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Filtonic shares gains as it narrows first-half loss and says turnaround strategy on track

Published: 08:50 29 Jan 2019 GMT

Filtronic
Filtronic makes antennas and filters for wireless telecoms infrastructure

Filtronic PLC (LON:FTC) shares gained as it narrowed its first-half loss and said its strategy to expand its product offering and focus on high margin areas of the business has led to improved visibility of future revenues.

The company, which makes antennas and filters for wireless telecoms infrastructure, posted a loss before interest, tax, depreciation and amortisation (LBITDA) of £0.1mln for the six months ended November 30, compared to a loss of £1.2mln a year ago.

READ: Filtronic shares halve as it suffers antennas contract blow

Revenue dropped to £10.4mln from £12.8mln last year, reflecting the impact of the end of certain legacy filter product programmes.  

Lower filter volumes, combined with reduced margins during the launch of the company’s new Massive MIMO (mMIMO) antenna product, resulted in an operating loss of £0.9mln, in line with last year.

Demand for mMIMO antenna to be lower than expected in second half

Filtronic said after achieving the required production ramp-up of mMIMO, an original equipment manufacturer client has advised the company that it expects second-half demand to the be “significantly lower” than originally forecast

“Our client has informed us they are still marketing this antenna, and we understand there will be an ongoing level of business, but demand volumes for this mMIMO variant beyond the current financial year are now uncertain,” chairman Reg Gott said.

“Whilst the lower demand now expected from the mMIMO launch programme is disappointing in the short term, the overall market outlook for antennas remains encouraging.”

Filtronic will take a £0.5mln impairment related to development costs of mMIMO.

Strategy on track 

The company has been taking steps to reduce its reliance on OEM customers, including the development of a portfolio of operator products. It recently announced the appointment of Quintel a distributor to the North American operator market.

It has also been turning its attention towards high margin products and decided to target critical communication markets to offset the “revenue volatility” of network roll-outs in the telecoms market.

Filtronic said demand from critical communications customers remains strong as it continues to develop opportunities in these markets.

“This focus has provided us with a significant level of baseline business and improved visibility of future revenues, along with further opportunities to grow our product offering and customer base,” Gott said.

Elsewhere, public safety products also continued to “perform well” and sales of transceivers to the telecommunications backhaul market were “encouraging“ in the first half.

Production of multi-year defence contracts is “progressing well” with further opportunities being developed. Having invested in additional production equipment, the firm hopes to increase output volumes further in the final quarter of this financial year. 

“In summary, the lower demand forecast for mMIMO is a major disappointment, however, we have made good progress in recent years in increasing our resilience by broadening both our product portfolio and our customer base, which will help us cope with this unforeseen impact to the second half,” Gott said.  

“Strong trading in the critical communications markets has enabled the group to trade at a very small LBITDA despite the reduction in telecoms revenues, and the base level of business that we continue to enjoy means our cash reserves are sufficient to operate at a lower level of revenue whilst we return the business to growth and profitability.”

Brexit contingency plan

The group added that it continues to assess the potential impact of Brexit but does not currently see any significant exposure to the likely adverse consequences of a no-deal scenario.

Nevertheless, it has made contingency plans to mitigate potential disruptions in supply from certain European suppliers.

Shares rose 2.5% to 6.77p in morning trading. 

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