REG - CML Microsystems PLC - Full Year Results
05/07/2022 07:00
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RNS Number : 2788R CML Microsystems PLC 05 July 2022
05 July 2022
CML Microsystems Plc
("CML", the "Company" or the "Group")
Full Year Results
CML Microsystems plc (AIM: CML), which develops mixed-signal, RF and
microwave semiconductors for global communications markets, announces its
Full Year Results for the year ended 31 March 2022.
Financial Highlights
· Revenue increase to £16.96m (2021: £13.10m) with growth driven
by a recovery in the voice-centric markets
· Gross profit of £12.80m (2021: £9.46m) with a slightly improved
margin due to product mix delivered
· Net cash of £25.04m (2021: £31.9m) after a £9.0m dividend to
shareholders
· Profit before tax of £1.74m (2021: £0.01m) after accounting for
share-based payments and net finance income
· Recommended final dividend of 5p per ordinary 5p share
Operational Highlights
· Recovery from existing markets
· Expanded product range - increasing addressable market
· Strong investment in research and development
· Completed move from Main Market to AIM
Chris Gurry, Group Managing Director of CML Microsystems commented on the
results:
"This has been an encouraging year of growth for the business. The strength
and resilience of CML has been shown in the fact that despite having to
navigate a number of sector-wide headwinds, the Company has delivered
sustained levels of growth with key financial metrics increasing year-on-year.
Operationally, the Group is well positioned to take advantage of the
opportunity in both the traditional wireless voice and data market alongside
wider higher-frequency semiconductor markets which we have targeted as key
future growth areas. Our continued investment in research and development will
drive future progress and increase our addressable market through an expanded
product range. While the sector-wide challenges remain, we are very well
placed to continue executing on our growth strategy and to cement our position
as one of the first-choice semiconductor partners to technology innovators
across the globe."
Enquiries:
CML Microsystems Plc www.cmlmicroplc.com (http://www.cmlmicroplc.com/)
Tel: +44 (0) 1621 875 500
Chris Gurry, Group Managing Director
Nigel Clark, Executive Chairman
Shore Capital (Nominated Adviser and Sole Broker) Tel: +44 (0) 20 7408 4090
Toby Gibbs
James Thomas
John More
Alma PR Tel: +44 (0) 20 3405 0212
Josh Royston
Andy Bryant
Matthew Young
About CML Microsystems PLC
CML develops mixed-signal, RF and microwave semiconductors for global
communications markets. The Group utilises a combination of outsourced
manufacturing and in-house testing with trading operations in the UK, Asia and
USA. CML targets sub-segments within Communication 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 commercial and industrial
product manufacturers.
The spread of its customers and diversity of the product range 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 appetite for data to be transmitted faster and more securely, the
upgrading of telecoms infrastructure around the world and the growing
prevalence of private commercial wireless networks for voice and/or data
communications linked to the industrial internet of things (IIoT).
The Group is cash-generative, has no debt and is dividend paying.
CHAIRMAN'S STATEMENT
Introduction
I must apologise for the delay in publishing this year's results, but this was
due to the Group's auditor, BDO LLP (BDO), requesting additional time to
finalise their audit process and internal review procedures.
The world is clearly going through very unsettled times, with geopolitical
trade conditions persisting, the COVID-19 pandemic still impacting supply
chains and the conflict in Ukraine. Despite this backdrop and understanding
that we are not immune from these factors, we have delivered robust growth
this year. General inflationary pressure, a significant rise in energy costs
and ongoing supply problems present all of us with challenging times to
navigate. Notwithstanding that, the recovery within our markets continued
throughout the year. In what has been our first full financial year as a pure
play semiconductor business focused solely on the Communications Market, we
also ended the year with another record order book.
Last year was transformational for CML following the disposal of the Storage
Division and as a result we needed to address the composition of the Group and
its structure going forward. The move to the AIM, completed in early
September, was another important change. Finally, we remain in the process of
relocating certain operating companies to more appropriate premises and are in
a recruitment phase that will continue through the current year.
To execute our strategy, we are focused on simultaneously securing the
existing markets addressed whilst additionally identifying other areas within
the global communications sector where we see material potential. The
traditional markets have returned to growth and the newer markets, addressed
in part by our SµRF product range, are a step change larger, providing
opportunities of significant magnitude.
Results(1)
Despite the further substantial returns to shareholders and the investment in
new product development this year, we have ensured the balance sheet has
remained strong with relatively high levels of cash.
The business is now fully focused on communications semiconductor markets,
although this year's results do contain an element of rental income
(classified under "Other income") which will not be present in future years
following the disposal of one of the investment properties and the holding for
sale of the other. Additionally, this year, other income was bolstered by a
COVID loan subsequently forgiven in the USA, which is a one-off.
Revenues were £16.96m up 29% (2021: £13.10m), reflecting the recovery in our
existing end markets. The revenue increase, coupled with tight cost control,
yielded a considerable improvement in profit from operations. Profit before
tax grew to £1.74m (2021: £0.01m) and a resulting tax charge of £0.50m
delivered profit after tax of £1.24m (2021: £0.80m). During the comparable
period, profit attributable to shareholders was substantially boosted by the
disposal of the Storage Division and so this has consequently reduced to
£1.24m (2021: £23.56m). Net cash, cash equivalent and fixed term deposits
levels reduced to £25.0m (2021: £31.9m) after a final dividend payment of
£8.3m in August 2021 and an interim dividend of £0.7m paid in December 2021.
Property
Historically the Group has owned two investment properties from which it
previously traded. Changes in our business requirements led to them becoming
surplus to our operational needs and they were commercially rented to third
parties. At 31 March 2021, these properties were professionally revalued and,
with tenancies ending through the year under review, were put on the market
for sale. The property located in Witham, Essex was sold in January 2022 and
although we expected to sell the Fareham, Hampshire based property by the
financial year end, the sale did not materialise. Accordingly, the property is
now shown in the balance sheet as held for sale. The total rental income from
these two investment properties for the year to 31 March 2022 reduced to
£0.22m (2021: £0.34m) and will reduce to zero for the year ahead.
The Group headquarters at Oval Park, Maldon (circa 28-acre site) was acquired
in 1993 and the business relocated from Witham to the current facility during
the year ended 31 March 2000. The Oval Park site is designated employment land
in the Maldon District Plan and is excess to our trading requirements. Through
the year, we have worked to encourage other companies to join us here at Oval
Park and have signed sale contracts with two separate parties, subject to them
gaining appropriate planning permission for development on approximately 13
acres of land. We anticipate submission of a planning application in the
coming weeks which will include an outline planning application for a business
park development on the remaining excess land (circa 6 acres). This project is
not without cost, regardless of success or failure, and additionally will
involve an element of construction work around the Group's existing buildings.
However, if objectives are met, all excess land and property will be disposed
of during the financial year ahead.
Share Buyback Programme and Dividend
In April 2022, a £3.0m Share Buyback Programme was put in place for the
principal purpose of reducing the share capital of the Company and returning
funds to shareholders who sold their ordinary shares in the Company. During
April, the £3.0m was used in its entirety to repurchase 748,188 ordinary
shares and these shares were taken into treasury.
The Board strives to maintain a progressive dividend policy, with the dividend
level debated and set by the Board twice yearly, where all relevant factors
such as cash needs for the business, confidence in the future and overall cash
levels can be considered.
For the year-ended March 2020, following the onset of COVID-19, the full year
dividend was reduced to 4p (2019: 7.8p) as a measure of caution. For the year
ended March 2021, the Company returned excess cash to shareholders following
the sale of its Storage Division. As well as a one-off repayment of capital of
50p, shareholders then received a bumper final dividend of 50p, taking the
year's dividend total to 52p (interim 2p).
We have seen good progress this year and the confidence of the Board was
demonstrated at the half-year stage with a decision to increase the interim
dividend to 4p, which was subsequently paid in December 2021. Clearly the
years ended March 2020 and March 2021 were somewhat abnormal and current
global issues dictate an element of prudence, but the Board feels it should
continue to reflect the return of the Company to meaningful growth and its
confidence in the strategy being followed. After due consideration, the Board
has decided to recommend a 5p, final dividend taking the full year's dividend
to 9p. Subject to shareholder approval, the dividend will be paid to
shareholders on 19 August 2022 whose names appear on the register at close of
business on 5 August 2022, the shares will go ex-dividend on 4 August 2022.
ESG
CML takes its responsibilities for the environment and the wider stakeholder
community very seriously. For some years we have reviewed our greenhouse gas
emissions with the long-term objective of reducing them substantially by
following a practical and pragmatic approach, not simply a box-ticking route.
Through this year, apart from reviewing our consumption of energy and
considering what reductions in demand can be made by changing working
practices and methods, a number of initiatives have been completed. We now
have electric vehicle charging points for employees to use and over 40% of
Company-owned vehicles are hybrid or electric. This is coupled with a vehicle
replacement policy to encourage a move away from fossil fuels. Solar panels
have been installed to the roof of our Global Headquarters in Essex to provide
renewable energy during daylight hours and, where possible, lighting
throughout the facility has been switched to LED to reduce energy consumption.
CML has a diverse employee base from a multitude of nationalities and
ethnicities, and we actively promote the values of diversity and inclusion.
Incredibly important is employee development and throughout the pandemic we
have been especially mindful of this. Additionally, CML's position in the
local community is and always has been key and today we provide work
experience placements and sponsor local sports clubs.
Currently CML has a well-balanced Board between Executives and Independent
Non-Executive Directors, thus ensuring objectivity in decision-making. The
Directors are committed to high standards of corporate governance and
following the decision to move to AIM decided to apply the QCA Code, details
of which are set out on our website in the investor relations section.
Employees
The Board is very mindful that the success of any company is down to its
employees and at CML we have a team of talented and hard-working staff. We
have just finished another year of lockdowns and adjusted work routines
coupled with global travel restrictions meaning a reduction in face-to-face
meetings and efficiency, which tests the resilience of everyone. The Board
wishes to extend its thanks to each and every employee for the dedication,
enthusiasm and loyalty shown through this year, it is much appreciated.
Outlook
Our foundation for sustainable growth, which has been a key cornerstone of our
strategy for years, continues. The sustainable growth path needs not just be
organic; selected acquisitions at the right time and price could enhance and
accelerate our growth along with assisting the long-term sustainability of the
business. Potential opportunities fitting these criteria are constantly under
consideration and the ability to move quicky if opportunities materialise is
essential. To aid this, the substantial number of shares in treasury, coupled
with our relatively strong cash balance, provides the flexibility needed to
meet these goals.
The conflict in Ukraine, geopolitical instability, further disruption from the
pandemic, supply chain issues, inflation and energy problems are all closely
monitored and the Group's strategy and operational execution demonstrates our
resilience. These are tough times to navigate, but CML has solid foundations
and is pursuing numerous growth opportunities. We have a well-established
global market reach and a growing product portfolio addressing RF, Microwave
and Millimetre-wave application areas coupled with a strong product roadmap
defining our direction of travel. I can only reiterate what I said at the
interim stage, which is that the future has never been brighter for CML, and
we are confident in growth for both the full year ahead and in the longer
term.
1. (2021 comparatives relate only to continuing
operations)
Nigel Clark
Executive Chairman
OPERATIONAL AND FINANCIAL REVIEW
Introduction
For the year to 31 March 2022, the Group made tangible progress with its
growth strategy based around a singular focus on providing our customers with
class-leading semiconductor products for global Communications markets.
Fiscally, we started the trading year in a strong position, notwithstanding
the major return to shareholders that had already been made. The underlying
feeling was one of opportunity and optimism. The financial progress recorded
at the halfway stage was augmented by positive trading through the second
six-month period and, in terms of future growth prospects, the value and
quality of new business opportunities being actively managed improved.
The recovery of existing markets drove a strong new order intake, assisted by
new customer design-wins moving into the production phase and concerns around
supply chain constraints within the semiconductor market generally.
The improvement demonstrated within these results follows a multi-year period
of enduring headwinds. During this time, the Group has invested heavily in
research and development activities targeted at products and application areas
that are expected to drive growth over the coming years. The business
optimisation that took place prior to this year commencing, coupled with the
enhanced strategy now being followed, positions the Group well to deliver
significant, sustainable growth.
Global pandemic
The welfare and safety of our employees has been of paramount importance
throughout the pandemic and remains a priority. Our operations remain fully
functional, supported by prior IT investments and the ongoing utilisation of
partial work from home practices, where applicable.
Travel restrictions persist in some regions and have affected our ability to
mobilise and physically meet with customers, particularly where international
travel is required. However, our sales partners located within those regions
have helped minimise the impact on our customer base by continuing to offer a
level of domestic support. China's well publicised zero-COVID policy has
recently led to further lockdowns which has resulted in factory closures and a
reduced level of business activity.
On a global basis, there are several customers who are not yet allowing face
to face visits and ultimately, the conclusion drawn is that the situation will
remain fluid for some time.
The CML teams throughout the world continue to demonstrate a resilience and
dedication for which the Board are extremely thankful. They have continued to
work tirelessly under challenging circumstances and their commitment both to
CML and our customers has not wavered. As we continue to face the challenges
of COVID-19, including the ongoing risk of further rolling lockdowns, we do so
with the support of a dedicated, talented team around the world.
Russian conflict in Ukraine
Following Russia's invasion of Ukraine on 24 February 2022 and the sanctions
subsequently imposed, CML ceased sales into the Russian market. The impact of
that action resulted in an immaterial bad debt being recorded for the first
time in many years. The Group continues to adhere to applicable UK government
sanctions in force at any one time and future business plans take those
restrictions into account.
Strategy
The Group's vision is to be the first-choice semiconductor partner to
technology innovators, together transforming how the world communicates.
The focus is on our customers' success by delivering advantages through the
improved functionality and performance of class leading IC solutions. R&D
activity is targeted at developing the product portfolio to support emerging
and evolving customer requirements for size, cost and performance whilst
striving to remain our customer's first choice supplier within their advanced
communication platforms.
During the prior financial year, our strategy evolved to include the
development and market launch of the SµRF product portfolio to address higher
frequency (microwave/millimetre wave) and wider bandwidth wireless
applications. Added to the existing elements of the Group's expansion
objectives, the growth strategy currently consists of four key areas for
R&D investment:
1. "Defend and grow" revenues in core CML markets.
2. Develop a portfolio of new products to expand the addressable market
(SµRF).
3. Selected "other" product initiatives to expand into new high growth
markets.
4. Internal research and innovation to maintain product superiority and
suitability.
In today's world, "connected everything" is propelling exponential increases
in data consumption, driving growth across wireless communications markets
globally. We are expanding our total addressable market having enlarged our
market focus to include applications within the so-called mega trend areas of
Industrial Internet of Things (IIoT), 5G and Industry 4.0. This complements
the historic market areas of public safety, maritime and mission critical
wireless voice and data communications, leveraging our systems knowledge,
engineering capabilities and routes to market.
Markets and operations
For the comparable period, revenues from voice-centric wireless applications
were heavily impacted by the pandemic, with the situation across a wide range
of data-centric customers somewhat mixed. As the year progressed, conditions
improved within the Group's established end markets for both professional
voice and industrial data communications products, supported by initial
revenues from the introduction of the SµRF product range.
The Communications market is demonstrating 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
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. Ancillary markets continue to develop which serves to
maintain the very fragmented nature of the Group's communications markets. New
product releases in recent years are expected to capture a higher share of a
growing market over time.
In addition to the traditional wireless voice and data market areas served,
our plan to significantly widen the product portfolio and address broader
application areas is being achieved through a combination of resource blend
and new customer engagements.
Under our established growth strategy, the addressable semiconductor market
includes a number of key future growth areas, including critical
infrastructure (public utilities, smart grid, RFID), 5G (repeaters, small/pico
cells, fixed wireless access) and satellite communications (terminals,
broadband access). The Group's total addressable market (TAM) has recently
expanded to a value exceeding $1bn through an enlarged product portfolio.
Through the year under review, a number of new integrated circuits (ICs) were
released or priority sampled to market. As an example, to deal with the future
needs of 5G networks that will operate on millimetre wave radio frequencies,
the Group sampled a suitable Power Amplifier solution to selected customers
that addresses the need to meet demanding technical specifications but with
better efficiency leading to reduced heat generation. The higher frequencies
that future 5G products will utilise offer higher data rates, greater
capacity, better quality and lower latency.
For satellite communication applications in the form of ground-based terminals
and reception equipment, engineering activities have been underway for some
time that are expected to lead to meaningful revenue generation in the years
ahead. Aside from technical performance and commercial competitiveness, the
focus on our customers' success and our inherent partnership capabilities are
key factors that are setting CML aside from our competition and this bodes
well for the future growth of the business.
Customer adoption of the Group's products marketed under the SµRF brand
continues to gather pace. First orders received from early-stage adopters were
shipped during the second half of the year, as planned and an acceleration in
the number of new product releases is expected as we move forward. In addition
to the SµRF product range, we continue to actively invest in new platform
technology and differentiated wireless/baseband products to gain market share
in a combination of existing and new end application areas. These new releases
build upon prior year investments and product introductions that also serve to
increase the number of market opportunities we can service.
Operationally, it has been challenging to address the increased demands placed
upon the team through what is a rapid expansion of the product range. It is
once again essential to acknowledge the efforts being expended in that regard
and its importance towards maximising our chances of success in the future.
Following corporate acquisition and disposal events over the last two years,
the Group has now rebalanced its internal design skills and operational
capabilities to be in tune with its current growth strategy. One of our
guiding principles is to foster a culture of quality with a sense of urgency
and that principle is key to future success.
The Group continues to invest significant effort in ensuring global sales
channels are appropriate for the direction of travel that the business is
taking. Where possible, those channels are being exploited to good effect as
the release of new products gathers pace, although the process is one of
evolution and refinement. As reported at the interim stage, customer reach has
been extended further through a widening of the existing agreement with RFMW
to become a global partner, along with the addition of several new
manufacturers' representatives in the Americas region.
Extended delivery lead times from raw material suppliers and third-party
manufacturing services companies continue to be a factor across the
semiconductor industry. The Group has navigated that situation comparatively
well so far and we remain well placed for this to continue, supported by the
prior decision to maintain higher levels of raw material inventory.
Notwithstanding that, it is important to recognise that our semiconductor
solutions are a sub-set of the electronic components that customers need in
order to successfully produce their own products. Their failure to secure the
other components required could have an impact on Group sales. Capacity
constraints in the supply chain could well continue beyond the end of this
calendar year.
Outlook
Financially, the current trading year has started well, backed by a strong
order book stretching beyond twelve months. The Group's traditional voice
markets have recovered nicely and demand from our data-centric customer base
is at a healthy level. The expansion into wider markets through
microwave/millimetre wave product developments is well underway.
Operationally, the efforts being made towards capturing the growth
opportunities already identified are expected to bear fruit and the pipeline
of opportunity continues to grow.
Clearly headwinds and risks remain, including potential pandemic lockdowns,
the current economic outlook and geopolitical uncertainties. That said,
relatively similar conditions have been in place across each of the last two
financial years and they are again factored into growth expectations for the
year ahead. The Group is making good advances and has a well-seasoned team
navigating the business.
Subject to unforeseen circumstances, the Board remains confident that the year
ahead will deliver a firm improvement in results, both financially and
operationally.
Financial review(1)
The change in Auditor, ratified through the year under review, has resulted in
a restatement of some of the prior year's figures. The changes include the
treatment of other income and the movement of share-based payments within the
income statement, along with the reclassification of certain cash balances
that are on deposit and a change to the capital redemption reserve within the
consolidated statement of financial position. The changes have no effect on
the profit before tax or the value of net assets previously reported.
Group turnover for the year to 31 March 2022 was £16.96m representing an
increase of 29% against the prior full year period (2021: £13.10m), with the
second half slightly stronger than the first. Revenue growth was driven by a
recovery in the voice-centric markets coupled with a strong contribution from
those customers active within M2M/IIoT market areas. Geographically, shipments
improved in each major region, namely Asia, Europe and the Americas although
it is important to note that annual revenue comparisons by region can be
misleading because customers can and do alter their manufacturing locations
periodically.
Higher sales and a slightly improved margin due to product mix delivered a
Gross Profit of £12.80m, representing an increase of 35% year-on-year (2021:
£9.46m). This is a pleasing outcome given the raw material price increases
encountered over the past 18 months and the need to impose price increases
across the Group's product range on more than one occasion. The year ahead
will encounter higher inventory costs if the current strength of the US dollar
is maintained, and an element of allowance has been made within the Group's
growth expectations.
Customer dependency for the year reflected the strength in depth of the very
fragmented markets being addressed, with only one customer accounting for
between 10 and 15% of Group revenues and only two customers in the 5% to 7%
range.
Distribution and administration costs rose to £11.56m (2021: £10.57m) with
the majority of the increase attributable to a number of non-recurring
expenses. These included the move across to an AIM listing from the standard
segment of the Main Market, property-related activities associated with a
Planning application on the Group's 28-acre Essex site and various legal costs
associated with an investment property sale and operating company leases.
These costs, when combined with an impairment and write off of £0.39m
following a review of engineering projects, exceeded the overall increase in
distribution and administration expenses year-on-year.
Research and development expenditure for the year was steady at £4.79m (2021:
£4.90m). Of this amount, £1.26m was expensed (2021: £0.93m) and £3.53m was
capitalised under the Group's research and development policy.
An expense of £0.10m was recognised for share-based payments (2021: £0.14m).
Strong revenue growth coupled with a relatively stable cost base led to a
significant swing in operational profitability, moving from a loss of £0.98m
for FY21 to a profit of £1.21m for FY22. This was a very pleasing outcome for
what is a key performance measurement.
Not to be confused with the previously referenced other operating income, the
Group also receives other income from the rental of two commercial property
assets that have been surplus to operational requirements for some years.
Rental income for the year amounted to £0.22m in comparison with a prior year
figure of £0.34m. The reduction in rental income was due to one of the two
property assets being disposed of through the period, generating a cash inflow
of £1.75m. The remaining commercial property asset has been reclassified as
held for sale with a market valuation of £1.98m.
In addition to rental income, the Group benefited from forgiveness of a US
government grant previously received under the COVID-19 Paycheck Protection
Program amounting to £0.29m. The total sum recorded under other income was
£0.50m (2021: £0.37m).
Net finance income of £0.07m (2021: £0.04m) along with a small loss of
£0.05m upon sale of the investment property led to profit before taxation
advancing to £1.74m against what was essentially a break-even year for the
continuing business for the previous financial year.
The Group continued to benefit from UK tax credits associated with some of its
research and development activities, albeit at a lower level than the prior
year. Additionally, the need to provide for the expected increase in
corporation tax from 19% to 25% through to 2025 led to a deferred tax charge
(non-cash) of £0.45m (2021: £0.09m). Overall, an income tax charge of
£0.50m was recorded against a prior year credit of £0.79m.
Profit after tax amounted to £1.24m (2021: £0.80m), an improvement of 54%,
with basic EPS rising 55% to 7.45p (2021: 4.81p).
The Group's cash reserves as at 31 March 2022 stood at £25.04m, representing
a reduction of £7.86m when compared to one year earlier (31 March 2021:
£32.20m). The balance reported arises after a research and development spend
of £4.79m, dividend payments totalling £8.96m and a £1.10m investment in
plant and equipment, including the ongoing expansion of the Group's
capabilities to incorporate the evaluation and testing of microwave and
millimetre wave semiconductor products and installation of solar panels at the
Group's headquarters in Essex. Cash inflows included the sale of an investment
property for £1.75m along with early repayment of a £0.29m loan note
associated with a potential acquisition that did not materialise.
Inventory levels continue to be maintained at relatively high levels, helping
to reduce the impact of ongoing capacity issues within the semiconductor
market generally and also in support of an expanding product range. At 31
March 2022, inventories were valued at £2.26m (2021: £1.45m) with the
increases attributable across raw materials, work in progress and finished
goods collectively.
The Group has a historic final pension scheme that has been closed to new
members and future accrual for many years. Along with the Company, the
Trustees and their professional advisors have worked diligently in recent
years to achieve the right balance between adequate scheme funding and
business growth objectives. As a result, the scheme funding position has
improved and for the year under review a deficit of £2.44m has been recorded
under IAS 19 (2021: £5.57m).
Separately, the most recent actuarial report carried out by an independent
professionally qualified actuary, as at 31 March 2022, resulted in a net
pension surplus estimate of £1.09m (estimate 31 March 2021: £0.47m). The
market value of the assets of the scheme were sufficient to cover 105% of the
benefits accrued to members, after allowing for future increases in these
benefits.
The £1.09m pension surplus calculated under the funding valuation basis above
is different to the accounting valuation presented in the Group consolidated
balance sheet, which shows a net pension liability of £2.44m. Differences
arise between the funding valuation and accounting valuation, mainly due to
the use of different assumptions in valuing the liabilities in accordance with
the accounting standard IAS 19 Retirement Benefits.
All administrative expenses of running the pension scheme are met directly by
the scheme along with pension protection fund levies.
1. (2021 comparatives relate only to continuing
operations)
Chris Gurry
Group Managing Director
Consolidated income statement for the year ended 31 March 2022
2022 2021
Restated
Notes £'000 £'000
Continuing operations
Revenue 1,2 16,964 13,101
Cost of sales (4,169) (3,646)
Gross profit 12,795 9,455
Distribution and administration costs (11,562) (10,567)
Share‑based payments (98) (143)
1,135 (1,255)
Other operating income 79 278
Profit / (Loss) from operations 1,214 (977)
Other income 500 370
Revaluation of investment properties 8 - 579
Loss on sale of investment properties (50) -
Finance income 106 75
Finance expense (33) (37)
Profit before taxation 1,737 10
Income tax (charge) / credit 4 (499) 792
Profit from continuing operations 1,238 802
Profit from discontinued operations 7 - 22,762
Profit after taxation attributable to equity owners of the parent 1,238 23,564
The Consolidated Income Statement has been restated for year ended 31 March
2021. See note 12 for further details.
Earnings per share for profit from continuing operations attributable to the
ordinary equity holders of the Company:
Basic earnings per share 5 7.45p 4.81p
Diluted earnings per share 5 7.35p 4.79p
Earnings per share for profit attributable to the ordinary equity holders of
the Company:
Basic earnings per share 5 7.45p 141.13p
Diluted earnings per share 5 7.35p 140.56p
( )
The following measure is considered an alternative performance measure not a
generally accepted accounting principle. This ratio is useful to ensure that
the level of borrowings in the business can be supported by the cashflow in
the business. For definition and reconciliation see note 6.
Adjusted EBITDA 6 4,308 2,731
Consolidated statement of total comprehensive income for the year ended 31
March 2022
2022 2022 2021 2021
£'000 £'000 £'000 £'000
Profit for the year 1,238 23,564
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit obligation 3,307 (897)
Deferred tax on actuarial loss (827) 170
Change in deferred tax rate on defined benefit obligation 345 -
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences 880 (312)
Reclassification of foreign exchange differences on discontinued operations (1,100)
-
Other comprehensive expense for the year net of taxation attributable to 3,705 (2,139)
equity owners of the parent
Total comprehensive income for the year attributable to the equity owners of 21,425
the parent
4,943
Total comprehensive income for the year attributable to the equity owners of
the parent
Continuing operations 4,943 (237)
Discontinued operations - 21,662
4,943 21,425
Consolidated statement of financial position as at 31 March 2022
2022 2022 2021 2021
Restated Restated
£'000 £'000 £'000 £'000
Assets
Non‑current assets
Goodwill 7,531 7,072
Other intangible assets 1,119 1,276
Development costs 11,197 9,191
Property, plant and equipment 5,593 4,864
Right-of-use assets 458 409
Investment properties - 3,775
Deferred tax assets 1,550 1,531
27,448 28,118
Current assets
Investment properties - held for sale 1,975 -
Inventories 2,258 1,450
Trade receivables and prepayments 2,199 2,434
Current tax assets 409 1,046
Cash and cash equivalents 19,084 22,046
Short term cash deposits 5,958 10,150
31,883 37,126
Total assets 59,331 65,244
Liabilities
Current liabilities
Bank loans and overdrafts - 282
Trade and other payables 2,827 3,081
Lease liabilities 230 183
Current tax liabilities 42 80
3,099 3,626
Non‑current liabilities
Deferred tax liabilities 3,702 2,339
Lease liabilities 238 262
Retirement benefit obligation 2,439 5,570
6,379 8,171
Total liabilities 9,478 11,797
Net assets 49,853 53,447
Capital and reserves attributable to equity owners of the parent
Share capital 865 859
Share premium 1,362 1,039
Capital redemption reserve 8,285 8,285
Treasury shares - own share reserve (1,670) (1,670)
Share‑based payments reserve 490 570
Foreign exchange reserve 1,182 302
Accumulated profits reserve 39,339 44,062
Total shareholders' equity 49,853 53,447
The Consolidated Statement of Financial Position has been restated for year
ended 31 March 2021. See note 12 for further details.
Consolidated cash flow statement for the year ended 31 March 2022
2022 2021
Restated
£'000 £'000
Operating activities
Profit for the year before taxation - continuing operations 1,737 10
Profit for the year after taxation - discontinued operations - 22,762
Adjustments for:
Depreciation - on property, plant and equipment 375 370
Depreciation - on right-of-use assets 258 438
Impairment of development costs 123 701
Amortisation of development costs 1,507 3,789
Amortisation of intangibles recognised on acquisition and purchased 283 212
Profit on disposal of property, plant and equipment - 16
Loss on disposal of investment properties 50 -
Revaluation of investment properties - (579)
Gain on disposal of discontinued operations - (21,740)
Rental income (215) (344)
Forgiveness US PPP loan (284) -
Movement in non-cash items (Retirement benefit obligation) 176 201
Share‑based payments 98 143
Finance income (106) (75)
Finance expense 33 37
Movement in working capital (1,025) 1,388
Cash flows from operating activities 3,010 7,329
Income tax received 905 494
Net cash flows from operating activities 3,915 7,823
Investing activities
Disposal of business (net of expenses) - 33,261
Acquisition of subsidiary, net of cash acquired - (100)
Proceeds from sale of investment 1,750 -
Purchase of property, plant and equipment (1,105) (390)
Investment in development costs (3,532) (7,270)
Repayment / (Investment) in fixed term deposits 4,192 (10,150)
Repayment of Investment loan note 293 -
Investment in intangibles - 25
Rental income 215 344
Finance income 106 75
Net cash flows from / (used in) investing activities 1,919 15,795
Financing activities
Lease liability repayments (287) (556)
Proceeds from borrowings - 282
Issue of ordinary shares 329 29
Purchase of own shares for treasury - (1,590)
Dividends paid to shareholders (8,964) (674)
Share capital redemption - (8,276)
Finance expense - (15)
Net cash flows used in financing activities (8,922) (10,800)
Increase / (decrease) in cash and cash equivalents (3,088) 12,818
Movement in cash, cash equivalents and fixed term deposits:
At start of year 22,046 8,479
(Decrease) / increase in cash, cash equivalents and fixed term deposits (3,088) 12,818
Effects of exchange rate changes 126 749
At end of year 19,084 22,046
The Consolidated and Company cash flow statements have been restated for year
ended 31 March 2021. See note 12 for further details
Cash flows presented exclude sales taxes.
Consolidated statement of changes in equity for the year ended 31 March 2022
Share- Foreign
Share Share Redemption Treasury based exchange Retained
capital premium reserve shares payments reserves earnings Total
£'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 year 23,564 23,564
Other comprehensive
income
Foreign exchange differences (312) (312)
Foreign exchange differences discontinued operations (1,100)
(1,100)
Net actuarial gain recognised directly to equity on retirement benefit (897) (897)
obligations
Deferred tax on actuarial gain 170 170
Total comprehensive income for year capacity as owners - - - - (1,412)
- 22,837 21,425
859 9,286 9 (80) 582 302 52,857 63,815
Transactions with owners in their capacity as owners
Issue of ordinary shares 29 29
Purchase of own shares - treasury (1,590) (1,590)
Issue of B shares 8,276 (8,276) -
Share capital redemption (8,276) 8,276 (8,276) (8,276)
Dividend paid (674) (674)
Total transactions with owners in their capacity as owners - (8,247) (1,590) -
8,276 - (8,950) (10,511)
Share‑based payments in year 143 143
Cancellation/transfer of share‑based payments (155) 155 -
At 31 March 2021 (restated) 859 1,039 8,285 (1,670) 570 302 44,062 53,447
Profit for year 1,238 1,238
Other comprehensive
income
Foreign exchange differences 880 880
Net actuarial gain recognised directly to equity on retirement benefit 3,307 3,307
obligations
Deferred tax on actuarial gain (827) (827)
Change in deferred tax rate on defined benefit obligation
345 345
Total comprehensive income for year capacity as owners
- - - - - 880 4,063 4,943
Transactions with owners
in their capacity as owners
859 1,039 8,285 (1,670) 570 1,182 48,125 58,390
Issue of ordinary shares - exercise of share options
6 323 329
Dividend paid (8,964) (8,964)
Total transactions with owners in their capacity as owners
6 323 - - - - (8,964) (8,635)
Share‑based payment charge - - - - 98 98
Cancellation/transfer of share‑based payments
- - - - (178) 178 --
At 31 March 2022 865 1,362 8,285 (1,670) 490 1,182 39,339 49,853
The Consolidated Statement of Changes in Equity has been restated for year
ended 31 March 2021. See note 12 for further details
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 operating segment, which
is reported as the semiconductor segment, with similar economic
characteristics, risks and returns, and the Directors therefore consider there
to be one single segment, being semiconductor components for the
communications industry.
Geographical information (by origin)
UK Americas Far East Total
£'000 £'000 £'000 £'000
Year ended 31 March 2022
Revenue to third parties - by origin 4,569 2,572 9,823 16,964
Property, plant and equipment 5,504 12 77 5,593
Right-of-use assets 227 60 171 458
Investment properties - - - -
Investment properties - held for sale 1,975 - - 1,975
Development costs 9,714 - 1,483 11,197
Intangibles - software and intellectual property 243 - 96 339
Goodwill 1,531 - 6,000 7,531
Other intangible assets arising on acquisition 184 - 596 780
Total assets 46,024 1,163 12,144 59,331
Year ended 31 March 2021
Revenue to third parties - by origin (restated) 5,867 1,624 5,610 13,101
Property, plant and equipment 4,753 22 89 4,864
Right-of-use assets 90 255 64 409
Investment properties 3,775 - - 3,775
Development costs 7,942 - 1,249 9,191
Intangibles - software and intellectual property 264 - 101 365
Goodwill 1,531 - 5,541 7,072
Other intangible assets arising on acquisition 210 - 701 911
Total assets 52,228 2,467 10,549 65,244
2 Revenue
The geographical classification of business turnover (by destination) is as
follows:
2022 2021
Restated
Continuing business £'000 £'000
Europe 3,705 2,996
Far East 9,603 7,636
Americas 2,901 2,000
Others 755 469
16,964 13,101
3 Dividend - paid and proposed
During the year a final special dividend of 50.0p per ordinary share of 5p was
paid in respect of the year ended 31 March 2021. An interim dividend of 4.0p
per ordinary share was paid on 17 December 2021 to shareholders on the
Register on 3 December 2021.
It is proposed to pay a final dividend of 5.0p per ordinary share of 5p,
taking the total dividend amount in respect of the year ended 31 March 2022 to
9.0p. It is proposed to pay the final dividend of 5.0p, if approved, on 19
August 2022 to shareholders registered on 5 August 2022 (2021: paid 13 August
2021 to shareholders registered on 30 July 2021).
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.
2022 2021
£'000 £'000
Current tax
UK corporation tax on results of the year (415) (1,089)
Adjustment in respect of previous years (6) (37)
(421) (1,126)
Foreign tax on results of the year 121 248
Total current tax (300) (878)
Deferred tax
Deferred tax - Origination and reversal of temporary differences 6 91
Change in deferred tax rate 833 -
Adjustments to deferred tax charge in respect of previous years (40) (5)
Total deferred tax 799 86
Tax expense / (income) on profit on ordinary activities 499 (792)
5 Earnings per share
2022 2021
Earnings per share for profit from continuing operations attributable to the
ordinary equity holders of the Company:
Basic earnings per share 7.45p 4.81p
Diluted earnings per share 7.35p 4.79p
The calculation of basic and diluted earnings per share is based on the profit
from continuing operations attributable to ordinary shareholders, divided by
the weighted average number of shares in issue during the year, as shown
below:
2022 2021
Profit Weighted average number of shares Earnings Profit Weighted average number of shares Earnings
per share per share
Basic earnings per share £'000 Number p £'000 Number p
Basic earnings per share
- from profit for year 1,238 16,628,301 7.45 802 16,696,060 4.81
Diluted earnings per share
Basic earnings per share 1,238 16,628,301 7.45 802 16,696,060 4.81
Dilutive effect of share options - 219,951 (0.10) - 67,886 (0.02)
Diluted earnings per share
- from profit for year 1,238 16,848,252 7.35 802 16,763,946 4.79
2022 2021
Earnings per share for profit attributable to the ordinary equity holders of
the Company:
Basic earnings per share 7.45p 141.13p
Diluted earnings per share 7.35p 140.56p
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:
2022 2021
Profit Weighted average number of shares Earnings Profit Weighted average number of shares Earnings
per share per share
Basic earnings per share £'000 Number p £'000 Number p
Basic earnings per share
- from profit for year 1,238 16,628,301 7.45 23,564 16,696,060 141.13
Diluted earnings per share
Basic earnings per share 1,238 16,628,301 7.45 23,564 16,696,060 141.13
Dilutive effect of share options - 219,951 (0.10) - 67,886 (0.57)
Diluted earnings per share
- from profit for year 1,238 16,848,252 7.35 23,564 16,763,946 140.56
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:
2022 2021
£'000 £'000
Profit before taxation (earnings) 1,737 10
Adjustments for:
Finance income (106) (75)
Finance expense 33 37
Depreciation 375 310
Depreciation - right-of-use assets 258 202
Impairment of development costs 123 701
Amortisation of development costs 1,507 1,191
Amortisation of acquired and purchased intangibles recognised on acquisition 283 212
Share-based payments 98 143
Adjusted EBITDA 4,308 2,731
7 Cash, cash equivalents and fixed term deposits
2022 2021
Restated
£'000 £'000
Cash on deposit 10,275 10,288
Cash at bank 8,809 11,758
19,084 22,046
Short term cash deposits 5,958 10,150
25,042 32,196
8 Discontinued Operations
On 10 December 2020, the Group announced it had entered into a definitive
agreement to divest its Storage Division, Hyperstone.
Hyperstone was sold on 4 February 2021 and is reported in the prior year as a
discontinued operation. The discontinued operations generated a profit
£22,762,000 and a total cash inflow of £33,554,000 with a gain on sale after
income tax of £21,740,000. Full details can be found in the statutory
accounts for the year ended 31 March 2021 available at www.cmlmicroplc.com.
9 Investment properties
During the year an investment property was sold with proceeds of £1,750,000.
This sale generated a loss on disposal of £50,000. The remaining investment
property has been reclassified and is now held for sale.
Investment properties were measured at current market valuation. No
depreciation is provided on freehold investment properties or on long
leasehold investment properties. In accordance with IAS 40, gains and losses
arising on revaluation of investment properties are shown in the income
statement. The open market valuation value of the investment properties
recognised is £Nil (2021: £3,775,000).
The investment property was reclassified on 31 March 2022 as held for sale as
the property became vacant with no prospective tenant in place and is held
based upon the current market valuation methodology. The property is currently
expected to sell within the next twelve months. Investment properties held for
sale £1,975,000 (2021: £Nil).
10 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.
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.
COVID-19
Following the effect of the COVID-19 pandemic, the Group followed the guidance
of the World Health Organization and other government health agencies in
safeguarding the health and wellbeing of its employees and continue to operate
a hybrid working policy. The Group did not make use of the government's staff
retention schemes in the UK, nor make any redundancies. In the United States,
the government provided support in the form of a loan under the Paycheck
Protection Program ($388,400) which was forgiven on 23 May 2021.
There continues to be localised COIVID outbreaks, and the Board closely
monitors the impact taking prudent steps to mitigate any potential impacts to
our employees, customers, suppliers and other stakeholders. The Group remains
prepared to implement appropriate mitigating strategies to minimise any
potential business disruption.
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 a product portfolio that addresses markets that have a
positive outlook.
Russia and Ukraine conflict
Following Russia's invasion of Ukraine, the Group took the decision to cease
all supplies to customers based in Russia, resulting in the non-payment of a
debt totalling £16,000 ($20,000) which has been fully provided for.
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. The Group's
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.
11 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 2022
financial statements
12 Prior year restatement
The financial statements for year ending 31 March 2021 have been restated as
follows:
The Consolidated Statement of Comprehensive Income
Third-party product re-sales have been reclassified from other operating
income to revenue and presented on a gross basis to correctly reflect the
group's role as principal in a revenue arrangement. In the prior year, Revenue
of £631,000 and Cost of sales of £449,000 were presented net as other
operating income. This has now been correctly classified as Revenue and Cost
of sales respectively on a gross basis in the restated statement of
comprehensive income. The reclassification of these items has had no effect on
the profit before taxation or net assets.
Rental income and government grants have been reclassified as other income to
be excluded from profit / (loss) from operations, having previously been
incorrectly classified as other operating income before profit / (loss) from
operations. The reclassification has resulted in an increase in the loss on
operations of £370,000.
Share-based payment expense was incorrectly presented below profit/(loss) from
operations. They have been reclassified to be included within profit/(loss)
from operations to properly reflect the nature of the expense. This has
resulted in an increase in the loss from operations of £143,000.
The reclassification of the rental income, government grants income and share
based payment expenditure provides a better measure of operating profit/(loss)
in the consolidated statement of comprehensive income. The reclassification of
these items has had no effect on the profit before taxation or net assets.
The Consolidated statement of financial position
An omission of a transfer within the statement of changes in equity in
relation to the B shares that were issued, redeemed, and subsequently
cancelled has been corrected. The adjustment recognises a transfer of
£8,276,000 from retained earnings to the capital redemption reserve as
required by the Companies Act 2006 and has had no effect on the profit before
taxation or net assets.
Short term cash deposits with initial maturity of more than 3 months were
incorrectly included within cash and cash equivalents. Therefore, the short
term cash deposits of £10,150,000 have been reclassified as financial assets.
The Consolidated cash flow statements
Short term cash deposits totalling £10,150,000 with initial maturity of more
than 3 months were incorrectly included within cash and cash equivalents. Cash
flows from investing activities have therefore been corrected to reflect the
movements in the short term cash deposits instead of reflecting these in cash
and cash equivalents. Cash flows from rental income have been reclassified as
investing activities from operating activities. The reclassification of these
items has had no effect on the profit before taxation or net assets.
The Consolidated statement of changes in equity
An omission of a transfer within the statement of changes in equity in
relation to the B shares that were issued, redeemed, and subsequently
cancelled has been corrected. The adjustment recognises a transfer of
£8,276,000 from retained earnings to the capital redemption reserve as
required by the Companies Act 2006 and has had no effect on the profit before
taxation or net assets.
13 General
These Condensed Consolidated Financial Statements have been prepared in
accordance with UK adopted International Accounting Standards and are in
conformity with the requirements of the Companies Act 2006. They do not
include all of the information required for full annual statements and should
be read in conjunction with the 2022 Annual Report.
The comparative figures for the financial year 31 March 2021 have been
extracted from the Group's statutory accounts for that financial year. The
statutory accounts for the year ended 31 March 2021 have 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 2022 were approved by the
Board of Directors on 4 July 2022 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 10 August 2022.
The financial information contained in this announcement does not constitute
statutory accounts for the year ended 31 March 2022 or 2021 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 (http://www.cmlmicroplc.com) .
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