REG - CML Microsystems PLC - Final Results

CML MicrosystemsAnnouncement

09/06/2020 07:01

RNS Number : 3095P
  
CML Microsystems PLC
  
09 June 2020
  
 

9 June 2020
 
CML Microsystems Plc
("CML" or the "Group")
Full Year Results
CML Microsystems Plc, which designs, manufactures and markets semiconductors, primarily for global communication and solid state storage markets, announces its Full Year Results for the year ended 31 March 2020.
Financial Highlights
·      Group revenues of £26.42m (2019: £28.14m)
·      Gross profit £19.57m (2019: £20.25m)
·      Profit before tax £1.37m (2019: £2.98m)
·      Basic EPS 8.98p (2019: 15.77p)
·      Net cash of £8.48m (31 March 2019: £12.81m) reflecting record R&D investment, the acquisition of PRFI and two dividend payments totaling £1.33m
·    Recommended final dividend of 2.0p equates to 4.0p for the year (2019: 7.8p), reflects prudence in light of COVID-19 environment 
 
Operational Highlights
·      Communications 57% of Group revenue (2019: 54%)
o  Revenue £15.0m (2019: £15.2m) 
o  Solid gains in USA and Europe did not offset fall in Far East
o  Five new products released, including first Raspberry Pi platform
o  Market continues to exhibit a number of growth areas
·      Storage 43% of Group revenue (2019: 46%)
o  Revenue £11.4m (2019: £12.9m)
o  Sales in H2 up 12% on first half
o  Three new products released
o  Mass production availability of X1 SATA3 Controller IC
·      Acquisition of Plextek RFI Ltd
o  Complements organic growth plans, adds new independent services and consulting income stream
·      Record R&D investment of £8.46m (2018: £8.24m)
 
 
Chris Gurry, Group Managing Director of CML Microsystems commented on the results: 
"There is no hiding from the fact that the year under review has been difficult, and the current environment is delaying realisation of the benefits to come from the hard work taking place behind the scenes. 
The current financial year did commence with a healthier order book than the prior year, although it remains to be seen how this translates to actual market consumption as there may be an element attributable to COVID-19 related supply concerns amongst the customer base.
Nevertheless, following the operational adjustments made across the prior year, the business is tuned to react swiftly to a revival in demand and the Board remain convinced that a return to growth will be secured as conditions improve."
 
 
 



CML Microsystems Plc
Chris Gurry, Group Managing Director

Nigel Clark, 
Group Non-Exec Chairman and Financial Director     
 


www.cmlmicroplc.com

Tel: +44(0)1621 875 500
Tel: +44(0)1621 875 500




Shore Capital
Edward Mansfield
James Thomas
 


Tel: +44(0)20 7408 4090




SP Angel Corporate Finance LLP
Jeff Keating
 


Tel: +44(0)20 3463 2260




Alma PR
Josh Royston
Caroline Forde
 


 
Tel: +44 (0)20 3405 0206
 



 
About CML Microsystems PLC
CML designs and develops semiconductors for the industrial storage and communications markets. The Group 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
 
As I look back over the year, I take pride in the resilience of the Group; its people, operational structure and balance sheet strength. We entered the year faced with the ongoing market-wide challenges of extended raw material supply times and the US/China trade war, and we closed the year facing the unprecedented challenge presented by COVID-19. However, against this backdrop, the Group has delivered a year of stabilisation. While COVID-19 may impact a return to growth in the short term, the depth and quality of our product portfolio, the breadth of our customer base and the strength of our extended sales operation mean the long-term opportunity for the Company is undiminished.
 
Results and dividend
 
Revenues for the year fell by 6.1% to £26.42m (2019: £28.14m). With costs of £0.7m relating to M&A activities and restructuring announced in November 2019, profit before taxation fell by 54% to £1.37m (2019: £2.98m) and basic EPS by 43% to 8.98p (2019: 15.77p). Net cash at the year end was £8.48m, a drop of £4.33m (2019:£12.81m), reflecting record R&D investment, the acquisition of PRFI and two dividend payments totalling £1.33m.
 
The Group continues to benefit from a strong balance sheet with a healthy net cash position and operating cash generation. The Board remains committed to its dividend policy of being progressive in line with revenues and profitability. Despite the ongoing uncertainty caused by the COVID-19 pandemic, the Board is confident in the Group's ability to continue to generate cash underpinned by a robust balance sheet. As such, the Board has recommended a final dividend of 2.0p per ordinary 5p share, equating to a total for the year of 4.0p (2019: 7.8p). If approved, this will be paid on 7 August 2020 to shareholders whose names appear on the register at close of business 24 July 2020.
 
Strengthened operational structure
 
This has been a year of significant strategic activity across the Group, to ensure our resources and capabilities are closely aligned with our ambitions. This activity has resulted in global operational changes that will improve our effectiveness and efficiency as we enter the next financial year and help accelerate delivery of the business strategy. The acquisition of Cambridge-based specialist design house, Plextek RFI Ltd ("PRFI"), in March 2020 was another important element of this activity, complementing our plans for expansion within the Communications markets.
 
COVID-19
 
Our primary focus since January has been the welfare of our teams around the world in the face of the COVID-19 pandemic. We have closed locations in a timely manner as government legislation has required us to do so, and only maintained production activity where it has been deemed possible to achieve within government safety guidelines. At this time, our China operations based in Wuxi and Shanghai are once again fully operational, in line with all relevant government safeguarding legislation. Travel restrictions within China are gradually being lifted. We have maintained a reduced production team at our UK operations, with all office-based staff working remotely. We have had no requirement to furlough any staff. Supply chain disruptions to date are minimal and of a short-term nature.
 
Given the nature of the professional markets in which we operate, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some new products may be delayed, dampening demand for our semiconductors. Our current order book is strong, however it is not yet clear as to whether this will be a long-term trend or reflects a precautionary increase in inventory by our customers. 
 
 
 
 
 
 
 
 
 
 
Employees
 
The positive response by our teams to the changes we have been required to implement to our working practices has been very supportive. Once again, the CML teams across the world have proven their resilience and dedication, for which we, the Board, are extremely grateful. They have continued to work tirelessly under difficult circumstances and their dedication both to CML and our customers has not waivered.  While many of us have not been able to meet our new colleagues from PRFI face to face, they have integrated well and we have enjoyed welcoming them into the Group. As we continue to face the challenges of COVID-19, we do so with the support of a dedicated, talented team around the world.
 
Our Company has a rich culture having been in operation for over 50 years, which runs through all of our operations and with a combined sense of purpose is evident in every facet of our business.
 
The Board
 
As announced in November 2019, our CFO Neil Pritchard resigned to pursue other business opportunities and the Board would like to thank him for his service to the Company. Having previously held the position of Group CFO, I re-assumed the role on an interim basis until such time as we are able to commence a full recruitment process, which at this stage we anticipate will be in the second half of the current financial year. In the meantime, I have stepped off the Audit Committee until such time as a replacement CFO has been recruited.
 
Prospects and outlook
 
Clearly these are difficult times with a global pandemic, geo-political trade issues and Brexit looming but, as a Board, even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, coupled with a sound product portfolio that addresses markets that have a positive outlook. The strategy in place, when eventually these current global uncertainties and negative influences subside, should mean, we are well placed to return a meaningful uplift in the Group's performance.
 
 
 
 
 
 
Nigel Clark
Group Non-Executive Chairman  
 
 




 
OPERATIONAL AND FINANCIAL REVIEW
 
Introduction
As we entered into the 2019/2020 financial year our strong belief was that it would prove to be a year of stabilisation, following previous periods of inventory correction, raw material constraints and political headwinds. I'm pleased to report that despite the highly challenging conditions, including the COVID-19 pandemic, this has proved to be the case. The first half of the financial year confirmed our view that there was no further deterioration in our end markets with sequential six-monthly order bookings a little ahead. A shortening of the timescale between customer order placement and requested delivery date was also evidenced, which is another good indicator for our business.
Following the interim results announcement in November 2019, order intake was improving before the outbreak of the coronavirus hampered this progress as companies, firstly in China and then globally, initiated their business continuity processes. Nevertheless, overall revenues for the second half were similar to those of the first half. 
During the course of the year we have continually assessed the resources and capabilities within CML to ensure that they are aligned with the direction of travel for our business and a number of operational changes have been made which will improve our effectiveness and efficiency. These follow the investments made in previous periods to broaden and augment our sales reach, which have improved our pipeline of opportunities. In tandem with this, in March we acquired Plextek RFI Ltd ("PRFI") a UK based design house specialising in the design and development of RF, Microwave and Millimetre-wave (mm-wave) ICs and modules.  PRFI's design expertise expands upon the Group's existing skills and provides a new independent services and consulting income stream for CML. Most of the costs associated with these operational changes and corporate activities have been recognised in this year under review, which impacted pre-tax profits for the year.
Financial review 
Total revenues for the year fell by 6.1% to £26.42m (2019: £28.14m) including a small one month contribution (£0.06m) from the acquisition of PRFI Limited during March 2019. At the gross profit level, an improved margin helped reduce the decline to just over 3%, delivering a gross profit of £19.57m (2019: £20.25m).   
Geographically, the Far East region was the single largest contributor to the overall drop in sales, delivering a reduction of £2.17m (16%) and exceeding the overall Group revenue drop of £1.72m. The remaining regions either grew or were robust by comparison. The Far East accounted for 50% of Group revenues with sales into Europe, the Americas and Others representing 30%, 19% and 1% of Group revenues respectively.
Distribution and administration costs increased to £18.75m (2019: £18.07m) driven by abnormal costs of £0.7m and higher R&D amortisation charges. These abnormal costs result from a combination of M&A activities, one of which resulted in the acquisition of PRFI Ltd, along with global restructuring expenses that were incurred following completion of an assessment of the Group's resources and capabilities, first communicated to the market in November 2019. 
Total R&D spend for the year rose slightly to £8.46m (2019: £8.24m) with associated amortisation of development costs climbing £0.56m to £5.71m (2019: £5.15m).
The Group operated a tight cost control policy throughout the year under review and aside from non-recurring expenses and the increased R&D spend, underlying costs were relatively stable.
The Group recorded a small loss of £0.05m from foreign currency exchange compared to a gain of £0.26m in the prior year although continues to have a somewhat natural hedge at the gross profit line in respect of foreign currency exposure, given that the majority of both revenues and raw material costs are US Dollar denominated.
Other operating income for the year amounted to £0.69m (2019: £0.64m) and was a result of rental income obtained from ex-operational property assets, grant income received from R&D activities and an element of profit on third-party product re-sales. 
Profit from operations fell by 44% to £1.50m (2019: £2.81m).
After adjusting for the combined effects of share-based payments and finance income, a profit before taxation figure of £1.37m was achieved (2019: £2.98m) which included a small loss of £0.02m from newly acquired PRFI Ltd.
An income tax credit of £0.16m was recorded for the year against a charge of £0.29m in the preceding year reflecting lower profitability for the year and the ongoing benefit of UK R&D tax credits. Profit after tax was £1.54m (2019: £2.69m). 
The Group, along with many other companies under IFRS GAAP, adopted the new leasing standard (IFRS 16) with effect from 1 April 2019.  The overall effect has been to record operating leases (such as property, vehicle and office equipment rentals etc.) as an asset on the balance sheet as if those items had been purchased, with the corresponding lease payments recognised as a liability.  The net result of these changes is negligible. Rentals are now replaced by depreciation and interest which has had little impact on net profitability, but the EBITDA calculation shows the depreciation for these 'right-of-use' assets as an additional add-back adjustment of £0.46m for the period. Adjusted EBITDA was £8.28m (2019: £8.75m) and assisted by an improved tax rate, the basic earnings per share figure recorded was 8.98p (2019: 15.77p).
Cash management across the Group remained an important focus area throughout the year. Net cash reserves at 31 March 2019 stood at £8.48m (31 March 2019: £12.81m) following record R&D investment, the acquisition of PRFI and two dividend payments totalling £1.33m; being the final payment for the FY19 financial year (£0.99m) and an interim payment in respect of FY20 (£0.34m).
Overall inventory levels at the financial year end were 17% lower than the beginning of the year at £2.39m (2019: £2.88m) with finished goods stocks in particular at very low levels. The policy that the Group had in place to mitigate certain supply chain difficulties helped react promptly to the improving order intake that was seen as we entered the current calendar year
The pension deficit associated with the Group's historic final salary scheme, as calculated under IAS 19, increased to £4.70m (2019: £3.55m). The assets of the scheme fell to £19.18m (2019: £20.63m) with the present value of funded obligations reducing to £23.87m (2019: £24.18m). The main reasons for the increased deficit in the IAS 19 accounting position relate to (i) changes in the assumptions in using a lower discount rate due to the fall in corporate bond yields at the period end; and (ii) the Scheme's investments return was lower than the IAS 19 mandated increase in the obligation over the year. 
Separately from the IAS 19 calculation, the most recent triennial actuarial valuation on the scheme carried out by an independent professionally qualified actuary, as at 31 March 2017, resulted in a net pension surplus of £1.89m. An approximate update of the funding position was carried out as at 31 March 2019 which, when viewed as a continuing scheme, showed a net surplus of £3.15m (31 March 2018: £3.17m). The report further stated that the scheme assets remained sufficient to cover 118% of the benefits accrued to members, after allowing for future increases in these benefits.
COVID-19
The welfare and safety of our employees has been of paramount importance throughout the pandemic and remains a priority. Our China-based operations were the first to be affected in January and we were swift to implement the necessary precautions and measures in line with guidance and were able to supply our workforce there with personal protective equipment that was scarce locally. Our experience in China helped us as we implemented similar processes throughout our operations as the virus spread, again in line with all local guidance.
Due to the nature of our work, our facilities, and indeed those of our key suppliers, are clean and manufacturing facilities need to meet strict hygiene regulations, with access limited to the workforce. As at the time of publication of this report, our operations are fully functional, albeit through a change in working methodologies and it is comforting to note that we have had no confirmed incidences of COVID-19 related ill health. Travel restrictions, both within individual countries as well as internationally, affect our sales teams' ability to mobilise and physically meet with customers but they have reacted well to remote working. 
Strategy overview
The Group's strategy today remains consistent with that previously communicated. Our business remains focused on two important markets, 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 both of these markets and we continue to supply a growing world class customer base. This, coupled with an extensive sales network and expanded presence globally, will enable us to scale further once market conditions ease.
Growth in both markets is continually 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 an element of product redesign. This has served us particularly well recently as geo-political issues have made international trade between certain countries more difficult. Rather than sourcing locally produced goods as potential replacements, the evidence is that customers are insisting on our products due to their proven quality and reliability.
R&D remains 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. With that said, as a Board we are mindful of the ongoing conditions and continue to monitor investment levels carefully.
The acquisition of PRFI was a further example of our desire to add businesses which can help us achieve our strategic goals and complement our organic growth. The Company has a proven track record of successful corporate activity and will continue to seek and evaluate appropriate opportunities.
Communications
Our strategy within the Communications market is to grow revenues through wider customer engagement and drive a larger serviceable market from an expanded semiconductor product range that builds upon an extensive intellectual property library.
The Group has been a key component supplier to major blue chip OEMs within numerous sub-sectors of the global Communications market for a number of decades. Product functionality over time has evolved from tone switches and decoders through to signal processing solutions, baseband processors and integrated modem solutions for a variety of dedicated industrial wireless networks around the world. 
The feature sets of those products are generally radio frequency ("RF") agnostic, but over the last ten years or so, significant investments have been made into engineering skills and associated R&D activities to introduce a range of RF components. The resulting combined chip-sets now cover customer functionality needs from the antenna through to the microprocessor of choice. Initial product releases focussed on operating frequency bands below 1GHz, while more recently the range has been extended to encompass frequencies up to 3.6GHz. 
Sales revenues from applications within the Communications sector were slightly down year on year and amounted to £14.94m (2019: £15.14m). Shipments into wireless public safety customers were generally quite robust while the situation across a wide range of data-centric Industrial Internet of Things (IIoT) customers was mixed and biased towards customer products prioritising high performance and reliability. Revenues from the Americas and Europe posted good gains but were unable to make up a significant shortfall from the Far East customer base. Continued uncertainty over the trade war with the USA remains, including expectations that phase two of a trade agreement will not be in place ahead of the US elections in the autumn. This is still impacting government spending on some local infrastructure projects, such as railway and power, whilst customers in surrounding countries who depend upon exports into China are also affected. 
Five new products were released across the year targeted at a number of communications sub-markets including satellite communications, wireless power telemetry networks and marine collision avoidance. Associated demonstration and development platforms were also released, including the Group's first Raspberry Pi platform bringing the advanced features of the CMX655D audio codec, launched during the prior year, to the Raspberry Pi community. The Raspberry Pi is a series of small single-board computers originally developed in the United Kingdom by the Raspberry Pi Foundation to promote teaching of basic computer science in schools and in developing countries. As time has progressed, alongside traditional educational use, more serious industrial and commercial uses are foreseen making it a viable solution for "IIoT" applications.
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 latter is required to meet the needs of the growing Machine-to-Machine ("M2M") and IIoT sectors.
Storage
The focus within the Storage market sector has been on expanding our product portfolio to include all major interface standards used within the target industrial end-markets and to ensure interoperation with all relevant third-party Flash Memory devices from a number of leading global suppliers. This enables customers to benefit from bill-of-materials cost efficiencies linked to new flash technologies.
Over the last few years, the product portfolio has transitioned from a narrow "Controller" product portfolio with only CompactFlash as the available interface, to an enlarged product range that now also includes USB, SD, SATA & MMC interface technologies. An associated proprietary Application Programmers Interface ("API") enables customers to either develop or "port" their own solutions to the Group's standard Controller solutions and benefit from the class-leading levels of reliability and durability that the Group's Hyperstone brand is becoming increasingly recognised for globally.
Storage revenue for the majority of the year continued to feel the combined effects of customer inventory over build and the economic trade conflict between the USA and China.  The challenges associated with this environment resulted in a revenue decline of 11% for the year as a whole to £11.41m (2019: £12.87m). That said, sales in the six months to March 31 2020 were up 12% sequentially following a stronger period of order bookings and subsequent shipments during the closing months of the year. As with the Communications sector, uncertainties persist around US-China trade relations but, encouragingly, there are one or two end application areas that are bucking the trend.
At the interim stage, we reported that 4G/5G infrastructure design wins and a number of industrial SATA SSD opportunities were poised to drive growth in the future. It is therefore pleasing to report that at the turn of the calendar year the situation began to improve, evidenced by increased order bookings and subsequent shipments related to a number of prior design wins in multi-year growth application areas, including 5G infrastructure and data security for point of sale applications. 
In November 2019 we announced mass production availability of the X1 SATA3 controller following its sampling availability in the early part of the calendar year. The product has subsequently achieved design-in status across a number of major industrial customers with several customer designs ongoing including mSATA and CFAST industrial form factors. Three new products were released over the period, targeted at specific Compact-Flash and USB host interface variants. Several new API customers were secured and the evolution of the hyMap firmware continued, specifically related to functionality and flash memory compatibility which are essential factors in the success of the complete controller product range. Advanced health monitoring and SMART tools were also developed to optimise Controller solutions for specific applications and ensure fail safe operation.
The industrial data storage market has 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.
 
Market developments
 
The underlying growth trends within our two main industrial application areas continue to strengthen and underpin confidence in our strategy. The persistent demand for increasing amounts of data to be transmitted and stored more quickly and securely remains. For Communications markets this equates to more product opportunities through higher speed requirements, enhanced error correction techniques and operation at higher radio frequencies where wider RF channels are permitted. Within industrial Storage markets, the transition to solid state technology from hard disk drives is well and truly underway at a time when our product portfolio has expanded, positioning the business well to capture share over time.
Operational developments
The performance of the business at an operational level has been particularly encouraging given the environment created by the COVID-19 pandemic. A new global Enterprise Resource Planning ("ERP") system that commenced live rollout in the prior calendar year has been successfully deployed throughout the Group with the exception of the China operations due to travel restrictions associated with COVID-19. That aside, the Group benefited from the efficiencies associated with running a unified system during the year. 
The Group has continued to perform well at an operational level with disciplined execution across a number of areas. The operations team overcame several challenges associated with a combination of temporary and permanent supplier factory closures across the year and it is a great credit to our operations team that impact on the business was limited.
The investments made in sales and marketing capabilities during prior years has helped to increase the pipeline of opportunities and improved our overall reach and routes to market. As a consequence, further enhancements and efficiencies were made to the sales channels over the last year, resulting in the appointment of additional distribution partners in the USA, the consolidation of existing sales channels within Europe and the closing of our own warehousing facility in North America. 
We periodically assess the wider resource levels and capabilities within the Group to ensure that they reflect the direction of travel on which the Group is heading. As a result, various changes have been made during the year, touching operations in the UK, Asia and the Americas. The resulting structure and associated capability mix positions us well for growth
Outlook
There is no hiding from the fact that the year under review has been difficult, and the current environment is delaying realisation of the benefits to come from the hard work taking place behind the scenes. 
The current financial year did commence with a healthier order book than the prior year, although it remains to be seen how this translates to actual market consumption as there may be an element attributable to COVID-19 related supply concerns amongst the customer base.
Nevertheless, following the operational adjustments made across the prior year, the business is tuned to react swiftly to a revival in demand and the Board remain convinced that a return to growth will be secured as conditions improve.
 
 
 
 
 
Chris Gurry
Group Managing Director




Consolidated income statement for the year ended 31 March 2020
 











Unaudited


Audited












2020


2019








Notes


£'000


£'000




Continuing operations
















Revenue 


1,2


26,420


28,140




Cost of sales 






(6,855)


(7,887)




Gross profit 






19,565


20,253




Distribution and administration costs 






(18,762)


(18,074)












803


2,179




Other operating income 






689


635




Profit from operations 






1,492


2,814




Share‑based payments






(139)


(117)




Profit after share‑based payments 






1,353


2,697




Profit on disposal of property


7


-


222




Profit on disposal of property, plant and equipment






11


-




Finance income 






106


64




Finance expense 






(96)


(1)




Profit before taxation 






1,374


2,982




Income tax credit / (expense) 


4


162


(288)




Profit after taxation 






1,536


2,694




Profit after taxation attributable to equity owners of the parent 






1,536


2,694




 
Basic earnings per share
















From profit for year 


5


8.98p


15.77p




Diluted earnings per share
















From profit for year 


5


8.94p


15.36p



 
 



Adjusted EBITDA
















Adjusted EBITDA for year


6


8,276


8,754



 
 
 
 




 
Consolidated statement of total comprehensive income for the year ended 31 March 2020
 
 











Unaudited


Unaudited


Audited


Audited












2020


2020


2019


2019












£'000


£'000


£'000


£'000




Profit for the year










1,536






2,694




Other comprehensive (expense)/income:
























Items that will not be reclassified subsequently to profit or loss:
























Actuarial loss on retirement benefit obligations






(995)






(1,317)








Deferred tax on actuarial loss 






187






224








Items reclassified subsequently to profit or loss upon derecognition:
























Foreign exchange differences 






308






104








Other comprehensive expense for the year net of taxation attributable to equity owners of the parent










(500)






(989)




Total comprehensive income for the year attributable to the equity owners of the parent










1,036






1,705



 




 
Consolidated statement of financial position as at 31 March 2020
 











Unaudited


Unaudited


Audited


Audited












2020


2020


2019


2019












£'000


£'000


£'000


£'000




Assets
























Non‑current assets
























Goodwill










10,741






9,235




Other intangible assets 










1,823






1,775




Development costs 










16,930






14,495




Property, plant and equipment 










4,976






5,307




Right-of-use assets










1,184






-




Investment properties 










3,170






3,170




Investments 










83






83




Deferred tax assets 










1,343






908
















40,250






34,973




Current assets
























Inventories 






2,390






2,882








Trade receivables and prepayments 






5,075






3,430








Current tax assets 






1,044






1,118








Cash and cash equivalents 






8,479






13,471




















16,988






20,901




Total assets 










57,238






55,874




Liabilities
























Current liabilities
























Bank loans and overdrafts 










-






662




Trade and other payables 










4,036






4,634




Lease liabilities










502






-




Current tax liabilities 










85






77




Provisions - current










-






195
















4,623






5,568




Non‑current liabilities
























Deferred tax liabilities 






4,960






4,420








Lease liabilities






568






-








Retirement benefit obligation 






4,697






3,548








Provisions - non current






-






16




















10,225






7,984




Total liabilities 










14,848






13,552




Net assets 










42,390






42,322




Capital and reserves attributable to equity owners of the parent












Share capital 










859






859




Share premium 










9,286






9,279




Capital redemption reserve










9






9




Treasury shares - own share reserve










(80)






(342)




Share‑based payments reserve 










582






507




Foreign exchange reserve 










1,714






1,406




Accumulated profits reserve










30,020






30,604




Total shareholders' equity 










42,390






42,322



 




 
Consolidated cash flow statement for the year ended 31 March 2020
 















 












Unaudited


Audited












2020


2019












£'000


£'000




Operating activities
















Profit for the year before taxation 






1,374


2,982




Adjustments for:
















Depreciation - on property, plant and equipment






397


400




Depreciation - on right-of-use assets






456


-




Amortisation of development costs 






5,708


5,146




Amortisation of intangibles recognised on acquisition and purchased






212


172




Profit on disposal of property, plant and equipment






(5)


(222)




Movement in non-cash items (pension)






154


161




Share‑based payments






139


117




Movement in provisions






-


(193)




Finance income






(106)


(64)




Finance expense






96


1




Movement in working capital






(1,868)


(1,743)




Cash flows from operating activities 






6,557


6,757




Income tax received






526


454




Net cash flows from operating activities 






7,083


7,211




Investing activities
















Acquisition of subsidiary, net of cash acquired






(1,295)


-




Purchase of property, plant and equipment 






(57)


(294)




Lease liability repayments






(682)


-




Investment in development costs






(7,936)


(7,169)




Investment in intangibles






(28)


(368)




Investment in loan note






(323)


-




Proceeds from disposal of property 






11


750




Finance income 






106


64




Finance expense 






(34)


(1)




Net cash flows used in investing activities 






(10,238)


(7,018)




Financing activities
















Issue of ordinary shares 






7


214




Purchase of own shares for treasury






-


(152)




Dividends paid to shareholders 






(1,332)


(1,332)




Net cash flows used in financing activities 






(1,325)


(1,270)




Decrease in cash and cash equivalents 






(4,480)


(1,077)




Movement in cash and cash equivalents:
















At start of year






12,809


13,816




Decrease in cash and cash equivalents 






(4,480)


(1,077)




Effects of exchange rate changes 






150


70




At end of year 






8,479


12,809










 
Cash flows presented exclude sales taxes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statement of changes in equity for the year ended 31 March 2020
 
 







































 








Share 


Share 


Capital 


Treasury


Share‑based 


Foreign 


Accumulated






 








capital


premium


redemption


shares


payments


exchange


profits






 
















reserve


reserve


reserve


reserve


reserve


Total


 








£'000 


£'000 


£'000


£'000


£'000


 £'000


 £'000


 £'000


 




At 31 March 2018 - audited


856


9,068


9


(190)


443


1,302


30,282


41,770


 




Profit for year 


























2,694


2,694


 




Other comprehensive income







































Foreign exchange differences 






















104






104


 




Net actuarial gain recognised directly to equity on retirement benefit obligations


























(1,317)


(1,317)


 




Deferred tax on actuarial gain


























224


224


 




 
Total comprehensive income for year


-


-


 
-


-


-


104


 
1,601


 
1,705


 








856 


9,068 


9


 (190)


443


1,406


31,883


43,475


 




Transactions with owners in

their capacity as owners
 


































 




Issue of ordinary shares


3


211






















214


 




Purchase of own shares - treasury














(152)














(152)


 




Dividend paid 


























(1,332)


(1,332)


 








































 




Total transactions with owners in their capacity as owners 


3


211


 
-


(152)


-


 
-


 
(1,332)


 
(1,270)


 




Share‑based payments in year 


















117










117


 




Cancellation/transfer of share‑based payments


















(53)






53


-


 




At 31 March 2019 - audited


859


9,279


9


(342)


507


1,406


30,604


42,322


 




Changes in accounting policy- IFRS 16


























(30)


(30)


 




Restated at 31 March 2019


859


9,279


9


(342)


507


1,406


30,574


42,292


 




Profit for year 


























1,536


1,536


 




Other comprehensive

income


























 




Foreign exchange differences






















308






308


 




Net actuarial gain recognised directly to equity on retirement benefit obligations


























(995)


(995)


 




Deferred tax on actuarial gain 


























187


187


 




 
Total comprehensive income for year


-


-


 
-


-


-


308


 
728


 
1,036


 








859 


9,279


9


(342)


507


1,714


31,302


43,328


 




Transactions with owners

in their capacity as owners


























 




Issue of ordinary shares - exercise of share options






7






















7


 




Purchase of own shares - treasury














262










(14)


248


 




Dividend paid 


























(1,332)


(1,332)


 




Total transactions with owners in their capacity as owners


-


7


 
-


262


-


 
-


 
(1,346)


 
1,077


 




Share‑based payment charge


















139










139


 




Cancellation/transfer of share‑based payments


















(64)






64


-


 




At 31 March 2020 - unaudited


859


9,286


9


(80)


582


1,714


30,020


42,390


 

















 




 
1 Segmental analysis
 
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 (C. A. 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.
Information about revenue, profit/loss, assets and liabilities
 







Unaudited 2020


Audited 2019








Semiconductor






Semiconductor












components


Group


components


Group








£'000


£'000


£'000


£'000




Total segmental revenue 


26,420


26,420


28,140


28,140




Profit




















Segmental result 


1,353


1,353


2,697


2,697




Finance income 






106






64




Finance expense 






(96)






(1)




Profit on disposal of property, plant and equipment






11






222




Income tax expense






162






(288)




Profit after taxation 






1,536






2,694




 
Assets and liabilities




















Segmental assets 


51,681






50,678
















51,681






50,678




Unallocated corporate assets




















Investment properties 






3,170






3,170




Deferred tax assets 






1,343






908




Current tax assets 






1,044






1,118




Consolidated total assets 






57,238






55,874




Segmental liabilities 


5,106






5,507
















5,106






5,507




Unallocated corporate liabilities




















Deferred tax liabilities






4,960






4,420




Current tax liabilities






85






77




Retirement benefit obligation 






4,697






3,548




Consolidated total liabilities 






14,848






13,552



 
Other segmental information







Unaudited 2020


Audited 2019








Semiconductor






Semiconductor












components


Group


components


Group








£'000


£'000


£'000


£'000




Property, plant and equipment additions


57


57


294


294




Right-of-use assets additions


86


86


-


-




Development cost additions 


7,936


7,936


7,169


7,169




Intangible asset additions


28


28


368


368




Depreciation 


397


397


400


400




Depreciation - right-of-use assets 


456


456


-


-




Amortisation of development costs


5,708


5,708


5,146


5,146




Amortisation of acquired and purchased intangibles


212


212


172


172




Other non‑cash expenditure (pension)


154


154


161


161



 
 
 
 
 
 
 
Geographical information (by origin)
 
 







UK 


Rest of Europe 


Americas 


Far East 


Total








£'000


£'000


£'000


£'000


£'000




Year ended 31 March 2020 - unaudited
























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




Intangibles - software and intellectual property


596


-


-


118


714




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






























Year ended 31 March 2019 - audited
























Revenue to third parties - by origin


7,419


6,051


5,207


9,463


28,140






























Property, plant and equipment 


4,941


260


66


40


5,307




Investment properties 


3,170


-


-


-


3,170




Development costs


5,359


9,136


-


-


14,495




Intangibles - software and intellectual property


611


-


-


-


611




Goodwill 


-


3,512


-


5,723


9,235




Other intangible assets arising on acquisition


-


-


-


1,164


1,164




Total assets


25,174


16,070


1,594


13,036


55,874












 
2 Revenue
 



The geographical classification of business turnover (by destination) is as follows:


 








 








Unaudited


Audited








2020


2019




Continuing business


 £'000


£'000




Europe 


7,844


7,201




Far East 


13,182


15,348




Americas 


4,907


5,251




Others 


487


340








26,420


28,140









 
3 Dividend - paid and proposed 
 
During the year a final dividend of 5.8p per ordinary share of 5p was paid in respect of the year ended 31 March 2019.  An interim dividend of 2.0p per ordinary was paid on 13 December 2019 to shareholders on the Register on 29 November 2019.  
 
It is proposed to pay a final dividend of 2.0p per ordinary share of 5p, taking the total dividend amount in respect of the year ended 31 March 2020 to 4.0p. It is proposed to pay the final dividend of 2.0p, if approved, on 7 August 2020 to shareholders registered on 24 July 2020 (2019: paid 5 August 2019 to shareholders registered on 5 July 2019). 




 
4 Income tax expense 
 
The Directors consider that tax will be payable at varying rates according to the country of incorporation of a subsidiary and have provided on that basis.  
 







Unaudited


Audited








2020


2019








 £'000


£'000




Current tax












UK corporation tax on results of the year 


(588)


(722)




Adjustment in respect of previous years 


-


4








(588)


(718)




Foreign tax on results of the year 


245


92




Foreign tax - adjustment in respect of previous years 


1


4




Total current tax 


(342)


(622)




Deferred tax












Deferred tax - Origination and  reversal of temporary differences


97


913




Deferred tax - relating to changes in rates


106


-




Adjustments to deferred tax charge in respect of previous years 


(23)


(3)




Total deferred tax


180


910




Tax (income)/ charge on profit on ordinary activities 


(162)


288



 
 
5 Earnings per share
 







Unaudited


Audited








2020


2019




Basic earnings per share












From profit for year


8.98p


15.77p




Diluted earnings per share












From profit for year


8.94p


15.36p



 
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 shown below:
 







Unaudited 2020


Audited 2019








Profit 


Weighted average number of shares 


Earnings
   per share


Profit 


Weighted average number of shares 


   Earnings 
  per share




Basic earnings per share


£'000


Number


p


£'000


Number


p




Basic earnings per share
 - from profit for year


 
1,536


 
17,099,216


 
8.98


 
2,694


 
17,087,788


 
15.77




 
Diluted earnings per share




























Basic earnings per share 


1,536


17,099,216


8.98


2,694


17,087,788


15.77




Dilutive effect of share options


-


88,355


(0.04)


-


448,311


(0.41)




Diluted earnings per share 
- from profit for year


 
1,536


 
17,187,571


 
8.94


 
2,694


 
17,536,099


 
15.36







 
6 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 years presented:
 







Unaudited


Audited








2020


2019








£'000


£'000




Profit after taxation (earnings)


1,536


2,694




Adjustments for:












Finance income 


(106)


(64)




Finance expense 


96


1




Income tax (expense)/credit 


(162)


288




Depreciation


397


400




Depreciation - right-of-use assets 


456


-




Amortisation of development costs


5,708


5,146




Amortisation of acquired and purchased intangibles recognised on acquisition


212


172




Share-based payments


139


117




Adjusted EBITDA


8,276


8,754



 
 
7 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 year. 
 
 
8 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 though their end-customers may be a diversified portfolio. 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.
 
Brexit
The Group has assessed the risks relating to Brexit and the impact it will have on its customer base and supply chain. Brexit developments are being monitored, and the risks status regularly assessed to respond to any market effects of uncertainty that may be caused by the outcome of the negotiations between the UK Government and the EU. 




 
COVID-19
During the period leading up to the date of this report the global impact of COVID-19 escalated. The Board have considered possible impacts of the COVID-19 outbreak on the Group's trading and cashflow forecasts. In preparing this analysis a number of scenarios were modelled based on the management's current understanding of potential income. In each scenario, mitigating actions within the control of management, including reductions in discretionary spend and tighter internal controls, have been modelled, but no fixed costs reductions have been assumed.
 
Given the nature of the markets we operate within, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some of the new products may be delayed, dampening demand for our semiconductors. Even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, along with product portfolio that addresses markets that have a positive outlook.
 
 
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 2019 financial statements with the exception of the adoption of IFRS 16 - Leases. The impact of the adoption is set out below:  
 
(i) IFRS 16 Leases
The Group has adopted IFRS 16 Leases for the financial year ending 31 March 2020, and it has chosen to use a modified retrospective approach to adoption. The approach adopted does not require the restatement of prior year figures. As a result of the fact the right-of-use assets are measured based on the lease commencement date compared to the lease liabilities being calculated based on the initial application date, there is an adjustment to brought forward reserves as shown in the condensed consolidated statement of changes in equity. 
 
·      Property leases
·      Office equipment leases
·      Motor Vehicle leases
·      Other leases
 
These leases have been recognised on the balance sheet, in financial liabilities, by recognising the future cash-flows of the lease obligation, discounted using an implicit interest rate of 4% for property leases, for office equipment and 7% for motor vehicles. These rates are in line with industry published discount rates.
 
Corresponding right-of-use assets have been recognised in the Group balance sheet for right-of-use assets property, office equipment and motor vehicles and have been measured as being equal to the discounted lease liability at the date of inception plus any lease payments made at or before the inception of the lease. Cash-flows from these leases have been recognised by including the lease payments in cash-flows from investing activities
 
As the Group has chosen to adopt IFRS 16 using the modified retrospective approach, comparatives have not been restated and are accounted for under the Group's previous lease accounting policy:
 
 
Under this approach, prior year figures have not been restated to reflect leases that were in effect at that time. On transition to IFRS 16, the group has applied the practical expedient of using a single discount rate to a portfolio of leases with reasonably similar characteristics:
 
·      Using a single discount rate to a portfolio of leases with reasonably similar characteristics.
 
·      The Group has chosen to transition all leases previously identified under IAS 17 to IFRS 16 and has not reassessed whether these contracts are leases.
 
·      Reliance on the assessment of onerous leases at the 31st March 2019 instead of performing an impairment review on transition at 1st April 2019.
 
·      In assessing the length of the lease, where options to extend or terminate the contract exist at the transition date these have been taken into account or the known length of the lease has been used.
 
 
 
 
 
 
 
 
Key judgements and estimates
The Group determines the lease term as the non-cancellable term of the lease together with any periods covered by an option to extend the lease it is reasonable certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonable certain not to be exercised.
Where the implicit rate of interest relating to a lease is not readily available, the Group has used a discounted rate of 4% for property leases and 7% for motor vehicles.











£'000




Undiscounted operating lease obligations as at 31 March 2019






1,038




Discounting 






(48)




Lease Liabilities at 1 April 2019






990



 
The effect of adoption of IFRS 16 as at 1st April 2019 increase/(decrease) is as follows:











£'000




Non-current assets












Right of use assets






960




Total assets






960


















Liabilities 












Lease liabilities






990




Total liabilities






990


















Equity












Reserves






(30)




Total Equity






(30)



 
10 Acquisition of Plextek RFI Limited
Following the acquisition announced on the 3 March 2020 and having satisfied the principal regulatory conditions and other transaction closing conditions, the Group took control (100% of voting rights) of UK based Plextek RFI Limited ("PRFI"). The total consideration was £1.9m, payable in cash and from issuing of treasury shares.
 
Founded in 2015, PRFI is a UK based design house specialising in the design and development of RF, Microwave and Millimetre-wave (mm-wave) ICs and modules.
 
The acquisition expands and strengthens the Group's product design capabilities. For this reason combined with the anticipated synergies to arise from integrating the PRFI business into existing Group businesses, the Group paid a premium over the acquisition net assets, giving rise to goodwill. All intangible assets in accordance with IFRS 3 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:











£'000




Property, plant and equipment






25




Intangible fixed assets:












Brands






37




Customer relationships






25




Intellectual property






175




Trade receivables and prepayments






187




Cash and cash equivalents






105




Trade and other payables






(101)




Deferred tax liabilities






(43)




Net assets acquired






410




Goodwill






1,531




Consideration






1,941



 
There are no non-controlling interests in relation to the PRFI 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:











£'000




Cash






1,693




Treasury shares issued 






248




Lease Liabilities at 1 April 2019






1,941



 
Net cash outflow arising on acquisition:











£'000




Cash consideration paid (less cash retention)






1,400




Cash and cash equivalents within PRFI business on acquisition






(105)




Total net cash outflow on acquisition






1,295



 
The cash consideration excludes a £100,000 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 £145,000. These costs have been charged in distribution and administrative expenses in the consolidated income statement.
 
PRFI has a 29 February 2020 financial period end, in the one month period to 31 March 2020, PRFI contributed revenue of £64,000 and net loss before taxation of £15,000. If PRFI was part of the group for the full reporting period the contributed revenue would have been £790,000 and net loss before taxation of £187,000.
 
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 2019 is based on the statutory accounts for the financial year ended 31 March 2019 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 2020 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 19 June 2020 and delivered to the Registrar of Companies following the Company's Annual General Meeting on 29 July 2020.
The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 March 2020 or 2019 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 preliminary results announcement on 8 June 2020.
 




 
Glossary
 
5G                           Fifth Generation Cellular Network Technology
API                          Application Programmers Interface
EBITDA                  Earnings before interest, tax, depreciation and amortisation 
EU                          European Union
DMR                       Digital Mobile Radio
GMP                       Guaranteed Minimum Pension 
GPS                        Global Positioning System
IAS                          International Accounting Standard
IC                            Integrated Circuit
IFRS                       International Financial Reporting Standards
IIoT                         Industrial Internet of Things
IP                            Intellectual Property
M2M                       Machine‑to‑machine
NAND                    Not And
OEM                       Original Equipment Manufacturer
P25                         Project 25 digital mobile radio public safety standard
R&D                        Research and Development
RF                           Radio Frequency
RTK                        Real-Time Kinematic
SATA                      Serial ATA interface
SD                          Secure Digital
TETRA                   Terrestrial Trunked Radio 
VP                           Vice-President
 
 
 
 
 
 
 
 
 
 
 
 
 


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  END
 
 
FR SSAFIAESSEDM