REG - CML Microsystems PLC - Full Year Results
27/06/2023 07:15
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RNS Number : 9667D CML Microsystems PLC 27 June 2023
27 June 2023
CML Microsystems Plc
("CML", the "Company" or the "Group")
Full Year Results
CML Microsystems Plc, which develops mixed-signal, RF and microwave
semiconductors for global communications markets, announces its Full Year
Results for the year ended 31 March 2023.
Financial
· Revenues increased by 22% to £20.64m (FY22: £16.96m)
· Profit from operations £4.99m including exceptional item of £2.06m (FY22:
£1.21m)
· Profit before taxation £5.22m including exceptional item of £2.06m (FY22:
£1.79m)
· Diluted earnings per share increased to 29.93p (FY22: 7.35p)
· Cash balances at period end of £22.26m (31 March 2022: net cash of £25.04m)
following significant share buyback, investments in R&D and dividend
payments, together totalling £10.81m
· Recommended final dividend of 6.0p per share (FY22: 5.0p per share)
Operational
· Revenue growth broad based with resilient end-markets
· 25% of revenues invested in R&D
· Seven new products released
· Continued customer adoption of the expanding product range
· Entry into broadcast sector through low-power DRM receiver solution
· Initial disposal of excess land following grant of planning permission at Oval
Park
Chris Gurry, Group Managing Director of CML Microsystems commented on the
results:
"This has been a strong performance for CML with trading for the period ahead
of initial expectations. As market drivers within the mission critical
communications sector benefit the Group, we are pleased to report continued
progression against our financial and operational KPIs.
The positive momentum built over previous years alongside our clear strategy,
robust business model and investment in our product roadmap have allowed us to
take advantage of the expanding market opportunity and position the Company
for continued growth over the coming period."
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 Broker) Tel: +44 (0) 20 7408 4090
Toby Gibbs
James Thomas
John More
Lucy Bowden
Fiona Conroy (Corporate Broking)
Alma PR Tel: +44 (0)20 3405 0205
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 am extremely pleased with the performance of CML over the last few years and
my colleagues throughout the whole Group should be justly proud of their
achievements against a very challenging backdrop. This has been a
transformational time for the Company, set against a period of numerous macro
headwinds including COVID-19, Brexit, the conflict in Ukraine and increased
economic and geopolitical uncertainty. It is therefore encouraging to see the
business moving forward in such a positive manner.
The communications semiconductor market is one in which we have operated for
over 50 years. It is a market we understand, where we have good customer
relationships and see tremendous growth opportunities, as explained within the
Strategic Report that follows. I am pleased to report that our strategy of
concentrating our efforts on this market and expanding the sub-sectors we
address is working well. Our focus on organic growth supplemented with
appropriate acquisitions is beginning to yield the anticipated results.
We are still in the process of securing the exciting opportunity for the
proposed acquisition of Microwave Technology, Inc ("MwT") which we announced
on 17 January 2023. This is currently subject to the US regulatory clearance
process, and we are in the final stages. Once completed, we will have
substantially expanded the Group's product portfolio, strengthened and
enhanced our support resources, and increased our R&D capabilities.
Additionally, this will add to the Group's expertise through expanding our
system level understanding, product manufacturing and packaging techniques,
allowing us to capitalise on the market opportunity more effectively.
Results
Our financial focus is on constantly improving results in a number of areas,
including revenues, operating profit, balance sheet strength and cash. While
it is pleasing to show significant pre-tax profit growth in the income
statement, we strongly believe that it is the operating profit line (excluding
exceptional items) which most effectively demonstrates how the underlying
business is performing. Exceptional items tend to be non-recurring, such as
this year's profit on the disposal of excess land. That said, this extra
profit is an important supplement to the progress being made and is obviously
cash generative.
I am delighted with the strong organic growth achieved this year. Revenues
increased 22% year-on-year to £20.64m (FY22: £16.96m), reflecting good
progress across the established product range alongside the newer products
which are already starting to make meaningful progress. The gross profit
margin was maintained on the revenue increase but with inflationary pressures,
a general increase in global business activity levels and acquisition related
costs, expenses increased. Profit from operations before exceptional items
increased to £2.93m (FY22: £1.21m), an advance of 142%. The growth in profit
before tax to £5.22m (FY22: £1.74m) was assisted by the completion on the
sale of the first parcel of excess land at Oval Park, yielding a £2.06m
profit and occurring just prior to the year-end. Adjusted EBITDA improved 37%
to £5.90m (FY22: £4.31m). Despite the share buyback programme and dividend
payments, net assets per share grew 7% to 319.65p (FY22: 299.81p) and the
Group's cash position remained healthy at £22.6m with no debt (FY22:
£25.04m).
Property
Following our announcement on 17 February 2023 regarding the grant of planning
permissions on excess land at the Group's Essex Headquarters site, Oval Park,
as stated in the results section, I am pleased to note that we completed the
sale of the first parcel of land just prior to the year-end. Following this
transaction, circa 15 acres remain available for disposal.
Additionally, the Group has commercial property in Fareham, Hampshire, that is
excess to operational needs and therefore held for sale. Negotiations are
currently in progress regarding this site.
The Board's objective of raising cash from its excess property interests
remains important as this will help to yield funds for future acquisition
opportunities and/or allow the return of additional monies to shareholders. I
must again stress these property transactions are separate from, and
additional to, the Group's planned operational profits growth.
Share Buyback and dividend
Through the year, £3.65m net was spent on the share buyback programme
(£4.77m purchased net of £1.12m issued in satisfaction of employee share
options) and, following the financial year end in April a further £1.75m was
spent on an additional buyback. This shows the Board's continued commitment to
returning funds to shareholders and enhancing earnings where possible.
The Board continues to maintain its progressive dividend policy whilst
ensuring it has adequate cash to cover its growth objectives, including strong
R&D investments, and the completion of the MwT acquisition. The interim
dividend was increased from 4p to 5p per share and the Board is recommending
an increased final dividend of 6p per share, taking the full year dividend to
11p per share (FY22: 9p per share). This is an increase for the full year
dividend of 22% and reflects the Board's confidence in the future. Subject to
shareholder approval, the dividend will be paid to shareholders on 18 August
2023 whose names appear on the register at close of business on 4 August 2023.
ESG
The Company has an Environment, Social and Governance ("ESG") strategy that is
supporting sustainable and inclusive economic growth. We believe that it is
important to focus our efforts on areas where our actions can "make a
difference", rather than simply paying lip service to the topic. Full
disclosure of how we address this subject can be found in the Group's Annual
Report and Accounts.
Employees
Clearly the life blood and success of any company is attributable to its
workforce, and on behalf of the Board I would like to thank every one of our
employees for their energy, enthusiasm and commitment which is evident to all
and much appreciated.
Outlook
As a business, we are confident that the strategy we are following is going to
yield the sustainable long-term growth we are looking to achieve and these
results are a clear endorsement of this. That said, it is important not to
underestimate the ongoing challenges facing the Group, not only within our
market sector, but the global economy in general. Whilst headwinds do persist,
I believe the Group is well placed to navigate these challenges effectively
and continue our growth trajectory.
We have exciting opportunities ahead of us, an expanding product line and a
robust ongoing R&D programme. In addition to this, we have the planned
assimilation of MwT into the Group with the expected benefits from the
combined business helping to expand expertise, increase operational
efficiencies and scale alongside the market. Whilst this will be another busy
year for the Group, we look to the future with confidence that further
progress will be made against our strategic objectives.
Nigel G Clark
Executive Chairman
OPERATIONAL AND FINANCIAL REVIEW
Introduction
For the year to 31 March 2023, our ambition was to deliver a firm improvement
in the Group's financial and operational performance. It is very satisfying to
report that those objectives were accomplished despite a challenging
macroeconomic backdrop and prolonged electronic component supply chain
challenges amongst the Group's customer base.
According to a number of industry commentators, the semiconductor market as a
whole grew by 3-4% for the calendar year to December 2022, with the second
half weaker than the first. In comparison, the Group's full year revenues to
31 March 2023 advanced by 22% with the second six-month period delivering a
stronger performance than the first. This highlights the resilience of the
Group's end markets where the focus is currently weighted towards industrial
and critical communications application areas in contrast to the memory,
personal computer and consumer markets which tend to exhibit more volatility.
The improvement in profitability for the year is further validation of the
Group's pivotal decision to divest our Storage Division in 2021 in favour of
an increased focus on global communications markets, with expansion into
end-applications requiring microwave and millimetre wave ("mmWave") products a
key major objective.
Good progress is being made in this area, with the Group continuing to invest
heavily in research and development activities targeted at products for
application areas that are expected to drive growth over the coming years,
along with the investment in the personnel and equipment required for the
business to maintain a competitive edge.
Strategy
The Group's vision is to be the first-choice semiconductor partner to
technology innovators, together transforming how the world communicates.
Our focus is on the definition, development and marketing of standard
integrated circuit ("IC") products that deliver compelling technical and
commercial benefits to our customers. In turn, our customers utilise these
solutions to develop and subsequently market end-products that are essential
for the efficient and reliable transportation of voice and/or data across a
predominantly wireless medium.
The global communications market is huge, with a myriad of end-application
areas ranging from mobile/cellular networks to precise positioning systems to
short-range remote-control devices. Within this vast landscape of opportunity,
CML is actively participating in a number of sub-markets that play to our
strengths and have excellent growth potential on a sustainable basis. These
markets include mission critical communications, wireless networks and
satellite, Industrial Internet of Things ("IIoT") and more recently, broadcast
radio. The addressable market in terms of semiconductor content easily exceeds
$1 billion.
Continued investment in research and development is essential to allow CML to
take full advantage of the large market opportunity available. The Group's
product portfolio is evolving to support customer requirements for size, cost
and performance enhancements whilst also encompassing new technologies that
will permit entry into markets that were previously not addressable.
Our strategy for allocating capital to R&D comprises four main areas of
investment; "Defend & Grow" revenues in core CML markets, expand into
adjacent markets (SµRF product range), innovative product initiatives aimed
at new high-growth markets and an element of internal research and innovation
that could benefit any or all of the aforementioned categories.
Markets
The mission critical communications sector is a multi-billion dollar market
that is estimated to grow at a CAGR of close to 9% over the next five years.
Applications include public safety, government agencies, transportation,
energy and utilities, mining and others. Growth is being driven by the
increased adoption from energy and utility sectors, rising investment by
defence sectors and trends within the transportation industry where real-time
data is being used to support dynamic decision-making. Mission critical
communications has been a cornerstone of CML's global business for many years
and the year under review was no exception. An overall increase in revenues
from the Group's top customers who are active in this sector contributed well
to the Group's underlying performance. Outside of mission critical end
markets, revenues from customers producing similar products for industrial and
commercial business users, also grew well and overall, the two sectors
combined to deliver a very pleasing performance across the year.
One area where the Group sees great potential is the rapid development of 5G
and satellite-based communications. Advancements in this area are propelling
us towards a future where faster, cheaper, and more accessible internet
connectivity becomes a reality for all. 5G's high-speed, low-latency
capabilities, combined with satellite technology's wide coverage and reach,
enable a bridging of the digital divide, connecting remote regions, enabling
faster communication and empowering industries. To build this new reality, a
vast 5G network of base stations, small cells and other mmWave infrastructure
will be required.
Using our expertise in advanced compound semiconductor IC design, CML has
begun producing high performance Radio Frequency ICs ("RFICs") and Monolithic
Microwave ICs ("MMICs") that are relatively simple to use from a customer
perspective but have the technical characteristics and commercial
competitiveness required to be successful in these mass-market applications
areas. FY23 represented the first full year period of availability for a
number of new products that are marketed under CML's SµRF brand. Prior year
product releases have started generating income and, over time, the flow of
revenue from this portfolio of IC's is expected to constitute a very sizeable
proportion of the Group's total revenues.
CML has a long history in supporting IIoT & M2M applications, with decades
of experience in helping to solve customers' design problems. Our
semiconductor solutions include off-the-shelf baseband modem ICs, offering
engineers a fast time to market by avoiding unnecessary software development.
These products typically provide high performance with relatively low-power
consumption and are highly integrated, targeting application areas including
M2M, automatic meter reading ("AMR"), advanced metering infrastructure
("AMI"), asset tracking and, more recently, Radio Frequency Identification
("RFID"). Combined product shipments into the Group's top customers active in
these sectors was slightly weaker than the prior year due in part to the
unusual purchasing patterns that some customers employed whilst navigating
through their own supply chain disruptions across the last two years.
Towards the end of the financial year, a key R&D initiative that fits the
"innovative product for new high growth markets" category reached the stage of
development whereby it could be released to early adopters. This new product
represents a first for CML in that it paves the way for entry into the
broadcast radio market which, although invented more than 100 years ago,
remains a highly important media. In many parts of the world radio remains the
method whereby large populations get their trusted news and information and in
times of natural disaster provides a vital service when other infrastructure
has been compromised.
Digital Radio Mondiale ("DRM") is a digital radio broadcast standard that has
been adopted for wide area broadcasting in China, India and Pakistan whilst
being targeted for deployment in several other emerging nations in the near
term. In India, near national area coverage is achieved from 35 transmitting
sites. The DRM service provides high quality stereo audio across long
distances and wide areas. DRM is an "open standard" to ensure a wide diversity
of equipment, receivers, and IP suppliers. The radio spectrum is a limited
natural resource, DRM uses that resource more cost effectively than analogue
or other digital broadcast methods whilst the infrastructure required for DRM
is both low cost and low power - offering a 10:1 power consumption advantage
over equivalent analogue FM transmissions.
Current DRM IC solutions are targeted at the automotive market where low-power
operation is less of a necessity and they are therefore not well suited to
portable receivers. CML has developed a highly integrated Software Defined
Radio ("SDR") tuner IC targeted at the market for DRM receivers. To complement
the IC, CML has worked with Cambridge Consultants Limited to produce a
miniature module, seen as a core component to implement a full DRM capable
broadcast receiver covering all transmission bands. The IC will be sampled
during the first half of this financial year with full launch of the module
planned for the second half.
The Group's market exposure is evolving in tandem with a number of new and
emerging growth sectors that have something in common, a fundamental need for
semiconductor solutions that CML has the inherent capability to produce.
Operations
During the year, the Group formally launched seven new products to market. The
majority of these are for use in microwave or mmWave applications across a
number of the previously mentioned market sectors. Customer adoption of the
Group's products marketed under the SµRF brand continues to gather pace, and
progress during the first full year of production has been very encouraging.
One of our guiding principles is to foster a culture of quality with a sense
of urgency. Operationally, the CML team continued to excel in that regard,
despite the increased demands that an ongoing and rapid expansion of the
product range places upon personnel and systems. Our future success depends
upon the skills and dedication of our employees, and it is important to
recognise the exceptional efforts being made by the whole team in that regard.
The growing product range, coupled with a simultaneous expansion into new and
adjacent market sectors places a great deal of emphasis on ensuring that the
Group's routes to market remain appropriate for the direction of travel that
the business is taking. The process is one of evolution and refinement over
time, and during the year a number of enhancements were made, including
territorial changes within Europe and new partners in the Americas and South
Africa.
Following travel and tradeshow restrictions due to the pandemic, the Company
participated at a number of trade shows relevant to the sectors and industries
being targeted. These included European Microwave week (London), IMS2022
(Denver) and BES Expo (New Delhi). These activities have led to an increase in
associated costs that is further explained in the financial review that
follows. However, they are an important ingredient for success given the
strategy being followed and another year of strong investment is planned.
The Group's orderbook climbed significantly across the last two and a half
years as customers placed longer term scheduled orders amidst concerns about
the general supply situation for semiconductors that was extensively reported
on at the time. It is apparent that the supply situation has improved and some
customers are becoming more relaxed about product availability leading to
adjustments to their ordering patterns. The Group's order book remains
healthy, at a level more than double that prior to the pandemic and stretching
well into 2024. A 'new normal' will be established following the unusual
market dynamics of the last three years and the growth of the customer base as
we continue to expand into wider markets.
Acquisition of Microwave Technology, Inc
On 17 January 2023 we announced the entering of a definitive agreement to
acquire Silicon Valley based semiconductor company Microwave Technology, Inc.
("MwT"). Founded in 1982, MwT is a recognised leader in the design,
manufacturing and marketing of GaAs and GaN based MMICs, Discrete Devices, and
Hybrid Amplifier Products for commercial wireless communication, defence,
space, and medical (MRI) applications.
The proposed acquisition expands the Group's product portfolio, strengthens
its support resources and increases its R&D capabilities. MwT's products
are complementary to CML's and the majority of its focus and client
concentration remains within the USA. The CML Board believes there is a
significant opportunity to increase market share by internationalising MwT's
products.
Currently, the transaction remains subject to US regulatory approval.
Expectations were for the transaction to complete during the first half of
2023, however, the nature of the technology that MwT possesses along with the
constitution of its customer base has necessitated extended discussions with
the relevant US authorities whose remit it is to protect national security
interests. Whilst a definitive date for completion is not yet available, we
are in regular contact with the relevant departments and expect a conclusion
to be reached in the coming weeks. A further announcement will be made at the
appropriate time.
Outlook
Market expansion through the addition of microwave/millimetre wave ICs to the
Group's product portfolio is now delivering tangible results, with good growth
expected for the year ahead. A high level of R&D investment continues to
ensure the Group is well placed to capture new opportunities within the
markets that dominate the current revenue stream, whilst making appropriate
investment into exciting new markets with strong growth potential.
Clearly the world has its issues, not least geo-political uncertainties, an
inflationary environment and economic uncertainty. Whilst remaining mindful of
the backdrop and risk-aware, CML is focussed on growth, with a confidence
supported by our resilient existing markets, a healthy orderbook and an
evolving presence in new and emerging growth sectors.
As is evident, the business continues to make good progress and has the
appropriate blend of experience, enthusiasm and skills to continue to achieve
its objectives. Subject to unforeseen circumstances the period to 31 March
2024 is expected to be a further year of improvement, with solid growth in
revenues and operational profitability.
FINANCIAL REVIEW
Revenue
Group full year revenues of £20.64m (FY22: £16.96m) slightly exceeded market
expectations that had been raised at the time of the interim results, after
factoring in the positive momentum being achieved. This increase in revenues
represented growth of 22% over the prior year and was assisted by a foreign
exchange tailwind. Currency effects are less pronounced at the gross profit
level where the Group has a somewhat natural hedge, due to a significant
amount of raw material procurement being conducted in US Dollars.
The revenue advances were broad-based across the three main geographical areas
addressed, with the Far East (+25%) and Americas (+35%) delivering the
strongest gains whilst Europe was 8% higher. It is important to note that
annual revenue comparisons by region can be misleading because customers can
and do alter their manufacturing locations periodically. From a customer
perspective, close to 80% of the top 25 customers grew their business with CML
year-on-year, with the dominant sectors addressed encompassing narrowband
voice communications and mission critical data applications.
Gross Profit
Gross profit for the year was £15.61m (FY22: £12.80m), representing a 21%
increase. This is a pleasing outcome given the raw material price rises
encountered and the need to impose increased prices across the Group's product
range on more than one occasion. At the start of the year, higher inventory
costs were anticipated, and allowances were factored into managements' growth
expectations, nevertheless, the operational teams responsible deserve much
credit for achieving the targeted outcome.
Distribution and Administration costs
D&A expenses increased by 9% to £12.64m (FY22: £11.56m). One driver was
the resumption of certain business activities such as travel, marketing and
exhibition costs as countries around the world eased their COVID-19
restrictions. There was an increased need to support the workforce in
navigating a high inflationary period through a combination of salary rises
and cost of living payments, whilst higher energy prices, acquisition related
costs and the amortisation of development costs also added to the overall
increase.
The Group continued with a strong level of R&D investment focussed at
capitalising on the secular growth expected from the market and application
areas being targeted. R&D expenditure for the year was slightly up in
absolute terms at £5.13m (FY22: £4.79m) but expressed as a percentage of
sales, fell to 25% (FY22: 28%). Of this amount, £0.68m was expensed (FY22:
£1.26m) with the balance capitalised under the Group's research and
development policy.
Operating profit
As per the previous financial year, a strong sales performance supported by
stable gross margins drove the Group's profit from operations before
exceptional items to £2.93m (FY22: £1.21m) with other operating income
contributing £0.20m (FY22: £0.08m). This results in a doubling of the
operating margin before exceptional items to 14% (FY22: 7%) and is
particularly pleasing given the industry-specific headwinds over recent years
along with the prevailing inflationary climate.
Profit before tax
Excluding the exceptional profit realised from the sale of excess land at the
Group's Oval Park Headquarters, profit before tax and exceptional items
improved by 77% to £3.16m and included net finance and other income of
£0.23m (FY22: £0.57m).
As reported in recent years, the Group has been actively engaging with the
local authority and interested parties to obtain planning permission on and
subsequently dispose of excess land at the CML Group headquarters in Essex,
UK. During the period leading up to the financial year end, detailed planning
permission was obtained on two separate parcels of land along with outline
planning permission for a business park on a third plot. One land parcel was
successfully divested during March 2023 and the profit from that transaction
amounted to £2.06m. While there is no certainty on the timing for realising
value from the remaining excess land, the Company continues to engage with
interested parties and currently expects to conclude the disposals during the
next 12 months.
The total profit before tax recorded for the year was £5.22m (FY22: £1.74m).
Profit after tax
The Group continued to benefit from the R&D tax credit scheme that has
existed for some years in the UK. For the year under review, tax assessed for
the period is lower than the 19% standard rate of corporation tax in the UK,
providing an effective tax rate of 7.8%.
EPS
Excluding the exceptional property transaction previously mentioned, fully
diluted earnings per share for the year climbed by 161% to 19.20p (FY22:
7.35p). When profits from the land sale are included, diluted earnings per
share equated to 29.93p (FY22: 7.35p).
Dividend
The Board is proposing a final dividend of 6p (FY22: 5p), giving a full year
dividend of 11p (FY22: 9p) as communicated in the Chairman's Statement.
Cash
The Group's cash reserves as at 31 March 2023 were £22.26m, including
short-term cash deposits of £1.22m. This represents a reduction of £2.78m
from the prior year equivalent date (31 March 2022: £25.04m) primarily due to
R&D cash spend of £5.13m, net share buybacks totalling £3.65m, dividend
payments of £1.59m and a £0.93m investment in capital equipment. Whilst the
total net cash inflow from operating activities was £5.99m and from investing
activities the sale of land at £2.50m.
Inventories
Raised inventory levels have been an intentional element of the Group's
approach to addressing semiconductor supply chain disruptions that have been a
feature in recent years and in support of an expanding product range. At 31
March 2023, inventories were valued at £2.43m (FY22: £2.26m) with 38% being
held as raw material (FY22: 39%) and the balance either work In progress or as
finished goods.
Pension schemes
The Group operates several pension schemes globally, mostly of a defined
contribution nature. In the UK, the Company historically operated a defined
benefit scheme that was closed to new members on 1 April 2002 and to future
accruals in 2009. The funding position of this scheme improved through the
year when calculated under IAS 19 methodology, with a deficit of £1.20m being
recorded (FY22: £2.44m).
Separately, the most recent actuarial estimate carried out by an independent
professionally qualified actuary, as at 31 March 2023 and based upon existing
funding principles, indicated a net pension surplus with the funding level at
112%. 2023 is an actuarial valuation year with the formal triennial valuation
not expected to be published until early 2024.
All administrative expenses of running the scheme are met directly by the
scheme along with pension protection fund levies.
Chris Gurry
Group Managing Director
Consolidated income statement for the year ended 31 March 2023
2023 2022
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue 1,2 20,643 - 20,643 16,964 - 16,964
Cost of sales (5,032) - (5,032) (4,169) - (4,169)
Gross profit 15,611 - 15,611 12,765 - 12,795
Distribution and administration costs (12,644) - (12,644) (11,562) - (11,562)
Share-based payments (234) - (234) (98) - (98)
2,733 - 2,733 1,135 - 1,135
Profit on sale of fixed asset - 2,058 2,058 - - -
Other operating income 199 - 199 79 - 79
Profit from operations 2,932 2,058 4,990 1,214 - 1,214
Other income 18 - 18 216 284 500
Loss on sale of investment property - - - - (50) (50)
Finance income 255 - 255 106 - 106
Finance expense (47) - (47) (33) - (33)
Profit before taxation 3,158 2,058 5,216 1,503 234 1,737
Income tax charge 4 (71) (335) (406) (499) - (499)
Profit after taxation attributable to equity owners of the parent 3,087 1,723 4,810 1,004 234 1,238
All financial information presented relates to continuing activities.
Earnings per share for profit attributable to the ordinary equity holders of
the Company:
Basic earnings per share 5 30.29p 7.45p
Diluted earnings per share 5 29.93p 7.35p
( )
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 5,901 4,308
Consolidated statement of total comprehensive income for the year ended 31
March 2023
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Profit for the year 4,810 1,238
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit obligation 1,393 3,307
Deferred tax on actuarial loss (348) (827)
Change in deferred tax rate on defined benefit obligation - 345
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences (140) 880
Other comprehensive income for the year net of taxation attributable to equity 905 3,705
owners of the parent
Total comprehensive income for the year attributable to the equity owners of 5,715 4,943
the parent
Consolidated statement of financial position as at 31 March 2023
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Assets
Non‑current assets
Goodwill 7,429 7,531
Other intangible assets 984 1,119
Development costs 13,801 11,197
Property, plant and equipment 5,249 5,593
Right-of-use assets 1,022 458
Deferred tax assets 766 1,550
29,251 27,448
Current assets
Property, plant and equipment - held for sale 485 -
Investment properties - held for sale 1,975 1,975
Inventories 2,425 2,258
Trade receivables and prepayments 2,413 2,199
Current tax assets 1,659 409
Cash and cash equivalents 21,041 19,084
Short term cash deposits 1,218 5,958
31,216 31,883
Total assets 60,467 59,331
Liabilities
Current liabilities
Trade and other payables 3,036 2,827
Lease liabilities 210 230
Current tax liabilities 78 42
3,324 3,099
Non‑current liabilities
Deferred tax liabilities 4,343 3,702
Lease liabilities 842 238
Retirement benefit obligation 1,204 2,439
6,389 6,379
Total liabilities 9,713 9,478
Net assets 50,754 49,853
Capital and reserves attributable to equity owners of the parent
Share capital 796 865
Share premium 2,462 1,362
Capital redemption reserve 8,372 8,285
Treasury shares - own share reserve (324) (1,670)
Share‑based payments reserve 488 490
Foreign exchange reserve 1,042 1,182
Accumulated profits reserve 37,918 39,339
Total shareholders' equity 50,754 49,853
Consolidated cash flow statement for the year ended 31 March 2023
2023 2022
£'000 £'000
Operating activities
Profit for the year before taxation 5,216 1,737
Adjustments for:
Depreciation - on property, plant and equipment 367 375
Depreciation - on right-of-use assets 300 258
Impairment of development costs - 123
Amortisation of development costs 1,826 1,507
Amortisation of intangibles recognised on acquisition and purchased 224 283
Profit on disposal of fixed assets (2,058) -
Loss on disposal of investment properties - 50
Rental income - (215)
Forgiveness US PPP loan - (284)
Employee retention credit - US 110 -
Movement in non-cash items (Retirement benefit obligation) 158 176
Share‑based payments 234 98
Finance income (255) (106)
Finance expense 47 33
Movement in working capital (653) (1,025)
Cash flows from operating activities 5,516 3,010
Income tax (paid) / received (104) 905
Net cash flows from operating activities 5,412 3,915
Investing activities
Proceeds from sale of fixed assets 2,500 -
Proceeds from sale of investment - 1,750
Purchase of property, plant and equipment (932) (1,105)
Investment in development costs (4,455) (3,532)
Repayment in fixed term deposits 4,740 4,192
Repayment of Investment loan note - 293
Investment in intangibles (98) -
Rental income - 215
Finance income 255 106
Net cash flows from investing activities 2,010 1,919
Financing activities
Lease liability repayments (321) (287)
Issue of ordinary shares 1,118 329
Purchase of own shares for treasury (4,767) -
Dividends paid to shareholders (1,589) (8,964)
Net cash flows used in financing activities (5,559) (8,922)
Increase / (decrease) in cash and cash equivalents 1,863 (3,088)
Movement in cash, cash equivalents and fixed term deposits:
At start of year 19,084 22,046
Increase / (decrease) in cash, cash equivalents and fixed term deposits 1,863 (3,088)
Effects of exchange rate changes 94 126
At end of year 21,041 19,084
Cash flows presented exclude sales taxes.
Consolidated statement of changes in equity for the year ended 31 March 2023
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 2021 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
obligations
3,307 3,307
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 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 payments in year 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
Profit for year 4,810 4,810
Other comprehensive
income
Foreign exchange differences (140) (140)
Net actuarial gain recognised directly to equity on retirement benefit 1,393 1,393
obligations
Deferred tax on actuarial gain (348) (348)
Total comprehensive income for year capacity as owners (140) 5,855 5,715
- - - - -
Transactions with owners 865 1,362 8,285 (1,670) 490 1,042 45,194 55,568
in their capacity as owners
Issue of ordinary shares - exercise of share options 18
1,100 1,118
Purchase of own shares - treasury (4,767) (4,767)
Cancellation of treasury shares (87) 87 6,113 (6,113) -
Dividend paid (1,589) 1,589)
Total transactions with owners in their capacity as owners (69) 1,100 87 1,346 (7,702) (5,238)
- -
Share‑based payment charge 234 234
Deferred tax on share based payments 190 190
Cancellation/transfer of share‑based payments
(236) 236 -
At 31 March 2023 796 2,462 8,372 (324) 488 1,042 37,918 50,754
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 2023
Revenue to third parties - by origin 5,024 3,413 12,206 20,643
Property, plant and equipment 5,074 80 95 5,249
Right-of-use assets 473 330 219 1,022
Property, plant and equipment - held for sale 485 - - 485
Investment properties - held for sale 1,975 - - 1,975
Development costs 12,416 - 1,385 13,801
Intangibles - software and intellectual property 320 - 80 400
Goodwill 1,531 - 5,898 7,429
Other intangible assets arising on acquisition 159 - 425 584
Total assets 47,151 1,575 11,741 60,467
Year ended 31 March 2022
Revenue to third parties - by origin (restated) 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 - 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
2 Revenue
The geographical classification of business turnover (by destination) is as
follows:
2023
2022
£'000 £'000
Europe 4,009 3,705
Far East 12,036 9,603
Americas 3,910 2,901
Others 688 755
20,643 16,964
3 Dividend - paid and proposed
During the year a final dividend of 5.0p per ordinary share of 5p was paid in
respect of the year ended 31 March 2022. An interim dividend of 5.0p per
ordinary share was paid on 16 December 2022 to shareholders on the Register on
2 December 2022.
It is proposed to pay a final dividend of 6.0p per ordinary share of 5p,
taking the total dividend amount in respect of the year ended 31 March 2023 to
11.0p. It is proposed to pay the final dividend of 6.0p, if approved, on 18
August 2023 to shareholders registered on 4 August 2023 (2022: paid 19 August
2022 to shareholders registered on 5 August 2022).
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.
2023 2022
£'000 £'000
Current tax
UK corporation tax on results of the year (809) (415)
Adjustment in respect of previous years (372) (6)
(1,183) (421)
Foreign tax on results of the year 319 121
Total current tax (864) (300)
Deferred tax
Deferred tax - Origination and reversal of temporary differences 683 6
Change in deferred tax rate 103 833
Adjustments to deferred tax charge in respect of previous years 484 (40)
Total deferred tax 1,270 799
Tax expense on profit on ordinary activities 406 499
5 Earnings per share
2023 2022
Earnings per share for profit from continuing operations attributable to the
ordinary equity holders of the Company:
Basic earnings per share 30.29p 7.45p
Diluted earnings per share 29.93p 7.35p
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:
2023 2022
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 4,810 15,878,401 30.29 1,238 16,628,301 7.45
Diluted earnings per share
Basic earnings per share 4,810 15,878,401 30.29 1,238 16,628,301 7.45
Dilutive effect of share options - 194,043 (0.36) - 219,95 (0.10)
Diluted earnings per share
- from profit for year 4,810 16,072,444 29.93 1,238 16,848,252 7.35
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, exceptional items and before
share-based payments. The following is a reconciliation of the Adjusted EBITDA
for the years presented:
2023 2022
£'000 £'000
Profit before taxation (earnings) 5,216 1,737
Adjustments for:
Finance income (255) (106)
Finance expense 47 33
Depreciation 367 375
Depreciation - right-of-use assets 300 258
Impairment of development costs - 123
Amortisation of development costs 1,826 1,507
Amortisation of acquired and purchased intangibles recognised on acquisition 224 283
Share-based payments 234 98
Profit on sale of fixed asset (2,058) -
Adjusted EBITDA 5,901 4,308
7 Cash, cash equivalents and fixed term deposits
2023 2022
£'000 £'000
Cash on deposit 13 10,275
Cash at bank 21,038 8,809
21,041 19,084
Short term cash deposits 1,218 5,958
22,259 25,042
8 Investment properties
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 (2022: £1,975,000).
9 Principal risks and uncertainties
Key risks of a financial nature
Foreign exchange
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.
Customer dependency
The Group has a very diverse customer base generally, however 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 key customers could have an adverse effect on the Group's
performance.
Supply chain dependency, interruption and cost inflation
The Group has a number of key supplier relationships, which are closely
maintained to minimise the impact from any potential supply chain disruption.
Some of the raw materials used within the Group's semiconductor products are
sole sourced from highly specialised suppliers on a global basis. To partially
mitigate unexpected but temporary raw material delivery delays, an appropriate
level of excess inventory is held. If a key raw material supplier was unable
to continue supply on a permanent basis, then the Group would need to invest
the R&D effort and associated costs to replace the supplier, subject to
that being considered commercially viable.
Supplier prices, currency exchange rates and gross margins are continually
monitored which can lead to pricing adjustments with customers.
IT system - failure or malicious damage
The Group has a standardised systematic approach to maintaining and operating
its IT systems globally consisting of an internal team supported by a number
of world class external partners. The backup and recovery of its global IT
systems has been real-time tested. The threat from malicious cyber activity is
an ever-increasing risk with awareness and responsibility at Board level and
appropriate investments being made.
Cost-of-living crisis
During 2023, a cost-of-living crisis has been triggered due to the combined
impact of COVID 19 and the various economic effects of the Russian invasion of
Ukraine. Rising energy prices and supply chain dependency are contributing to
significant price inflation and associated rises in interest rates. The Group
understands that this is impacting all aspects of day-to-day living and
placing real pressure on the current market and are continuing to monitor the
impact.
Key risks of a non‑financial nature
Customer product demand
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.
Legal requirements
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.
Understanding of the development, performance or position of the Company's
business
The Directors do not believe that environmental matters (including the impact
of the Company's business on the environment), details of the Company's
employees (including gender) and social, community and human rights issues are
needed for an understanding of the development, performance or position of the
Company's business and accordingly have not included these within the
Strategic Report, but have added these to the Directors' Report and
Environment, social and governance sections of this Annual Report.
10 Post balance sheet events
Share Buyback Programme
In April 2023, a £1,750,000 Share Buyback Programme was put in place for the
principal purpose of reducing the share capital of the Company and returning
funds to shareholders. During April, the £1,750,000 had been used in its
entirety to repurchase 337,900 ordinary shares and these shares were taken
into treasury.
Acquisition of Microwave Technology, Inc.
On 17 January 2023, CML Microsystems Plc entered into a definitive agreement
to acquire a Silicon Valley based semiconductor company, Microwave Technology,
Inc (MwT), which is subject to US regulatory clearance.
The acquisition will expand the Group's product portfolio, strengthen and
enhance its support resources and increase its R&D capabilities, providing
essential knowhow and experience in system level understanding, product
manufacturing and packaging techniques.
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 £464,000. These costs
have been charged in distribution and administrative expenses in the
Consolidated Income Statement.
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 2023
financial statements.
12 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 2023 Annual Report.
The comparative figures for the financial year 31 March 2022 have been
extracted from the Group's statutory accounts for that financial year. The
statutory accounts for the year ended 31 March 2022 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 2023 were approved by the
Board of Directors on 26 June 2023 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 9 August 2023.
The financial information contained in this announcement does not constitute
statutory accounts for the year ended 31 March 2023 or 2022 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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