E-band frequency
has been licenced. The demand for our products will
continue as users come to expect true 5G performance,
and individual countries make the E-band frequency
available for use, with India expected to be a key market
and licence approval anticipated shortly.
HAPS and LEO space communications are an attractive
application for our proven E-band technology, and
initial customer engagements are evolving into tangible
commercial opportunities. We have undertaken two
important development programmes with large west-
coast USA technology companies that were early
pioneers in this field of converging telecommunication
solutions. Consequently, we now have a good
understanding of how to apply our IP in both stratospheric
and LEO space platforms. We are further encouraged
by the UK government’s interest in the commercial
space market and the publication of the National Space
Strategy in September 2021.
There have been several notable achievements over the
last year which set the potential for sustainable growth
and future revenues, to which end, I would highlight the
following:
• Two separate design contracts with UK aerospace and
defence primes for bespoke, low power bandpass filters
and switch filter banks, for use in next generation radar
systems. Design and prototypes were delivered within
the year and initial production orders were placed for
delivery in FY2023.
• The successful delivery of a £1.3m defence contract
for the design, development, and production of
a battlefield radio communication product. This
represents our first direct engagement with the UK MoD
and the timely delivery of the initial production units
positions us favourably for future production volumes.
• The Tower Top Amplifier (“TTA”) product, launched
in FY2020, passed the milestone of £1.0m of sales in
FY2022, with some important design wins for future
system upgrades and new state-wide installations in the
USA.
www.filtronic.com Stock Code: FTCStrategic report Market review
08
Aerospace & defence
• Successful transition of a long running development
programme for over-the-air, mmWave test equipment,
from prototype into full production. We are working
with the customer to explore future production run rates
based on market acceptance of the end product.
Our markets
• Successful delivery of custom, high-performance
E-band transceivers for use in several separate
private network applications associated with high-
frequency trading platforms. Extreme low latency data
communications being critical for the delivery of timely
trading data.
• Continued delivery of the Morpheus E-band transceiver
in volume production with over 60,000 units shipped
worldwide. This achievement earned Filtronic the
coveted Queen’s Award for Export in November 2021.
• We closed the year with a significant opportunity
pipeline of new aerospace, defence and HAPS and
LEO space opportunities, that have the potential to
materially drive the business forward in the medium
term.
Outlook
We are undoubtably in a period of economic and
geopolitical uncertainty but one in which our technology
will be in demand, the RF design expertise we offer is in
short-supply and our core markets well positioned for
growth. The current disruption to semiconductor supply
chains will impact our business in the short term. However,
we feel we have the resources and reserves necessary to
weather the short-term impacts, and look forward to the
new trading period.
Filtronic’s core markets of mobile telecommunications,
critical communications and aerospace and defence,
represent industry segments that have remained robust
over the last few years. They also align well with the needs
of the post-pandemic world, where public safety, mobile
communications, sovereign defence capability and
development of LEO non-terrestrial telecommunication
networks, resonate with governments and other
stakeholders alike.
Business plans for FY2023 will reflect the somewhat
unpredictable nature of the economy and the current
geopolitical situation, but in general we remain committed
to the growth opportunities and technology roadmaps
identified in our strategic plan. We have a culture that
is proactive and highly motivated to create growth and
diversification of our customer base. With this in mind, we
have a number of initiatives to develop our capability,
and secure a range of well-defined business opportunities
including:
Critical communications
• Development of next generation MMIC designs that
will enable us to continue the evolution of our mobile
Telecommunications infrastructure
telecom backhaul solutions, from E-band into the
adjacent licence bands of V-band, W-band and
ultimately D-band;
Space
• Develop our scalable Cerus power amplifier platform
to maximise the range of power options at selected
frequency bands;
• Develop our E-band transceiver platform to include
active diplexer and SiP solutions;
• Continued investment in our marketing activities with
an updated website platform, enhanced web content,
and strategic use of social media platforms;
• Strengthening the sales organisation with the
deployment of additional direct sales and business
development resource in the UK and Western Europe;
• Expand our indirect channels to market through the
Manufacturing Representative Network across the
USA and in Europe through distribution and reps;
• Further investment in capital equipment to continue
the extension of our engineering, design and test
capability, production capability aligned to new
business opportunities and incorporation of alternative
frequency bands required for LEO space applications;
and
• Align our business processes and equip our facilities
to achieve the accreditation necessary to undertake a
higher level of UK Defence programmes.
I am pleased with the progress we have made to date
and remain excited by the potential that exists at Filtronic.
There is an increasing demand for our high-performance
products and unique RF design capabilities, and I believe
we have the resources and expertise necessary to
navigate the business challenges that will come our way in
the next twelve months. The specific market segments that
we have identified for future growth continue to develop at
pace, and as we embark on a new financial year, I believe
we are well placed to continue to deliver on our long-term
growth objectives.
Richard Gibbs
Chief Executive Officer
1 August 2022
Our core markets
Market review
www.filtronic.com
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Filtronic plc Annual Report and Accounts 2022 09
Market review - mega trends
Infographic
BIG DATA:
SOCIAL CHANGE:
In 2020, every person
generated 1.7 megabytes
per second
(Source: IBM)
By 2030, consumers in large
cities, will generate 81% of
global consumption and 91% of
global consumption growth
(Source: 3M)
Every second, all over the world,
there are 127 new devices
connected to the internet
(Source: IDC)
seconds
To download the content of a DVD (4.7
GB) over a DSL line with a bandwidth
of 50 Mbit/s it would take 13 mins. A
5G-enabled smartphone or laptop could
download the content of an entire DVD
over a mobile 5G data link in just four
seconds (10Gbit/s)
CLIMATE CHANGE:
Digitalisation is an enabling
technology representing a fast,
scalable tool to help address climate
change. As an accelerator, it has the
potential to reduce global emissions
by up to 15 percent by 2030
15%
5G-enabled technology could help
the combined G7 manufacturing
sectors reduce their total carbon
emissions by 182 million tonnes of
CO2e by 2035
(Source – Mobile UK)
128 million
20%
5G is projected to make a 20%
contribution toward US 2025 climate
change goals
(Source: Accenture (NYSE: ACN) study commissioned by
CTIA, the wireless industry association)
65%
The % of global population living
in cities by 2040 Cities are using
smart-city innovation to become
more efficient and sustainable, to
advance well-being, and to boost
competitiveness
43
By 2030
33
the number of megacities (Cities with
more than 10 million inhabitants) is
expected to rise to 43
(Source: United Nations, Department of Economic and Social
Affairs, Population Division (2018)
MULTI-POLARITY:
The number of countries able to put
satellites into space using their own
launch facilities has increased from
two in the 1950s (US and Russia) to
over 22 in 2022
(Source: worldpopulationreview.com)
According to SIPRI, global military
spend reached almost $2 trillion in
2020. The top 10 countries represent
roughly 75% of this figure, and have
increased their spending by $51 billion
since the year prior
(Source: SIPRI Military expenditure
database, Apr 2021)
Global military spending figures
are at a 32-year high, despite the
pandemic’s effect on shrinking
economic output
(Source: SIPRI Military expenditure database,
Apr 2021)
www.filtronic.com
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www.filtronic.com Stock Code: FTCStrategic report 10
Market review - mega trends continued
Filtronic serves several distinct markets with advanced
RF communications equipment, the main applications
being mobile telecommunications infrastructure (“Xhaul”),
critical communication networks and aerospace &
defence. In addition to these terrestrial applications,
we also see increasing opportunity for our technology
in stratospheric and low earth orbit (“LEO”) space
applications, where we add value through leveraging
our existing intellectual property and over 40 years of RF
design expertise.
Mobile telecommunications infrastructure
(Xhaul)
Xhaul is a collective term that covers front, mid and
backhaul, representing the various connections between
the edge of the telecoms network, base stations, remote
radio heads and the core fibre network. Specifically, it
does not include the highly commoditised Radio Access
Network (“RAN” / “open RAN”) or mobile handset
connections to the mobile telecommunications network.
Xhaul infrastructure is achieved through a combination of
fibre and wireless links, with the RF solutions traditionally
employing licensed microwave bands (between 6GHz
and 42GHz). However, as the data demands on
telecommunication networks increases, the capacity
of Xhaul links has had to adapt, by incorporating the
significant extra bandwidth available with the lightly
licensed mmWave bands, primarily E-band (71-76GHz /
81-86GHz). W-band (92-114.5GHz) and D-band (130-
175GHz) remain as possible frequency bands for future
ultra-high bandwidth requirements.
For several years, Mobile Network Operators around
the world have been building networks to deliver 5G
performance in accordance with recognised international
standards. Initial network implementations have been
based on Non-Stand Alone (“NSA”) technology, whereby
the existing 4G Long Term Evolution (“LTE”) network
infrastructure is augmented by increasing capacity
through carrier aggregation techniques. This initial
deployment enabled the basic 5G New Radio (“5G NR”)
phase 1 performance requirements to be met. More
recently, Stand Alone (“SA”) network rollouts are delivering
the full 5G NR phase 2 performance which is necessary to
meet increased end user expectations.
The full range of 5G SA performance requires higher
capacity mmWave frequencies to be utilised in volume.
Higher frequencies dramatically increase the network
carrying capacity, but typically result in shorter wireless
link distances, and more cell sites are needed within
the network. Consequently, the overall market size for
wireless Xhaul links connecting the cell sites back into the
network is increasing, and the use of E-band backhaul
connections (now licenced in 86 countries worldwide) is
more prevalent.
Microwave transport is a well-established backhaul
technology and has been used in mobile networks for
decades. To a large extent, 4G 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 there are several
factors to consider in deciding whether to deploy fibre or
wireless:
• Fibre is not ubiquitously available, especially
in suburban/rural areas and in the network
configurations of fast-growing economies like India
and parts of Asia and Latin America. 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
practical, or economically viable, and therefore
upgrading to E-band microwave links is the most
effective way to increase capacity.
• Whilst the cost of fibre cable itself may be reducing,
this is often a fraction of the investment required to
trench and install the cable, whereas the cost to supply
and install point-to-point, line-of-sight wireless links
continues to reduce, while performance continues to
improve.
• E-band backhaul technology links that meet 5G
capacity requirements can offer the user lower latency
than that of a fibre cable of the same length. This
makes dedicated point to point mmWave links a more
attractive solution for certain well-defined latency-
critical applications.
Frequency Table: Traditional microwave to D-Band
Frequency Table: Traditional Microwave to D-Band
Source: ITU
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
5/6 7/811 13 15 18 23 26 28 32 38 42
52 55 57 - 71GHz
71GHz - 86GHz
92GHz - 114.25GHz
130GHz - 174.8GHz
Traditional Microwave:
6 - 42
GHz
V-Band:
57 - 71
GHz
E-Band:
71 - 86
GHz
W-Band:
92 - 114.25
GHz
D-Band:
130 - 174.8
GHz
Filtronic plc Annual Report and Accounts 2022 Installed Backhaul Links by Platform (000s)
Installed backhaul links by platform (000s)
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
11
57GHz to 175GHz:
mmWave
6GHz~56GHz:
Microwave
Sub-5.x GHz
Satellite
Fiber
Copper
2019
2020
2021
2022
2023
2024
2025
2026
2027
Time and steps to reach maturity in a new
Time and steps to reach maturity in a new frequency band
frequency band
6-42
GHz
y
t
i
r
u
t
a
M
E-band
W-band
V-band
D-band
It often takes
10 years from
start to
inflection point
for major
technology
steps
Time
First products, Few countries
Low volumes
Standardization review
Product iterations
Band opened “globally”
Volumes increasing fast
High/stable volumes
Mass market
Research
Prototypes
Standardization starts
Product iterations
More countries
Volumes increasing
In summary, the roll out of true 5G networks is a major
driver for the deployment of wireless, E-band Xhaul
products. Current market estimates predict that by 2027,
microwave will account for 65% of installed base of
backhaul connections, and with 11% CAGR, at least 30%
of these wireless links will be high frequency mmWave,
deployed in areas of high traffic density such as airports,
sports stadiums, and metropolitan areas. The technical
and economic advantages of microwave over fibre
will underpin the continued growth and deployment
of E-band wireless links, and our intent is to become
the independent “go to” partner of choice for these
demanding mmWave product designs.
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, and
results in significantly reduced time to market, lower
development costs and simplified integration with the
radio.
Filtronic’s Morpheus II transceiver module is an update
on our class leading Orpheus module first introduced
in 2016. It represents the latest product in a long line of
E-band transceiver developments going back 10 years.
Morpheus II has the advantage of being backwards
compatible with Orpheus, enabling simple insertion,
but is also more compact, lighter in weight, lower in
cost and higher in performance. Therefore, it offers
customers a significant upgrade to both new and legacy
designs. In addition, Morpheus II has an Enhanced Tx
www.filtronic.com Stock Code: FTCStrategic report 12
Market review - mega trends continued
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 OEMs choose to maintain their own in-house
RF design and manufacturing capabilities, Filtronic’s
unique approach has allowed us to create a highly
differentiated offering that provides our clients with
flexibility, cost and, crucially, time to market advantages.
Furthermore, our class-leading chipsets and dedicated
manufacturing capability mean that our 5G backhaul
products continue to offer users a significant performance
advantage. Current transceiver products operate at
E-band frequencies, but by 2030 the 6G performance
standards will be on the agenda, and with it, the
requirement for extreme low-latency and uninterrupted
connections to even more mobile and Internet of Things
(“IoT”) devices. This will create a significant number of
technical challenges for the telecoms industry. Filtronic
have initiated the development of solutions for W-band
and D-band, and we are well placed to provide the
mmWave sub-systems required to support a world of
universal high-speed connectivity.
Critical communications networks
Critical communication networks are operated for the
benefit of emergency services, federal agencies, defence
installations and private security networks. Reliability,
availability, and security are critical attributes for these
services, and for this reason they are normally provided
over separate infrastructure, independent of commercial
telecoms networks.
Filtronic has historically focussed on the North American
market which deploys the P25 network standard, and
where the market dynamics and the demand for higher
resilience and longer-range communication, have allowed
us to differentiate our products.
Overall expenditure on critical communication networks
continues to grow as emergency services look to expand
coverage, integrate services, and continue to replace
legacy Frequency Modulation (“FM”) analogue networks.
The global Land Mobile Radio (“LMR”) market is forecast
to grow at 9% CAGR between 2021-2025, based on an
upgrade of analogue to digital networks, combined with
the convergence of LTE networks and LMR technology.
Product life cycles in this industry tend to be significantly
longer than those in the commercial mobile phone
network market, and therefore return on investment cases
are very attractive for Filtronic.
Critical communication networks have historically been
designed to supply high-quality, high-reliability voice
communication, as a result these networks tend to
operate at narrowband microwave frequencies (700-
900MHz). In recent years there has been an increase
in first responders wishing 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 continue to run over dedicated and
secure private communication networks, whilst non-critical
data communications are carried over commercial grade
mobile telecommunication LTE networks.
Filtronic’s approach to the critical
communications 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 FY2020 we launched a range of
TTAs to expand our product offering. Although our TTA
Evolved packet core
& next gen core
Back haul
Including front and mid
Master site
Critical Communications
700MHz, 800MHz & 900MHz
Technologies
Filters including vehicle
Interference mitigation
Diplexers & Multiplexers
Tower top amplifiers
Transceivers
Power amplifiers
Wide area
network
Site
linking
Remote
site
RF
Comms
Filtronic plc Annual Report and Accounts 2022 13
products have been designed to be OEM agnostic, and
are marketed under our own brand, our lead client in this
market, the P25 infrastructure market leader, has adopted
our TTA range and declared it to have “best in class”
performance. We are actively working with customers to
develop and qualify additional products to expand our
P25 network portfolio. These products will be designed
based on market demand whilst recognising that the cycle
for accreditation, approval and adoption associated with
new products can be lengthy.
Filtronic took the decision in 2020 to in-source and on-
shore the manufacturing of P25 critical communication
network products into our own facility in Salisbury,
Maryland, USA, and reduce the reliance on our Chinese
subcontractor. This move was primarily designed to
improve lead-time and customer response times, but it
has also positioned us well as concerns increase relative
to security of supply during the realigning of trade
agreements between China and the USA.
The critical communications market continues to show
good levels of investment at both the city and state level,
and in private networks requiring secure communications
not found with the public telecoms network. Our solutions
are trusted, reliable and generally the product choice for
system designers planning new installations and network
upgrades. Filtronic’s strategic objective is to maximise
the opportunity in this sector by expanding our range of
products, deepening existing customer relationships, and
building new ones by virtue of a nationwide network of
representatives that can influence the design of Filtronic
products into network proposals.
Aerospace and defence
Filtronic has been a supplier of RF components and
sub-systems to the aerospace industry for many years,
in particular the delivery of filters, switch filter banks
and electronic modules for successive generations of
airborne radar systems. The latest generation of Active
Electronically Steered Array (“AESA”) e-scan phased
array radars are an array of antennas, which form a
beam of high frequency radio waves that can be aimed
in different directions, without physically moving the
antenna themselves. This functionality together with
powerful onboard computing provides an unparalleled
level of real-time air-to-air and air-to-surface target
identification. Future generations of radar technology
will require ever more complex and densely packed RF
subsystems integrated into the limited space of the fighter
jet airframe.
We currently use our extensive RF design expertise and
UK based manufacturing locations to deliver multi-year
contracts associated with the build and supply of highly
integrated transmit and receive modules (“TRMs”) for
a range of aircraft platforms. These long-term delivery
contracts provide us with a consistent level of demand
for our manufacturing facilities and allows us to use
our world class, Manufacturing Execution System
(“MES”), Enterprise Resource Planning system (“ERP”)
and Quality Management System (“QMS”) to ensure
that each component manufactured is both traceable
and matched to the desired performance of the radar
system. The attraction of this market is the critical role that
radar plays in delivering an effective sovereign electronic
warfare (“EW”) solution for the current range of fast
jet programmes. Defence OEM’s make huge efforts to
maintain their operational edge and extend asset life-
in-service results. This results in performance upgrades
and a wear & tear replacement business. In the last few
years, we have received several development contracts
to use our RF design expertise in the development and
www.filtronic.com Stock Code: FTCStrategic report 14
Market review - mega trends continued
Telecoms Infrastucture
800MHz - 175GHz
Technologies
Transceivers
Amplifiers
Filters
Multiplexers
B a c k h a u l
Back haul
Base station
Base station
Distribution
point
Private network
Trackside to train
prototyping of next generation radar systems.
Increasing geopolitical tensions are expected to lead to
increased defence spending over the coming years. It is
anticipated that the focus of this increased spending will
be to provide enhanced capability and interoperability
based on advanced radar systems, utilising ever more
sophisticated RF solutions. In November 2020, the UK
Government announced a £16.5bn spending increase
over and above the existing four-year manifesto
commitment. In March 2021, the Integrated Review
of Security, Defence and Foreign Policy included the
commitment to an upgrade of the UK fleet of Typhoon
radar system and the development of the next generation
fast jet platform.
Filtronic’s approach to the Aerospace and
Defence market
Filtronic’s target market in aerospace and defence is the
manufacture of hybrid electronic modules, integrated
switch filters and other RF components and sub-systems
where our engineering, design and highly specialised
manufacturing capabilities can create sustainable value.
By focusing on TRMs and associated sub-systems Filtronic
can leverage its deep understanding of RF packaging and
thermal management issues, together with a sovereign
manufacturing capability to produce solutions that
meet the customer’s challenging size, weight and power
objectives.
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.
The UK aerospace and defence market relies on
indigenous design and manufacturing capabilities, with
this in mind Filtronic have built a significant capability for
the manufacture of RF hybrids, together with the process
and procedures necessary to support full traceability and
associated documentation. Innovative RF filter design has
always been at the core of Filtronic’s capability and with a
limited number of UK based suppliers with the necessary
defence experience, the company is a key partner for the
aerospace prime.
Whilst the market for land and ship-based radars is
relatively small by comparison to aerospace, they still
require significant numbers of filters, electronic hybrids
and RF sub-systems and this, together with emerging EW
applications deploying high frequency RF technology,
represent an attractive market development opportunity
for Filtronic.
With low RF frequencies and limited ability to differentiate
with innovative packaging, the defence market has
been a limited engagement for Filtronic in the last few
years. However, in 2020 we were invited to be part of
a bid to design and build a battlefield communication
training system for the UK Ministry of Defence (“MoD”).
The programme was secured under the Department
of Science and Technology Leadership (“DSTL”)
procurement scheme, and we successfully delivered
prototype product and a limited production run in 2022.
This successful engagement has caused us to re-evaluate
the defence market as a strategic opportunity and we
were awarded a second contract to this market last
month. We have been invited to bid on other similar
UK defence programmes that require innovative multi
frequency RF solutions.
Filtronic plc Annual Report and Accounts 2022 15
provider, Filtronic have been called into collaboration
with some of the pioneers exploring the commercial
opportunities for HAPS based telecom solutions. These
early engagements with well-funded US tech companies
enabled Filtronic to demonstrate an ability to adapt
terrestrial telecom products for high altitude operation.
Essentially modifying horizontal line of sight mmWave
links to vertical line of sight links over extended distances.
The communications technology in these early HAPS
demonstrations worked particularly well, and Filtronic’s
ability to design high power solutions based on our
in-house chipsets enabled early adopters to build
and test payload prototype solutions to an aggressive
schedule. Ultimately, frequency licencing and unproven
business models have limited the rollout of commercial
HAPS solutions, however, this has not stopped the early
innovators in this market migrating to LEO applications
where the economics are better understood, and the
frequency band allocations are already defined.
Filtronic will continue to drive a technology development
roadmap in support of the emerging HAPS and LEO
opportunity, recognising that the pioneering companies
in this field are looking to adopt proven commercial
technology, as opposed to expensive bespoke space
grade solutions used in the more traditional geostationary
telecommunications market.
Adjacent growth markets
Filtronic will continue to seek and develop opportunities
in adjacent markets where we can leverage existing
technology and capability, particularly those applications
associated with the licenced frequency ranges of Q / V / E
/ W and D-band. Current adjacent applications of interest
include low-latency and high-capacity private networks,
high-speed track-to-train networks, gigabit wireless
links, mmWave test systems, and early-stage quantum
computing applications.
Low Earth Orbit (“LEO”) Space and High
Altitude Pseudo Satellites (“HAPS”)
In recent years there has been a considerable global
effort to design, develop and deploy high altitude
communication networks, or non-terrestrial networks
(“NTNs”), that both compliment and overcome
the limitations of conventional terrestrial telecom
infrastructure. The promise of NTNs is the delivery of
true 5G bandwidth and services over wide geographical
areas where terrestrial cellular network infrastructure is
impractical, for example the open ocean, underpopulated
rural areas, or remote locations far away from developed
infrastructure.
The challenge of providing ubiquitous, cost-effective
broadband connectivity has seen the emergence of
two specific non-terrestrial solutions. The first is HAPS,
operating within the outer limits of the stratosphere
20km above the earth. These networks, carried by
balloons or solar powered gliders, stay suspended in
the upper reaches of the earth’s atmosphere for months
at a time, and have the capacity to provide coverage
over well-defined geographic areas. In parallel, there is
considerable investment in LEO constellations operating
in the lower level of space between 250km and 2,000km
above the earth’s surface. These satellites are typically
interconnected and deployed in constellations, that when
combined, cover large areas of the planet in a similar way
to more traditional, higher orbit geostationary (“GEO”)
space satellites.
As the world of ground based and non-terrestrial
telecommunications starts to converge, then the
traditional business models associated with telecom
service delivery will also evolve and there will be a range
of new entrants into the HAPS and LEO market. These
will include traditional aerospace and telecommunication
companies, as well as industry disruptors who see the
potential revenue streams available with a new form of
deployment.
There are currently over 40 HAPS programmes at
various stages of development around the world, and it is
predicted that during the decade commencing 2020, over
10,000 LEO satellites will be launched as part of the race
to develop constellations of private satellite networks. The
links between LEO satellites, and the corresponding high
frequency links to and from the ground-based distribution
centres, represents a significant opportunity for the
development of high reliability RF sub-systems.
Filtronic’s approach to the LEO Space and
HAPS market
Filtronic have been a provider of terrestrial backhaul
solutions for many years and our integrated Orpheus and
Morpheus modules are an integral part of the current
global 5G deployment. Our Xhaul products are produced
in high volume to meet the quality, reliability, and cost
expectations of a highly developed telecommunications
market.
Based on our reputation as an independent Xhaul solution
www.filtronic.com Stock Code: FTCStrategic report 16
Market review - mega trends continued
Quantum computing
Recent development in the field of quantum computing
have exposed the need for sophisticated levels of RF
filtering, and more recently the need for integrated
switch filter banks capable of operating at both room
temperature and in cryogenic chambers at sustained
level of very low temperature. Filtronic is delighted to have
partnered with an industry leader in this field to develop
and test new filter technology.
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 around the world. However, the provision
of such services on high-speed trains presents several
interesting technical and commercial challenges. Filtronic
has partnered with OutDoor Unit (“ODU”) manufacturers
to successfully complete a demonstration project in both
Europe and Asia. Follow-on projects of “Metro scale” were
initially planned for execution in CY2022 but these have
been postponed or delayed during the pandemic.
Low-latency private networks
Filtronic has designed and supplied highly customised
versions of Orpheus and Morpheus E-band links to
customers servicing the financial services market.
Private low-latency microwave networks are becoming
recognised as essential in reducing the transaction times
in automated, high-frequency, financial trading systems.
Other low-latency high-capacity applications under
consideration include plant safety controls, security
monitoring networks and autonomous vehicle controls.
mmWave test equipment
Increased usage of components operating at frequencies
up to 55GHz creates challenges for test equipment
manufacturers and offers an opportunity for Filtronic to
design and manufacture mmWave solutions for use in
automatic test 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
test equipment company. The design phase completed
in CY2021 with the supply of evaluation samples, and the
product moved into production in CY2022.
mmWave System in Package (“SiP”) modules
for proprietary high-frequency networks
Packaging expertise developed over ten years of
supplying high-frequency mmWave devices for E-band
transceivers has enabled Filtronic to develop a range of
highly integrated, small footprint SiP Tx / Rx modules for
third-party mmWave chip suppliers. Typically used in
proprietary point to point networks, these modules can
optimise the performance of RF links and enable a rapid
migration from prototype to high volume production of
mmWave RF links.
Filtronic plc Annual Report and Accounts 2022 17
Objective and strategy
We add value
Filtronic plc is a designer and manufacturer of advanced RF communications products supplying several
different market sectors, including mobile telecommunications infrastructure, critical communications, space,
aerospace, and defence.
Accelerating
speed to market
Reducing whole
life costs
Customisation
Competitive
advantage
through higher
performance
Filtronic have been at the forefront of RF technology
for over 40 years, and we create value for our clients
by enabling the future of RF, microwave and mmWave
communications. We focus on markets where we have
a deep understanding of the sector and the customer’s
application, and where we can leverage our design
expertise and IP portfolio to create innovative products
and sustainable revenue streams.
By being a trusted supplier of technically advanced
products in markets that place value on quality and
reliability enables us to differentiate ourselves from
Our strategy:
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competition and deliver profitable growth and a positive
return for our shareholders.
Our strategy is focused on providing high performance
RF solutions from 300MHz to 300GHz focused on four
distinct primary growth markets:
Telecommunications infrastructure
Build on our existing E-band technology to offer a
complete product family of high power and low latency
transceiver options in a selection of packaging styles
that facilitate easy integration into Xhaul radio designs.
Expand our frequency band offering to include W-band
and D-band transceivers that incorporate our own best in
class MMIC designs.
Defence
Use our considerable design expertise in filters and crucial
communication products to pursue opportunities for
turnkey RF design solutions for the UK defence industry.
Aerospace radar
Build on our existing Aerospace and Defence customer
relationships to secure design wins for the next generation
of AESA radar and future manufacturing volumes of
outsourced semiconductor assembly and test (“OSAT”)
hybrid manufacturing.
Space
Leverage the IP and manufacturing capability developed
for the terrestrial telecommunication market to position
Filtronic in the emerging LEO space and HAPS market.
To deliver the business strategy we set demanding
goals for the organisation. We cascade, measure and
reward achievement of these goals via our management
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Integrity
Act with integrity; being honest, always keeping our promises.
www.filtronic.com
Respect
Be respectful to all; it is the foundation of our culture.
Excellence
and what we endeavour to deliver.
Strive for excellence; it is what our clients and colleagues expect
Our purpose
Our vision
Our mission
To be the trusted provider
Enabling the future of RF,
Creating value for our
of innovative RF solutions.
Microwave and mmWave
clients through technology
communication.
leadership.
www.filtronic.com
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www.filtronic.com Stock Code: FTCStrategic report 18
Objective and strategy continued
objectives and annual appraisal process.
Objectives
Activities for FY2022
Progress in FY2022
Activities for FY2023
To nurture
close working
relationships with
our customers
to understand
their needs and
requirements
To nurture
close working
relationships with
our customers
to understand
their needs and
requirements
(continued)
• Cover 100% of USA and Europe
• Contracted with four rep
companies that cover 80% of the
USA market.
• Continue to develop the rep
channels to promote our
product lines.
with sales representatives.
• Expand the direct Business
Development (“BD”)
organisation.
• New CTO recruitment process
with a brief to expand our
relationships with technical leads
in the markets we operate.
• Build on our business processes to
better serve defence, space, and
aerospace customers.
• Seasoned BD staff added to the
• Deploy newly hired business
roster from Q1 FY2023.
• Created new engineering director
roles in support of the CTO role.
• IASME governance accreditation
added and the development
of the Customer Relationship
Management (“CRM”) System.
development resource to extend
our penetration of the UK
Defence and UK/US Space
market.
• Expand our attendance at critical
industry events and conferences
with technical papers and an
increased trade show presence.
• Expand our manufacturing
• All UK sites cleared for defence
• Market and develop our
capabilities to serve defence,
space, and aerospace markets.
work. Added IASME Governance
cyber security accreditation.
CRM systems were upgraded to
improve customer relationships
and drive further sales.
technology roadmaps with key
customers and industry bodies.
Further investment into our cyber
security systems to facilitate more
defence contract wins.
• New prototype equipment
installed to allow rapid product
and process development.
To develop
class-leading
products in our
core technology
areas and to
expand our areas
of expertise
• Execute on the core technology
roadmaps developed as part of
the FY2021 strategic planning
process (“STRAP”).
• Expand our capability to design
System in Package (“SiP”)
solutions to reduce size, weight,
and power in key markets.
• Continue to develop our telecom
Xhaul product portfolio exploring
W-band and D-band.
• Technology roadmaps refined
to identify a specific set of new
product developments.
• Successfully recruited SiP design
engineering capabilities and built a
proposal for next generation QFN
solution for ASEA radar market.
• W-band MMIC programme
initiated with first wafer run
planned for Q2 FY2023.
• Implement new process
capability opening up new
market opportunities outside of
our existing offering.
• Build concept /demonstrator
products to show capability at
Ka/Q/V band frequencies for the
LEO space market.
• Implement the proposed QFN
programme to provide plastic
packaged hybrid solutions in
addition to our current hermetic
package offering.
• Continue the W-band mmic
development.
To develop
solutions to
address both
customer-
specific and
general market
requirements.
To grow our
customer base
within the market
verticals we serve
• Expand capabilities associated
with the design, qualification, test,
and manufacture of emerging
Compound Semiconductor
technology.
• New prototype equipment installed
to allow rapid product and process
development of new packaging
solutions for compound materials
• Deploy the Manchester design
centre in support of mmWave
applications adjacent to E-band.
• Continue to target UK Defence /
DSTL development programmes.
• Focus on adjacent market
applications that have the
potential for near term growth.
• Expansion of the customer base
in our existing markets of interest.
• Continue to expand our Marcom
activities and build our sales
channels.
• Products launched in test
instruments, private low-latency
banking and LEO space
applications.
• Deeper penetration of ASEA radar
application to include filters and
Switched Filter Bank products.
• Active campaign of marcom
initiatives monitored through
a market-leading B2B website
tracker.
• Continue to explore adjacent
applications for our E-band
transceiver IP with the launch of
the Cerus range of Solid-State
Power Amplifiers and a range
of transceiver options from high
performance Hercules to active
diplexer and SiP.
• Use improved web data analytics
to market our products and
services and run targeted
campaigns with prospective
customers.
Filtronic plc Annual Report and Accounts 2022 19
Objectives
Activities for FY2022
Progress in FY2022
Activities for FY2023
To broaden the
range of markets
we serve
• Refresh and relaunch the Filtronic
brand and promote our brand
message to targeted markets.
• New Filtronic brand launch
complete and well received in the
market.
• Continue with proactive strategic
marcom activities designed to
build the Filtronic brand.
• Focus on building our position in
UK Defence market.
• Successfully expanded our position
with UK MoD and DSTL contacts.
• Delivered first battlefield radio
comms project.
• Number of smaller NRE contracts
won with numerous defence
primes.
• Increase BD efforts to position
Filtronic in UK defence and UK/
EU/USA LEO space markets.
• Broaden the customer base with
specific targets identified in a
number of markets.
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.
Brand Strategy
Filtronic has a strong brand with good brand recognition
and a reputation for innovative products and world
class mmWave RF design. We recognise the value of a
strong brand and have invested in the marketing tools to
promote and build the Filtronic brand via our direct and
indirect channels.
Organisational overview
Filtronic currently operates from three sites: Sedgefield
and Leeds in the UK and Salisbury, Maryland in the USA.
We are in the process of adding a new site in north-west
England to augment our engineering design capacity for
mmWave products.
Sedgefield, UK
Transceiver and TRM manufacturing, microwave and
mmWave engineering, Sales (EMEA) and central services.
Leeds, UK
Engineering & Development of Filters, TTAs and
associated RF systems and sub-systems for defence.
Salisbury, MD, USA
North American sales, service, repair, and manufacturing
of critical communications products.
Filtronic recognising the importance of building
empowered teams and we maintain attractive work
conditions combined with modern flexible working
practices.
CALIFORNIA
NEW YORK
SEDGEFIELD
SOUTH KOREA
LEEDS
GERMANY
GEORGIA
MARYLAND
FRANCE
Filtronic sales and
manufacturing facility
Sales office
www.filtronic.com Stock Code: FTCStrategic report
20
Financial review
A year of continued progress delivering revenue
growth and another year of successive adjusted
EBITDA growth, despite strong macro-economic
headwinds and industry-wide semiconductor
shortages, providing a solid platform from which we
will invest in the future of the business.
Filtronic achieved another year of adjusted EBITDA
growth delivering £2.8m (2021: £1.8m) thanks to a strong
sales mix and controlled overhead spend. Consequently,
the balance sheet was strengthened with a healthy cash
position following cash generation of £1.1m (2021:
£0.9m) which will be used to invest in opportunities that
offer a high rate of return and provide the building blocks
for future growth.
Revenue
We are also pleased to report sales growth for the Group
of 10%, taking revenue to £17.1m (2021: £15.6m) with
the uplifts coming from aerospace & defence and critical
communications. This was especially pleasing given
revenue would have been higher in the period if output
had not been constrained by material availability caused
by the widely publicised global semiconductor component
shortage. By encouraging customers to place longer-term
orders we have secured the visibility we need to align
resources and safeguard inventory. Consequently, we
have been able to build our order book, which is stronger
leaving the year than we entered, and gives optimism that
we can continue on a growth trajectory. The momentum
is also building as we look to deliver on one of our key
strategic objectives, to broaden the customer base, with
several recent contract wins outside of our largest three
customers.
5G Xhaul sales decreased year-on-year by 12% as
revenue was constrained by component availability in H1.
Having received the material towards the end of H1, we
enjoyed a 38% increase of sales to our lead customer in
H2, as the demand profile returned to customer-specified
levels. Output continues to flex, and we have the capacity
in place to execute as 5G rollouts gather pace and an
increasing number of governments release E-band
spectrum. Sales of E-band derivatives to customers in
adjacent markets saw growth with a main contributor
being ‘over-the-air’ equipment having successfully
completed the pilot phase of an engineering development
to a leading US customer.
Sales of aerospace & defence products saw year-on-
year growth of 27%, driven by our multi-year contracts
running at consistent levels of output combined with
revenue from new contract wins. The battlefield
communications project, announced in January 2020,
was the largest of these contract wins and saw over
£1m of revenue recognised in the period. This market
is critical to our growth plans, and it was pleasing to see
several new customers entering the register with initial
NRE development contracts. The sales cycle can be long
in aerospace and defence, but once initial prototype
orders become established, they are generally long-term
and predictable, which helps to underwrite the business,
improving the risk appetite for more speculative high-
return projects in other areas.
The products supplied into the critical communications
market achieved good results in the period with 23%
growth year-on-year. The market suffered during
the pandemic with funds diverted to sectors such as
healthcare, but government spend has now flowed back
into public infrastructure projects. Demand recovered well
in the year and our lead customer is reporting year-on
year revenue growth in Land Mobile Radio (“LMR”), which
is the segment of their business we supply into, and a
record order backlog primarily driven by LMR demand.
The recently launched TTAs performed beyond our
expectation with the product successfully designed into
major infrastructure projects ahead of more established
suppliers in the market. Our procurement strategies,
including early sourcing of materials and elevated levels of
inventory, minimised the impact of component shortages
but revenue to this market would have been higher if
not for shortages upstream in the system-level product.
However, this also created opportunities for us, and we
were able to capitalise, winning additional business thanks
to our ability to maintain supply, when competitors hit
fulfilment challenges.
Operating costs and headcount
Operating costs remained broadly flat in the year at
£9.4m (2021: £9.5m) as overheads were controlled in the
administrative areas of the business.
The Group’s largest overhead is salary-related costs
which increased by £0.1m, although the mix of personnel
changed in the year. Improvements in manufacturing
efficiency facilitated a lower cost base to run our
manufacturing operations, with the savings invested back
into the business with the recruitment of new employees in
engineering to support work on the technology roadmap.
Given this shift, there was a reduction in the total
number of employees in the Group during the year
which is reflected in the average headcount for the year
decreasing to 124 (2021: 130). An analysis of the Group’s
average continuing headcount is presented below:
Filtronic plc Annual Report and Accounts 2022 21
2021
where pricing is more competitive.
Number
Manufacturing
Research and development
Sales and marketing
Administration
Total headcount
2022
78
26
5
15
124
86
24
5
15
130
Further investment is planned for the year ahead with
additional engineers joining the business in Q1 FY2023
as we seek to capitalise on new opportunities having
strengthened our direct channels to market. This follows
a big push on recruitment of senior sales personnel and
engineers which incurred recruitment costs of £0.2m,
which is larger than we have previously incurred, as
given the high number of vacancies to fill we engaged
a recruitment process outsourcer (“RPO”) to fill the open
vacancies.
Other costs were managed tightly throughout the year
and consequential cost savings from the pandemic
such as business travel prevailed. In my report last year,
I advised that I was keen to see our sales and marketing
team return to trade exhibitions at the earliest opportunity,
and it was pleasing to see the restart of these events in the
year. They have been successful forums for generating
new customer leads in the past, and money will always be
made available to support these events as they are key to
new business acquisition.
In the USA, we secured a second round of financial
support through the Paycheck Protection Programme
(“PPP”) to retain staff during the pandemic. The loan
was forgiven for repayment by the US government and
converted to a grant totalling $186k (£131k).
A large portion of our product development in the year
was customer funded which maintained a healthy flow of
cash during the development phase of the engineering
projects. Consequently, there was limited capitalisation of
development costs as the costs are expensed in line with
revenue recognition. Further commentary can be seen in
the Research and Development section of this review.
Adjusted EBITDA
The Group continues to focus on an alternative
performance measure (“APM”) to track performance of
the business. This APM is adjusted EBITDA as it measures
the quality of earnings without the impact of exceptional
items and non-cash expenses such as depreciation and
amortisation. Adjusted EBITDA for the operation was
£2.8m (2021: £1.8m) representing a 58% increase whilst
adjusted operating profit was £1.6m (2021:£0.6m). This
was facilitated by a stronger sales mix and controlled
spend of the overhead cost base whilst maintaining
investment into R&D.
Gross profit increased considerably thanks to increased
sales to the critical communications and aerospace &
defence market as certain components are free issued by
the customer which gives improved margins, whilst sales to
the telecommunications infrastructure market were lower
Amortisation increased as the full year impact of the
Morpheus and MMIC IP engineering developments,
capitalised as an intangible asset in a prior period, were
borne.
The exceptional items relate to legacy Telecoms Antenna
Operation provisions that were released unused in the
period. Having previously recognised the cost in the
discontinued operation, the reversal has gone through
exceptional items.
The table below shows the reconciliation of operating
profit delivered at £2.0m (2021:£0.6m) to adjusted
EBITDA.
Reconciliation of operating
profit to adjusted EBITDA
Operating profit
Exceptional items
Adjusted operating profit
Impairment of development costs
Depreciation
Amortisation
2022
£000
1,975
(391)
1,584
-
945
278
2021
£000
642
(64)
578
45
941
209
Adjusted EBITDA
2,807
1,773
Taxation
A tax charge of £0.4m (2021: £0.2m) was recognised
for the year. This is the result of a reduced deferred tax
position reflecting usage in the year within the profitable
trading subsidiaries in the UK and US. This is a non-cash
entry so payments will not be made to this value.
It is highly likely that governments around the world
will increase their rates of corporation tax over the next
few years to help pay for the cost of economic support
provided over the last couple of years. The UK has already
increased the rate of corporation tax with effect from 1
April 2023 for companies with profits above £250,000
to 25% from 19%, and the US is currently debating the
merits of an increase. However, with substantial deferred
tax assets, including those not recognised on the balance
sheet, this is likely to have a minimal impact on cash in the
Group in the short and medium term.
Research and development costs (“R&D”)
Total R&D costs in the year before capitalisation and
amortisation of development costs were £1.7m (2021:
£1.7m). The Group utilised most of its engineering
resource on customer funded developments generating
near-term revenue with an increased chance of
commercialisation.
However, the Group remains committed to investment in
R&D for future growth of the business and consequently
measures R&D spend as a KPI. Given the importance,
our investment strategy is geared towards continual
investment in R&D with the plan to align annual spend at
12% or more of revenue. Key areas of spend in the year
included product development for markets spanning
‘over-the-air’ mmWave equipment, aerospace & defence,
www.filtronic.com Stock Code: FTCStrategic report
22
Financial review continued
low earth orbit and development of W-band capability.
The healthy cash position and strengthened balance sheet
gives us a greater ability to invest in the development of
our own strategic technology roadmap and proprietary
IP. This will allow us to build long-term shareholder value in
the years ahead.
Recruitment of RF engineers has been an industry-wide
issue for some time, but a change of approach has yielded
positive results with the use of the RPO, as disclosed in the
operating costs and headcount subsection of this report.
We have also recruited a high-calibre team of engineers
in the Manchester area, where we are creating a low-cost
footprint to base the team, who will drive our technology
roadmap in mmWave engineering for the space market.
The Group capitalises its development costs in line with
IAS 38 as set out in note 1 to the financial statements.
A reconciliation of R&D costs before capitalisation and
amortisation can be seen in the table below:
2022
£000
Reconciliation of R&D costs
2021
£000
R&D costs in income statement
1,937
1,845
Capitalisation of development costs
Impairment of development costs
-
-
Amortisation of development costs
(259)
R&D cash spent
1,678
52
(45)
(182)
1,670
Capital expenditure and right of use assets
Capital expenditure increased slightly in the year. The total
amount of capital purchased was £0.6m (2021: £0.4m)
with the purchase of another die-attach machine and
solder reflow oven. The die-attach machine increases
overall capacity at our Sedgefield site, enabling quick-
turnaround of new product introductions and servicing
of a growing opportunity pipeline without disruption to
the production line. It also increases the bandwidth of our
process engineers, which is a key skillset of the business,
to undertake more development work. The solder reflow
oven improves the capability of the operation and opens
new opportunities particularly in the aerospace & defence
market. The assets were externally financed through asset
finance agreements were subsequently classified as right
of use assets.
Warranty provision
In line with industry practice, the Group provides
warranties to customers over the quality and performance
of the products it sells. The Group’s policy is to make a
provision, calculated as a percentage of cost of goods
sold, after reviewing costs associated with faulty products
returned. As at 31 May 2022, the warranty provision was
£0.1m (2021: £0.3m). A provision relating to the legacy
Telecoms Antenna Operation was released unused in the
year and is recognised in exceptional items.
generated from operating activities in the year was £2.3m
(2021: £2.5m) as solid adjusted EBITDA performance
drove strong cash generation offset by increased working
capital requirements. Industry-wide semiconductor
shortages have been well-documented and are
mentioned a number of times in the Group’s Annual
Report, with a key mitigation action being the increase of
our inventory holding. This has been key to continuity of
supply at a time when availability is scarce and lead times
are stretching. Consequently, the net inventory position
grew by £0.4m in the year. The increase in receivables
and payables represents a strong period of trading in Q4
FY2022, inflating the closing position, as payments were in
line with payment terms.
Net cash of all lease obligations, when including all debt
except property leases at the end of the period, was
£3.1m (2021: £1.9m), whilst overall net cash including
property leases was £2.2m (2021: £0.8m). At a time
when many sectors are struggling with liquidity, coupled
with economic headwinds from inflation, cost of living
increases and geopolitical uncertainty, our business is in
the fortunate position to have a platform from which to
grow with a cash position that will be used to invest for the
future.
We also have additional cash headroom available
through a £3.0m invoice discounting facility with Barclays
Bank plc in the UK and a $4.0m invoice factoring facility
with Wells Fargo Bank in the USA. Both facilities were
undrawn at 31 May 2022 (2021: undrawn).
Going concern
In assessing going concern, the Board have considered:
• The principal risks faced by the Group which are
discussed within the ‘Risk management’ section of the
Annual Report;
• The financial position of the Group including forecasts
and financial plans;
• The healthy cash position at 31 May 2022 of £4.0m
(2021: £2.9m) and the additional headroom available
through the undrawn invoice discounting facilities and
overdraft (2021: undrawn);
• Global semiconductor component shortages impacting
supply chains and the potential for customer orders to
remain unfulfilled for prolonged periods; and
• The economic headwinds the world is facing with the
potential for customers to reassess their priorities, with
opportunities postponed or curtailed.
Therefore, the Directors are satisfied that the Group has
adequate financial resources to continue in operational
existence for a period of at least 12 months from the date
of this report. Accordingly, the going concern basis has
been adopted in the preparation of the Annual Report for
the year ended 31 May 2022.
Funding and cash flow
The Group recorded an increase in cash and cash
equivalents to £4.0m (2021: £2.9m) at the year-end. Cash
Michael Tyerman
Chief Financial Officer
1 August 2022
Filtronic plc Annual Report and Accounts 2022
23
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)
Adjusted EBITDA (£m)
£17.1m
£2.8m
Adjusted EBITDA per
employee (£k)
£22.6k
.
2
7
1
.
9
5
1
.
1
7
1
.
6
5
1
.
9
5
1
8
2
.
.
6
2
2
.
8
1
7
0
.
2
1
.
7
0
.
3
8
.
0
7
.
.
6
3
1
7
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
The total amount the Group earns
from the sale of products and
services.
The Board recognises adjusted
EBITDA 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 per employee to
measure productivity.
Research and
development costs (£m)
£1.7m
Cash generated from/(used in)
operating activities (£m)
£2.3m
7
1
.
7
1
.
7
1
.
2
1
.
2
1
.
5
2
.
3
2
.
0
0
.
2019
2020
2021
2022
2019
2020
2021
2022
)
6
2
(
.
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.
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.
www.filtronic.com Stock Code: FTCStrategic report 24
Risk matrix
Risk matrix
Risk management
The Board recognises strong risk management is key to our success and achievement of our
strategic objectives. A rigorous assessment of the principal risks facing the Group is regularly
undertaken with quick and effective responses taken when needed. These principal risks carry
HIGH
financial, operational and compliance impacts including those that threaten the business model,
strategy, future performance, solvency and liquidity. They are identified based on the likelihood of
occurrence and the severity of impact on the Group that could result in damage to our reputation or
business performance.
Risk matrix
HIGH
5
5
4
How we manage risk
The Board is ultimately responsible for the overall risk
management system and internal controls applied
throughout the Group to ensure a structured and
appropriate approach to risk is taken in line with
strategic priorities and risk appetite. The Audit and
Risk Committee has oversight of risk management
b
and reports to the Board with its findings. The directors
a
b
recognise that risk is inherent in any business so actively
o
r
manages rather than eliminates risk to achieve business
P
objectives which includes review of the effectiveness of
2
these controls.
y
t
i
l
i
3
Risk management within the Group is managed by
the Risk Management Committee made up of senior
operational management including the Executive
Directors.
1
4
5
HIGH
y
t
i
l
i
b
a
b
o
r
P
4
3
y
t
i
l
i
b
a
b
o
r
P
3
2
2
1
1
Board of Directors
LOW
LOW
LOW
LOW
Risk Management
Committee
(Review and input)
Functional
risk registers
Audit and Risk
Committee
(Independent
review and
challenge)
Outsourced
internal audit
(Independent,
objective review
function)
1
1
1
2
Reliance on key customers
2
2
Impact
Impact
3
3
4
3
4
5
HIGH
4
Impact
Recruitment & retention
5
HIGH
5
HIGH
LOW
LOW
Key:
Reliance on key customers
Market requirements
Manufacturing
Reliance on key customers
Technology
Manufacturing
Manufacturing
Technology
Technology
Manufacturing
Technology
Recruitment & retention
Supply chain
Recruitment & retention
Reliance of key customers
Market requirements
Supply chain
Supply chain
Recruitment & retention
Market requirements
Cost inflation
Market requirements
Supply chain
Cyber risk
The team is responsible for
• Identifying the risk and the negative and positive risk
circumstances;
• Assessing and evaluating the likelihood and impact
of those risks;
• Reporting the risk; and
• Managing the key risks in accordance with
established processes under the Group’s operational
policies and controls.
This process includes a regular review of the Group’s
risk register considering existing and emerging risks,
risk scores and mitigation action plans prepared by risk
owners to manage and reduce the risk. Reporting
Filtronic plc Annual Report and Accounts 2022 Risk matrix
Risk matrix
HIGH
5
Risk matrix
Risk matrix
HIGH
5
4
25
y
t
i
l
a
b
o
r
P
i
HIGH
b
5
y
HIGH
t
i
l
i
3
5
b
a
b
o
r
P
2
4
within the Group is structured so that key issues can be
escalated rapidly through the management team to
the Board where appropriate.
Managing new emerging risks
We monitor new and emerging risks closely. In the year,
we introduced the new risk of the increasing risk of cost
inflation and margin pressure but having undertaken
a successful recruitment drive in the financial year
have now removed recruitment from the key risks, but
continue to monitor retention. Like many risks, they
could present opportunities as well as downsides. With
Our principal risks and uncertainties
the global electronic component shortage, for instance,
customers might look to secure supply and give
extended order book coverage or competitors might
not have the ability to increase their working capital to
ensure continuity of supply or may not be able to secure
inventory. We have mitigating plans to cover these
different eventualities.
In the year ahead our priorities will include the
monitoring of geopolitical impact of the events
in Ukraine and continuing to closely monitor our
cybersecurity mitigation and capabilities.
Risk
Risk description
Mitigation actions
Change
in year
y
t
i
l
i
b
a
r
P
b
LOW
o
y
t
i
l
i
b
a
b
o
r
LOW
P
LOW
Failure to
identify
market
requirements
1
3
1
2
LOW
With the rapid evolution of
product technology and other
corporate decisions, the size of
our addressable market may
be affected. Failure to forecast
market movements correctly thus
missing opportunities or wrongly
predicting product longevity
could impact on long-term
revenue and profit.
2
3
1
Impact
2
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 appraisal process includes regular communication
with our customers including key members of our
engineering teams to ensure we are developing innovative
products that deliver the technical solutions needed by the
market. This process also assists in the formulation of the
technology roadmap to ensure it is aligned to the needs of
5
our customers which augments the work we undertake to
develop our own market intelligence.
HIGH
5
HIGH
4
3
4
Impact
Reliance on key customers
Inability
to meet
customer
Manufacturing
demand
Technology
1
Manufacturing
Most of the products in
production are demand-led
and customers may vary their
requirements at short notice
which requires flexibility in
capacity and effective inventory
management.
Supply chain
Recruitment & retention
We manufacture and assemble our products at our
highly-automated facility at NETPark, Sedgefield, UK
except for our critical communications product offering
Recruitment & retention
which 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.
Supply chain
Market requirements
Reliance on key customers
Technology
LOW
LOW
LOW
LOW
1
1
2
2
3
Impact
Impact
Reliance on key customers
Competing
technology
and failure
Reliance on key customers
to deliver
projects on
time or to
specification
Manufacturing
Manufacturing
Technology
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.
Market requirements
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.
4
3
The supply chain is regularly monitored whilst regular
communication with key suppliers ensures lead times
are managed. Please see the specific risk on the global
electronic component shortage for more information.
5
HIGH
Our ability to remain competitive in terms of
technology and product design is underpinned by
retaining key staff, talent acquisition and effective
Recruitment & retention
design methodologies.
Recruitment & retention
4
5
HIGH
Supply chain
Market requirements
Supply chain
We work closely with our customers and suppliers
to gain a thorough knowledge of the technology
being developed in the marketplace. We are also
Market requirements
members of key forums such as The European
Telecommunications Standards Institute (ETSI) and
the HAPS Alliance. By staying close to the market, we
position ourselves to react quickly to any technology
changes that develop.
4
3
2
4
1
3
2
1
www.filtronic.com Stock Code: FTCStrategic report Risk matrix
Risk matrix
HIGH
5
HIGH
5
y
t
i
l
i
b
a
b
o
r
P
y
t
i
l
i
b
a
b
o
r
P
4
3
2
1
4
3
2
26
1
Risk management continued
LOW
LOW
Risk
1
Risk description
1
2
2
3
Mitigation actions
3
4
4
LOW
For products in the production
Impact
cycle, technology insertion is
often required as a means of
achieving price reductions, which
underpin sales.
Reliance on key customers
LOW
Competing
technology
and failure
to deliver
Reliance on key customers
projects on
time or to
specification
(continued)
Manufacturing
Manufacturing
Technology
Technology
Impact
Recruitment & retention
When undertaking new product developments, we
follow a process which facilitates a thorough review
process of the engineering development at various
milestones throughout the project. This methodology is
designed to ensure the product has no design defects,
Recruitment & retention
meets the required specification and is on time to
exploit the market opportunity. We have a project
management team to ensure compliance with our
Market requirements
engineering development process.
Supply chain
Market requirements
Supply chain
5
HIGH
5
HIGH
Change
in year
Global
electronic
component
shortage
There is currently a global
electronic component shortage
impacting all sectors and
companies relying on embedded
electronics components due to
reduced supply and increased
demand. An inability to source
components or extended supplier
lead times may prevent shipment of
products to fulfil orders.
Reliance
on key
customers
We supply a range of 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.
In order to protect our intellectual property, we
maintain and apply for patents when appropriate and
actively encourage innovation in our engineering team
through a reward process.
We work closely with our suppliers to understand key
challenges as they present themselves. Our knowledge
of the supply chain and engineering expertise can
be utilised to find alternative sources or marginally
different electronic product.
We have also utilised the strength of the balance
sheet to secure inventory early, ensuring availability of
components to fulfil customer orders.
With good communication to our customers
highlighting the risks to product lead times we have
been able to secure sales orders and commit purchase
orders into the supply chain.
Our largest customers are very successful in their
respective markets, and each has a long-established
relationship with Filtronic. We continue to win further
contracts with our existing customers and have good
outlook visibility as well as being actively engaged with
them on new opportunities.
The Group has strong account management strategies
and mitigates this risk by working closely with customers,
at all levels, to ensure that we are designed into their
new products at an early stage, enabling us to develop
products that meet their specifications and requirements.
We provide customers with a well-resourced programme
and a high level of service with a focus on product quality
and delivery which enables high customer retention rates.
To broaden the customer base, we have won several
smaller contracts with new customers, in the year, across
several different markets that may lead to significant
business in the future.
The sales function has also been strengthened in both
the direct and indirect channels and trade exhibitions
have recommenced in the year which together gives
confidence of an expanding opportunity pipeline and a
broadening our customer base.
Filtronic plc Annual Report and Accounts 2022 27
Change
in year
Risk
Risk description
Mitigation actions
Talent
retention and
acquisition
Cost inflation
and margin
pressure
Cyber
security
and data
integrity
The Group is reliant on the key skills
and knowledge of its people in a
range of areas especially in the
engineering function which requires
specialist skills.
Failure to recruit, develop and
retain an appropriate number of
suitably qualified people in critical
areas could affect our ability to
design new products, meet our
customers’ needs and execute on
our strategic growth plans. 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.
Inflation in the UK, as measured by
the Consumer Price Index (CPI) is
currently increasing, which is driven
by broad-based cost increases.
This could create a business
environment in which customers
redirect their spending from new
projects to more pressing needs.
Wage inflation, increased energy
bills and rising component prices
could have a direct impact on
our underlying cost base and
profitability.
There is a risk to the Group if there is
unauthorised access to, or integrity
issues with, its data systems. This
could cause significant reputational
damage as well as service
disruptions and potential impact on
orders, revenue and profit.
The Group has a competitive remuneration package that
is reflective of market conditions for key roles and is under
review as conditions change with regular benchmarking
exercises. 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 have also developed the Filtronic Leadership
Academy to give our management team the tools they
need to lead their team to meet their objectives.
We provide regular communications to all employees
through communication meetings in each of our business
locations.
By helping our employees gain an understanding of
our strategic direction and objectives, we believe it
enables them to make meaningful contributions to the
achievement of our goals and successful execution of the
plan.
We can control some of these factors such as passing costs
on to customers but some factors such as economic and
political ones are beyond our control.
Ensuring our pricing models are updated so we are
quoting for new business with the latest cost base and
reducing our energy consumption are some of the
measures we have in place to protect our margins.
As a supplier to the defence industry the Group has strong
cyber security credentials including Cyber Essentials
Plus and DART accreditation and has recently achieved
accreditation with IASME Governance which further
augments our capability to defend ourselves from cyber
threats and protect our sensitive data. Regular reviews
are undertaken of the network security arrangements
and training is provided regularly to users on cyber threats
and other data loss/integrity risks. The Group also limits
access to data and access is only provided to those users
with a genuine business need. Data shared externally is
conducted under contractual arrangements.
In the year ahead, the Audit and Risk Committee will
oversee a penetrative test on our systems conducted by an
external partner to understand how resilient we are in the
event of an attack.
Risk key
Increased risk
No change
Decreased risk
www.filtronic.com Stock Code: FTCStrategic report 28
Our people
We are extremely proud of our people and their contribution in supporting organisational performance
and strategy.
We have a diverse, experienced, and highly qualified
team focused on delivering outstanding products and
service to our customers.
Filtronic has a considerable depth of technical,
engineering and operational management skills across
its business operations. The Group 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.
Employee profile
Our headcount as of 31 May 2022 was 116. The Group
relies on highly skilled employees, who are critical to
driving innovation, new technology and operational
excellence. Our teams are made up of highly trained
employees across all functions with strong educational
backgrounds and formal qualifications, supplemented by
extensive practical training where applicable.
Employee turnover
The Group’s employee turnover rate has historically been
very low but employee retention has been an elevated
risk over the last year due to a couple of factors. Firstly,
through a fundamental shift in working practices, home
and hybrid working has increased job opportunities
significantly as candidates are no longer restricted
by geography. Secondly, several local companies
have recruited aggressively over the past year which
has disrupted the local labour market, which coupled
with cost-of-living pressures, has made staff retention
more challenging. We conducted an extensive salary
benchmarking exercise in the year and implemented
increases on the findings to ensure we are competitive.
Aside from the increased employee turnover this year,
we have an extremely stable workforce, with an average
length of service at 7.9 years.
Employee communication and engagement
We strive to maintain a healthy employee relations
environment in which dialogue between management
and our employees, both directly and indirectly, where
appropriate, is embedded in our work practices.
We are currently in the process of rolling out our first
formal employee engagement survey to all employees.
Responses and analysis will be managed by external
consultants to further encourage honest and open
feedback in an anonymous manner. This will be a
recurring annual event as we look to improve our
employees’ experience at work, measure commitment
and identify trends with action taken to address any gaps.
Current headcount metrics
Full time/
Part time
Full time
Part time
FY2022 FY2021
%
97
3
%
98
2
Qualification
FY2022 FY2021
Level 1
Level 2
Level 3
%
42
2
7
Bachelors degree 34
Masters degree
PhD
7
8
%
51
2
9
21
9
7
Length
of service
0-5
5-10
10-20
20+
>25
FY2022 FY2021
%
69
11
27
8
1
%
50
9
35
5
1
Function
FY2022 FY2021
Manufacturing
R&D
%
61
23
Sales & marketing 4
Administration
12
%
65
20
5
10
Filtronic plc Annual Report and Accounts 2022
29
On a regular basis, management engages with our
employees through a range of formal and informal
channels, including briefings and memos from the
Executive Directors, team meetings, 1-2-1’s, and online
publications via various social media outlets.
Through our HR system we have also enabled surveys
covering key aspects of employment such as onboarding.
Voluntary leavers are interviewed to provide an additional
means of expressing their views enabling us to analyse
data to address any retention issues or implement
suggested improvements.
Equal opportunities, diversity and inclusion
Filtronic has equal opportunity policies to support our aim
of providing opportunities for all without discrimination.
These policies form part of the Group’s core values
which are 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.
All employees receive specific training on equality,
diversity and inclusion in the workplace, to ensure 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. Activities in the year includes training through an
e-learning module devised by Make UK to ensure that our
people are being inclusive in the way they approach their
role and responsibilities.
Our intention is to sustain a diverse workforce and
inclusive environment, as we believe that diverse teams
led by inclusive leaders are more engaged, whilst also
allowing us to benefit from a wider external talent pool for
recruitment purposes.
Rewarding employees
Our compensation strategy aims to attract and retain
talent whilst promoting and rewarding sustainable
performance and contributions at all levels of the
organisation. The Board and Remuneration Committee
continually look to ensure that our remuneration provisions
support our strategy and business objectives.
The market competitiveness of salaries across the
company is assessed at local or national market level,
dependent upon role, and is reviewed annually. Whilst
we are under no obligation to produce a Gender Pay
Gap Report, we are extremely mindful of equal pay, and
any discrepancies in the difference in average earnings
between women and men across the organisation are
addressed via the annual salary review process.
In addition to competitive salaries, we also offer a suite of
benefits including, but not limited to, employer matched
pension contributions plus 2% to a maximum of 8%, long-
term incapacity benefit, 4 x base pay sum life assurance,
Employee Assistance Programme, childcare vouchers and
cycle to work.
In the prior year, we rolled out our Technology Leadership
Recognition Policy to recognise and reward innovative
thinking and professional personal development, a
number of awards were made in the year, under this
scheme, for new patent applications and grants as well
white papers and technical presentations. To complement
this, we have also introduced a ‘Bright Ideas’ scheme
managed through our T-card system, to broaden the
reward scope for new ideas and continuous improvement
suggestions. Vouchers are presented quarterly to
employees with the best ideas.
Employee share plans
We have a couple of share option plans designed to align
employees’ interests with the Group’s performance and
the interest of our shareholders. For information on the
share-based compensation plans for Executive Directors,
see the ‘Directors’ remuneration report’.
UK-based employees of Filtronic plc are eligible to
participate in the Save As You Earn (“SAYE”) Scheme.
Options are granted at the closing middle market price on
the day before issue and vest after completion of a three-
year savings period. The option price for the SAYE scheme
implemented on 1 June 2021 was at a discount of 20% to
the market value giving an option price of 6.67p.
Culture and conduct
We have a responsibility to all of our stakeholders to act in
accordance with our Code of Ethics. The code is designed
to ensure that we conduct ourselves ethically and in
accordance with Filtronic’s policies and procedures as well
as the laws and regulations that apply to us.
As well as our Code of Ethics, the Company culture is
powered through our values and behaviours which are
instrumental to everything we do.
Values and behaviours
The key values and behaviours of Filtronic are:
• Act with integrity; being honest and fair, always
keeping our promises;
• Be respectful to all; it is the foundation of our culture;
and
• Always strive for excellence; it is what our clients and
colleagues expect and what we endeavour to deliver.
Following the introduction of these values and behaviours
last year, we have taken a holistic approach to ensuring
that they are embedded across the organisation. They
have been written into recruitment, appraisal and
performance management systems.
Recruitment
Competition and demand for technical talent has never
been greater; geographical base limitations have been
removed for many roles driven by a fundamental change
in how and where people work. We have embraced this
shift to ensure that we continue to attract the best talent
with the introduction of hybrid working, and supporting
remote working, where possible.
www.filtronic.com Stock Code: FTCStrategic report Our brand story
30
Our people continued
Our brand story
Our values
& behaviours
Our values
& behaviours
Integrity
Excellence
Respect
Our values
& behaviours
Filtronic employs a special kind of person.
They are experts in their field, confident
communicators who love to collaborate,
solve problems, and step up to a challenge.
Filtronic employs a special kind of person.
They are experts in their field, confident
communicators who love to collaborate,
solve problems, and step up to a challenge.
Integrity
s
e
u
a
V
l
Act with integrity; being
honest and fair, always
keeping our promises.
s
r
u
o
i
v
a
h
e
B
Do the right thing, not the
easy thing, speak up if it’s
not right.
Deliver on your promises.
Be truthful, always being
honest and open.
Be fair and ethical in your
work and decision making.
Take responsibility for your
own actions, learn from
mistakes when they happen.
Respect
s
e
u
a
V
l
Strive for excellence;
Act with integrity; being
honest and fair, always
it is what our clients and
colleagues expect and what
we endeavour to deliver.
keeping our promises.
Be respectful to all; it is
the foundation of our culture.
Be inclusive, always
respecting and
valuing others.
Act how you want to
be treated; being kind,
considerate and respectful
of others and their opinions.
Be supportive and
positive in all your
working relationships.
Value the importance
of equality, diversity
and inclusivity.
Be open-minded and
upfront with people.
Perform to the highest
professional standards.
Do the right thing, not the
easy thing, speak up if it’s
not right.
Be innovative and pragmatic
with problem solving.
Take pride in our work,
paying attention to detail.
Deliver on your promises.
s
r
u
o
i
v
a
h
e
B
Be agile and flexible
in your approach.
Be truthful, always being
honest and open.
Be curious and challenge
constructively to improve
how we work.
Be fair and ethical in your
work and decision making.
© 2022 Filtronic. All rights reserved
This has been a very successful year for recruitment as
we have strengthened our engineering and business
development teams. To deliver this we utilised an RPO
model, implemented a generous employee referral
scheme and used our very well-established industry and
academic contacts. We have also recruited a team of
high-calibre engineers in the Manchester area who bring
a wealth of experience and provides us with a base in the
area to attract engineers from both the Manchester and
Sheffield area where RF engineering skills are available.
Covid-19
We continue to manage any ongoing impact of Covid-19
© 2022 Filtronic. All rights reserved
with the health & safety of our employees remaining our
number one priority. The impact to business operations
has been negligible due to the adoption of home and
hybrid working coupled with robust, pragmatic health and
safety protocols.
Looking to the future - training development
Filtronic continues to work towards future-proofing the
business to ensure we have the right skills to support
business growth. Equipping our leaders with the skills to
manage, lead and deliver on our growth strategy is a key
focus for the Group, to which the rollout of our Leadership
Academy is testament.
This year we will be focussing on establishing an
apprenticeship programme and formal succession
planning.
Take responsibility for your
6
own actions, learn from
mistakes when they happen.
What do you enjoy most about your job?
“There’s always something new to learn in
my role. I enjoy the higher frequency work
especially; it wasn’t something I’d had a ton
of experience with before I joined and the
manufacturing capabilities at NETPark mean
lots of those opportunities exist.”
Laura McDonald
Senior RF Design Engineer
“I really enjoy working at Filtronic, the variety
and progression is a big draw for a new
graduate, plus the investment within the IT
systems makes my job more interesting.”
Muz Hussain
IT Graduate
Excellence
Strive for excellence;
it is what our clients and
colleagues expect and what
we endeavour to deliver.
Be innovative and pragmatic
with problem solving.
Take pride in our work,
paying attention to detail.
Be agile and flexible
in your approach.
Be curious and challenge
constructively to improve
how we work.
Be respectful to all; it is
the foundation of our culture.
Perform to the highest
professional standards.
Be inclusive, always
respecting and
valuing others.
Act how you want to
be treated; being kind,
considerate and respectful
of others and their opinions.
Be supportive and
positive in all your
working relationships.
Value the importance
of equality, diversity
and inclusivity.
Be open-minded and
upfront with people.
6
Filtronic plc Annual Report and Accounts 2022
31
Corporate social responsibility report
Environmental Social Governance
We are committed to doing business ethically and sustainably in the interests of our stakeholders:
shareholders, employees, the environment, customers, suppliers and the communities in which we operate.
This report covers how we interact with our stakeholders, our approach to key issues and the aims for the
future.
Environmental Social Governance
(“ESG”)
Environmental
• Operational energy use
• Operational energy use
and carbon emissions
and carbon emissions
• Waste and recycling
Environmental
• Operational energy use
and carbon emissions
• Waste and recycling
• Waste and recycling
• Technology driving
• Technology driving
digitalisation and carbon
digitalisation and
carbon footprint
footprint reduction
reduction
• Technology driving
digitalisation and
carbon footprint
reduction
Social
• Health, safety and
• Health, safety and
wellbeing
wellbeing
Social
• Health, safety and
wellbeing
• Diversity, inclusion
• Employee engagement
• Employee engagement
and equality
• Attracting and
• Diversity, inclusion and
retaining talent
• Employee engagement
equality
• Diversity, inclusion
and equality
• Attracting and
retaining talent
• Charitable and
• Attracting and retaining
community support
• Human rights and
modern slavery
talent
• Charitable and
community support
• Charitable and
community support
• Human rights and
modern slavery
• Human rights and
modern slavery
Governance
Governance
• Ethical conduct
• Corporate governance
• Ethical conduct
• Ethical conduct
• Corporate governance
chain
• Corporate governance
• Risk management
• Responsible supply
• Risk management
• Responsible supply
• Data privacy and
• Responsible supply chain
• Data privacy and
cybersecurity
cybersecurity
• Data privacy and
chain
cybersecurity
• Risk management
www.filtronic.com
www.filtronic.com
www.filtronic.com Stock Code: FTCStrategic report
32
Corporate social responsibility report continued
Sustainability and the environment
The Group is committed to protecting the environment
through prevention of pollution and minimising our impact
on natural resources. As well as operating in compliance
with all relevant statutory and regulatory obligations, the
Group strives to implement environmental best practices
throughout our activities and continually improve our
environmental management system to enhance our
environmental performance.
During the year, as part of our activities and decision-
making process, we:
• Continued to integrate environmental concerns and
impacts into the design and manufacture of our
products;
• Promoted environmental awareness among our
employees, through implementation of a cycle to work
scheme and encouraging the use of the electric car
recharging stations at our NETPark site;
• Continued to minimise waste through re-use and
recycling and promote efficient use of materials and
resources;
• Strove to prevent pollution and to continually improve
our environmental performance;
• Undertook training from the Responsible Business
Alliance relating to ESG;
• Benchmarked our ESG credentials on a large well-
known business sustainability platform; and
• Reviewed our status against Net Zero as we look to
develop our plans to help tackle climate change.
The Group supports and trains its personnel to act
responsibly in matters relating to the environment. Our
principal manufacturing site in Sedgefield, County
Durham is certified under the ISO 14001 Environmental
Management Systems Requirement.
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. We look forward
to receiving and implementing the UK government’s flow
down to industry of its net-zero carbon target which will
involve measuring carbon emissions and implementing
policies for carbon reduction or off setting the carbon that
is released.
Health and safety (“H&S”)
The Board is committed to ensuring the 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. In the year, we updated our H&S
policy which is published with our group policies and is on
display at each of our sites.
Human rights
Filtronic applies human rights considerations to the way
it does business, for example through ethical sourcing
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 H&S, 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.
Charitable and community support
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.
Supply chain management
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 adopted a Supplier Code of
Conduct in the year which can be found at www.filtronic.
com/about/customer-and-supplier-support/ to ensure
suppliers behave ethically and in alignment with Filtronic’s
values. During the year we also rejuvenated our supplier
questionnaire and supplier management processes
including the implementation of the Supplier Code of
Conduct to improve the governance of our supply chain.
The implementation of these management systems,
which are designed to monitor and control processes such
as quality, the environment and H&S, 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 H&S of our employees and our broader
stakeholders who contribute to our success.
We are certified ISO9001 and are actively working
towards the AS9100 which is the quality management
standard adopted by the aerospace and defence industry.
The FY2022 Strategic report, has been reviewed and
approved by the Board of Directors on 1 August 2022 and
signed on its behalf by
Richard Gibbs
Chief Executive Officer
1 August 2022
Filtronic plc Annual Report and Accounts 2022 Board of Directors
33
Executive Directors
Richard Gibbs (aged 63) : Chief Executive Officer
Appointed to the Board: 1 September 2020
Richard is an experienced director who has led a number of business operations
supplying semiconductor, RF and electronics subsystems to OEMs. Richard joined
Filtronic from Micross Components, where he was Managing Director. Prior to his time
at Micross, Richard spent nine years at E2V Technologies, where he was Group Sales &
Marketing Director and President of the RF Product and Hi-Reliability Semiconductors
Divisions, and 20 years with Honeywell, of which 10 years were spent managing
overseas operations.
Michael Tyerman (aged 43) : Chief Financial Officer
Appointed to the Board: 1 April 2016
Michael joined Filtronic in 2007 as Financial Controller of the Broadband business
and was promoted to the position of Group Financial Controller in 2009. He served
this position until his appointment to the Board. Prior to joining Filtronic, Michael held
various positions within Procter and Gamble, Huntsman and Komatsu which included
time working in the Benelux and Nordic regions. Michael is a Chartered Management
Accountant.
Non-Executive Directors
Jonathan Neale (aged 59) : Non-Executive Chairman
Appointed to the Board: 15 November 2021
Committees:
N
A
R
Jonathan was recently Chief Operating Officer of McLaren Group. Until his retirement
he previously held a number of executive roles with the McLaren Group including Chief
Executive Officer of McLaren Racing F1. Prior to this, Jonathan was Managing Director
of BAE Systems, UK – Hawk Military Aircraft.
Jonathan graduated from the University of Nottingham with an honours degree in
physics and is a Fellow of the Institute of Directors; a council member of the charity The
Foundation for Science and Technology; a Fellow of the Institute of Engineering and
Technology; and a Chartered Engineer.
Peter (Pete) Magowan (aged 54) : Senior Independent Non-Executive Director
Appointed to the Board: 19 November 2018
Committees:
N
A
R
Pete 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 BSc degree in Electrical and Electronic
Engineering from UMIST and has a Diploma in Marketing. He is also a Non-Executive
Director of Solid State Group plc.
John Behrendt (aged 61) : Independent Non-Executive Director
Appointed to the Board: 1 January 2021
Committees:
N
A
R
John was Head of Principal Investments with Eight Roads, part of the Fidelity network
of companies, from 2015 until 2020. John has also held a number of leadership and
operational roles, including CEO of Optegra, CEO/CFO of Frontier Silicon Limited,
CFO for Teraview Limited, and CFO for Alphamosaic Limited. John is a qualified
accountant with the Chartered Institute of Management Accountants (CIMA).
Committee Key:
Chairman of Committee
A
Audit
N
Nominations
R
Remuneration
Governance reportwww.filtronic.com Stock Code: FTC 34
Governance report
Dear Shareholder
On behalf of the Board, I am pleased to present the
Filtronic plc Governance report for the year ended
31 May 2022.
The Board recognises the value of good corporate
governance as the basis for promoting the long-term
growth and sustainability of the business. Governance
arrangements are reviewed on an ongoing basis to
ensure they are fit for purpose and the Board continues
to consider that the Quoted Companies Alliance (“QCA”)
Corporate Governance Code 2018 (“The Code”) provides
the most appropriate framework for governance for the
Company’s size and complexity. Throughout the year, we
have complied with all principles of the Code.
This governance section of the 2022 Annual Report and
Accounts, which includes the corporate governance
statement, the Audit and Risk Committee report, the
Nominations Committee report and the Directors’
remuneration report, describes how Filtronic has applied
the main principles of the Code during the year. Further
information on compliance can be found on the Filtronic
website at https://filtronic.com/investors.
In November 2021, I joined the Board as Chairman. I am
aware that it is my responsibility to ensure that Filtronic
has the governance arrangements in place to support
effective leadership and promote the long-term success of
the Company and that these arrangements are followed
in practice.
Jonathan Neale, Chairman
1 August 2022
Corporate governance statement
Introduction
The Board acknowledges the role that the ten QCA
Code principles has in providing structure to the Group’s
corporate governance framework. This section explains
how we have complied with the ten principles of the QCA
Code.
Principle 1 – Delivering growth in the long-term
As explained fully within the strategic report of the Annual
Report, our strategy is focussed around four core areas:
• Telecoms: defending our current position and target
new customers by developing the E-band roadmap
to W-band with premium performance high power
transceivers, active diplexer and SiP options based on
inhouse MMIC design;
• Defence: increasing defence project coverage with
major customers requiring RF hybrid solutions;
• Space: position Filtronic in Space (HAPS/LEO) market
by virtue of our UK manufacturing capability and
Q-band PA design; and
• Radar: leveraging our current relationships to secure a
bigger role in next generation radar design;
Notwithstanding the challenges posed by the Covid-19
pandemic, as well as the macroeconomic backdrop (e.g.,
inflationary pressures, electronic component shortage
and extended lead-times) during the year, the delivery of
the strategy continues and remains, front and centre, as
the focus of the Board’s attention. Our objective through
the execution of the strategy is to deliver shareholder
value and medium-long term growth. As a Board, we
will ensure that we continue to challenge ourselves and
regularly consider whether we are effective in delivering
this objective.
Our business model and execution of the strategy is
underpinned by the governance framework outlined in this
section.
Principle 2 - seeking to understand and meet
shareholder needs and expectations
Great value is taken from maintaining open relationships
with shareholders and the primary point of contact in
the Company for this function is the CEO, supported by
the Chief Financial Officer (“CFO”) and the Chairman.
The CEO and CFO undertake an extensive programme
of meetings with shareholders at least twice a year.
Additionally, the Chairman is 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 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.
Principle 3 - Take into account wider stakeholder and
social responsibilities and their implication for long
term success
Our stakeholder engagement recognises the materiality
and impact of our stakeholders on the achievement
of the Company’s strategy. Please refer to Section 172
(1) Statement and Stakeholder engagement sections
within the Governance report and the Corporate social
responsibility report of the Strategic report.
Principle 4 – Risk management and internal controls
The Group faces challenges in the execution of its
business strategy. The Board acknowledges that it has
overall responsibility for the Group’s system of internal
controls (which is designed to manage and mitigate
rather than eliminate risk) and to review and monitor
its effectiveness. During the year the remit of the Audit
Committee (renamed the Audit and Risk Committee)
was formally extended to include a quarterly review of
the Group’s risk register with a view to (i) ensuring the
risk register is complete, appropriate and up to date;
(ii) ensuring adequate processes are in place to detect
new or emerging risks; (iii) reviewing risk exposures and
any changes to the status of risks in the risk register;
(iv) reviewing risk management assessment and
Filtronic plc Annual Report and Accounts 2022 processes; (v) reviewing risk mitigation measures and
the appropriateness of responses to risks; (vi) reporting
its findings to the Board. The Group operates a series of
controls which includes the annual strategic planning and
business planning process. Additionally, the Executive
Directors and senior managers provide monthly updates
to the Board in the form of function reports which include
the principal risks and controls they are managing across
the Group. Please see the Risk management section of the
Annual Report for further information.
Principle 5 – Maintain the board as a well-
functioning, balanced team led by the Chairman
The Board is currently comprised of the Chairman
(Jonathan Neale), two Executive Directors (Richard
Gibbs, CEO and Michael Tyerman, CFO) and two Non-
Executive Directors (Pete Magowan and John Behrendt).
Pete Magowan is the Senior Independent Non-Executive
Director and he, together, with John Behrendt are
regarded by the Board as being independent Non-
Executive Directors. During the year, the Board was
supported and assisted by the Company Secretary
and General Counsel (Maura Moynihan), who was in
attendance at and contributed to each board meeting.
All members had access to the advice and services
of the General Counsel and Company Secretary.
Following Maura’s retirement from Filtronic at the end
of the financial year, Michael Tyerman was appointed
Company Secretary on 1 June 2022 (while retaining
his CFO role). In compliance with the Code, the Board
is mindful of the need to develop plans to separate the
roles at an appropriate time. Board members are able to
take independent professional advice at the Company’s
expense in the discharge of their duties.
There is a formal schedule of matters reserved for
the Board. To enhance the Board’s communication
with management and achieve greater operational
transparency, senior management from the sales and
marketing, operational and engineering organisations
are invited to the performance review section of the board
meeting to present their key projects and deliverables at
regular intervals to the Board.
Board meetings
The Board meets each month against a defined reporting
timetable and at times in between the scheduled meetings
when required. Board meetings are held at the Group’s
operational sites to enable local management teams to
present operational and strategic programme progress
to the Board. The Board believes this arrangement
gives greater transparency and enhanced relationships
between the management and the Board. During the
year, board meetings have been held in person at the
Sedgefield and Yeadon sites.
35
Directors’ attendance FY2022
The Board normally schedules at least 10 meetings during
the year. Last year the Board met formally 10 times.
Jonathan Neale1
Richard Gibbs
Reg Gott2
Michael Tyerman
Pete Magowan
John Behrendt
Meetings
attended
6/6
10/10
4/4
10/10
10/10
10/10
1Jonathan Neale was appointed on 15 November 2021
2Reg Gott retired on 28 October 2021
Principle 6 – Ensure that between them directors
have the necessary up-to-date experience, skills and
capabilities
At present, the Board believes that its overall size and
composition reflects an appropriate balance of sector,
financial and public markets skills and experience. The
composition of the Board is 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.
Details of each director’s skills and experience can be
found in the directors’ biographies section on page 33.
The members of the Board bring a range of
complementary skills and experience from across
markets in which the Group operates.
In November 2021, the Board was delighted to welcome
Jonathan Neale as independent Non-Executive
Chairman. Jonathan brought with him a wealth of
relevant directorial experience, technology credentials
and personal qualities to position him well to provide
the clarity of purpose and strong leadership required
to lead the Board effectively as well as oversee the
communication and delivery the Company’s strategy.
Overall, the Board is satisfied that, between the directors,
it has an effective balance of skills and experience. Please
see the Nominations Report for further details on how this
principle is implemented.
Principle 7 - Performance and Performance
Evaluation
Each year, the Board carries out an evaluation of its own
performance at the end of the financial year, reviewing its
performance in that year.
The Chairman and the Company Secretary prepare an
evaluation questionnaire reflecting the considerations
of the corporate governance code as well as significant
events over the year. The performance of the Board, its
Committees, and individual directors is assessed. Board
members are asked to provide feedback for assessment
by the Chairman in the first instance and to Pete
Magowan, Senior Independent Non-Executive Director,
in respect of the Chairman. The combined feedback is
discussed by the Board and actions agreed with progress
Governance reportwww.filtronic.com Stock Code: FTC
36
Governance report continued
on actions monitored during the year. On joining the
business, the Company Secretary arranges an induction
session with each new director covering such matters
as Group and organisation structure, Filtronic’s values
and group policies, an introduction to the AIM Rules for
Companies, the QCA Code, Market Abuse Regulation
(“MAR”) and the terms of reference for the Board’s
committees among other matters. Where specific training
needs are identified, including as a result of the Board
evaluation process and individual director appraisals,
the Company will organise the relevant training. The
Company Secretary supports the Chairman in addressing
the training and development needs of directors.
Following last year’s exercise, the Board received refresher
training on MAR, AIM Rule 11 and other corporate
matters from Pinsent Masons LLP. In addition, further
information on IFRS standards IFRS 15 (revenue from
contracts with customers) and IAS 38 (intangible assets)
was provided as required following last year’s exercise.
Principle 8 – Promote a corporate culture that is
based on ethical values and behaviours
At Filtronic, we believe in collaboration, we work with our
technology leadership clients to solve their complex RF,
microwave and mmWave challenges. Our purpose and
reason for being is to be the trusted provider of innovative
RF solutions. Innovation matters to us, we want to push the
boundaries of what is possible with RF communication.
Filtronic are long-term partners in aerospace and
defence, telecommunications infrastructure and critical
communications. These effective partnerships have
grown from having a strong value-based culture, where all
our employees are encouraged and supported to:
• Act with integrity; being honest, always keeping our
promises.
• Be respectful to all; it is the foundation of our culture.
• Strive for excellence; it is what our clients and
colleagues expect and what we endeavour to deliver.
The Board monitors and promotes its corporate culture
assisted by its senior leadership team (“SLT”), which
includes the Head of HR. This team plays a vital role
in disseminating the Company’s shared values with its
employees. The SLT holds monthly meetings, and its
members are frequently invited to attend sections of the
board meeting which helps the Board assess the Group’s
culture on an ongoing basis.
Principle 9 - Maintain governance structures and
processes that are fit for purpose and support good
decision making by the Board
The Board is responsible for group strategy, delivering
results, risk management and ultimately business
performance. The Board is run by the Chairman.
Remit of the Board
Whilst many day-to-day operational matters are
managed by the Executive Directors and SLT, other
matters, including those listed below, are reserved for the
Board:
• Strategy and oversight of the management of the
Group;
• 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 CEO or
where appropriate to the relevant board committee.
Committees
The Board continues to operate with three committees:
The Audit and Risk 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.
Principle 10 - Communicate how the Company
is governed and is performing by maintaining a
dialogue with shareholders and other relevant
stakeholders
The Company is committed to open communication
with all of its shareholders. Communication with
members is driven primarily through the regulatory
news service (RNS), the company 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 and Risk Committee,
Nominations 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
Filtronic plc Annual Report and Accounts 2022 37
with employees takes place ordinarily through town
hall meetings at each of the Company’s sites, the HR
system, team meetings, health and safety meetings
and training sessions.
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
and directors, 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 with all suppliers issued with the
Filtronic Supplier Code of Conduct which includes, but
is not limited to, its policies on bribery, modern slavery
and conflict minerals. Engagement with suppliers is
overseen by the Chief Operations Officer.
The group policies were reviewed by the Board during
the year and, as a priority for the business, were
communicated, via management cascade, to all
employees.
Governance reportwww.filtronic.com Stock Code: FTC 38
Stakeholder engagement
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 2022, 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 having regard to the six matters listed in s.
172 (1) (a) to (f) of the Companies Act 2006.
Board considerations and decisions
Given the updates from the SLT, some of the topics
considered throughout the year are presented below
demonstrating how the Board discharged their duties:
Employees and culture
• Approval of the new Filtronic values and behaviours.
• Implementation of a new ESOP scheme to incentivise
and align the interests of senior management with
shareholders.
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.
Regular updates from the Senior Leadership
Team (“SLT”)
Throughout the year, the SLT updated the Board with
information on important areas of business focus, in
particular those relating to our key stakeholders. Each
member of the SLT submit a report to the Board each
month providing comprehensive operational updates and
progress against strategic milestones. They are regularly
invited to board meetings to present this information and
update the Board on key points. This ensures the Board
have a good understanding of the priorities of each
stakeholder group to aid decision making.
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, are set out in the Strategic report. The
Board’s long-term objective is to serve 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.
Direct engagement of Board members
The Executive Directors are in daily contact with
employees from across the business to understand
key topics relating to both employees and customers,
sharing regular updates to the Board. Regular reporting
on customer engagement keeps the Board up to date
on customer trends and feedback. A number of board
members had meetings with shareholders during the year
to discuss strategy and business performance.
• Approval of the Hybrid Working Policy to give our
employees flexibility to work from a variety of locations.
• Consideration and approval to improve our employee
engagement processes.
• Recognition of our longest serving members of staff
with the implementation of a Long Service Awards
Policy.
• Approval of the Filtronic Leadership Academy to upskill
employees with managerial responsibility and develop
future leaders , to drive the business forward.
Strategy
• Consideration of company performance against its
strategy.
• Consideration of the technology roadmap and
required investment.
• Update on new customer acquisition, strategic
milestones and consideration of shareholder value.
• Consideration and approval of the FY2022 interim
report.
• Consideration of and approval of the FY2023 business
plan and long-range forecast.
Governance
• Agreed on the appointment of Jonathan Neale as
Non-Executive Chairman.
• Consideration of the IASME Governance cyber security
standard and approval for its implementation.
• Approval of updated Group Policies including a new IT
Policy.
• Approval of the new Supplier Code of Conduct.
• Consideration of an Anti-Tax Evasion Policy and
procedures.
• Update from shareholders in relation to strategy and
remuneration matters.
Filtronic plc Annual Report and Accounts 2022 39
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 demonstrates how the Group engages with its stakeholders and the
outcomes of this during the year:
Stakeholder
How we engage
Key outcomes
Customers
The Board receives feedback from its customer facing
teams. Each key account has a dedicated account
management who acts 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.
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.
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.
We regularly participate in a wide range of trade
shows, conferences and symposia. They play an
important role in our business development planning.
Employees
The Executive Directors communicate with employees
through communication sessions and town hall
meetings 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.
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 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.
Increased levels of engagement with customers at
a strategic level. A greater understanding of both
customer and market trend requirements better
informs the development and refinement of our own
strategy and technology roadmap to ensure we
support our customers to the best of our ability and
invest in the right capability to meet their needs.
Board-level engagement with our customers helps
convey our commitment to understand and meet their
business needs. Following the relaxing of government
restrictions, we have enjoyed many face-to-face
meetings with current and prospective customers in
a more normalised business environment facilitating
strong customer engagement. Having customer onsite
enables them to see our capability and production
facilities demonstrating our credibility as a leading
technology company.
Disclosure of our product development and
technology roadmaps to customers increases
the opportunity to align our mutual interests and
demonstrate we are the ‘go-to company’ when it
comes to leading technology; the NDA protects our
intellectual property interests.
Trade exhibitions and conference attendance
recommenced following the Covid-19 pandemic
for which we have been very active over the last
year. This has facilitated key engagement, not only
with prospective customers, but also having useful
discussions with our existing clients.
Broad ranging and meaningful communication leads
to greater transparency throughout the business and
facilitates a more engaged, motivated and effective
team. This is done through a range of communication
channels including newsletters, emails to all employees
and discussion groups with management flow down
to employees and informal factory floor-walks.
The Group aims to become an attractive employer
by providing a rewarding long-term personal
development opportunity environment, recognising
and rewarding those that have demonstrated strong
performance. We have also funded a number of
training initiatives to develop our employees and
enhance the skills in the business including the newly
introduced Filtronic Leadership Academy to upskill all
staff with managerial responsibility.
A better informed and consulted workforce is more
likely to be both better motivated and more effective.
The Group also operates a T-card system where
employees can offer ideas for business improvements
which are shared with the Executive Directors with the
aim of offering feedback to those that have taking
the time to share their views. The Board have also
approved an annual employee engagement survey
to gain insight into employees’ thoughts and attitudes
towards their work and overall environment.
Governance reportwww.filtronic.com Stock Code: FTC 40
Stakeholder engagement continued
Stakeholder
How we engage
Key outcomes
Employees
(continued)
Investors
Participation in the Company Sharesave scheme.
The Chief Executive Officer 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.
Share scheme participation has aligned the interests
of employees with shareholders giving staff the
opportunity to hold a stake in the company. The
Company opened a new SAYE scheme in the year
open to all employees.
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. All material
information that is worthy of investor announcement
is made available simultaneously to both shareholders
and potential shareholders. Meetings with
shareholders and potential investors were held during
the year with meetings offered both in person and
virtually.
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.
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 were delighted to welcome shareholders
back for the 2021 AGM which was physically held in
Sedgefield with private investors welcomed to attend.
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.
The Company’s broker, finnCap Ltd (“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.
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.
Our Supplier Code of Conduct is flowed down to
our supply chain to ensure compliance with social
responsibility and good governance policies.
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.
We respect that not everyone is “on-line” and continue
to provide shareholders with a choice to receive a hard
copy of the report.
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. A report collated by
finnCap, after the business results investor roadshow,
giving shareholders feedback from each meeting is
shared with the Board.
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 team 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. Following the relaxation of government
guidelines in multiple jurisdictions we have enjoyed
meetings at our suppliers’ sites.
We minimise our exposure to supplier related risks
by requiring them to adhere to our Supplier Code
of Conduct and group policies. They are required
to confirm they are not in conflict with these policies
before or during engagement.
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, from
the Chief Operations Officer, 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.
Filtronic plc Annual Report and Accounts 2022 41
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 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.
Governance reportwww.filtronic.com Stock Code: FTC 42
Nominations Committee report
Membership
The members of the Nominations Committee and the
meetings attended in the year are:
Jonathan Neale (Chairman)1
Pete Magowan
John Behrendt
Reg Gott2
Meetings
attended
2/2
3/3
3/3
1/1
1Jonathan Neale was appointed on 15 November 2021.
2Reg Gott retired on 28 October 2021.
Roles and responsibilities
The Committee’s role and responsibilities are set out
in full in the terms of reference, which are available
on the Filtronic website and set out the Committee’s
responsibilities as follows:
• Ensure the balance of board members remains
appropriate as the Company implements its strategy
to ensure the business can compete effectively in the
marketplace;
• Identify and nominate candidates to fill board
vacancies as and when they arise;
• Before such appointments are made, evaluate the
overall balance and composition of the Board and in
the light of that evaluation, preparing a description
of the roles and capabilities required for the
appointment; and
• Ensure that each new appointee receives a formal and
customised induction to the Group via the Company
Secretary and other board members as appropriate.
Dear Shareholder
I am pleased to present the Nominations Committee
Report for FY2022. This year the Committee continued
to focus on board composition and succession
planning, including reviewing the skills, experience and
personal qualities required for robust and sustainable
leadership for the Board, its committees, and the wider
management team.
This was a busy year for the Committee with several
board changes including the appointment of myself as
Chairman following the retirement of my predecessor,
Reg Gott, and the appointment of Michael Tyerman,
who already serves on the Board as the Chief Financial
Officer, as Company Secretary after Maura Moynihan
retired. The Committee is aware of the QCA guidance to
have a plan in place to appoint a dedicated Company
Secretary at an appropriate time in situations where the
Company Secretary is also a director. The Committee
will keep this arrangement under review until it feels a
dedicated Company Secretary is necessary.
In identifying suitable candidates for board appointment,
the Committee uses the services of external advisers
to facilitate the recruitment search, as it did with my
appointment to the Board, and considers candidates
on merit and against objective criteria. The Committee
recognises the value of a diverse board and will
consider all candidates with the necessary capabilities
in accordance with the Company’s policies including
considerations of equality and diversity.
When a new director joins the Board a full and formal
induction process is undertaken. On my appointment, the
Company Secretary provided me with information about
the Group including board and committee minutes along
with board papers from the last six months, the Group’s
policies, procedures and governance information,
analysis of the Company’s key shareholders, guidance
for directors on their legal and regulatory responsibilities
in an AIM-quoted company, guidance on corporate
governance and board effectiveness and relevant
information about the markets we operate. I also spent
time on an individual basis with the CEO and CFO and
other key management around the business to gain a
better understanding of the business and its culture.
The Nominations Committee also takes account of the
results of the annual board performance evaluation
exercise. The Committee plays a key role in ensuring the
effectiveness of the Board and its ability to deliver long
term success for the Company, including having the
appropriate balance of knowledge, skills and experience
to reflect the changing needs of the business and prepare
for the future.
Filtronic plc Annual Report and Accounts 2022
43
In the year ahead, the Committee will look at its
organisational development plans for the executive
leaders in the business as the Committee recognises that,
developing and retaining talent within the Group are
essential for the continued sustainability of the business.
The Committee will also focus on succession plans for the
Board and key management and to oversee the actions
coming out of the board effectiveness questionnaires
that took place in June 2022 to ensure they are effectively
implemented.
Jonathan Neale
Chairman, Nominations Committee
1 August 2022
Activities of the Nominations Committee during the year
The Nominations Committee discharged its responsibilities during the year by:
Area of review
Activities undertaken
Board
appointments
• Led the search for a new Non-Executive Chairman to replace Reg Gott.
• Recommended the appointment of Jonathan Neale as Non-Executive Chairman.
• Recommended Michael Tyerman to be appointed as Company Secretary.
Board performance
evaluation
• Conducted a rigorous board performance evaluation exercise.
• Agreed the board effectiveness review strategy.
Governance
• Assessed the size and composition of the Board.
• Reviewed and approved the Committee’s terms of reference.
Governance reportwww.filtronic.com Stock Code: FTC 44
Audit and Risk Committee report
Membership
The members of the Audit and Risk Committee and the
meetings attended in the year are:
John Behrendt (Chairman)
Jonathan Neale 1
Pete Magowan
Reg Gott 2
Meetings
attended
3/3
2/2
3/3
1/1
1Jonathan Neale was appointed on 15 November 2021.
2Reg Gott retired on 28 October 2021.
Roles and responsibilities of the Audit and
Risk Committee
The Audit and Risk Committee operates within a
framework of approved terms of reference which
are reviewed annually along with its effectiveness;
recommendations made to the Board of any changes
required from the review. The terms of reference are
available on the Filtronic website, and include the
following roles and responsibilities:
• Monitor and make recommendations to the Board
in relation to the Company’s published financial
statements and other formal announcements relating
to the Company’s financial performance;
• Advise 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;
• Monitor and make recommendations to the Board in
relation to the Company’s internal financial controls
and financial risk management systems;
• Consider the need for an internal audit function,
determine the scope of outsourced internal audit
activities, appoint a provider, agree fees and review the
results of these activities;
• Make recommendations to the Board in relation to
the appointment, re-appointment and removal of the
external auditor and approve the remuneration and
terms of engagement of the external auditor;
• Review and monitor the external auditor’s
independence and objectivity and the effectiveness
of the audit process, taking into consideration the
relevant UK professional and regulatory requirements;
• Monitor the extent to which the external auditor is
engaged to supply non-audit services; and
• Ensure 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.
• Review the company’s risk management systems and
processes to ensure their adequacy and regularly
review the risk register to ensure it is complete and up
to date with appropriate risk mitigation measures in
place where required.
Dear Shareholder
During the year the Board gave additional responsibility
to the Audit Committee to oversee and report on risk
management resulting in the renaming of the Committee
to the Audit and Risk Committee. Therefore, on behalf of
the Board, I am pleased to present the report of the Audit
and Risk Committee.
The Audit and Risk Committee continues to fulfil a vital
role in the Group’s governance framework, providing
independent challenge and oversight of the accounting,
financial reporting and internal control processes,
risk management, the internal audit activity and the
relationship with the external auditor. This report outlines
how the Audit and Risk Committee has discharged its
responsibilities during the year and the key issues it has
considered in FY2022.
The Audit and Risk Committee reviewed the number of
times it meets each year, having expanded the remit of
the Committee to include risk management, and decided
it will meet at least four times a year going forward.
Meetings are generally held immediately prior to a board
meeting to facilitate immediate and efficient reporting to
the Board, with additional meetings where necessary. The
Executive Directors may attend the meeting by invitation
whilst the external auditors attend when requested as do
the outsourced internal audit providers.
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 Audit and Risk 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.
The normal pattern of meetings follows the public
reporting and audit cycle, with meetings to consider the
external audit plan; the half year announcement and
the full year Annual Report and Accounts, the latter
with the external auditors’ observations and opinions.
There are at least two additional meeting in the year to
review the internal audit that has taken place in the year
and consider the key risks of the Group, how they are
managed and review the adequacy of the arrangements
to mitigate those risks.
As Chair of the Committee, I maintain regular dialogue
with the Chief Financial Officer and have direct access
to PricewaterhouseCoopers LLP (“PwC”), the Company’s
external auditor. The Committee meets separately at
least once a year with the external auditors without
others being present to facilitate open discussion and the
opportunity to discuss any concerns.
Next year the Committee will focus on continuing to
monitor risk management systems with the internal audit
activity focussed on cyber security.
John Behrendt
Chairman, Audit and Risk Committee
1 August 2022
Filtronic plc Annual Report and Accounts 2022
45
Activities of the Audit and Risk Committee during the year
During the year, the Audit and Risk Committee discharged its responsibilities by:
Area of review
Activities undertaken
Financial
reporting
External auditors
• Review the Annual Report and Accounts, Interim Report and interim management statements
prior to Board approval.
• Consideration of whether the Annual Report and Accounts is fair, balanced and
understandable.
• Review the external auditor’s detailed report to the Committee on the annual financial
statements.
• Review of accounting policies and significant accounting judgements and estimates.
• Review of changes in accounting standards and their impact.
• Review of the going concern basis of preparation of the financial statements including
consideration of the Group’s latest business plan and three-year outlook, cash flow forecast and
corresponding sensitivities on downside scenarios.
• Review of the external auditor’s plan for the audit of the Group’s financial statements, including
the identification of key risks.
• Review and approval of the external auditor’s terms of engagement, remuneration and
independence.
• Review of the external auditors’ compliance with ethical and professional guidance on audit
partner rotation.
• Assessment of the effectiveness of the audit process.
• Recommendation regarding reappointment of the external auditors.
Risk management
and internal
controls
• Review of the Group’s risk management register.
• Specific focus on risks in the semiconductor supply chain, cost of living and wage inflation, cyber
security as well as the risk of not fulfilling our strategic objective of broadening the customer
base.
• Review of the Group’s internal financial controls operated in relation to the business and
assessment of the effectiveness of those controls in minimising the impact of key risks.
• Review the need for an internal audit function and determine what aspects of the Group’s
operations should be subject to outsourced internal audit scrutiny.
Governance
• Review of the Committee’s terms of reference.
• Training on IFRS 15 (Revenue from contracts with customers) and IAS 38 (Intangible assets).
• Expanded the remit of the Committee to include risk management and renamed it the Audit
and Risk Committee.
• Amended the number of meetings per year following the expanded remit of the Committee.
Key accounting matters
The following key areas of risk and judgement have
been identified and considered by the Audit and Risk
Committee in relation to the business activities and
financial statements of the Group and Parent Company:
• Group – Inventory valuation; and
• Group - Goodwill
• Parent Company – Carrying value of the investment in
subsidiaries.
These issues were discussed with management and the
external auditor, in particular at the pre-year end audit
planning meeting and at the conclusion of the audit of the
financial statements.
Inventory valuation
Filtronic operates in an industry where developments
in product technology and the highly customer specific
nature of some inventory may result in inventory becoming
slow-moving or obsolete. This in turn may mean that
inventory cannot be sold or sales prices for such inventory
are discounted to less than the relevant inventory’s book
value.
The Committee considered a paper from management
analysing this inventory by product and looked at
projected future usage relative to current inventory on
hand. It reviewed the provision for excess and obsolete
inventory and noted that the level of provision and the
methodology applied was appropriate and consistent.
Governance reportwww.filtronic.com Stock Code: FTC 46
Audit and Risk Committee report continued
Fair, balanced and understandable
The Company’s management and the auditor confirmed
to the Audit and Risk 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.
After careful consideration of the advice of the Audit
and Risk Committee, the Board has concluded that the
2022 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.
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 15 and 16 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 financial statements of the Parent Company was
necessary and no impairment of goodwill in the financial
statements of the Group.
External auditor
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 four 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.
Having completed its review, the Audit and Risk
Committee is satisfied that PwC remained effective and
independent in carrying out its responsibilities up to the
date of signing this report.
Filtronic plc Annual Report and Accounts 2022 Directors’ remuneration report
47
Membership
The members of the Remuneration Committee and the
number of meetings attended are:
Pete Magowan (Chairman)
Jonathan Neale 1
John Behrendt
Reg Gott 2
Meetings
attended
5/5
2/2
5/5
3/3
1Jonathan Neale was appointed on 15 November 2021.
2Reg Gott retired on 28 October 2021
The Remuneration Committee compromises the Non-
Executive Directors, including the Chairman.
Role of the Remuneration Committee
The Remuneration Committee’s role is to define and
make recommendations to the Board on the Group’s
remuneration policy and the employment terms of
Executive Directors and senior management along
with the effective implementation of that policy. The
Committee is also responsible for the review and
approval of pay increases, performance related pay
arrangements and share incentive plans along with the
associated performance targets. The Committee’s full
terms of reference are reviewed regularly and approved
by the Board.
Dear shareholder
On behalf of the Board, I am pleased to present the
Filtronic Directors’ remuneration report for the year
ended 31 May 2022. The report explains the work of the
Remuneration Committee during the year and sets out
the payments and awards made to directors.
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 so presents the
following remuneration report.
The Remuneration Committee is committed to structuring
the remuneration packages of Executive Directors and
senior management that are competitive and enable the
Group to attract, retain and motivate talented people
that can develop and execute the Group’s strategy. To
promote the long-term success of the Company, the
Executive Directors incentive benefits are performance-
based and earned only subject to the satisfaction of
performance conditions. These performance conditions
are aligned with the interests of the shareholders.
In the year, the Committee reviewed the basis of the
FY2023 performance-related bonus plan to ensure
it aligned with the interests of shareholders. As the
Company executes on its growth plans it was concluded
that the incentive scheme would be better served by a
revenue-based metric, moving away from the profit-
based plan, with incentives given for achieving stretching
targets against the FY2023 strategic business plan. The
Committee is confident this will drive the right behaviours
in the organisation to deliver long-term shareholder value
and ultimately increased revenue will lead to improved
levels of profit.
To support the long-range strategic plans and further
align the interests of the Executive Directors and key
management with shareholders, the Committee
introduced another employee share option plan (“ESOP”)
in the year which vests in FY2024 based on meeting
stretching revenue targets.
The Committee also recognises that every employee
is key to delivery of our ambitious growth strategy. Our
employees have been outstanding throughout the
pandemic, and in handling the fallout from it such as the
global semiconductor shortages, demonstrating focus,
commitment and drive to continue to deliver to customers.
To recognise this, and incentivise employees to achieve
results likely to deliver share price appreciation, another
Save As You Earn (“SAYE”) scheme was implemented in
the year where employees can exercise their option in
three years’ time at a 20% discount to the share price the
day before grant.
Salary increases in the year were awarded to the
Executive Directors and key management at a rate of 5%
which was approved having undertaken a benchmarking
exercise of pay rises in businesses of similar nature and
size. The Committee also undertook an exercise to review
Governance reportwww.filtronic.com Stock Code: FTC
48
Directors’ remuneration report continued
the benefits awarded to employees including the car
allowance scheme awarded to the Executive Directors
and management in the Group. After consideration, the
Committee approved the proposal to offer all employees
in receipt of the benefit the option of converting their
car allowance into base salary. Both Richard Gibbs and
Michael Tyerman opted to convert their car allowance
benefit.
The main activities of the Committee in FY2022 are set out
in the table below. I hope you find this report gives a clear
account of the Committee’s approach and remuneration
outcomes for the year. We are committed to maintaining
an open dialogue with shareholders with regards to
remuneration and would welcome any comments or
concerns, relating to this report, that shareholders may
have.
Pete Magowan
Chairman, Remuneration Committee
1 August 2022
Activities of the Remuneration Committee during the year
During the year, the Remuneration Committee discharged its responsibilities by:
Area of review
Activities undertaken
Executive
Directors’
and senior
management
remuneration
Share incentive
plans
• Set the remuneration for the Executive Directors and senior management as part of the annual
pay review.
• Set the remuneration for Jonathan Neale on his appointment as a Non-Executive Chairman.
• Assessed and approved the FY2022 bonus outcomes.
• Reviewed and approved the FY2023 performance-related bonus plan changing the
performance criteria to a revenue based metric.
• Considered and approved moving car allowances from a benefit into base salary.
• Approved the grant of share options under the Employee Share Option Plan (“ESOP”) for the
Executive Directors and key management.
• Approved the grant of share options under the Save as you Earn Plan (“SAYE”) for the Executive
Directors and key management.
• Assessed and approved good leaver terms for eligible leavers.
• Reviewed employee share scheme headroom availability.
Governance
• Considered and approved the Annual Report and Accounts on remuneration.
• Reviewed and approved the Committee’s terms of reference.
Details of the service contracts currently in place for directors are as follows:
Name
Executive service agreement appointment date
Key current terms
Richard Gibbs
Chief Executive
Officer
Appointed to the Board on 1 September 2020
Michael Tyerman Appointed to the Board on 1 April 2016
Chief Financial
Officer
Base salary £204,225
Annual bonus
Health insurance
Long-term incentives
Base salary £137,365
Annual bonus
Health insurance
Pension
Long-term incentives
Name
Role
Non-Executive terms of appointment date
Fee
Notice
period
6 months
6 months
Notice
period
Jonathan Neale Chairman and Nominations Appointed to the Board on 15 November 2021 £60,000 6 months
Committee Chairman
Pete Magowan Remuneration Committee
Appointed to the Board on 19 November 2018 £40,000 3 months
Chairman
John Behrendt Audit and Risk Committee
Appointed to the Board on 1 January 2021
£40,000 3 months
Chairman
Filtronic plc Annual Report and Accounts 2022
49
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.
Salary or fee
Bonus
Benefits
Long-term
incentive
Total remuneration
excluding pension
contributions
£000
FY2022 FY2021 FY2022 FY2021 FY2022 FY2021 FY2022 FY2021 FY2022 FY2021
Executive Directors
Richard Gibbs
Michael Tyerman
Non-Executive Directors
Jonathan Neale1
Reg Gott2
Pete Magowan
John Behrendt
Michael Roller
Total
189
126
135
120
33
25
40
40
-
453
-
100
40
17
17
429
75
50
-
-
-
-
-
125
42
38
-
14
-
-
-
94
17
5
-
-
-
-
-
22
15
8
-
-
-
-
-
23
9
3
-
-
-
-
-
12
7
-
-
-
-
-
-
7
290
184
199
166
33
25
40
40
-
612
-
114
40
17
17
553
1Jonathan Neale was appointed to the Board on 15 November 2021.
2Reg Gott retired on 28 October 2021.
Notes to the single figure table of remuneration for directors - audited
Taxable benefits
Taxable benefits in kind were amended in FY2022 as the benefit of a car allowance was transitioned into base salary
instead of being given as a separate benefit to simplify the remuneration structure. The Executive Directors are still
provided with private health insurance and life assurance.
Incentive outcomes for FY2022
The Executive Directors were rewarded during the year for delivering profit targets aligned to the FY2022 business plan.
Annual performance-related bonus plan
An annual performance-related bonus plan has been introduced for the year ending 31 May 2023 which will reward the
Executive Directors and key management cash bonuses for delivering stretching revenue targets aligned to the FY2023
business plan and achievement of personal objectives that support the growth and development of the business.
The Executive Director can earn up to a maximum of 50% of their base salary. Pay-out is determined by the
Remuneration Committee which has discretion to vary the bonus based on performance.
Long-term incentives
The Executive Directors have long-term incentives as part of the Company’s share option plan. More details relating to
this can be found on page 50 in the ‘Management share option plan - audited’ section of the Directors’ remuneration
report.
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 are compared to
the previous year.
Pension contributions
FY2022 FY2021
£000
Michael Tyerman
Total
11
11
11
11
Contributions were made to the Company’s defined contribution scheme.
Richard Gibbs elected not to join the Company’s pension scheme.
Governance reportwww.filtronic.com Stock Code: FTC
50
Directors’ remuneration report continued
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 interests of the directors, who were serving as at 31 May 2022, in the Company’s ordinary shares, which excludes
interests under the share option schemes, are set out below:
2022
2021
Richard Gibbs
Michael Tyerman
Jonathan Neale
Pete Magowan
John Behrendt
Shares
425,000
339,478
199,870
750,000
60,000
1,774,348
%
0.2%
0.2%
0.1%
0.4%
0.0%
0.9%
Shares
225,000
339,478
-
750,000
60,000
1,374,478
%
0.1%
0.2%
-
0.4%
0.0%
0.7%
The above shareholdings include holdings of directors’ connected parties.
Management share options scheme - audited
The Executive Directors who were serving at 31 May 2022 held the following options over the ordinary shares of the
Company:
Richard Gibbs
Richard Gibbs
Richard Gibbs
Michael Tyerman
Michael Tyerman
Michael Tyerman
Plan
ESOP
ESOP
SAYE
ESOP
ESOP
SAYE
Exercise period
Option price
2022
2021
25/09/2023—24/09/2030
24/06/2024—23/06/2031
06/05/2024—05/11/2024
01/03/2019—28/02/2026
24/06/2024—23/06/2031
06/05/2024—05/11/2024
8.00p
11.12p
6.67p
5.37p
11.12p
6.67p
750,000
245,448
35,622
300,000
479,988
58,290
1,869,348
750,000
-
-
300,000
-
-
1,050,000
The ESOP scheme awarded to Michael Tyerman and key management in 2016 awarded share options for delivering a
significant increase in the share price, this performance condition was met and the option vested. The ESOPs granted in
June 2021 to Richard Gibbs, Michael Tyerman and key management were granted for the delivery of stretched targets of
revenue with the options vesting at various incremental increases of agreed targets.
There are no performance conditions attached to the ESOP options granted to Richard Gibbs, vesting in 2023, other than
remaining in employment with Filtronic until the exercise period.
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.
Richard Gibbs and Michael Tyerman both opted to take part in the Company’s SAYE scheme which was offered to all
employees in the year.
The closing middle market price on 31 May 2022 was 10p, and on 31 May 2021 it was 9p. The range of middle market
share prices during the year ended 31 May 2022 was 13p—9p.
There were no changes in directors’ interests between 31 May 2022 and 1 August 2022. The Company’s register of
directors’ interests, which is open to inspection at the Registered Office, contains full details of directors’ shareholdings.
Filtronic plc Annual Report and Accounts 2022
Directors’ report
The directors present their report together with the
audited consolidated financial statements for the year
ended 31 May 2022.
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 20.
After a review of forecasts including projections of
profitability and cash flows for the year to 31 May 2023
and a further two years, 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.
Directors and their interests
The directors of the Company during the year, and up to
the date of this report, were as follows:
Richard Gibbs
Michael Tyerman
Jonathan Neale (appointed on 15 November 2021)
Pete Magowan
John Behrendt
Reg Gott (retired on 28 October 2021)
Details of directors’ interests in the share capital of the
Company are set out in the remuneration report on
page 50.
Jonathan Neale, having been appointed to the Board on
15 November 2021, offers himself for election at the
Annual General Meeting.
Michael Tyerman, retires by rotation, and being eligible,
offers himself for re-election at the Annual General
Meeting.
Pete Magowan, retires by rotation, and being eligible,
offers himself for re-election at the Annual General
Meeting.
51
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.
Directors’ conflicts of interest
There are no declarations to be made under Article 182 of
the Companies Act 2006.
Research and development expenditure
Research and development costs in the year before
capitalisation and amortisation relating to continuing
operations were £1.7m (2021: £1.7m), of which £nil was
capitalised (2021: £0.1m). Amortisation of development
costs in the year was £0.3m (2021: £0.2m).
Financial results and dividend
The results for the year are set out in the income statement
on page 59. The position at the end of the year is shown in
the balance sheet on page 61.
The directors are not recommending payment of a
dividend (2021: £nil).
Significant events and future developments
There have been no significant events since the reporting
date. The Group’s future developments are disclosed in the
Strategic Report on pages 3 to 32.
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 October 2021.
Substantial shareholdings
Up to 31 May 2022, the Company had been notified,
by shareholders, in accordance with chapter 5 of the
disclosure and transparency rules, of the voting rights
they held as shareholders of the Company. An analysis
of shareholders as at 31 May 2022 (as disclosed by
shareholders via TR1) is set out in the table below. As at
31 May 2022, the Company had issued share capital of
214,798,417 ordinary shares of 0.1p each.
Top Investors
Investor
Rank
Mark and Diana Dixon
1
Canaccord Genuity Group Inc.
2
David and Monique Newlands
3
4
River and Mercantile Asset Management LLP
Michael and Alice Bennett
5
31 May 2022
54,000,000
22,490,000
19,521,021
11,333,451
7,054,761
%
25.14
10.50
9.09
5.30
3.28
Governance reportwww.filtronic.com Stock Code: FTC The directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Group and 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 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’s and 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’s and 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.
By order of the Board
Michael Tyerman
Company Secretary
1 August 2022
52
Directors’ report continued
Political and charitable contributions
No contributions were made for political purposes (2021:
£nil). The Group made charitable donations of £100 in the
year (2021: £nil).
Treasury policy
The Group’s treasury policy aims to manage the Group’s
financial risk and to minimise the adverse effects of
fluctuations in the financial markets on the value of
the Group’s financial assets and liabilities, on reported
profitability and on the cash flows of the Group. Note 37
sets out the particular risks to which the Group is exposed,
and how these are managed.
Annual General Meeting
The Annual General Meeting of the Company will be held
on 27 October 2022 at 11am at
Plexus,
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 financial statements
The directors are responsible for preparing the Annual
Report and Accounts 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 and the Company
financial statements in accordance with UK-adopted
international accounting standards.
Under company law, 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
company and of the profit or loss of the Group for that
financial year. In preparing the financial statements, the
directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK-adopted international
accounting standards have been followed, subject to
any material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Company will continue in business.
The directors are responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
Filtronic plc Annual Report and Accounts 2022 53
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 2022 and of the Group’s
profit and the Group’s and Company’s cash flows for the year then ended;
• have been properly prepared in accordance with UK-adopted international accounting standards; 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 2022; 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
Audit scope
• Three full scope audit components have been identified including 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
• Carrying value of goodwill and non-current assets (Group)
• Carrying value of investments (parent)
Materiality
• Overall Group materiality: £170,000 (2021: £155,000) based on 1% of revenue.
• Overall Company materiality: £108,000 (2021: £141,000) based on 1% of total assets.
• Performance materiality: £127,000 (2021: £116,000) (Group) and £81,000 (2021: £106,000) (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.
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.
Governance reportwww.filtronic.com Stock Code: FTC 54
Independent auditors’ report
to the members of Filtronic plc continued
Going concern, which was a key audit matter last year, is no longer included because of the Group’s recent performance,
financial forecasts and available cash and financing facilities. Otherwise, the key audit matters below are consistent with
last year.
Key audit matter
How our audit addressed the key audit matter
Carrying value of goodwill and non-current assets
(Group)
Refer to page 46 (Key accounting matters) and note 16
to the financial statements. We focused on this area due
to the material goodwill balance held on the consolidated
balance sheet and the estimates and judgements
required to determine the recoverable amount.
Carrying value of investments (parent)
Refer to page 46 (Key accounting matters) and note
15 to the financial statements. We focused on this area
due to the material investments balance held on the
Company’s balance sheet and the judgement required to
determine whether or not there has been an impairment
trigger and, where there is an impairment trigger, the
estimates required to assess the recoverable amount of
investments. The investment relates to the filter related
business linked to Filtronic Wireless Ltd and Filtronic
Wireless Inc, as held by Isotek (Holdings) Limited.
We considered the carrying value of goodwill and
non-current assets by reference to the ‘value in use’
model prepared by management, which was based on
discounted cash flows.
We assessed management’s determination of CGUs
against technical guidance and considered whether
the impairment assessment was performed at the
appropriate level, considering management’s own internal
reporting for monitoring of goodwill. We tested the inputs
to the model to Board approved budgets, which included
growth rates and capital expenditure forecasts. We also
tested the integrity of the model and its mathematical
accuracy.
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 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.
We also read the disclosures provided in the financial
statements regarding goodwill impairment testing,
and the associated disclosure of the critical accounting
estimates, and found these to be appropriate.
Based on the procedures we performed we were able to
obtain sufficient audit evidence in respect of the carrying
value of goodwill and non-current assets.
We evaluated whether an impairment trigger was
present in accordance with the accounting framework
and concluded that it was appropriate for management
to prepare an impairment assessment to consider
recoverable amount, being the higher of value in use (VIU)
and fair value less cost to sell (FVLCTS).
We obtained management’s impairment assessment,
which included a VIU model based on discounted cash
flows and a FVLCTS model based on a multiple of
forecast earnings.
We tested the inputs to the models by assessing forecast
cash flows against recent performance of the filters
business and comparing to approved budgets. We also
tested the integrity of the models and their mathematical
accuracy.
Filtronic plc Annual Report and Accounts 2022
Carrying value of investments (parent) (continued)
55
We obtained and reviewed industry and analyst
commentary on the future filters-related market against
which to assess the reasonableness of management’s
assumptions, including the multiple used in management’s
FVLCTS model.
We determined that the FVLCTS model derived a higher
recoverable amount and that it was most sensitive to
the assumption on the multiple applied, for which we
engaged with our valuations specialists to support our
work and conclusions.
We reviewed the disclosures in the Annual Report and
Accounts for compliance with IFRS, particularly in relation
to sensitivity analysis given an impairment has been
recognised.
Based on the procedures we performed we were able
to obtain sufficient and appropriate audit evidence in
respect of the carrying value of the investments 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 two 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 entity within the UK, Filtronic Broadband Limited,
and in addition 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 audit opinion was performed by the PwC UK
engagement team, with the exception of 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
Financial statements - Group
Financial statements - Company
£170,000 (2021: £155,000).
£108,000 (2021: £141,000).
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 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 benchmark.
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 £95,000 and £165,000. Certain
components were audited to a local statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions
and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall
Governance reportwww.filtronic.com Stock Code: FTC 56
Independent auditors’ report
to the members of Filtronic plc continued
materiality, amounting to £127,000 (2021: £116,000) for the Group financial statements and £81,000 (2021: £106,000)
for the Company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls - and concluded that an amount in the middle of our
normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements identified during our audit
above £8,526 (Group audit) (2021: £7,780) and £5,400 (Company audit) (2021: £7,085) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going
concern basis of accounting included:
• Assessing management’s base case and severe but plausible downside cash flow forecasts, including challenging
management on the key assumptions underpinning the models, which included sales forecasts, margin performance
and working capital assumptions;
• Considering the mitigating actions included in the severe but plausible downside scenario to consider whether they
reflected actions within management’s control;
• Reviewing historic trading results and ‘looking back’ to compare them with management’s original budget for the
relevant period, to consider management’s historical forecasting accuracy;
• Testing the mathematical accuracy and integrity of management’s model; and
• Considering the disclosures provided in the financial statements with respect to going concern for consistency with the
models that were subject to audit.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s
and the Company’s ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
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 our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain
opinions and matters as described below.
Filtronic plc Annual Report and Accounts 2022 57
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 2022 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 financial statements, 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..
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with
laws and regulations related to UK and US tax legislation, employment law and health and safety regulations, and
we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act
2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal risks were related to posting journal entries
to manipulate financial performance, management bias through judgements and assumptions in significant accounting
estimates and significant one-off or unusual transactions.. Audit procedures performed by the engagement team
included:
• Discussions with management and those charged with governance and review of board minutes, taking into
consideration known or suspected instances of non-compliance with laws and regulations and fraud;
• Evaluation of management’s controls designed to prevent and detect fraudulent financial reporting;
• Testing accounting estimates that we deemed to present a risk of material misstatement, including assessing the data,
methods and assumptions applied by management in the development of each estimate;
• Identifying and testing journal entries using a risk-based targeting approach for unexpected account combinations; and
• Reviewing financial statement disclosures and testing to supporting documentation, where appropriate, to assess
compliance with applicable laws and regulations.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances
of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the
financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In
other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is
selected.
Governance reportwww.filtronic.com Stock Code: FTC 58
Independent auditors’ report
to the members of Filtronic plc continued
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 obtained 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
1 August 2022
Filtronic plc Annual Report and Accounts 2022 Consolidated income statement
for the year ended 31 May 2022
Revenue
Adjusted earnings before interest, taxation, depreciation, amortisation and
exceptional items
Amortisation of intangible assets
Impairment of development costs
Depreciation of property, plant and equipment and right of use assets
Adjusted operating profit
Exceptional items
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the year
Basic earnings per share
Diluted earnings per share
59
Group
Note
2022
£000
2021
£000
3
17,052
15,556
16
16
17, 18
5
4
11
12
13
14
14
2,807
(278)
-
(945)
1,584
391
1,975
(194)
111
1,892
(424)
1,468
0.68p
0.68p
1,773
(209)
(45)
(941)
578
64
642
(431)
-
211
(151)
60
0.03p
0.03p
The profit for the year is attributable to the equity shareholders of the Parent Company, Filtronic plc.
The notes on pages 66 to 92 form part of these financial statements.
Financialswww.filtronic.com Stock Code: FTC
60
Consolidated statement of
comprehensive income
for the year ended 31 May 2022
Profit for the year
Other comprehensive income/(expense)
Items that are or may be subsequently reclassified to profit and loss:
Currency translation movement arising on consolidation
Total comprehensive income/(expense) for the year
Note
Group
2022
£000
2021
£000
1,468
60
29
179
1,647
(98)
(38)
The total comprehensive income for the year is attributable to the equity shareholders of the Parent Company, Filtronic
plc.
All income recognised in the year was generated from continuing operations.
The notes on pages 66 to 92 form part of these financial statements.
Filtronic plc Annual Report and Accounts 2022 Consolidated balance sheet
as at 31 May 2022
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
Total assets
Current liabilities
Trade and other payables
Provisions
Deferred income
Financial liabilities
Lease liabilities
Non-current liabilities
Deferred income
Financial liabilities
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Translation reserve
Retained earnings
Total equity
61
Group
Note
2022
£000
2021
£000
16
17
18
19
20
21
22
23
24
25
26
24
25
26
27
28
29
31
1,495
2,293
701
868
5,357
2,598
4,479
4,006
11,083
16,440
1,716
2,268
1,014
1,218
6,216
2,190
3,294
2,906
8,390
14,606
2,993
2,380
282
172
-
540
397
184
63
542
3,987
3,566
130
-
1,280
1,410
5,397
11,043
10,796
11,060
(471)
128
76
1,478
1,682
5,248
9,358
10,795
11,039
(650)
(10,342)
(11,826)
11,043
9,358
The total equity is attributable to the equity shareholders of the Parent Company, Filtronic plc.
Company number 2891064.
The notes on pages 66 to 92 form part of these financial statements. The financial statements on pages 66 to 92 were
approved by the Board of Directors on 1 August 2022 and signed on its behalf by
Richard Gibbs
Chief Executive Officer
1 August 2022
Financialswww.filtronic.com Stock Code: FTC 62
Consolidated statement of
changes in equity
for the year ended 31 May 2022
Balance at 1 June 2020
Profit for the year
New shares issued
Currency translation movement arising on consolidation
Share-based payments
Balance at 31 May 2021
Profit for the year
New shares issued
Currency translation movement arising on consolidation
Share-based payments
Balance at 31 May 2022
Share
capital
£000
Share
premium
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
10,794
11,000
(552)
(11,888)
9,354
-
1
-
-
-
39
-
-
-
-
(98)
-
60
-
-
2
10,795
11,039
(650)
(11,826)
-
1
-
-
-
21
-
-
-
-
179
-
1,468
-
-
16
60
40
(98)
2
9,358
1,468
22
179
16
10,796
11,060
(471)
(10,342)
11,043
Company statement of
changes in equity
for the year ended 31 May 2022
Balance at 1 June 2020
Loss for the year
New shares issued
Share-based payments
Balance at 31 May 2021
Loss for the year
New shares issued
Share-based payments
Balance at 31 May 2022
The notes on pages 66 to 92 form part of these financial statements.
Share
capital
£000
Share
premium
£000
Retained
earnings
£000
Total
equity
£000
10,794
11,000
(10,441)
11,353
-
1
-
-
39
-
10,795
11,039
-
1
-
-
21
-
(728)
(728)
-
2
40
2
(11,167)
(3,434)
10,667
(3,434)
-
16
22
16
10,796
11,060
(14,585)
7,271
Filtronic plc Annual Report and Accounts 2022 Consolidated cash flow statement
for the year ended 31 May 2022
Cash flows from operating activities
Profit for the year from continuing operations
Taxation
Finance income
Finance costs
Operating profit
Share-based payments
Depreciation of property, plant and equipment and right of use assets
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
Net cash generated from operating activities
Cash flows from investing activities
Capitalisation of development costs
Acquisition of other intangible assets
Acquisition of plant and equipment
Acquisition of right of use assets
Proceeds on sale of assets
Net cash used in from investing activities
Cash flows from financing activities
Interest paid
Proceeds from bank loans
Repayment of 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 66 to 92 form part of these financial statements.
63
Group
2022
£000
2021
£000
1,468
424
(111)
194
1,975
16
945
278
-
(273)
(1,100)
550
(115)
(10)
19
2,285
-
(57)
(61)
(132)
-
(250)
(194)
-
(131)
22
(653)
(8)
(964)
1,071
29
2,906
4,006
60
151
-
431
642
2
941
209
45
626
1,489
(1,026)
(712)
(255)
495
2,456
(52)
(69)
(177)
(106)
12
(392)
(225)
131
(209)
40
(666)
(104)
(1,033)
1,031
(153)
2,028
2,906
Financialswww.filtronic.com Stock Code: FTC 64
Company balance sheet
as at 31 May 2022
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
Retained earnings brought forward
Total equity
Company
2022
£000
4,179
72
4,251
6,321
259
6,580
2021
£000
6,551
58
6,609
7,403
158
7,561
10,831
14,170
3,560
3,560
7,271
10,796
11,060
3,503
3,503
10,667
10,795
11,039
(14,585)
(11,167)
7,271
10,667
Note
15
16
21
22
27
28
31
The Company made a loss in the year of £3,434,000 (2021:£728,000).
Company number 2891064.
The notes on pages 66 to 92 form part of these financial statements. The financial statements on pages 66 to 92 were
approved by the Board of Directors on 1 August 2022 and signed on its behalf by
Richard Gibbs
Chief Executive Officer
1 August 2022
Filtronic plc Annual Report and Accounts 2022 Company cash flow statement
for the year ended 31 May 2022
Cash flows from operating activities
Loss for the year
Finance costs
Operating loss
Amortisation of intangible assets
Impairment of investments in subsidiaries
Share-based payments
Movement in trade and other receivables
Movement in trade and other payables
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Acquisition of intangible assets
Net cash used in 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 66 to 92 form part of these financial statements.
65
Company
2022
£000
2021
£000
(3,434)
1
(3,433)
14
2,372
16
1,082
71
122
(28)
(28)
22
(14)
(1)
7
101
158
259
(728)
1
(727)
19
-
2
(2,117)
2,812
(11)
(49)
(49)
40
(13)
(1)
26
(34)
192
158
Financialswww.filtronic.com Stock Code: FTC 66
Notes to the financial statements
for the year ended 31 May 2022
1
Accounting policies
Reporting entity
Filtronic plc is a public company limited by shares registered in England and Wales, domiciled in the United
Kingdom, and listed on AIM on the London Stock Exchange. The principal activity of the Company is design,
development and manufacture of high performance Radio Frequency (“RF”) technology.
Basis of preparation
The consolidated financial statements for the year ended 31 May 2022 have been prepared in accordance with
UK-adopted international accounting standards and with the requirements of the Companies Act 2006.
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 2022, the Group had cash at bank of £4m and access to undrawn invoice discounting facilities of £3m
and $4m in the UK and US respectively. Details of these facilities can be found in note 37.
As referred to in the Strategic report, the Board recognises the uncertain economic and political environment that
the world faces and has reviewed the business outlook to reflect this uncertainty. Cash flow forecasts have been
prepared to model various scenarios over a three-year period based on the Group’s financial and trading position,
principal risks and uncertainties and strategic plans. A downside scenario was modelled where programme
curtailment and/or delays may adversely affect forward-looking demand to levels lower than those initially
modelled in the base case scenario.
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 financial
statement
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 financial year, 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.
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.
Filtronic plc Annual Report and Accounts 2022 67
1
Accounting policies (continued)
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 expected to be received in exchange for fulfilling the performance obligation 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:
1) Identify the contract(s) with the customer;
2) Identify the performance obligations in the contract;
3) Determine the transaction price;
4) Allocate the transaction price to the performance obligations in the contract; and
5) 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.
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. The nature of our revenue is
disclosed below:
Revenue relating to finished goods product
Sales of finished goods product to customers are recognised when control of the product has transferred to the
customer and the performance obligation has been satisfied at a point in time. This is usually when title passes,
either on shipment or on receipt of goods depending on the delivery terms of the customer contract. The transaction
price is specified in the customer contract.
Revenue relating to 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 output method basis; outputs are typically milestones
within the development such as design reviews, reports and prototype products. Based on the performance of the
obligations in the contract being met, 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. A credit is made to equity
equal to the share-based payment charge in the financial year.
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.
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 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.
Financialswww.filtronic.com Stock Code: FTC 68
Notes to the financial statements continued
for the year ended 31 May 2022
1
Accounting policies (continued)
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:
1) The technical feasibility can be tested against relevant milestones,
2) The probable revenue stream foreseen over the life of the resulting product can support the development, and
3) 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 as they are
incurred in response to continual customer demand to enhance the product functionality or to reduce product cost.
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.
Filtronic plc Annual Report and Accounts 2022 69
1
Accounting policies (continued)
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 which includes the Group’s leased office equipment such as
printers. 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 or the incremental borrowing rate. This is the rate when
it is not possible to determine the interest rate in the lease and represents what we would have to pay for a loan of
a similar item and term of repayment. 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 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.
Where property leases contain a break option the value of the lease liability and right of use asset recognised on
the balance sheet requires judgement to determine the lease term. The Group recognises the full term of the lease,
ignoring the break option, as invariably the option will not be exercised.
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:
• Fixtures and fittings
• Plant and equipment
• Computer hardware
2 to 10 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. Net realisable value is the estimated selling price less estimated costs of completion and
sale.
Trade and other receivables
Trade and other receivables are amounts due from customers for goods and services performed in the ordinary
course of business. They are initially recorded at the transaction price and thereafter measured at amortised cost
using the effective interest method, less an allowance for expected credit losses.
Cash and cash equivalents
For the purpose of the cash flow statement and statement of financial position, cash and cash equivalents comprise
cash at bank and short-term bank deposits with an original maturity of three months or less.
Defined contribution pension schemes
Defined contribution pension schemes are operated for employees. Contributions are recognised as an expense in
the income statement as incurred.
Financialswww.filtronic.com Stock Code: FTC 70
Notes to the financial statements continued
for the year ended 31 May 2022
1
Accounting policies (continued)
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.
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 financial year they are paid. Final dividends are recognised in
equity in the financial year 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.
Filtronic plc Annual Report and Accounts 2022 71
1
Accounting policies (continued)
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.
The following amendments are effective for the financial year beginning 1 June 2022:
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
• Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41);
• References to Conceptual Framework (Amendments to IFRS 3);
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12);
There are no new standards that have become effective in the year that affect the Group.
Financialswww.filtronic.com Stock Code: FTC 72
Notes to the financial statements continued
for the year ended 31 May 2022
2
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 and best estimates of the future, that are believed to be reasonable under the
circumstances. Actual results may differ from the expected results.
The estimates and judgements that have a significant effect on the financial statements are considered below.
Investments in subsidiaries
Investments in subsidiaries are tested for impairment by reference to their recoverable amount relative to their
carrying value. In accordance with IAS 36, recoverable amount is determined as the higher of value in use (“VIU”),
determined based on the expected cash generated by the CGU to which the investment relates and fair value less
costs to sell (“FVLCTS”). Both models are subject to uncertainties surrounding the EBITDA and cash flow forecasts
being used.
Goodwill and other intangibles—impairment
Goodwill and other intangibles are tested for impairment by reference to the expected cash generated by the cash
generating unit (“CGU”) or group of CGUs. This is deemed to be the best approximation of value, but is subject to
the same uncertainties as the cash flow forecast being used. The forecasts comprise forecasts of revenue, material
costs and overhead costs based on current and anticipated market conditions that have been considered and
approved by the Board. Whilst the Group is able to manage most of its costs, significant elements of the revenue
forecasts are inherently linked to global demand where uncertainty about both the timing and level of growth
remains which is a key sensitivity.
The sensitivity analysis in respect of the recoverable amount of goodwill is presented in note 16.
Capitalisation of development costs
Intangible assets include development cost assets which have been reviewed for impairment as at the reporting
date.
The recoverable amount of each technology development project has been determined based on value in use
calculations, using cash flow projections in line with the expected useful economic life of each asset. The value in use
calculations are based on management approved risk-adjusted cash flow forecasts for each project and have been
discounted using a discount rate of 12%.
The key assumptions used in the cash flow projections relate to revenue and gross profit margin for each technology
and are based on assumptions about expected customer demand which is inherently linked to the global demand
for the technology under development where the timing and level of demand is subject to uncertainty. The Group
has carried out a sensitivity analysis on the impairment tests of each of these projects, using various reasonably
possible scenarios and concluded there to be no impairment risk.
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. The Group has assessed the recoverability of its deferred
tax assets by reference to Board approved budgets and cash flow forecasts. 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.
Deferred tax assets have been recognised within Filtronic Broadband Limited in the UK and Filtronic Wireless Inc.
in the USA so a change to forecast customer demand in either of these subsidiaries would impact on the amount of
deferred tax asset recognised. A 10% forecast reduction in the profitability of these subsidiaries would see deferred
tax asset recognition reduce by an additional £125,000.
Filtronic plc Annual Report and Accounts 2022 73
3
Segmental analysis
Operating segments
IFRS 8 requires consideration of the identity of the chief operating decision maker (‘CODM’) within the Group. In line
with the Group’s internal reporting framework and management structure, the key strategic and operating decisions
are made by the Chief Executive Officer, who reviews internal monthly management reports, budget and forecast
information as part of this. Accordingly, the Chief Executive Officer is deemed to be the CODM.
The CODM has identified one operating segment within the Group as defined under IFRS 8. In turn, this is the
only reportable segment of the Group as the entities in the Group have similar products and services, production
processes and economic characteristics. Therefore, there is no allocation of operating expenses, profit measures or
assets and liabilities to specific commercial markets.
Accordingly, the CODM assesses the performance of the operating segment on financial information which is
measured and presented in a manner consistent with those in the financial statements by reference to Group results
against budget.
The Group profit measures are adjusted operating profit and adjusted EBITDA, both disclosed on the face of
the consolidated income statement. No differences exist between the basis of preparation of the performance
measures used by management and the figures in the Group financial statements.
The Group has three customers representing individually over 10% of revenue each and in aggregate 81% of
revenue. This is split as follows:
• Customer A - 36% (2021: 35%)
• Customer B - 23% (2021: 33%)
• Customer C - 22% (2021: 19%)
Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers and the nature of revenue recognised. 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
2022
£000
7,489
3,421
5,313
829
2021
£000
4,693
4,178
4,197
2,488
17,052
15,556
2022
£000
2021
£000
5,109
5,293
248
923
5,357
6,216
Non-current assets relate to property, plant and equipment, right of use assets, goodwill and other intangible assets
and deferred tax.
Financialswww.filtronic.com Stock Code: FTC 74
Notes to the financial statements continued
for the year ended 31 May 2022
4
Operating profit
Revenue from goods and services
Revenue from non-recurring engineering (“NRE”) projects
Revenue
Material cost of goods sold
Wages and salaries
Social security costs
Pension costs
Share-based payments
Furlough payments received
Staff costs
Impairment of development costs
Amortisation
Depreciation
Depreciation, amortisation and impairment
Other operating income
Non-salary related exceptional items
Other expenses
Total operating costs
Operating profit
2022
£000
2021
£000
16,580
14,375
472
1,181
17,052
15,556
5,645
5,532
577
291
16
-
6,416
-
278
945
1,223
(329)
(391)
2,513
9,432
1,975
5,462
5,576
543
280
2
(83)
6,318
45
209
941
1,195
(345)
(64)
2,348
9,452
642
Development costs of £nil were capitalised in the year (2021: £52,000).
5
Exceptional items
Exceptional items are costs that are separately disclosed due to their material and non-recurring nature in order to
reflect management’s view of the underlying business.
Operating costs are stated after crediting exceptional items as follows:
Antenna warranty
Historic claim
2022
£000
(339)
(52)
(391)
2021
£000
-
(64)
(64)
The antenna warranty item relates to the Group’s legacy Telecoms Antenna Operation previously costed through
discontinued operations. The warranty period has now lapsed, and the provision was released unused.
A provision relating to an historic claim was released unused and credited to the income statement as it related to
the Telecoms Antenna Operation, sold in January 2020.
Filtronic plc Annual Report and Accounts 2022
6
Operating items
Operating profit is stated after charging/(crediting):
Depreciation
Research and development costs in the income statement excluding amortisation
Amortisation of development costs (R&D)
Amortisation of other intangible assets
Foreign exchange (gain)/loss
75
2022
£000
2021
£000
945
1,937
259
19
(141)
941
1,663
182
27
205
7
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
Additional fees relating to prior year audit
Other services relating to taxation
8
Employees
The average number of employees comprised:
Manufacturing
Research and development
Sales
Administration
2022
£000
2021
£000
35
75
-
-
28
75
15
1
110
119
2022
Number
2021
Number
78
26
5
15
86
24
5
15
124
130
Financialswww.filtronic.com Stock Code: FTC
76
Notes to the financial statements continued
for the year ended 31 May 2022
9
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 47 to 50. The compensation of the directors was:
Salary or fees
Bonus
Benefits
Long term incentives
Total remuneration excluding pension contributions
Pension contributions
2022
£000
453
125
22
12
612
11
623
2021
£000
429
94
23
7
553
11
564
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.
10
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 £931,000 (2021: £935,000) and a royalty charge of 1% of filters product sales to Filtronic Wireless
Limited of £38,000 (2021: £30,000). 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 21 and 22
through the movement in the Company’s intercompany receivables and payables.
The amount outstanding from subsidiary undertakings to the Company at 31 May 2022 totalled £6.3m (2021:
£7.4m). Amounts owed to subsidiary undertakings by the Company at 31 May 2022 totalled £2.8m (2021: £2.8m)
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.
11
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
2022
£000
-
127
67
-
194
2021
£000
6
136
82
207
431
Filtronic plc Annual Report and Accounts 2022 12
Finance income
Revaluation of foreign currency denominated intercompany balance
13
Taxation
Recognised in the income statement
Current tax credit
Overseas taxation in the financial year
Adjustment in respect of prior year — R&D tax credit
Total current tax credit
Deferred tax charge/(credit)
Change of tax rate
Origination and reversal of temporary differences
Total deferred tax charge
Income tax charge
The reconciliation of the effective tax rate is as follows:
Profit before taxation
Profit before taxation multiplied by standard rate of corporation tax
in the UK (19%) (2021:19%)
Disallowable items
Deferred tax asset not recognised
Enhanced R&D tax credit
Adjustment in respect of prior year R&D tax credit
Foreign tax not at UK rate
Derecognition of deferred tax asset
Rate change of deferred tax
Taxation
77
2021
£000
-
-
2021
£000
(15)
(371)
(386)
-
537
537
151
2021
£000
211
40
213
213
(176)
(371)
(15)
247
-
151
2022
£000
111
111
2022
£000
-
(24)
(24)
(109)
557
448
424
2022
£000
1,892
359
155
194
(270)
(24)
15
104
(109)
424
The main rate of UK corporation tax for the financial year was 19% whilst the US federal corporate tax rate is 21%.
The deferred tax assets recognised in the year have been calculated at the rates expected to be in existence in the
period of reversal.
On 3 March 2021, in the Budget, the UK Government announced that the corporation tax rate will increase to
25% for companies with profits above £250,000 with effect from 1 April 2023, as well as announcing several other
changes to allowances and treatment of losses. These changes were enacted on 24 May 2021.
Financialswww.filtronic.com Stock Code: FTC 78
Notes to the financial statements continued
for the year ended 31 May 2022
14
Earnings per share
Profit for the year
Basic weighted average number of shares
Dilution effect of share options
Diluted weighted average number of shares
Basic earnings per share
Diluted earnings per share
15
Investments in subsidiaries
Cost
At 1 June 2020, 31 May 2021 and 31 May 2022
Impairment
At 1 June 2020 and 1 June 2021
Impairment in the year
At 31 May 2022
Carrying amount at 31 May 2021
Carrying amount at 31 May 2022
Total
Group
2022
£000
1,468
2021
£000
60
‘000
‘000
214,726
213,397
868
897
215,594
214,294
0.68p
0.68p
0.03p
0.03p
Company
investments in
subsidiaries
£000
21,110
(14,559)
(2,372)
(16,931)
6,551
4,179
The investments in subsidiaries are assessed annually to determine if there is any indication that any of the
investments might be impaired. The assessment of the carrying amount is derived from the higher of the value in use
and the fair value less costs to sell. Value in use is determined by discounting the future cash flows generated from
the continuing use of the cash generating unit (“CGU”) to which the investment relates whilst the fair value less costs
to sell is the amount that a market participant would pay for the asset or CGU, less the costs of sale.
The carrying amount was calculated using the fair value less costs to sell model which returned a higher carrying
value based on the following key assumptions:
• The profits generated within the CGU based on past experience and actual operating results;
• An assessment of recent market transactions corroborated by valuation multiples and quoted share prices for
publicly traded companies.; and
• Appropriate costs that may be included in the ‘costs to sell’ such as legal and professional fees.
Based on the testing, an impairment charge was recognised in the year. The key sensitivity in the model is the
valuation multiple utilised to compute the fair value less costs to sell. Had the valuation multiple changed by -/+ 1
then there would have been a further impairment charge or write back of £1,029,000.
Filtronic plc Annual Report and Accounts 2022 79
15
Investments in subsidiaries (continued)
The Company’s subsidiaries are related parties.
The subsidiaries at 31 May 2022, which were owned by Filtronic plc, were as follows:
Name of subsidiary
Country of
incorporation
Description of
equity held
Proportion
held
Activity
Filtronic Broadband Limited1
UK
1p ordinary shares
100%
Filtronic Holdings UK Limited1
Isotek (Holdings) Limited1
UK
UK
£1 ordinary shares
1p ordinary shares
100%
100%
Owned by Isotek (Holdings) Limited:
Filtronic Wireless Limited1
UK
1p ordinary shares
100%
Filtronic Wireless Inc.2
USA
US$1 ordinary shares
100%
Design and manufacture
of microwave products for
telecommunication systems
Holding Company
Holding Company
Design and manufacture of
filters and related products for
telecommunication systems
Design and manufacture of
filters and related products for
telecommunication systems
Owned by Filtronic Wireless Limited:
Isotek Hong Kong Holdings
Limited3
Hong Kong
HK$1 ordinary shares
100%
Holding Company
Owned by Isotek Hong Kong Holdings Limited:
Isotek Telecommunications
Suzhou Limited4
China
US$350,000
paid in share capital
100%
Design and manufacture
of filters and related products
for telecommunication systems
1 Plexus 1, NETPark, Thomas Wright Way, Sedgefield, County Durham TS21 3FD, United Kingdom
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
Financialswww.filtronic.com Stock Code: FTC 80
Notes to the financial statements continued
for the year ended 31 May 2022
16
Goodwill and other intangible assets
Goodwill
£000
Other intangibles
(core technology)
£000
Group
Software
costs
£000
Development
costs
£000
Company
Software
costs
£000
Total
£000
974
10,884
Cost
At 1 June 2020
Additions
Disposals
Exchange differences
At 31 May 2021
Additions
At 31 May 2022
Amortisation
At 1 June 2020
Provided in the year
Disposals
Impairment of intangible assets
Exchange differences
At 31 May 2021
Provided in the year
At 31 May 2022
-
-
-
974
-
974
-
-
-
-
-
-
-
-
Carrying amount at 31 May 2021
Carrying amount at 31 May 2022
974
974
-
-
-
10,884
-
10,884
10,884
-
-
-
-
10,884
-
10,884
-
-
573
69
(305)
(14)
323
57
380
537
27
(305)
-
(16)
243
19
262
80
118
1,028
13,459
52
(65)
-
121
(370)
(14)
1,015
13,196
-
57
1,015
13,253
191
182
(65)
45
-
353
259
612
662
403
11,612
209
(370)
45
(16)
11,480
278
11,758
1,716
1,495
97
49
(19)
-
127
28
155
69
19
(19)
-
-
69
14
83
58
72
Goodwill and other intangibles relate to the acquisition of Isotek (Holdings) Limited. Goodwill is allocated to
the CGUs that were expected to benefit from the synergies of the combination and which 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
CGUs. The calculation of the value in use was based on the following key assumptions:
• Budgets incorporating pre-tax cash flows have been prepared to 31 May 2023 based on past experience, actual
operating results, known future cash flows and estimates of future cash flows;
• Cash flows for a further four years have been prepared based on the Company’s long range plan together with
cost inflation and additional overhead assumptions. A perpetuity factor has been applied based on the year to
31 May 2027. A long-term growth factor of nil was applied to the perpetuity cash flows; and
• The Group’s pre-tax discount rate of 12% (2021:12%) was applied in determining the recoverable amount of the
unit, being the estimated weighted average cost of capital for the CGUs.
Based on the testing above the directors do not consider any of the remaining goodwill or intangible assets to be
impaired, even allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount
rate.
Filtronic plc Annual Report and Accounts 2022 17
Right of use assets
Cost
At 1 June 2020
Additions
Disposals
Exchange differences
At 31 May 2021
Additions
Exchange differences
At 31 May 2022
Depreciation
At 1 June 2020
Provided in the year
Disposals
Exchange differences
At 31 May 2021
Provided in the year
Exchange differences
At 31 May 2022
Carrying amount at 31 May 2021
Carrying amount at 31 May 2022
81
Total
£000
3,060
563
(533)
(42)
3,048
578
38
Property
leases
£000
Plant and
equipment
£000
1,333
330
-
(37)
1,626
66
34
1,727
233
(533)
(5)
1,422
512
4
1,726
1,938
3,664
226
285
-
(16)
495
331
27
853
1,131
873
149
393
(256)
(1)
285
232
1
518
1,137
1,420
375
678
(256)
(17)
780
563
28
1,371
2,268
2,293
The Group’s lease commitments are made up of property leases and plant and equipment. Plant and equipment
classified as a right of use asset is financed under asset finance agreements which usually require the Group to
make a deposit against the machinery of 20%.
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 up to seven years.
In addition to the depreciation charges shown in the table above, the consolidated income statement includes the
following amounts relating to leases:
Interest expense (included in finance cost)
Expense relating to viable lease payments not included in lease
liabilities (included in operating costs)
2022
£000
127
2021
£000
136
7
14
Financialswww.filtronic.com Stock Code: FTC
82
Notes to the financial statements continued
for the year ended 31 May 2022
18
Property, plant and equipment
Cost
At 1 June 2020
Additions
Disposals
Exchange differences
At 31 May 2021
Additions
Disposals
Exchange differences
At 31 May 2022
Depreciation
At 1 June 2020
Depreciation
Disposals
Exchange differences
At 31 May 2021
Depreciation
Disposals
Exchange differences
At 31 May 2022
Carrying amount at 31 May 2021
Carrying amount at 31 May 2022
19
Deferred tax
Deferred tax assets
Opening balance
(Reversal)/origination of tax losses
Utilisation of tax losses
Origination/(reversal) of capital allowances
Exchange differences
Change of tax rate
Group
Fixtures
and fittings
£000
Plant and
equipment
£000
Computer
hardware
£000
Company
Plant and
equipment
£000
Total
£000
220
98
(22)
(4)
292
3
-
1
296
149
25
(21)
(3)
150
31
-
1
182
142
114
6,458
79
(2,716)
(55)
3,766
51
(441)
42
3,418
5,478
218
(2,704)
(46)
2,946
337
(441)
35
2,877
820
541
270
-
(99)
(1)
170
7
-
1
6,948
177
(2,837)
(60)
4,228
61
(441)
44
178
3,892
197
20
(99)
-
118
14
-
-
132
52
46
5,824
263
(2,824)
(49)
3,214
382
(441)
36
3,191
1,014
701
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Group
2022
£000
2021
£000
1,218
(585)
(309)
342
93
109
868
1,868
74
(290)
(322)
(112)
-
1,218
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.
Filtronic plc Annual Report and Accounts 2022
83
19
Deferred tax (continued)
Deferred tax assets which have been recognised:
Depreciation in advance of capital allowances
Tax losses carried forward
Group
2022
£000
415
453
868
2021
£000
73
1,145
1,218
Company
2022
£000
2021
£000
-
-
-
-
-
-
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. These deferred tax assets are presented below:
Deferred tax assets which have not been recognised:
Depreciation in advance of capital allowances
Tax losses carried forward
Share options deferment
20
Inventories
Raw materials
Work in progress
Finished goods
Inventory provision
Inventories (net of provision)
Group
Company
2022
£000
2021
£000
1,397
1,732
2022
£000
510
2021
£000
455
15,775
11,724
13,917
9,772
80
80
80
80
17,252
13,536
14,507
10,307
Group
Company
2022
£000
2021
£000
3,548
3,126
531
264
480
133
4,343
3,739
(1,745)
(1,549)
2,598
2,190
2022
£000
2021
£000
-
-
-
-
-
-
-
-
-
-
-
-
Raw materials, consumables and changes in finished goods and work in progress recognised in cost of sales in the
year amounted to £5,083,000 (2021: £5,129,000).
The amount charged to the income statement in the year in respect of write-downs of inventories is £196,000
(2021: £162,000). The amount credited to the income statement in the year in respect of reversals of write-downs of
inventories is £nil (2021: £56,000).
21
Trade and other receivables
Trade receivables
Group receivables
Other receivables and prepayments
Group
Company
2022
£000
2021
£000
3,512
2,737
2022
£000
-
2021
£000
-
-
967
-
557
6,266
7,372
55
31
4,479
3,294
6,321
7,403
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.
Amounts owed to Group undertakings are unsecured, interest-free and payable on demand.
Financialswww.filtronic.com Stock Code: FTC 84
Notes to the financial statements continued
for the year ended 31 May 2022
22
Trade and other payables
Trade payables
Group payables
Other payables and accruals
Group
Company
2022
£000
2021
£000
1,825
1,299
2022
£000
78
2021
£000
70
-
1,168
2,993
-
2,784
2,784
1,081
2,380
698
649
3,560
3,503
Amounts owed to Group undertakings are unsecured, interest-free and payable on demand.
23
Provisions
Warranty provision
Opening balance
Used during the year
Released unused during the year
Charge for the year
Exchange differences
Group
2022
£000
342
(24)
(347)
117
1
135
2021
£000
1,053
(526)
(116)
11
(80)
342
Company
2022
£000
2021
£000
-
-
-
-
-
-
-
-
-
-
-
-
The provision for warranty relates to the units sold during the last two financial years. The provision is based on
estimates made from historical warranty data.
Dilapidation provision
Opening balance
Charge for the year
Exchange differences
Group
2022
£000
55
91
1
147
2021
£000
57
-
(2)
55
Company
2022
£000
2021
£000
-
-
-
-
-
-
-
-
The Group leases physical 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. The charge for the year
is expected to be utilised in the next financial year as it relates to our site in Yeadon where we are reducing our
footprint by reducing the amount of space we use.
Total provision
Warranty provision
Dilapidation provision
Group
2022
£000
135
147
282
2021
£000
342
55
397
Company
2022
£000
2021
£000
-
-
-
-
-
-
Filtronic plc Annual Report and Accounts 2022 24
Deferred income
Contract liabilities
Capital grant
Total current deferred income
Contract liabilities
Capital grant
Total non-current deferred income
Total deferred income
85
Group
2022
£000
2021
£000
Company
2022
£000
2021
£000
134
38
172
111
19
130
302
146
38
184
73
55
128
312
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Contract liabilities are invoices raised in advance of NRE work completed for customers that will be recognised as
income once the performance obligation of the contract has been met. The majority of NRE contracts are invoiced
with a proportion of the contract value upfront which is recognised as revenue, over time, across the life of contract
at each milestone based on the percentage of the overall contract value achieved at that performance obligation.
A capital grant was secured in the prior year to assist with the purchase of plant and machinery to support the
production ramp of 5G XHaul products. The grant is being amortised over a period of four years with a remaining
life of 1.5 years.
25
Financial liabilities
This note provides information about the contractual terms of the Group’s interest-bearing bank loans and
borrowings which are measured at amortised cost.
Group
Company
Bank loans—current
Obligations under finance agreements—current
Total current financial liabilities
Bank loans—non-current
Total non-current financial liabilities
Total financial liabilities
Terms and debt repayment schedule - Group
Nominal
interest
rate
Currency
2022
£000
2021
£000
2022
£000
2021
£000
-
-
-
-
-
-
55
8
63
76
76
139
-
-
-
-
-
-
-
-
-
-
-
-
Carrying
amount
2022
£000
Carrying
amount
2021
£000
Date of
maturity
Bank loan
Total bank loans
Finance agreements
USD
1.0%
10 February 2026
GBP
4.1%
31 May 2021
-
-
-
-
131
131
8
139
The bank loan with a maturity date of 10 February 2026 for $186,000 (£131,000) was a US Government loan
as part of the Paycheck Protection Programme (“PPP”) to secure jobs in the USA during the Covid-19 pandemic.
The Company successfully applied to have the loan forgiven which was settled by the US Government in the year,
recognised in Other Operating Income.
Financialswww.filtronic.com Stock Code: FTC 86
Notes to the financial statements continued
for the year ended 31 May 2022
25
Financial liabilities (continued)
Debt reconciliation - Group
Balance at 1 June 2020
Proceeds from bank loans
Repayment of borrowings
Repayment of PPP bank loan
Balance at 31 May 2021
Repayment of borrowings
Repayment of PPP bank loan
Balance at 31 May 2022
Other banking facilities
Bank
loans
£000
Finance
agreements
£000
209
131
(17)
(192)
131
-
(131)
-
112
-
(104)
-
8
(8)
-
-
Total
£000
321
131
(121)
(192)
139
(8)
(131)
-
At 31 May 2022, the Group had an undrawn (2021: undrawn) invoice discount facility with Barclays Bank plc
(“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 which was undrawn (2021: undrawn).
26
Lease liabilities
Opening lease liability
New leases entered into during the year
Payments made during the year
Disposal of lease
Exchange differences
Lease liability payable in less than a year
Current lease liabilities
Lease liability payable in one to five years
Lease liability payable in more than five years
Non-current lease liabilities
Total lease liabilities
Group
2022
£000
2,020
445
(653)
-
8
1,820
2022
£000
540
540
1,017
263
1,280
1,820
2021
£000
2,529
457
(666)
(279)
(21)
2,020
2021
£000
542
542
1,070
408
1,478
2,020
Filtronic plc Annual Report and Accounts 2022 27
Share capital
At 1 June 2020
Exercise of share options
At 31 May 2021
Exercise of share options
At 31 May 2022
87
Group and Company
ordinary shares of 0.1p each
Number
‘000
213,698
717
214,415
383
214,798
£000
10,794
1
10,795
1
10,796
All shares are allotted, called up and fully paid. Holders of the ordinary shares are entitled to receive dividends when
declared, and are entitled to one vote per share at meetings of the Company.
28
Share premium
At 1 June 2020
Exercise of share options
At 31 May 2021
Exercise of share options
At 31 May 2022
29
Translation reserve
At 1 June 2020
Currency translation movement arising on consolidation
At 31 May 2021
Currency translation movement arising on consolidation
At 31 May 2022
Group and
Company
£000
11,000
39
11,039
21
11,060
Group
£000
(552)
(98)
(650)
179
(471)
The translation reserve comprises foreign currency differences arising from the translation of the financial
statements of foreign operations.
30
Dividends
The directors are not proposing to pay a dividend for the year ended 31 May 2022 (2021: £nil).
31
Retained earnings
At 1 June 2020
Profit/(loss) for the year
Share-based payments
At 31 May 2021
Profit/(loss) for the year
Share-based payments
At 31 May 2022
Group
£000
(11,888)
Company
£000
(10,441)
60
2
(728)
2
(11,826)
(11,167)
1,468
(3,434)
16
16
(10,342)
(14,585)
Financialswww.filtronic.com Stock Code: FTC
88
Notes to the financial statements continued
for the year ended 31 May 2022
32
Share options
Sharesave plans
Seven sharesave plans have been offered to employees over the years, at the date of this report. The first six of the
schemes offered to employees have now closed. Under these plans employees who join the plan can save up to
£500 per month for three years. The members of the plans are 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 scheme has an exercise price calculated by reference to the average
of the middle market closing price of the shares on AIM for the dealing day immediately prior to the plan offer date.
Sharesave Plan—Scheme 7
Granted during the year
Cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted average
exercise price 2022
Number of
options 2022
6.67p
6.67p
6.67p
6.67p
2,059,029
(160,836)
1,898,193
-
Management incentive plans
The options granted in the year have specific performance targets attached to them. The exercise price for an
option was the middle market closing price of Filtronic plc’s ordinary shares as derived from AIM on the dealing day
prior to issue.
The following options under this scheme were outstanding at 31 May 2022:
Ordinary shares of 0.1p
2021
2022
1,250,000 1,633,334
300,000
300,000
200,000
200,000
200,000
200,000
750,000
750, 000
2,543,574
-
5,243,574 3,083,334
Date granted
01/03/2016
11/04/2016
28/03/2018
11/02/2020
24/09/2020
24/06/2022
Earliest date
exercisable
01/03/2017
11/04/2017
28/03/2019
11/02/2021
24/09/2023
24/06/2025
Latest date
exercisable
28/02/2026
10/04/2026
27/03/2028
11/02/2030
24/09/2030
24/06/2032
Exercise price
5.4p
8.5p
9.0p
9.3p
8.0p
11.1p
The weighted average price of the outstanding options under this scheme at 31 May 2022 was 9p (2021: 6.80p).
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
Number of share
options 2022
Number of share
options 2021
3,083,334
3,270,828
(727,255)
(383,333)
5,243,574
1,750,000
3,839,584
750,000
(789,583)
(716,667)
3,083,334
2,133,334
Filtronic plc Annual Report and Accounts 2022 33
Share-based payments
Share options expense
89
Group and
Company
2022
£000
2021
£000
16
16
2
2
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 and
Company
2022
2021
5,329,857
750,000
9.40p
50%
8.00p
50%
3.0 years
3.0 years
0.8%
2.5p
0.8%
2.2p
Expected volatility is the estimate of the volatility of the share price over the expected life of the share options.
34
Pension costs
Defined contribution schemes
35
Capital expenditure commitments
Group
Company
2022
£000
291
2021
£000
280
2022
£000
43
2021
£000
41
Group
2022
£000
2021
£000
Company
2022
£000
2021
£000
Capital expenditure contracted for at the balance sheet date
but not provided in the financial statements
34
147
-
-
36
Analysis of net cash/(debt)
Cash and cash equivalents
Bank loans
Lease liabilities - plant and machinery
Net cash when including all debt except property leases
Lease liabilities - property leases
1 June
2021
£000
2,906
(131)
(835)
1,940
(1,185)
Cash
flow
£000
Other
changes
£000
31 May
2022
£000
1,071
131
417
1,619
236
29
-
(445)
(416)
(8)
755
1,855
(424)
4,006
-
(863)
3,143
(957)
2,186
Financialswww.filtronic.com Stock Code: FTC 90
Notes to the financial statements continued
for the year ended 31 May 2022
36
Analysis of net cash/(debt) (continued)
Reconciliation of cash flow to movement in net cash/(debt)
Movement in cash and cash equivalents
Movement in bank loans
Movement in lease liabilities - plant and machinery
Movement in lease liabilities - property lease
Exchange differences
Movement in net cash
Opening net cash/(debt)
Closing net cash
2022
£000
1,071
131
(28)
228
29
1,431
755
2,186
2021
£000
1,059
78
546
(39)
(179)
1,465
(710)
755
Cash at bank earns interest at floating rates based on daily bank deposit rates. There are no restrictions on the
availability of the cash and cash equivalents at 31 May 2022 (2021: £nil).
IFRS 16 requires the recognition of property leases on the balance sheet which is classified as a debt item.
37
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.
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.
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 £4.0m whilst the Company has cash at bank of £0.3m.
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 Group has access to a £3.0m sales invoicing facility with Barclays Bank and a $4.0m invoice factoring facility
with Wells Fargo Bank.
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 facility is due its next formal review in September
2022, although this can be reviewed at their discretion at any time.
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 facility matures on 12 July 2023 when it will be due
for renewal.
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.
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 such as Barclays Bank and Wells Fargo Bank.
Filtronic plc Annual Report and Accounts 2022 91
37
Financial instruments (continued)
Credit risk is primarily related to trade receivables. The Group’s businesses are concentrated on long-term
relationships with a small number of large 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.
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
No trade receivables have been provided for in either FY2022 or FY2021.
The Company has no trade receivables.
Group
2022
£000
1,226
830
742
714
2021
£000
979
902
629
227
3,512
2,737
Group
2022
£000
2021
£000
3,487
2,709
25
28
3,512
2,737
Interest rate risk
Cash is generally held on short-term bank deposits which earn interest at variable money market deposit rates. At
31 May 2022, there was £nil held on short-term deposit. The remaining cash in the Group is held in very low interest
rate bank 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 92
Notes to the financial statements continued
for the year ended 31 May 2022
37
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. There were no forward contracts in place at 31 May 2022 (2021: £nil).
Cash is mainly held in sterling and US dollars.
The Group’s exposure to foreign currency risk for cash and cash equivalents, trade receivables and trade payables
was as follows:
Cash and cash equivalents
Trade receivables
Trade payables
Net exposure
EUR
£000
4
-
(6)
(2)
2022
RMB
£000
20
-
-
20
Group
USD
£000
859
2,194
(740)
2,313
EUR
£000
1
9
(54)
(44)
2021
RMB
£000
27
-
-
27
USD
£000
1,148
1,738
(234)
2,652
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 2022, then the
Group operating profit would have been £55,000 higher/lower. The impact of other currencies is not material.
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 2022 Company information
93
Directors
Richard Gibbs - Chief Executive Officer
Michael Tyerman - Chief Financial Officer
Jonathan Neale - Non-Executive Chairman
Pete Magowan - Non-Executive Director
John Behrendt - Non-Executive Director
Company Secretary
Michael Tyerman
Company number
2891064
Registered office
Filtronic plc
Plexus 1,
NETPark,
Thomas Wright Way,
Sedgefield,
County Durham,
TS21 3FD
Tel: 01740 618800
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
Level 5 and 6
Central Square South
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
Nominated advisor and broker
finnCap Ltd
1 Bartholomew Close
London
EC1A 7BL
Tel: 020 7220 0500
Registrars
Link Group
Enquiries regarding shareholdings, change
of address or similar particulars should be
directed in the first instance to our Registrars,
Link Group whose address is:
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Tel: +44 (0)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 Group 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 94
Glossary
Glossary
4G:
5G:
5G NR:
4th Generation mobile networks
5th Generation mobile networks
5G New Radio is the global standard for a unified, more capable 5G wireless
air interface
Adjusted EBITDA: EBITDA before exceptional items
AESA:
Backhaul:
B2B:
CAGR:
CRM:
CY:
D-band:
DSTL:
E-band:
EBITDA:
EMEA:
ERP:
ETSI:
EW:
FM:
FY:
Gbps:
GEO:
GHz:
Gigabit:
HAPS:
IOT:
IP:
Ka-band:
Ku-band:
LEO:
LMR:
LTE:
MarCom:
MES:
MMIC:
mmWave:
MOD:
NRE:
NSA:
NTN:
ODU:
OEM:
Open RAN:
Active Electronically Steered Array
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
Business to Business
Compound Average Growth Rate
Customer Relationship Management
Calendar year
130GHz to 175GHz
Department of Science and Technology Leadership
71GHz to 86GHz
Earnings Before Interest, Taxation, Depreciation and Amortisation
Europe, the Middle East and Africa
Enterprise Resource Planning
European Telecommunication Standards Institute
Electronic warfare represents the ability to use the electromagnetic
spectrum - signals such as radio, infrared or radar - to sense, protect and
communicate. At the same time, it can be used to deny adversaries the
ability to either disrupt or use these signals
Frequency modulation. The modulation of a radio or other wave by variation
of its frequency
Financial year
Gigabits per second
Geostationary, an altitude of about 22,300 miles
Gigahertz: 10^9 Hertz
10^9 bits
High Altitude Pseudo-Satellites
Internet of Things
Intellectual Property
26.5GHz - 40GHz
12GHz -18GHz
Low Earth Orbit
Land Mobile Radio
Long-Term Evolution
Marketing communications
Manufacturing Execution System
Monolithic Microwave Integrated Circuit
Millimetre Wave
Ministry of Defence
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
Non-Terrestrial Networks
Outdoor Unit
Original Equipment Manufacturer
Open radio access network. A key part of a mobile network system that
uses cellular radio connections to link individual devices to other parts of a
network
Filtronic plc Annual Report and Accounts 2022 95
OSAT:
P25:
PoP:
Q-band:
QMS:
RAN:
RF:
RPO:
Rx:
SA:
SiP:
STRAP:
TRM:
TTA:
Tx:
V-band:
W-band:
Xhaul:
Outsourced Semiconductor Assembly and Test
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
33GHz to 50GHz
Quality Management System
Radio access network. The part of a mobile network that connects end-user
devices, like smartphones, to the cloud
Radio Frequency: a rate of oscillation in the range of around 3kHz to 300GHz
Recruitment Process Outsourcer
Receive
Stand Alone 5G: the deployment of 5G without relying on the 4G LTE network
System in package. This is a number of integrated circuits enclosed in one or
more chip carrier packages that may be stacked package on package
Strategic Planning Process
Transmit Receive Module
Tower Top Amplifier
Transmit
40GHz to 75GHz
92GHz to 115GHz
The common flexible transport solution for future 5G networks, integrating the
fronthaul and backhaul networks with wired and wireless technologies in a com-
mon packet based transport network
Financialswww.filtronic.com Stock Code: FTC Registered Office
Plexus 1, NETPark,
Thomas Wright Way, Sedgefield,
County Durham, TS21 3FD
T: +44 (0) 1740 618800
E: investor.relations@filtronic.com
filtronic.com