Interim financial results
Sales for the six months ended 30 November 2003 were £121.5m (2002 £123.9m) and operating profit was £4.7m (2002 £1.4m). The prior year figure is stated after charging £2.7m of exceptional closure costs relating to the Santa Clara compound semiconductor facility.

Financing costs totalled £2.5m (2002 £1.4m), comprising net interest payable of £2.8m (2002 £4.4m), a net currency exchange gain of £0.8m (2002 £2.0m) and an exceptional loss on the repayment of debt of £0.5m (2002 £1.0m gain).

The profit before taxation was £2.2m (2002 £0.0m). After taxation charges of £1.5m (2002 £1.5m), the profit was £0.7m (2002 £1.5m loss). Basic earnings per share is 0.98p (2002 1.99p loss). Diluted earnings per share is 0.97p (2002 1.99p loss).

Dividend
The Board is maintaining an interim dividend of 0.90p (2002 0.90p) per share payable on 1 April 2004 to shareholders on the register at 27 February 2004.

Operations
On 26 January 2004, the company announced that the Board had implemented a reorganisation of the business segments. This ensures that Filtronic is better positioned to address the challenges of moving from the development stage into production with a broad range of new products including power amplifiers. Accordingly, the segmental analysis of the operating results is as follows:

Note that the operating loss of Integrated Products for the six months ended 30 November 2002 is stated after charging exceptional closure costs of £2.7m.

Wireless Infrastructure
Sales in Wireless Infrastructure were similar to those achieved in the second half of the previous financial year. Pricing pressure from the major Original Equipment Manufacturers (³OEMs²) has kept margins at the lower end of our expectations for transmit/receive modules where we have maintained our position as the world¹s leading independent supplier.

Handset Products
Handset Products saw demand for mobile handsets increase substantially towards the end of 2003. We have maintained our leading market position resulting in increased sales of antennas. High volume flexible manufacturing techniques have enabled us to take increased market share and to achieve strong margins. These manufacturing processes are well suited to the increasing complexity of the products, many of which now include additional components. Integrated Products Integrated Products embraces the segments previously disclosed as Electronic Warfare, Broadband Access and Compound Semiconductors and will rely on integrated compound semiconductor circuits from our Newton Aycliffe facility in its future products. The business will provide the high power gallium arsenide (³GaAs²) power amplifier modules to the Wireless Infrastructure business for incorporation into the complete power amplifier and related products for the base station market. The company has developed a range of radio frequency (³RF²) switches using our high performance proprietary GaAs switch process. Costs of the Newton Aycliffe compound semiconductor facility remain at approximately £1m per month.

Currently the largest area of Integrated Products sales is in defence, including products on the European Fighter Aircraft programme. Defence sales were slightly higher than the comparative period. We are continuing to improve our manufacturing processes for these products to increase volumes and improve margins.

Central Services
Central Services incorporates the digital signal processing expertise of Filtronic Sigtek together with a small research and development team based in Saltaire and group administrative services. Part of the central development group which has been involved with the power amplifier products has now been reallocated, either to the Wireless Infrastructure business or the Integrated Products business as appropriate, to facilitate the move to production quantities. These reallocations have increased the cost base of Wireless Infrastructure by approximately £2.5m in this financial year and will add almost £1m to the cost base of Integrated Products.

Finance
Net cash outflow before the repayment of debt in the six months ended 30 November 2003 was £1.1m (2002 £4.9m inflow).

The company bought in $13.6m (£8.5m) of 10% Senior Notes due 1 December 2005 during the period. At 30 November 2003, long term debt totalled £51.5m (2002 £74.9m), representing £52.4m ($90.0m) of 10% Senior Notes due 1 December 2005, net of £0.9m of deferred debt issue costs.

At 30 November 2003, Filtronic had a cash balance of £4.4m and was using £7.6m of its £31m bank overdraft facility. Net gearing was 51% (2002 73%).

On 1 December 2003, the company redeemed a further $16.0m of the Senior Notes by utilising £10m of short term bank financing. On 16 January 2004, Filtronic announced the refinancing of all of the remaining Senior Notes and the short term bank financing by a £50.0m Term Loan, which is being provided by Barclays Bank PLC and HSBC Bank PLC. The refinancing will take place on 17 February 2004. Foreign exchange risk on the refinancing has been eliminated by taking out a forward contract at an exchange rate of approximately $1.82 = £1. An estimated total exceptional loss on repurchase of the Senior Notes of £2.5m will be recorded in the results for the year ending 31 May 2004. In a full financial year, the refinancing is expected to save approximately £1.5m at current interest rates. Following the refinancing, Filtronic will have overdraft and other short term borrowing facilities of approximately £9m available which the Board considers to be sufficient for the company¹s foreseeable requirements.

Sale of Filtronic Solid State Electronic Warfare business and assets
On 31 December 2003, the disposal of the Electronic Warfare division of Filtronic Solid State to Teledyne Wireless, Inc. was completed for $12.0m in cash. During the six months ended 30 November 2003, this part of the Integrated Products business segment contributed £3.4m of sales and £0.2m of operating profit.

After costs, this transaction is expected to show an exceptional profit on sale of approximately $8.0m which will be recorded in the results for the year ending 31 May 2004.

Foreign currency exchange rates
The weakening of the US dollar, and consequently the Chinese yuan which is linked to the US dollar, when compared to sterling, has had an adverse impact on our trading results. Had rates of exchange remained unchanged since 1 June 2003, sales for the six months ended 30 November 2003 would have been £3.0m higher and operating profit £0.6m higher when recorded in sterling.

Trading outlook
Wireless Infrastructure forecast demand has increased in the last few weeks for transmit/receive modules and associated products for base stations. Pricing pressure, however, is likely to continue to restrict growth in sales and margins. We are continuing to increase our manufacturing capacity in China and are also aggressively pursuing additional OEM customers for transmit/receive modules for mobile base stations to strengthen further our market leading position.

Our new base station power amplifier products provide opportunities for further expansion and growth to this business segment. In September 2003, we were selected by a new OEM customer to supply initial quantities of an integrated RF head unit, incorporating power amplifiers, for 3G WCDMA base stations. We are currently supplying these initial units. Production quantities are expected to commence in the second half of this calendar year for this customer. Negotiations over pricing and volume requirements are not yet completed. Other power amplifier products are being developed for this customer and for three other OEMs.

In Handset Products the exceptional market share gained on certain mobile phone programmes in the first half of this financial year may not be maintained, with the possibility of a reduction in both sales and margins in the second half. However, we have a record number of antennas currently in development for mobile phone programmes. These antennas are based on new techniques with many featuring a range of additional components and including quad band designs. We expect to maintain our market leading position in Handset Products.

In Integrated Products, defence sales are expected to increase in the second half of the financial year with a consequent reduction in operating losses. Filtronic has been selected by a new customer as a preferred supplier, to manufacture pHEMT RF switches including a quad band version for cellular handset and wireless LAN applications. Volume manufacture is expected to commence in the first half of this calendar year increasing to more than one million units per month by the end of the year. Power amplifier modules for applications in WIMAX base stations, satellite ground stations, phased array radars and point to point transceivers are in development in addition to those for wireless infrastructure applications. All wireless systems require radiated power to increase in proportion to the amount of information transmitted, increasing demand for power amplifiers.

Within Central Services, our digital signal processing expertise at Filtronic Sigtek will continue to be focussed on developing proprietary real time predistortion techniques for power amplifier applications and the new standard base band digital interfaces necessary for the next generation of products.

Summary
Filtronic is a world leader in the design and manufacture of customised microwave electronic products. We have maintained our market leading position in our two main businesses. The facility at Newton Aycliffe provides the company with the compound semiconductor technology necessary in future microwave electronic products. The company¹s financial position has been strengthened with the return to profitability and the refinancing of our borrowings.

Professor J D Rhodes CBE FRS FREng
Executive Chairman
2 February 2004