REG - CML Microsystems PLC - Final Results <Origin Href="QuoteRef">CML.L</Origin> - Part 2

CML MicrosystemsAnnouncement

13/06/2017 07:06

- Part 2: For the preceding part double click  ID:nRSM8727Ha 

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.
Furthermore, 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, 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, the enforceability of laws and contracts, changes in the tax
laws, terrorist activities, natural disasters or health epidemics. 
 
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, the enforceability of laws and contracts, changes in the tax
laws, terrorist activities, natural disasters or health epidemics. 
 
9 Significant accounting policies 
 
The accounting policies used in preparation of the annual results announcement
are the same accounting policies set out in the year ended 31 March 2016
financial statements. 
 
10 Acquisition of Sicomm group of companies 
 
Following the definitive agreement to acquire all its shares announced on 27
May 2016, and having satisfied the principal regulatory conditions and other
transaction closing conditions, the Group took control (100% of voting rights)
of the China-based Wuxi Sicomm Technologies Ltd ("Sicomm") and affiliated
companies on 3 August 2016. The total consideration was $11.05m (£8.01m),
payable in cash and in shares (see below). The 774,181 new shares were
admitted for trading by the London Stock Exchange in August 2016. The majority
of the shares are subject to specific lock-in restrictions over a three year
period and were provided under existing AGM resolution approval. 
 
Founded in 2003, Sicomm is a fabless semiconductor company and solutions
provider specialising in the development of integrated baseband processors and
RF semiconductors for global wireless communication markets. Sicomm has
approximately 30 employees and is headquartered in Wuxi, China, with offices
in Shanghai and Quanzhou. The company's product range, which partially
competes with existing CML solutions, is targeted for use within consumer,
industrial and professional radio products and focuses on the customer need to
achieve the right balance between cost, functionality and technical
performance. 
 
This acquisition expands the Group's product portfolio, strengthens its Far
Eastern regional support resources and reinforces CML's position as a leader
in the professional and industrial wireless communication semiconductor
market. 
 
For the above reasons, combined with the anticipated profitability of Sicomm
products in other Group markets, synergies to arise from integrating the
Sicomm business into existing Group businesses, plus the ability to hire the
workforce of the Sicomm group of companies (including the founder and
management team), the Group paid a premium over the acquisition net assets,
giving rise to goodwill. All intangible assets in accordance with IFRS3
Business Combinations were recognised at their provisional fair values on the
date of acquisition, with the residual excess over net assets being recognised
as goodwill. Intangibles arising from the acquisition consist of brand values,
customer relationships and intellectual property and have been independently
valued by professional advisors. 
 
The following table summarises the consideration and provisional fair values
of assets acquired and liabilities assumed at the date of acquisition: 
 
                                    Unaudited £'000  
 Property, plant and equipment      20               
 Long-term equity investment        84               
 Intangible fixed assets:                            
 Brands                             96               
 Customer relationships             934              
 Intellectual property              402              
 Deferred tax assets                191              
 Inventories                        212              
 Trade receivables and prepayments  128              
 Cash and cash equivalents          1,456            
 Trade and other payables           (1,028)          
 Deferred tax liabilities           (154)            
 Net assets acquired                2,341            
 Goodwill                           5,669            
 Acquisition cost                   8,010            
 
 
There are no non-controlling interests in relation to the Sicomm acquisition.
Fair values in the above table have only been determined provisionally and may
be subject to change in the light of any subsequent new information becoming
available in time. The review of the fair value of assets and liabilities
acquired will be completed within twelve months of the acquisition date. 
Receivables at the acquisition date are expected to be collected in accordance
with the gross contractual amounts. 
 
The acquisition cost was satisfied by: 
 
                      Unaudited £'000  
 Cash                 5,377            
 Share consideration  2,633            
 Total consideration  8,010            
 
 
Net cash outflow arising on acquisition: 
 
                                                                      Unaudited £'000  
 Cash consideration paid (less cash retention)                        5,032            
 Cash returned under escrow due diligence deposit                     (385)            
 Acquisition-related costs                                            281              
 Cash and cash equivalents within the Sicomm business on acquisition  (1,456)          
 Total net cash outflow on acquisition                                3,472            
 
 
The cash consideration excludes a £348,000 (RMB3m) retention which is included
in other payables. Other costs relating to the acquisition have not been
included in the consideration cost. Directly attributable acquisition costs
include external legal and accounting costs incurred in compiling the
acquisition legal contracts and the performance of due diligence activity and
amount to £281,000. These costs have been charged in distribution and
administrative expenses in the consolidated income statement. 
 
Sicomm, in common with other Chinese companies, has a 31 December calendar
year end. In the eight months to 31 March 2017, Sicomm contributed revenue of
£1,661,000 and net profit before taxation of £480,000. Had the acquisition
taken place from the start of the Group's financial year (from 1 April 2016),
and based on figures prior to CML control, management estimate that Sicomm
would have contributed revenue of £2,235,000 and net profit before taxation of
£569,000 to the Group results. 
 
11 General 
 
The results for the year have been prepared using the recognition and
measurement principles of international financial reporting standards as
adopted by the EU.  Whilst the financial information included in this
preliminary announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting Standards
(IFRSs), as adopted for use in the EU, this announcement does not itself
contain sufficient information to comply with IFRSs. 
 
The audited financial information for the year ended 31 March 2016 is based on
the statutory accounts for the financial year ended 31 March 2016 that has
been filed with the Registrar of Companies. The auditor reported on those
accounts: their report was (i) unqualified, (ii) did not include references to
any matters to which the auditor drew attention by way of emphasis without
qualifying the reports and (iii) did not contain statements under section
498(2) or (3) of the Companies Act 2006. 
 
The statutory accounts for the year ended 31 March 2017 are expected to be
finalised on the basis of the financial information presented by the directors
in this preliminary announcement and signed following approval by the Board of
Directors on 23 June 2017 and delivered to the Registrar of Companies
following the Company's Annual General Meeting on 2 August 2017. 
 
The financial information contained in this announcement does not constitute
statutory accounts for the year ended 31 March 2017 or 2016 as defined by
Section 434 of the Companies Act 2006. 
 
A copy of this announcement can be viewed on the company website
http://www.cmlmicroplc.com. 
 
12 Approval 
 
The Directors approved this annual results announcement on 12 June 2017. 
 
This information is provided by RNS
The company news service from the London Stock Exchange