|
Results
The group's sales were £237.2m (2003 £241.3m) resulting in
an operating profit of £3.7m (2003 £6.7m). The loss before
tax was £0.4m (2003 £3.8m profit), and the loss after tax
was £3.0m (2003 £1.1m profit).
Research and development costs
The group's policy is to charge all research and development
costs to the profit and loss account as they are incurred.
The research and development costs were £27.9m (2003 £28.3m),
which was 11.8% (2003 11.7%) of sales.
Exceptional profit on disposal of business
The sale of the electronic warfare business of Filtronic Solid
State was completed on 31 December 2003. The all cash consideration
after disposal costs was £6.1m, resulting in an exceptional
profit on disposal of £4.5m. In the seven months prior to
its disposal this business contributed sales of £3.7m and
an operating loss of £34,000.
Net interest payable and similar charges
Net interest payable and similar charges was reduced to £5.5m
(2003 £8.0m) primarily as a result of repaying the 10% Senior
Notes.
Net financing currency exchange (loss)/gain
A net loss of £0.6m (2003 £4.2m gain) has been reported in
the profit and loss account as a result of foreign currency
exchange movements on cash balances and the United States
dollar denominated 10% Senior Notes. In addition a gain of
£4.3m (2003 £5.3m), resulting from currency exchange movements
on that part of the 10% Senior Notes which hedged the group's
United States dollar denominated assets, has been taken directly
to reserves.
Exceptional net (loss)/gain on repayment of debt
During the year the company bought back all the remaining
$103.6m (2003 $37.2m) 10% Senior Notes. These purchases were
at a premium to par value resulting in an exceptional net
loss of £2.5m (2003 £0.9m net gain).
Taxation
The taxation charge of £2.6m (2003 £2.7m) results primarily
from the group's operations in China and Finland, where taxable
profits cannot be relieved by losses available in other jurisdictions.
Capital expenditure
Capital expenditure was £11.4m (2003 £8.2m), which was an
increase of £3.2m compared to last year. The total capital
expenditure for the year to 31 May 2004 comprised Wireless
Infrastructure £3.1m, Handset Products £4.6m, Integrated Products
£3.3m and Central Services £0.4m.
Impairment review
In accordance with Financial Reporting Standard 11 ³Impairment
of Fixed Assets and Goodwill², the Board has carried out an
impairment review in respect of the compound semiconductor
operation at Newton Aycliffe and in California, because of
the operating loss being incurred. The review was based on
a series of forecasts of operating results and cash flows.
A discounted cash flow forecast calculation was prepared using
a discount rate of 10%. The discounted cash flow forecast
was compared to the current carrying value of the assets concerned.
Sensitivity analysis was applied to the key underlying assumptions
including the discount rate. The most important assumptions
are those related to the timing and extent of future sales,
where changes in assumptions would result in material movements
in the discounted cash flow calculation.
In addition a series of performance milestones, operational,
technical and market-related have been determined. Progress
in achieving these milestones is reviewed regularly to monitor
developments, which are fundamental to the assumptions underlying
the forecast operating results. If some or all of these milestones
were not to be achieved as expected, then the Board may find
it necessary to review and possibly change some of the assumptions
used. By their nature these assumptions are subjective, and
contain significant levels of judgement related to operational
and technical matters as well as to broader market issues.
Having taken all of these areas of judgement and their related
assumptions into account, the Board has determined that no
impairment has taken place.
Deferred income
Deferred income comprised government grants and the licence
fee paid by BAE SYSTEMS Avionics Limited in connection with
the Supply and Development Agreement dated 30 November 2001.
This agreement contains a number of terms and obligations,
of which the principal ones are described in note 26 to the
financial statements. The fee is being recognised in the profit
and loss account in equal monthly amounts of £66,000, from
1 May 2003 until 31 December 2015. A regional selective assistance
grant of £5.0m was negotiated in 1999 in respect of Newton
Aycliffe. This is receivable over five years if certain employment
and capital expenditure targets are met. At 31 May 2004 a
total of £3.4m of this grant had been received.
Working capital
Working capital cash consumption for the year was £4.7m compared
to £11.1m cash generated for the previous year. During the
year stocks increased by £4.7m, and debtors increased by £6.6m,
but this was offset by a £6.6m increase in creditors. Total
stocks of £36.6m (2003 £34.3m) comprised raw materials £22.6m
(2003 £22.8m), and work in progress and finished goods £14.0m
(2003 £11.5m).
Cash flow
Cash generated from operations was £16.9m (2003 £38.5m). EBITDA
was £21.6m (2003 £27.4m), which was 3.9 (2003 3.4) times net
interest payable.
Financing
During the year the company repaid all the $103.6m of 10%
Senior Notes. This was financed using the £6.1m cash received
from the disposal of the electronic warfare business in California,
and a £50.0m bank loan. At 31 May 2004 net debt of £51.3m
(2003 £55.4m) comprised the £50.0m bank loan, a £3.4m bank
overdraft less £2.1m of cash.
International Financial Reporting Standards (³IFRS²)
The Board has considered the effect of implementing IFRS in
the year ended 31 May 2006 on its financial statements and
financial reporting functions. The transition project is in
progress. The areas of the financial statements that may be
significantly affected by the adoption of IFRS are accounting
for intangible fixed assets, research and development costs,
foreign currency translation, share-based payments and the
defined benefit pension scheme.
D C Staddon FCA
Group Financial Controller
2 August 2004
|
