Filtronic Results

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Interim Results 2005
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Introduction

• Growth in the half year in turnover profit in
  line with expectations.
• Net cash flow improved while supporting strategic
  projects, production transitions to China and
  product ramp-up.
• Strengthened management team,
• three new executive directors.
• Disposal of Handset Products progressing.

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Agenda
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Profit and Loss Account
30 Nov2004m
30 Nov2003m
6 Months Ended
Sales Operating Profit Exceptional profit on
disposal of freehold property Net
InterestCurrency exchange gainExceptional loss
on repayment of debt Profit before
taxationTaxation Profit after taxationDividends
130.1 2.6 2.4 (2.0) 0.3 - 3.3 (1.6) 1.7
(0.7) 1.0
123.6 5.2 - (2.8) 0.8 (0.5) 2.7 (1.5) 1.2
(0.7) 0.5
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Segment Results
30 Nov2004m
30 Nov2003m
6 Months Ended
82.3 27.0 20.4 1.8 (1.4) 130.1
69.8 34.1 19.01 2.0 (1.3) 123.6
SalesWireless Infrastructure

Handset ProductsIntegrated ProductsCentral
ServicesInter Segment Operating ProfitWireless
InfrastructureHandset ProductsIntegrated
ProductsCentral Services
7.42 3.3 (5.7) (2.4) 2.6
7.22 8.2 (8.3)3 (1.9) 5.2

• Notes
• Includes 3.2m sales from business sold in Dec.
  2003.
• Wireless Infrastructure operating profit is after
  charging Power Amplifier costs of 3.0m (2003
  2.0m).
• Includes 0.2m operating profit from business
  sold in Dec. 2003.

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Cash Flow
30 Nov2004m
30 Nov2003m
6 Months Ended
Working capital decrease / (increase) Capital
expenditure Sale of fixed assets Net cash inflow
/ (outflow) Closing net debt Gearing
1.6 7.3 7.4 6.9 44.0 43
(5.2) 5.0 0.1 (1.1) 54.6 51

• Management focus on cash control has decreased
  working capital due to inventory reduction, and
  limited growth of capital expenditure.
• Significantly reduced closing net debt to 44.0m,
  reflecting cash generated from property disposals.

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Overview

• Major achievements in 2004 included,
• Efficient cash management.
• Transition of WI production to China for cost
  benefits.
• W.I. exceeding market growth.
• Qualification of the Integrated Power Amplifier
  and start-up production.
• Supply of T/R modules to two new OEM customers.
• Demand from two OEMs for low-cost GaAs MMIC-based
  point-point transceivers.
• Direct GaAs transistor sales to an OEM.
• Strategic supply agreement with RFMD.
• Legal restructuring of the company to facilitate
  the disposal of the Handset Products business.

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Current trading organisation
Filtronic plc
Handset Products
Wireless Infrastructure
Shipley Wolverhampton East Kilbride Stewarton Su
zhou Oulu Chicago, Il Salisbury, MD Merrimack,
NH Brisbane
Integrated Products
Central Services
Shipley Newton Aycliffe Natick, MA Merrimack,
NH Cupertino, CA Baltimore, MD
Oulu Suzhou
Employees (Nov. 2004) UK 1172 US 459 Finland
560 China 1642 Australia - 125
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Global operations in multiple markets

• Wireless Infrastructure - mobile telecoms base
  station products,
• Filter-based T/R module products.
• Mast-head Amplifiers.
• Power Amplifiers.
• Integrated Products,
• Defence,
• sub-systems and components.
• III-V Semiconductors,
• R.F. power devices, MMICs,
• Qualified catalogue,
• Custom volume chips.
• Digital embedded processing.
• Point to point microwave links
• Handset Products,
• Internal antennas.
• Structurally integrated antennas.
• Ceramic antennas.
• .

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Filtronics Customers

• Wireless Infrastructure - Customers,
• All major OEMs buy our products in production
  quantities.
• We are focussed on growth in 21/2 and 3G, for
  customers in GSM, EDGE, CDMA and WCDMA.
• Integrated Products - Customers,
• Semiconductors,
• RFMD switch agreement, Merchant Catalogue sales,
  Vertically integrated sales, BAE SYSTEMS, Power
  Amplifier devices, Complex MMICs, Customers with
  value-added applications.
• Defence electronics,
• Elettronica SpA, Thales Defence, ELTA, ITT,
  Northrop Grumman, Raytheon, Lockheed Martin, BAE
  SYSTEMS(US UK).
• Microwave link transceivers and diplexers,
• Specific Cellular OEMs.
• Handset Products - Customers,
• Recently added Samsung at significant volume
  while continuing to supply established customers
  including Chinese manufacturers and ODMs.

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Wireless Infrastructure Positioning and
Strategy
6 bn total market,Within 2 years Filtronics
products should compete in over 50 of this
market.

• 18 sales growth out-performed market growth at
  15 in the period while market estimated to
  continue at 15, Source DrKW
•  
• For filter-based T/R modules, Filtronics total
  available market increased by more than 20 due
  to the inclusion of Ericsson.
•  
• W.I. is improving its market-leading position,
  having commenced shipments to two new OEM
  customers.
•  
• Margins should improve as we continue the
  transition to low cost manufacturing more than
  50 of W.I.s products are now manufactured in
  China, using locally sourced material.

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Filtronics increasing presence in the 3G
Base-Station

• W.I. is establishing its position in the
  integrated power amplifier (P.A.) domain,
  strategically linked to its core market
•  
• The company is now working on a second P.A.
  product for production.  
•  
• Future growth is planned by further integration
  of key technology modules, thereby increasing the
  fraction of the base-station we supply.
• Product range in 3G, where the WCDMA P.A. market
  is exhibiting 20 CAGR
  Source Instat-MDR

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Integrated Products Positioning and Strategy -
Semiconductors

• Progress with product mix and capacity at Newton
  Aycliffe, impacted by customer delays in volume
  product introductions,
• Switches selected for multiple RFMD products
  under strategic agreement.
• Catalogue products selling strongly, including
  space applications.
• Increasing demand for more complex, higher value
  MMICs.
• Foundry products accepted for critical
  applications by Cellular OEMs.
• Stable business model developed to link the
  foundry to a design facility and a packaging
  facility for added value in offering Integrated
  Module Solutions for a broad customer base.
• Reduces volatility by allowing fixed costs to be
  covered at lower through-put while being able to
  benefit from volume upside.

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Integrated Products Positioning and Strategy -
Defence

• Defence strategy,
• Maintaining position as sub-system supplier to
  system primes.
• Benefiting from diminishing technology competence
  in Tier 1 Customers as interest shifts to service
  provision.
• Strengthening links with UK primes and MoD
  through funded research programmes.
• Strong growth in US, based on highly integrated
  sub-systems,
• Major contract win for U.S. military aircraft
  upgrade.
• Consolidation of facilities in US to provide
  larger capacity needed for current backlog and
  expected growth.
• Growth potential in UK through changes in
  procurement policy towards capability acquisition
  and dual-use solutions.
• Point to point communications products (Cellular
  backhaul) apply to network-centric and security
  markets.
• Defence growth reduces overall business
  volatility.

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Handset Products Positioning and Strategy
Operating Margin

• Greater than 100 million antennas supplied in
  04.
• Focussed on the growing internal antenna market
  and on servicing major handset OEMs,
• Customer diversification efforts leading to
  substantial projects for Samsung, ODMs and
  Chinese OEMs.
• Higher levels of integration reducing historic
  margins to around 15 with continuing margin
  pressure going forward.
• New applications include Bluetooth, GPS, WLAN,
  RFID, DVB-H, UWB, internal FM and AM radio making
  antenna module more complex.
• Developing new markets in metal shields and in
  ceramic miniature antennas.

Pre Goodwill
Post Goodwill

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Summary

• Filtronic has undergone a period of careful cash
  management while still taking advantage of a
  strengthening market in Wireless Infrastructure
  and U.S. defence.
• We have made new product introductions, Power
  Amplifiers and Point to Point Transeivers for
  microwave links.
• Indications of a continuing strong market for our
  range of Wireless Infrastructure products in the
  second half-year.
• Foundry now accepted and relied upon by Wireless
  Infrastructure OEMs and handset manufacturers.
• Proposed disposal of the Handset products
  business provides debt reduction and greater
  strategic flexibility for business
  reconstruction.