FILTRONIC PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY Filtronic plc announces its Preliminary results for the year ended 31 May 2010.

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1 FILTRONIC PLC 2 August 2010 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2010 Filtronic plc announces its Preliminary results for the year ended 31 May Revenue from continuing operations was 15.6m ( m), with an operating loss before exceptional items of 0.3m (2009 profit 2.1m). Operating loss after exceptional items was 1.1m (2009 profit 1.2m). Highlights Strategic Post year end proposal to transform business by entry to differentiated, high growth base station sector through acquisition Major new OEM customer signed in December 2009 Financial Revenue from continuing operations (Point to Point) 15.6m ( m) Operating loss before exceptional items 0.3m (2009 profit 2.1m) Year end cash maintained at 16.2m ( m) Annual dividend 1.00p per share ( p) recommended payable 5 November 2010 Outlook The underlying market drivers for Point to Point backhaul market growth remain intact, although demand outlook through the summer remains constrained. Whilst overheads have been trimmed the group continues to invest in R&D in order to position the Company with competitive products to respond to market expectations of a 2011 demand recovery. The proposed acquisition progresses the Group s strategy to create a high growth wireless telecoms business through organic growth and selective acquisition. Enquiries: Filtronic plc Tel Howard Ford, Chairman Hemant Mardia, CEO Mike Brennan, CFO Panmure Gordon (UK) Limited Tel Dominic Morley Stuart Gledhill Walbrook PR Ltd Tel Paul McManus Mob paul.mcmanus@walbrookpr.com

2 Chairman s Statement The year ended 31 May 2010 produced revenue from continuing operations of 15.6m and an operating loss before exceptional items of 0.3m compared with the prior year revenue of 28.8m and 2.1m of operating profit. The group loss for the period was 1.0m compared with a 11.7m profit in the prior year. Cash at the year end of 16.2m was unchanged from 31 May A full breakdown of the year is shown in the financial statements, notes and narrative which follow. An annual dividend for 2008/9 of 1.00p ( 0.7m) was paid to shareholders on 30 November The Board has decided to recommend an annual dividend of 1.00p payable on 5 November 2010, to shareholders on the register at 8 October 2010 subject to approval by shareholders at the Annual General Meeting. The recently announced proposal to acquire Isotek (Holdings) Limited is in line with our strategy to create a differentiated, high growth and higher margin wireless telecoms business. The deal is intended to deliver entry into the rapidly developing 3G/4G base station market sector by acquiring innovative intellectual property, and is expected to be significantly earnings enhancing in the second year of our ownership. Despite a further weakening of demand from a large customer in the second half year, the underlying market drivers for Point to Point backhaul market growth remain intact, although demand outlook through the summer remains constrained due to customer inventory overhang. Consequently further small operating losses are expected into the first half of the next financial year. Whilst overheads have been trimmed the group continues to invest in R&D in order to position the company with competitive products to respond to a recovery in market demand. December s announcement of a major new customer signing is testament to the Group s product offering and service levels, and positions us well to benefit from market expectations of a 2011 demand recovery. Panmure Gordon was appointed as corporate broker with effect from 1 December Finally, I should like to thank all staff in the business for their contribution over the past year. Howard Ford Chairman 2 August 2010

3 Chief Executive Officer s Operating Review Summary Following past disposals the business consisted solely of the Point to Point business during the period. Market activity continued to be subdued but expectations are for robust underlying drivers to initiate substantial growth in mobile broadband infrastructure demand during calendar year The business continues to execute its strategy to expand its addressable market through new product developments and customers. Filtronic is well placed to exploit market opportunities in the core business whilst also furthering its strategy to create a differentiated, high growth wireless telecoms business by entry to the base station sector with the proposed acquisition of Isotek (Holdings) Limited. Operations The Point to Point business 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 a leading merchant supplier of transceivers and diplex filters to this market. First half revenue ( 9.6m) was broadly in line with the second half of the prior year but there was a significant weakening of demand in the second half (revenue 6.0m) due to customer inventory overhang and the continued low ebb in telecoms infrastructure spend. Timely actions to reduce overheads including the closure of the Shipley manufacturing location were taken, and an operating loss of 0.3m was reported for the year. The group continues to invest in future product development, and in December 2009 a research grant of 1.25m was awarded by Yorkshire Forward with support from the European Regional Development Fund to assist in the development of a new product to target the emerging market for 4G mobile broadband services. Strong working capital control and the decline in underlying activity during the year delivered a breakeven cash performance after dividends and exceptional costs. Overall revenue for the year was 15.6m, down from 28.8m in the previous year with an operating loss before exceptional items of 0.3m compared with 2.1m profit in Operating loss before exceptional items in the second half was 0.6m compared with 0.3m profit in the first half year. Exceptional costs of 0.8m ( m) included restructuring termination payments of 0.4m and final pension scheme closure costs of 0.1m. 0.3m of these exceptional costs were incurred in evaluating acquisition opportunities including the recently announced proposal to purchase Isotek (Holdings) Limited. The acquisition is expected to deliver rapid entry into the base station market sector, by combining Filtronic s reputation, resources and market access with the highly differentiated intellectual property to be acquired. Network expansion in developing regions and capacity upgrades in developed regions will continue to drive demand for PTP products. In December 2009 a major new OEM customer was signed and volume shipments for this customer and for the previously announced (July 2009) active electronically scanned array modules for Selex Sensors and Airborne Systems Ltd are expected to add significantly to revenues during calendar year In the same time frame, market expectations are for robust underlying drivers to initiate substantial growth in mobile broadband infrastructure demand.

4 Employees At 31 May 2010, the group employed 139 people ( ). Hemant Mardia Chief Executive Officer 2 August 2010

5 Financial Review Results Continuing operations generated revenue of 15.6m ( m), resulting in an operating loss before exceptional items of 0.3m ( m profit). The group loss for the period was 1.0m ( m profit), reflecting a range of exceptional costs (and for 2009 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. Exceptional Costs In addition to 0.3m of costs related to the evaluation of acquisition opportunities, restructuring costs including termination payments of 0.4m, and final pension scheme closure costs of 0.1m were also incurred. Net finance income The group ended the year with net cash of 16.2m ( m) and generated net finance income of 0.1m ( m), reflecting lower interest rates on much reduced cash deposits post special dividends. Taxation No current tax is due on continuing operations, reflecting available losses. No deferred tax asset was recognised at 31 May 2010 due to uncertainty in future recoverability. A tax provision of 0.6m tax for 2009 s Australian Wireless Infrastructure disposal was paid in the year to 31 May Capital expenditure Capital expenditure was 0.6m all of which related to continuing operations ( m total, 0.8m continuing operations). Research and development costs Research and development costs of 2.3m ( m), which represented 14.8% ( %) of revenue were expensed. Offsetting these costs, Yorkshire Forward grant income of 0.5m, was reported under other operating income. No research and development costs were capitalised in the balance sheet. Working capital At 31 May 2010 net working capital was 2.5m ( m). Net working capital comprised inventories of 2.0m ( m), receivables of 3.4m ( m) and payables of 2.9m ( m). Cash flow Cash inflow from operating activities was 1.9m ( m inflow), cash outflow from investing activities was 1.2m ( m inflow) and net cash outflow from financing activities was 0.7m ( m). The closing cash balance as at 31 May 2010 was 16.2m ( m).

6 Pension matters The wind up of the defined benefit pension scheme was completed in the year. Dividend An annual dividend of 1.00p per share in respect of 2008/9 was paid on 30 November An annual dividend of 1.00p per share in respect of 2009/10 has been recommended by the Board and, subject to approval at the Annual General Meeting on 24 September 2010, will be paid on 5 November 2010 to shareholders on the register on 8 October Michael Brennan Chief Financial Officer 2 August 2010

7 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 a leased manufacturing location, 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 US dollars 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 US dollars.

8 We have sold four divisions of the group in the past six 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, some of which have been settled or rejected, and may receive claims in future related to these current and future commitments.

9 Consolidated Income Statement for the year ended 31 May 2010 Continuing operations note Revenue 15,575 28,779 Operating (loss)/profit before exceptional items (292) 2,080 Exceptional items 2 (842) (937) Operating (loss)/profit (1,134) 1,143 Finance income ,255 Finance costs 6 - (132) (Loss)/profit before taxation (1,021) 2,266 Taxation - - (Loss)/profit for the period from continuing operations (1,021) 2,266 Profit for the period from discontinued operations 7-9,390 (Loss)/profit for the period (1,021) 11,656 Basic (loss)/earnings per share Continuing operations 14 (1.37)p 3.05p Discontinued operations p Basic (loss)/earnings per share 14 (1.37)p 15.68p Diluted (loss)/earnings per share Continuing operations 14 (1.37)p 3.04p Discontinued operations p Diluted (loss)/earnings per share 14 (1.37)p 15.65p The (loss)/profit for the period is attributable to the equity shareholders of the parent company Filtronic plc.

10 Consolidated Statement of Comprehensive Income for the year ended 31 May 2010 (Loss)/profit for the period (1,021) 11,656 Actuarial gain on defined benefit pension scheme Transfer to income from translation reserve related to business disposal - (340) Currency translation movement arising on consolidation Total comprehensive income for the period (1,021) 12,384 The total comprehensive income for the period is attributable to the equity shareholders of the parent company Filtronic plc.

11 Consolidated Balance Sheet at 31 May 2010 Non-current assets Property, plant and equipment 1,998 1,996 Current assets Inventories 1,998 4,531 Trade and other receivables 3,361 4,779 Cash and cash equivalents 16,245 16,218 21,604 25,528 Total assets 23,602 27,524 Current liabilities Trade and other payables 2,886 3,999 Income tax payable Provision 706 1,314 Deferred income 17-3,609 5,948 Non-current liabilities Deferred income Total liabilities 3,717 5,948 Net assets 19,885 21,576 Equity Share capital 7,432 7,432 Retained earnings 12,453 14,144 Total equity 19,885 21,576 The total equity is attributable to the equity shareholders of the parent company Filtronic plc.

12 Consolidated Statement of Changes in Equity for the year ended 31 May 2010 Opening total equity 21,576 38,913 Total comprehensive income for the period (1,021) 12,384 Share-based payments 73 8 Dividends (743) (29,729) Closing total equity 19,885 21,576

13 Consolidated Cash Flow Statement for the year ended 31 May 2010 note Cash flows from operating activities (Loss)/profit for the period (1,021) 11,656 Gain on sale of discontinued operations - (9,614) Finance costs Finance income (113) (1,255) Operating (loss)/profit 16 (1,134) 919 Defined benefit pension contributions paid - (100) Share-based payments 73 8 Loss on disposal of plant and equipment 35 - Depreciation Movement in inventories 2, Movement in trade and other receivables 1,418 4,721 Movement in trade and other payables (867) (5,646) Movement in provision (608) (172) Movement in deferred income (125) - Net cash from operating activities 16 1,

14 Consolidated Cash Flow Statement for the year ended 31 May 2010 note Net cash from operating activities 16 1, Cash flows from investing activities Interest received 113 1,213 Acquisition of plant and equipment (639) (945) Sale of discontinued operations (635) 13,418 Net cash (used in)/from investing activities 16 (1,161) 13,686 Cash flows from financing activities Dividends paid (743) (29,729) Net cash used in financing activities 16 (743) (29,729) Movement in cash and cash equivalents 22 (15,334) Currency exchange movement Opening cash and cash equivalents 16,218 31,451 Closing cash and cash equivalents 16,245 16,218

15 Notes to the Preliminary Financial Information for the year ended 31 May Continuing operations In accordance with IFRS 8 the continuing operations for the current period form one business located in the United Kingdom. The business designs and manufactures transceiver modules and filters for backhaul microwave linking of base stations used in wireless telecommunication networks. Under IAS 14 there was also a single segment. 2 Exceptional items Operating (loss)/profit is stated after charging exceptional items as follows: note Directors resignation costs Pension scheme closure costs Acquisition related costs Redundancy costs Directors resignation costs Directors resignation costs John Poulter resigned as Chairman on 18 September Under the terms of his contract he was paid 6 months salary in lieu of notice. Stephen Mole resigned as Chief Financial Officer on 18 September Under the terms of his contract he was paid 6 months salary in lieu of notice. 4 Pension scheme closure costs Pension scheme closure costs Professional fees were incurred in connection with the process of closing the defined benefit pension scheme.

16 5 Finance income Interest income 113 1,213 Expected return on pension scheme assets ,255 6 Finance costs Interest on pension scheme liabilities - 69 Currency exchange losses Profit for the period from discontinued operations Discontinued operations note Revenue 8-2,111 Discontinued operations 8 - (224) Loss before taxation - (224) Taxation - - Loss after taxation - (224) Gain on sale of discontinued operations 10-9,614 Profit for the period from discontinued operations - 9,390

17 8 Business segment analysis discontinued operations Revenue Defence Electronics - 2,111-2,111 Operating loss Defence Electronics - (224) Operating loss - (224) Loss before taxation - (224) Taxation - - Loss after taxation - (224) Gain on sale of discontinued operations - 9,614 Profit for the period from discontinued operations - 9,390 9 Geographical origin segment analysis discontinued operations Revenue United Kingdom - 1,900 Australia Discontinued operations - 2,111 Operating loss United Kingdom - (261) Australia - 37 Discontinued operations - (224) Loss before taxation - (224) Taxation - - Loss after taxation - (224) Gain on sale of discontinued operations - 9,614 Profit for the period from discontinued operations - 9,390

18 10 Gain on sale of discontinued operations note (Loss)/gain on sale of: United Kingdom and Australian Wireless Infrastructure business 11-1,313 United States Defence Electronics business 12 - (87) United Kingdom and Australian Defence Electronics Business 13-8,388-9, Sale of United Kingdom and Australian Wireless Infrastructure business The Australian Wireless Infrastructure business was sold to its management in The business was sold on to another party in July 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. Gain on sale of Australian Wireless Infrastructure business before taxation - 1,903 Taxation - (590) Gain on sale of Australian Wireless Infrastructure business after taxation - 1, 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 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. Consideration adjustment - (689) Sale cost adjustment Loss on sale of the United States Defence Electronics business - (87)

19 13 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: Consideration and costs Gross consideration - 13,000 Adjustment of working capital - (287) -- Net consolidation - 12,713 Sale costs - (879) Currency translation adjustment ,174 Assets and liabilities sold Property, plant and equipment - 2,073 Inventories - 1,655 Trade and other receivables - 2,925 Cash and equivalents Trade and other payables - (2,620) Provision - (666) Net assets sold - 3,786 Gain on sale of the United Kingdom and Australian Defence Electronics business - 8,388-12,174

20 14 (Loss)/Earnings per share (Loss)/profit for the period Continuing operations (1,021) 2,266 Discontinued operations - 9,390 (Loss)/profit for the period (1,021) 11, Basic weighted average number of shares 74,323 74,323 Dilution effect of share options Dilution effect of share awards Diluted weighted average number of shares 74,517 74,443 Basic (loss)/earnings per share Continuing operations (1.37)p 3.05p Discontinued operations p Basic (loss)/earnings per share (1.37)p 15.68p Diluted (loss)/earnings per share Continuing operations (1.37)p 3.04p Discontinued operations p Diluted (loss)/earnings per share (1.37)p 15.65p 15 Dividends The dividends recognised in equity and paid during the year were as follows: Per share Special interim dividend year ended 31 May p - 29,729 Annual dividend year ended 31 May p ,729 The annual dividend proposed for the year ended 31 May 2010 is 1.00p per share payable on 5 November 2010 to shareholders on the register on 8 October The annual dividend will amount to 743,000 based on the issued share capital of 74,323,093 10p ordinary shares as at 2 August 2010.

21 16 Note to the consolidated cash flow statement note Operating (loss)/profit Continuing operations (1,134) 1,143 Discontinued operations - (224) (1,134) 919 Net cash from operating activities Continuing operations 1, Discontinued operations , Net cash (used in)/from investing activities Continuing operations (526) 349 Discontinued operations - (81) Sale of discontinued operations 17 (635) 13,418 (1,161) 13,686 Net cash used in financing activities Continuing operations (743) (29,729) 17 Net cash from sale of discontinued operations Consideration received - 14,616 Sale costs paid - (779) Cash and cash equivalent sold - (419) Tax paid (635) - (635) 13, Post Balance Sheet Events On 30 July 2010 the company announced that it had entered into an agreement governing the terms of a proposed offer for the entire issued share capital of Isotek (Holdings) Limited. The consideration payable under the offer would be 4.35 million in cash, and the issue of million new Filtronic shares (subject to working capital and other adjustments).

22 These preliminary results have been prepared on the basis of the accounting policies which are to be set out in Filtronic plc s annual report and financial statements for the year ended 31 May EU Law (IAS Regulation EC1606/2002) requires that the consolidated financial statements of the group for the year ended 31 May 2010 be prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted for use in the EU ( adopted IFRSs ). The financial information set out above does not constitute the company's statutory accounts for the years ended 31 May 2010 or 2009 [but is derived from those financial statements. Statutory financial statements for 2009 have been delivered to the registrar of companies, and those for 2010 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.