REG - CML Microsystems PLC - Half-year Report
24 November 2020
CML Microsystems Plc
("CML" or the "Group")
Half Year Results
CML Microsystems Plc, which designs, manufactures and markets semiconductors, primarily for global communication and solid state storage markets, announces its unaudited results for the six months ended 30 September 2020.
Financial Highlights
·
Group revenues of £12.90m (H1 FY20 £13.06m)
·
Gross profit of £9.28m (H1 FY20: £9.73m)
·
Profit before tax of £0.77m (H1 FY20: £0.91m)
·
Adjusted EBITDA improved to £4.42m (H1 FY20: £4.36m)
·
Basic EPS of 4.74p (H1 FY20: 6.00p)
·
Net cash of £7.35m (31 March 2020: £8.48m)
·
Interim dividend maintained at 2.0 per ordinary share (H1 FY20: 2.0p)
Operational Highlights
·
Storage revenues up 25%
·
Enhancement to Communications strategy
·
Sales opportunity pipeline growth
·
Continued high level of R&D investment
·
Strong improvement in operating cash flow to £5.20m (H1 FY20: £3.56m)
·
PRFI successfully integrated
Chris Gurry, Group Managing Director of CML Microsystems commented on the results:
"The timing of the resumption to a normalised trading environment remains difficult to predict, although activity within Storage is encouraging and order intake from Communications customers in the last weeks of the half was promising.
The acquisition of PRFI, with its associated capabilities, coupled with enhancements made to the Group's business strategy, highlight an ongoing focus on increasing the size of the available market and improving the return on R&D investment levels. We have a growing world class customer base and our global investment in sales and marketing over recent periods will enable us to take our wider range of highly technical products to a larger audience. As conditions improve, either related to COVID or China/US trade, and ideally both, we are very well placed to benefit."
CML Microsystems Plc
Chris Gurry, Group Managing Director
Nigel Clark, Group Chairman & Financial Director
www.cmlmicroplc.com
Tel: +44 (0)1621 875 500Shore Capital
Edward Mansfield
James Thomas
Fiona Conroy - Corporate Broking
Tel: +44(0)20 7408 4090
SP Angel Corporate Finance LLP
Jeff Keating
Tel: +44(0)203 463 2260
Alma PR
Josh Royston
Caroline Forde
Robyn Fisher
Tel: +44 (0)20 3405 0205
About CML Microsystems PLC
CML designs and develops semiconductors for the industrial storage and communications markets. The Group utilises a combination of in-house and outsourced manufacturing and has trading operations in Europe, the Far East and USA. CML targets niche markets with strong growth profiles and high barriers to entry. It has secured a diverse, blue chip customer base, including some of the world's leading telecoms equipment providers and industrial product manufacturers.
The spread of its customers and products largely protects the business from the cyclicality usually associated with the semiconductor industry. Growth in its end markets is being driven by factors such as the ever increasing trend towards solid state storage devices in the commercial and industrial sectors, the upgrading of telecoms infrastructure around the world and the growing prevalence of private commercial communications networks for voice and/or data communications linked to the industrial internet of things (IIoT).
The Group is cash-generative, has a net cash position and is dividend paying.
Chairman's Statement
Introduction
The first half of the year has been dominated by the global COVID pandemic. From a business point of view, it has served to create further disruption within some of our end markets, particularly voice-centric radio manufacturers. As a result, it delayed the return to normalised trading conditions following previously notified headwinds related to our industry, as well as the ongoing trade dispute between China and the US.
Against this backdrop, the performance of the business from both a trading and operational standpoint has been encouragingly resilient. This reflects the strong management focus on maximising all aspects within our control and the investments and structural changes implemented over prior periods.
Results and Dividend
The financial performance for the six months to 30 September 2020 highlights the financial discipline of the business. Revenue for the six months decreased slightly to £12.90m compared to the prior year (H1 FY20: £13.06m), largely as a result of the COVID pandemic. Profit before taxation declined 15% to £0.77m (H1 FY20: £0.91m), although adjusted EBITDA improved to £4.44m (H1 FY20: £4.36m), with basic EPS of 4.74p (H1 FY20: 6.0p). Net cash at the period end of £7.35m (March 30 2020: £8.50m) represented a good result following payment of a dividend (£0.34m), a share buyback (£1.59m) and continued strong investment in R&D (£3.97m). A strong operational cash flow improvement was recorded to £5.20m (H1 FY20: £3.56m).
The Board is recommending a half year dividend of 2.0p per share (H1 FY20: 2.0p per share) payable on 18 December 2020 to shareholders on the Register on 4 December 2020.
Employees
It is hard to envisage more testing conditions for a workforce to endure. As well as health and wellbeing concerns, our employees have also had to contend with restrictions on travel and other demands which have made their roles more difficult. The professionalism that they have shown is a great credit to them and, on behalf of the Board, I sincerely thank them.
Prospects and Outlook
In recent years, the Group has moved forward with a clear and stable long-term strategic vision, backed by a hardworking team amid a changing and challenging global environment. To complement that, the Board is always on the lookout for beneficial situations which present themselves, such as the acquisition of Plextek RFI Ltd ("PRFI"). The Board continues to explore options to supplement its operational strategy with corporate strategy.
There are exciting business opportunities being pursued and the investment decisions taken in prior years will undoubtedly lead to more arising. With the extended management team executing well on identifying and securing expansion paths, the Board continues to believe that the Group will experience a sustainable return to greater profitability once prevailing headwinds subside.
Nigel Clark
Group Non-Executive Chairman
24 November 2020
Operational and Financial Review
Introduction
As a Board, we are pleased with the progress that has been made, given the difficult trading conditions which have persisted throughout the first half of the year. We have endured significant headwinds for the past two years and therefore concentrated heavily on optimising our business, enhancing our strategic focus and positioning ourselves to take full advantage once a more favourable environment presents itself.
There are many signs which demonstrate we are on the right path, including the growing number of new customer opportunities being addressed and the improvement in sequential period profitability despite a decrease in revenues.
Conditions within Storage have improved over the prior year and both sales and new order intake have been at healthy levels. Communications markets deteriorated against last year's first half, largely driven by a reduction in demand from voice-centric radio manufacturers which was mostly related to the COVID pandemic and exacerbated by the China/US trade dispute. Data driven communications has been less impacted.
The Group's focus on R&D has resulted in a number of newer products now being available and ready for adoption, whilst PRFI has been integrated well despite the acquisition completing in March just prior to the national lockdown.
Financial Review
Total revenues for the opening six-months of the financial year were £12.90m, a decline of 1% against the comparable half-year period (H1 FY20: £13.06m). On a constant currency basis, revenues were broadly flat with the product mix weighted towards lower margin Storage semiconductors, a reversal of the mix associated with the comparable six month period last year. As a result, gross profit declined 5% to £9.28m (H1 FY20: £9.73m).
Distribution and administration costs were reduced to £8.74m (H1 FY20: £9.08m), partially due to the global reorganisation that took place during the previous financial year following an assessment of the Group's resources and capabilities. These lower overall costs also include higher depreciation and amortisation charges, reflecting tight management control of spending through what continued to be challenging times.
Notwithstanding the reduction in expenses, the drop in gross profitability guided profit from operations lower at £0.86m (H1 FY20: £0.99m). This figure included a contribution of £0.32m (H1 FY20: £0.34m) from 'other income'; principally commercial property rental receipts, government grants and the sale of specific third party technologies.
At the pre-tax level, the Group recorded a profit of £0.77m for the period, being approximately 18% lower than the prior year (H1 FY20: £0.91m). That said, on a sequential six-month basis, pre-tax profits were ahead over 65% despite a reduction in revenues. Taxation was £0.1m higher leading to diluted earnings per share of 4.73p (H1 FY20: 5.98p). Adjusted EBITDA amounted to £4.42m (H1 FY20: £4.36m).
Inventories at 30 September 2020 were more normalised at £2.77m compared to the start of the financial year (31 March 2020 £2.39m) and reflect the need to ensure continuity of supply amidst mixed market conditions.
Net cash balances at 30 September 2020 totalled £7.35m (31 March 2020: £8.48m) after tight control of working capital following an increase in inventory levels, payment of a £0.34m dividend in respect of the previous year (H1 FY20: £0.99m) and an ongoing steady level of R&D expenditure at £3.97m (H1 FY20: £3.90m). In addition, during September 2020, the Company made the final £0.1m retention payment relating to the acquisition of PRFI and also conducted a share buy-back of 615,000 ordinary shares of 5p ("Shares") each in the Company at a cost of £1.59m (H1 FY20: Nil). These Shares are currently held in treasury.
Strategy Overview
The Group's overall strategy remains unchanged, yet has undoubtedly been enhanced and accelerated through the release to market of our newer products and the acquisition of PRFI in March of this year. The business today addresses two important market areas, namely industrial Communications and industrial Storage, where our proprietary IP along with the quality and reliability of our technology sets us apart from our peers and makes us an integral part of our customers' products. We have developed a strong reputation in each of these markets and continue to supply a growing world class customer base.
Growth in both markets is being driven by the persistent demand for increasing amounts of data to be delivered faster and stored more reliably and securely. We remain committed to generating a diverse revenue stream across a broad range of customers. We are a single-source supplier to our customers, meaning that once designed in, the displacement of our chips would require our customers to undertake a significant element of product redesign.
R&D is a key tenet of our growth strategy. Our focus is on developing products which will lead to design wins with new and existing customers that we believe have the potential to develop into long-term, significant revenue generators. Throughout the difficult trading conditions, we have continued our investment into R&D as we have no doubt that this approach will serve us best in the long run and deliver superior, sustainable returns for our shareholders. PRFI, and the enhanced capabilities and experience they provide, brings a new dynamic. This should deliver advantages in opportunity capture and new product time to market that will enhance the return on investment in future years.
The financial commitment that has been made in prior periods, including sales and marketing resources as well as engineering, positions us well to take our enlarged product set to a greater addressable market.
Communications
Our strategy for the Communications markets has been to invest strongly in R&D to grow customer share and expand the customer base through the introduction of new semiconductor products that build upon our very extensive intellectual property library and widen the addressable market.
Revenues from the sale of semiconductor solutions into voice-centric Communications applications were heavily impacted by the COVID crisis, with all of the leading customers for commercial and industrial radio equipment reporting significant declines in demand. Shipments into wireless public safety customers were particularly affected while the situation across a wide range of data-centric IIoT customers was mixed and continued to be biased towards mission critical applications. Overall, Communications revenues were down 20% to £6.17m (H1 FY20: £7.68m) and included a lower than normal contribution from a collection of mature wireline communications products.
Whilst first half shipments have been disappointing, the underlying operational progression was pleasing. The product portfolio has expanded over the last three years, with the main additions being semiconductor solutions that operate at the lower end of the radio spectrum and, in particular, "narrowband" applications utilising data rates measured in the tens or low hundreds of kilobits per second. Across the first six months of this financial year, that strategy has been significantly enhanced to include products that operate on microwave and millimetre-wave frequencies, including wide band applications. This enhancement has been achieved through a combination of resource blend and new customer engagements. Progress has been swift with the first products emanating from this enhanced capability scheduled to be launched through the first half of the next calendar year.
The Communications market continues to exhibit a number of growth areas including the transition to higher-capacity digital networks within voice-centric markets and, in data-centric markets, the increasing data throughput and reliability requirements from terrestrial and satellite communications applications. The enhancements made will expand the addressable market to include true 5G applications across a variety of industrial, mission critical and military applications.
Storage
Our strategy within Storage has evolved to the stage where the product range has been expanded to include most major interface standards used within the application areas being targeted, thereby increasing the size of the available market. Furthermore, more recent products enable customers to benefit from bill-of-materials cost efficiencies associated with new flash memory technologies while maintaining the class-leading levels of reliability and durability for which the Group's Hyperstone brand has become globally recognised.
The sale of Storage semiconductors across the opening six-months increased by 25% against the comparable period to £6.73m (H1 FY20: £5.38m), representing slightly over 50% of Group revenues. This is a continuation of the improving demand seen in the closing months of the prior full financial year. Restrictions associated with US-China trade continued to have an influence but healthy regional demand from telecoms infrastructure customers along with robust sales into industrial applications drove revenues higher.
Released during the prior year, the controller product targeted at the SATA3 interface standard has seen a steady increase in adoption with several customers now moving into production and a number of others at advanced stages of end-product development. A new SD controller has been developed and is expected to be launched to market during the first half of the next calendar year. This product will be another key contributor to growth and builds upon many years of intellectual property development, incorporating advanced functionality for mission critical applications. A selection of mature products manufactured at a silicon foundry in Japan were moved to end-of-life status and the resulting additional new order intake is expected to satisfy the customer base while they transition across to newer products from our portfolio.
The industrial data storage market continues to have several specific areas which represent attractive growth opportunities, playing to the core strengths of the business. These include applications within industrial automation, the telecoms/network infrastructure market and an increasing number of security-conscious sub-markets where the Group's proprietary technology and bespoke programming capabilities offer customers enhanced levels of security compared to competitor products. R&D activities have commenced on new Storage solutions that customers will require in the future and will expand the available market size further still.
Operational Developments
The Group continues to perform well at an operational level and our employees globally have responded to the difficulties presented by the COVID pandemic with great determination and professionalism. We have been able to maintain high levels of business continuity throughout whilst also ensuring the safety and protection of our people.
It has been a pleasure to welcome the team that joined us from PRFI in March. As highlighted earlier, the speed to market of future products emanating from the combined teams should drive a faster return on R&D investment and is scheduled to commence with the launch of initial products expected towards the back end of the current financial year.
Summary & Outlook
The timing of the resumption to a normalised trading environment remains difficult to predict, although activity within Storage is encouraging and order intake from Communications customers in the last weeks of the half was promising.
As market conditions improve, either related to COVID or China/US trade, and ideally both, we are very well placed to benefit. We have a growing world class customer base and a product portfolio enabling a greater total market opportunity. The Company's cost base has remained stable and our global investment in sales and marketing over recent periods will enable us to take the wider range of highly technical products to a growing audience.
Back in June, we stated that the current environment was delaying realisation of the benefits of the hard work taking place behind the scenes. Enhancements made to the Group's business strategy highlight the ongoing focus for increasing the size of the available market and improving the return on R&D investment levels.
The Board maintains its belief that the business will capitalise on the opportunities it sees and deliver the shareholder benefits expected over the medium to longer term.
Chris Gurry
Group Managing Director
24 November 2020
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2020
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Continuing operations
Revenue
12,901
13,056
26,420
Cost of sales
(3,626)
(3,326)
(6,855)
Gross profit
9,275
9,730
19,565
Distribution and administration costs
(8,741)
(9,079)
(18,762)
534
651
803
Other operating income
321
338
689
Profit from operations
855
989
1,492
Share-based payments
(80)
(86)
(139)
Profit after share-based payments
775
903
1,353
Profit on disposal of property, plant and equipment
-
-
11
Finance income
40
54
106
Finance expense
(44)
(50)
(96)
Profit before taxation
771
907
1,374
Income tax credit
20
119
162
Profit after taxation for period attributable to equity owners of the parent
791
1,026
1,536
Basic earnings per share
From profit for the period
4.74p
6.00p
8.98p
Diluted earnings per share
From profit for the period
4.73p
5.98p
8.94p
Adjusted EBITDA1
4,415
4,357
8,276
1. See note 12 for definition and reconciliation.
CONDENSED CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
for the six months ended 30 September 2020
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Profit for the period
791
1,026
1,536
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on retirement benefit obligations
-
-
(995)
Deferred tax on actuarial loss
-
-
187
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences
123
275
308
Other comprehensive income/(expense) for the period net of taxation
attributable to the equity holders of the parent
123
275
(500)
Total comprehensive income for the period attributable
to the equity holders of the parent
914
1,301
1,036
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 September 2020
Unaudited
Unaudited
Audited
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Assets
Non-current assets
Goodwill
10,735
9,209
10,741
Other intangible assets
1,679
1,676
1,823
Development costs
17,999
15,578
16,930
Property, plant and equipment
4,903
5,129
4,976
Right-of-use assets
779
973
1,184
Investment properties
3,192
3,170
3,170
Investment
83
83
83
Deferred tax assets
1,188
973
1,343
40,558
36,791
40,250
Current assets
Inventories
2,768
2,858
2,390
Trade receivables and prepayments
5,043
3,407
5,075
Current tax assets
787
1,152
1,044
Cash and cash equivalents
9,014
11,197
8,479
17,612
18,614
16,988
Total assets
58,170
55,405
57,238
Liabilities
Current liabilities
Bank loans
1,661
-
-
Trade and other payables
4,277
3,573
4,036
Lease liabilities
333
415
502
Current tax liabilities
224
61
85
6,495
4,049
4,623
Non-current liabilities
Deferred tax liabilities
5,145
4,559
4,960
Lease liabilities
382
560
568
Retirement benefit obligation
4,697
3,548
4,697
10,224
8,667
10,225
Total liabilities
16,719
12,716
14,848
Net assets
41,451
42,689
42,390
Capital and reserves attributable to equity owners of the parent
Share capital
859
859
859
Share premium
9,286
9,279
9,286
Capital redemption reserve
9
9
9
Treasury shares - own share reserve
(1,670)
(328)
(80)
Share-based payments reserve
662
577
582
Foreign exchange reserve
1,837
1,681
1,714
Accumulated profits reserve
30,468
30,612
30,020
Total shareholders' equity
41,451
42,689
42,390
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2020
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Operating activities
Profit for the period before taxation
771
907
1,374
Adjustments for:
Depreciation - on property, plant and equipment
192
205
397
Depreciation - on right-of-use assets
263
234
456
Amortisation of development costs
2,988
2,826
5,708
Amortisation of intangibles recognised on acquisition and purchased
117
103
212
Profit on disposal of property, plant and equipment
-
(4)
(5)
Movement in non-cash items (pension)
90
-
154
Share-based payments
80
86
139
Movement in provision
-
(70)
-
Finance income
(40)
(54)
(106)
Finance expense
44
50
96
Movement in working capital
695
(722)
(1,868)
Cash flows from operating activities
5,200
3,561
6,557
Income tax received
509
137
526
Net cash flows from operating activities
5,709
3,698
7,083
Investing activities
Acquisition of subsidiary, net of cash acquired
(100)
-
(1,295)
Purchase of property, plant and equipment
(127)
(24)
(57)
Investment in development costs
(3,834)
(3,659)
(7,936)
Lease liability repayments
(302)
(265)
(682)
Proceeds from disposal of property, plant and equipment
-
11
11
Investment in intangibles
25
(11)
(28)
Investment in loan note
-
(325)
(323)
Finance income
40
54
106
Finance expense
(16)
(50)
(34)
Net cash flows used in investing activities
(4,314)
(4,269)
(10,238)
Financing activities
Proceeds from borrowings
1,661
-
-
Issue of ordinary shares
-
-
7
Purchase of own shares for treasury
(1,590)
-
-
Dividends paid to shareholders
(343)
(990)
(1,332)
Net cash flows used in financing activities
(272)
(990)
(1,325)
Increase/(decrease) in cash and cash equivalents
1,123
(1,561)
(4,480)
Movement in cash and cash equivalents:
At start of period/year
8,479
12,809
12,809
Increase/(decrease) in cash and cash equivalents
1,123
(1,561)
(4,480)
Effects of exchange rate changes
(588)
(51)
150
At end of period
9,014
11,197
8,479
Cash flows presented exclude sales taxes.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2020
Capital
Share-
Foreign
Accumulated
Share
Share
redemption
Treasury
based
exchange
profits
capital
premium
reserve
shares
payments
reserve
reserve
Total
Unaudited
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
At 31 March 2019
859
9,279
9
(342)
507
1,406
30,574
42,292
Profit for period
1,026
1,026
Other comprehensive income net of taxes
Foreign exchange differences
275
275
Total comprehensive income for the period
-
-
-
-
-
275
1,026
1,301
Transactions with owners in their capacity as owners
Dividend paid
(990)
(990)
Use of own shares for treasury
14
(14)
-
Total of transactions with owners in their capacity as owners
-
-
-
14
-
-
(1,004)
(990)
Share-based payments
86
86
Cancellation/exercise of share-based payments
(16)
16
-
At 30 September 2019
859
9,279
9
(328)
577
1,681
30,612
42,689
Profit for period
510
510
Other comprehensive income net of taxes
Foreign exchange differences
33
33
Net actuarial loss on retirement benefit obligation
(995)
(995)
Deferred tax movement on actuarial loss
187
187
Total comprehensive
income for the period
-
-
-
-
-
33
(298)
(265)
Transactions with owners in their capacity as owners
Issue of ordinary shares
7
7
Issue of own shares for treasury
248
248
Dividend paid
(342)
(342)
Total of transactions with owners in their capacity as owners
-
7
-
248
-
-
(342)
(87)
Share-based payments
53
53
Cancellation/exercise of share-based payments
(48)
48
-
At 31 March 2020
859
9,286
9
(80)
582
1,714
30,020
42,390
Capital
Share-
Foreign
Accumulated
Share
Share
redemption
Treasury
based
exchange
profits
capital
premium
reserve
shares
payments
reserve
reserve
Total
Unaudited
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
At 31 March 2020
859
9,286
9
(80)
582
1,714
30,020
42,390
Profit for period
791
791
Other comprehensive income net of taxes
Foreign exchange differences
123
123
Total comprehensive income for the period
-
-
-
-
-
123
791
914
Transactions with owners in their capacity as owners
Dividend paid
(343)
(343)
Purchase of own shares for treasury
(1,590)
-
(1,590)
Total of transactions with owners in their capacity as owners
-
-
-
(1,590)
-
-
(343)
(1,933)
Share-based payments
80
80
At 30 September 2020
859
9,286
9
(1,670)
662
1,837
30,468
41,451
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 30 September 2020
1 Segmental analysis
Information about revenue, profit/loss, assets and liabilities
Unaudited
6 months end 30/09/20
Unaudited
6 months end 30/09/19
Audited
year end 31/03/20
Semiconductor
Semiconductor
Semiconductor
components
Group
components
Group
components
Group
£'000
£'000
£'000
£'000
£'000
£'000
Total segmental revenue
12,901
12,901
13,056
13,056
26,420
26,420
Profit
Segmental result
775
775
903
903
1,353
1,353
Finance income
40
54
106
Finance expense
(44)
(50)
(96)
Profit on disposal of property, plant and equipment
-
-
11
Income tax credit
20
119
162
Profit after taxation
791
1,026
1,536
Assets and liabilities
Segmental assets
53,003
53,003
50,110
50,110
51,681
51,681
Unallocated corporate assets
Investment properties
3,192
3,170
3,170
Deferred tax assets
1,188
973
1,343
Current tax assets
787
1,152
1,044
Consolidated total assets
58,170
55,405
57,238
Segmental liabilities
6,653
6,653
4,548
4,548
5,106
5,106
Unallocated corporate liabilities
Deferred tax liabilities
5,145
4,559
4,960
Current tax liabilities
224
61
85
Retirement benefit obligation
4,697
3,548
4,697
Consolidated total liabilities
16,719
12,716
14,848
Other segmental information
Unaudited
6 months end 30/09/20
Unaudited
6 months end 30/09/19
Audited
year end 31/03/20
Semiconductor
Semiconductor
Semiconductor
components
Group
components
Group
components
Group
£'000
£'000
£'000
£'000
£'000
£'000
Property, plant and equipment additions
127
127
24
24
57
57
Right-of-use assets additions
70
70
-
-
86
86
Development cost additions
3,834
3,834
3,659
3,659
7,936
7,936
Intangible additions
-
-
11
11
28
28
Depreciation
192
192
205
205
397
397
Depreciation - right-of-use assets
263
263
234
234
456
456
Amortisation of development costs
2,988
2,988
2,826
2,826
5,708
5,708
Amortisation of acquired
and purchased intangibles
117
117
103
103
212
212
Other non-cash expenditure (pension)
90
90
-
-
154
154
Geographical segments
Rest
UK
of Europe
Americas
Far East
Total
Unaudited
£'000
£'000
£'000
£'000
£'000
Six months ended 30 September 2020
Revenue to third parties - by origin
3,100
3,097
2,057
4,647
12,901
Property, plant and equipment
4,662
175
-
66
4,903
Right-of-use assets
108
174
357
140
779
Investment properties
3,192
-
-
-
3,192
Development costs
6,629
10,298
-
1,072
17,999
Intangible assets - software and intellectual property
550
-
-
-
550
Goodwill
1,51
3,512
-
5,692
10,735
Other intangible assets arising on acquisition
-
-
-
1,129
1,129
Total assets
24,443
17,831
2,127
13,769
58,170
Rest
UK
of Europe
Americas
Far East
Total
Unaudited
£'000
£'000
£'000
£'000
£'000
Six months ended 30 September 2019
Revenue to third parties - by origin
3,965
2,521
2,671
3,899
13,056
Property, plant and equipment
4,813
223
59
34
5,129
Right-of-use assets
144
87
582
160
973
Investment properties
3,170
-
-
-
3,170
Development costs
6,152
9,426
-
-
15,578
Intangible assets - software and intellectual property
601
-
-
-
601
Goodwill
-
3,512
-
5,697
9,209
Other intangible assets arising on acquisition
-
-
-
1,075
1,075
Total assets
24,137
16,100
2,423
12,745
55,405
Rest
UK
of Europe
Americas
Far East
Total
Audited
£'000
£'000
£'000
£'000
£'000
Year ended 31 March 2020
Revenue to third parties - by origin
6,793
5,903
4,856
8,868
26,420
Property, plant and equipment
4,724
182
30
40
4,976
Right-of-use assets
164
244
547
229
1,184
Investment properties
3,170
-
-
-
3,170
Development costs
6,161
9,793
-
976
16,930
Intangible assets - software and intellectual property
596
-
-
-
596
Goodwill
1,531
3,512
-
5,698
10,741
Other intangible assets arising on acquisition
235
-
-
874
1,109
Total assets
24,606
16,984
2,203
13,445
57,238
Reported segments and their results, in accordance with IFRS 8, are based on internal management reporting information that is regularly reviewed by the Chief Operating Decision Maker (Chris Gurry). The measurement policies the Group uses for segmental reporting under IFRS 8 are the same as those used in its financial statements.
The Group is focused for management purposes on one primary reporting segment, being the semiconductor segment, with similar economic characteristics, risks and returns and the Directors therefore consider there to be one business segment classification.
Revenue
The geographical classification of business turnover (by destination) is as follows:
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Europe
4,356
3,984
7,844
Far East
6,156
6,187
13,182
Americas
2,154
2,682
4,907
Other
235
203
487
12,901
13,056
26,420
2 Dividend paid and interim dividend
The Board is declaring an interim dividend of 2.0p per ordinary share of 5p for the half year ended 30 September 2020, payable on 18 December 2020 to shareholders on the Register on 4 December 2020.
A final dividend of 2.0p per ordinary share of 5p was paid on 7 August 2020 and an interim dividend of 2.0p per ordinary share of 5p was paid on 13 December 2019, totalling 4.0p per ordinary share of 5p paid for the year ended 31 March 2020 (2019: 7.8p per ordinary share of 5p in respect of the year ended 31 March 2019).
3 Income tax (credit)/expense
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
UK income tax credit
(495)
(256)
(588)
Overseas income tax charge/(credit)
147
(83)
246
Total current tax credit
(348)
(339)
(342)
Deferred tax charge
328
220
180
Reported income tax credit
(20)
(119)
(162)
The Directors consider that tax will be payable at varying rates according to the country of incorporation of its subsidiary undertakings and have provided on that basis.
4 Earnings per share
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
Basic earnings per share
From profit for the period
4.74p
6.00p
8.98p
Diluted earnings per share
From profit for the period
4.73p
5.98p
8.94p
The calculation of basic and diluted earnings per share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, as explained below:
Ordinary 5p shares
Weighted
average
Diluted
number
number
Six months ended 30 September 2020
16,692,935
16,718,813
Six months ended 30 September 2019
17,075,166
17,152,397
Year ended 31 March 2020
17,099,216
17,187,571
5 Investment properties
Investment properties are measured at fair value and are revalued annually by the Directors and in every third year by independent Chartered Surveyors on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement. No formal market valuation was conducted in the half year.
6 Cash and cash equivalents
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Cash on deposit
4,183
6,784
3,591
Cash at bank
4,831
4,413
4,888
9,014
11,197
8,479
7 Bank loans
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Bank loan
1,661
-
-
1,661
-
-
8 Retirement benefit obligations
The Directors have not obtained an actuarial IAS 19 Employee Benefits report in respect of the defined benefit pension scheme for the purpose of this Half Yearly Report.
9 Principal risks and uncertainties
Key risks of a financial nature
The principal risks and uncertainties facing the Group are with foreign currencies and customer dependency. With the majority of the Group's earnings being linked to the US Dollar, a decline in this currency will have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. The Group does however have significant Euro-denominated fixed costs. Additionally, though the Group has a very diverse customer base in certain market sectors, key customers can represent a significant amount of revenue. Key customer relationships are closely monitored, however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.
Key risks of a non-financial nature
The Group is a small player operating in a highly competitive global market that is undergoing continual and geographical change. The Group's ability to respond to many competitive factors including, but not limited to, pricing, technological innovations, product quality, customer service, raw material availabilities, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers' products since the Group is a component supplier.
A substantial proportion of the Group's revenue and earnings are derived from outside the UK and so the Group's ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements (including the UK's withdrawal from the European Union, or "Brexit"), political risk, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics.
COVID-19
The unprecedented global crisis has challenged the current economic conditions and affected some of the markets in which the business operates, the Group has remained resilient and is well placed in the market to move positively forward. This belief is underpinned by a strong balance sheet, along with a product portfolio that addresses markets that have a positive outlook.
The Group has given due consideration as to the impact of uncertainty arising from COVID related factors on the production of the interim financial statements. This included a going concern assessment, reviewing its current and projected financial performance and position, including current assets and liabilities, debt maturity profile, future commitments and forecasted cash flows. The downside scenarios tested outline the impact of adverse cases and show that there is sufficient headroom for liquidity.
10 Directors' statement pursuant to the Disclosure and Transparency Rules
The Directors confirm that, to the best of their knowledge:
· the condensed set of financial statements have been prepared on a consistent basis with the financial statements for the year ended 31 March 2020 and should be read in conjunction with the FY20 Annual Report and Accounts. The annual consolidated financial statements of the Group are prepared in accordance with IFRS and IFRIC pronouncements as adopted by the EU;
· the condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
· the Chairman's Statement and Group Managing Director's Operational and Financial Review include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face.
The Directors are also responsible for the maintenance and integrity of the CML Microsystems Plc website. Legislation in the UK governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
11 Basis of preparation
The basis of preparation and accounting policies used in preparation of this Half Year Report have been prepared in accordance with the same accounting policies set out in the year ended 31 March 2020 financial statements.
12 Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and amortisation ("Adjusted EBITDA") is defined as profit from operations before all interest, tax, depreciation and amortisation charges and before share-based payments. The following is a reconciliation of the Adjusted EBITDA for the three periods presented:
Unaudited
Unaudited
Audited
6 months end
6 months end
year end
30/09/20
30/09/19
31/03/20
£'000
£'000
£'000
Profit after taxation (earnings)
791
1,026
1,536
Adjustments for:
Finance income
(40)
(54)
(106)
Finance expense
44
50
96
Income tax credit
(20)
(119)
(162)
Depreciation
192
205
397
Depreciation - right-of-use assets
263
234
456
Amortisation of development costs
2,988
2,826
5,708
Amortisation of intangibles of purchased and acquired
intangibles recognised on acquisition
117
103
212
Share-based payments
80
86
139
Adjusted EBITDA
4,415
4,357
8,276
13 General
Other than already stated within the Chairman's Statement and Group Managing Director's Operational and Financial Review, there have been no important events during the first six months of the financial year that have impacted this Half Yearly Report.
There have been no related party transactions or changes in related party transactions described in the latest Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the financial year.
The principal risks and uncertainties within the business are contained within this report in note 9 above.
This Half Yearly Report includes a fair review of the information required by DTR 4.2.7/8 (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year).
This Half Yearly Report does not include all the information and disclosures required in the Annual Report, and should be read in conjunction with the consolidated Annual Report for the year ended 31 March 2020.
The financial information contained in this Half Yearly Report has been prepared on a basis which is consistent with International Financial Reporting Standards as adopted by the European Union. This Half Yearly Report does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2020 is based on the statutory accounts for the financial year ended 31 March 2020 that have been filed with the Registrar of Companies and on which the auditor gave an unqualified audit opinion.
The auditor's report on those accounts did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. This Half Yearly Report has not been audited or reviewed by the Group auditor.
A copy of this Half Yearly Report can be viewed on the Company website: www.cmlmicroplc.com.
14 Approvals
The Directors approved this Half Yearly Report on 24 November 2020.
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