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CML - CML Microsystems News Story

372p 0.0  0.0%

Last Trade - 25/02/21

Sector
Technology
Size
Small Cap
Market Cap £61.6m
Enterprise Value £55.0m
Revenue £26.3m
Position in Universe 1167th / 1809

CML Microsystems PLC - Half-year Report

Tue 24th November, 2020 7:00am
RNS Number : 2424G
CML Microsystems PLC
24 November 2020
 

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 875 500

Shore 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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