Filtronic steeling itself for testing year end

The group, whose point-to-point technology links mobile phone bases stations, believes it is on the cusp of a surge in sales, aided by the planned purchase of a wireless infrastructure business.

It plans to buy Leeds filter firm Isotek, run by former Filtronic staff, for 10.7m in cash and shares.

Filtronic slipped to a 1m pre-tax loss for the year to the end of May, compared with a 2.3m profit the year before.

The loss was in line with City expectations after mobile phone operators and manufacturers slashed spending on upgrading their networks.

That cut the group's annual revenues almost in half to 15.6m. On an operating basis, before exceptional items such as redundancy and due diligence costs, it made a 292,000 loss.

But the group retained its total dividend at 1p a share, which chairman Howard Ford said reflects the group's confidence in its prospects.

"It will be a challenging market for us this (calendar) year," he said. "But within the market we have maintained a leading position.

"We remain very confident about the future for the business."

Filtronic expects the demand for data-hungry mobile devices such as smartphones, net books, laptops and tablets to lead to "exponential" growth in mobile data. While 3G and 4G network upgrades are currently being held back, it believes operators will have no choice but to rapidly upgrade from next year.

Filtronic said Isotek will take it back to the heart of the base station market, and expects the deal to increase revenues by 15m by 2012. Isotek is already embedded with major mobile phone operators and manufacturers.

"It's got all the features we were looking for," said Mr Ford. "It's in a sector that's highly differentiated, where the intellectual property and patents are very strong and can't be easily copied. A large part of the technology is in the heads of the people.

"The deal has been hard struck."

Isotek has 28 staff, including 18 in Leeds, and employs a Chinese firm to make the filters. It was established in its current form in 2006 by former Filtronic employees who left the group when it sold its wireless infrastructure business to Powerwave Technologies for 184m.

Isotek's management includes Alan Needle, the former chief executive of Filtronic's wireless business and Dr Christopher Mobbs, the group's former chief technical officer. Filtronic founder Professor David Rhodes, a major Isotek shareholder, will also provide consultancy services to Filtronic.

While Isotek turned over just 0.8m in the year to the end of May and made a 1.9m loss, its owners have invested about 5m into research and development over the past three years. Subject to shareholder approval, Filtronic will pay 4.35m in cash plus 18.5m of new shares – worth 20 per cent of the group's enlarged share capital.

Chief executive Hemant Mardia said he spoke to major operators who have tested Isotek's technology before agreeing the deal.

"They have verified that the products are the right products," he said. "There's nowhere else they can source the products from.

"They said the real issue is the need to ramp up and execute production. The revenues are available to us."

Filtronic still has its registered office in Shipley but is largely based in Co Durham after the company moved production from Shipley to Durham to cut costs. The acquisition of Isotek will see Filtronic expand back into Yorkshire.

"There's a great pool of talent in this area," said Dr Mardia. "The Filtronic name is very attractive for people to come back on board."

Firm shrank but is set for revival

Once a global empire with operations in four continents, Filtronic downsized in recent years to become a significantly smaller business.

The firm was founded by University of Leeds Professor David Rhodes in 1977 in his bedroom and garage and grew to become a world leader in microwave electronic components.

The company downsized when the bulk of the wireless infrastructure business was sold in 2006 to Powerwave Technologies in a 184m shares and cash deal.

Land and buildings in Saltaire were also sold, and in 2008 the compound semi-conductors arm was disposed of for 12.5m.

The final sale came in late 2008 when Filtronic sold its defence electronics business for 13m.

Filtronic was then focused exclusively on its point-to-point business, which connects mobile phone base stations.

The planned acquisition of Isotek will give Filtronic greater access to the base station market.