Filtronic sees sales fall but reports progress

The Leeds-based firm was also hit by lower demand for legacy filter products in the second half of the year.

Revenue fell from £35.4m to £24m in the year to May 31. Earnings were static at £2.5m and pre-tax profits fell from £2.2m to £1.2m.

Filtronic had warned that sales are expected to be lumpy until it broadens its customer base and the markets it serves.

Chairman Reg Gott said: "We are pleased with the progress we have made along our strategic pathway and our focus on higher margin products and applications has further improved operating profitability over the past year.

"Our substantial investment in new products and technologies over the past two years has started to deliver on our objectives of broadening our customer base and expanding our product range."

Analyst Sanjay Jha at Panmure Gordon said: "The company has reported numbers in line with expectations. More important, the mix of revenues reflects a shift towards longer cycle markets such as critical communications for public safety, defence and aerospace.

"This has reduced the historical dependence on shorter cycle products for mobile network OEMs.

"What is not fully evident in the numbers is the progress in diversifying customer base. However, we expect product approvals to turn to direct sales to Mobile Network Operators."

Filtronic's CEO Rob Smith said: "We realised a few years ago that we were very exposed to the telecoms industry.

"We decided to to chase adjacent markets, with defence and aerospace the obvious markets. The other one was public safety, exclusively for the emergency services. We've had success breaking into the US market."

He said that the mobile network is still very important for the group, especially as the next generation of spending kicks in.

"As 5G comes rapidly hurtling towards us, we are seeing expenditure on development," he said.

He expects 5G to be deployed within the next 18 months to two years.

The group said it is making progress with diversifying its customer base.

"Three years ago sales would have been heavily skewed to one customer. Now we've got three customers making up the majority of sales and profits and that will expand going forward," said Mr Smith.

The group said it is gaining increasing market recognition for its expertise in network access and mmWave engineering.

"We believe this positions us very well to take advantage of the huge opportunities that exist in the future development of 5G networks," said Mr Gott.

"Massive MIMO antennas utilise techniques that will be a key enabler of 5G and our recent contract win to engineer and supply these antennas to a major global OEM demonstrates our capability and credibility to take advantage of these opportunities as they arise."

The group has won a major development contract with a major OEM to design and supply Massive MIMO antennas - a key product in network densification using techniques that will form the basis of 5G systems.

It also secured a second major contract win secured to supply a Tier 1 European defence customer. The contract, valued at £4.8m, is to be supplied over three years. Production rates reached full contractual requirements by the close of the year.

Analysts at Shore Capital said in a note: "Filtronic Wireless was responsible for the revenue decline due to the combined impact of lower than expected demand for integrated ultra-wide band antennas, delays in the production ramp of new defense contracts and a softening of demand for legacy filter products.

"Sales remain highly concentrated and are still exposed to fluctuations in demand due to the nature of the business and the significant size of projects."