Filtronic plc
Annual Report
2009
Inspired Wireless Solutions 1 Financial Highlights
2 Chairman’s Statement
3 Business Review – Chief Executive Ofﬁcer’s Operating Review
4 Business Review – Financial Review
6 Business Review – Directors’ Assessment of Risk
7 Directors
8 Directors’ Report
12 Corporate Governance Statement
17 Remuneration Report
23 Statement of Directors’ Responsibilities
24 Independent Auditors’ Report
26 Consolidated Income Statement
27 Consolidated Statement of Recognised Income and Expense
28 Consolidated Balance Sheet
29 Consolidated Cash Flow Statement
30 Company Income Statement
31 Company Statement of Recognised Income and Expense
32 Company Balance Sheet
33 Company Cash Flow Statement
34 Notes to the Financial Statements
83 Shareholder Information
84 Corporate Directory
Filtronic plc Annual Report 2009
Contents Financial Highlights
Continuing
operations
2009 2008
Revenue £28.8m £40.1m
Operating profit before exceptional items £2.1m £2.5m
Operating profit/(loss) £1.2m £(23.5)m
Profit/(loss) before taxation £2.3m £(16.2)m
Basic earnings/(loss) per share 3.05p (21.80)p
Diluted earnings/(loss) per share 3.04p (21.80)p
Group
2009 2008
Profit/(loss) for the period from continuing operations £2.3m £(16.2)m
Profit for the period from discontinued operations £9.4m £1.6m
Profit/(loss) for the period £11.7m £(14.6)m
Basic earnings/(loss) per share 15.68p (19.67)p
Diluted earnings/(loss) per share 15.65p (19.67)p
Final dividend per share 1.00p nil
Special dividend per share 40.00p 120.00p
Special dividend £29.7m £89.2m
Cash £16.2m £31.5m
Total equity £21.6m £38.9m
Filtronic plc Annual Report 2009 1 Chairman’s Statement
The year ended 31 May 2009 produced revenue from continuing operations of £28.8m and operating proﬁt before
exceptional items of £2.1m compared with the prior year revenue of £40.1m and £2.5m operating proﬁt. The group proﬁt
for the period was £11.7m compared with a £14.6m loss in the prior year. Cash at the year end was £16.2m compared
with £31.5m at 31 May 2008. A full breakdown of the year is shown in the ﬁnancial statements, notes and narrative which
follow.
The UK Defence business was sold to Teledyne on 15 August 2008 for proceeds of £12.2m (net of costs). The group also
received £1.9m before tax from the onward sale of its Australian wireless infrastructure business, originally disposed of
in 2005.
A second special dividend of 40p (£29.7m) was paid to shareholders on 24 November 2008. The Board has decided to
recommend a ﬁnal dividend of 1.00p payable on 30 November 2009, to shareholders on the register at 30 October 2009
subject to approval by shareholders at the Annual General Meeting.
Overhead and other cost reductions were implemented as a response to the lower levels of customer demand
experienced in the second half of the year. These prompt actions enabled the business to trade above breakeven on a
broadly cash neutral basis in the second half of the year. Expenditure on new product development and core technology
was maintained.
The underlying market drivers for Point to Point backhaul market growth remain intact, although the immediate outlook
is subdued. The group continues to invest in R&D in order to position the company with competitive products to
respond to market demand.
I should like to thank Stephen Mole, Chief Financial Ofﬁcer, who will be leaving the group at the end of September. The
process of appointing a successor is well advanced. As previously announced, I will be stepping down as Chairman at
the Annual General Meeting on 18 September 2009 to be succeeded by Howard Ford who joined the Board in
December 2008 and has considerable experience in the telecommunications equipment and services market.
Finally, I should like to thank all staff in the business for their contribution over the past year.
John Poulter
Chairman
27 July 2009
2 Filtronic plc Annual Report 2009 Business Review
– Chief Executive Officer’s
Operating Review
Summary
The period saw further changes for the group with the disposal of the UK Defence business to Teledyne. The remaining
Point to Point business experienced a signiﬁcant reduction in demand in the second half of the year which was mitigated
by prompt cost reduction initiatives. The group structure and central costs have been streamlined with the consolidation
of the ﬁnance function alongside the Newton Aycliffe operations.
Continuing operations
Filtronic now comprises solely the Point to Point business which designs and manufactures customised microwave
electronic sub assembly components that are integrated by OEM’s into Point to Point (PTP) radios. These radios provide
the backhaul links for telecom networks, particularly the mobile base station market. Filtronic is the leading merchant
supplier of transceivers and diplex ﬁlters to this market.
The business achieved a strong revenue performance in the ﬁrst half of the year (£18.3m) but there was a signiﬁcant
weakening of demand in the second half (revenue £10.5m) due to general destocking and one customer who
experienced a signiﬁcant downturn in sales in Asia. This necessitated a prompt initiation of overhead and other cost
reduction measures which enabled trading in the second half to be maintained just above breakeven and cash neutrality.
Overall revenue for the year was £28.8m, down from £40.1m in the previous year with an operating proﬁt before
exceptional items of £2.1m compared with £2.5m in 2008. Operating proﬁt before exceptional items in the second half
was £0.3m compared with £1.8m in the ﬁrst half year. Operating margins moved up from 6% to 7% in the year.
Network expansion in developing regions and capacity upgrades in developed regions continue to drive demand for
PTP products. Filtronic is well placed to exploit these markets opportunities as well as extending into adjacent market
sectors.
The ﬁrst order has been received from SELEX Airborne Systems Limited (operating on the markets as SELEX Galileo)
under the long-term strategic supply agreement. This order initiates the development of Filtronic’s volume capability
to manufacture SELEX’s microwave modules for their current generation of active electronically scanned array airborne
radars.
Discontinued operations
UK Defence
Sale of this business to Teledyne was completed in August 2008 producing net proceeds after costs of £12.2m and a gain
on disposal of £8.4m.
Wireless Infrastructure
A gain of £1.3m after taxation was made on the receipt relating to the sale of the Wireless Infrastructure business in
Australia.
Capital expenditure
Capital expenditure was £0.9m, of which £0.8m related to continuing operations.
Employees
At 31 May 2009, the group employed 152 people (2008 392 people of which 227 were in continuing operations).
Hemant Mardia
Chief Executive Ofﬁcer
27 July 2009
Filtronic plc Annual Report 2009 3 Business Review
– Financial Review
Results
Continuing operations generated revenue of £28.8m (2008 £40.1m), resulting in an operating proﬁt before exceptional
items of £2.1m (2008 £2.5m). The group proﬁt for the period was £11.7m (2008 £14.6m loss) reﬂecting the gains on
disposal of the UK Defence business and the receipt relating to the Australian wireless infrastructure disposal. The
operating results are discussed in the Chief Executive’s Operating Review, along with a review of the business.
Disposal of UK Defence business
On 15 August 2008, the sale of the UK Defence business to Teledyne was completed. The disposal generated a gain
of £8.4m.
Australian Wireless Infrastructure disposal
A sum of £1.9m before tax was received in July 2008 relating to the sale of the Wireless Infrastructure business in Australia
to its management in 2005. Provision for the tax due on this amount of £0.6m has been made in the balance sheet.
Net finance income
The group ended the year with net cash of £16.2m (2008 £31.5m) and generated net ﬁnance income of £1.1m
(2008 £7.4m), reﬂecting the interest received on cash deposits.
Taxation
No current tax is due on continuing operations, reﬂecting available losses. No deferred tax asset was recognised at
31 May 2009 due to uncertainty in future recoverability. Full provision for the £0.6m tax due on the Australian Wireless
Infrastructure receipt was made in the year ended 31 May 2009. It is expected that this amount will be paid in the
six months ending 30 November 2009.
Capital expenditure
Capital expenditure was £0.9m, of which £0.8m related to continuing operations in the Point to Point business
(2008 £1.9m total, £1.2m continuing operations).
Research and development costs
Research and development costs of £2.3m, which represented 7.3% of total revenue were expensed. No research and
development costs were capitalised in the balance sheet. Research and development costs relating to continuing
operations were £1.8m (6.4% of revenue).
Working capital
At 31 May 2009 net working capital was £5.3m (2008 £6.5m). Net working capital comprised inventories of £4.5m
(2008 £6.2m), receivables of £4.8m (2008 £13.0m) and payables of £4.0m (2008 £12.7m).
Cash flow
Cash inﬂow from operating activities was £0.7m (2008 outﬂow £16.1m), cash inﬂow from investing activities was £13.7m
(2008 £17.9m) and net cash outﬂow from ﬁnancing activities was £29.7m (2008 £89.2m outﬂow). The closing cash balance
as at 31 May 2009 was £16.2m (2008 £31.5m).
4 Filtronic plc Annual Report 2009 Business Review
– Financial Review
Pension matters
The wind up of the deﬁned beneﬁt pension scheme is nearing completion with the issue of annuity policies to individual
members by Paternoster.
Dividend
On 24 November 2008 a second special dividend of 40p per share was paid to shareholders.
Based on the full year results for 2009 a ﬁnal dividend of 1.00p per share has been recommended by the Board and,
subject to approval at the Annual General Meeting on 18 September 2009, will be paid on 30 November 2009 to
shareholders on the register on 30 October 2009.
Stephen Mole
Chief Financial Ofﬁcer
27 July 2009
Filtronic plc Annual Report 2009 5 Business Review
– Directors’
Assessment of Risk
Introduction
Filtronic supplies microwave 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. 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
In most of the products, production is demand led and customers may vary their requirements from the business at short
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.
We operate two leased manufacturing locations, the larger of which is located within the facility of our major
semiconductor supplier.
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 if
the technology we develop is not appropriate or ready for exploitation to match market demand, so having an adverse
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.
Financial management
A large proportion of sales is denominated in euros with the cost base substantially in sterling, which may therefore
create margin risks that may not be recoverable through price changes. This risk is mitigated to some extent by
purchasing some input materials in euros.
We have sold four divisions of the group in the past four 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
and Defence Electronics business, which have been settled, and may receive claims in future related to these current and
future commitments.
6 Filtronic plc Annual Report 2009 Executive directors
Hemant Mardia (aged 47) has been an executive director since 2007. He was appointed Chief Executive Officer on
19 September 2008. Since 1996 he has been Managing Director of the Point to Point business. He joined Filtronic in 1984
having gained a doctorate in electronics from Leeds University. He is a Fellow of the Institute of Electronics and
Technology, a Fellow of the Society of Cable Telecommunications Engineers and a Senior Member of the Institute of
Electrical and Electronic Engineers.
Stephen Mole (aged 53) was appointed as an executive director on 13 June 2008. He continues in his role as Chief
Financial Officer, which he has held since joining Filtronic in 2006. Prior to joining Filtronic he was Finance Director of
Renold plc. Previously he held finance positions with BTP plc, Zeneca plc, ICI plc and Unilever plc. He is a non-executive
director of the Central Manchester University Hospitals NHS Trust.
Non-executive directors
John Poulter (aged 66) has been non-executive Chairman since 2006. He is chairman of the nominations committee.
From 2001 to 2008 he was non-executive Chairman of Spectris plc, the precision instrumentation and controls company,
of which he was Managing Director and Chief Executive from 1988. His earlier career was with BTR plc and Cambridge
Instruments. He has been a non-executive director for a number of public companies including RAC plc and Kidde plc.
Graham Meek (aged 62) has been a non-executive director since 1999. Since 2006 he has been the senior non-executive
director and is chairman of the audit committee. He was Chairman of ICM Computer Group plc until its takeover in 2007
and was Chairman of SPI Lasers plc until its takeover in 2008. He is a non-executive director of Capital Gearing Trust plc.
Reginald Gott (aged 52) 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.
Howard Ford (aged 58) was appointed a non-executive director on 5 December 2008. 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. Howard has also served on the Boards of a UK Charity and a number of privately held companies in the
UK and France.
Filtronic plc Annual Report 2009 7
Directors Directors’ Report
The directors present their report and the audited financial statements for the year ended 31 May 2009.
Principal activities
The principal activities of the group are the design and manufacture of microwave products for wireless
telecommunications systems.
Business review
The business review on pages 3 to 6 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.
A special interim dividend of 40.00p (2008 120.00p) per share, amounting to £29.7m (2008 £89.2m), was paid on
24 November 2008 (30 May 2008).
The directors are recommending payment of a final dividend of 1.00p per share.
Research and development
Research and development costs were £1.8m (2008 £2.2m) for continuing operations and £0.4m (2008 £4.6m) for
discontinued operations.
Directors and their interests
The directors of the company during the year were as follows:
Hemant Mardia
Stephen Mole (appointed 13 June 2008)
Charles Hindson (resigned 19 September 2008)
John Poulter
Graham Meek
Reginald Gott
Howard Ford (appointed 5 December 2008)
Professor Stephen Burbank (retired 19 September 2008)
Ian Hardington (retired 19 September 2008)
Details of directors’ interests in the share capital of the company are set out in the remuneration report on pages 17 to 22.
John Poulter will be resigning at the Annual General Meeting.
Reginald Gott retires by rotation and, being eligible, 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.
Howard Ford retires and, having been appointed by the Board on 5 December 2008, offers himself for election at the
Annual General Meeting. The Board states that Howard Ford was independent on his appointment as a director.
8 Filtronic plc Annual Report 2009 Directors’ Report
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.
Directors conflicts of interest
Graham Meek has provided general notice under Article 185 of the Companies Act 2006 of his interest in the Filtronic plc
Defined Benefits Scheme, being a trustee of the Scheme. There are no other declarations to be made under Article 182
of the Companies Act 2006.
Share capital
The company’s share capital consists of 10p ordinary shares. The rights and obligations attached to each share are equal.
There are no limitations on holding or transfer of the shares. The Board has no powers to issue or buy back the company’s
shares, other than those approved by the shareholders at the Annual General Meeting held on 18 September 2008.
Substantial shareholdings
The following shareholders have indicated a holding of 3% or more of the issued share capital of 74,323,093 10p ordinary
shares as at 17 July 2009.
Number of % of issued
10p ordinary shares share capital
Aberforth Partners LLP 12,852,569 17.3
Prudential plc 11,267,319 15.2
SVG Capital plc and SVG Investment Managers Limited 6,452,860 8.7
Capital Group Companies, Inc. 5,080,459 6.8
North Atlantic Value LLP 5,000,000 6.7
Aviva plc 4,340,485 5.8
J P Morgan Chase & Co 3,718,774 5.0
Gartmore Investment Limited 3,760,851 5.1
Legal & General Investment Management Limited 3,378,425 4.5
1 1
55,851,742 75.1
5 5
Employees
The group is committed to a policy of equal opportunities in employment by which the group ensures that all aspects
of selection and retention are based on merit and suitability for the job regardless of sex, age, marital status, 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 2009 9 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
preventative measures in place that aim to continue to reduce major injuries and lost time accidents. In addition, the
major manufacturing site has achieved OHSAS 18001 (health and safety management systems).
(ii) Employee development
Employee development has been established as one of the group’s key objectives. The group has an education and
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
procedures including staff meetings and a culture which encourages openness and interaction between all members
of staff. The group operates a staff forum for information and consultation (“ICON forum”). The ICON forum 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 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
design products for disassembly and recycling, and in particular so as to ensure compliance with the European Union
directive on waste electrical and electronic equipment and the European Union initiatives in relation to the restriction
of certain hazardous substances in electrical and electronic equipment. The group has introduced focused
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.
10 Filtronic plc Annual Report 2009 Directors’ Report
Political and charitable contributions
No contributions were made for political purposes. The group donated £nil (2008 £6,000) to various charities.
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 2009 trade payables of £2.7m represented 42 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.
Auditors
A resolution to re-appoint KPMG Audit Plc as auditors will be proposed at the Annual General Meeting.
Remuneration report
Pursuant to the Directors’ Remuneration Report Regulations 2002 the Board proposes the remuneration report which is
set out on pages 17 to 22, for approval (resolution 2 in the notice of Annual General Meeting). No entitlement of a
director to remuneration is conditional on the resolution being passed but the result of the vote will be taken into
account in considering the development and operation of the company’s remuneration policy.
Authority to allot shares
The Companies Act 1985 requires that the authority of the directors to allot relevant securities shall be subject to the
approval of shareholders in general meeting or to an authority set out in the company’s Articles of Association.
Accordingly, an ordinary resolution (resolution 8 set out in the notice of Annual General Meeting) will be proposed at
the Annual General Meeting to renew the authority granted at the Annual General Meeting held on 19 September 2008
and thereby authorise the directors to allot unissued ordinary shares of the company up to a total nominal value of
£2,477,436 (representing one third of the nominal value of the company’s issued share capital).
The Companies Act 1985 also requires that any equity shares issued wholly for cash must be offered to existing
shareholders in proportion to their existing holdings. This requirement was disapplied to a limited extent by a resolution
passed at the Annual General Meeting held on 19 September 2008 and a special resolution (resolution 10 set out in the
notice of Annual General Meeting) will be proposed at the Annual General Meeting to renew the directors’ authority to
allot equity shares for cash other than on a pro rata basis. This will be limited to equity shares having a nominal value of
up to £371,165 (representing 5% of the issued share capital of the company). This authority will terminate no later than
fifteen months after the passing of the special resolution.
By order of the Board
M Moynihan
Company Secretary
27 July 2009
Filtronic plc Annual Report 2009 11 Corporate Governance
Statement
The Combined Code on Corporate Governance
The Board operates 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 June 2008. For
the year ended 31 May 2009 the directors conﬁrm that the company has been in compliance with the provisions of the
Combined Code on Corporate Governance.
The company has three non-executive directors excluding the Chairman, two of whom, Reginald Gott and Howard Ford,
meet all of the speciﬁc criteria for independence set out in the Combined Code. The other non-executive director,
Graham Meek, does not meet all of the requirements for independence set out in the Code since he has been a director
for more than nine years but is considered to be independent and to provide valuable advice to the company as well as
continuity in the context of the recent corporate activity and Board changes.
Internal control
The Board has overall responsibility for establishing and maintaining 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:
(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
for decision, thus ensuring that it maintains full and effective control over appropriate strategic, 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, 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
integrity and accuracy of the company’s accounting records.
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. Financial
forecasts are updated and reviewed monthly and include cash ﬂow forecasts.
12 Filtronic plc Annual Report 2009 Corporate Governance
Statement
(c) Main control procedures
In addition to matters reserved for Board decisions, the company has established a system whereby authority to take
decisions is distributed throughout the company. This distribution of authority deﬁnes procedures for authorisation
and approval and sets appropriate levels of responsibility.
An accounting policies and procedures manual sets out the company’s declared statement of policy in all ﬁnancial
areas and establishes the control procedures, including segregation of duties, to ensure that these policies are
implemented.
(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.
The Board conﬁrms that it has carried out a review of the effectiveness of the system of internal control as it operated
during the year. The Board undertakes, on an ongoing basis, a review of all aspects of the company’s internal control
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, two executive and three independent, non-executive directors. Short biographies
of all of the directors are set out on page 7. 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
control and corporate governance. Graham Meek is the senior non-executive director. Each of the directors is proposed
for re-election at the Annual General Meeting at least every three years. Non-executive directors who have served longer
than nine years on the Board are subject to annual re-election.
Filtronic plc Annual Report 2009 13 Corporate Governance
Statement
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
as well as contributing to the overall balance of the Board. The Board has decided that Graham Meek is an independent
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, and the resulting
report has been reviewed by the Board. The performance of individual directors was reviewed by the Chairman. The
senior non-executive director led an evaluation of the performance of the Chairman. Each director had the opportunity
to review the outcome of the evaluation of the Board and its committees. This year the review highlighted the
importance for all directors to refresh their knowledge and skills, particularly in relation to the corporate governance
framework and succession plans.
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.
The nominations committee
The nominations committee is chaired by John Poulter, and the other members are the independent non-executive
directors: Graham Meek, Reginald Gott and Howard Ford. The nominations committee’s duties are conﬁned to the
nomination of appointments, re-appointments and termination of employment or engagement of directors and the
company secretary.
The nominations committee met three times during the year to consider Board composition and balance of skills.
The remuneration committee
The remuneration committee is chaired by Reginald Gott. The other members are the other independent non-executive
directors: Graham Meek and Howard Ford. 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.
14 Filtronic plc Annual Report 2009 Corporate Governance
Statement
The audit committee
The audit committee is chaired by Graham Meek, the senior non-executive director. The other members are the other
independent non-executive directors: Reginald Gott and Howard Ford. Graham Meek has sufﬁcient, recent and relevant
ﬁnancial experience. The audit 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
external auditors in private. The chairman of the committee also met privately with the auditors regularly during the year.
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
 the external auditors’ year end report and the ﬁndings of their work and conﬁrmation that all signiﬁcant matters had
been satisfactorily treated
 a full and careful consideration of the performance of the external auditors, which involved a competitive tendering
process, as a result of which the committee resolved to recommend the re-appointment of KPMG Audit Plc as
auditors to the company
The Board has reviewed the composition of the audit committee and is satisﬁed that it has members who have sufﬁcient,
recent and relevant ﬁnancial experience.
Filtronic plc Annual Report 2009 15 Corporate Governance
Statement
Attendance at Board meetings and committee meetings during the year ended 31 May 2009 was as follows:
Audit Remuneration Nominations
Board committee committee committee
Meetings held 92 33
Directors’ attendance
Executives
Hemant Mardia 9 n/a n/a n/a
Stephen Mole (appointed 13 June 2008) 8 n/a n/a n/a
Charles Hindson (resigned 19 September 2008) 3 n/a n/a n/a
Non-executives
John Poulter (Chairman) 9 n/a n/a 3
Graham Meek 92 33
Reginald Gott 92 33
Howard Ford (appointed 5 December 2008) 51 11
Professor Stephen Burbank (retired 19 September 2008) 31 1 –
Ian Hardington (retired 19 September 2008) 31 1 –
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.
The Board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their
participation. The Chairman aims to ensure that the chairmen of the audit and remuneration committees are available
at the Annual General Meeting to answer questions. Information is also available to all investors by way of the company’s
website at www.ﬁltronic.com.
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 3 to 6. The ﬁnancial position of the group, its cash ﬂows, and its liquidity position
are described in the Financial Review on pages 4 and 5. Note 52 to the ﬁnancial statements describes and quantiﬁes
exposures to liquidity, credit, interest rate and foreign currency risk and how they are managed. Also in note 52 capital
management is described.
At 31 May 2009 the group had a cash balance of £16.2m.
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.
16 Filtronic plc Annual Report 2009 Remuneration Report
for the year ended 31 May 2009
Composition of the remuneration committee
During the period 1 June 2008 to 31 May 2009 the remuneration committee consisted of the following non-executive
directors:
Reginald Gott (Chairman)
Graham Meek
Howard Ford (appointed 5 December 2008)
Professor Stephen Burbank (retired 19 September 2008)
Ian Hardington (retired 19 September 2008)
The committee receives advice in its deliberations concerning the remuneration of the executive directors from the
Chairman, John Poulter and 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 in the case of Hemant Mardia, subject to proﬁt and cash targets and personal targets, and
a maximum of 30% of salary was payable in the case of Stephen Mole, subject to proﬁt and cash targets and personal
targets, the achievements of which have been assessed by the remuneration committee.
Under the scheme, the executive directors were not awarded any annual bonuses for the year ended 31 May 2009
as the proﬁt and cash targets were not met.
In the previous year Hemant Mardia was awarded a bonus of £52,000, being 30% of salary and Charles Hindson was
awarded a bonus of £128,000 being 50% of salary.
Filtronic plc Annual Report 2009 17 Remuneration Report
for the year ended 31 May 2009
No non-recurring bonus arrangements were put in place in the year ended 31 May 2009. However the non-recurring
bonus put in place in July 2007 fell for assessment at 31 May 2009. The remuneration committee considered that
the relevant performance targets had been met in full. The performance targets for Hemant Mardia included the
creation of one new product line which generated business with meaningful revenue and proﬁt in the two years
ended 31 May 2009. The performance targets for Stephen Mole included the completion of the disposal of the
Defence Electronics business and the wind-up of the deﬁned beneﬁt pension scheme. The performance targets for
Charles Hindson included the completion of the disposal of the Defence Electronics business.
Hemant Mardia was awarded a non-recurring bonus of £53,000 (2008 £37,000), being 30% (2008 30%) of his salary.
Stephen Mole was awarded a non-recurring bonus of £36,000 being 30% of his salary.
Charles Hindson was awarded a non-recurring bonus of £77,000 (2008 £180,000), being 30% (2008 70%) of his salary.
(iii) Defence Electronics bonus arrangements
Special bonus arrangements were put in place for management in the Defence Electronics business with the aim
of retaining key staff while options for the sale of this business were being explored. Those bonuses paid out a
maximum of 50% of salary for general managers and 25% for senior managers on completion of the sale of this
business in August 2008.
(iv) Bonus scheme
The remuneration committee has agreed an approach for management incentives for the year ending 31 May 2010
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 15% 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 2010.
(v) Performance share plan
A performance share plan was approved by shareholders at the Annual General Meeting in September 2008.
However no awards were made under the plan during the year ended 31 May 2009 as the company was in a
prohibited period at all relevant times. It is anticipated that the remuneration committee will make awards under the
plan after 27 July 2009 to Hemant Mardia and the new Chief Financial Ofﬁcer up to a maximum of 60% and 40% of
salary respectively.
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.
(vi) 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, which
resulted in 45% of employees joining the scheme.
(c) Company policy on contracts of service
Hemant Mardia and Stephen Mole, the executive directors, both have rolling service contracts. Under Hemant
Mardia’s service contract the notice period for termination by either party is twelve months. Under Stephen Mole’s
service contract the notice period for termination by either party is six months. There are no speciﬁc compensation
commitments for early termination in either service contract.
Charles Hindson had a service contract, the notice period for termination by the company was twelve months. On
termination of his employment as Chief Executive and director on 19 September 2008 he was paid £262,000 salary
in lieu of notice.
18 Filtronic plc Annual Report 2009 Remuneration Report
for the year ended 31 May 2009
(d) Company pensions policy
The company’s policy is to offer executives membership of the Filtronic plc Stakeholder Pension Plan on the same
basis as all other employees of the company. The plan is a deﬁned contribution scheme. The maximum contribution
the company makes to the plan is 8% of pensionable salary, if the member makes a contribution of 6% of
pensionable salary. Members of the plan are also entitled to death in service beneﬁt of four times pensionable salary
and long term disability insurance.
In the case of Stephen Mole, under the terms of his service contract, instead of joining the Filtronic plc Stakeholder
Pension Plan, the company pays 10.5% of his pensionable salary into a personal pension plan of his choice.
(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.
Non-executive directors agreements for services and remuneration
The non-executive directors have rolling agreements for services with the company. These are terminable by the company
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.
Filtronic plc Annual Report 2009 19 Remuneration Report
for the year ended 31 May 2009
The information on pages 20 and 21 has been audited.
Directors’ remuneration
Total remuneration
Salary excluding pension
or fees Bonuses Beneﬁts contributions
2009 2009 2009 2009 2008
£000 £000 £000 £000 £000
Executives
Hemant Mardia (appointed 18 October 2007) 180 53 18 251 210
Stephen Mole (appointed 13 June 2008) 119 36 7 162 –
Charles Hindson (resigned 19 September 2008) 341 77 2 420 571
Iain Gibson (resigned 21 September 2007) –– –– 185
Non-executives
John Poulter 125 –– 125 125
Graham Meek 35 –– 35 35
Reginald Gott 33 –– 33 30
Howard Ford (appointed 5 December 2008) 15 –– 15 –
Prof Stephen Burbank (retired 19 September 2008) 17 –– 17 30
Ian Hardington (retired 19 September 2008) 17 –– 17 30
1111 1
Total 2009 882 166 27 1,075 1,216
5555 5
Total 2008 798 397 21 1,216
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
2009 2008
£000 £000
Hemant Mardia (appointed 18 October 2007) 14 9
Stephen Mole (appointed 13 June 2008) 13 –
Charles Hindson (resigned 19 September 2008) 6 19
Iain Gibson (resigned 21 September 2007) – 22
1 1
33 50
5 5
20 Filtronic plc Annual Report 2009 Remuneration Report
for the year ended 31 May 2009
Directors’ shareholdings
2009 2008
Hemant Mardia 12,007 12,007
Stephen Mole – –
John Poulter – –
Graham Meek – –
Reginald Gott – –
Howard Ford – –
1 1
12,007 12,007
5 5
All of the above shareholdings are held beneﬁcially.
Charles Hindson did not hold any shares from 1 June 2008 to his resignation on 19 September 2008.
Prof Stephen Burbank held 900 shares from 1 June 2008 to his retirement on 19 September 2008.
Ian Hardington did not hold any shares from 1 June 2008 to his retirement on 19 September 2008.
Directors’ interests in share options
Granted
Exercise Option during
Sharesave plan period price 2008 the year 2009
Hemant Mardia 01/04/2012 – 01/10/2012 25p – 62,400 62,400
Stephen Mole 01/04/2012 – 01/10/2012 25p – 31,200 31,200
11 1
Total all directors – 93,600 93,600
55 5
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 2009 was 30p, and on 31 May 2008 it was 75p. The range of closing
middle market share prices during the year ended 31 May 2009 was 19p – 93p. A special dividend of 40p per share was
paid on 24 November 2008.
There were no changes to the directors’ interests between 31 May 2009 and 27 July 2009. The company’s register of
directors’ interests which is open to inspection at the registered ofﬁce contains full details of directors’ shareholdings.
Filtronic plc Annual Report 2009 21 Remuneration Report
for the year ended 31 May 2009
Performance graph
This graph illustrates the performance of the company’s shares measured by Total Shareholder Return (TSR) relative to a
broad equity market index over the past ﬁve years. The FTSE All Share is considered to be the most appropriate index
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 2004 to 31 May 2009 Weekly Indexed
Approved by the Board on 27 July 2009 and signed on its behalf by
M Moynihan
Company Secretary
2004 2005 2006 2007 2008 2009
200
150
100
50
0
Filtronic – Total Return Indexed
FTSE All Share – Total Return Indexed
Source: Thomson Datastream
22 Filtronic plc Annual Report 2009 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 International Financial
Reporting Standards as adopted by the European Union (IFRS) and applicable law and have elected to prepare the
parent company ﬁnancial statements on the same basis.
Under company law the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true
and fair view of the state of affairs of the group and parent company and of their proﬁt and loss for that period.
In preparing each of the group and parent company ﬁnancial statements, the directors are required to:
a) select suitable accounting policies and then apply them consistently;
b) make judgments and estimates that are reasonable and prudent;
c) state whether they have been prepared in accordance with IFRS; and
d) prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the group and
the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the parent
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 a 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 comply 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 United Kingdom governing the preparation and dissemination of ﬁnancial
statements may differ from legislation in other jurisdictions.
Filtronic plc Annual Report 2009 23 Independent Auditors’
Report
Independent auditors’ report to the members of Filtronic plc
We have audited the ﬁnancial statements of Filtronic plc for the year ended 31 May 2009 set out on pages 26 to 82. The
ﬁnancial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union 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 sections 495, 496 and 497 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those
matters we are required to state to them in an auditors' report and 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 auditors
As explained more fully in the Directors' Responsibilities Statement set out on page 23, the directors are responsible for
the preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view. Our responsibility
is to audit 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/ukp
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 2009 and of the group's proﬁt for the year then ended;
 the group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union; and
 the parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union 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.
24 Filtronic plc Annual Report 2009 Independent Auditors’
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:
 adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not
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.
 Under the Listing Rules we are required to review:
 the directors' statement, set out on page 16, in relation to going concern; and
 the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions
of the June 2008 Combined Code speciﬁed for our review.
David Morritt (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
KPMG Audit Plc
Chartered Accountants
Leeds
Registered Auditor
27 July 2009
Filtronic plc Annual Report 2009 25 Consolidated
Income Statement
for the year ended 31 May 2009
Group
2009 2008
Continuing operations note £000 £000
Revenue 7 28,779 40,133
5 5
Operating proﬁt before exceptional items 2,080 2,522
Exceptional items 8 (937) (26,029)
1 1
Operating proﬁt/(loss) 6 1,143 (23,507)
Loss on sale of property – (115)
Finance income 20 1,255 9,110
Finance costs 21 (132) (1,688)
1 1
Proﬁt/(loss) before taxation 2,266 (16,200)
Taxation 22 – –
1 1
Proﬁt/(loss) for the period from continuing operations 2,266 (16,200)
Proﬁt for the period from discontinued operations 3 9,390 1,585
1 1
Proﬁt/(loss) for the period 11,656 (14,615)
5 5
Basic earnings/(loss) per share
Continuing operations 29 3.05p (21.80)p
Discontinued operations 29 12.63p 2.13p
1 1
Basic earnings/(loss) per share 29 15.68p (19.67)p
5 5
Diluted earnings/(loss) per share
Continuing operations 29 3.04p (21.80)p
Discontinued operations 29 12.61p 2.13p
1 1
Diluted earnings/(loss) per share 29 15.65p (19.67)p
5 5
The proﬁt/(loss) for the period is attributable to the equity shareholders of the parent company Filtronic plc.
26 Filtronic plc Annual Report 2009 Consolidated Statement of
Recognised Income
and Expense
for the year ended 31 May 2009
Group
2009 2008
£000 £000
Proﬁt/(loss) for the period 11,656 (14,615)
1 1
Actuarial gain on deﬁned beneﬁt pension scheme 929 4,964
Transfer to income from translation reserve related to business disposal (340) (453)
Currency translation movement arising on consolidation 139 (6)
1 1
728 4,505
1 1
1 1
Total recognised income and expense for the period 12,384 (10,110)
5 5
The total recognised income and expense for the period is attributable to the equity shareholders of the parent
company Filtronic plc.
Filtronic plc Annual Report 2009 27 Consolidated Balance Sheet
at 31 May 2009
Group
2009 2008
note £000 £000
Non-current assets
Property, plant and equipment 32 1,996 4,045
1 1
Current assets
Inventories 34 4,531 6,245
Trade and other receivables 35 4,779 12,999
Cash and cash equivalents 16,218 31,451
1 1
25,528 50,695
1 1
1 1
Total assets 27,524 54,740
1 1
Current liabilities
Trade and other payables 36 3,999 12,673
Income tax payable 635 –
Provision 37 1,314 2,152
1 1
5,948 14,825
1 1
Non-current liabilities
Deﬁned beneﬁt pension 40 – 1,002
1 1
1 1
Total liabilities 5,948 15,827
1 1
1 1
Net assets 21,576 38,913
5 5
Equity
Share capital 41 7,432 7,432
Translation reserve 42 – 201
Retained earnings 44 14,144 31,280
1 1
Total equity 21,576 38,913
5 5
The total equity is attributable to the equity shareholders of the parent company Filtronic plc.
Approved by the Board on 27 July 2009 and signed on its behalf by
Hemant Mardia
Chief Executive Ofﬁcer
28 Filtronic plc Annual Report 2009 Consolidated Cash Flow
Statement
for the year ended 31 May 2009
Group
2009 2008
note £000 £000
Cash ﬂows from operating activities
Proﬁt/(loss) for the period 11,656 (14,615)
Gain on sale of discontinued operations (9,614) (3,596)
Finance costs 132 1,688
Finance income (1,255) (9,110)
Loss on sale of property – 115
1 1
Operating proﬁt/(loss) 50 919 (25,518)
Deﬁned beneﬁt pension charge – 27,010
Deﬁned beneﬁt pension contributions paid (100) (27,701)
Share-based payments 8 –
Property impairment – 6,300
Depreciation 920 2,040
Loss on sale of plant and equipment – 87
Licence fee released to income – (1,751)
Movement in inventories 59 1
Movement in trade and other receivables 4,721 2,079
Movement in trade and other payables (5,646) (323)
Movement in provision (172) 1,704
1 1
Net cash from/(used in) operating activities 50 709 (16,072)
1 1
Cash ﬂows from investing activities
Proceeds from sale of property – 6,044
Proceeds from sale of plant and equipment – 50
Interest received 1,213 6,724
Acquisition of plant and equipment (945) (2,309)
Sale of discontinued operations 13,418 7,413
1 1
Net cash from investing activities 50 13,686 17,922
1 1
Cash ﬂows from ﬁnancing activities
Dividends paid (29,729) (89,188)
1 1
Net cash used in ﬁnancing activities 50 (29,729) (89,188)
1 1
Decrease in cash and cash equivalents (15,334) (87,338)
Currency exchange movement 101 522
Opening cash and cash equivalents 31,451 118,267
1 1
Closing cash and cash equivalents 16,218 31,451
5 5
Filtronic plc Annual Report 2009 29 Company
Income Statement
for the year ended 31 May 2009
Company
2009 2008
note £000 £000
Operating loss before exceptional items (1,822) (3,635)
Exceptional items 8 (649) (26,029)
1 1
Operating loss 6 (2,471) (29,664)
Loss on sale of property – (115)
Gain on sale of investments in subsidiaries 9,534 1,039
Impairment of investments in subsidiaries 31 – (103,000)
Decrease in provision for doubtful group receivables – 100,900
Other income – 138
Finance income 20 1,250 9,102
Finance costs 21 (132) (1,688)
1 1
Proﬁt/(loss) before taxation 8,181 (23,288)
Taxation 22 – –
1 1
Proﬁt/(loss) for the period 8,181 (23,288)
5 5
30 Filtronic plc Annual Report 2009 Company Statement of
Recognised Income and
Expense
for the year ended 31 May 2009
Company
2009 2008
£000 £000
Proﬁt/(loss) for the period 8,181 (23,288)
Actuarial gain on deﬁned beneﬁt pension scheme 929 4,964
1 1
Total recognised income and expense for the period 9,110 (18,324)
5 5
Filtronic plc Annual Report 2009 31 Company Balance Sheet
at 31 May 2009
Company
2009 2008
note £000 £000
Non-current assets
Investments in subsidiaries 31 – 2,250
Property, plant and equipment 32 – 47
1 1
– 2,297
1 1
Current assets
Trade and other receivables 35 4,040 6,594
Cash and cash equivalents 15,766 31,302
1 1
19,806 37,896
1 1
1 1
Total assets 19,806 40,193
1 1
Current liabilities
Trade and other payables 36 3,123 1,890
1 1
Non-current liabilities
Deﬁned beneﬁt pension 40 – 1,002
1 1
1 1
Total liabilities 3,123 2,892
1 1
1 1
Net assets 16,683 37,301
5 5
Equity
Share capital 41 7,432 7,432
Retained earnings 44 9,251 29,869
1 1
Total equity 16,683 37,301
5 5
Approved by the Board on 27July 2009 and signed on its behalf by
Hemant Mardia
Chief Executive Ofﬁcer
32 Filtronic plc Annual Report 2009 Company Cash Flow
Statement
for the year ended 31 May 2009
Company
2009 2008
£000 £000
Cash ﬂows from operating activities
Proﬁt/(loss) for the period 8,181 (23,288)
Finance costs 132 1,688
Finance income (1,250) (9,102)
Other income – (138)
Decrease in provision for doubtful group receivables – (100,900)
Impairment of investments in subsidiaries – 103,000
Gain on sale of investment in subsidiary (9,534) (1,039)
Loss on sale of property – 115
1 1
Operating loss (2,471) (29,664)
Share-based payments 1 –
Deﬁned beneﬁt pension operating charge – 26,336
Additional deﬁned beneﬁt pension contributions paid (100) (27,027)
Depreciation 47 101
Loss on sale of plant and equipment – 22
Movement in trade and other receivables 2,554 15,134
Movement in trade and other payables 1,133 (731)
1 1
Net cash from/(used in) operating activities 1,164 (15,829)
1 1
Cash ﬂows from investing activities
Proceeds from sale of property – 5,774
Interest received 1,208 6,712
Acquisitions of plant and equipment – (23)
Sale of investments in subsidiaries 11,884 5,979
1 1
Net cash from investing activities 13,092 18,442
1 1
Cash ﬂows from ﬁnancing activities
Dividends paid (29,729) (89,188)
1 1
Net cash used in ﬁnancing activities (29,729) (89,188)
1 1
Decrease in cash and cash equivalents (15,473) (86,575)
Currency exchange movement (63) 405
Opening cash and cash equivalents 31,302 117,472
1 1
Closing cash and cash equivalents 15,766 31,302
5 5
Filtronic plc Annual Report 2009 33 Notes to the
Financial Statements
for the year ended 31 May 2009
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 accounting
The ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS).
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.
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.
Foreign exchange gains and losses arising on the settlement of such transactions and translation of monetary assets
and liabilities are recognised in the income statement.
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.
On consolidation, the ﬁnancial statements of subsidiaries with a functional currency other than sterling are translated
into sterling as follows:
– The assets and liabilities in their balance sheets plus any goodwill are translated at the rate of exchange ruling at
the balance sheet date.
– 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.
34 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
1 Accounting policies (continued)
Segment reporting
The business segments are the primary segments and the geographical origin segments are the secondary
segments. Each reportable segment is subject to risks and returns that are different from the other segments.
Revenue
Revenue is recognised for goods and services provided to customers during the period. Revenue excludes any
related value added or sales tax.
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 schemes, under which share options were granted to certain employees. The
granting of the share options was a share-based payment.
The fair value of the share options at the date of grant was calculated using an option pricing model, taking into
account the terms and conditions applicable to the option grant. The fair value of the number of share options
expected to vest was expensed in the income statement on a straight line basis over the expected vesting period.
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.
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.
Filtronic plc Annual Report 2009 35 Notes to the
Financial Statements
for the year ended 31 May 2009
1 Accounting policies (continued)
Goodwill
Goodwill represents the excess of the cost of acquisitions over the fair value of the net identiﬁable assets of the
subsidiary acquired at the date of acquisition. Goodwill is stated at cost less any accumulated impairment losses.
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.
Investments in subsidiaries
Investments in subsidiaries are stated in the company’s ﬁnancial statements at cost less any accumulated impairment
losses.
Investments in subsidiaries are tested for impairment when there is an indication of impairment.
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.
36 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
1 Accounting policies (continued)
Defined contribution pension schemes
Deﬁned contribution pension schemes are operated for employees. Contributions are recognised as an expense in
the income statement as incurred.
Defined benefit pension scheme
A deﬁned beneﬁt pension scheme was operated for United Kingdom employees. The deﬁned beneﬁt pension
liability was the present value of the deﬁned beneﬁt obligation less the fair value of the pension scheme assets. The
deﬁned beneﬁt obligation was calculated by independent actuaries using the projected unit measure. The discount
rate used to calculate the present value of the deﬁned beneﬁt obligation was the yield on AA credit rated corporate
bonds that had maturity dates approximating the terms of the beneﬁt obligations.
Service costs were spread systematically over the working lives of the employees, and were recognised within
operating costs in the income statement. Financing costs were recognised in the periods in which they arose within
ﬁnance costs in the income statement.
Settlement losses were recognised within operating costs in the income statement in the period when settlement
occurred.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions were
recognised immediately in the statement of recognised income and expense.
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.
Temporary differences are not provided for the initial recognition of assets or liabilities that affect neither accounting
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.
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.
Filtronic plc Annual Report 2009 37 Notes to the
Financial Statements
for the year ended 31 May 2009
1 Accounting policies (continued)
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.
Non-current assets and disposal groups held for sale
Non-current assets and disposal groups classiﬁed as held for sale are recognised at the lower of carrying amount
and fair value less costs to sell. No depreciation is provided on property, plant and equipment once they are
classiﬁed as held for sale.
Non-current assets and disposal groups are classiﬁed as held for sale if their carrying amount will be recovered
through a sale transaction rather than continuing use. The condition is regarded as met only when the sale is highly
probable and the asset or disposal group is available for immediate sale in its present condition. The directors must
be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year
from the date of classiﬁcation.
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.
During the year ended 31 May 2009 the Defence Electronics business in the United Kingdom and Australia was sold.
Consequently the result of this business has been reclassiﬁed as discontinued operations for the current and
comparative period.
New IFRS and amendments to IFRS
There are a number of new standards issued by the International Accounting Standards Board, that are effective for
ﬁnancial statements after this reporting period, which have not yet been adopted by the group.
IAS 1 (Amendment) Presentation of Financial Statements, Presentation of performance (effective for periods
commencing on or after 1 January 2009).
IFRS 2 (Amendment) Share-based Payment – Vesting Conditions and Cancellations (effective for periods
commencing on or after 1 January 2009).
IFRS 8 Operating Segments (effective for periods commencing on or after 1 January 2009).
The application of these standards is not anticipated to have a material effect on the group’s ﬁnancial statements
except for changes in the format of the presentation of performance and additional disclosure.
38 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
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.
Property, plant and equipment
The carrying amount of property, plant and equipment assets is tested for impairment when there is an indication of
impairment. The recoverable amount of the assets is determined based on value in use calculations using cash ﬂow
forecasts. The cash ﬂow forecasts require the use of estimates and judgements about the future performance of
the related business.
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.
Group receivables
At least annually an assessment is made of the recoverability of group receivables in the company’s balance sheet.
As a result of this assessment group receivables are provided for if impaired. The assessment of the recoverability
for certain group receivables is determined based on the cash ﬂow forecasts for the respective subsidiary. The cash
ﬂow forecasts require the use of estimates and judgements about the future performance of the subsidiary.
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 certain subsidiaries. These forecasts require the use of estimates and judgements about the
future performance of the respective subsidiaries.
Defined benefit pension liability
The carrying amount of the deﬁned beneﬁt pension liability is based on actuarial valuations. The valuations are
based on estimates and judgements about the future, in particular the average life expectancy of pensioners.
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.
Filtronic plc Annual Report 2009 39 Notes to the
Financial Statements
for the year ended 31 May 2009
3 Profit for period from discontinued operations
2009 2008
Discontinued operations note £000 £000
Revenue 7 2,111 44,293
5 5
Operating (loss)/proﬁt before exceptional items (224) 4,464
Exceptional items 8 – (6,475)
1 1
Operating loss 6 (224) (2,011)
1 1
Loss before taxation (224) (2,011)
Taxation 22 – –
1 1
Loss after taxation (224) (2,011)
Gain on sale of discontinued operations 23 9,614 3,596
1 1
Proﬁt for the period from discontinued operations 9,390 1,585
5 5
40 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
4 Business segment analysis
The group comprises the following business segments:
Continuing operations
The business designs and manufactures transceiver modules and ﬁlters for backhaul microwave linking of base
stations used in wireless telecommunication networks.
The continuing operations for the current period form one business located in the United Kingdom. Consequently
the previously reported results for Point to Point, Central Services and unallocated pension charge have been
combined for the comparative period.
Discontinued operations
Defence Electronics
Defence Electronics designed and manufactured RF components and subsystems for military applications and
digital signal processing products. The United Kingdom and Australian Defence Electronics business was sold on
15 August 2008. The United States Defence Electronics business was sold on 12 October 2007.
Compound Semiconductors
Compound Semiconductors designed and manufactured compound semiconductors for mobile telephone handset,
wireless infrastructure and defence electronic applications. The business was sold on 29 February 2008.
Filtronic plc Annual Report 2009 41 Notes to the
Financial Statements
for the year ended 31 May 2009
4 Business segment analysis (continued)
Group
2009 2008
£000 £000
Revenue
Defence Electronics 2,111 16,980
Compound Semiconductors – 27,313
1 1
Discontinued operations 2,111 44,293
5 5
Operating loss
Defence Electronics (224) 322
Compound Semiconductors – (2,333)
1 1
Discontinued operations (224) (2,011)
1 1
Loss before taxation (224) (2,011)
Taxation – –
1 1
Loss after taxation (224) (2,011)
Gain on sale of discontinued operations 9,614 3,596
1 1
Proﬁt for the period from discontinued operations 9,390 1,585
5 5
The operating loss is stated after crediting the release of deferred income as follows:
2009 2008
£000 £000
Compound Semiconductors licence fee – 1,751
5 5
42 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
4 Business segment analysis (continued)
Group
2009 2008
£000 £000
Depreciation
Continuing operations 837 672
1 1
Defence Electronics 83 598
Compound Semiconductors – 770
1 1
Discontinued operations 83 1,368
1 1
920 2,040
5 5
Capital expenditure
Continuing operations 864 1,238
1 1
Defence Electronics 81 729
Compound Semiconductors – 342
1 1
Discontinued operations 81 1,071
1 1
945 2,309
5 5
Assets
Continuing operations 11,306 15,288
Discontinued operations – 7,429
1 1
Total segment assets 11,306 22,717
Business sale consideration receivable – 572
Cash and cash equivalents 16,218 31,451
1 1
Total assets 27,524 54,740
5 5
Liabilities
Continuing operations 5,213 10,414
Discontinued operations – 3,905
1 1
Total segment liabilities 5,213 14,319
Business sale costs 100 506
Income tax payable 635 –
Deﬁned beneﬁt pension – 1,002
1 1
Total liabilities 5,948 15,827
5 5
Filtronic plc Annual Report 2009 43 Notes to the
Financial Statements
for the year ended 31 May 2009
5 Geographical origin segment analysis
Group
2009 2008
£000 £000
Revenue
United Kingdom 1,900 40,881
United States of America – 2,462
Australia 211 950
1 1
Discontinued operations 2,111 44,293
5 5
Operating loss
United Kingdom (261) (1,226)
United States of America – (1,016)
Australia 37 231
1 1
Discontinued operations (224) (2,011)
1 1
Loss before taxation (224) (2,011)
Taxation – –
1 1
Loss after taxation (224) (2,011)
Gain on sale of discontinued operations 9,614 3,596
1 1
Proﬁt for the period from discontinued operations 9,390 1,585
5 5
44 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
5 Geographical origin segment analysis (continued)
Group
2009 2008
£000 £000
Depreciation
Continuing operations 837 672
1 1
United Kingdom 80 1,214
United States of America – 140
Australia 3 14
1 1
Discontinued operations 83 1,368
1 1
920 2,040
5 5
Capital expenditure
Continuing operations 864 1,238
1 1
United Kingdom 75 1,032
United States of America – 13
Australia 6 26
1 1
Discontinued operations 81 1,071
1 1
945 2,309
5 5
Assets
Continuing operations 27,524 47,311
1 1
United Kingdom – 6,772
Australia – 657
1 1
Discontinued operations – 7,429
1 1
1 1
Total assets 27,524 54,740
5 5
Liabilities
Continuing operations 5,948 11,922
1 1
United Kingdom – 3,828
Australia – 77
1 1
Discontinued operations – 3,905
1 1
1 1
Total liabilities 5,948 15,827
5 5
Filtronic plc Annual Report 2009 45 Notes to the
Financial Statements
for the year ended 31 May 2009
6 Operating profit/(loss)
Group
2009 2008
Continuing operations note £000 £000
Revenue 7 28,779 40,133
5 5
Raw materials and consumables 16,469 23,751
1 1
Wages and salaries 6,018 6,494
Social security costs 619 649
Pension costs 38 241 26,695
Share-based payments 47 8 –
1 1
Staff costs 6,886 33,838
1 1
Depreciation 837 672
1 1
Proﬁt on sale of plant and equipment – (2)
1 1
Other operating charges 3,444 5,381
1 1
1 1
Operating costs 27,636 63,640
5 5
1 1
Operating proﬁt/(loss) 1,143 (23,507)
5 5
The operating loss is stated after the exceptional items in note 8.
46 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
6 Operating profit/(loss) (continued)
Group
2009 2008
Discontinued operations note £000 £000
Revenue 7 2,111 44,293
5 5
Raw materials and consumables 590 13,954
1 1
Wages and salaries 843 12,952
Social security costs 84 1,108
Pension costs 38 55 753
1 1
Staff costs 982 14,813
1 1
Depreciation 83 1,368
1 1
Loss on sale of plant and equipment – 89
1 1
Property impairment 14 – 6,300
1 1
Other operating charges 680 9,780
1 1
1 1
Operating costs 2,335 46,304
5 5
1 1
Operating loss (224) (2,011)
5 5
The operating loss is stated after the exceptional items in note 8.
Filtronic plc Annual Report 2009 47 Notes to the
Financial Statements
for the year ended 31 May 2009
6 Operating profit/(loss) (continued)
Company
2009 2008
note £000 £000
Wages and salaries 1,146 1,635
Social security costs 138 190
Pension costs 38 43 108
Share-based payments 47 1 –
1 1
Staff costs 1,328 1,933
1 1
Depreciation 47 101
1 1
Loss on sale of plant and equipment – 22
1 1
Other operating charges 1,096 1,272
1 1
Deﬁned beneﬁt pension operating charge 40 – 26,336
1 1
1 1
Operating costs 2,471 29,664
5 5
1 1
Operating loss (2,471) (29,664)
5 5
The operating loss is stated after the exceptional items in note 8.
48 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
7 Revenue analysis by destination
Group
2009 2008
£000 £000
United Kingdom 56 56
Europe 28,723 40,077
1 1
Continuing operations 28,779 40,133
5 5
United Kingdom 968 13,099
Europe 450 4,241
Americas 25 21,190
Asia Paciﬁc 668 5,763
1 1
Discontinued operations 2,111 44,293
5 5
Filtronic plc Annual Report 2009 49 Notes to the
Financial Statements
for the year ended 31 May 2009
8 Exceptional items
Operating proﬁt/(loss) is stated after charging exceptional items as follows:
Group Company
2009 2008 2009 2008
note £000 £000 £000 £000
Chief Executive termination cost 9 383 – 383 –
Pension scheme closure costs 10 266 – 266 –
Enhanced pension transfer value offer costs 11 – 311 – 311
Pension settlement charge 12 – 24,868 – 24,868
Pension past service cost 13 – 850 – 850
Redundancy costs 288 – – –
1 1 1 1
Continuing operations 937 26,029 649 26,029
5 5 5 5
Compound Semiconductors assets impairment 14 – 6,300 – –
Compound Semiconductors redundancy costs – 175 – –
1 1 1 1
Discontinued operations – 6,475 – –
5 5 5 5
9 Chief Executive termination cost
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Chief Executive termination cost 383 – 383 –
5 5 5 5
Charles Hindson resigned as Chief Executive on 19 September 2008. Under the terms of his contract he was paid
twelve months’ salary in lieu of notice plus accrued bonus entitlement.
10 Pension scheme closure costs
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Pension scheme closure costs 266 – 266 –
5 5 5 5
Professional fees were incurred in connection with the process of closing the deﬁned beneﬁt pension scheme.
50 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
11 Enhanced pension transfer value offer costs
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Enhanced pension transfer value offer costs – 311 – 311
5 5 5 5
Professional fees were incurred in connection with the enhanced pension transfer value offer made during the period
1 June 2007 to 31 January 2008.
12 Pension settlement charge
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Enhanced transfer values – 3,206 – 3,206
Fully funding past service liabilities with annuities – 21,662 – 21,662
1 1 1 1
– 24,868 – 24,868
5 5 5 5
A pension settlement charge of £3,206,000 resulted from the settlement of the enhanced transfer values paid out
during the period 1 June 2007 to 31 January 2008. The company paid £6,027,000 of additional contributions to the
pension scheme to fund the settlement of the enhanced transfer values.
A pension settlement charge of £21,662,000 resulted from the settlement of past service liabilities with annuities at
29 February 2008. Pension beneﬁts ceased accruing from 29 February 2008, and the deﬁned beneﬁts scheme is in
the process of being closed. The company paid £21,000,000 of additional contributions to the pension scheme to
fund the settlement of past service liabilities with annuities.
13 Pension past service cost
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Pension past service cost – 850 – 850
5 5 5 5
The past service cost was the cost of providing for the equalisation of retirement ages for male and female members
of pension schemes that were transferred into the deﬁned beneﬁt pension scheme. This was part of the process of
transferring all the residual liabilities of the scheme to the assurance company providing the annuities.
14 Compound Semiconductors assets impairment
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Property impairment – 6,300 – –
5 5 5 5
The property impairment resulted from an impairment review at 30 November 2007.
Filtronic plc Annual Report 2009 51 Notes to the
Financial Statements
for the year ended 31 May 2009
15 Operating items
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Operating proﬁt/(loss) is stated after charging/(crediting):
Continuing operations:
Research and development costs 1,838 2,173 – –
Operating lease rentals 116 171 47 41
5 5 5 5
Discontinued operations:
Research and development costs 413 4,591 – –
Operating lease rentals 40 416 – –
Licence fee released – (1,751) – –
5 5 5 5
16 Auditors’ remuneration
The company auditors are KPMG Audit Plc. The auditors’ remuneration was as follows:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Company auditors:
Audit of the group and company ﬁnancial statements 7 47 7 47
Company auditors and their associates:
Audit of subsidiaries ﬁnancial statements pursuant to
legislation 18 67 – –
Other services pursuant to such legislation 10 21 10 21
Other assurance services – 15 – 15
Taxation services 24 24 24 13
1 1 1 1
59 174 41 96
5 5 5 5
52 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
17 Employees
The average number of people employed by the group comprised:
Group
2009 2008
Number Number
Business segment
Continuing operations 199 235
1 1
Defence Electronics 34 187
Compound Semiconductors – 188
1 1
Discontinued operations 34 375
1 1
1 1
233 610
5 5
Geographical segment
Continuing operations 199 235
1 1
United Kingdom 32 343
United States of America – 26
Australia 2 6
1 1
Discontinued operations 34 375
1 1
1 1
233 610
5 5
Company
2009 2008
Number Number
Average number of people employed by the company 11 18
5 5
Filtronic plc Annual Report 2009 53 Notes to the
Financial Statements
for the year ended 31 May 2009
18 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 17 to 22. The compensation of the directors was:
2009 2008
£000 £000
Salary or fees 882 798
Bonuses 166 397
Beneﬁts 27 21
1 1
Total remuneration excluding pension contributions and share-based payments 1,075 1,216
Pension contributions 33 68
Share-based payments 1 –
1 1
1,109 1,284
5 5
Included in the salary and bonuses amounts for the year ended 31 May 2009 are the amounts paid to Charles
Hindson of £262,000 salary in lieu of notice and £77,000 bonus, which are included in the exceptional termination
cost of £383,000 in note 9.
The directors are related parties.
19 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 (£45,000 for the period 18 October 2007 to 31 May 2008).
20 Finance income
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Interest income 1,213 6,724 1,208 6,712
Expected return on pension scheme assets 42 1,985 42 1,985
Currency exchange gains – 401 – 405
1 1 1 1
1,255 9,110 1,250 9,102
5 5 5 5
21 Finance costs
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Interest on pension scheme liabilities 69 1,688 69 1,688
Currency exchange losses 63 – 63 –
1 1 1 1
132 1,688 132 1,688
5 5 5 5
54 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
22 Taxation
The reconciliation of the effective tax rate is as follows:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Proﬁt/(loss) before taxation
Continuing operations 2,266 (16,200) 8,181 (23,288)
Discontinued operations (224) (2,011) – –
1 1 1 1
Proﬁt/(loss) before taxation 2,042 (18,211) 8,181 (23,288)
5 5 5 5
Loss before taxation multiplied
by standard rate of corporation tax
in the UK 28% 572 (30%) (5,463) 28% 2,291 (30%) (6,986)
Disallowable items 2% 50 0% 29 1% 43 0% 14
Depreciation in advance of capital
allowances 13% 257 14% 2,479 0% 13 0% 72
Other temporary differences –– (1%) (112) –– (0%) (41)
Deﬁned beneﬁt pension (1%) (20) (2%) (296) 0% (20) (1%) (296)
Pension contributions carried forward –– 24% 4,328 –– 19% 4,328
Pension contributions brought forward
utilised (83%) (1,688) (2%) (366) (21%) (1,688) (2%) (366)
Tax losses carried forward 41% 829 5% 894 10% 792 3% 590
Tax losses brought forward utilised –– (8%) (1,493) –– ––
Non-taxable gain on sale of investments –– –– (33%) (2,670) (1%) (312)
Impairment of investments –– –– –– 132% 30,900
Movement in provision for group
receivables –– –– –– (130%) (30,270)
Group relief –– –– 15% 1,239 10% 2,367
11111111
Taxation –– –– –– ––
55555555
Filtronic plc Annual Report 2009 55 Notes to the
Financial Statements
for the year ended 31 May 2009
23 Gain on sale of discontinued operations
Group
2009 2008
note £000 £000
Gain/(loss) on sale of:
Australian Wireless Infrastructure business 24 1,313 –
Wireless Infrastructure business 25 – 2,805
United Kingdom and Australian Defence Electronics business 26 8,388 –
United States Defence Electronics business 27 (87) (667)
Compound Semiconductors business 28 – 1,458
1 1
9,614 3,596
5 5
24 Sale of the Australian Wireless Infrastructure business
The Australian Wireless Infrastructure business was sold to its management in 2005. The business was sold on to
another party in July 2008. Under the terms of the original sale a proportion of the sell-on proceeds were received
by the group in July 2008, and amounted to £1,903,000.
Group
2009 2008
£000 £000
Gain on sale of Australian Wireless Infrastructure business before taxation 1,903 –
Taxation (590) –
1 1
Gain on sale of Australian Wireless Infrastructure business after taxation 1,313 –
5 5
25 Sale of the Wireless Infrastructure business
On 16 October 2007 the Wireless infrastructure business was sold for $185,000,000 cash and 17,700,000 shares in
Powerwave Technologies, Inc. common stock. Additional cash consideration of £2,675,000 was received in the year
ended 31 May 2008, which had not been recognised in the year ended 31 May 2007. An adjustment was also made
for sale costs overprovided of £130,000.
2009 2008
£000 £000
Consideration and costs
Cash consideration – 2,675
Sale costs adjustment – 130
1 1
Gain on sale of the Wireless Infrastructure business – 2,805
5 5
56 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
26 Sale of the United Kingdom and Australian Defence Electronics business
On 15 August 2008 the United Kingdom and Australian Defence Electronics business was sold. The sale is analysed
as follows:
Group
2009 2008
£000 £000
Consideration and costs
Gross consideration 13,000 –
Adjustment for working capital (287) –
1 1
Net consideration 12,713 –
Sale costs (879) –
Currency translation adjustment 340 –
1 1
12,174 –
5 5
Assets and liabilities sold
Property, plant and equipment 2,073 –
Inventories 1,655 –
Trade and other receivables 2,925 –
Cash and cash equivalents 419 –
Trade and other payables (2,620) –
Provision (666) –
1 1
Net assets sold 3,786 –
Gain on sale of the United Kingdom and Australian
Defence Electronics business 8,388 –
1 1
12,174 –
5 5
Filtronic plc Annual Report 2009 57 Notes to the
Financial Statements
for the year ended 31 May 2009
27 Sale of the United States Defence Electronics business
The Defence Electronics business of Sage Laboratories, Inc. in the United States of America was sold on 12 October
2007. The initial consideration was $3,556,000 and a further $1,000,000 of deferred consideration was due in
January 2009. Also there was a further $500,000 of contingent consideration due in January 2009, depending on the
revenue performance of the business, which was not recognised.
At 31 May 2008, $1,130,000 of consideration was included in receivables and $1,000,000 of sale costs were accrued
to meet a potential claim from the purchaser. In March 2009 agreement was reached to offset the outstanding
consideration against the claim from the purchaser, resulting in full and ﬁnal settlement of the business sale
transaction. The sale is analysed as follows:
Group
2009 2008
£000 £000
Consideration and costs
Initial consideration – 1,712
Deferred consideration – 481
Sale costs – (692)
Currency translation adjustment – 453
Consideration adjustment (689) –
Sale costs adjustment 602 –
1 1
(87) 1,954
5 5
Assets and liabilities sold
Property, plant and equipment – 1,130
Inventories – 1,240
Trade and other receivables – 803
Trade and other payables – (552)
1 1
Net assets sold – 2,621
Loss on sale of the United States Defence Electronics business (87) (667)
1 1
(87) 1,954
5 5
58 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
28 Sale of the Compound Semiconductors business
On 29 February 2008 the Compound Semiconductors business was sold. The sale is analysed as follows:
Group
2009 2008
£000 £000
Consideration and costs
Gross consideration – 12,500
Adjustment for working capital – (1,832)
1 1
Net consideration – 10,668
Sale costs – (395)
1 1
– 10,273
5 5
Assets and liabilities sold
Property, plant and equipment – 8,533
Inventories – 3,083
Trade and other receivables – 926
Cash and cash equivalents – 3
Trade and other payables – (3,341)
Deferred income – (389)
1 1
Net assets sold – 8,815
Gain on sale of Compound Semiconductors business – 1,458
1 1
– 10,273
5 5
Filtronic plc Annual Report 2009 59 Notes to the
Financial Statements
for the year ended 31 May 2009
29 Earnings/(loss) per share
Group
2009 2008
£000 £000
Proﬁt/(loss) for the period
Continuing operations 2,266 (16,200)
Discontinued operations 9,390 1,585
1 1
Proﬁt/(loss) for the period 11,656 (14,615)
5 5
000 000
Basic weighted average number of shares 74,323 74,323
Dilution effect of share options 120 –
1 1
Diluted weighted average number of shares 74,443 74,323
5 5
Basic earnings/(loss) per share
Continuing operations 3.05p (21.80)p
Discontinued operations 12.63p 2.13p
1 1
Basic earnings/(loss) per share 15.68p (19.67)p
5 5
Diluted earnings/(loss) per share
Continuing operations 3.04p (21.80)p
Discontinued operations 12.61p 2.13p
1 1
Diluted earnings/(loss) per share 15.65p (19.67)p
5 5
60 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
30 Goodwill
Group
Goodwill
£000
Cost
At 1 June 2007 2,576
Disposal of United States Defence Electronics business (2,452)
Currency translation movement (124)
1
At 31 May 2008 –
1
At 31 May 2009 –
5
Impairment
At 1 June 2007 2,576
Disposal of United States Defence Electronics business (2,452)
Currency translation movement (124)
1
At 31 May 2008 –
1
At 31 May 2009 –
5
Carrying amount at 1 June 2007 –
5
Carrying amount at 31 May 2008 –
5
Carrying amount at 31 May 2009 –
5
Filtronic plc Annual Report 2009 61 Notes to the
Financial Statements
for the year ended 31 May 2009
31 Investments in subsidiaries
Company
Investments in
subsidiaries
£000
Cost
At 1 June 2007 25,485
Additions 112,040
Disposals (112,040)
1
At 31 May 2008 25,485
Disposals (2,250)
Dissolved (1,596)
1
At 31 May 2009 21,639
5
Impairment
At 1 June 2007 20,235
Impairment in the year 103,000
Disposals (100,000)
1
At 31 May 2008 23,235
Dissolved (1,596)
1
At 31 May 2009 21,639
5
Carrying amount at 1 June 2007 5,250
5
Carrying amount at 31 May 2008 2,250
5
Carrying amount at 31 May 2009 –
5
In the year ended 31 May 2009, the disposals of £2,250,000 were the sale of all the share capital of Filtronic Defence
Limited and Filtronic Properties Limited on 15 August 2008.
In the year ended 31 May 2009, four dormant United Kingdom subsidiaries were dissolved.
In the year ended 31 May 2008, the additions of £112,040,000 were the investment in additional share capital of
Filtronic Compound Semiconductors Limited to allow the repayment of the receivable due from that subsidiary. All
of the share capital of Filtronic Compound Semiconductors Limited was sold on 29 February 2008.
Impairment in the year ended 31 May 2008 of £100,000,000 related to Filtronic Compound Semiconductors Limited.
The investment in this subsidiary was written down to its estimated recoverable amount following an impairment
review. A further £3,000,000 of impairment in the year ended 31 May 2008 related to Filtronic Holdings UK Limited
as a result of an impairment review of the value of its investments in the overseas subsidiaries.
The company’s subsidiaries are related parties.
A complete list of the company’s subsidiaries, all of which are wholly owned, is given in note 53.
62 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
32 Property, plant and equipment
Group
Land and Plant and
buildings equipment Total
£000 £000 £000
Cost
At 1 June 2007 22,708 64,203 86,911
Additions – 2,309 2,309
Disposals (8,836) (3,003) (11,839)
Disposals through sale of the Defence Electronics business – (3,415) (3,415)
Disposals through sale of the Compound Semiconductors business (12,372) (47,741) (60,113)
Currency translation movement – (124) (124)
111
At 31 May 2008 1,500 12,229 13,729
Additions – 945 945
Disposals – (66) (66)
Disposals through sale of the Defence Electronics business (1,500) (6,310) (7,810)
Currency translation movement – (9) (9)
111
At 31 May 2009 – 6,789 6,789
555
Depreciation and impairment
At 1 June 2007 4,441 56,381 60,822
Depreciation 277 1,763 2,040
Impairment 6,300 – 6,300
Disposals (2,677) (2,866) (5,543)
Disposals through sale of the Defence Electronics business – (2,285) (2,285)
Disposals through sale of the Compound Semiconductors business (8,031) (43,549) (51,580)
Currency translation movement – (70) (70)
111
At 31 May 2008 310 9,374 9,684
Depreciation 6 914 920
Disposals – (66) (66)
Disposals through sale of the Defence Electronics business (316) (5,421) (5,737)
Currency translation movement – (8) (8)
111
At 31 May 2009 – 4,793 4,793
555
Carrying amount at 1 June 2007 18,267 7,822 26,089
555
Carrying amount at 31 May 2008 1,190 2,855 4,045
555
Carrying amount at 31 May 2009 – 1,996 1,996
555
Filtronic plc Annual Report 2009 63 Notes to the
Financial Statements
for the year ended 31 May 2009
32 Property, plant and equipment (continued)
Company
Land and Plant and
buildings equipment Total
£000 £000 £000
Cost
At 1 June 2007 8,249 71 8,320
Additions – 23 23
Disposals (8,249) (28) (8,277)
111
At 31 May 2008 – 66 66
Disposals – (66) (66)
111
At 31 May 2009 –– –
555
Depreciation
At 1 June 2007 2,280 4 2,284
Depreciation 80 21 101
Disposals (2,360) (6) (2,366)
111
At 31 May 2008 – 19 19
Depreciation – 47 47
Disposals – (66) (66)
111
At 31 May 2009 –– –
555
Carrying amount at 1 June 2007 5,969 67 6,036
555
Carrying amount at 31 May 2008 – 47 47
555
Carrying amount at 31 May 2009 –– –
555
64 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
33 Deferred tax assets
Deferred tax assets which have not been recognised:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Depreciation in advance of capital allowances 1,633 3,522 546 533
Deﬁned beneﬁt pension liability – 280 – 280
Pension contributions carried forward 3,034 4,722 3,034 4,722
Tax losses carried forward 10,222 9,464 10,222 9,464
1 1 1 1
14,889 17,988 13,802 14,999
5 5 5 5
The deferred tax assets have not been recognised where the directors consider that it is unlikely that the underlying
temporary differences will reverse in the foreseeable future.
34 Inventories
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Raw materials 1,675 3,497 – –
Work in progress 980 2,450 – –
Finished goods 1,876 298 – –
1 1 1 1
4,531 6,245 – –
5 5 5 5
Inventories are stated net of provision 1,372 1,773 – –
5 5 5 5
35 Trade and other receivables
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Trade receivables 4,368 11,682 – –
Group receivables – – 3,957 6,503
Business sale consideration receivable – 572 – –
Other receivables and prepayments 356 745 28 91
Forward foreign exchange contracts 55 – 55 –
1 1 1 1
4,779 12,999 4,040 6,594
5 5 5 5
Trade receivables are stated net of provision 15 508 – –
5 5 5 5
Filtronic plc Annual Report 2009 65 Notes to the
Financial Statements
for the year ended 31 May 2009
36 Trade and other payables
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Trade payables 2,732 7,994 – –
Group payables – – 2,685 942
Business sale costs 100 506 100 –
Other payables and accruals 1,167 4,173 338 948
1 1 1 1
3,999 12,673 3,123 1,890
5 5 5 5
37 Provision
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Warranty provision
Opening balance 2,152 – – –
Transfer from accruals – 448 – –
Used during the year (600) – – –
Charge for the year 428 1,704 – –
Sale of the Defence Electronics business (666) – – –
1 1 1 1
Closing balance 1,314 2,152 – –
5 5 5 5
66 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
38 Pension costs
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Deﬁned contribution schemes 241 131 43 63
Deﬁned beneﬁt scheme – 26,564 – 45
1 1 1 1
Continuing operations 241 26,695 43 108
5 5 5 5
Deﬁned contribution schemes 55 307 – –
Deﬁned beneﬁt scheme – 446 – –
1 1 1 1
Discontinued operations 55 753 – –
5 5 5 5
39 Defined contribution pension schemes
Deﬁned contribution pension schemes are operated for employees in accordance with local regulations and
practices.
The pension cost for deﬁned contribution pension schemes was:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Continuing operations 241 131 43 63
5 5 5 5
United Kingdom 46 233 – –
United States of America – 48 – –
Australia 9 26 – –
1 1 1 1
Discontinued operations 55 307 – –
5 5 5 5
Filtronic plc Annual Report 2009 67 Notes to the
Financial Statements
for the year ended 31 May 2009
40 Defined benefit pension scheme
A deﬁned beneﬁt pension scheme was operated for United Kingdom employees. The scheme provided beneﬁts on
a career average revalued earnings basis.
The assets of the scheme were held in a separate trust fund which was managed by independent professional
investment managers. Contributions to the scheme were determined by a qualiﬁed actuary on the basis of annual
actuarial valuations using the projected unit measure. Employer’s regular contributions were 10.5% of pensionable
salary and employees’ contributions were 6.0% of pensionable salaries.
An enhanced transfer value offer was made to deferred members of the pension scheme during the period 1 June
2007 to 31 January 2008. This resulted in a pension settlement charge of £3,206,000. The company paid £6,027,000
of additional contributions to the pension scheme to fund the settlement of the enhanced transfer value.
Pension beneﬁts ceased accruing from 29 February 2008, and the deﬁned beneﬁts scheme is in the process of being
closed. The past service liabilities at 29 February 2008 have been settled by purchasing annuities from an assurance
company. This resulted in a pension settlement charge of £21,662,000. The company paid £21,000,000 of additional
contributions to the pension scheme to fund the settlement of past service liabilities with annuities.
The past service cost of £850,000 for the year ended 31 May 2008 was the cost of providing for the equalisation of
retirement ages for male and female members of pension schemes that were transferred into the deﬁned beneﬁt
pension scheme. This was part of the process of transferring all the residual liabilities of the scheme to the assurance
company providing the annuities.
At 31 May 2008 there were residual assets of £993,000 and residual liabilities of £1,995,000 remaining in the deﬁned
beneﬁt scheme.
The company had to pay an additional contribution of £100,000 to the scheme in the year ended 31 May 2009.
The most recent actuarial valuation of the scheme was at 1 July 2006. The results of that valuation have been
projected to 31 May 2007 and 31 May 2008 and then recalculated based on the following assumptions:
2009 2008
Liability discount rate – 6.6%
Expected return on scheme assets – 8.0%
The average life expectancy in years of a pensioner retiring at the age of 65 was as follows:
2009 2008
Male – 21.9
Female – 24.8
68 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
40 Defined benefit pension scheme (continued)
The amount charged to operating costs was:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Current service cost – 1,292 – 1,292
Past service cost – 850 – 850
Settlement charge – 24,868 – 24,868
Less group employers’ contributions – – – (674)
1 1 1 1
– 27,010 – 26,336
5 5 5 5
The amounts credited and charged to ﬁnance income and costs:
Group and
Company
2009 2008
£000 £000
Expected return on pension scheme assets 42 1,985
Interest on pension scheme liabilities (69) (1,688)
1 1
(27) 297
5 5
The actuarial gain recognised in the statement of recognised income and expense was:
Group and
Company
2009 2008
£000 £000
Actual return less expected return on pension scheme assets (58) (3,711)
Actuarial gain on pension scheme liabilities 987 8,675
1 1
929 4,964
5 5
The deﬁned beneﬁt pension liability was:
Group and
Company
2009 2008
£000 £000
Present value of deﬁned beneﬁt pension scheme liabilities – 1,995
Fair value of deﬁned beneﬁt pension scheme assets – (993)
1 1
Deﬁned beneﬁt pension liability – 1,002
5 5
Filtronic plc Annual Report 2009 69 Notes to the
Financial Statements
for the year ended 31 May 2009
40 Defined benefit pension scheme (continued)
Movements in the present value of the deﬁned beneﬁt pension scheme liabilities were:
2009 2008
£000 £000
Opening balance 1,995 51,472
Current service cost – 1,292
Past service cost – 850
Settlement charge – 63
Interest cost 69 1,688
Actuarial gain (987) (8,675)
Employees’ contributions – 385
Beneﬁts paid (1,077) (963)
Liabilities extinguished on settlements – (44,117)
1 1
Closing balance – 1,995
5 5
Movements in the fair value of the deﬁned beneﬁt pension scheme assets were:
2009 2008
£000 £000
Opening balance 993 44,518
Expected return on assets 42 1,985
Actual return less expected return on assets (58) (3,711)
Employer’s contributions 100 27,701
Employees’ contributions – 385
Beneﬁts paid (1,077) (963)
Assets distributed on settlements – (68,922)
1 1
Closing balance – 993
5 5
The expected rate of return and the fair value of the deﬁned beneﬁt pension scheme assets at the balance sheet
date were:
Expected return Fair value
2009 2008 2009 2008
£000 £000
Equities – 8.0% – 993
5 5
70 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
40 Defined benefit pension scheme (continued)
The history of the deﬁned beneﬁt pension scheme liabilities and assets and the experience adjustments related to
them are as follows:
2009 2008 2007 2006 2005
£000 £000 £000 £000 £000
Present value of deﬁned beneﬁt pension
scheme liabilities – 1,995 51,472 50,588 39,379
Fair value of deﬁned beneﬁt pension
scheme assets – (993) (44,518) (30,003) (23,230)
1 1111
Deﬁned beneﬁt pension liability – 1,002 6,954 20,585 16,149
5 5555
Experience adjustments on:
Pension scheme liabilities 987 8,675 (2,556) (5,098) (7,994)
5 5555
Percentage of liabilities – – (5%) (10%) (20%)
Pension scheme assets (58) (3,711) 3,118 2,249 1,210
5 5555
Percentage of assets – – 7% 7% 5%
Filtronic plc Annual Report 2009 71 Notes to the
Financial Statements
for the year ended 31 May 2009
41 Share capital
Group and Company
Ordinary shares of 10p each
Authorised Issued and fully paid
Number £000 Number £000
At 1 June 2007 100,000,000 10,000 74,323,093 7,432
1111
At 31 May 2008 100,000,000 10,000 74,323,093 7,432
1111
At 31 May 2009 100,000,000 10,000 74,323,093 7,432
5555
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.
42 Reserves
Group and Company Group
Capital
Share redemption Translation
premium reserve reserve
£000 £000 £000
At 1 June 2007 139,253 58 660
Transfer to accumulated losses (139,253) (58) –
Transfer to income related to business disposal –– (453)
Currency translation movement arising on
consolidation –– (6)
11 1
At 31 May 2008 –– 201
Transfer to income related to business disposal –– (340)
Currency translation movement arising on
consolidation –– 139
11 1
At 31 May 2009 –– –
55 5
The share premium and capital redemption reserve were cancelled by special resolutions passed at the general
meeting held on 28 March 2008. The capital reduction was conﬁrmed by the High Court of England and Wales on
18 April 2008. The capital reduction became effective on 21 April 2008 when the Court Order was registered with the
Registrar of Companies.
72 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
43 Dividends
The dividends recognised in equity and paid during the year were as follows:
Group and
Company
2009 2008
Per share £000 £000
Special interim dividend year ended 31 May 2008 120.00p – 89,188
Special interim dividend year ended 31 May 2009 40.00p 29,729 –
1 1
29,729 89,188
5 5
The ﬁnal dividend proposed for the year ended 31 May 2009 is 1.00p per share payable on 30 November 2009 to
shareholders on the register on 30 October 2009. The ﬁnal dividend will amount to £743,000 based on the issued
share capital of 74,323,093 10p ordinary shares as at 27 July 2009.
44 Retained earnings
Group Company
£000 £000
At 1 June 2007 (9,192) (1,930)
Loss for the period (14,615) (23,288)
Actuarial gain on deﬁned beneﬁt pension scheme 4,964 4,964
Transfer from share premium 139,253 139,253
Transfer from capital redemption reserve 58 58
Dividends (89,188) (89,188)
11
At 31 May 2008 31,280 29,869
Proﬁt for the period 11,656 8,181
Actuarial gain on deﬁned beneﬁt pension scheme 929 929
Share-based payments 81
Dividends (29,729) (29,729)
11
At 31 May 2009 14,144 9,251
55
45 Reconciliation of movements in total equity
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Opening total equity 38,913 138,211 37,301 144,813
Total recognised income and expense
for the period 12,384 (10,110) 9,110 (18,324)
Share-based payments 8 – 1 –
Dividends (29,729) (89,188) (29,729) (89,188)
1 1 1 1
Closing total equity 21,576 38,913 16,683 37,301
5 5 5 5
Filtronic plc Annual Report 2009 73 Notes to the
Financial Statements
for the year ended 31 May 2009
46 Share options
Weighted Weighted
average average
exercise Number exercise Number
price of options price of options
2009 2009 2008 2008
Executive Share Option Schemes
Outstanding at the beginning of the period –– 472p 4,089,809
Cancelled during the period –– 472p (4,089,809)
1 1
Outstanding at the end of the period –– ––
5 5
Under the Executive Share Option Schemes the remuneration committee had a discretion to invite any full time
employee who was required to devote substantially all of his time to the business of the group to participate in the
scheme. Options granted under this scheme were generally exercisable in ﬁve equal annual tranches over a ﬁve year
period and, except in certain circumstances, only if certain performance targets had been satisﬁed. The exercise
price for an option was the average middle market quotation of Filtronic plc’s ordinary shares as derived from the
Ofﬁcial List of the United Kingdom Financial Services Authority for the three dealing days prior to the date of grant
of the option.
All outstanding share options vested and became exercisable on the completion of the sale of the Wireless
Infrastructure business on 16 October 2006. All outstanding options were cancelled on 16 October 2007.
Weighted Weighted
average average
exercise Number exercise Number
price of options price of options
2009 2009 2008 2008
Sharesave Plan
Outstanding at the beginning of the period –– ––
Granted during the period 25p 919,350 ––
Cancelled during the period 25p (62,250) ––
1 1
Outstanding at the end of the period 25p 857,100 ––
5 5
Exercisable at the end of the period –– ––
5 5
The options outstanding at 31 May 2009 have a weighted average remaining contractual life of 3.3 years.
The share options granted during the year have an exercise price of 25p and have an exercise period from 1 April
2012 to 1 October 2012.
The Sharesave Plan was offered to employees in February 2009. Under the plan employees who join the plan save
up to £250 per month for three years. The members of the plan were granted a number of share options based on
the amount they would save over the three years. At the end of the three years the members have a six month period
in which they can exercise the share options. The exercise price for an option 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.
74 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
47 Share-based payments
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Share options expense 8 – 1 –
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.
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
2009 2008 2009 2008
£000 £000 £000 £000
Number of options granted 919,350 – 124,800 –
Weighted average share price 26p – 26p –
Weighted average exercise price 25p – 25p –
Expected volatility 50% – 50% –
Expected life 3.1 years – 3.1 years –
Risk free interest rate 3% – 3% –
Weighted average fair value 10p – 10p –
Expected volatility is the estimate of the volatility of the share price over the expected life of the share options.
Filtronic plc Annual Report 2009 75 Notes to the
Financial Statements
for the year ended 31 May 2009
48 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
2009 2008 2009 2008
£000 £000 £000 £000
Less than one year 141 298 113 48
Between one and ﬁve years 422 698 384 10
More than ﬁve years – 107 – –
1 1 1 1
563 1,103 497 58
5 5 5 5
Operating leases are for land and buildings and motor vehicles and the lease terms are for periods of one to ﬁve years.
49 Capital expenditure commitments
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Capital expenditure contracted for at the
balance sheet date but not provided in the
ﬁnancial statements 119 269 – –
5 5 5 5
76 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
50 Note to the consolidated cash flow statement
Group
2009 2008
note £000 £000
Operating proﬁt/(loss)
Continuing operations 1,143 (23,507)
Discontinued operations (224) (2,011)
1 1
919 (25,518)
5 5
Net cash from/(used in) operating activities
Continuing operations 689 (22,542)
Discontinued operations 20 6,470
1 1
709 (16,072)
5 5
Net cash from investing activities
Continuing operations 349 11,554
Discontinued operations (81) (1,045)
Sale of discontinued operations 51 13,418 7,413
1 1
13,686 17,922
5 5
Net cash used in ﬁnancing activities
Continuing operations (29,729) (89,188)
5 5
51 Net cash from sale of discontinued operations
Group
2009 2008
£000 £000
Consideration received 14,616 14,964
Sale costs paid (779) (1,801)
Cash and cash equivalents sold (419) –
Product liability costs paid – (5,750)
1 1
13,418 7,413
5 5
Filtronic plc Annual Report 2009 77 Notes to the
Financial Statements
for the year ended 31 May 2009
52 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.
Trade and other receivables are all receivable in less than one year. Trade receivables are generally receivable within
60 days.
Trade and other payables are all payable in less than one year. Trade payables are generally payable within 60 days.
Liquidity risk
The group and company hold substantial 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
2009 2008 2009 2008
£000 £000 £000 £000
Cash and cash equivalents 16,218 31,451 15,766 31,302
Trade and other receivables 4,779 12,999 4,040 6,594
1 1 1 1
20,997 44,450 19,806 37,896
5 5 5 5
The cash and cash equivalents in the balance sheet were on deposit with large banks with high credit ratings
as follows:
Group Company
2009 2008 2009 2008
£000 £000 £000 £000
Barclays Bank 16,175 31,328 15,766 31,302
Commonwealth Bank of Australia 43 123 – –
1 1 1 1
16,218 31,451 15,766 31,302
5 5 5 5
During the year ended 31 May 2009 signiﬁcant deposits were made with the Royal Bank of Scotland. In the future
signiﬁcant deposits will be made with Barclays and may be made with the other three major United Kingdom
clearing banks. The credit risk related to cash and cash equivalents is considered to be low due to the banks being
large with high credit ratings.
78 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
52 Financial instruments (continued)
Credit risk is primarily related to trade receivables. The group’s businesses are concentrated on long term
relationships with a small number of 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
2009 2008
£000 £000
Customer one 2,179 3,078
Customer two 1,138 4,128
Customer three 938 901
Other customers 113 3,575
1 1
4,368 11,682
5 5
The age of trade receivables that have not been provided for was as follows:
Group
2009 2008
£000 £000
Not past due 3,939 9,790
Past due less than three months 429 1,184
Past due three to six months – 98
Past due greater than six months – 610
1 1
4,368 11,682
5 5
The age of trade receivables that have been provided for was as follows:
Group
2009 2008
£000 £000
Past due less than three months 15 198
Past due three to six months – 91
Past due greater than six months – 219
1 1
15 508
5 5
The movement in the provision for doubtful trade receivables was as follows:
Group
2009 2008
£000 £000
Opening balance 508 –
Charge for the year – 508
Release for the year (493) –
1 1
Closing balance 15 508
5 5
Filtronic plc Annual Report 2009 79 Notes to the
Financial Statements
for the year ended 31 May 2009
52 Financial instruments (continued)
Interest rate risk
Cash is held on short term bank deposits which earn interest at variable money market deposit rates. At 31 May 2009
£15,500,000 was held on short term bank deposit with an interest rate of 0.3%. 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 £16,000,000 is
as follows:
Interest rate Expected annual interest income
£000
1.5% 240
1.0% 160
0.5% 80
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, Australian dollar and US dollar.
The group’s results and ﬁnancial position are affected by ﬂuctuations in foreign currency exchange rates.
A signiﬁcant proportion of continuing revenues are denominated in euros. A surplus of euros has been generated
over the last two ﬁnancial years, and this situation is expected to continue for the foreseeable future. The nature of
the group’s businesses means that there is limited visibility of future revenues in euros. Therefore when forward
foreign exchange contracts are used to reduce the currency risk on the surplus euros expected to be generated, they
are usually only for short term periods of no more than six months. If sterling were to strengthen signiﬁcantly against
the euro 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, for
example the income tax payment resulting from the sale of the Australian Wireless Infrastructure business.
At 31 May 2009 there was an outstanding forward foreign exchange contract to buy AUD 1,250,000 for £565,000,
which matured on 30 June 2009. The market value of this outstanding forward foreign exchange contract at 31 May
2009 was an asset of £55,000 which was recognised in the balance sheet. The forward foreign exchange contract was
taken out to eliminate the foreign exchange risk on the payment of Australian income tax resulting from the sale of
the Australian Wireless Infrastructure business.
At 31 May 2008 there were no outstanding forward foreign exchange contracts.
Nearly all cash is held in sterling.
80 Filtronic plc Annual Report 2009 Notes to the
Financial Statements
for the year ended 31 May 2009
52 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
2009 2008
EUR SEK USD EUR SEK USD
£000 £000 £000 £000 £000 £000
Cash and cash equivalents 345 –– –– 6
Trade receivables 1,235 938 – 4,283 901 14
Trade payables (907) – (165) (1,959) – (362)
111111
Net exposure 673 938 (165) 2,324 901 (342)
555555
The sensitivity of the group operating proﬁt from continuing operations to the euro to sterling exchange rate,
assuming all other variables remain constant, is as follows:
If the euro had been one per cent stronger/weaker against sterling throughout the year ended 31 May 2009 then the
group operating proﬁt from continuing operations would have been £51,000 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 2009 the group had a cash balance of
£16,218,000 and the company had a cash balance of £15,766,000. The group and company have sufﬁcient cash to
cover 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. Surplus cash has been returned to shareholders, and was done
by the two special interim dividends of £29,729,000 in the year ended 31 May 2009 and £89,188,000 in the year ended
31 May 2008.
Filtronic plc Annual Report 2009 81 Notes to the
Financial Statements
for the year ended 31 May 2009
53 Subsidiaries
The subsidiaries at 31 May 2009 were as follows:
Name of Country of Description of Proportion Activity
subsidiary incorporation equity held held
Owned by Filtronic plc
Filtronic Broadband Limited UK 1p ordinary shares 100% Design and manufacture
of microwave products
Filtronic Comtek (UK) Limited UK 12p ordinary shares 100% Dormant company
Filtronic Holdings UK Limited UK £1 ordinary shares 100% Holding company
Owned by Filtronic Holdings UK Limited
Filtronic Pty Limited Australia A$1 ordinary shares 100% Dormant company
Filtronic Signal Solutions, Inc. USA $1 common stock 100% Holding company
Owned by Filtronic Signal Solutions, Inc.
Filtronic Disposition Corp. USA $0.10 common 100% Dormant company
stock
82 Filtronic plc Annual Report 2009 Shareholder Information
Annual General Meeting
The Annual General Meeting of Filtronic plc will be held at Marriott Hollins Hall Hotel, Hollins Hill, Baildon, Shipley,
BD17 7QW on Friday 18 September 2009 at 11.00 am. The notice of meeting, together with details of business to be
conducted at the meeting 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 2009 18 January 2010
Final results to 31 May 2010 26 July 2010
Website
The company’s website address is www.ﬁltronic.com
The website includes company news and investor sections. The interim and annual 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
Northern House
Woodsome Park
Fenay Bridge
Huddersﬁeld
West Yorkshire
HD8 0LA
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 2009 83 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
Northern House
Woodsome Park
Fenay Bridge
Huddersﬁeld
West Yorkshire
HD8 0LA
Tel: 0870 162 3100
Stockbrokers
JPMorgan Cazenove Limited
20 Moorgate
London
EC2R 6DA
Tel: 020 7155 5000
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
84 Filtronic plc Annual Report 2009