Filtronic plc Annual Report 2011
Filtronic plc
Annual Report
2011
Inspired Wireless Solutions Contents
Filtronic plc Annual Report 2011
1 Financial Highlights
2 Chairman’s Statement
4 Business Review – Chief Executive Ofﬁcer’s Operating Review
6 Business Review – Financial Review
7 Business Review – Directors’ Assessment of Risk
9 Directors
10 Directors’ Report
14 Corporate Governance Statement
18 Remuneration Report
23 Statement of Directors’ Responsibilities
24 Independent Auditor’s Report
26 Consolidated Income Statement
27 Consolidated Statement of Comprehensive Income
28 Consolidated Balance Sheet
29 Consolidated Statement of Changes in Equity
29 Company Statement of Changes in Equity
30 Consolidated Cash Flow Statement
31 Company Balance Sheet
32 Company Cash Flow Statement
33 Notes to the Financial Statements
65 Shareholder Information
66 Corporate Directory Financial Highlights
Continuing
operations
2011 2010
Revenue £15.5m £15.6m
Operating loss before amortisation and exceptional items £(5.3)m £(0.3)m
Operating loss £(7.1)m £(1.1)m
Loss before taxation £(7.0)m £(1.0)m
Basic and diluted loss per share (7.19)p (1.37)p
Group
2011 2010
Loss for the period from continuing operations £(6.7)m £(1.0)m
Loss for the period from discontinued operations £(0.3)m –
Loss for the period £(7.0)m £(1.0)m
Basic and diluted loss per share (7.48)p (1.37)p
Final dividend per share – 1.00p
Cash £4.1m £16.2m
Total equity £18.8m £19.9m
Filtronic plc Annual Report 2011 1 Chairman’s Statement
The year ended 31 May 2011 produced revenue of £15.5m and an operating loss before exceptional items and the
amortisationofintangiblesof£5.3m,comparedwiththeprioryearrevenueof£15.6manda£0.3moperatinglossbefore
exceptional items from continuing operations. Cash at the end of the year of £4.1m was down from last year’s £16.2m
following the November 2010 acquisition of the Isotek group. A full breakdown of the year is shown in the financial
statements, notes and narrative which follow.
An annual dividend for 2009/10 of 1.00p (£0.7m) was paid to shareholders on 5 November 2010. In light of the higher
operationallosses,theBoardhasdecidedtorecommendnoannualdividendinrespectofthefinancialyearjustended.
In furtherance of our strategy to create a differentiated, high growth and higher margin wireless telecoms business,
Isotek (Holdings) limited was acquired on 15 November 2010 for £4.2m cash plus £6.8m in Filtronic shares (18.55 million
shares). The deal has delivered entry into the rapidly developing 3G/4G base station market sector by acquiring
innovative intellectual property and a position on significant 3G/4G network upgrade programmes.
The Group operations now include two separately reported trading business segments; Broadband which has been
transitioned from the traditional Point to Point backhaul (PTP) business segment and the acquired Isotek wireless
Basestation business.
Broadband Business
Broadband saw a 22% decline in its revenues to £12.1m (2010 £15.6m), slightly better than projected in the latest
communication to shareholders in April 2011. The segment loss before exceptional items was £2.5m (2010 £0.7m profit)
The second half performance was significantly impacted by a sharper than expected decline in sales of traditional
products. The acquisition of a key customer (NERA) in January 2011 by Ceragon Networks resulted in a large reduction
in its purchases of our short-haul radio products. There were, however, positive developments in Broadband strategy to
broaden its addressable market with a new customer and product base, though the growth in sales revenue from these
new activities did not fully compensate for the rapid reduction in Ceragon (NERA) sales. Cost reduction actions taken
following the NERA acquisition at the start of 2011 with an annualised impact of £1.4m were delivering benefits by the
financial year end.
Basestation Business
Inthe28weekperiodsinceitsacquisitioninmid-November2010,Isotekachievedsalesrevenuesof£3.4mandincurred
a loss of £2.0m. The revenue was short of the revised projection made to shareholders in April 2011 of revenue for the
period of around £4m, though this still represented a significant step increase in revenue from the previous 24 week
period of £1.2m. With the business still reliant on a very small number of early stage programmes, a couple of deferrals
by end-customers in the US on significant LTE/4G programmes have had a considerable short-term impact on results.
Whilst the trading performance is disappointing, the group has continued to invest in engineering resource at Isotek to
support these major programmes and to improve product margins on certain products for the forthcoming LTE/4G
network rollouts, as well as expanding sales activity to address additional manifold opportunities for 3G and 4G mobile
network upgrades.
2 Filtronic plc Annual Report 2011 Chairman’s Statement
Outlook
Action has been taken to reduce costs in the Broadband business where an appropriate headcount reduction has been
implemented.MeanwhiletheintegrationoftheIsotekandBroadbandbusinessesisbeingacceleratedacrossthegroup,
and specialist Broadband resources are being redeployed to maximise mobile base station product opportunities. In
parallel, the company is expanding its business development activity on new opportunities for its innovative filtering
products as operational capacity is scaled up.
The group has significantly increased its addressable market to circa $600m estimated for 2012, with channels into
Broadband, aerospace manufacturing and the larger base station market. The addressable base station market for
Isotek filtering products comprises both major network equipment OEMs and a wide range of operators.
Explosive growth in mobile data is leading to a growing market for both new OEM 4G base station filters and operator
network upgrade products to rapidly overlay new capacity onto existing infrastructure.
This growth is particularly evidenced in the US market by a series of network upgrade programs launched by leading
operators.
The group is exploiting these opportunities with unique IP offering cost effective customised solutions with market
leading spectrum efficiency and rapid time to market, enabling operators to maximise valuable assets.
The outlook is expanded upon in further detail in the Operating review.
Finally, I should like to thank all staff in the business for their contribution over the past year.
Howard Ford
Chairman
2 August 2011
Filtronic plc Annual Report 2011 3 Business Review
– Chief Executive Officer’s
Operating Review
Summary
Following the acquisition of Isotek in November 2010 the business comprised two trading segments during the second
half of the financial year; Broadband and the new Basestation business. The group continues to execute its strategy to
expanditsaddressablemarketthroughnewproductdevelopmentsandcustomers.Actionshavebeentakentostabilise
the Broadband business and Basestation sales growth is backed by significant opportunities in the rapidly developing
3G/4G base station market.
Operations
The Broadband business designs and manufactures customised microwave electronic sub assembly components that
are integrated by OEM’s into radios. These radios provide the backhaul links for telecom networks, particularly the
mobile base station market. Filtronic is a leading merchant supplier of transceivers and diplex filters to this market.
The Basestation business develops and markets innovative filters and combiners, which enable operators to use their
existing 2G infrastructure to also deliver 3G and 4G services simultaneously. Our products can bring significant cost
savings as well as improving the use of available spectrum.
Broadband first half revenue (£7.1m) was up on the second half of the prior year (£6.0m) but following the January 2011
Ceragon acquisition of Nera there was a significant weakening of demand in the second half (revenue £5.0m). Whilst
actions have been taken to reduce costs the benefits will not be derived until the next financial year, and an operating
loss of £2.5m for the Broadband segment was reported for the year.
Basestation sales grew from £1.2m in the pre-acquisition 24 weeks to £3.4m in the post acquisition 28 weeks. However
margins were tight prior to the delivery of production cost improvements possible on volume products, and a loss of
£2.0m was reported for the period.
The group continues to invest in future product development, investing £3.5m in R&D during the year. This included
continuingworksupportedbyaresearchgrantawardedbyYorkshireForwardwithsupportfromtheEuropeanRegional
Development Fund to assist in the development of a new product to target the emerging market for 4G mobile
broadband services. This and other major programs are scheduled for completion by the end of 2011, leading to
reduced costs in the second half of the coming financial year.
Operational cash outflows of £4.4m (primarily in the second half), were added to by acquisition related cash outflows of
£5.8m, capex of £0.9m and dividends of £0.7m to explain the cash outflow of £12.1m in the year.
Overall revenue for the year of £15.5m, was similar to last years £15.6m, with an operating loss before exceptional items
and intangible amortisation of £5.3m compared with a £0.3m loss in 2010.
Exceptional costs of £0.6m (2010 £0.8m) included acquisition related costs of £0.5m and redundancy costs incurred in
the Broadband costs reduction program.
Broadband Business
There are more encouraging signs for the Broadband business at the start of FY2012. Though first half on first half
comparisons will continue to be impacted by the Ceragon reductions and mature product phase-outs, there is now
better forward visibility in both these areas, and activity has stabilised. The second half will start to benefit progressively
from sales to the new customers of higher margin products as detailed below. The overall expectation is for FY2012
Broadband sales of just above £10m with broadly balanced halves.
As outlined in the statement to shareholders in April 2011, the growth in new programmes to a broader customer base
will have an increasingly positive impact through FY2012. The business has secured initial production orders on Selex
Galileo electronic radar programmes; production of the Multi-Chip Package semiconductor solutions for an OEM
backhaul customer is ramping successfully; and initial customer orders for gigabit radio modules are being executed.
4 Filtronic plc Annual Report 2011 Business Review
– Chief Executive Officer’s
Operating Review
Meanwhile, the business has established a constructive working relationship with Ceragon that gives greater clarity
about recovering levels of long-haul product demand over coming months. Actions to reduce costs earlier in 2011,
combined with ongoing fixed cost reductions should result in an annualised benefit of some £2m by the second half of
FY2012.
Basestation Business
There are indications that volume shipments should resume later this calendar year for the projects delayed in the final
quarter, as these programmes are required to enable the relevant US carriers to address well documented capacity
constraints.
There are encouraging signs deriving from the expansion of business development activity, particularly in the USA,
where our US subsidiary Isotek Inc is now participating in a number of OEM programmes involving network operators
AT&T,VerizonandmostrecentlySprint,whoareengagedinaddingLTE/4Goverlaytomeettheeverincreasingdemand
for mobile data capacity. Although these programmes are as yet in early stage regional roll-out, OEM funding of our
productionforanumberoftheseprogrammesunderpinsourvolumeproductionexpectationsforthenext6-12months.
Additionally, the sales initiative to address the US operator market has also begun to bear fruit, with demonstrations of
filter or combiner products being planned with a total of five operators to address immediate capacity constraints.
Asexpected,thedevelopmentoftheLTE/4GmarketinEuroperemainsbehindthatoftheUSAduetoregulatorylicence
timing. However, volume shipments of filter products to a major operator commenced in May, and will form the
backbone of Isotek’s European revenues in the first half of FY2012.
The challenge for Isotek during FY2012 is to convert the sharply increased level of customer enquiries for product
sampling into a number of volume programmes. The business continues to budget for a significant step up in Isotek
revenues to circa £15m for the year based on the increased customer activity together with current program insertions,
though as previously stressed the revenues will be weighted towards the second half.
Employees
At 31 May 2011, the group employed 159 people (2010 139) including 51 in the Basestation business.
Hemant Mardia
Chief Executive Officer
2 August 2011
Filtronic plc Annual Report 2011 5 6 Filtronic plc Annual Report 2011
Business Review
– Financial Review
Results
The year ended 31 May 2011 generated revenue of £15.5m (2010 £15.6m), resulting in an operating loss before
intangible amortisation, and exceptional items of £5.3m (2010 £0.3m loss from continuing operations). The group loss
for the period from continuing operations was £6.7m (2010 £1.0m loss), reflecting a £1.2m amortisation of acquisition
relatedintangiblesaswellasexceptionalcostsrelatingsignificantlytotheacquisition.Revenueandoperatingresultsby
segment(note4)arethemainkeyperformanceindicatorsusedbythegroup.Theoperatingresultsarediscussedinthe
Chief Executive’s Operating Review, along with a review of the business.
Exceptional Costs
In addition to £0.5m of costs related to the Isotek acquisition and subsequent integration, redundancy costs of £0.1m
were also incurred in order to reduce the Broadband cost base.
Net finance income
The group ended the year with net cash of £4.1m (2010 £16.2m) and generated net finance income of £0.1m
(2010 £0.1m), reflecting low interest rates on reduced cash deposits post the acquisition.
Taxation
No current tax is due on continuing operations, reflecting available losses. The £0.3m credit reported is a deferred tax
liability release related to the intangible amortisation. It will not result in any tax refund.
Capital expenditure
Capital expenditure of £0.9m (2010 £0.6m) included £0.3m for the Isotek business.
Research and development costs
Research and development costs of £3.5m (2010 £2.3m), which represented 22.7% (2010 14.8%) of revenue were
expensed. Offsetting these costs, Yorkshire Forward grant income of £0.3 (2010 £0.5m), was reported under other
operating income. No research and development costs were capitalised in the balance sheet.
Working capital
At 31 May 2011 net working capital was £2.1m (2010 £2.5m). Net working capital comprised inventories of £1.7m
(2010 £2.0m), receivables of £5.9m (2010 £3.4m) and payables of £5.5m (2010 £2.9m).
Cash flow
Cash outflow from operating activities was £4.4m (2010 £1.9m inflow), cash outflow from investing activities (including
the acquisition) was £7.0m (2010 £1.2m outflow) and net cash outflow from financing activities was £0.7m (2010 £0.7m
outflow). The closing cash balance as at 31 May 2011 was £4.1m (2010 £16.2m).
Dividend
An annual dividend of 1.00p per share in respect of 2009/10 was paid on 5 November 2010.
The Board does not recommend an annual dividend in respect of 2010/11.
Michael Brennan
Chief Financial Officer
2 August 2011 Introduction
Filtronic supplies microwave and base station filter products for the wireless telecommunications market. The business
is in a fast-changing sector with a small number of sophisticated customers, demanding performance standards and
international competition, all of which pose risks to the business.
Market
We supply a niche range of products to a small number of large OEM customers for both the Broadband and
BasestationfilterbusinessesaswellasanasyetsmallnumberofnetworkoperatorsintheBasestationbusiness.Theloss
of any of these customers, including Ceragon Networks, or any material reduction in orders from any such customers
may have a material adverse effect upon Filtronic’s financial condition. With the rapid evolution of product technology
and other corporate decisions the size of our addressable market may be affected. We may also fail to forecast market
movements correctly so missing opportunities or wrongly predicting product longevity.
Manufacturing
Inmostoftheproducts,productionisdemandledandcustomersmayvarytheirrequirementsfromthebusinessatshort
notice, which also impacts inventory management. Customers in these businesses expect consistent high quality
product and reducing prices, hence we depend on control of our operating environment, including management of
security of supply in our supply chain, and the provision of correctly designed technological solutions including the
achievement of target cost reduction plans. Non-performance in these areas risks a diminished market position.
All our products are provided to customers after detailed qualification testing. However, this may not test all aspects of
the product’s design and manufacturing process or may not ensure that the product is viewed as fit for purpose in its
intended use. Identification of these types of problem after release of product to customers creates the risk of being
required to rectify such product defects. Historically such work has not had a substantial impact on the financial
performance of the business, although a major defect, leading to a field recall, could do so in future.
The Broadband business operates a leased manufacturing location, located within the facility of our major
semiconductor supplier. The Basestation business relies for the manufacture of its products on a large Chinese turnkey
manufacturer that provides favourable supply and financing terms. The loss of this supplier or a material change to
supply terms could have a material adverse effect on the Group.
Technology
Our product competitiveness is strongly influenced by technology choices at product concept stage and throughout
execution of design to product launch. For products in the production cycle, technology insertion is often required as a
means of achieving price reductions, which underpin sales. The market is time sensitive and opportunities may be lost
ifthetechnologywedevelopisnotappropriateorreadyforexploitationtomatchmarketdemand,sohavinganadverse
effect on business performance.
Our ability to remain competitive in terms of technology and product design is also underpinned by retaining key staff,
the loss of whom could seriously impact the rate of introduction of new products and technologies.
Filtronic plc Annual Report 2011 7
Business Review
– Directors’
Assessment of Risk Business Review
– Directors’
Assessment of Risk
Financial management
AlargeproportionofsalesisdenominatedinUSdollarswiththecostbasesubstantiallyinsterling,whichmaytherefore
create margin risks that may not be recoverable through price changes. This risk is mitigated to some extent by
purchasing some input materials in US dollars.
We have sold four divisions of the group in the past seven years. We have provided warranties in support of these
transactions, covering areas including product liability for an initial period and usually environment risks on freehold
property and tax risks for longer specified periods. We have received claims on the sale of the Wireless Infrastructure
andDefenceElectronicsbusiness,someofwhichhavebeensettledorrejected,andmayreceiveclaimsinfuturerelated
to these current and future commitments.
Goodwill and Going Concern
With the acquisition of the Basestation business, goodwill and intangibles have arisen. If the Basestation business does
notdevelopasanticipatedthenthismayhaveanadverseimpactuponbusinessperformancewhichmayresultinawrite
down of the goodwill and/or the intangibles.
The directors have considered going concern mattersand whilst they have a reasonableexpectationthat the group has
adequate resources to continue in operational existence for the foreseeable future, it remains possible that sufficient
events with material adverse impacts on the business could occur such as to change this expectation.
8 Filtronic plc Annual Report 2011 Directors
Executive directors
Hemant Mardia (aged49)hasbeenanexecutivedirectorsince2007andChiefExecutiveOfficersince2008.Since1996
he has been Managing Director of the Broadband (PTP) business. He joined Filtronic in 1984 having gained a doctorate
inelectronicsfromLeedsUniversity.HeisaFellowoftheInstituteofElectronicsandTechnology,aFellowoftheSociety
of Cable Telecommunications Engineers and a Senior Member of the Institute of Electrical and Electronic Engineers.
Michael Brennan (aged 51) was appointed as an executive director and Chief Financial Officer on 18 September 2009.
Prior to joining Filtronic he was Finance Director of GTL Resources plc. Previously he held finance positions with
Petroplus Refining Teesside Limited and various ICIbusinesses.
Alan Needle (aged 56) was appointed as an executive director on 16 November 2010. Prior to the acquisition of
IsotekhewasHeadofWirelessInfrastructureofIsotekElectronicsLimited,hadbeenanExecutiveDirectoruntilJanuary
2006, and Chief Executive of the Wireless Infrastructure Division of Filtronic plc.
Non-executive directors
Howard Ford (aged 60) has been a non-executive director since 2008. He was appointed non-executive Chairman on
18 September 2009. He has many years of operational experience in the IT and telecoms sector with IBM Europe,
BT/Cellnet and Equant Network Services where as Managing Director the company was listed on the New York Stock
Exchange and the Paris Bourse until its takeover by France Telecom in 2005. He has also served on the Boards of a
UK Charity and a number of privately held companies in the UK and France.
GrahamMeek(aged64)hasbeenanon-executivedirectorsince1999.Since2006hehasbeentheseniornon-executive
directorandischairmanoftheauditcommittee.HewasChairmanofICMComputerGroupplcuntilitstakeoverin2007
andwasChairmanofSPILasersplcuntilitstakeoverin2008.Heisanon-executivedirectorofCapitalGearingTrustplc.
Reginald Gott (aged 54) has been a non-executive director since 2006. He was appointed as chairman of the
remuneration committee on 6 June 2008. He is Chief Executive of the Nuaire Group. From 2002 to 2008 he was an
executive director of FKI plc, an international diversified engineering group. He has an extensive background in the
machinery, automation and controls segments of the capital goods markets across Europe and North America.
Filtronic plc Annual Report 2011 9 Directors’ Report
The directors present their report and the audited financial statements for the year ended 31 May 2011.
Principal activities
The principal activities of the group are the design and manufacture of broadband microwave and base station filter
products for wireless telecommunications systems.
Business review
The business review on pages 4 to 8 inclusive contains a review of the group’s business performance and outlook. The
business review includes the statutory requirements of the enhanced business review.
Financial results and dividend
The results for the year are set out in the income statement on page 26. The position at the end of the year is shown in
the balance sheet on page 28.
The directors are not recommending payment of an annual dividend (2010 1.00p).
Research and development
Researchanddevelopmentcostswere£3.5m(2010£2.3m)forcontinuingoperationsand£nil(2010£nil)fordiscontinued
operations. Grant income of £0.3m was received to assist with part of these costs.
Directors and their interests
The directors of the company during the year were as follows:
Hemant Mardia
Michael Brennan
Howard Ford
Graham Meek
Reginald Gott
Alan Needle (appointed 16 November 2010)
Detailsofdirectors’interestsinthesharecapitalofthecompanyaresetoutintheremunerationreportonpages18to22.
Alan Needle retires and, having been appointed by the Board on 16 November 2010, offers himself for election at the
Annual General Meeting.
Hemant Mardia retires and offers himself for re-election at the Annual General Meeting.
Graham Meek, having served on the Board for more than nine years, retires and being eligible, offers himself for
re-election at the Annual General Meeting.
Directors’ indemnity
The company has in place directors’ and officers’ liability insurance on behalf of its directors and officers in accordance
with the provisions of the Companies Act. In addition, certain directors benefit from an indemnity from the company, to
the extent not prohibited by law, in respect of losses incurred as a result of the discharge of their duties in the
management or supervision of any company in the group. The indemnity does not automatically terminate when
the indemnified person ceases to be a director.
10 Filtronic plc Annual Report 2011 Directors’ Report
Directors’ conflicts of interest
Alan Needle has provided general notice under Article 182 of The Companies Act 2006 of his interest in the Isotek
working capital adjustment, until the adjustment is agreed and finalised with the Filtronic Board.
There are no other declarations to be made under Article 182 of The Companies Act 2006.
Share capital
Thecompany’ssharecapitalconsistsof10pordinaryshares.Therightsandobligationsattachedtoeachshareareequal.
There are no limitations on holding or transfer of the shares. The Board has no powers to issue or buy back the
company’sshares,otherthanthoseapprovedbytheshareholdersattheAnnualGeneralMeetingheldon18September
2010.
Substantial shareholdings
Thefollowingshareholdershaveindicatedaholdingof3%ormoreoftheissuedsharecapitalof92,873,09310pordinary
shares as at 28 July 2011.
Number of % of issued
10p ordinary shares share capital
Aberforth Partners LLP 15,743,090 17.0%
Prudential plc 10,872,820 11.7%
Gartmore Investment Limited 8,590,967 9.3%
Aviva plc 5,542,228 6.0%
Legal & General Investment Management Limited 5,575,421 6.0%
John David Rhodes 3,794,769 4.1%
1 1
50,119,295 54.1%
5 5
Employees
The group is committed to a policy of equal opportunities in employment by which the group ensures that all aspects
ofselectionandretentionarebasedonmeritandsuitabilityforthejobregardlessofsex,age,maritalstatus,colour,race,
ethnicity, sexual orientation or disability.
The group is conscious of its obligations towards disabled persons and tries to ensure that they receive equal
opportunities. So far as particular disabilities permit, the group will continue to provide employment for any existing
employee who becomes disabled. The group will also provide relevant training, career development and promotion for
disabled employees where this is appropriate.
The Chief Executive Officer is the Board member responsible for human resources.
Filtronic plc Annual Report 2011 11 Directors’ Report
Corporate & social responsibility
(i) Health and safety
The Board is committed to ensuring the health and safety of the group’s employees and applies high standards
throughout the group in the control and management of its operations. The group analyses its practices and
processes using systematic health and safety management techniques and auditing regimes. As part of the group’s
continued implementation of an occupational health, safety and management system, the group has put
preventativemeasuresinplacethataimtocontinuetoreducemajorinjuriesandlosttimeaccidents.Inaddition,the
major manufacturing site has achieved OHSAS 18001 (health and safety management systems).
(ii) Employee development
Employeedevelopmenthasbeenestablishedasoneofthegroup’skeyobjectives.Thegrouphasaneducationand
training policy in place to implement continuous improvement where beneficial to the group and employee, thus
underlying the group’s commitment to ongoing employee development and training.
(iii) Employee communications
The group believes in keeping employees fully informed on matters which affect them through communication
proceduresincludingstaffmeetingsandaculturewhichencouragesopennessandinteractionbetweenallmembers
ofstaff.ThegroupoperatesaUK-widestaffforumforinformationandconsultation(‘ICONforum’).TheICONforum
is designed to be a gathering at which employee representatives can review group progress and raise, share and
discuss specific issues and concerns that affect employees with senior management.
(iv) The environment
Care for the environment is an integral part of the group’s business activities. It is the group’s policy to ensure that
its facilities are safe and the group is committed to ensuring that its impact on the environment is minimised. The
group supports and trains its personnel to act responsibly in matters relating to the environment. The group takes
account of relevant legislation and regulations and analyses its practices, processes and products to reduce their
environmental impact, and works with its customers and suppliers to achieve a high standard of product
stewardship. The group’s in-house manufacturing sites have established environmental management systems and
have achieved ISO 14001 certification.
Wherever possible, components and materials are reused or recycled. The reuse, utilisation and recycling of
packaging is subject to monitoring. The group continues to work with its customers to implement programmes to
designproductsfordisassemblyandrecycling,andinparticularsoastoensurecompliancewiththeEuropeanUnion
directive on waste electrical and electronic equipment and the European Union initiatives in relation to the
restrictionofcertainhazardoussubstancesinelectricalandelectronicequipment.Thegrouphasintroducedfocused
management teams throughout its business to ensure that compliance with these requirements is achieved within
the required implementation timescales. The group continues to work with major suppliers, contractors and
customers to assist them in improving their environmental, health and safety performance.
Political and charitable contributions
No contributions were made for political purposes. The group donated £450 (2010 £nil) to various charities.
12 Filtronic plc Annual Report 2011 Directors’ Report
Supplier payment policy
It is the group’s policy to abide by the terms of payment agreed with suppliers in respect of the goods and services
properly invoiced to the group. At 31 May 2011 trade payables of £5.5m represented 103 days’ purchases, calculated in
accordance with the requirements of the Companies Act.
Disclosure of information to the auditors
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware,
there is no relevant audit information of which the company’s auditors are unaware; and each director has taken all the
steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish
that the company’s auditors are aware of that information.
Responsibility statement of the directors
The directors whose names appear on page 9 confirm that to the best of their knowledge:
! the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included
in the consolidation taken as a whole; and
! the Chairman’s Statement and Business Review which form part of the Report of the Directors, includes a fair review
of the development and performance of the business and the position of the company and the undertakings
included in the consolidation taken as a whole, together with the description of the principal risks and uncertainties
that they face.
Auditors
A resolution to re-appoint KPMG Audit Plc as auditors will be proposed at the Annual General Meeting.
By order of the Board
M Moynihan
Company Secretary
2 August 2011
Filtronic plc Annual Report 2011 13 Corporate Governance
Statement
The Combined Code on Corporate Governance
The Board of Directors of Filtronic plc is committed to maintaining high standards of corporate governance. The Board
has prepared this report with reference to the Combined Code on Corporate Governance issued by the Financial
Reporting Council as revised in 2008 (“the Code”). For the year ended 31 May 2011 the directors confirm that the
company has complied with the provisions of the Code.
TheBoardiscurrentlycomprisedofsixdirectors,theChairman,twonon-executivesandthreeexecutivedirectors.Forthe
current reporting period, the Company is deemed to be a “smaller company” as defined in provision A.3.2 of the
Combined Code 2008. One of the non-executive directors, Reginald Gott, meets all of the specific criteria for
independencesetoutintheCombinedCode.Theothernon-executivedirector,GrahamMeek,doesnotmeetallofthe
requirements for independence set out in the Code since he has been a director for more than nine years. However
MrMeekisconsideredtobeindependentincharacterandjudgement.Heistheseniorindependentdirectorandprovides
valuableadvicetothecompanyaswellascontinuityinthecontextoftherecentcorporateactivityandBoardchanges.
Internal control
The Board has overall responsibility for establishing, maintaining and monitoring the company’s system of internal
control. Internal control systems are designed to be relevant to the company and the risks to which it is exposed and,
by their nature, can provide reasonable but not absolute assurance against material misstatement or loss. The key
procedures established by the directors with a view to providing effective internal control are as follows:
The Board’s approach to risk management is aimed at early identification of key risks to the group’s business and
strategy, followed by an evaluation of those risks and the probable impact of those risks and the steps required to
mitigate the likely effects. The executive directors report formally on key risks for each business unit at each meeting.
(a) Control environment and monitoring systems
The Board usually meets each month and has adopted a schedule of matters which are required to be brought to it
fordecision,thusensuringthatitmaintainsfullandeffectivecontroloverappropriatestrategic,financial,operational
and compliance issues. The Board has put in place an organisational structure with clearly defined lines of
responsibility and delegation of authority. Additionally, the Board has established an Executive Management
Committee that is responsible for operational matters within the company.
The division of responsibilities between the Chairman and the Chief Executive Officer has been set out in writing
and agreed by the Board.
The audit committee, which comprises all of the non-executive directors including the Chairman reviews the
effectiveness of the system of internal control. The external auditors are engaged to express an opinion on the
company’s annual financial statements. They test the system of internal financial control and the information
contained within the annual report and financial statements to the extent necessary for expressing their opinion.
(b) Major information systems
The directors have delegated to executive management implementation of the system of internal control
throughout the company. This includes financial controls that enable the Board to meet its responsibilities for the
integrityandaccuracyofthecompany’saccountingrecordsandaformalriskmanagementreportingsystemfornon-
financial risk management
The Board approves, in aggregate, budgets and other performance targets, the components of which form the
financial objectives for individual operating units. Performance against these targets is reported monthly and
concentrates upon key performance indicators identified and updated as part of this budgetary control process.
Financial forecasts are updated and reviewed monthly and include cash flow forecasts.
14 Filtronic plc Annual Report 2011 Corporate Governance
Statement
(c) Main control procedures
InadditiontomattersreservedforBoarddecisions,thecompanyhasestablishedasystemwherebyauthoritytotake
decisions is distributed throughout the company. This distribution of authority defines procedures for authorisation
and approval and sets appropriate levels of responsibility.
(d) Identification and evaluation of business risks
The company has clear principles and procedures that are appropriate to an electronics business of its size. These
principles are designed to provide an environment of central leadership but with devolved operating responsibility
as the framework for the exercise of accountability and control by the Board, its committees and executive
management.
The Board directs activities in and allocates resources to the key areas of business development, product strategy,
research and development, manufacture and financial practice.
Through these ongoing procedures, the Board is able to identify, evaluate and manage the significant risks that the
group faces from time to time.
The Board has reviewed its approach to the identification and evaluation of business risks and has put in place a
programme to review the main areas of risk identified for the company on an annual basis at the Board.
TheBoardconfirmsthatithascarriedoutareviewoftheeffectivenessofthesystemofinternalcontrolasitoperated
duringtheyear.TheBoardundertakes,onanongoingbasis,areviewofallaspectsofthecompany’sinternalcontrol
procedures. The review is undertaken by the Board through the receipt and consideration of regular monthly and
other reports prepared by management on operational, strategic, organisational and financial issues. All areas of
operations are audited periodically either by external agencies or through peer review to ensure compliance with
group policies.
Constitution of the Board
The Board comprises the Chairman, three executive and two independent, non-executive directors. Short biographies
of all of the directors are set out on page 9. The Board considers that its constitution brings both independence and an
appropriate balance of experience in judging matters of strategy, performance, resources, investor relations, internal
controlandcorporategovernance.GrahamMeekistheseniornon-executivedirector.Eachofthedirectorsisproposed
forre-electionattheAnnualGeneralMeetingatleasteverythreeyears.Non-executivedirectorswhohaveservedlonger
than nine years on the Board are subject to annual re-election.
Graham Meek joined the company in 1999 and the Board has carefully considered his independence. He contributes
significantly through his financial expertise and considerable knowledge of the company. He has provided continuity
aswellascontributingtotheoverallbalanceoftheBoard.TheBoardhasdecidedthatGrahamMeekisanindependent
non-executive director.
A formal performance review of the Board, its committees and the directors was undertaken during the year. This has
been implemented in the year by way of a written questionnaire completed by all Board members.
Board committees
The Board has a nominations committee, a remuneration committee and an audit committee. The remuneration and
audit committees comprise all of the independent non-executive directors. Each of these committees operates under
terms of reference which have been established by the Board.
Filtronic plc Annual Report 2011 15 Corporate Governance
Statement
The nominations committee
The nominations committee is chaired by Howard Ford, and the other member is the independent non-executive
directors: Graham Meek and Reginald Gott. The nominations committee’s duties are confined to the nomination of
appointments,re-appointmentsandterminationofemploymentorengagementofdirectorsandthecompanysecretary.
The nominations committee met three times during the year to consider Board composition and balance of skills.
The remuneration committee
TheremunerationcommitteeischairedbyReginaldGott.GrahamMeek,theotherindependentnon-executivedirector,
and Howard Ford, the Chairman of the Board, are members. The remuneration committee’s responsibilities include
ensuring that the remuneration and service contract terms of the executive directors and senior management are
appropriate. The committee approves the grant of all share options and bonus arrangements. During the year the
business discussed and considered at the Remuneration Committee included: approval of bonus payments or none
made in respect of the previous financial year FY2009/10, review of compensation structure of employees across the
groupparticularlyfollowingtheIsotekacquisition,agreementofthetermsoftheESOPplanandreviewingandagreeing
onthetermsandthedocumentationinrespectoftheissueofafurtherinvitationtoallUKemployeesundertheFiltronic
Share Save plan.
The remuneration committee met three times during the year.
The audit committee
The audit committee is chaired by Graham Meek, the senior non-executive director. The other members are Reginald
Gott and Howard Ford, the Chairman of the Board (who was independent on appointment in accordance with the
provisionsoftheCombinedCode2008).GrahamMeekhassufficient,recentandrelevantfinancialexperience.Theaudit
committee meets at least twice a year. The committee’s terms of reference are consistent with the current best practice
for the size of the company and are available on request from the company secretary or on the company’s website.
The committee met twice during the financial year with management and external auditors. It also met twice with the
externalauditorsinprivate.Thechairmanofthecommitteealsometprivatelywiththeauditorsregularlyduringtheyear.
The committee reviewed the following matters and reported its conclusions to the Board:
! the financial statements contained in the company’s annual and half-yearly reports to shareholders;
! various accounting matters, including the company’s accounting policies, raised by management and the external
auditors in the context of the financial statements;
! the effectiveness of internal controls and the group’s internal controls manual;
! authorisation of the amount and purposes of non-audit fees;
! reviewing the external auditors’ independence and objectivity;
! theexternalauditors’yearendreportandthefindingsoftheirworkandconfirmationthatallsignificantmattershad
been satisfactorily treated;
! a full and careful consideration of the performance of the external auditors, as a result of which the committee
resolved to recommend the re-appointment of KPMG Audit Plc as auditors to the company.
16 Filtronic plc Annual Report 2011 Corporate Governance
Statement
TheBoardhasreviewedthecompositionoftheauditcommitteeandissatisfiedthatithasmemberswhohavesufficient,
recent and relevant financial experience.
Attendance at Board meetings and committee meetings during the year ended 31 May 2011 was as follows:
Directors Attendance Table - FY2011
Board Audit Remuneration Nominations
Director attendance 19 2 3 3
Executives
Hemant Mardia 18 n/a n/a n/a
Mike Brennan 19 n/a n/a n/a
Alan Needle (appointed 15 November 2010) 5 n/a n/a n/a
Non-executives
Howard Ford (Chairman) 18 2 3 3
Reginald Gott 17 2 3 3
Graham Meek 17 2 3 3
Relations with investors
Communications with investors are given high priority. There is regular dialogue with institutional investors including
presentations after the company’s preliminary announcement of the year-end results and at the half year, which are
attended by non-executive directors. Analyst reports and feedback from shareholders are discussed at Board meetings.
TheBoardusestheAnnualGeneralMeetingtocommunicatewithprivateandinstitutionalinvestorsandwelcomestheir
participation. The Chairman aims to ensure that the chairmen of the audit and remuneration committees are available
attheAnnualGeneralMeetingtoanswerquestions.Informationisalsoavailabletoallinvestorsbywayofthecompany’s
website at www.filtronic.co.uk.
Going concern
The group’s business, together with the factors likely to affect its future development, performance and position are set
out in the Business Review on pages 4 to 8. The financial position of the group, its cash flows, and its liquidity position
aredescribedintheFinancialReviewonpage6.Note38tothefinancialstatementsdescribesandquantifiesexposures
toliquidity,credit,interestrateandforeigncurrencyriskandhowtheyaremanaged.Alsoinnote38capitalmanagement
is described.
At 31 May 2011 the group had a cash balance of £4.1m.
The directors have reviewed the budgeted cash flow and other relevant information and have a reasonable expectation
that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason,
the directors continue to adopt the going concern basis in preparing the financial statements.
Filtronic plc Annual Report 2011 17 Remuneration Report
for the year ended 31 May 2011
Composition of the remuneration committee
During the period 1 June 2010 to 31 May 2011 the remuneration committee consisted of the following non-executive
directors:
Reginald Gott (Chairman)
Graham Meek
Howard Ford
The committee receives advice in its deliberations concerning the remuneration of the executive directors from the
Chief Executive Ofﬁcer, Hemant Mardia. The committee’s recommendations have been accepted by the Board without
amendment.
Compliance
The company has complied with the provisions in the Code of Best Practice relating to Directors’ Remuneration. In
preparing this report, the provisions in Schedule B to the Combined Code have been followed.
Policy on remuneration of executive directors and senior executives
(a) Total level of remuneration
The committee aims to ensure that remuneration packages offered are competitive and designed to attract, retain
and motivate executive directors and senior executives.
(b) The main components
The company’s policy is to structure remuneration packages to align the interests of employees with those of
shareholders.
The main components of remuneration are:
(i) Salary
Salary for each executive is determined by the remuneration committee taking into account the performance and
responsibilities of the individual. Electronic and electrical engineering is an international industry within which there
is a clear market in executive talent. The overriding factor in determining executive remuneration is market forces.
Salaries are normally reviewed on 1 July each year.
(ii) Executive directors bonuses
The executive directors were participants in an annual bonus scheme during the year under which a maximum of
30% of salary was payable to Hemant Mardia, Michael Brennan and Alan Needle subject to proﬁt and cash targets
and personal targets, the achievements of which have been assessed by the remuneration committee.
No bonuses were awarded in the year to Hemant Mardia (2010 £27,038 being 15%), Michael Brennan (2010 £15,000
being 15%) and Alan Needle (2010 £nil).
No non-recurring bonus arrangements were put in place in the year ended 31 May 2011.
(iii) Bonus scheme
The remuneration committee has agreed an approach for management incentives for the year ending 31 May 2012
of an annual bonus for performance in the year, based on proﬁt and cash targets. The level of up to 30% of annual
salary for executive directors and up to 25% of annual salary for senior managers has been agreed for each of these
bonuses. The annual bonus will be assessed against the achievement of proﬁt and cash targets in the year ended
31 May 2012.
18 Filtronic plc Annual Report 2011 Remuneration Report
for the year ended 31 May 2011
(iv) Performance share plan
AperformanceshareplanwasapprovedbyshareholdersattheAnnualGeneralMeetinginSeptember2008.During
the year, under the plan, Hemant Mardia was awarded 257,500 shares being 50% of his salary and Michael Brennan
was awarded 114,286 shares being 40% of his salary. In addition, a further four persons discharging managerial
responsibilities participated in the plan including Hemant Mardia’s wife, who is employed by the group, and was
awarded 47,626 shares being 20% of her salary.
The vesting of the 29 November 2010 share awards is subject to performance targets based on growth in earnings
per share (EPS) over a three year period. If EPS grows such that for the year to 31 May 2013 it exceeds a figure
corresponding to £5.5m of earnings before intangible amortisation, exceptionals, interest and tax, then 25% of the
awarded shares will vest. If EPS grows such that for the year to 31 May 2013 it exceeds a figure corresponding to
£7.0m of earnings before intangible amortisation, exceptionals, interest and tax, then 100% of the awarded shares
will vest. If EPS grows to be between these two targets then the awarded shares will vest on a sliding scale between
25% and 100% of the awarded shares.
(v) Sharesave plan
A sharesave plan was approved by shareholders at the Annual General Meeting in September 2008. All employees
including executive directors are eligible. The ﬁrst offer under the sharesave plan was made in February 2009.
A second offer under the sharesave plan was made in November 2010.
(c) Company policy on contracts of service
Hemant Mardia, Michael Brennan and Alan Needle, the executive directors,all have rolling service contracts.Under
Hemant Mardia’s service contract the notice period for termination by either party is twelve months. Under Michael
Brennan’s service contract the notice period for termination by either party is six months. Under Alan Needle’s
service contract the notice period for termination by either party is six months (but 12 months until 15 November
2012). There are no speciﬁc compensation commitments for early termination in the service contracts.
(d) Company pensions policy
The company’s policy is to offer executives membership of the Filtronic plc Stakeholder Pension Plan on the same
basisasallotheremployeesofthecompany.Theplanisadeﬁnedcontributionscheme.Themaximumcontribution
the company makes to the plan is 8% of pensionable salary, if the member makes a contribution of 6% of
pensionablesalary.Membersoftheplanarealsoentitledtodeathinservicebeneﬁtoffourtimespensionablesalary
and long term disability insurance.
The pension scheme inherited from the Isotek acquisition is also a deﬁned contribution scheme. The maximum
contribution the company makes to the plan for UK employees is 10% of pensionable salary if the member makes a
contribution of 5% pensionable salary. All employees are also entitled to death in service beneﬁt of four times
pensionable salary and long term disability insurance.
US employees contribute to a defined contribution plan under Section 401(k) of the Internal Revenue Code. 6% of
pensionablesalaryiscontributedbyemployeesandthisismatchedbythecompany.Allemployeesarealsoentitled
to death in service benefit of two times salary to a maximum of $100,000.
(e) Company policy on external appointments
The remuneration committee reviews any request by an executive director with regard to a proposed external
appointment and deals with each request on its individual merits. The overriding requirement is for each executive,
as a term of his contract, to devote substantially the whole of his time, skill and attention to the affairs of the group.
Filtronic plc Annual Report 2011 19 Remuneration Report
for the year ended 31 May 2011
Non-executive directors agreements for services and remuneration
Thenon-executivedirectorshaverollingagreementsforserviceswiththecompany.Theseareterminablebythecompany
or the non-executive director on six months notice for the Chairman and on three months notice for the other
non-executive directors and are reviewed annually by the Board.
The Board determines the remuneration of the non-executive directors. Non-executive directors are not entitled to any
share options, performance shares, bonuses or pension beneﬁts.
The information on pages 20 and 21 has been audited.
Directors’ remuneration
Total remuneration
Salary excluding pension
or fees Bonuses Beneﬁts contributions
2011 2011 2011 2011 2010
£000 £000 £000 £000 £000
Executives
Hemant Mardia 180 – 18 198 225
Michael Brennan 100 –7 107 95
Stephen Mole (resigned 18 September 2009) – – – – 111
Alan Needle (appointed 16 November 2010) 54 –– 54 –
Non-executives
Howard Ford 70 –1 71 58
Graham Meek 40 –– 40 39
Reginald Gott 40 –– 40 39
John Poulter (resigned 18 September 2009) – – – – 104
11111
Total 2011 484 – 26 510 671
55555
Total 2010 599 42 30 671
5555
Beneﬁts incorporate all assessable tax beneﬁts arising from employment by the company and relate in the main to the
provision of a fully expensed company car or car allowance and private medical insurance.
Directors’ pension benefits
Company’s pension contributions to deﬁned contribution schemes.
Pension
contributions
2011 2010
£000 £000
Hemant Mardia 14 14
Michael Brennan 8 6
Stephen Mole (resigned 18 September 2009) – 4
Alan Needle (appointed 16 November 2010) 5 –
11
27 24
55
20 Filtronic plc Annual Report 2011 Remuneration Report
for the year ended 31 May 2011
Directors’ shareholdings
2011 2010
Alan Needle 2,064,707 –
Hemant Mardia 159,813 54,249
Michael Brennan 40,400 –
Howard Ford 42,204 –
Reg Gott 28,515 –
Graham Meek 50,000 –
11
2,385,639 54,249
55
All of the above shareholdings are held beneﬁcially. Hemant Mardia, Graham Meek and Reg Gott’s shareholdings
include those of their wives.
Reg Gott’s wife purchased 28,515 shares at 35.7p on 2 August 2010.
Howard Ford purchased 42,204 shares at 35p on 3 August 2010.
Graham Meek’s wife purchased 50,000 shares at 38p on 4 August 2010.
Hemant Mardia and his wife each purchased 15,000 shares at 37.95p on 5 August 2010.
Hemant Mardia and his wife purchased 11,979 and 11,935 shares respectively at 37.99p on 6 August 2010.
Hemant Mardia and his wife each purchased 25,825 shares at 38p on 6 September 2010.
Michael Brennan purchased 40,400 shares at 35.5p on 29 October 2010.
Alan Needle received 2,064,707 shares as consideration for the Isotek acquisition on 16 November 2010.
Directors’ interests in share awards
Granted
Vesting during
Performance share plan date 2010 the year 2011
Hemant Mardia 29 July 2012 378,239 – 378,239
29 November 2013 – 305,126 305,126
Michael Brennan 2 September 2012 108,108 – 108,108
29 November 2013 – 114,286 114,286
111
486,347 419,412 905,759
555
Hemant Mardia’s share awards include those of his wife, who is employed by the group.
Directors’ interests in share options
Granted Cancelled
Exercise Option during during
Sharesave plan period price 2010 the year the year 2011
Hemant Mardia 01/04/2012 – 01/10/2012 25p 62,400 –– 62,400
01/11/2013 – 30/04/2014 34.2p – 8,842 – 8,842
Mike Brennan 01/11/2013 – 30/04/2014 34.2p – 26,315 – 26,315
1111
Total all directors 62,400 35,157 – 97,557
5555
Filtronic plc Annual Report 2011 21 Remuneration Report
for the year ended 31 May 2011
Hemant Mardia’s share options include those awarded to his wife, who is employed by the group.
The closing middle market share price on 31 May 2011 was 23p, and on 31 May 2010 it was 26p. The range of closing
middle market share prices during the year ended 31 May 2011 was 62p – 23p.
There were no changes to the directors’ interests between 31 May 2011 and 2 August 2011. The company’s register of
directors’ interests which is open to inspection at the registered ofﬁce contains full details of directors’ shareholdings.
Performance graph
This graph illustrates the performance of the company’s shares measured by Total Shareholder Return (TSR) relative to
abroadequitymarketindexoverthepastﬁveyears.TheFTSEAllShareisconsideredtobethemostappropriateindex
against which to measure performance, as the company has been a constituent of the FTSE All Share throughout the
ﬁve-year period and the index is widely used. TSR is the measure of the returns that a company has provided for its
shareholders, reﬂecting share price movements and assuming reinvestment of dividends.
Total Shareholder Return
1 June 2006 to 31 May 2011 Weekly Indexed
Approved by the Board on 2 August 2011 and signed on its behalf by
M Moynihan
Company Secretary
2006 2007 2008 2009 2010 2011
Filtronic – Total Return Indexed
FTSE All Share – Total Return Indexed
Source: Thomson Datastream Note: Rebased to 100 as at 1 June 2006
0
20
40
60
80
100
120
140
160
180
22 Filtronic plc Annual Report 2011 Statement of Directors’
Responsibilities
Statement of directors’ responsibilities in respect of the annual report and the financial statements
The directors are responsible for preparing the Annual Report and the group and parent company financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year.
Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the
EU and applicable law and have elected to prepare the parent company financial statements on the same basis.
Undercompanylawthedirectorsmustnotapprovethefinancialstatementsunlesstheyaresatisfiedthattheygiveatrue
and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In
preparing each of the group and parent company financial statements, the directors are required to:
! select suitable accounting policies and then apply them consistently;
! make judgements and estimates that are reasonable and prudent;
! state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
! preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethatthegroupand
the parent company will continue in business.
Thedirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheparent
company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company
and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on
the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Filtronic plc Annual Report 2011 23 Independent Auditor’s
Report
Independent auditor’s report to the members of Filtronic plc
We have audited the financial statementsof Filtronic plc for the year ended 31 May 2011 set out on pages 26 to 64. The
financial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those
matterswe are required to stateto them in an auditor'sreportand for no other purpose.To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as
a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
AsexplainedmorefullyintheDirectors'ResponsibilitiesStatementsetoutonpage23,thedirectorsareresponsiblefor
the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit, and express an opinion on, the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's website at
www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
! the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as
at 31 May 2011 and of the group's loss for the year then ended;
! the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; and
! the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
EU and as applied in accordance with the provisions of the Companies Act 2006; and
! the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
! the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006; and
! the information given in the Directors' Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
! informationgivenintheCorporateGovernanceStatementsetoutonpages14to17withrespecttointernalcontrol
and risk management systems in relation to financial reporting processes and about share capital structures is
consistent with the financial statements.
24 Filtronic plc Annual Report 2011 Independent Auditor’s
Report
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
! adequateaccountingrecordshavenotbeenkeptbytheparentcompany,orreturnsadequateforouraudithavenot
been received from branches not visited by us; or
! the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
! certain disclosures of directors’ remuneration specified by law are not made; or
! we have not received all the information and explanations we require for our audit; or
! a Corporate Governance Statement has not been prepared by the company.
Under the Listing Rules we are required to review:
! the directors’ statement, set out on page 17, in relation to going concern;
! the part of the Corporate Governance Statement on page 14 relating to the company’s compliance with the nine
provisions of the June 2008 Combined Code specified for our review; and
! certain elements of the report to shareholders by the Board on directors’ remuneration.
David Morritt (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
1 The Embankment
Neville Street
Leeds
LS1 4DW
2 August 2011
Filtronic plc Annual Report 2011 25 Consolidated
Income Statement
for the year ended 31 May 2011
Group
2011 2010
Continuing operations note £000 £000
Revenue 15,523 15,575
5 5
Operating loss before amortisation and exceptional items (5,260) (292)
Amortisation of intangibles (1,209) –
Exceptional items 6 (611) (842)
1 1
Operating loss 5 (7,080) (1,134)
Finance income 12 79 113
1 1
Loss before taxation (7,001) (1,021)
Taxation 13 326 –
1 1
Loss for the period from continuing operations (6,675) (1,021)
Loss for the period from discontinued operations 3 (265) –
1 1
Loss for the period (6,940) (1,021)
5 5
Basic and diluted loss per share
Continuing operations 14 (7.19)p (1.37)p
Discontinued operations 14 (0.29)p –
1 1
Basic and diluted loss per share 14 (7.48)p (1.37)p
5 5
The loss for the period is attributable to the equity shareholders of the parent company Filtronic plc.
26 Filtronic plc Annual Report 2011 Consolidated Statement of
Comprehensive Income
for the year ended 31 May 2011
Group
2011 2010
£000 £000
Loss for the period (6,940) (1,021)
1 1
Currency translation movement arising on consolidation (32) –
1 1
(32) –
1 1
1 1
Total comprehensive income for the period (6,972) (1,021)
5 5
ThetotalcomprehensiveincomefortheperiodisattributabletotheequityshareholdersoftheparentcompanyFiltronicplc.
For the company, there were no other items of comprehensive income other than the loss for the year. Accordingly, no
company statement of comprehensive income has been presented.
Filtronic plc Annual Report 2011 27 Consolidated Balance Sheet
at 31 May 2011
Group
2011 2010
note £000 £000
Non-current assets
Goodwill and other intangibles 16 13,330 –
Property, plant and equipment 17 2,485 1,998
1 1
15,815 1,998
1 1
Current assets
Inventories 19 1,677 1,998
Trade and other receivables 20 5,763 3,361
Tax receivable 114 –
Cash and cash equivalents 4,120 16,245
1 1
11,674 21,604
1 1
1 1
Total assets 27,489 23,602
1 1
Current liabilities
Trade and other payables 21 5,485 2,886
Provision 23 437 706
Deferred tax 18 653 –
Deferred income 22 17 17
1 1
6,592 3,609
1 1
Non-current liabilities
Deferred tax 18 1,959 –
Deferred income 22 108 108
1 1
2,067 108
1 1
1 1
Total liabilities 8,659 3,717
1 1
1 1
Net assets 18,830 19,885
5 5
Equity
Share capital 25 9,287 7,432
Share premium 26 4,683 –
Translation reserve 27 (32) –
Retained earnings 29 4,892 12,453
1 1
Total equity 18,830 19,885
5 5
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Company member 2891064
Approved by the Board on 2 August 2011 and signed on its behalf by
Hemant Mardia
Chief Executive Ofﬁcer
28 Filtronic plc Annual Report 2011 Consolidated Statement of
Changes in Equity
for the year ended 31 May 2011
Group
2011 2010
£000 £000
Opening total equity 19,885 21,576
Total comprehensive income for the period (6,972) (1,021)
New shares issued (net of issue costs) 6,538 –
Share-based payments 122 73
Dividends (743) (743)
1 1
Closing total equity 18,830 19,885
5 5
Filtronic plc Annual Report 2011 29
Company Statement of
Changes in Equity
for the year ended 31 May 2011
Company
2011 2010
£000 £000
Opening total equity 14,066 16,683
Total comprehensive income for the period (1,557) (1,929)
New shares issued, net of issue costs 6,538 –
Share-based payments 91 55
Dividends (743) (743)
1 1
Closing total equity 18,395 14,066
5 5 Consolidated Cash Flow
Statement
for the year ended 31 May 2011
Group
2011 2010
note £000 £000
Cash ﬂows from operating activities
Loss for the period (6,940) (1,021)
Loss on sale of discontinued operations 265 –
Taxation (326) –
Finance income (79) (113)
1 1
Operating loss 35 (7,080) (1,134)
Share-based payments 122 73
Loss on disposal of plant and equipment – 35
Depreciation 523 601
Amortisation of intangibles 1,209 –
Movement in inventories 476 2,533
Movement in trade and other receivables (724) 1,418
Settlement of option premia debt acquired with Isotek 1,194 –
Movement in trade and other payables 178 (1,117)
Movement in provision (269) (608)
Change in deferred income including government grants – 125
1 1
Net cash (used in)/from operating activities 35 (4,371) 1,926
1 1
Cash ﬂows from investing activities
Interest received 79 113
Acquisition of plant and equipment (925) (639)
Proceeds on sale of assets 19 –
Acquisition of subsidiary, net of cash acquired (4,162) –
Share issue costs (325) –
Acquired loan repaid (1,400) –
Sale of discontinued operations 36 (265) (635)
1 1
Net cash used in investing activities 35 (6,979) (1,161)
1 1
Cash ﬂows from ﬁnancing activities
Dividends paid (743) (743)
1 1
Net cash used in ﬁnancing activities 35 (743) (743)
1 1
Movement in cash and cash equivalents (12,093) 22
Currency exchange movement (32) 5
Opening cash and cash equivalents 16,245 16,218
1 1
Closing cash and cash equivalents 4,120 16,245
5 5
30 Filtronic plc Annual Report 2011 Company Balance Sheet
at 31 May 2011
Company
2011 2010
note £000 £000
Non-current assets
Investments in subsidiaries 15 10,564 –
1 1
Current assets
Trade and other receivables 20 7,812 1,552
Cash and cash equivalents 2,953 15,616
1 1
10,765 17,168
1 1
1 1
Total assets 21,329 17,168
1 1
Current liabilities
Trade and other payables 21 2,934 3,102
1 1
1 1
Total liabilities 2,934 3,102
1 1
1 1
Net assets 18,395 14,066
5 5
Equity
Share capital 25 9,287 7,432
Share premium 26 4,683 –
Retained earnings 29 4,425 6,634
1 1
Total equity 18,395 14,066
5 5
Approved by the Board on 2 August 2011 and signed on its behalf by
Company member 2891064
Hemant Mardia
Chief Executive Ofﬁcer
Filtronic plc Annual Report 2011 31 Company Cash Flow
Statement
for the year ended 31 May 2011
Company
2011 2010
£000 £000
Cash ﬂows from operating activities
Loss for the period (1,557) (1,929)
Finance costs 61 459
Finance income (79) (113)
Loss on sale of investment in subsidiary 265 –
1 1
Operating loss (1,310) (1,583)
Share-based payments 91 55
Movement in trade and other receivables (5,730) 2,488
Movement in trade and other payables (169) (21)
1 1
Net cash from operating activities (7,118) 939
1 1
Cash ﬂows from investing activities
Interest received 79 113
Acquisition of subsidiary (4,230) –
Share issue costs (325) –
Sale of investment in subsidiary (265) –
1 1
Net cash from investing activities (4,741) 113
1 1
Cash ﬂows from ﬁnancing activities
Dividends paid (743) (743)
1 1
Net cash used in ﬁnancing activities (743) (743)
1 1
Increase/(decrease) in cash and cash equivalents (12,602) 309
Currency exchange movement (61) (459)
Opening cash and cash equivalents 15,616 15,766
1 1
Closing cash and cash equivalents 2,953 15,616
5 5
32 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies
Reporting entity
Filtronic plc is a company registered in England and Wales, domiciled in the United Kingdom, and is listed on the
London Stock Exchange.
Basis of preparation
The ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS).
The directors have reviewed the projected cash ﬂow and other relevant information and have a reasonable
expectation that the group has adequate resources to continue in operational existence for the foreseeable future.
For this reason the directors continue to adopt the going concern basis in preparing the annual report.
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
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. Intra group 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.
Foreign currency translation
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.
Foreignexchangegainsandlossesarisingonthesettlementofsuchtransactionsandtranslationofmonetaryassets
and liabilities are recognised in the income statement.
Forward foreign exchange contracts are recognised in the balance sheet at their market value at the balance sheet
date, and the resulting gain or loss is recognised in the income statement.
Filtronic plc Annual Report 2011 33 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
Foreign currency translation (continued)
Onconsolidation,theﬁnancialstatementsofsubsidiarieswithafunctionalcurrencyotherthansterlingaretranslated
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.
! The income statements and cash ﬂow statements are translated at the average rate of exchange for the period,
which approximates the rate of exchange ruling at the date of the transactions.
Currency translation movements arising on the translation of the net investments in foreign subsidiaries are
recognised in the translation reserve, which is a separate component of equity.
Revenue
Revenueisrecognisedforgoodsandservicesduringtheperiodswhentherisksandrewardsofownershiphavebeen
transferred to the customer, there is no continuing management involvement and the amount of revenue can be
measured reliably. Revenue excludes any related value added or sales tax. This policy also applies to the newly
acquired Isotek business.
Research and development
All research costs are expensed as incurred.
Development costs chargeable to the customer are recognised as an expense in the same period as the associated
customer revenue.
Development costs incurred on projects requiring product qualiﬁcation tests to satisfy customer speciﬁcations
are generally expensed as incurred, reﬂecting the technical risks associated with meeting the resultant product
qualiﬁcation test.
Development costs incurred on projects are capitalised where ﬁrstly the technical feasibility can be tested against
relevant milestones, secondly the probable revenue stream foreseen over the life of the resulting product can
support the development and thirdly sufﬁcient resources are available to complete the development. These
capitalised costs are amortised on a straight line basis over the expected life of the associated product.
Once a new product is qualiﬁed, further development costs are expensed as they arise because they are incurred in
response to continual customer demand to enhance the product functionality and to reduce product selling prices.
Operating leases
Operating lease rentals are charged to the income statement on a straight line basis over the lease term.
Share-based payments
The group operated share option and share award schemes, under which share options and share awards were
granted to certain employees. The granting of the share options and share awards are share-based payments.
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 or
share awards expected to vest was expensed in the income statement on a straight line basis over the expected
vesting period. Each reporting period these vesting expectations were revised as appropriate.
A credit was made to equity, equal to the share-based payment expense in the period.
34 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
Exceptional items
Exceptional items are those signiﬁcant items which are separately disclosed by virtue of their size or incidence to
enable a full understanding of the ﬁnancial results.
Business combinations
Business combinations are accounted for by applying the acquisition method.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the group takes into consideration potential voting rights that currently are
exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in
determining the acquisition date and determining whether control is transferred from one party to another.
The group measures goodwill as the fair value of the consideration transferred including the recognised amount of
any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable
assets acquired and liabilities assumed, all measured as of the acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the group to the
previous owners of the acquiree, and equity interests issued by the group. Consideration transferred also includes
the fair value of any deferred consideration, which is undiscounted.
Acontingentliabilityoftheacquireeisassumedinabusinesscombinationonlyifsuchaliabilityrepresentsapresent
obligation and arises from a past event, and its fair value can be measured reliably.
Transaction costs that the group incurs in connection with a business combination, such as finder’s fees, legal fees,
due diligence fees, and other professional and consulting fees are expensed as incurred.
Investments in subsidiaries
Investmentsinsubsidiariesarestatedinthecompany’sﬁnancialstatementsatcostlessanyaccumulatedimpairment
losses.
Investments in subsidiaries are tested for impairment when there is an indication of impairment.
Goodwill
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets.
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the
carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such
an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity
accounted investee.
Goodwill, which is allocated to cash generating units, is tested for impairment annually and when there is an
indication of impairment. If impaired, the goodwill carrying value is written down to its recoverable amount.
Filtronic plc Annual Report 2011 35 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
Other intangible assets
Other intangible assets that are acquired by the group and have finite useful lives are measured at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.
Amortisationisrecognisedinprofitorlossonastraight-linebasisovertheestimatedusefullivesofintangibleassets,
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:
! Intangibles relating to the core technology and know-how 4.5 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
usefullivesorthatarenotyetavailableforuse,therecoverableamountisestimatedeachyearatthesametime.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
thesmallestgroupofassetsthatgeneratescashinflowsfromcontinuingusethatarelargelyindependentofthecash
inflows of other assets or groups of assets (the “cash-generating unit, or CGU”). Subject to an operating segment
ceiling test, for the purposes 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 profit or loss. 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.Animpairmentlossisreversediftherehasbeenachangeintheestimatesusedtodeterminetherecoverable
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.
36 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and less any accumulated
impairment losses.
Depreciation is provided on a straight line basis over the estimated useful lives of the assets as follows:
Land Not depreciated
Buildings 50 years
Plant and equipment 3 to 10 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.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises weighted average cost of
materials and components together with attributable direct labour and overheads. Net realisable value is the
estimated selling price less estimated costs of completion and sale.
Trade and other receivables
Trade and other receivables are stated net of any provision for doubtful debts.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and 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.
Deferred taxation
Deferred tax is provided using the balance sheet liability method. Provision is made for temporary differences
between the carrying amounts of assets and liabilities in the ﬁnancial statements and the amounts for taxation
purposes.
Temporarydifferencesarenotprovidedfortheinitialrecognitionofassetsorliabilitiesthataffectneitheraccounting
nor taxable proﬁt. No provision is made for differences relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying
amount of the assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
Deferred tax assets are recognised only to the extent that it is probable that future taxable proﬁts will be available
against which the asset can be utilised.
Filtronic plc Annual Report 2011 37 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
Grants
Capital based grants 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 proﬁt or loss 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 economic beneﬁts will be required to settle the obligation.
A warranty provision is recognised when products are sold. The provision is 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.
Share capital
Ordinary shares issued are classiﬁed as share capital in equity.
Dividends
Interim dividends are recognised in equity in the period they are paid. Final dividends are recognised in equity in
the period they are declared by shareholders.
Discontinued operations
A discontinued operation is a component of the group’s activities that represents a separate business operation.
Classiﬁcation as a discontinued operation occurs upon disposal or if earlier when the operation meets the criteria
to be classiﬁed as held for sale.
New IFRS and amendments to IFRS
Thefollowingnewstandardshavebecomeeffectivefrom1June2010andhencehavebeenreﬂectedintheﬁnancial
statements:
! IFRS 3 (revised) Business combinations and consequential amendments to IAS 27 Consolidated and separate
ﬁnancial statements are effective prospectively to business combinations for which the acquisition date is on or
after the beginning of the ﬁrst annual reporting period beginning on or after 1 July 2009. During the period, the
Group has made one acquisition as set out in note 37, and the requirements of these standards have been
applied in accounting for these transactions. The Group’s accounting policy under the new standards is set out
within signiﬁcant accounting policies.
! Amendments to IAS 39 “Financial Instruments: Recognition and Measurement: Eligible Hedged Items”
(mandatory for the year commencing on or after 1 July 2009). The amendments to IAS 39 clarify how to apply
existingprinciplesindeterminingeligiblehedgedrisksandportions.Thesechangeshavehadnomaterialimpact
on the Consolidated Financial Statements.
38 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
1 Accounting policies (continued)
New IFRS and amendments to IFRS (continued)
! AmendmentstoIAS39“ReclassiﬁcationofﬁnancialAssets:EffectiveDateandTransition”(mandatoryfortheyear
commencing on or after 1 July 2009). These changes have had no material impact on the Consolidated Financial
Statements.
! Improvements to IFRSs (issued 16 April 2009) (adoption dates vary but certain improvements are mandatory for
the year commencing on or after 1 July 2009). On 16 April 2009 the IASB published the Improvements to IFRSs
2009. The Improvements to IRFSs 2009 is the result of the IASB’s second annual impaovements project (AIP). This
project has ivolved the IASB accumulating throughout the year what it believes are non-urgent but necessary
improvements to IFRSs and then processing these amendments collectively. The Improvements to IFRSs 2009
contains 15 amendments to 12 standards. These changes have had no material effect on the Consolidated
Financial Statements.
There are a number of standards and interpretations issued by the IASB that are effective for ﬁnancial statements
after this reporting period. The following have not been adopted by the Group:
! IAS 24 Related party disclosures (revised) (effective for accounting periods starting on or after 1 January 2011)
! IFRS 7 Amendment to Financial instruments: Disclosures on derecognition (effective for accounting periods
starting on or after 1 July 2011)
! IAS 12 Amendment to Income taxes on deferred tax (effective for accounting periods starting on or after
1 January 2012)
! IFRS 9 Financial instruments (effective for accounting periods starting on or after 1 January 2013)
The application of these standards and interpretations is not anticipated to have a material effect on the Group’s
ﬁnancial statements.
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 of the future, that are believed to be reasonable under the circumstances. Actual
results may differ from the expected results.
The accounting estimates and judgements that have a signiﬁcant effect on the ﬁnancial statements are considered
below.
Acquisition accounting
As part of the accounting for business combinations it is necessary to perform a purchase price allocation exercise
to identify appropriate categories of intangible assets that have been purchased. Such exercise involves judgement
withregardstothosetypesof assetsidentified,thevalueof thoseassetsandtheuseful economic livesappliedwith
regards to amortisation rates. The amounts recognised are calculated by reference to management forecasts and
assumed discount rates.
Filtronic plc Annual Report 2011 39 Notes to the
Financial Statements
for the year ended 31 May 2011
2 Accounting estimates and judgements (continued)
Goodwill and other intangibles impairment
Goodwill and other intangibles are tested for impairment by reference to the expected cash generated by the
business unit. This is deemed to be the best approximation of value, but is subject to the same uncertainties as the
cash ﬂow forecast being used.
Inventory
Inventories are stated at the lower of cost and net realisable value. The assessment of the net realisable value of
inventory requires forecasts of the future demand and selling prices of inventory.
Deferred tax asset
The recognition of the deferred tax assets relating to tax losses carried forward depends on forecasts of the future
taxable proﬁts of the company and its subsidiaries. These forecasts require the use of estimates and judgements
about the future performance of the company and its subsidiaries.
Warranty provision
Warranties are given to customers on products sold to them. A warranty provision is recognised when products are
sold. The provision is based on historical warranty data. Actual warranty costs in the future may differ from the
estimates based on historical performance. The level of warranty provision required is reviewed on a product by
product basis and adjusted accordingly in light of actual experience.
Capitalisation of Development Costs
Development costs incurred on projects requiring product qualiﬁcation tests to satisfy customer speciﬁcations are
generally expensed as incurred, reﬂecting the technical risks associated with resultant product qualiﬁcation test.
Other certain research and development costs are likely to meet the deﬁnition of enhancement type costs, as they
do not substantially improve the product, and therefore do not meet the deﬁnition of development costs to be
capitalised.
The process is to be continually reviewed to ascertain whether any development costs meet the criteria for
capitalisation. This requires various judgements by management as to whether the various criteria have been met.
3 Loss for period from discontinued operations
The loss of £265,000 relates to a warranty issue arising post sale of the Defence UK business to Teledyne. This
payment has now been settled and no further exposure is expected.
40 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
4 Segmental analysis
Operating Segments
IFRS 8 requires consideration 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 CEO, who reviews internal monthly management reports, budget and forecast information as part of
this. Accordingly the CEO is deemed to be the CODM.
Operating segments have then been identiﬁed based on the interim reporting information and management
structureswithinthegroup.Thegrouphastwocustomersrepresentingindividuallyover10%eachandinaggregate
over 75% of revenue.
In the period the group acquired the entire share capital of Isotek (Holdings) Limited. Prior to this the group
operated within one trading business segment involving the design and manufacture of transceiver modules and
ﬁlters for backhaul microwave linking of base stations used in wireless telecommunication networks (Broadband).
Subsequent to the acquisition the enlarged group is also involved in the design of radio frequency conditioning
product for base stations used in wireless telecommunication networks (Basestation). Accordingly the group
(continuing operations) now operates within two trading business segments. The group also contains a central
services segment that provides support to the trading businesses.
The Defence Electronics business was sold on 15 August 2008 (please refer to note 3).
In the table below reportable segment assets and liabilities include inter segment balances. This has been included
to reﬂect the assets and liabilities of the segment as monies are freely moved around the group to provide funding
for working capital where required.
Defence
Central Electronics
Broadband Basestation Services (Discontinued) Total
2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000
External revenue 12,136 15,575 3,387 – – – – – 15,523 15,575
1111111111
Finance income – – – – 79 113 – – 79 113
Depreciation and
amortisation 487 601 36 – – – – – 523 601
Reportable segment loss
before exceptional items (2,463) 667 (1,955) – (842) (959) (265) – (5,525) (292)
Reportable segment loss
before income tax (2,584) 444 (1,976) – (1,232) (1,461) (265) – (6,057) (1,017)
1111111111
Reportable segment assets 7,409 7,806 6,007 – 18,777 15,796 – – 32,193 23,602
Capital expenditure 663 639 263 – – – – – 926 639
Reportable segment
liabilities 6,693 4,538 8,838 – 383 1,729 – – 15,914 6,267
1111111111
Filtronic plc Annual Report 2011 41 Notes to the
Financial Statements
for the year ended 31 May 2011
4 Segmental analysis (continued)
Reconciliation of reportable segment revenues, proﬁt or loss, assets and liabilities and other material items
2011 2010
£000 £000
Depreciation and amortisation
Reportable segment totals 523 601
Adjustments/amortisation of intangibles 1,209 –
1 1
Consolidated depreciation and amortisation 1,732 601
5 5
Loss before taxation
Total loss for reportable segments (6,057) (1,017)
Elimination of discontinued operations 265 –
Group/unallocated (1,209) –
1 1
Consolidated loss before taxation (7,001) (1,017)
5 5
Assets
Total assets for reportable segments 32,193 23,602
Inter company (7,255) (2,551)
Group/unallocated 2,551 2,551
1 1
Consolidated total assets 27,489 23,602
5 5
Liabilities
Total liabilities for reportable segments 15,914 6,267
Inter company (7,255) (2,551)
1 1
Consolidated total liabilities 8,659 3,716
5 5
42 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
4 Segmental analysis (continued)
Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on geographical
location of customers. Segment assets are based on the geographical location of the assets.
Revenue by destination
2011 2010
£000 £000
United Kingdom 838 35
Europe 11,256 14,451
Americas 620 7
Rest of the world 2,809 1,082
1 1
15,523 15,575
5 5
Split of non-current assets by location
2011 2010
£000 £000
United Kingdom 11,611 1,998
Americas 4,204 –
1 1
15,815 1,998
5 5
Non-current assets relate to property, plant and equipment and intangible assets.
Acquisitions in the period
As described in note 37, the Basestation segment was acquired in the year. The Disclosures above show the split of
the group income statement (to proﬁt before tax) between acquisitions and the existing business of the group.
Filtronic plc Annual Report 2011 43 Notes to the
Financial Statements
for the year ended 31 May 2011
5 Operating loss
2011 2010
Continuing operations note £000 £000
Revenue 15,523 15,575
5 5
Other operating income (326) (531)
Raw materials and consumables 10,435 7,570
1 1
Wages and salaries 5,016 4,528
Social security costs 509 450
Pension costs 277 211
Share-based payments 32 122 73
1 1
Staff costs 5,924 5,262
1 1
Amortisation of intangibles 1,209 –
Depreciation 523 601
1 1
Depreciation and amortisation 1,732 601
1 1
Other operating charges 4,838 3,807
1 1
1 1
Operating costs 22,603 16,709
5 5
1 1
Operating loss (7,080) (1,134)
5 5
The operating loss is stated after the exceptional items in note 6.
Other operating income represents the amount claimed from Yorkshire Forward towards a research and
development programme.
44 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
6 Exceptional items
Operating loss is stated after charging exceptional items as follows:
2011 2010
£000 £000
Directors’ resignation costs – 146
Pension scheme closure costs – 116
Acquisition related costs 694 320
Vendor contribution towards acquisition costs (300) –
Integration costs relating to acquisition 75 –
Redundancy costs 142 260
1 1
611 842
5 5
Professional fees were incurred in the acquisition of Isotek (Holdings) Ltd. This includes legal and professional,
non-audit and corporate ﬁnance fees. The prior year fees include the costs of an opportunity that Filtronic decided
not to proceed with.
Under the terms of the Isotek acquisition, the vendor agreed to pay a contribution of £300,000 towards acquisition
costs.
As part of the integration of Isotek into the Filtronic group costs have been incurred in harmonising systems and
processes with the aim of achieving synergies.
7 Operating items
2011 2010
£000 £000
Operating loss is stated after charging:
Continuing operations:
Research and development costs 3,531 2,313
Operating lease rentals 138 79
5 5
8 Auditors’ remuneration
The company auditors are KPMG Audit Plc. The auditors’ remuneration was as follows:
2011 2010
£000 £000
Company auditors:
Audit of the group and company ﬁnancial statements 6 7
Company auditors and their associates:
Audit of subsidiaries ﬁnancial statements pursuant to
legislation 34 18
Other services pursuant to such legislation 10 9
Taxation services 5 7
Other services including acquisitions 150 57
1 1
205 98
5 5
Filtronic plc Annual Report 2011 45 Notes to the
Financial Statements
for the year ended 31 May 2011
9 Employees
The average number of employees comprised:
2011 2010
Number Number
Manufacturing 95 105
Research and development 49 31
Sales 1 –
Administration 14 13
1 1
159 149
5 5
10 Compensation of directors
Details of the remuneration, pension entitlements and share options of the individual directors are set out in the
remuneration report on pages 18 to 22. The compensation of the directors was:
2011 2010
£000 £000
Salary or fees 484 599
Bonuses – 42
Beneﬁts 26 30
1 1
Total remuneration excluding pension contributions and share-based payments 510 671
Pension contributions 27 24
Share-based payments 93 46
1 1
630 741
5 5
The directors are related parties.
11 Related party transaction
Chief Executive Ofﬁcer, Hemant Mardia’s wife is employed by the group. Her salary, car allowance and pension
contributions amounted to £96,000 (2010 £96,000).
46 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
12 Finance income
2011 2010
£000 £000
Interest income 79 113
5 5
13 Taxation
The reconciliation of the effective tax rate is as follows:
2011 2010
£000 £000
Loss before taxation
Continuing operations (7,001) (1,021)
1 1
Loss before taxation (7,001) (1,021)
5 5
2011 2010
£000 £000
Loss before taxation multiplied by
standard rate of corporation tax in the UK 27% (1,925) 28% (286)
Disallowable items (2%) 114 (12%) 108
Non-taxable consolidation adjustment –– 13% (130)
Depreciation in advance of capital allowances (2%) 142 (17%) 178
Deﬁned beneﬁt pension –– 3% (26)
Pension contributions brought forward utilised 19% (1,322) 166% (1,688)
Tax losses carried forward (37%) 2,665 (181%) 1,843
1111
Taxation 5% (326) ––
5555
Filtronic plc Annual Report 2011 47 Notes to the
Financial Statements
for the year ended 31 May 2011
14 Loss per share
Group
2011 2010
£000 £000
Loss for the period
Continuing operations (6,675) (1,021)
Discontinued operations (265) –
1 1
Loss for the period (6,940) (1,021)
5 5
000 000
Basic and diluted weighted average number of shares 92,873 74,323
5 5
Basic and diluted loss per share
Continuing operations (7.19)p (1.37)p
Discontinued operations (0.29)p –
1 1
Basic and diluted loss per share (7.48)p (1.37)p
5 5
Therewasnodifferenceintheweightedaveragenumberofsharesusedforthecalculationofbasicanddilutedloss
per share as the effect of all potentially dilutive shares outstanding was anti-dilutive.
48 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
15 Investments in subsidiaries
Company
Investments in
subsidiaries
£000
Cost
At 1 June 2009 21,639
Dissolved (11,093)
1
At 31 May 2010 10,546
Additions 10,564
1
At 31 May 2011 21,110
5
Impairment
At 1 June 2009 21,639
Dissolved (11,093)
1
At 31 May 2010 10,546
1
At 31 May 2011 10,546
5
Carrying amount at 1 June 2009 –
5
Carrying amount at 31 May 2010 –
5
Carrying amount at 31 May 2011 10,564
5
The company’s subsidiaries are related parties.
The subsidiaries at 31 May 2011, which were directly owned by Filtronic plc, were as follows:
Name of Country of Description of Proportion Activity
subsidiary incorporation equity held held
Filtronic Broadband Limited UK 1p ordinary shares 100% Design and manufacture
of microwave products
for telecommunication
systems
Filtronic Holdings UK Limited UK £1 ordinary shares 100% Holding company
Isotek (Holdings) Limited UK 1p ordinary shares 100% Holding company
Owned by Isotek (Holdings) Limited:
Isotek Electronics Limited UK 1p ordinary shares 100% Design and manufacture
of Filtronic products for
telecommunication
systems
Isotek Inc USA $1 ordinary shares 100% Design and manufacture
of Filtronic products for
telecommunication
systems
Isotek Limited UK 1p ordinary shares 100% Dormant company
Owned by Isotek Electronics Limited:
Isotek Hong Kong Holdings
Limited Hong Kong HK $1 ordinary shares 100% Holding company
Filtronic plc Annual Report 2011 49 Notes to the
Financial Statements
for the year ended 31 May 2011
16 Goodwill and other intangibles
Other
intangibles
(core
Goodwill technology) Total
£000 £000 £000
Cost
At 1 June 2010 – – –
Additions 3,655 10,884 14,539
111
At 31 May 2011 3,655 10,884 14,539
555
Amortisation
At 1 June 2010 – – –
Provided in year – (1,209) (1,209)
111
At 31 May 2011 – (1,209) (1,209)
555
Carrying amount at 1 June 2010 – – –
555
Carrying amount at 31 May 2011 3,655 9,675 13,330
555
Goodwill and other intangibles have arisen in the period relating to the acquisition referred to in note 37.
Goodwill is allocated to the Basestation cash generating unit (CGU) and this CGU represents the lowest level within
the group at which the goodwill is monitored for internal management purposes, which is not higher than the
group’s operating segments as reported in note 4. 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.Valueinusewasdeterminedbydiscountingthefuturecashﬂowsgeneratedfromthecontinuinguseoftheunit.
The calculation of the value in use was based on the following key assumptions:
! Cash ﬂows were projected to 31 May 2013 based on past experience and actual operating results;
! Cash ﬂows for a further 8-year period were extrapolated. A growth factor was not applied to the projections as
the value in use exceeded the carrying amounts before any such assumption was applied;
! A pre-tax discount rate of 20% was applied in determining the recoverable amount of the unit, being the
estimated weighted average cost of capital.
Based on this testing the directors do not consider any of the goodwill or intangible assets to be impaired even
allowing for a reasonable degree of sensitivity to the underlying assumptions, including the discount rate.
50 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
17 Property, plant and equipment
Group
Plant and
equipment
£000
Cost
At 1 June 2009 6,789
Additions 639
Disposals (1,579)
1
At 31 May 2010 5,849
Assets acquired through acquisition of Isotek 260
Additions 926
Disposals (115)
1
At 31 May 2011 6,920
5
Depreciation and impairment
At 1 June 2009 4,793
Depreciation 601
Disposals (1,543)
1
At 31 May 2010 3,851
Depreciation of assets acquired through acquisition of Isotek 157
Depreciation 523
Disposals (96)
1
At 31 May 2011 4,435
5
Carrying amount at 1 June 2009 1,996
5
Carrying amount at 31 May 2010 1,998
5
Carrying amount at 31 May 2011 2,485
5
Filtronic plc Annual Report 2011 51 Notes to the
Financial Statements
for the year ended 31 May 2011
18 Deferred tax
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Deferred tax liability 2,612 – – –
5 5 5 5
Thedeferredtaxliabilityrelatestotheintangibleassetsarisinguponacquisition.Theoriginalliabilitywas£2,938,000
with £326,000 released to the income statement during the year.
Deferredtaxclassiﬁedascurrentconsistsoftheelementthatwillberecognisedasincomeinthenextyear.Deferred
tax classiﬁed as non-current will be released to the income statement over the remaining life.
Deferred tax assets which have not been recognised:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Depreciation in advance of capital allowances 1,823 1,811 507 546
Pension contributions carried forward – 1,346 – 1,346
Tax losses carried forward 15,431 12,065 12,666 12,065
1 1 1 1
17,254 15,222 13,173 13,957
5 5 5 5
Thedeferredtax assetshavenotbeenrecognisedwherethedirectorsconsiderthatitisunlikelythattheunderlying
temporary differences will reverse in the foreseeable future.
On 23 March 2011 the Chancellor announced the reduction in the main rate of UK corporation tax to 26 per cent
with effect from 1 April 2011. This change became substantively enacted on 29 March 2011. The effect of the rate
reductionisreflectedinthefiguresabove.TheChancelloralsoproposedchangestofurtherreducethemainrateof
corporation tax by one per cent per annum to 23 per cent by 1 April 2014, but these changes have not yet been
substantively enacted and therefore are not included in the figures above.
19 Inventories
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Raw materials 897 1,403 – –
Work in progress 342 346 – –
Finished goods 438 249 – –
1 1 1 1
1,667 1,998 – –
5 5 5 5
Inventories are stated net of provision 1,775 1,332 – –
5 5 5 5
52 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
20 Trade and other receivables
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Trade receivables 4,671 2,598 – –
Group receivables – – 7,255 1,373
Other receivables and prepayments 1,061 763 557 179
Forward foreign exchange contracts 31 – – –
1 1 1 1
5,763 3,361 7,812 1,552
5 5 5 5
Trade receivables are stated net of provision – – – –
5 5 5 5
21 Trade and other payables
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Trade payables 4,197 1,544 46 6
Group payables – – 2,551 2,551
Other payables and accruals 1,288 1,342 337 545
1 1 1 1
5,485 2,886 2,934 3,102
5 5 5 5
22 Deferred income
Deferred income classiﬁed as current consists of a capital grant made by a customer that will be recognised as
income in the next year. Deferred income classiﬁed as non-current consists of the non-current portion that will be
released to the income statement over the life of the asset.
23 Provision
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Warranty provision
Opening balance 706 1,314 – –
Provision acquired through Isotek acquisition 40 – – –
Used during the year (44) (285) – –
Released unused during the year (441) (542) – –
Charge for the year 176 219 – –
1 1 1 1
Closing balance 437 706 – –
5 5 5 5
24 Pension costs
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Deﬁned contribution schemes 277 211 14 15
5 5 5 5
Filtronic plc Annual Report 2011 53 Notes to the
Financial Statements
for the year ended 31 May 2011
25 Share capital
Group and Company
Ordinary shares
of 10p each
Issued and fully paid
Number £000
At 1 June 2009 74,323,093 7,432
11
At 1 June 2010 74,323,093 7,432
Shares issued in year 18,550,000 1,855
11
At 31 May 2011 92,873,093 9,287
55
Holders of the ordinary shares are entitled to receive dividends when declared, and are entitled to one vote
per share at meetings of the company.
The group issued 18.55m shares of nominal value 10p in part consideration for the entire share capital of Isotek
Holdings Limited.
IncompliancewiththeCompaniesAct2006thecompanyhasadoptedarticlesofassociationthathasdispensedwith
the requirement for authorised share capital.
26 Share premium
Group and
Company
At 1 June 2010 –
Premium on share issue 5,008
Share issue costs (325)
1
At 31 May 2011 4,683
5
The shares issued as part of the consideration of Isotek (Holdings) Ltd were issued at a premium of 27p reﬂecting
the market value of the shares at the date of acquisition net of issue costs of £325,000.
27 Translation reserve
Group
£000
At 1 June 2010 –
Currency translation movement arising on consolidation (32)
1
At 31 May 2011 (32)
5
54 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
28 Dividends
The dividends recognised in equity and paid during the year were as follows:
Group and
Company
2011 2010
Per share £000 £000
Annual dividend year ended 31 May 2009 1.00p – 743
Annual dividend year ended 31 May 2010 1.00p 743 –
1 1
743 743
5 5
The directors are not proposing to pay a dividend for the year ended 31 May 2011.
29 Retained earnings
Group Company
£000 £000
At 1 June 2009 14,144 9,251
Loss for the period (1,021) (1,929)
Share-based payments 73 55
Dividends (743) (743)
11
At 31 May 2010 12,453 6,634
Loss for the period (6,940) (1,557)
Share-based payments 122 91
Dividends (743) (743)
11
At 31 May 2011 4,892 4,425
55
Filtronic plc Annual Report 2011 55 Notes to the
Financial Statements
for the year ended 31 May 2011
30 Share options
Therearetwosharesaveplansthathavebeenofferedtoemployees.Underbothplansemployeeswhojointheplan
saveupto£250permonthforthreeyears.Themembersoftheplanweregrantedanumberofshareoptionsbased
on the amount they would save over the three years. At the end of the three years the members have a six month
period in which they can exercise the share options. The exercise price for an option was the middle market
quotation of Filtronic plc’s ordinary shares as derived from the Ofﬁcial List of the United Kingdom Financial Services
Authority on the dealing day immediately prior to the plan offer date.
Sharesave Plan – Scheme 1
Weighted Weighted
average average
exercise Number exercise Number
price of options price of options
2011 2011 2010 2010
Outstanding at the beginning of the period 25p 615,450 25p 857,100
Granted during the period 25p – 25p –
Cancelled during the period 25p (82,350) 25p (241,650)
1 1
Outstanding at the end of the period 25p 533,100 25p 615,450
5 5
Exercisable at the end of the period – ––
5 5
The ﬁrst sharesave plan was offered to employees in February 2009.
The options outstanding at 31 May 2011 for Scheme 1 have a weighted average remaining contractual life of
1.3 years.
The share options granted under this scheme have an exercise price of 25p and have an exercise period from
1 April 2012 to October 2012.
Sharesave Plan – Scheme 2
Weighted
average
exercise Number
price of options
2011 2011
Outstanding at the beginning of the period 34.2p –
Granted during the period 34.2p 321,981
Cancelled during the period 34.2p (34,208)
1
Outstanding at the end of the period 34.2p 287,773
5
Exercisable at the end of the period –
5
The second sharesave plan was offered to employees in November 2010.
The options outstanding at 31 May 2011 for Scheme 2 have a weighted average remaining contractual life of
2.9 years.
The share options granted during the year to May 2011 have an exercise price of 34.2p and have an exercise period
from 1 November 2013 to 30 April 2014.
56 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
31 Share awards
Number of Number of
share awards share awards
2011 2010
Performance Share Plan
Outstanding at the beginning of the period 569,388 –
Awarded during the period 497,709 569,388
1 1
Outstanding at the end of the period 1,067,097 569,388
5 5
The share awards awarded during the year to 31 May 2010 have a weighted average remaining contractual life
of 1.2 years.
The share awards awarded during the year to 31 May 2011 have a weighted average remaining contractual life
of 2.5 years.
Undertheplanintheyearto31May2010shareawardsweremadetoexecutivedirectorsandseniormanagers.The
vesting of the awards is subject to performance targets based on growth in earnings per share (EPS) over a three
year period. If growth in EPS exceeds growth in the Retail Price Index (RPI) by 3% per year (on a compound basis)
then 25% of the awarded shares will vest. If growth in EPS exceeds growth in RPI by 10% per year (on a compound
basis) then 100% of the awarded shares will vest. If growth in EPS falls between these two targets, then the awarded
shares will vest on a sliding scale between 25% and 100% of the awarded shares.
Under the plan in the year to 31 May 2011 further share awards were made to executive directors and senior
managers. The vesting of the share awards is subject to performance targets based on growth in earnings per share
(EPS) over a three year period. If EPS grows such that for the year to 31 May 2013 it exceeds a figure corresponding
to £5.5m of earnings before intangible amortisation, exceptionals, interest and tax, then 25% of the awarded shares
will vest. If EPS grows such that for the year to 31 May 2013 it exceeds a figure corresponding to £7.0m of earnings
before intangible amortisation, exceptionals, interest and tax, then 100% of the awarded shares will vest. If EPS
grows to be between these two targets then the awarded shares will vest on a sliding scale between 25% and 100%
of the awarded shares.
32 Share-based payments
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Share options expense 34 19 3 1
Share awards expense 88 54 88 54
1 1 1 1
122 73 91 55
5 5 5 5
The share options expense was 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.
Filtronic plc Annual Report 2011 57 Notes to the
Financial Statements
for the year ended 31 May 2011
32 Share-based payments (continued)
The inputs to the Black-Scholes model and the weighted average fair value of the share options granted during the
year were as follows:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Number of share options granted 321,981 – 30,736 –
Weighted average share price 38p – 38p –
Weighted average exercise price 34.2p – 34.2p –
Expected volatility 60% – 60% –
Expected life 3.1 years – 3.1 years –
Risk free interest rate 3% – 3% –
Weighted average fair value 12p – 12p –
Expected volatility is the estimate of the volatility of the share price over the expected life of the share options.
The share awards expense was the fair value of the share awards at the date of award spread over the expected
vesting period of the share awards. The fair value of the share awards at the date of award was the market price of
the shares on that day.
The fair value of the share awards awarded during the year were as follows:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Number of share awards awarded 497,709 569,388 157,944 154,411
Weighted average share price 32p 34p 32p 36p
Expected life 3.0 years 3.0 years 3.0 years 3.0 years
Weighted average fair value 32p 34p 32p 36p
33 Operating lease commitments
At the balance sheet date there were commitments for lease payments under non-cancellable operating leases,
which fall due as follows:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Less than one year 149 159 110 105
Between one and ﬁve years 219 324 190 280
1 1 1 1
368 483 300 385
5 5 5 5
Operating leases are for land and buildings and motor vehicles and the lease terms are for periods of one to
three years.
58 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
34 Capital expenditure commitments
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Capital expenditure contracted for at the
balance sheet date but not provided in the
ﬁnancial statements 284 165 – –
5 5 5 5
35 Note to the consolidated cash flow statement
Group
2011 2010
note £000 £000
Operating loss
Continuing operations (7,080) (1,134)
5 5
Net cash (used in)/from operating activities
Continuing operations (4,371) 1,926
5 5
Net cash used in investing activities
Continuing operations (6,714) (526)
Sale of discontinued operations 36 (265) (635)
1 1
(6,979) (1,161)
5 5
Net cash used in ﬁnancing activities
Continuing operations (743) (743)
5 5
36 Net cash from sale of discontinued operations
Group
2011 2010
£000 £000
Tax paid – (635)
Historic warranty claim (265) –
1 1
(265) (635)
5 5
Filtronic plc Annual Report 2011 59 Notes to the
Financial Statements
for the year ended 31 May 2011
37 Acquisition in year
On 16 November 2010 Filtronic acquired the share capital of Isotek (Holdings) Limited (“Isotek”). Isotek employs
approximately 51 staff predominantly in the United Kingdom and in the United States, and develops and markets
leading edge telecoms products for a range of wireless infrastructure telecoms applications.
The consideration is made up of:
£000
Share consideration (18,550,000) at completion date market value 6,864
Cash consideration 4,230
1
Total consideration for Isotek 11,094
Estimated working capital adjustment to consideration (530)
1
Estimated ﬁnal consideration for Isotek 10,564
5
Asat31May2011thefairvalueoftheacquiredassets,liabilitiesandgoodwillhasbeendeterminedonaprovisional
basis pending ﬁnalisation of the working capital adjustment.
The Offer to Isotek shareholders included an adjustment to consideration based on the level of working capital and
netcashonthedateofacquisition.TheestimateaboveisbasedupontheworkingcapitaldataincludedintheIsotek
companies opening balance sheets used to prepare these accounts but cannot be ﬁnal until the working capital
adjustment is agreed.
There were no signiﬁcant fair value adjustments arising on the acquisition other than the recognition of intangible
assets and deferred tax noted below.
The goodwill arising on the acquisition relates to the skills and talents of the acquired business workforce and the
beneﬁts of future market expansion. These beneﬁts are not recognised separately from goodwill as the future
economic beneﬁts arising cannot be reliably measured.
Intangibles relating to the core technology and know-how are being amortised over a period of 4.5 years.
SincetheacquisitionIsotekhascarriedrevenuesof£3.4m,andhasmadelossesfromoperationsof£2.0mexcluding
exceptional items and amortisation.
Book value Fair value Fair value
pre acquisition adjustments of net assets
£000 £000 £000
Intangibles on acquisition – 10,884 10,884
Deferred tax liability – (2,939) (2,939)
Tangible ﬁxed assets 105 – 105
Current assets 2,573 (20) 2,553
Current liabilities (3,585) (109) (3,694)
111
(907) 7,816 6,909
Goodwill arising on acquisition 3,655
1
Total consideration (as above) 10,564
Non-cash consideration (shares issued and provisional
working capital adjustment) (6,334)
Cash (acquired) (68)
1
Net cash outﬂow 4,162
5
60 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
37 Acquisition in period (continued)
ThefollowingsummarypresentsthegroupasifIsotekwasacquiredon1June2010.Theamountsincludetheresults
of the acquired business but do not include any exceptional items or any amortisation of separately identiﬁed
intangibles,whicharebeingamortisedover4.5years.Inadditiontheamountsdonotincludeanypossiblesynergies
fromtheacquisition.Theresultsoftheacquiredcompaniesfortheperiodbeforeacquisitionhavenotbeenadjusted
to reﬂect Filtronic accounting policies nor to reﬂect fair value adjustments made on acquisition. The information is
provided for illustrative purposes only and does not necessarily reﬂect the actual results that would have occurred,
nor is it necessarily indicative of the future results of the combined entities.
Pro forma
group
£000
Revenue 16,646
Loss before tax, amortisation and exceptional items (6,755)
1
38 Financial instruments
Fair value
The carrying amount of all the ﬁnancial assets and liabilities approximate 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.
Tradeandotherreceivablesareallreceivableinlessthanoneyear.Tradereceivablesaregenerallyreceivablewithin
90 days.
Trade and other payables are all payable in less than one year. Trade payables are generally payable within 90 days.
Liquidity risk
The group and company hold signiﬁcant cash balances and have no debt. 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 amount of the cash
balances results in liquidity risk being very low.
Credit risk
The exposure to credit risk is limited to the carrying amount of cash and cash equivalents and trade and other
receivables in the balance sheet as follows:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Cash and cash equivalents 4,120 16,245 2,953 15,616
Trade and other receivables 5,763 3,361 7,812 1,552
1 1 1 1
9,883 19,606 10,765 17,168
5 5 5 5
Filtronic plc Annual Report 2011 61 Notes to the
Financial Statements
for the year ended 31 May 2011
38 Financial instruments (continued)
The cash and cash equivalents in the balance sheet were on deposit with large banks with high credit ratings
as follows:
Group Company
2011 2010 2011 2010
£000 £000 £000 £000
Barclays Bank 3,312 11,245 2,413 10,616
Santander Bank 540 5,000 540 5,000
Bank of America 227 – – –
HSBC 41 – – –
1 1 1 1
4,120 16,245 2,953 15,616
5 5 5 5
The credit risk related to cash and cash equivalents is considered to be low due to the banks being large with high
credit ratings.
Credit risk is primarily related to trade receivables. The group’s businesses are concentrated on long term
relationships with a small number of larger and long established original equipment manufacturers. Overdue
receivables are regularly monitored and appropriate action is taken to collect payment. The group has historically
incurred only low levels of unrecoverable receivables. Therefore credit risk is considered to be low.
The company has no trade receivables.
Trade receivables included the following amounts for the group’s largest customers.
Group
2011 2010
£000 £000
Customer one 2,147 2,154
Customer two 1,481 –
Customer three 222 –
Other customers 821 444
1 1
4,671 2,598
5 5
The age of trade receivables that have not been provided for was as follows:
Group
2011 2010
£000 £000
Not past due 4,609 2,515
Past due less than three months 62 83
1 1
4,671 2,598
5 5
The age of trade receivables that have been provided for was as follows:
Group
2011 2010
£000 £000
Past due less than three months – –
5 5
62 Filtronic plc Annual Report 2011 Notes to the
Financial Statements
for the year ended 31 May 2011
38 Financial instruments (continued)
The movement in the provision for doubtful trade receivables was as follows:
Group
2011 2010
£000 £000
Opening balance – 15
Release for the year – (15)
1 1
Closing balance – –
5 5
Interest rate risk
Cashisheldonshorttermbankdepositswhichearninterestatvariablemoneymarketdepositrates.At31May2011
£1,986,000 was held in Barclays on short term deposit; £1,000,000 with an interest rate of 1.25% and £986,000 with
an interest rate of 0.7%. A further £540,000 was held in Santander on short term deposit with an interest rate of
1.25%. 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 assuming a balance on deposit of £2,500,000 is
as follows:
Interest rate Expected annual interest income
£000
1.5% 38
1.0% 25
0.5% 13
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 and US dollar.
The group’s results and ﬁnancial position are affected by ﬂuctuations in foreign currency exchange rates.
The group generates a surplus of US dollars as most customers are now invoiced in US dollars. The nature of the
group’s businesses means that there is limited visibility of future revenues in US dollars. Therefore when forward
foreign exchange contracts are used to reduce the currency risk on the surplus currency expected to be generated,
they are usually only for short term periods of no more than six months. If sterling were to strengthen signiﬁcantly
this could materially reduce the group’s revenue and operating result.
Forward foreign exchange contracts may also be used to reduce the foreign currency risk on other transactions.
At 31 May 2011 there were three outstanding forward foreign exchange contracts.
Nearly all cash is held in sterling.
Filtronic plc Annual Report 2011 63 Notes to the
Financial Statements
for the year ended 31 May 2011
38 Financial instruments (continued)
The group’s exposure to foreign currency risk for cash and cash equivalents, trade receivables and trade payables
was as follows:
Group
2011 2010
EUR SEK USD EUR SEK USD
£000 £000 £000 £000 £000 £000
Cash and cash equivalents 446 – 659 535 82 –
Trade receivables 143 – 4,358 405 95
Trade payables (425) – (4,057) (392) – (57)
111111
Net exposure 164 – 960 548 91 (52)
555555
The sensitivity of the group operating proﬁt from continuing operations to US dollars to sterling exchange rate,
assuming all other variables remain constant, is as follows:
IftheUSdollarhadbeenonepercentstronger/weakeragainststerlingthroughouttheyearended31May2011then
the group operating proﬁt from continuing operations would have been £46,000 higher/lower.
The company has no signiﬁcant exposure to foreign currency risk.
Capital management
The group’s and company’s capital is the total equity which comprises ordinary share capital and retained earnings.
The group and company have no debt or undrawn debt facilities. At 31 May 2011 the group had a cash balance of
£4,120,000andthecompanyhadacashbalanceof£2,953,000.Thegroupandcompanyhavesufﬁcientcashtocover
working capital requirements and capital expenditure plans.
The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern
in order to provide future returns for shareholders.
39 Forward-looking statements
Certain statements in this annual report are forward-looking. Where the annual report includes forward-looking
statements, these are made by the directors in good faith based on the information available to them at the time of
theirapprovalofthisreport.Suchstatementsarebasedoncurrentexpectationsandaresubjecttoanumberofrisks
and uncertainties, including both economic and business risk factors that could cause actual events or results to
differ materially from any expected future events or results referred to in these forward-looking statements. Unless
otherwise required by applicable law, regulation or accounting standard, the group undertakes no obligation to
update any forward-looking statements whether as a result of new information, future events or otherwise.
64 Filtronic plc Annual Report 2011 Shareholder Information
Annual General Meeting
The Annual General Meeting of Filtronic plc will be held at Pinsent Masons LLP, 1 Park Row, Leeds LS1 5AB on Friday
23September2011at11.00am.Thenoticeofmeeting,togetherwithdetailsofbusinesstobeconductedatthemeeting
and a form of proxy, is being circulated to shareholders with this report.
Financial calendar
Provisional dates for the announcement of results:
Interim results to 30 November 2011 30January2012
Final results to 31 May 2012 30July2012
Website
The company’s website address is www.ﬁltronic.co.uk
The website includes company news and investor sections. The annual and half-yearly reports of the company can be
downloaded from the website. The company’s share price is also available on the website.
Shareholder enquiries and change of address
Shareholders should direct all enquiries regarding their shareholdings and notiﬁcation of change of address to the
company’s registrars:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0870 162 3100
Capita Registrars also provide a range of online shareholder services at www.capitashareportal.com which shareholders
may ﬁnd useful.
Filtronic plc Annual Report 2011 65 Corporate Directory
Company secretary
M Moynihan
Company number
2891064
Registered office
Filtronic plc
Unit 2
Acorn Park
Charlestown
Shipley
West Yorkshire
BD17 7SW
Tel: 01274 535610
Fax: 01274 598263
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0870 162 3100
Stockbrokers
Panmure Gordon & Co. PLC
155 Moorgate
London
EC2M 6XB
Tel: 020 7459 3600
Auditors
KPMG Audit Plc
Chartered Accountants
1 The Embankment
Neville Street
Leeds
LS1 4DW
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
66 Filtronic plc Annual Report 2011  Filtronic plc Annual Report 2011
Filtronic plc
Annual Report
2011
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