REG - CML Microsystems PLC - Half Year Results
23/11/2021 07:00
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RNS Number : 1909T CML Microsystems PLC 23 November 2021
23 November 2021
CML Microsystems Plc
("CML", the "Company" or the "Group")
Half Year Results
CML Microsystems Plc (the "Group" or the "Company"), which develops
mixed-signal, RF and microwave semiconductors for global communications
markets, today announces its unaudited results for the six months ended 30
September 2021.
Financial Highlights
· Revenue increased by 30% to £8.00m (H1 FY21: £6.14m)
· Profit before taxation improved to £1.0m (H1 FY21: loss of £0.3m)
· Adjusted EBITDA up 43% to £2.12m (H1 FY21: £1.48m)
· Diluted EPS significantly improved to 4.87p (H1 FY21: loss of 1.67p)
· Cash balances at period end of £22.59m (31 March 2021: net cash of £31.91m)
following a special dividend payment totalling £8.30m to shareholders in
August 2021
· Recommended half year dividend of 4.0p per share (H1 FY21: 2.0p per share)
Operational Highlights
· Recovery in existing markets, driving growth
· New product releases show early signs of success
· Expanded product range targeting an increasing total addressable market
· Record order book at period end
· Significant R&D investment
· Completed move from standard segment of Main Market to AIM
Chris Gurry, Managing Director of CML Microsystems Plc, commented on the
results:
"The foundations for expansion laid during previous years, coupled with the
energy and enthusiasm to succeed within the business, is starting to deliver
tangible results at the financial level. The Board remains confident that
continuing progress will be made through the second half of the year,
delivering a very positive outcome for the financial year as a whole."
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 Tel: +44(0)20 7408 4090
Toby Gibbs
James Thomas
John More
SP Angel Corporate Finance LLP Tel: +44(0)203 463 2260
Jeff Keating
Alma PR
Josh Royston Tel: +44 (0)20 3405 0212
Caroline Forde
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
CML has enjoyed a strong start to the year. In my Annual Report back in June
2021, I highlighted that I had never before experienced a year with more
challenges and opportunities. Whilst many of those challenges remain, it is
particularly pleasing to see recovery in the end-markets that were most
impacted by the pandemic. The improved trading witnessed in the second half of
last year has continued and gathered pace. This is a testament to the Group's
multi-year strategic focus on R&D, acting as a partner to our global
customer base, creating the products that help them achieve success.
Results and trading
The previously reported figures for the prior year first half included
contributions from the Storage Division which was part of the Group throughout
the first half of the last financial year (before being sold in February for
$49m). For this set of results, we have restated the figures, in line with
reporting requirements, but do believe this provides shareholders with a more
meaningful picture of the Group's performance. The Communications Division is
today the sole operational focus of CML.
The financial performance for the six months to 30 September 2021 is ahead of
management's expectations. Revenue for the six months increased by 30% to
£8.00m compared to the prior year (H1 FY21: £6.14m). Profit before taxation
improved to £1.0m (H1 FY21: loss £0.3m), with adjusted EBITDA improving by
43% to £2.12m (H1 FY21: £1.48m) and diluted EPS showed a dramatic
improvement to 4.87p (H1 FY21: loss of 1.67p). Cash balances at the period end
stood at £22.59m (31 March 2021: net cash of £31.91m) following a special
dividend payment totalling £8.30m to shareholders in August 2021 after
completion of the sale of the Storage Division. The Group has no debt.
The Board is recommending a half year dividend of 4.0p per share (H1 FY21:
2.0p per share), payable on 17 December 2021 to shareholders on the Register
on 3 December 2021.
Move to AIM
In September this year, CML completed its move from the standard segment of
the Main Market to the AIM Market of the London Stock Exchange ("AIM"). As
highlighted above, the Company enjoys very healthy cash balances and remains
debt free. In addition, it has considerable value in a number of
non-operational assets that the Board is continually evaluating to enable
maximum shareholder value to be delivered. A number of opportunities are
currently being actively explored and are at various stages of progression.
The Group's addressable market stands at over $1bn annually and alongside our
organic growth strategy, which is our core focus, our balance sheet strength
gives us the opportunity to seek and consider acquisitions which could help us
further our strategic objectives. The move to AIM provides us with greater
flexibility to take advantage of any opportunities as and when they are
identified.
Employees
The improvement in our trading performance is undoubtedly a reflection of the
sheer hard work and determination shown by our highly talented workforce. They
have continued to tackle each challenge with vigour and enthusiasm and on
behalf of the Board. I offer them my sincere thanks.
Prospects and outlook
With a record order book, a growing product range targeting an increasing
total addressable market and a strong balance sheet affording us strategic
flexibility, the future for CML has never been brighter. We must remain
conscious of the fact that many of the challenges which have been present over
recent years are still active and could affect our customers' purchasing
decisions in the short term. However, we are confident in both the long-term
performance of the business and in meeting this year's expectations.
Nigel Clark
Executive Chairman
23 November 2021
Operational and financial review
Introduction
It is pleasing to report that the positive momentum seen within the business
through the second half of the prior financial year has continued through the
opening six-months of the current year, with a healthy trading improvement
being recorded.
Revenues are ahead of management expectations at the halfway stage, with the
associated benefits of operational leverage flowing through. New order intake
has been strong, assisted by improving end market conditions and increased
demand linked to customer concerns around supply chain constraints within the
semiconductor market generally. Alongside the revenue growth achieved, the
Group's order book at 30 September 2021 was once again at a record level, with
scheduled delivery visibility extending into the next financial year.
The progress demonstrated within these interim results follows a multi-year
period of enduring headwinds. During this time, the Group has invested heavily
in research and development activities targeted at products and application
areas that are expected to drive growth over the coming years. The business
optimisation that took place prior to this year commencing, coupled with the
enhanced strategy now being followed, positions the Group well to take
advantage of the increasing number of opportunities being presented.
Strategy
The Group's vision is to be the first-choice semiconductor partner to
technology innovators, together transforming how the world communicates.
We are focused on our customers' success by delivering advantages through the
improved functionality and performance of class leading IC solutions. R&D
activity is targeted at developing the product portfolio to support emerging
and evolving customer requirements for size, cost and performance, whilst
striving to remain our customer's first choice supplier within their advanced
communication platforms.
In today's world, 'connected everything' is propelling exponential increases
in data consumption - driving growth across wireless communications markets
globally. We are expanding our total addressable market having enlarged our
market emphasis to include applications within the so-called mega trend areas
of Industrial Internet of Things ("IIoT"), 5G and Industry 4.0. This
complements the existing markets of public safety, maritime and mission
critical wireless voice and data communications, leveraging our systems
knowledge, engineering capabilities and routes to market.
Markets and operations
For the comparable period, revenues from voice-centric wireless applications
were heavily impacted by the COVID-19 crisis, with the situation across a wide
range of data-centric IIoT customers somewhat mixed. More recently, we
communicated that customer and market intelligence suggested conditions for
voice applications were expected to improve as the year progressed and it is
pleasing to report that has proven to be the case.
The order intake from wireless voice product manufacturers has grown, with a
significant recovery seen amongst the leading customers. Equally pleasing was
the progress from data-centric customers, who are producing proprietary
wireless communications equipment for a wide range of industrial and mission
critical applications including oil, gas, utilities, transport, telecom,
enterprise, precision farming, land surveying, environmental monitoring and
military applications areas.
The order intake situation is multidimensional. As a complement to the
improving market conditions, which was the main driver, growth was assisted by
new design-wins moving to the production phase along with increased order
receipts associated with customer concerns over semiconductor part
availability. Conversely, there is evidence of ordering restraint where
customers cannot secure deliveries of more generic parts needed within their
end products, such as microprocessors, from other semiconductor suppliers.
The semiconductor market is being hindered by well documented supply chain
issues and the Group has not been immune from associated raw material delays
and extended lead times from third-party assembly services providers. We
continue to hold a raised level of inventory to help minimise the impact the
global semiconductor supply chain scenario is having. Delays do remain and
capacity constraints in the supply chain are expected to continue well into
2022. That said, we have an experienced team monitoring the situation closely
and have so far been able to minimise end customer disruptions.
The communications market globally is exhibiting a number of growth areas,
including the transition to higher-capacity digital networks within
voice-centric markets and, in data-centric markets, the increasing throughput
requirements from terrestrial and satellite communications applications. As
well as the existing wireless voice and data market areas served, our strategy
for widening the product portfolio to address broader application areas is
well underway.
Through the first six-months of the financial year, a number of new ICs were
released, or priority sampled to market, developed to help accelerate the
design of RF products operating across a wide range of radio frequencies
including microwave and millimetre wave bands. These new products include
fully matched MMIC Power Amplifiers (PAs) along with Positive Gain Slope
Amplifiers designed to compensate for frequency related gain losses that occur
when designing wide band wireless products. Marketed under the SuRF brand,
these new ICs are beginning to achieve design-win status with new customers
and it is satisfying to report that first orders have been received from early
stage adopters within vehicle tracking and smart grid applications.
End-customer shipments are scheduled to commence during the second half of the
year.
In addition to the SuRF product range, we continue to actively invest in new
platform technology and differentiated wireless/baseband products to gain
market share in a combination of existing and new end application areas under
the communications umbrella. These new releases build upon prior year
investments and product introductions that also serve to increase the number
of market opportunities we can address.
The quantity of product introductions emanating from the Group is set to
increase significantly as we move forward, and this has necessitated several
internal organisational and operational adjustments since the start of the
year. It is therefore essential to acknowledge the efforts being expended by
the whole team in that regard and its importance towards maximising our
chances of success in the future.
The Group is now addressing an annual serviceable market of over $1bn,
comprising a number of key growth areas including critical infrastructure
(public utilities, smart grid, RFID), 5G (repeaters, small/pico cells, fixed
wireless access, distributed antenna systems) and satellite communications
(terminals, broadband access). We remain in the early stages of penetrating
these new market areas but, based upon customer engagements and resulting
feedback, we expect to be successful in securing significant design-wins to
fuel our growth. Aside from technical performance and commercial
competitiveness, the focus on our customers' success and our inherent
partnership capabilities are key factors that bode well for the future of the
business.
CML has excellent routes to market and over recent years has invested
significant effort in ensuring sales channels globally were appropriate for
the direction of travel that the business was taking. Where possible, those
channels are being exploited to good effect as the release of new products
gathers pace, although the process is one of evolution and refinement, with
ongoing adjustments needed. Customer reach has been extended further through a
widening of the existing USA distributor agreement with RFMW to become a
global partner, along with the addition of several new manufacturers'
representatives in the Americas region.
Outlook
The year commenced with the business in a relatively strong position from
which to grow. Through the first six-month period, shipments into those
application areas most affected by the pandemic during the prior year have
begun to recover and, as we move forward, the operational effort being put
towards capturing the growth opportunities already identified should start to
bear fruit. Clearly headwinds remain, including the pandemic, geo-political
uncertainties and ongoing semiconductor capacity issues, however the
advancement the Group is making is encouraging.
Our organic growth prospects are exciting and should drive the business
forward over the short term, although an appropriate amount of effort is being
devoted to exploring the potential for acquisition opportunities that would
accelerate delivery of our objectives.
The foundations for expansion laid during previous years, coupled with the
energy and enthusiasm to succeed within the business, is starting to deliver
tangible results at the financial level. The Board remains confident that
continuing progress will be made through the second half of the year,
delivering a very positive outcome for the financial year as a whole.
Financial review
Total revenues for the first six-months of the financial year increased by 30%
over the comparable prior year period, totalling £8.00m (H1 FY21: £6.14m).
As already explained, several customers active in the Group's voice
communication markets have started to recover from the heavy impact of the
pandemic. Additionally, data-centric market sectors linked to IIoT and
machine-to-machine communications performed strongly.
The higher revenues drove a 29% uplift in gross profitability to £6.05m (H1
FY21: £4.70m). Gross margin as a percentage was relatively stable but is
expected to come under pressure as raw material price increases take effect.
To help counteract those pressures, it has been necessary to invoke price
increases across the Group's product range.
Geographically, sales were higher in each of the major regions serviced, with
the Far East showing the strongest growth in absolute terms. It is noteworthy,
however, that a number of the Group's customers make use of Asian
manufacturing partners for their production requirements and Group revenues
are classified geographically in terms of shipping destination.
Distribution and administration expenses increased to £5.59m (H1 FY21:
£5.26m) and include the costs associated with the move to an AIM listing from
the Main Market (£0.25m).
Other operating income rose to £0.56m (H1 FY21: £0.31m) and included a
one-off contribution of £0.28m from a pandemic related US government loan
that was ultimately forgiven (H1 FY21: £0m).
Profit from operations was £1.01m (H1 FY21: £0.30m loss) and, after
accounting for share-based payments and net finance income, the Group recorded
a profit before tax of £1.01m, against a loss of £0.30m for the prior year
first half.
Taxation was £0.20m compared to a slight credit during the comparable period,
leading to a diluted earnings per share of 4.87p being recorded (H1 FY21: loss
of 1.67p).
Adjusted EBITDA increased by 43% to £2.12m (H1 FY21: £1.48m).
Inventory levels increased slightly following the previously communicated
policy to maintain a higher level of raw material stocks commensurate with
current market dynamics. This strategy continues to help reduce the impact our
customers feel from ongoing capacity issues within the semiconductor market
generally. At 30 September 2021, inventory levels were £1.53m (H1 FY21:
£1.42m).
The Group has no debt and cash balances stood at £22.59m at 30 September 2021
(31 March 2021: net cash of £31.91m) following payment of a special dividend
of £8.30m during August 2021. Tight working capital control is being
maintained amidst the need to keep inventory levels appropriate.
R&D expenditure for the period was £2.27m (H1 FY21: £1.99m) reflecting
an increase in the number of new products being developed. In addition, and
linked to expansion of the product range, capital expenditure rose to £0.88m
due to necessary investment into additional final test and evaluation
equipment capable of handling higher radio frequencies (H1 FY21: £0.13m).
Chris Gurry
Group Managing Director
23 November 2021
Condensed consolidated income statement
for the six months ended 30 September 2021
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Continuing operations
Revenue 8,001 6,138 12,470
Cost of sales (1,951) (1,435) (3,197)
Gross profit 6,050 4,703 9,273
Distribution and administration costs (5,593) (5,263) (10,567)
457 (560) (1,294)
Other operating income 555 314 830
Profit/(loss) from operations 1,012 (246) (464)
Share-based payments (45) (80) (143)
Profit/(loss) after share-based payments 967 (326) (607)
Revaluation of investment properties - - 579
Finance income 57 40 75
Finance expense (13) (18) (37)
Profit / (loss) before taxation 1,011 (304) 10
Income tax (charge)/credit (202) 26 792
Profit/(loss) from continuing operations 809 (278) 802
Profit from discontinued operation - 1,069 22,762
Profit after taxation for period attributable to equity owners of the parent 809 791 23,564
The condensed consolidated income statement has been restated for unaudited
six months ended 30 September 2020 for the discontinued operation announced on
10 December 2020, where the Group had entered into a definitive agreement to
divest its Storage Division, Hyperstone. See note 13 for further details.
Earnings per share from continuing operations attributable to the ordinary
equity holders of the Company:
Basic earnings per share 4.87p (1.67)p 4.81p
Diluted earnings per share 4.80p (1.67)p 4.79p
Earnings per share from total operations attributable to the ordinary equity
holders of the Company (comparatives include discontinued operations):
Basic earnings per share 4.87p 4.74p 141.13p
Diluted earnings per share 4.80p 4.73p 140.56p
Adjusted EBITDA(1) 2,118 1,477 2,731
1. See note 12 for definition and reconciliation.
Condensed consolidated statement of total comprehensive income
for the six months ended 30 September 2021
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Profit for the period 809 791 23,564
Other comprehensive income/(expense):
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of benefit obligation - - (897)
Deferred tax on actuarial loss - - 170
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences 410 123 (312)
Reclassification of foreign exchange differences on discontinued operations - - (1,100)
Other comprehensive income/(expense) for the period net of taxation 410 123 (2,139)
attributable to the equity holders of the parent
Total comprehensive income for the period attributable to the equity holders 1,219 914 21,425
of the parent
Total comprehensive income for the year attributable to the equity owners of
the parent:
Continuing operations 1,219 (155) (237)
Discontinued operations - 1,069 21,662
1,219 914 21,425
Condensed consolidated statement of financial position
as at 30 September 2021
Unaudited Unaudited Audited
30/09/21 30/09/20 31/03/21
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 7,282 10,735 7,072
Other intangible assets 1,198 1,679 1,276
Development costs 10,727 17,999 9,191
Property, plant and equipment 5,576 4,903 4,864
Right-of-use assets 524 779 409
Investment properties 3,775 3,192 3,775
Investment - 83 -
Deferred tax assets 1,822 1,188 1,531
30,904 40,558 28,118
Current assets
Inventories 1,532 2,768 1,450
Trade receivables and prepayments 2,433 5,043 2,434
Current tax assets 1,479 787 1,046
Cash and cash equivalents 22,587 9,014 32,196
28,031 17,612 37,126
Total assets 58,935 58,170 65,244
Liabilities
Current liabilities
Bank loans and borrowings - 1,661 282
Trade and other payables 3,122 4,277 3,081
Lease liabilities 174 333 183
Current tax liabilities 42 224 80
3,338 6,495 3,626
Non-current liabilities
Deferred tax liabilities 3,207 5,145 2,339
Lease liabilities 220 382 262
Retirement benefit obligation 5,570 4,697 5,570
8,997 10,224 8,171
Total liabilities 12,335 16,719 11,797
Net assets 46,600 41,451 53,447
Capital and reserves attributable to equity owners of the parent
Share capital 863 859 859
Share premium 1,222 9,286 1,039
Capital redemption reserve 9 9 9
Treasury shares - own share reserve (1,670) (1,670) (1,670)
Share-based payments reserve 497 662 570
Foreign exchange reserve 712 1,837 302
Retained earnings 44,967 30,468 52,338
Total shareholders' equity 46,600 41,451 53,447
Condensed consolidated cash flow statement
for the six months ended 30 September 2021
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Operating activities
Profit/(loss) for the period before taxation - continuing operations 1,011 (304) 10
Profit for the period before taxation - discontinued operations - 1,075 22,762
Adjustments for:
Depreciation - on property, plant and equipment 171 192 370
Depreciation - on right-of-use assets 126 263 438
Impairment of development costs - - 701
Amortisation of development costs 673 2,988 3,789
Amortisation of intangibles recognised on acquisition and purchased 136 117 212
Loss/(profit) on disposal of property, plant and equipment - - 16
Revaluation of investment properties - - (579)
Gain on disposal of discontinued operations - - (21,740)
Movement in non-cash items (retirement benefit obligation and non-refundable 90 201
PPP loan)
(190)
Share-based payments 45 80 143
Finance income (57) (40) (75)
Finance expense 13 18 37
Movement in working capital (560) 695 1,388
Cash flows from operating activities 1,368 5,174 7,673
Income tax (paid)/received (118) 509 494
Net cash flows from operating activities 1,250 5,683 8,167
Investing activities
Disposal of business (net of expenses) - - 33,261
Acquisition of subsidiary, net of cash acquired - (100) (100)
Purchase of property, plant and equipment (882) (127) (390)
Investment in development costs (2,161) (3,834) (7,270)
Investment in intangibles - 25 25
Finance income 57 40 75
Net cash flows used in investing activities (2,986) (3,996) 25,601
Financing activities
Lease liability repayments (142) (302) (556)
Proceeds from bank loans and borrowings - 1,661 282
Issue of ordinary shares (net of expenses) 186 - 29
Purchase of own shares for treasury - (1,590) (1,590)
Dividends paid to shareholders (8,298) (343) (674)
Share capital redemption - - (8,276)
Finance expense 3 (16) (15)
Net cash flows used in financing activities (8,251) (590) (10,800)
Increase/(decrease) in cash and cash equivalents (9,987) 1,097 22,968
Movement in cash and cash equivalents:
At start of period/year 32,196 8,479 8,479
Increase/(decrease) in cash and cash equivalents (9,987) 1,097 22,968
Effects of exchange rate changes 378 (562) 749
At end of period 22,587 9,014 32,196
Cash flows presented exclude sales taxes. Further cash-related disclosure
details are provided in notes 6 and 7.
Changes in liabilities arising from financing activities relate to lease
liabilities and borrowings only.
Condensed consolidated statement of changes in equity
for the six months ended 30 September 2021
Unaudited Share Share Capital Treasury Share- Foreign Retained earnings Total
capital premium redemption shares based exchange £'000 £'000
£'000 £'000 reserve £'000 payments reserve
£'000 £'000 £'000
At 31 March 2020 859 9,286 9 (80) 582 1,714 30,020 42,390
Profit for period 791 791
Other comprehensive income net of taxes
Foreign exchange differences 123 123
Total comprehensive income for the period - - - - - 123 791 914
Transactions with owners in their capacity as owners
Dividend paid (343) (343)
Use of own shares for treasury (1,590) (1,590)
Total of transactions with owners in their capacity as owners - - - (1,590) - - (343) (1,933)
Share-based payment charge 80 80
At 30 September 2020 859 9,286 9 (1,670) 662 1,837 30,468 41,451
Profit for period 22,773 22,773
Other comprehensive income net of taxes
Foreign exchange differences (435) (435)
Reclassification of foreign exchange differences on discontinued operations (1,100) (1,100)
Re-measurement of defined benefit obligations (897) (897)
Deferred tax on actuarial loss 170 170
Total comprehensive income for the period (1,535) (727) (2,262)
- - - - -
Transactions with owners in their capacity as owners
Issue of ordinary shares - exercise of share options 29 29
Share capital redemption (8,276) (8,276)
Dividend paid (331) (331)
Total of transactions with owners in their capacity as owners - (8,247) (331) (8,578)
- - - -
Share-based payment charge 63 63
Cancellation/transfer of share-based payments (155) 155 -
At 31 March 2021 859 1,039 9 (1,670) 570 302 52,338 53,447
Unaudited Share Share Capital Treasury Share- Foreign Retained earnings Total
capital premium redemption shares based exchange £'000 £'000
£'000 £'000 reserve £'000 payments reserve
£'000 £'000 £'000
At 31 March 2021 859 1,039 9 (1,670) 570 302 52,338 53,447
Profit for period 809 809
Other comprehensive income net of taxes
Foreign exchange differences 410 410
Total comprehensive income for the period - - - - - 410 809 1,219
Transactions with owners in their capacity as owners
Issue of ordinary shares - exercise of share options 4 183 187
Dividend paid (8,298) (8,298)
Total of transactions with owners in their capacity as owners 4 183 - - - - (8,298) (8,111)
Share-based payments 45 45
Cancellation/transfer of share-based payments (118) 118 -
At 30 September 2021 863 1,222 9 (1,670) 497 712 44,967 46,600
Notes to the condensed consolidated financial statement
for the six months ended 30 September 2021
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 (Chris Gurry). The measurement policies the
Group uses for segmental reporting under IFRS 8 are the same as those used in
its financial statements.
The Group is focused for management purposes on one primary reporting segment,
being the semiconductor segment, with similar economic characteristics, risks
and returns and the Directors therefore consider there to be one single
segment, being semiconductor components for the communications industry.
Geographical segments (by origin)
Unaudited UK Rest Americas Far East Total
£'000 of Europe £'000 £'000 £'000
£'000
Six months ended 30 September 2021
Revenue to third parties - by origin 1,837 - 916 5,248 8,001
Property, plant and equipment 5,475 - 17 84 5,576
Right-of-use assets 100 - 226 198 524
Investment properties 3,775 - - - 3,775
Development costs 9,175 - - 1,552 10,727
Intangible assets - software and
intellectual property 254 - - 98 352
Goodwill 1,531 - - 5,751 7,282
Other intangible assets arising on acquisition 197 - - 649 846
Total assets 46,109 - 1,606 11,220 58,935
Unaudited UK Rest Americas Far East Total
£'000 of Europe £'000 £'000 £'000
£'000
Six months ended 30 September 2020
Revenue to third parties - by origin 3,100 - 829 2,209 6,138
Property, plant and equipment 4,662 175 - 66 4,903
Right-of-use assets 108 174 357 140 779
Investment properties 3,192 - - - 3,192
Development costs 6,629 10,298 - 1,072 17,999
Intangible assets - software and
intellectual property 550 - - - 550
Goodwill 1,531 3,512 - 5,692 10,735
Other intangible assets arising on acquisition - - - 1,129 1,129
Total assets 24,443 17,831 2,127 13,769 58,170
Audited UK Rest Americas Far East Total
£'000 of Europe £'000 £'000 £'000
£'000
Year ended 31 March 2021
Revenue to third parties - by origin 5,867 - 1,624 4,979 12,470
Property, plant and equipment 4,753 - 22 89 4,864
Right-of-use assets 90 - 255 64 409
Investment properties 3,775 - - - 3,775
Development costs 7,942 - - 1,249 9,191
Intangible assets - software and intellectual property 264 - - 101 365
Goodwill 1,531 - - 5,541 7,072
Other intangible assets arising on acquisition 210 - - 701 911
Total assets 52,228 - 2,467 10,549 65,244
Revenue
The geographical classification of business turnover (by destination) is as
follows:
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Europe 1,927 1,259 2,996
Far East 4,837 3,718 7,005
Americas 986 926 2,000
Other 251 235 469
8,001 6,138 12,470
The operational classification of business turnover (by market) is as follows:
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Semiconductor 7,652 5,694 11,622
Design and development 349 444 848
8,001 6,138 12,470
Semiconductor products, goods and services are transferred at a point in time,
design and development over the period of the contract on a percentage basis
of contract completion, as detailed in the Group's revenue recognition policy
within its published Annual Report.
The Group does not have any contract assets at 30 September 2021 (£Nil at 31
March 2021) as the Group does not fulfil any of its performance obligations in
advance of invoicing to its customer. The Group however does have contractual
balances in the form of trade receivables. See note 21 for disclosure of this
in the Annual Report and Accounts for year ended 31 March 2021. The Group does
not have any contractual liabilities at 30 September 2021 (£Nil at 31 March
2021).
The Group also does not have any contractual costs capitalised or any
outstanding performance obligations at 30 September 2021 and 31 March 2021.
2 Dividend paid and interim dividend
The Board is declaring an interim dividend of 4.0p per ordinary share of 5p
for the half year ended 30 September 2021, payable on 17 December 2021 to
shareholders on the Register on 3 December 2021.
A final special dividend of 50.0p per ordinary share of 5p was paid on 13
August 2021 and an interim dividend of 2.0p per ordinary share of 5p was paid
on 18 December 2020, totalling 52.0p per ordinary share of 5p paid for the
year ended 31 March 2021 (2020: 2.0p per ordinary share of 5p paid for the
year ended 31 March 2020).
3 Income tax expense/(credit)
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
UK income tax credit (461) (495) (1,126)
Overseas income tax charge 89 141 248
Total current tax credit (372) (354) (878)
Deferred tax charge 574 328 86
Reported income tax charge/(credit) 202 (26) (792)
The Directors consider that tax will be payable at varying rates according to
the country of incorporation of its subsidiary undertakings and have provided
on that basis.
The tax charge for the six months ended 30 September 2021 has been calculated
by applying the effective tax rate which is expected to apply to the Group for
the year ended 31 March 2022, using rates substantially enacted by 30
September 2021 as required by IAS 34 - Interim Financial Reporting.
4 Earnings per share
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Earnings per share from continuing operations attributable to the ordinary
equity holders of the Company:
Basic earnings per share 4.87p (1.67)p 4.81p
Diluted earnings per share 4.80p (1.67)p 4.79p
Earnings per share from total operations attributable to the ordinary equity
holders of the Company (comparatives include discontinued operations):
Basic earnings per share 4.87p 4.74p 141.13p
Diluted earnings per share 4.80p 4.73p 140.56p
The calculation of basic and diluted earnings per share is based on the profit
attributable to ordinary shareholders divided by the weighted average number
of shares in issue during the year, as explained below:
Ordinary 5p shares
Weighted average Diluted
number number
Six months ended 30 September 2021 16,608,977 16,855,132
Six months ended 30 September 2020 16,692,935 16,718,813
Year ended 31 March 2021 16,696,060 16,763,946
5 Investment properties
Investment properties are measured at fair value and are revalued annually by
the Directors and in every third year by independent Chartered Surveyors on an
open market basis. No depreciation is provided on freehold investment
properties or on long leasehold investment properties. In accordance with IAS
40, gains and losses arising on revaluation of investment properties are shown
in the income statement. At 31 March 2021 the investment properties were
professionally valued by Fenn Wright and Lambert Smith Hampton, Commercial
Property Consultants, on an open market basis.
6 Cash and cash equivalents
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 £'000 £'000
Cash on deposit 16,869 4,183 20,438
Cash at bank 5,718 4,831 11,758
22,587 9,014 32,196
7 Bank loans and borrowings
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 £'000 £'000
Bank loan - 1,661 -
Borrowings - - 282
- 1,661 282
8 Retirement benefit obligations
The Directors have not obtained an actuarial IAS 19 Employee Benefits report
in respect of the defined benefit pension scheme for the purpose of this Half
Yearly Report.
9 Principal risks and uncertainties
Key risks of a financial nature
The principal risks and uncertainties facing the Group are with foreign
currencies and customer dependency. With the majority of the Group's
earnings being linked to the US Dollar, a decline in this currency will have a
direct effect on revenue, although since the majority of the cost of sales
are also linked to the US Dollar, this risk is reduced at the gross profit
line. Additionally, though the Group has a very diverse customer base in
certain market sectors, key customers can represent a significant amount of
revenue. Key customer relationships are closely monitored, however changes in
buying patterns of a key customer could have an adverse effect on the Group's
performance.
Key risks of a non-financial nature
The Group is a small player operating in a highly competitive global market
that is undergoing continual and geographical change. The Group's ability to
respond to many competitive factors including, but not limited to, pricing,
technological innovations, product quality, customer service, raw material
availabilities, manufacturing capabilities and employment of qualified
personnel will be key in the achievement of its objectives. The Group's
ultimate success will depend on the demand for its customers' products since
the Group is a component supplier.
A substantial proportion of the Group's revenue and earnings are derived from
outside the UK and so the Group's ability to achieve its financial objectives
could be impacted by risks and uncertainties associated with local legal
requirements (including the UK's withdrawal from the European Union, or
"Brexit"), political risk, the enforceability of laws and contracts, changes
in the tax laws, terrorist activities, natural disasters or health epidemics.
COVID-19
During the pandemic the Group has ensured that its critical infrastructure,
resources and activities are organised to provide continuity of our operations
which has enabled us to implement a responsive approach to COVID-19 with all
non-essential operational employees working from home.
The Group is following the guidance of the World Health Organization and other
government health agencies and has implemented a return-to-work strategy which
is closely monitored to enable prudent steps to be mitigated in case of
further potential impacts to our employees, customers, suppliers and other
stakeholders. The Group continues to carry out regular assessments of the
modelled scenarios based on management's current understanding of potential
income and mitigating actions within the control of management, including
reductions in discretionary spend along with tighter internal controls, but no
fixed costs reductions have been assumed.
Given the nature of the markets we operate within, we anticipate the majority
of our end customers being insulated from a consumer downturn to some extent,
although the roll-out of some of the new products may be delayed, dampening
demand for our semiconductors. Despite these difficult times, we still
maintain the belief that the Group is well placed to move positively forward
in the medium to long term. This belief is underpinned by a strong balance
sheet and no debt, along with a product portfolio that addresses markets that
have a positive outlook.
10 Directors' statement pursuant to the Disclosure and Transparency Rules
The Directors confirm that, to the best of their knowledge:
· the condensed set of financial statements have been prepared on a
consistent basis with the financial statements for the year ended 31 March
2021 and should be read in conjunction with the FY21 Annual Report and
Accounts. The annual consolidated financial statements of the Group are
prepared in accordance with IFRS and IFRIC pronouncements as adopted by the
EU;
· the condensed set of financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
· the Chairman's Statement and Group Managing Director's Operational and
Financial Review include a fair review of the development and performance of
the business and the position of the Company, and the undertakings included in
the consolidation taken as a whole together with a description of the
principal risks and uncertainties that they face.
The Directors are also responsible for the maintenance and integrity of the
CML Microsystems Plc website. Legislation in the UK governing the preparation
and dissemination of the financial statements may differ from legislation in
other jurisdictions.
11 Basis of preparation
The basis of preparation and accounting policies used in preparation of this
Half Year Report have been prepared in accordance with the same accounting
policies set out in the year ended 31 March 2021 financial statements.
12 Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and amortisation
("Adjusted EBITDA") is defined as profit from operations before all interest,
tax, depreciation and amortisation charges and before share-based payments.
The following is a reconciliation of the Adjusted EBITDA for the three periods
presented:
Unaudited Unaudited Audited
6 months end 6 months end year end
30/09/21 30/09/20 31/03/21
£'000 Restated £'000
£'000
Profit/(loss) before taxation (earnings) 1,011 (304) 10
Adjustments for:
Finance income (57) (40) (75)
Finance expense 13 18 37
Depreciation 171 151 310
Depreciation - right-of-use assets 126 138 202
Impairment of development costs - - 701
Amortisation of development costs 673 1,317 1,191
Amortisation of intangibles of purchased and
acquired intangibles recognised on acquisition 136 117 212
Share-based payments 45 80 143
Adjusted EBITDA 2,118 1,477 2,731
13 Disposal of the Storage Division
The Company announced on 5 February 2021 that it had successfully completed
the sale of Hyperstone, the Group's Storage Division ("the Disposal"), for
US$49m. The Disposal had not been previously reported in the unaudited
accounts ended 30 September 2020, these results have been restated to take
this into account. In the audited accounts ended 31 March 2021 this was
reported as a discontinued operation.
This reflected a deliberate decision made by the Board to refocus exclusively
on the global communications market, with all efforts directed at capturing
the exciting growth opportunities that it presents.
Financial information relating to the discontinued operation for the period to
the date of disposal and unaudited accounts ended 30 September 2020 is set out
below.
Unaudited Audited
6 months end year end
30/09/20 31/03/21
£'000 £'000
Revenue 6,763 9,505
Cost of sales (2,191) (3,043)
Gross profit 4,572 6,462
Distribution and administration (3,478) (5,396)
1,094 1,066
Other operating income 7 8
Profit from operation 1,101 1,074
Finance income - -
Finance expenses (26) (42)
Profit before tax 1,075 1,032
Income tax expense (6) (10)
Profit after income tax of discontinued operation 1,069 1,022
Gain on sale of subsidiary after income tax - 21,740
Profit from discontinued operation 1,069 22,762
Further information can be found in the Annual Report and Accounts ended 31
March 2021 which can be viewed on the Company website: www.cmlmicroplc.com
(http://www.cmlmicroplc.com) or obtained from Companies House.
14 Move to the AIM Market of the London Stock Exchange ("AIM")
The Company announced on 25 June 2021 the proposed cancellation of the listing
of the Company's ordinary shares of 5p each on the standard segment of the
London Stock Exchange's main market for listed securities and its intention to
apply for the admission of the ordinary shares to trading on AIM. This was
approved at the AGM on 4 August 2021, with the effective date of the
Cancellation and Admission taking place on the 3 September 2021. Within the
unaudited six months ended 30 September 2021 a cost of £248,000 is
attributable to this move.
15 General
Other than already stated within the Chairman's Statement and Group Managing
Director's Operational and Financial Review, there have been no important
events during the first six months of the financial year that have impacted
this Half Yearly Report.
There have been no related party transactions or changes in related party
transactions described in the latest Annual Report that could have a material
effect on the financial position or performance of the Group in the first six
months of the financial year.
The principal risks and uncertainties within the business are contained within
this report in note 9 above.
This Half Yearly Report does not include all the information and disclosures
required in the Annual Report and should be read in conjunction with the
consolidated Annual Report for the year ended 31 March 2021.
The financial information contained in this Half Yearly Report has been
prepared in accordance with UK adopted International Accounting Standards.
This Half Yearly Report does not constitute statutory accounts as defined by
Section 434 of the Companies Act 2006. The financial information for the year
ended 31 March 2021 is based on the statutory accounts for the financial year
ended 31 March 2021 that have been filed with the Registrar of Companies and
on which the auditor gave an unqualified audit opinion.
The auditor's report on those accounts did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006. This Half Yearly Report has
not been audited or reviewed by the Group auditor.
A copy of this Half Yearly Report can be viewed on the Company website:
https://www.cmlmicroplc.com (https://www.cmlmicroplc.com) .
16 Approvals
The Directors approved this Half Yearly Report on 23 November 2021.
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