REG - CML Microsystems PLC - Full Year Results
02/07/2024 07:00
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RNS Number : 6903U CML Microsystems PLC 02 July 2024
2 July 2024
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 2024.
Financial Highlights
· Revenues increased by 11% to £22.89m (FY23: £20.64m)
· Profit from operations of £1.94m (FY23: £2.93m pre-exceptional profit from
the sale of excess land)
· Profit before taxation of £2.52m (FY23: £3.16m excluding exceptional item)
· Cash balances at period end of £18.21m (31 March 2023: net cash of £22.26m)
following a share buyback of £1.75m, dividend payments of £1.74m and CapEx
investments of £1.54m
· Recommended final dividend of 6.0p per share (FY23: 6.0p per share) giving a
full year dividend of 11.0p (FY23: 11.0p)
Operational Highlights
· Completion of MwT acquisition, expanding GaAs and GaN MMIC portfolio and
widening addressable market to include Defence & Aerospace, Medical and
Test & Measurement application areas
· Revenue contribution from MwT (from Oct 2023 to March 2024) has been very
positive and above management expectations
· High R&D and product range expansion through acquisitions have doubled the
sales opportunity pipeline since FY20
· Early customer adoption has started on DRM1000, a complete 'antenna to
speaker' module
· Strategic efforts to broaden customer base have increased high-spend customers
from three to 12 over four years
· New sub-application areas include commercial satellite, phased array radar,
wireless mesh networking and medical imaging
Chris Gurry, Group Managing Director of CML Microsystems commented on the
results:
"Continuing macro headwinds and over-stocked inventory levels within some
customers subdued profitability for the year. The contribution to date from
MwT has exceeded our expectations and confirms our belief that the skills and
product range acquired complement our existing capability and provides us with
a complete, global offering. The mega trends behind the markets we serve point
to an ever-growing opportunity and our highly engineered, mission critical
products and the strength of our relationships positions the Group well to
capitalise.
Although the mixed demand environment is expected to continue in the current
financial year, the strength of our balance sheet and deep customer
relationships enables us to confidently invest, delivering the optimal return
for all stakeholders in both the medium and long term."
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
Tel: +44 (0) 20 7408 4090
Shore Capital (Nominated Adviser and Broker)
Toby Gibbs
James Thomas
Lucy Bowden
Fiona Conroy (Corporate Broking)
Tel: +44 (0)20 3405 0205
Alma Strategic Communications
Josh Royston
Andy Bryant
Robyn Fisher
Emma Thompson
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.
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
A significant amount of work and progress in shaping the company for future
growth has been achieved in the last year, principally through the acquisition
of MwT in October, bringing a talented team, new customers and offering a
major growth opportunity. Although this year's profitability is below both our
own and the market's original expectations, the financial results represent a
resilient performance, which has been achieved against continuous
macroeconomic and geopolitical headwinds.
At the time of our interim results in December 2023, we noted our concerns
relating to elevated customer inventory levels and the uncertainty of how that
situation would unravel. These turned out to be well founded, with weaker than
expected revenues from the Group's traditional market sectors through the
second half. This uncertainty remains and we suspect will continue to be a
factor through the current financial year.
Some of the progress not reflected in the financial results includes the fact
that we relocated our China-based company, Sicomm and the acquisition of
Microwave Technology Inc (MwT), which although announced during January 2023,
was eventually completed on 2 October 2023. While the completion took
significantly longer than expected, it was important for the long-term success
of the enlarged Group that we reached an appropriate National Security
Agreement with the US Government.
Work remains to be done on the integration of MwT but good progress is being
made and we feel very positive about the benefits it brings to the Group.
With our main focus on organic progress, supplemented with appropriate
acquisitions, the platform for sustainable long-term growth is in place.
Results
Revenues have increased 11% year-on-year to £22.89m (FY23: £20.64m) assisted
by the acquisition of MwT and this represents a record for revenues from the
continuing business, post the sale of the storage division in FY21. The gross
profit margin, as we expected, reduced slightly from 76% down to 71% due to
the addition of the MwT product lines coupled with the transitory product mix
resulting from the
customer inventory headwinds communicated throughout the year. Additionally,
with the acquisition of MwT, distribution and administration costs have
increased, leading to a reduction in profit from operations to £1.94m (FY23:
£2.93m pre-exceptional). Coupled with an increase in the tax rate, profit
after tax has reduced to £2.06m (FY23: £3.09m pre-exceptionals).
Turning to the balance sheet, goodwill increased to £14.45m (FY23: £7.43m),
reflecting the addition of MwT, as does the majority of the inventory increase
to £3.67m (FY:23 £2.43m). Net cash ended the year at £18.21m (FY23:
£22.26m) after a share buyback of £1.75m (FY23: £4.77m), £1.74m dividend
payments (FY23: £1.59m) and CapEx investments of £1.54m. Net assets per
share grew slightly to 322.41p (FY23: 319.65p).
Property
Having been granted, in February 2023, planning permission on excess land at
the Group's Essex Headquarters site, Oval Park, the land has now been placed
on the market for sale. While noting that the current commercial property
market is difficult, it is the Group's intention to dispose of all surplus
land and property that is outside of its operational needs. This comprises
circa 15 acres of the land at Oval Park and a vacant commercial property in
Fareham, Hampshire, from which the Group traded historically.
The Board's objective remains to raise cash from its non-operational property
interests to yield funds to fuel further growth in the business. These will be
one-off transactions with profits additional to the Group's planned
operational profits growth.
Share buyback and dividend
This year, £1.75m was spent in April 2023 on the share buyback programme,
demonstrating the Board's commitment to returning funds to shareholders and
enhancing earnings where possible.
The Board strives to maintain a progressive dividend policy whilst ensuring it
has adequate cash to cover its growth objectives which currently include
R&D investments, capital expenditure, working capital requirements and
further payments in relation to the MwT acquisition. The interim dividend was
held at 5p per share and, given the anticipated demands on cash through the
year ahead, the Board is recommending a final dividend of 6p per share, making
the full-year dividend 11p per share (2023: 11p per share). Subject to
shareholder approval, the shares will go ex-dividend on 15 August 2024 and the
dividend will be paid to shareholders on 16 August 2024 whose names appear on
the register at close of business on 2 August 2024.
The Board and senior management
At the time of the interim results, I reverted to the position of
Non-Executive Chairman, Mark McCabe was appointed to the Executive Director
position of Chief Operating Officer and Michelle Jones to the senior
management position of Director of Finance. At that time the appointment of Dr
Nathan Zommer was in progress, and I am pleased to say that these formalities
were completed with his appointment to the Board as a Non-Executive Director
being announced on 20 December 2023.
Through this year we have enhanced the leadership team, adding further skills,
expertise and experience with the objective of driving the Company forward and
I am sure the benefits of this will be seen over the coming years.
Employees
Credit to our employees must never be forgotten since they are the key to
successfully moving the business forward. We have a multinational global
workforce who constantly achieve the demanding goals placed upon them with
innovation, passion and commitment. For this, on behalf of the Board, I would
like to thank them all.
Outlook
Our base strategy is to yield sustainable long-term growth and although at the
revenue line these results support this, clearly the level of profitability
this year does not. External factors, including current market conditions and
the normalising of elevated customer inventory levels, make it difficult to
achieve our profits growth objectives.
Despite the short-term outlook not being what I would like to see, I am
confident that the Group is well placed against its more medium-term
objectives. Exciting opportunities lay before us, we are addressing growing
new markets which are supplementary to the more traditional sectors that have
been a cornerstone of growth in recent years. The pipeline of opportunities
has a strong upward trend, giving us confidence that we will achieve our
strategy of sustainable long-term growth.
Nigel G Clark
Non-Executive Chairman
1 July 2024
OPERATIONAL AND FINANCIAL REVIEW
Introduction
FY24 was a resilient and strategically pivotal year for CML, marked by the
acquisition of Microwave Technology Inc (MwT) in October 2023 after US
Government regulatory procedures delayed completion of the acquisition by over
four months. MwT, a leading US designer of semiconductors for the telecoms,
defence and medical markets has added a talented team, new customers and a
major opportunity to expand our target market.
The Company performed well through the first half year of trading, reporting
solid growth. In the second half, we experienced more mixed trading patterns,
typical of the wider sector, with some customers and channel partners reducing
their inventory levels.
On a more encouraging note, the revenue contribution (October 2023 to March
2024) from MwT has been very positive under CML's first period of ownership
and has been above management expectations. The progress made so far is
pleasing and we are advanced in our programme to unlock the operational
synergies that are expected to realise the full potential of the combined
business over the medium term.
Group revenues finished the year in line with market expectations, and while
the change in mix between higher-margin core products and lower-margin MwT
products did impact the overall Group margin, the Company retained a strong
balance sheet, with net cash reserves of over £18m.
Industry data pointed to a mixed performance for the wider semiconductor
market in 2023, with growth accelerating through the year before a downturn in
early 2024. For context, these trends include memory ICs and microprocessors
and are heavily influenced by consumer-related applications such as mobile
phones. Whilst the performance of the general semiconductor market may not be
directly applicable to CML's industrial and professional end markets, an
uncertain economic environment coupled with an excess inventory situation
affects most submarkets, making it difficult to call the timing of a pick-up
in end demand with any accuracy.
Nevertheless, it is important to note that CML remains a key partner to its
customer base. As a typically sole source supplier, our customers are reliant
on CML products to drive their own success and we fully expect a return to
core product growth through FY25 as the current inventory situation
normalises.
Strategy
The global communications market is vast, with a myriad of end-application
areas ranging from mobile networks to precise positioning systems to
short-range remote-control devices. Within this 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
sub-markets include mission critical communications, wireless networks &
satellite, Industrial Internet of Things (IIoT) and more recently, broadcast
radio. Combined, this represents an addressable market in terms of
semiconductor content which easily exceeds $1bn.
One key objective for the financial year to 31 March 2024 was to continue with
our markets' expansion strategy through the addition of high-frequency
microwave & millimetre wave semiconductor products, targeted at global
mega trends including satellite communications, 5G and IIoT. This objective
builds upon many years of experience producing baseband and RF components for
professional wireless and critical communications applications and follows
from the strategic decision taken to enhance the Group's design engineering
capabilities to include microwave and mmWave compound semiconductor devices,
including PAs, LNAs and gain blocks under the SµRF brand.
A major step forward was made on 2 October 2023 with completion of the
acquisition of Silicon Valley-based MwT, complementing organic product
development activities and accelerating delivery of the technology roadmap.
This acquisition not only expands the GaAs and GaN MMIC portfolio, it adds a
range of discrete devices and hybrid amplifiers, thereby widening the
addressable market to include Aerospace & Defence, Medical and Test &
Measurement application areas.
The integration of the MwT business into the Group has proceeded at pace. The
relevant MwT products were incorporated under the CML SμRF brand with effect
from January 2024 and the enlarged SμRF product portfolio is now being
marketed and supported on a global basis. MwT adds engineering, manufacturing
and final test capabilities within the US to complement existing resources in
the UK and Asia and deliver flexibility to customers in terms of regional
product supply. Appropriate investments are being made in personnel and local
operations to cope with the very welcome challenges that globalisation will
bring and unlock the operational synergies to realise the business' full
potential over the medium term.
Another key objective for the year was to enter the digital radio broadcasting
market through the launch of a receiver IC and associated module targeted at
the Digital Radio Mondiale (DRM) marketplace. DRM is a global, open, green,
flexible, efficient, cost-effective digital radio broadcasting standard
covering all frequency bands, including LW, MW and SW for large coverage areas
and VHF for local and regional coverage. DRM provides high-quality sound along
with data services such as emergency warning functionality (EWF), distance
learning and traffic information. India, countries in the East and South of
Asia, South Africa and Latin America are key DRM development markets.
CML's DRM1000 is a complete 'antenna to speaker' module, containing all
hardware, software, IP and patent licenses required for a radio equipment
manufacturer to easily realise a dual mode (digital and analogue) DRM capable
receiver. The module is a joint development by CML and Cambridge Consultants,
part of Capgemini Invent, combining CML's world-leading expertise in wireless
IC design with Cambridge Consultants' world-renowned expertise in low-power
digital signal processing. First announced at IBC2023, an international
broadcasting event held in The Netherlands during September 2023, the module
achieved production ready status post the financial year end and offers a 60%
cost reduction and 80% power reduction over existing DRM technologies in the
market.
Early customer adoption has started and a programme of product enhancements to
widen the available market further is underway. Revenues are expected to
commence through the year ahead.
The Group's multi-year growth strategy has not changed, and we continue to
place the emphasis on execution, with the goal of securing a larger share of
the expanding global semiconductor communications market.
Markets
The mission critical communications sector is a multibillion-dollar market
that is estimated to grow at a CAGR of close to 9% over the next few 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
military forces 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.
Revenues from these end markets recorded a mixed result year-on-year.
Shipments into many of the Group's customers increased by a healthy margin;
however, a selection of customers continued to work through their elevated
inventory levels, leading to delays in the placement of new orders. Ordering
patterns for the affected customers should ultimately normalise once
end-market demand exhausts excess stock levels. Whilst it remains difficult to
precisely predict the timing of a return to normality, we currently anticipate
it will commence during the second half of the financial year.
CML has a long history in supporting data-centric applications with decades of
experience in helping to solve customers' design problems through delivering
class-leading modem and RF ICs. In more recent years much emphasis has been
placed on the Internet of Things (IoT), or in CML's case, the IIoT. Simply
put, this is an extension of machine-to-machine communications (M2M), enabling
the physical world to be monitored and/or controlled through a variety of
technologies and mediums that ultimately connect to an external network.
Wireless communication continues to play a key role.
Our semiconductor solutions for IIoT include modem ICs, with and without
embedded DSP cores, along with a wide range of RF ICs. Customers frequently
select a number of CML devices to form a chip-set solution to their
engineering needs which helps them minimise issues associated with
multi-vendor supply agreements and forced end-of-life programmes that are a
typical characteristic with the larger global semiconductor manufacturers.
Combined product shipments into the Group's top customers active in these
sectors was slightly stronger than the prior year despite being constrained by
the inventory situation in one or two cases.
On a very positive note, good progress is being made with an important
strategic objective to broaden our customer base. This is evidenced by the
fact that over the last four financial years, excluding the Storage business
that was divested during FY21, the number of customers with an annual spend
exceeding £0.50m per annum has increased from three to twelve. As a result,
several new sub-application areas contributed to Group revenues, including
commercial satellite, phased array radar, wireless mesh networking and medical
imaging. Across the same four-year period, Group revenues have increased from
£13.1m to £22.9m, equating to a CAGR of 20%.
Most of the market sectors being addressed have an industrial or commercial
focus and meaningful revenue takes time to flow through after achieving
design-in success. However, the above customer metrics validate the strategy
being followed and demonstrate the underlying progress being made.
Operations
A rapidly growing product range places greater demands on the Group's internal
operations. The expansion of the UK-based in-house testing capability to
include the SµRF high-frequency microwave and mmWave product line has
presented interesting challenges across the last couple of years, as has the
more recent and ongoing incorporation of MwT into the Group. It is testament
to the capabilities of the global operational team that challenges are
continually overcome with a combination of dedication and professionalism.
The sales, marketing and customer support teams have each worked diligently to
ensure the Group's routes to market remain appropriate, the expansion of the
product range is well communicated, and the ongoing customer design-in
activities are supported to the high-level that customers have grown to expect
from us.
Across the year, as planned, the Company participated at a number of trade
shows relevant to the sectors and industries being addressed. These included
IMS2023 (San Diego), European Microwave week (Berlin), IBC Amsterdam and BES
Expo 2024 (New Delhi). These activities were well received and are an
important ingredient for success given the strategy being followed, raising
awareness of CML across a wider customer base.
In recent years, the Group has invested heavily in its R&D activities to
position the business appropriately for the opportunities that lie ahead. Cash
allocation towards R&D is categorised into several sub-areas to ensure the
right balance between growing revenues in core CML markets, expanding the
addressable markets to capture future growth and internal research and
innovation to maintain product superiority and suitability.
R&D expenditure for the year represented 20% of sales and is further
detailed within the Financial Review; however, for the year ahead, an
appropriate amount of funding will also be directed at a strategic initiative
to ensure long-term supply of certain key products to support important
existing revenue streams within the core business. This initiative will also
have an impact on inventory levels over the next two years but is independent
of current end-market dynamics.
While the whole process is one of evolution and refinement over time, the
level of effort, commitment and achievement from the employee base globally
has been exceptional. Of the 160+ staff employed around the world, staff
turnover remains relatively low with the average length of service at 17 years
and 51% of our team having worked for our businesses for more than ten years.
Multi-year high levels of R&D focused on markets expansion coupled with
the recent enlargement of the product range through acquisition has had a very
positive effect on the sales opportunity pipeline. It has doubled since
FY20. Two-thirds of the design wins recorded during the year under review
were for customer projects that will drive new revenue streams, while the
remainder consisted of existing customers switching to new or different
semiconductor solutions from CML.
Outlook
Clearly global issues remain, including geopolitical and economic
uncertainties. We remain mindful of this and continue to manage risk
appropriately, whilst staying steadfastly focused on the growth opportunities
seen, both in existing and emerging market sectors.
The results for the year to 31 March 2024 demonstrate resilience in
challenging conditions and the trading environment for the current year will
continue to be influenced by the customer inventory overhang. However, it is
important to note that CML remains a key partner to its customer base, who are
reliant on CML products to drive their own success.
The business continues to make very good progress from an operational
perspective, executing against a solid expansion strategy with an experienced,
skilled and enthusiastic team. The relatively strong balance sheet allows
longer-term decision-making that is intended to benefit all stakeholders
through the years ahead.
The current full financial year is expected to show a further revenue advance,
albeit not at the compounded rates seen across the prior four-year period. The
full year inclusion of MwT's cost base along with necessary activities to
unlock the full potential of the enlarged business will have an impact on
operational profitability. However, these are essential and value-added
strategic steps in the drive towards much higher medium-term gains.
The longer-term ambition remains unchanged, to drive significantly higher
revenues and profits through providing class-leading semiconductor solutions
into large and growing end markets. The business has the resources and market
focus to drive the progress required and continues to increase its presence in
new and emerging growth sectors.
FINANCIAL REVIEW
Revenue
The Group's full-year revenues improved by 11% to £22.89m (FY23: £20.64m),
including a contribution of £3.31m from the newly acquired MwT business.
Excluding MwT, reported revenues declined by approximately 4%, having been
impacted by an ongoing inventory correction across a number of customers and a
challenging environment within China. On a constant currency basis, revenues
would have been approximately £0.9m higher (4%).
From a geographical perspective, classified by shipment destination, 51% of
revenues were derived from Asia (FY23: 59%), with the vast majority of the
balance split between the Americas and Europe, contributing 24% (FY23: 19%)
and 22% (FY23: 19%) respectively. MwT's revenues were dominated by its
US-based customers and are included within the above percentages. The largest
customer represented 10% of Group revenues.
Gross profit
Gross margin achieved was 71% (FY23: 76%), reflecting the blended outcome of
lower voice and data-centric product sales, increased SµRF shipments and the
incorporation of the MwT product range for the second half of the year. That
said, the overall revenue improvement more than compensated for the margin
effect, leading to a 4% increase in gross profit to £16.21m (FY23: £15.61m).
Looking to the future, gross margin as a percentage is expected to reduce as
Group revenues move higher and the overall share from the SµRF product range
increases.
Distribution and administration
Distribution and administration expenses increased to £14.23m (FY23:
£12.64m) with the increase driven largely by the inclusion of the MwT
business for the second half period. The figure also includes £0.46m of
acquisition-related costs. On a like-for-like basis (excluding MwT), D&A
expenses were approximately 2% higher at £12.84m, highlighting the diligent
focus of the Group's operational management team globally.
The combined research and development expense for the year amounted to
£4.50m, of which £0.96m was expensed (FY23: £5.13m, of which £0.68m
expensed). This reduction in overall R&D expenditure is not a reflection
of any change in commitment towards expanding the product portfolio. Instead,
it reflects the completion timing of certain development projects along with a
strategic review of the Group's product roadmap following the substantial MwT
portfolio acquired.
Operating profit
After accounting for share-based payments and the positive effects of an
R&D expenditure credit (RDEC), profit from operations amounted to £1.94m.
This compares to a prior year operating profit of £2.93m, excluding the
exceptional profit from the sale of excess land that occurred during that year
(£2.06m).
Profit before tax
An improved interest rate environment enabled the Company to achieve a higher
return on cash and short-term deposits held. Finance income climbed to £0.55m
(FY23: £0.26m) lifting profit before tax to £2.52m (FY23: £3.16m excluding
exceptional item).
Profit after tax
In addition to the RDEC credit that is accounted for under other operating
income within the Consolidated Income Statement, 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 25% standard rate of corporation tax in the UK, providing an effective tax
rate of 18%. Profit after taxation was £2.06m (FY23: £3.09m excluding
exceptional item).
Earnings per share
Basic earnings per share for the year equated to 13.00p. After adjusting for
the prior year exceptional sale of land, this represented a decline of 33%
(FY23: 19.44p). On a reported basis, including exceptionals, the figure for
FY23 was 30.29p.
Cash
At 31 March 2024, the Group's cash reserves, including short-term deposits,
stood at £18.21m. The reduction of £4.05m across the year follows an R&D
cash spend of £4.5m, a share buyback of £1.75m, dividend payments of £1.74m
and a one-off spend of £1.08m relating to the relocation of the Oval Park HQ
car parking to unlock the maximum potential benefit from selling the excess
land held. For the year ahead, an ongoing programme of capital investment is
in place to support internal development and production capabilities for the
high-frequency SµRF product family, which is a cornerstone of the growth
strategy.
Cash flow will come under pressure for the year ahead for two main reasons;
firstly, working capital to support the aforementioned strategic R&D
initiative and secondly, as a result of further payments relating to the MwT
acquisition, being $1.17m already paid on 2 April 2024 and a $2.65m payment
due 2 October 2024.
Inventories
Inventory levels ended the year at £3.67m (FY23: £2.43m) and consisted of
£2.81m relating to the pre-existing CML product portfolio and a further
£0.86m attributable to the inclusion of the acquired MwT products. It has
been an intentional strategy to maintain a higher level of raw material
inventory to address semiconductor supply chain disruptions that have been a
feature of recent years. The expanding product range also plays a role. In
conjunction with the strategic R&D initiative mentioned earlier in this
review, the raw material inventory levels for a selection of key products will
rise further through the year ahead. Of the £3.67m, 45% was held as raw
material.
Pension scheme
The Group currently has a retirement benefit obligation in respect of an
historic defined benefit pension scheme, which was closed to new members in
2002 and to future accruals in 2009. The most recent triennial actuarial
funding valuation of the scheme carried out by an independent professionally
qualified actuary, as at 31 March 2023, resulted in a net pension surplus of
£0.13m with the assets of the scheme valued at £15.70m. An annual update of
the schemes position, as at 31 March 2024, showed that the surplus had
improved to £0.41m.
The pension scheme surplus calculated under the funding valuation basis above
differs from the accounting valuation presented in the Consolidated Statement
of Financial Position, which shows a net pension liability of £1.70m.
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 scheme are met directly by the
scheme along with pension protection fund levies.
Dividend
As communicated within the Chairman's Statement, the Board is proposing a
final dividend of 6p (FY23: 6p), giving a full-year dividend of 11p (FY23:
11p).
Chris Gurry
Group Managing Director
1 July 2024
Consolidated income statement
for the year ended 31 March 2024
2024 2023
Before exceptional Exceptional Total Before Exceptional Total
items items Exceptional items
items
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue 1,2 22,893 - 22,893 20,643 - 20,643
Cost of sales (6,683) - (6,683) (5,032) - (5,032)
Gross profit 16,210 - 16,210 15,611 - 15,611
Distribution and administration costs (14,226) - (14,226) (12,644) - (12,644)
Share-based payments (214) - (214) (234) - (234)
1,770 - 1,770 2,733 - 2,733
Profit on sale of fixed asset - - - - 2,058 2,058
Other operating income 173 - 173 199 - 199
Profit from operations 1,943 - 1,943 2,932 2,058 4,990
Other income 62 - 62 18 - 18
Finance income 547 - 547 255 - 255
Finance expense (37) - (37) (47) - (47)
Profit before taxation 2,515 - 2,515 3,158 2,058 5,216
Income tax charge 4 (455) - (455) (71) (335) (406)
Profit after taxation attributable to equity owners of the parent 2,060 - 2,060 3,087 1,723 4,810
All financial information presented relates to continuing activities.
Earnings per share for profit attributable to the ordinary equity holders of
the Company:
2024 2023
Basic earnings per share 5 13.00p 30.29p
Diluted earnings per share 5 12.86p 29.93p
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.
2024 2023
Adjusted EBITDA 6 5,703 5,901
Consolidated statement of total comprehensive income
for the year ended 31 March 2024
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Profit for the year 2,060 4,810
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit obligation (361) 1,393
Deferred tax on actuarial loss 90 (348)
Foreign exchange differences (1,153) (140)
Other comprehensive income for the year net of taxation attributable to equity (1,424) 905
owners of the parent
Total comprehensive income for the year attributable to the equity owners of 636 5,715
the parent
Consolidated statement of financial position
as at 31 March 2024
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Assets
Non‑current assets
Goodwill 14,449 7,429
Other intangible assets 3,350 984
Development costs 15,150 13,801
Property, plant and equipment 5,655 5,249
Right-of-use assets 813 1,022
Deferred tax assets 788 766
40,205 29,251
Current assets
Property, plant and equipment - held for sale 1,124 485
Investment properties - held for sale 1,975 1,975
Inventories 3,672 2,425
Trade receivables and prepayments 3,734 2,413
Current tax assets 190 1,659
Cash and cash equivalents 11,262 21,041
Short term cash deposits 6,951 1,218
28,908 31,216
Total assets 69,113 60,467
Liabilities
Current liabilities
Trade and other payables 7,528 3,036
Provisions 208 -
Lease liabilities 219 210
Current tax liabilities 16 78
7,971 3,324
Non‑current liabilities
Deferred tax liabilities 5,224 4,343
Trade and other payables 2,509
Lease liabilities 637 842
Retirement benefit obligation 1,696 1,204
10,066 6,389
Total liabilities 18,037 9,713
Net assets 51,076 50,754
Consolidated statement of financial position continued
as at 31 March 2024
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Capital and reserves attributable to equity owners of the parent
Share capital 825 796
Share premium 2,327 2,462
Capital redemption reserve 8,372 8,372
Other reserve 3,073 -
Treasury shares - own share reserve (1,822) (324)
Share‑based payments reserve 666 488
Foreign exchange reserve (111) 1,042
Accumulated profits reserve 37,746 37,918
Total shareholders' equity 51,076 50,754
Consolidated cash flow statement
for the year ended 31 March 2024
2024 2023
£'000 £'000
Operating activities
Profit for the year before taxation 2,515 5,216
Adjustments for:
Foreign exchange movement (140) -
Depreciation - on property, plant and equipment 520 367
Depreciation - on right-of-use assets 486 300
Amortisation of development costs 2,110 1,826
Amortisation of other intangible assets 368 224
Loss/(profit) on disposal of fixed assets 5 (2,058)
Employee retention credit - US - 110
Movement in non-cash items (Retirement benefit obligation) 131 158
Share‑based payments 214 234
Finance income (547) (255)
Finance expense 37 47
Movement in working capital (1,966) (653)
Cash flows from operating activities 3,733 5,516
Income tax received / (paid) 1,311 (104)
Net cash inflow from operating activities 5,044 5,412
Consolidated cash flow statement continued
for the year ended 31 March 2024
2024 2023
£'000 £'000
Investing activities
Proceeds from sale of fixed assets - 2,500
Purchase of property, plant and equipment (1,524) (932)
Investment in development costs (3,541) (4,455)
(Investment) /repayment in fixed term deposits (5,733) 4,740
Acquisition of subsidiary (net of cash acquired) (565) -
Investment in intangibles (32) (98)
Finance income 547 255
Net cash (outflow)/inflow from investing activities (10,848) 2,010
Financing activities
Lease liability repayments (502) (321)
Issue of ordinary shares (net of expenses) 117 1,118
Purchase of own shares for treasury (1,750) (4,767)
Dividends paid to shareholders (1,739) (1,589)
Finance expenses (4) -
Net cash outflow used in financing activities (3,878) (5,559)
(Decrease) / increase in cash and cash equivalents (9,682) 1,863
Movement in cash and cash equivalents:
At start of year 21,041 19,084
(Decrease) / increase in cash and cash equivalents (9,682) 1,863
Effects of exchange rate changes (97) 94
At end of year 11,262 21,041
Cash flows presented exclude sales taxes.
Consolidated statement of changes in equity
for the year ended 31 March 2024
Share- Foreign
Share Share Redemption Other Treasury based exchange Retained
capital premium reserve Reserve shares payments reserves earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
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)
Re-measurement of defined benefit obligations 1,393 1,393
Deferred tax on actuarial gain (348) (348)
Total comprehensive income for year - - - - - - (140) 5,855 5,715
865 1,362 8,285 - (1,670) 490 1,042 45,194 55,568
Transactions with owners in their capacity as owners
Issue of ordinary shares 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)
(69) 1,100 1,346 - -
Total transactions with owners in their capacity as owners
87 - (7,702) (5,238)
Share‑based payments in year 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
Consolidated statement of changes in equity continued
for the year ended 31 March 2024
Share- Foreign
Share Share Redemption Other Treasury based exchange Retained
capital premium reserve reserve shares payments reserves earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Profit for year 2,060 2,060
Other comprehensive income
Foreign exchange differences (1,153) (1,153)
Re-measurement of defined benefit obligations (361) (361)
Deferred tax on actuarial gain 90 90
Total comprehensive income for year - - - - - - (1,153) 1,789 636
796 2,462 8,372 - (324) 488 (111) 39,707 51,390
Transactions with owners in their capacity as owners
Issue of ordinary shares - acquisition 29 - 3,073 3,102
Issue of treasury shares (135) 252 117
Purchase of own shares - treasury (1,750) (1,750)
Dividend paid (1,739) (1,739)
Total transactions with owners in their capacity as owners 29 (135) (1,498) - -
- 3,073 (1,739) (270)
Share‑based payments in year 214 214
Deferred tax on share-based payments (258) (258)
Cancellation/transfer of share-based payments (36) 36 -
At 31 March 2024 825 2,327 8,372 3,073 (1,822) 666 (111) 37,746 51,076
Notes to the financial statements
For the year ended 31 March 2024
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 2024
Revenue to third parties - by origin 5,546 5,802 11,545 22,893
Property, plant and equipment 5,479 119 57 5,655
Right-of-use assets 373 275 165 813
Investment properties - held for sale 1,975 - - 1,975
Property, plant and equipment - held for sale 1,124 - - 1,124
Development costs 13,621 272 1,257 15,150
Intangibles - software and intellectual property 323 - 62 385
Goodwill 1,531 7,429 5,489 14,449
Other intangible assets arising on acquisition 133 2,585 247 2,965
Total assets 53,961 4,473 10,679 69,113
Year ended 31 March 2023
Revenue to third parties - by origin (restated) 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
Investment properties - held for sale 1,975 - - 1,975
Property, plant and equipment - held for sale 485 - - 485
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
2 Revenue
The geographical classification of business turnover (by destination) is as
follows:
2024
2023
£'000 £'000
Europe 4,895 4,009
Far East 11,754 12,036
Americas 5,524 3,910
Others 720 688
22,893 20,643
Notes to the financial statements continued
For the year ended 31 March 2024
3 Dividend - paid and proposed
During the year a final dividend of 6p per ordinary share was paid in respect
of the year ended 31 March 2023. An interim dividend of 5p per ordinary
share was paid on 12 January 2024 to shareholders on the Register on 22
December 2023.
It is proposed to pay a final dividend of 6p per ordinary share, taking the
total dividend amount in respect of the year ended 31 March 2024 to 11p. It is
proposed to pay the final dividend of 6p, if approved, on 16 August 2024 to
shareholders registered on 2 August 2024 (2023: paid 18 August 2023 to
shareholders registered on 4 August 2023).
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.
2024 2023
£'000 £'000
Current tax
UK corporation tax on results of the year (155) (809)
Adjustment in respect of previous years 114 (372)
(41) (1,181)
Foreign tax on results of the year 215 317
Total current tax 174 (864)
Deferred tax
Deferred tax - Origination and reversal of temporary differences 259 683
Change in deferred tax rate - 103
Adjustments to deferred tax charge in respect of previous years 22 484
Total deferred tax 281 1,270
Tax expense on profit on ordinary activities 455 406
5 Earnings per share
2024 2023
Earnings per share for profit from continuing operations attributable to the
ordinary equity holders of the Company:
Basic earnings per share 13.00p 30.29p
Diluted earnings per share 12.86p 29.93p
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:
2024 2023
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 2,060 15,842,911 13.00 4,810 15,878,401 30.29
Diluted earnings per share
Basic earnings per share 2,060 15,842,911 13.00 4,810 15,878,401 30.29
Dilutive effect of share options - 173,856 (0.14) - 194,043 (0.36)
Diluted earnings per share - from profit for year 2,060 16,016,767 12.86 4,810 16,072,444 29.93
Notes to the financial statements continued
For the year ended 31 March 2024
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:
2024 2023
£'000 £'000
Profit before taxation (earnings) 2,515 5,216
Adjustments for:
Finance income (547) (255)
Finance expense 37 47
Depreciation 520 367
Depreciation - right-of-use assets 486 300
Amortisation of development costs 2,110 1,826
Amortisation of other intangible assets 368 224
Share-based payments 214 234
Profit on sale of fixed asset - (2,058)
Adjusted EBITDA 5,703 5,901
7 Cash, cash equivalents and fixed term deposits
2024 2023
£'000 £'000
Cash equivalents 3,095 13
Cash at bank 8,167 21,038
11,262 21,041
Short term cash deposits 6,951 1,218
18,213 22,259
Notes to the financial statements continued
For the year ended 31 March 2024
8 Principal risks and uncertainties
Key risks of a financial nature
Foreign exchange The Group's earnings are linked to the US Dollar, a decline in this currency
will have a direct effect on both transactional and translational foreign
exchange risk.
The Group maintains a natural hedge by matching the cash inflows and cash
outflows which reduces the risk at the gross profit line. The Group maintains
the majority of its cash in sterling and manages exposure through the sale and
purchase of currencies as required.
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, financial condition and results from operations.
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.
The Group has increased levels of inventory held to protect against disruption
and are dual sourcing some of the manufacturing functions where possible. 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.
Credit risk The Group has the potential to be exposed to bad debt risk from customers,
there is no recent history of material bad debts in the Group.
The Group monitors ageing receivables on a regular basis and takes action to
enforce the collection of overdue debts.
Taxation The Group invests in research and development as part of its ongoing product
development and innovation activities. Changes to the enhanced tax benefits in
the UK will likely have an impact on future cash generation and profitability
of the Group.
The Group works with its professional advisers to ensure that this impact is
minimal. The Group will continue to invest in research and development.
IT systems - failure or malicious damage The Group has a standardised systematic approach to maintaining and operating
its IT systems globally. The Group has an internal team supported by a number
of world class external partners ensuring that the Group's electronic records
and resources remain secure. 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.
Notes to the financial statements continued
For the year ended 31 March 2024
Key risks of a non-financial nature
Customer product demand The Group operates in a highly competitive global market that is evolving
continually.
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. The Group's ability to achieve its financial objectives could
be impacted by risks and uncertainties associated with local legal
requirements, political risk, the enforceability of laws and contracts,
changes in the tax laws, terrorist activities, natural disasters or health
epidemics.
The Group partially manages this risk by working with local professional
advisers to ensure that all local laws and regulations are complied with.
Understanding of the development, performance or position of the Company's The Directors do not believe that environmental matters (including the impact
business 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.
9 Acquisition of Microwave Technology Inc
Following the announcement on 17 January 2023 that a definitive agreement had
been signed to acquire Silicon Valley based semiconductor company Microwave
Technology, Inc (MwT) and having obtained US regulatory clearance, the
acquisition completed on 2 October 2023. The Group acquired 100% of the issued
share capital for a total consideration of $13.18m, of which $7.65m is payable
in cash and $5.53m is payable in shares.
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 acquisition expands the Group's product portfolio, strengthens and
enhances its support resources and increase its R&D capabilities,
providing essential knowhow and experience in system level understanding,
product manufacturing and packaging techniques. MwT's products are
complementary to CML's existing offering. For this reason, combined with the
anticipated synergies to arise from integrating the MwT business into existing
Group businesses, the Group paid a premium over the acquisition net assets,
giving rise to goodwill. All intangible assets in accordance with IFRS 3
Business Combinations were recognised at their provisional fair values on the
date of acquisition, with the residual excess over net assets being recognised
as goodwill. Intangibles arising from the acquisition consist of R&D,
brand values, customer relationships and intellectual property and have been
independently valued by professional advisors.
Details of the purchase consideration and provisional fair values of assets
acquired, and liabilities assumed at the date of acquisition:
Purchase consideration:
£'000
Cash paid 6,266
Ordinary shares issued 4,530
Total purchase consideration 10,796
The fair value of the 864,349 shares issued as part of the consideration paid
for MwT was based on the published share price on 16 January 2023 of 492.49p
per share. The consideration value of £4.53m is based upon a share for share
exchange of 5.87 MwT shares for 1 CML share.
The provisional fair values of assets acquired, and liabilities assumed at the
date of acquisition are as follows:
£'000
Property, plant and equipment 42
Right-of-use asset 44
Intangible fixed assets:
Brands and Trademarks 631
Customer relationships 1,349
Intellectual property 849
Inventory 841
Trade receivables and prepayments 639
Cash and cash equivalents 1,016
Trade and other payables (1,759)
Lease liability (44)
Provisions (208)
Deferred tax assets 414
Deferred tax liabilities (707)
Net assets acquired 3,107
Goodwill 7,689
Consideration 10,796
The goodwill is attributable to the workforce and the high profitability of
the acquired business. It will not be deductible for tax purposes.
There are no non-controlling interests in relation to the MwT acquisition.
Fair values in the above table have only been determined provisionally and may
be subject to change in the light of any subsequent new information becoming
available in time. The review of the fair value of assets and liabilities
acquired will be completed within twelve months of the acquisition date.
Receivables at the date of acquisition are expected to be collected in
accordance with the gross contractual amounts.
MwT has a 31 December 2023 financial period end; in the six months to 31 March
2024, MwT contributed revenue of £3,307,000 and a net gain before taxation of
£478,000. If MwT had been part of the Group for the full reporting period the
contributed revenue would have been £5,806,000 with a net loss before
taxation of £(695,000).
Notes to the financial statements continued.
For the year ended 31 March 2024
Net cash outflow arising on acquisition:
£'000
Cash consideration paid (less cash retention) 1,581
Cash and cash equivalents (1,016)
Total Consideration 565
In addition to the cash consideration paid of £1,581,000, other payables
includes retention along with £1,427,421 (272,339 shares) ordinary share
issue retention. The retention is payable over a three-year period, cash
consideration £956,325 on 2 April 2024, cash consideration £2,171,783 and
£475,807 (90,780 shares) on 2 October 2024, cash consideration of £1,557,331
and £475,807 (90,780 shares) on 2 October 2025 and £475,807 (90,779 shares)
on 2 October 2026.
Other costs relating to the acquisition have not been included in the
consideration cost. Directly attributable acquisition costs include external
legal and accounting costs and the performance of due diligence activity and
amount to £732,000. These costs have been charged to distribution and
administrative expenses in the consolidated income statement over a two-year
period, with £268,066 included in the current year.
10 Post balance sheet events
In April 2024 the Company purchased 42,500 ordinary shares as a share buyback
and these shares are held in Treasury for the principal purpose of reducing
the issued share capital of the Company and returning funds to Shareholders.
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 2024
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 2024 Annual Report.
The comparative figures for the financial year 31 March 2023 have been
extracted from the Group's statutory accounts for that financial year. The
statutory accounts for the year ended 31 March 2023 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 2024 were approved by the
Board of Directors on 1 July 2024 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting on 13 August 2024.
The financial information contained in this announcement does not constitute
statutory accounts for the year ended 31 March 2024 or 2023 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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