Presentation to Investors

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Presentation to Investors
17 November 2005
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Presentation to Investors

• David Rhodes,
• Chairman
• Welcome

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Presentation to Investors

• John Roulston,
• Group Chief Executive
• Introduction

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Organisation after Handset Disposal
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Growth and Consolidation

• Wireless Infrastructure
• Wireless Infrastructure strengthening market
  position and benefiting from low cost production
  transition.
• Continuing expansion of supply position in
  established Base-station T/R modules.
• Power Amplifiers in volume production with plans
  underway for a family of offerings to meet market
  cost and performance emphases.
• Integrated Products
• Foundry operating 24 hours, 7 days per week to
  satisfy ramping demand from RFMD and new
  customers.
• Increasing demand for low-cost GaAs MMIC-based
  point to point transceivers.
• Single US management team and business
  relocations to address US defence and security
  market opportunities.

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Segment Results Continuing Operations
31 May2004m
31 May2005m
Year Ended
168.4 43.6 3.6 (2.7) 212.9 18.1 (9.9) (5.
0) 3.2
145.2 38.4 3.9 (2.6) 184.9 10.7 (13.4) (3
.7) (6.4)
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Presentation to Investors

• Alan Needle,
• Chief Executive
• Overview of Wireless Infrastructure

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Wireless Infrastructure Market 2005
( ) 2004 figures
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Wireless Infrastructure Division Global
Footprint
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Low-Cost Manufacturing

•  

•  
• Current run rate 42 of manufacturing out of
  low-cost centres (China, Hungary)
• At end of current financial year this proportion
  is anticipated to increase to 75
• Objective for next financial year - 85 of
  manufacturing out of China and Hungary

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Products and Target Markets
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Base Station Subsystems Market
Total Addressable Market - 6.4B
Source Filtronic Analysis of April 2005
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Four factors drive the market
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Market Drivers

• Operator Led Drivers
• Subscribers in mature markets moving to data
  enabled services, but slowing growth overall in
  developing markets.
• Operators require growing capacity on data
  enabled networks.
• Overall sector spend increasing year on year with
  data enabled spend growing at 20 CAGR over the
  next four years.
• Year on year price reductions necessary to fuel
  market growth.
• Wireless Infrastructure Market Drivers
• Trend towards integration of the various RF
  sub-assemblies and components in a base station.
• Increasing functionality in Filtronics products
  means lower spend on ancillary components Our
  products represent a greater proportion of the
  cost of a base station.
• Some OEMs seek to out-source the manufacturing of
  more elements of their base stations, including a
  greater proportion of their radio cards.
• Potential sales into new areas Site Solutions
  (Antenna Line Products), WiMAX (and other
  Broadband Wireless Access), In-Building Coverage,
  Antennas etc.
• Continuing consolidation in the operator, OEM and
  sub-systems supplier sectors. In the case of
  power amplifiers, OEMs are uneasy with recently
  reduced supplier choice.

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Wireless Infrastructure Positioning and
Strategy

• Continuing to follow the strategy of attacking
  markets adjacent to our core filter-based
  products business.
• Continuing to grow market share.
• Continuing price-leadership, by virtue of low
  cost manufacturing expertise based on volumes,
  factory locations and design innovation.
• More targeted plans in Power Amplifiers to meet
  market needs
• Stable amplifier production, proving volume
  capability.
• Family of products, predicated on price and
  performance.
• GaAs/LDMOS units with digital pre-distortion for
  performance-driven applications.

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Wireless Infrastructure Outlook

• The markets growth for the coming 12 months is
  dependent on the timing for a few large contracts
  in India and the US, and resolution of delay for
  3G in China, underpinning continuing market
  growth.
• Market-driven approach to Power Amplifiers, and
  consolidation among competitors, increasing
  opportunities.
• Manufacturing site now established in Hungary to
  complement China facilities continuing the
  transition to low cost production.
• Historic margins can be maintained after allowing
  for central RD transfer.
• Wireless Infrastructure continues to strengthen
  its market position for market growth when large
  contracts are placed.
• Medium term above market growth potential as we
  address adjacent markets to our core filter based
  business.

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Presentation to Investors

• Iain Gibson,
• Chief Executive
• Overview of Integrated Products

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Integrated Products Division (IP)

• The mission of IP is to establish Filtronic as
  the leading supplier of Microwave Modules,
  Sub-systems and Systems embedding compound
  semiconductor products in the Communications,
  Defence and Security markets.
• This being achieved by,
• Applying and exploiting core technologies and
  capabilities in multiple markets.
• Leveraging Filtronic compound semiconductor
  technology and module manufacturing capability to
  address a range of business opportunities.
• Ensuring that technical developments in each of
  the communications and defence markets are used
  in the other to ensure maximum exploitation.
• Offering customers engineering design services
  which lead to volume business.
• Integrated Products addresses both external and
  internal markets.
• Spanning the product and market spaces requires a
  number of business specialisations within the
  Division. These need individual interpretation.

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Filtronic Compound Semiconductor
Markets Wireless communications for Commercial,
Defence and Security applications. Products Switch
es and other RF transceiver products,
Multifunction MMICs . Customers First-tier
suppliers to commercial OEMs and suppliers of
major defence equipment. Industry distribution
channels. Internal Filtronic demand to support
other product applications. Prospects Demand for
mobile phone switches outstripping
capacity. Growth in demand for Power amplifiers
predicted. Growth in provision of foundry
services and MMICs predicted. WIMAX expected to
generate additional demand. Drivers Price
sensitivity, emerging technology, strategic
relationships, operational achievement. Growth Ave
rage growth band over next 5 years 15-25 per
annum. Facilities World Class GaAs Facility with
100,000 sq. feet of clean room facilities (24/7
operation) at Newton Aycliffe.
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Filtronic Broadband
Markets Inter Base-station (Backhaul or Point -
point) Wireless Communications. Products Modular
based microwave radios, diplexing
transmit-receive filters. Customers Major
wireless communication OEMs. Prospects Point -
point Microwave radio market predicted to expand
as new territories are opened by OEMs and as
existing Base-stations are up-graded for data
traffic. Drivers Ongoing price reduction, low
cost manufacture, technology insertion, strategic
relationships, operational achievement. Growth Ave
rage growth over next 5 years above 20
CAGR. Facilities Newton Aycliffe, Shipley and
Hungary (manufacture).
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Filtronic Components (FCL)
Markets RF and microwave components and
sub-systems for the UK and international defence
electronics markets. Products Range of RF,
microwave and filter products for use in
Defensive Aids Systems, Radars and
communications. Customers Major defence equipment
contractors across the world. Prospects UK and
European markets flat, with some tendency by the
prime contractors towards vertical
integration. International opportunities
relatively constant with up-side potential to
exploit synergy links with the Filtronic US
defence business. Longer term potential to
achieve significant cross-fertilisation in the
commercial communications and defence and
security. Drivers Government defence budgets,
pace of emergence of new markets, technology
insertion. Growth Some short-term decline with
longer-term growth coming from synergy and
diversification. Facilities Newton Aycliffe and
Shipley.
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Filtronic Signal Solutions (FSS)
Markets RF and microwave components and
sub-systems for the US market. Advanced DSPs for
space, security, defence and communications
markets. Products Range of RF, microwave and
filter products and DSPs for use in Defensive
Aids Systems, Radars and communications. Combined
products offering sub-system capability. Customer
s Major defence equipment contractors in the
USA. Prospects Current rationalisation of
Filtronic companies and sites will provide a
stable business base with a brand identity from
which to grow. US defence market still growing
modestly, but growth opportunities also arise
from our product offering and cost-base and the
policy of US Customers to increase
out-sourcing. Drivers Government defence
budgets, pace of emergence of new markets, prime
contractor outsourcing, invested technology
capability. Growth Medium term potential, once
consolidated, of c15 per annum over the next
five years. Facilities Hudson (NH) and Baltimore
(MD).
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Integrated Products - Positioning and Strategy -
Semiconductors

• Foundry - Transition to continuous production,
  driven by demand for switch product started in
  May 05. Ramp-up plan is on track and customer
  demand, including new customers, is strong.
• Broadband Record quantities of MWUs and
  diplexers being shipped and further diplexer
  contracts won. Further business for transceivers
  adds to foundry load for complex MMICs at wafer
  margins appropriate to medium volume business.
• Power Amplifier Modules - the Intellectual
  Property for easy distortion correction of GaAs
  base-station HPAs opens the market for GaAs HPA
  modules and now puts focus on economic packaging.
  Potential revenue benefit in next financial year.
• Systems - We continue to broaden the business
  base for compound semiconductor sales through
  focus on systems applications.

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Integrated Products Positioning and Strategy -
Defence

• Defence strategy based on serving Tier 1 and Tier
  2 suppliers in US, maintaining our export
  customer base and strengthening technology links
  with UK MoD,
• In the US, our reorganisation and strategic
  relocations are designed to support the winning
  of new business.
• In the UK, market is flat, but we continue to
  support MoD technology initiatives in the
  interests of securing technology funding and are
  working with major prime contractors to maximise
  programme opportunities.
• Eurofighter Down Converter production will end
  this year as the Italian Customer takes work
  in-house, facilitated by delays to Tranche 2
  aircraft programme.
• This is providing a challenge for our UK defence
  business in FY 07.
• Strong continuing efforts on cost-reduction and
  efficiency gains.

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Growth and Outlook

• Foundry operating 24 hours, 7 days per week to
  satisfy ramping demand from RFMD and new
  Customers.
• Increasing demand for complex GaAs multifunction
  MMIC-based point to point transceivers.
• Single US management team and business
  relocations to address US defence and security
  market opportunities.
• Cost and efficiency programmes in place.
• Integrated Products profitable on run-rate basis
  at the end of FY 05/06.

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Presentation to Investors

• Charles Hindson,
• Group Finance Director
• Finance Update

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Historic Profile of Current Operations

• Current operations excluding Californian
  Electronic Warfare business (Dec 2003) and
  Handset Products division (Sept 2005)
• Wireless Infrastructure returned to growth with
  change in market direction 18 months ago
• Growth in Integrated Products reflecting growth
  in UK Defence and Broadband, along with start of
  production at Newton Aycliffe

Revenue
Note IP restated to include Sigtek
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Historic Profile of Current Operations

• Wireless Infrastructure returned to growth in
  operating profit with start of volume manufacture
  in China (FY 2004) whilst financing development
  costs for Power Amplifiers over the last three
  years
• Integrated Products reduction in losses reflect
  performance improvement in UK Defence and
  Broadband
• Current activities returned to operating
  profitability in 2005

Operating Profit
Note IP restated to include Sigtek
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Financial Profile

• Dividend policy maintenance of cash dividends
  of 2.7p per share (2m a year cash outflow)
• Capital expenditure - 2004/5 contained within
  depreciation
• - 2005/6 expected to be in line with
  depreciation
• Discontinued Operations Potential for Earn Out
  on sale of Handset Products division due by
  August 2006

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Presentation to Investors

• Matthew OKeefe,
• Semiconductor Process Development
• Manager
• Introduction to the Foundry